Page 1
Table of
Contents
04 About Killam
05 Letter to Unitholders
08 Financial & Operating Highlights
12 Executing on Killam’s Growth Strategy
20 Environmental, Social & Governance Update
23 Management’s Discussion & Analysis
82 Financial Statements
120 Five-Year Summary
121
Executive Team
“The key to
our continued
success is creating
strong customer
relationships and
delivering value
through well-
maintained and
environmentally
responsible
properties.”
- Philip Fraser
Frontier, Ottawa, ON
Page 3
8%
3%
24%
NOI by Province
5%
6%
20%
34%
About
Killam
Killam Apartment REIT (Killam)
is one of Canada’s largest
residential real estate investment
trusts, owning, operating, and
developing apartments and
manufactured home communities
(MHCs). Killam’s real estate
portfolio is located in Atlantic
Canada, Ontario, Alberta, and
British Columbia.
Net Operating
Income (NOI)
By Segment
Apartments
MHCs
89%
6%
5%
Commercial
Killam’s Five
Core Values
Killam’s five Core Values
are the foundation of our
strong, vibrant culture. We are
committed to these values in
all aspects of our business.
Spring Garden Terrace, Halifax, NS
Build
Community
Creative
Solutions
Do the
Right Thing
Curb
Appeal
Strong Customer
Relationships
Page 4
Letter to Unitholders
““
Philip Fraser
President and CEO
LETTER TO UNITHOLDERS
Dear Unitholder,
I am pleased to report Killam’s financial and operating highlights for 2022. This year, Killam celebrated its 20th
anniversary on February 21, 2022. During the year, we made progress on all our strategic targets, including
growing our portfolio through new acquisitions and completing three developments in Ontario. We achieved
4.7% same property NOI growth and earned $1.11 per unit in funds from operations (FFO), a 3.7% increase from
$1.07 in 2021. We recorded positive results across all business segments, including 6.0% same property NOI growth
in our MHC portfolio and 7.9% same property NOI growth at our commercial properties. Our success would not be
possible without our talented team operating across the country.
Notwithstanding our many achievements, Killam’s unit price declined in 2022 and unitholders’ total return was
(28%). Killam’s performance was aligned with most Canadian real estate companies and real estate investment
trusts (REITs), as the Canadian REIT Index delivered a (17%) return in 2022, due primarily to interest rate increases.
This performance followed the REIT sector’s second-best year in 2021, a year in which Killam achieved a 41% total
return for unitholders.
Adapting to an evolving economic landscape
Multi-family market fundamentals in Canada are the strongest we have seen in 20 years. Killam achieved its
highest occupancy level in its operating history, ending the year at 98.3% occupancy, and recording the lowest
tenant turnover rate at 22%, down from our pre-COVID turnover rate of approximately 33%.
In 2022, Canada welcomed 493,000 new immigrants, up from 226,000 in 2021 and 284,000 in 2020. Over the last
three years, Canada’s population has increased by over 1.5 million after accounting for international students and
seasonal workers. According to Statistics Canada, Halifax was the second-fastest growing region in the country
last year at 4.4%, just behind Moncton’s impressive 5.4% population growth. Not only are Atlantic Canadian cities
growing at record rates, but age cohorts are trending younger, as people move to the region from within Canada
and internationally. Killam is experiencing unprecedented demand for apartments in all of its Canadian markets as
a result of the increasing population.
Our manufactured housing business also reported strong performance during 2022. Killam’s seasonal resorts
outperformed previous years as Canadians chose local and affordable summer vacation destinations, benefitting
Killam’s communities throughout Ontario and New Brunswick.
Page 5
Increasing the supply of housing and maintaining affordability for Canadians
While we recognize the strong industry fundamentals, we must acknowledge the looming housing supply
and affordability crisis in Canada. As many suggest, it is imperative that we build “more housing of all kinds” to
reduce the current supply and demand imbalance. Affordability is the other element that must be discussed
in conjunction with the housing supply crisis; however, with the multi-family rental market at an unhealthy 2%
national vacancy rate, rent control is not the solution. The majority of existing rental units in Canada are under rent
control, with the three most populous provinces – Ontario, Quebec and BC – accounting for 75% of the Canadian
rental market. Including Manitoba and PEI, almost 80% of the country is under rent control. Over the last three
years, these provinces have averaged an allowable 1.4% rent increase per year for tenants remaining in the same
apartment unit. This means the rent for tenants who have remained in their units has increased less than the cost
of inflation. Conversely, for those looking to move to a new or existing building, rents are substantially higher due
to the supply and demand imbalance and the rising cost of construction.
With property taxes increases, government-owned water utilities and regulated electric utilities continuing to
rise at the rate of inflation, and HST applicable to multi-family housing, all expenses associated with all three
levels of government now account for more than 62% of Killam’s operating costs and negatively impact housing
affordability in the country.
Killam’s average rent per unit at the end of 2022 was $1,289 per month for our 19,500 units. We have 52% of our
units with monthly rents under $1,200. Moreover, 64% of our portfolio meets the Canadian Mortgage and Housing
Corporation (CMHC) definition of affordability, with monthly rents less than 30% of the respective markets’ median
household income.
This includes 850 deeply subsidized apartment units that we provide through
partnerships with non-profit organizations. In addition, we have recently increased
our commitment to provide affordable units by utilizing the CMHC MLI select
program, adding an additional 310 units as long-term affordable units.
The development of new housing is a key factor in solving the housing crisis and
remains a fundamental component of Killam’s growth strategy. Killam’s commitment
to new developments distinguishes us from our peers and allows us to grow our
portfolio in strong markets, while adding new energy efficiencies and smart building
technology. In 2022, we completed three developments in the Ontario region: The
Kay, a 128-unit property in Mississauga; Latitude, a 208-unit building in Ottawa;
and Luma, a 168-unit building also in Ottawa. These developments are exceptional
additions to Killam’s portfolio and will contribute positively to our earnings growth.
We finished the year with three developments under construction. The Governor, in
Halifax, and Civic 66, in Kitchener, are both expected to be completed in mid-2023.
The Carrick, in Waterloo, is expected to be completed in late 2024. Killam is also
working on planning entitlements for a number of infill development opportunities
associated with properties purchased specifically for that purpose, as well as on
existing rental properties where additional density can be achieved through the
planning process. We are currently working on long-term planning for large
redevelopment sites in Halifax and Waterloo to build between 3,000 and 4,000 units.
We are also designing and working on near-term planning approval for several 100
to 200-unit developments in those same markets. This pipeline will provide many
years of internal growth for Killam.
(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 26 and 52, respectively.
(2) Represents Killam’s ownership interest.
(3) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 26.
(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 26.
3.7%
Growth in FFO per Unit(1)
3.3%
Growth in AFFO per Unit(1)
$152M
Completed Developments(2)
4.7%
Same Property NOI Growth(3)
45.3%
Total Debt as a Percentage
of Total Assets(4) as at
Dec. 31, 2022
Page 6
Letter to Unitholders
Inclusive and sustainable growth
At Killam, our Environmental, Social, and Governance (ESG) priorities are embedded in our business strategy and
reflect our commitment to a more inclusive and sustainable future.
During the year, we continued to invest in Killam’s greatest asset – our employees. We prioritize employee
retention and talent development, invest in employee mental health and wellness support, and focus on creating
a diverse and inclusive workplace where our colleagues can thrive. Our core values emphasize the importance of
sustainable practices, corporate social responsibility, and the overall well-being of employees and residents. We
are committed to these values in all aspects of our business.
Our energy efficiency investments totaled $8.5 million in 2022. This includes 12 additional solar photovoltaic
installations, 114 Level II electric vehicle charging stations, boiler and heat pump replacements, electricity
and water conservation projects. We are proud this investment also includes geothermal heating and cooling
installations at two of our developments, The Kay and Civic 66. These advanced green initiatives will reduce
Killam’s environmental impact and mitigate our exposure to volatile energy costs.
In 2022, we continued to strengthen our public disclosure reporting under the Task Force on Climate-Related
Financial Disclosure (TCFD) framework. We are performing a holistic assessment to identify Killam’s exposure to
climate-related risks and opportunities, and we continue on our journey to be TCFD-aligned by 2024. This analysis
is essential for Killam to transition to a net-zero economy in the future, and will drive targeted action and decision-
making.
Our ESG accomplishments for the year are highlighted on page 21 of this report.
Killam forward
Killam is in a solid financial position as a result of the strength of our stable income-producing portfolio and our
team of experienced professionals.
We are committed to being an ESG leader, nurturing a culture of diversity and inclusion, developing quality
purpose-built rentals, and investing in initiatives to improve operating efficiency. As we move forward, we remain
committed to delivering clean, safe, quality housing to tenants who are proud to call our properties home. I want
to thank our Killam team across the country for their hard work, our residents for choosing Killam for their home,
and our unitholders for their continued support.
We recognize that Canadians will rely on us more than ever, and Killam will be there for our residents and
communities as reputable and responsible corporate citizens.
Killam’s annual unitholders’ meeting will be held on May 5, 2023, at 9:00 AM Atlantic Time at the Courtyard by
Marriott, 5120 Salter Street, Halifax, Nova Scotia.
Thank you for your support and investment in Killam.
Yours truly,
Philip Fraser
President & CEO
Page 7
2022 Highlights
(Values in thousands, except per unit amount and portfolio information)
As at and for the years ended
2022
2021
2020
Operations
Property revenue
Net operating income (NOI)
Net income
$328,847
$290,917
$261,690
$206,912
$183,235
$163,854
$122,532
$285,527
$146,040
Funds from operations (FFO)(1)
$132,603
$119,235
$104,678
FFO per unit (diluted)(1)
$1.11
$1.07
$1.00
Adjusted funds from operations (AFFO)(2)
$111,557
$100,438
$86,816
AFFO per unit (diluted)(2)
Distributions declared per unit
AFFO payout ratio(2)
$0.93
$0.70
75%
$0.90
$0.69
76%
$0.83
$0.68
82%
Financial Position
Total assets
Total liabilities
Total equity
Units outstanding(3)
Total debt as a percentage of total assets(4)
Interest coverage ratio(5)
Debt to normalized EBITDA(5)
$4,859,530
$4,578,507
$3,776,560
$2,586,199
$2,467,038
$2,008,302
$2,273,331
$2,111,469
$1,768,258
120,699
114,562
107,314
45.3%
3.31x
11.21x
45.0%
3.53x
11.33x
44.6%
3.36x
10.78x
Portfolio Information
Apartment units
MHC sites
Commercial square footage
Average rent per apartment suite
Average rent per MHC site
19,527
5,975
18,685
5,875
17,048
5,875
946,372
941,000
750,000
$1,289
$290
$1,228
$283
$1,184
$260
Luma Ottawa, ON
Luma Ottawa, ON
Luma Ottawa, ON
(1) FFO, and applicable per unit amounts, are calculated by Killam as net income adjusted for fair value gains (losses), interest expense related to exchangeable units, gains (losses) on disposition,
deferred tax expense (recovery), unrealized gains (losses) on derivative liability, internal commercial leasing costs, depreciation on an owner-occupied building, interest expense related to lease
liabilities, and non-controlling interest. FFO is calculated in accordance with the REALPAC definition. A reconciliation between net income and FFO is included on page 52.
(2) AFFO, and applicable per unit amounts and payout ratios, are calculated by Killam as FFO less an allowance for maintenance capital expenditures (“capex”) (a three-year rolling historical
average capital investment to maintain and sustain Killam’s properties), commercial leasing costs and straight-line commercial rents. AFFO is calculated in accordance with the REALPAC definition.
Management considers AFFO an earnings metric. A reconciliation from FFO to AFFO is included on page 52.
(3) Units outstanding at December 31, 2022, include 116,800,552 REIT units and 3,898,020 exchangeable units.
(4) Total debt as a percentage of total assets is a capital management measure. For a full description of total debt as a percentage of total assets, see page 26.
(5) Interest coverage ratio and debt to normalized EBITDA are non-IFRS financial ratios. For a full description and reconciliation of non-IFRS measures, see pages 26 and 57, respectively.
Page 8
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Financial & Operating Highlights
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Luma Ottawa, ON
18 19 20 21 22
18 19 20 21 22
18 19 20 21 22
18 19 20 21 22
18 19 20 21 22
18 19 20 21 22
Funds from
Operations per
Unit (diluted)(1)
Value of Real
Estate Portfolio
($billions)
Total Debt as a
Percentage of
Total Assets(2)
Operating
Margin (%)
Total Same Property
Revenue Growth (%)
Distribution per
Unit to Unitholder
(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 52.
(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 26.
Saginaw Park, Cambridge, ON
Luma Ottawa, ON
Luma Ottawa, ON
Page 9
2022
Performance
Grow Same Property
NOI(1)
Killam achieved 4.7% same property NOI(1) growth.
(1) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 26.
Expand the Portfolio
through Acquisitions
Diversify
Geographically
Develop High-Quality
Properties
Strengthen the
Balance Sheet
Improve
Sustainability
Killam grew its portfolio by $118.6 million in 2022, with acquisitions in Halifax, Waterloo,
Guelph, Victoria, and Courtenay. Management made the decision to slow its acquisition
program in the latter half of 2022 due to rising interest rates and increased economic
uncertainty.
Killam generated 35.8% of NOI outside Atlantic Canada.
Killam completed three developments in 2022: Latitude, The Kay and Luma. The
Governor, a 12-unit building located in Halifax, is expected to be completed in mid-2023.
Killam also broke ground on The Carrick, a 139-unit building in Waterloo, ON, and the
second phase of Nolan Hill in Calgary.
Killam’s debt as a percentage of total assets(2) was 45.3% at December 31, 2022. The
increase in the ratio is attributable to: a higher balance on Killam’s credit facilities related to
acquisitions during the year; and the recognition of a fair value write-down ($19.9 million)
on investment properties following a moderate expansion of cap-rates in the latter part of
the year.
(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 26.
Killam invested $8.5 million in energy-efficiency projects.
Page 10
Financial & Operating Highlights
2023
Strategic Targets
Same Property NOI Growth(1)
Average 3.0% - 5.0%.
Capital Recycling
Recycle a minimum of $100 million in non-core assets.
Geographic Diversification
Earn at least 36% of 2023 NOI outside Atlantic Canada.
Development of High-Quality Properties
Complete construction of two development projects
and break ground on one additional development.
Strengthened Balance Sheet(2)
Reduce debt as a percentage of total assets ratio below 45%.
Sustainability
Invest a minimum of $8.0 million in energy initiatives.
(1) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 26.
(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 26.
Page 11
(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 26.
Growing
Earnings
Through
Existing
Portfolio
Growing earnings from our asset base is an
important part of our strategy to maximize
long-term value for our unitholders. Killam
had a successful year of record-high
occupancy and positive rental rate growth
on suite turns in 2022, buoyed by strong
population growth and demand out-pacing
the housing supply.
Killam generated 5.0% revenue growth from
our same property portfolio in 2022. Despite
inflationary headwinds resulting in above-
average expense growth, we achieved 4.7%
overall same property NOI growth(1) in 2022,
exceeding our original target for the year.
Killam’s suite repositioning program
continued to meet market demand for new,
high-quality finishes across the portfolio.
Over the years, we have developed an
efficient, fine-tuned upgrade process
with the ability to reposition most units
within 28 days, providing residents with
industry-leading 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 26.
315 Heritage Dr, Waterloo, ON
Crossing at Belmont, Victoria, BC
180 Mill, London, ON
Page 12
Quinpool Towers
Killam invested $3.2 million in common area upgrades
at Quinpool Towers, a 233-unit building located on the
Halifax Peninsula. We identified the opportunity to deliver
expanded amenity space for our residents, including utlizing
and renovating historically unused vacant space on the
second level to create a social room and a board room. A
fitness center was also added on the ground floor. These
renovations have been well received by residents and are
expected to contribute to record demand for the property in
the coming year.
%
6
3
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.
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.
Executing on Killam’s Growth Strategy
Same Property
Apartment Average
Rental Rate Growth(1)
Killam produced healthy
same property apartment
average rental rate growth
of 3.7%. 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 26.
Same Property
Apartment
Occupancy
Killam’s same property
apartment portfolio achieved
record-high occupancy of
98.3% in 2022. Occupancy
is strong throughout our
portfolio across the country.
Social Room | Quinpool Towers, Halifax, NS
18 19 20 21 22
%
1
5
.
%
7
4
.
%
8
4
.
%
1
4
.
%
3
2
.
18 19 20 21 22
Same Property Net
Operating Income
Growth(2)
Same property NOI increased
4.7% in 2022 due to overall
revenue growth of 5.0% and
expense increase of 5.4%.
Killam’s 2022 same property
operating margin was 63.3%.
(2) Same property NOI growth is a
supplementary financial measure.
For a full description of same
property metrics, see page 26.
Page 13
Fitness Centre | Quinpool Towers, Halifax, NS
2022
Acquisitions
$70M
In 2022, Killam completed $119
million in acquisitions during the
first half of the year, expanding our
portfolio in Halifax, Waterloo, Guelph
and on Vancouver Island. We slowed
acquisition activity during the second
half of the year, following rapidly
rising interest rates and increasing
economic uncertainty.
2022 Acquisitions
Across Canada
$37M
$12M
We continue to be active in identifying potential acquisitions that will complement our existing portfolio; however, we have
a highly selective acquisition approach and are prepared to be patient as we navigate the current economic environment.
1876 Riverside Dr, Courtenay, BC
621 Crown Isle Blvd, Courtenay, BC
Page 14
Executing on Killam’s Growth Strategy
2022
Developments
$152 million of developments completed in 2022(1)
Developing high-quality properties in our core markets is an important component of our long-term growth strategy.
Since starting our development program in 2010, Killam has completed over $450 million in development projects,
totaling more than 1,700 units in 16 development projects.
Killam advanced its development pipeline in 2022 with the completion of three properties totaling $152 million(1) –
the largest year of development completions in Killam’s history. The Kay, a 128-unit building in Mississauga, opened
to residents in April and was fully leased by August. With our partner, we completed two additional developments in
Ottawa: Latitude, a 208-unit building, and Luma, a 168-unit building. These Ottawa developments are also experiencing
strong initial lease-up activity, and the three completed developments are expected to contribute to NOI and FFO
growth in the coming year.
32
Ontario
1
Developments completed in 2022 have added an additional
500 units to Killam’s portfolio outside of Atlantic Canada.
1
The Kay,
Mississauga
2
Luma,
Ottawa
3
Latitude,
Ottawa
(1) Represents Killam’s ownership interest.
Page 15
The Kay
The Kay opened in April 2022 and includes many energy-efficient technologies, such as geothermal heating
and cooling systems, optimal window glazing and insulation, electric vehicle charging stations, and separately
metered water and hydro.
Q2-2022
Completion
128
Units
$60.0M
Cost
100%
Occupancy
Page 16
Latitude
Latitude is the second phase of a four-phase development by Killam
and RioCan REIT, located in the east end of Ottawa. The property
offers extensive amenity space and includes green features, such as
geothermal heating and cooling, and submetered water and hydro.
Executing on Killam’s Growth Strategy
Q1-2022
Completion
208
Units
$43.5M
Cost(1)
50%
Interest
Luma
Luma, developed in partnership with RioCan REIT, is located in Ottawa and provides
17,500 square feet of resident amenity space, including a fitness centre
and yoga studio, a library, and a common entertainment room.
Q2-2022
Completion
168
Units
$48.0M
Cost(1)
50%
Interest
(1) Represents Killam’s 50% ownership interest.
Page 17
Developments
Underway
At the close of 2022, Killam had
three developments in progress
in Halifax, Waterloo, and Kitchener,
which will contribute an additional
320 high-quality units to Killam’s
portfolio. Killam has an experienced
development team and a pipeline
of high-quality development
opportunities across Canada that
will continue to be a significant
lever for our earnings growth and
value creation.
Civic 66, Kitchener, ON
Page 18
Civic 66, Kitchener, ON
Executing on Killam’s Growth Strategy
Governor, Halifax, NS
The Carrick, Waterloo, ON
Q2-2023
Completion
169
Units
$69.7M
Cost
Q2-2023
Completion
12
Units
$24.3M
Cost
2024
Completion
139
Units
$83.5M
Cost
Page 19
Forward
From the Chair of the
Governance and ESG Committee
“Killam is dedicated to advancing its Environmental, Social, and Governance practices. In 2022, Killam progressed towards
its long-term sustainability targets. We are proud of our efforts to decrease Killam’s environmental footprint, uphold
best practice governance, and foster sustainable economic growth. Killam’s targets are established with the intention
of creating a meaningful impact on our communities, and encompass initiatives which include a focus on reducing
greenhouse gas emissions (GHG) and prioritizing resident satisfaction and employee engagement. These practices are not
only the right thing to do, but fundamentally drive good business and sustainable growth.
Looking ahead, we will keep learning and evolving as we continue to develop our sustainability program. Killam is
committed to improving disclosure and is focused on implementing a net zero plan in the years ahead. We look forward
to issuing Killam’s 2022 ESG report in May 2023, and we invite you to read our most recent ESG disclosure on our website,
which highlights the green initiatives that we have implemented across our business.”
– Manfred Walt, Trustee and Chair, Killam’s Governance and ESG Committee
Our ESG Targets
Environmental
Long-Term Targets
• Reduce GHG emissions by 15% by 2030(1).
• 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.
Governance
Long-Term Targets
Social
Long-Term Targets
•
•
Increase employee volunteer
hours by 25% by 2025(3).
Increase number of affordable
housing units by 20% by 2025(3).
• Maintain resident satisfaction
score above 85%, annually.
• Continue to participate in GRESB(4) survey annually, targeting a minimum increase of 5% each year to
reach GRESB 4-star rating by 2025, and continue to expand ESG disclosure.
•
Increase the diversity of employees by 2025, including a 25% increased representation of employees
who identify as racialized, Disabled, and as LGBTQ2+(3).
(1) Scope 1 and 2 emissions from 2020 levels.
(2) Operational controlled electricity.
(3) From 2020 levels.
(4) GRESB is a mission-driven and investor-led organization that provides actionable and transparent ESG data to financial markets.
Page 20
87% resident satisfaction
We are very pleased to report that Killam achieved a strong 87% resident satisfaction score(1) for 2022.
Killam completes a third-party managed comprehensive resident survey every year to ensure its
properties and services meet residents expectations. Killam’s satisfaction rating has been greater than
86% for the ten years that it has commissioned this survey.
Environmental, Social & Governance Update
13% of apartment portfolio units certified
Ensuring our buildings have the best operating and healthy living standards for Killam’s residents is a
priority. Programs such as Canada’s Certified Rental Building (CRB) Program assess these standards. In
2022, we certified an additional 1,500 units through the CRB Program, resulting in 13% of our portfolio
having a building certification. Killam will continue to pursue additional building certifications each year,
and we are well on our way to reaching our goal of 20% of our portfolio by 2025.
Over 1,000 units committed to long-term affordability(2)
We recognize that housing affordability is a challenge in Canada and work actively to do our part. In
2022, we increased our long-term commitment to affordable housing through CMHC’s innovative MLI
Select mortgage loan insurance product. We ended the year with over 1,000 apartment units with a
long-term affordable(2) commitment, an 18% increase from 2021. At year-end, 64% of our 19,500 units
remain affordable, as defined by CMHC.
Over 700 hours of community giving
Employees participated in our Killam Community Giving Campaign, which ran over six weeks and
resulted in over 700 hours of employee time donated to communities in need, through programs
such as baking for community shelters, volunteering time at food banks, and participating in
community clean-up.
Administered in-house diversity & inclusion workshops
In 2022, Killam engaged a third-party consulting firm, Uprise Consultants, to administer a series of
in-house Diversity & Inclusion workshops at our corporate office, and had 45% of our corporate office
employees in attendance. We continue to prioritize developing a more diversified employee base
across our organization, and offer a selection of online and in-person training opportunities to all
employees.
15% increase in GRESB score
Killam achieved a 15% increase in our GRESB score from the prior year, earning an additional green
star and resulting in a three-star designation for the 2022 GRESB real estate assessment. Killam also
earned a GRESB Public Disclosure survey rating of “A”, outperforming the GRESB global rating.
Continued progress on climate-related financial disclosures
We continued to develop our sustainability reporting by refining our process under the Task Force
on Climate-Related Financial Disclosure (TCFD) framework, and by aligning the reporting of our ESG
information with the Sustainability Accounting Standards Board (SASB) and the Global Reporting
Index (GRI). We remain committed to increasing our climate change disclosure in the coming years.
(1) Performed by Narrative Research, a third party provider.
(2) Defined by CMHC as units with monthly rent less than 30% of the local market’s median household income.
Page 21
Home for all
Environmental, Social & Governance Update
Killam’s portfolio offers a wide range of housing. From students to
young professionals, working families to retired seniors, or subsidized
housing to premium units: Killam is proud to provide a “Home for all”.
We deliver clean, safe, quality housing to residents who are proud to
call our properties home.
When you rent with Killam, you play a part in making a difference. We
measure our value by more than just our bottom line – our definition
of success includes the amount of good we do for our people, our
community, and our planet.
As a market leader, we recognize our responsibility to optimize Killam’s social impact by supporting our communities. In
2022, Killam donated over $2.3 million through four main channels, including our Home Away from Home hospital suite
donations, annual cash donations to various charitable partners, rent relief programs and affordability assistance, and
through our Trustee donation program.
$192K
Suite Donations
$137K
Cash Donations
$1.9M
Affordability Assistance
$90K
Trustee Donations
Community Giving Campaign
Welcoming Ukrainian Refugees
In 2022, Killam’s six-week Community Giving
Campaign encouraged employees to play an
active part in their community, donating time,
offering expertise, and making a positive impact
for those in need. Throughout the course of this
campaign, over 110 Killam employees gave back
to their community through initiatives such
as donating to food banks, taking part in a fall
clean-up-day at a women’s support shelter, raising
awareness of and providing financial support for
those in need, baking cookies for a local shelter,
organizing food and toy drives, and serving meals
at a soup kitchen.
#KillamCares #BuildCommunity
In 2022, Killam assisted refugee families from
war-torn Ukraine. Despite the housing crisis in
Canada and Killam’s record-low vacancy across
the country, we provided homes for 57 Ukrainian
families spread across six provinces, over a 90-day
period.
In addition to providing a home for these families,
Killam provided over $140,000 in rent relief, helped
with government documentation, employment,
and connection to support services, and in many
instances, donated furniture and household items.
We are proud to assist these Ukrainian families and
help give them a sense of safety and security as
they start their new lives in Canada.
#CreativeSolutions #DoTheRightThing
Page 22
2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
TABLE OF CONTENTS
Table of Contents
PART I
Business Overview and Strategy
PART I
Basis of Presentation
Declaration of Trust
Business Overview
Forward-Looking Statements
Basis of Presentation
Non-IFRS Financial Measures
Declaration of Trust
Forward-Looking Statements
PART II
Non-IFRS Financial Measures
Key Performance Indicators
Financial and Operational Highlights
PART I I
Summary of 2022 Results and Operations
Key Performance Indicators
Strategic Targets and Performance
Financial and Operational Highlights
Outlook
Summary of 2022 Results and Operations
Strategic Targets and Performance
PART III
Outlook
Business Strategy
Committed to ESG
PART I II
Portfolio Summary
Business Strategy
Unique Portfolio Features
Committed to ESG
Core Market Update
Portfolio Summary
Unique Portfolio Features
PART IV
Core Market Update
2022 Operational and Financial Results
-Consolidated Results
PART I V
-Apartment Results
-MHC Results
- Consolidated Results
-Commercial Results
2022 Operational and Financial Results
- Apartment Results
- MHC Results
PART V
- Commercial Results
Other Income and Expenses and Net Income
-Net Income
PART V
-Financing Costs
Other Income and Expenses and Net Income
-Administration Expenses
- Net Income
-Fair Value Adjustments
- Financing Costs
-Deferred Tax Expense
- Administration Expenses
- Fair Value Adjustments
- Deferred Tax Expense
PART VI
Per Unit Calculations
PART VI
Funds from Operations
Adjusted Funds from Operations
Per Unit Calculations
Adjusted Cash Flow from Operations
Funds from Operations
Adjusted Funds from Operations
Adjusted Cash Flow from Operations
PART VII
Liquidity and Capital Resources
PART VII
Mortgages and Other Loans
Liquidity and Capital Resources
Investment Properties
Mortgages and Other Loans
Investment Properties Under Construction
Investment Properties
Land for Development
Investment Properties Under Construction
Capital Improvements
Land for Development
Unitholders' Equity
Capital Improvements
Unitholders’ Equity
PART VIII
Quarterly Results & Discussion of Q4 Operations
PART VIII
Quarterly Results and Discussion of Q4 Operations
PART IX
Selected Consolidated Financial Information
PART IX
Risk Management
Selected Consolidated Financial Information
Risk Management
Critical Accounting Policies and Significant Accounting
Judgments, Estimates and Assumptions
Future Accounting Policy Changes
Critical Accounting Policies and Significant
Accounting Judgements, Estimates and Assumptions
Disclosure Controls, Procedures and Internal Controls
Future Accounting Policy Changes
Related Party Transactions
Disclosure Controls, Procedures and Internal Controls
Subsequent Events
Related Party Transactions
Subsequent Events
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Page 23
1
2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART I
Business Overview and Strategy
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 $4.8 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 16 projects to-date, with a further three 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 88.6% of Killam’s net operating income (NOI) for the year
ended December 31, 2022. As at December 31, 2022, Killam’s apartment portfolio consisted of 19,527 units, including 1,343 units
jointly owned with institutional partners. Killam's 231 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, Guelph and Kitchener-
Waterloo-Cambridge), Alberta (Edmonton and Calgary), and British Columbia (Greater Victoria and Courtenay). 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 5,975 sites in 40 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 6.1% of Killam’s NOI for the year ended December 31, 2022. Killam also
owns 946,372 square feet (SF) of commercial space that accounted for 5.3% of Killam's NOI for the year ended December 31, 2022.
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, 2022 and
2021, 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 2021 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, 2023. 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, 2022, Killam was in compliance with all investment guidelines and operating policies.
2
Page 24
2022 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 for market demand, rent growth and occupancy levels; the effect of government-imposed rental rate restrictions;
Killam's strategy and priorities, including increasing earnings from Killam's existing portfolio, expanding Killam's portfolio through
acquisitions, and developing high-quality properties in core markets; top-line growth driving same property NOI growth; Killam's
increased presence outside of, and maintained market presence in, Atlantic Canada through acquisitions and development; Killam's
development pipeline and the qualities thereof; the expansion of Killam's portfolio for future developments; future acquisitions,
including the amount expected to be invested in such acquisitions and the location of such acquisitions; 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, geographic diversification and NOI generated
outside of Atlantic Canada, development of high quality properties and investment in completed developments, strengthening
Killam's balance sheet and debt maintenance or reductions, return on investment, and affordable housing and the factors that may
affect the achievement of such targets; Killam's joint venture partners; Killam's ability to mitigate cost increases and property taxes;
maintenance and operating costs; the effect of completed developments on Killam's business, including FFO per unit; the expansion
and optimization of Killam's repositioning program, the units eligible therefor and expected revenues generated thereunder;
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; interest rate fluctuations; reduced debt levels and long-term debt
reduction targets; the adjustment of cap-rates to match market values; commodity prices and the impacts thereof on Killam's
operating costs; the impact of efficiency initiatives on Killam's operating costs and NOI growth; credit availability; financing costs,
including increased interest expenses; the pace and scope of future acquisitions, construction, development and renovation, renewals
and leasing; the estimated population, demographic, economic and other changes in key markets and the related effects on Killam's
business; the GDP growth across the country post-pandemic; the continued capital investment from governments and the private
sector in key markets; the sufficiency of Killam's liquidity and capital resources; the availability and sources of capital to fund further
acquisitions and investments in Killam's business; replacing construction financing with permanent mortgage financing; Killam's NCIB
program and share purchases thereunder; the required expenditures to comply with environmental regulations; expiration of leases
and the effect thereof on Killam's business; Killam's commitment to environmental, social and governance (ESG) and its ESG policy;
investment in ESG initiatives and technology and its impact on Killam's energy consumption and costs and carbon footprint;
augmenting Killam's sustainability programs and policies and Killam's actions thereunder; reducing Killam's impact on the
environment; Killam's climate change reporting; the installation of electric vehicle charging stations across Killam's portfolio; the
sustainability and resilience to climate change of Killam's buildings; 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 and duration of the local, international or global events, such as the COVID-19 pandemic,
and any government responses thereto; national and regional economic conditions (including rising interest rates and inflation), 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 in this document and under the "Risk Factors" section in 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 this 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.
3
Page 25
2022 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 52.
• 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 52.
• 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 55. 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 57.
• 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 57.
• 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 57.
• 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 57.
• 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 57.
Supplementary Financial Measures
• Same property NOI is a supplementary financial measure defined as NOI for stabilized properties that Killam has owned for
equivalent periods in 2022 and 2021. Same property results represent 85.8% of the fair value of Killam's investment property
portfolio as at December 31, 2022. Excluded from same property results in 2022 are acquisitions, dispositions and developments
completed in 2021 and 2022, 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 2022 and 2021. 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 27 of the consolidated financial statements.
4
Page 26
2022 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)
1)
2)
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 financial 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.
3)
Same Property NOI – This measure considers Killam’s ability to increase its same property NOI, removing the impact of recent
acquisitions, dispositions and developments.
4) 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.
5)
6)
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.
7) Weighted Average Interest Rate of Mortgage Debt and Total Debt – Killam monitors the weighted average cost of its mortgage and
total debt.
8) Weighted Average Years to Debt Maturity – Management monitors the weighted average number of years to maturity on its debt.
9) 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.
10) 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.
11)
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.
5
Page 27
2022 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,
2022
2021
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)
$328,847
$206,912
$122,532
$132,603
$1.11
$290,917
$183,235
$285,527
$119,235
$1.07
$111,557
$100,438
$0.93
119,678
$0.70
75%
$0.90
111,626
$0.69
76%
$182,318
$174,138
63.3%
98.3%
3.7%
63.5%
97.0%
3.0%
13.0%
12.9%
(57.1) %
11.2%
3.7%
11.1%
3.3%
7.2%
1.4%
(100) bps
4.7%
(20) bps
130 bps
70 bps
2022
2021
Change (2)
45.3%
2.74%
3.8
11.21x
1.51x
3.31x
45.0%
2.58%
30 bps
16 bps
4.0
(0.2) years
11.33x
1.53x
3.53x
(1.1) %
(1.3) %
(6.2) %
(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.
6
Page 28
2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Summary of 2022 Results and Operations
Continued Geographic Diversification through Acquisitions and Developments Completed in 2022
During 2022, Killam continued to expand its portfolio through acquisitions, acquiring $118.6 million in properties. Killam added 338
apartment units and 99 MHC sites to its portfolio, expanding its geographic diversification, with 91% of the apartment units acquired
located outside of Atlantic Canada, principally in Ontario and British Columbia. Killam is executing on its geographic diversification
strategy; the percentage of NOI generated outside of Atlantic Canada reached 35.8% in 2022, up 280 bps from 33.0% in 2021.
Killam continues to advance its developments, investing $63.2 million in 2022 and completing three development projects. This
includes two joint venture properties, Latitude (208 units) and Luma (168 units), both located in Ottawa, and The Kay, a 128-unit
building located in Mississauga. In aggregate, these three properties are expected to generate $6.0 million in NOI annually, once
stabilized (for Killam's ownership interest). Killam also has two active projects totalling 181 units which are expected to be completed
in mid-2023, and another 139-unit project underway expected to be completed in 2024.
Net Income Impacted by Fair Value Write-Downs
Killam earned net income of $122.5 million in 2022, compared to $285.5 million in 2021. The decrease in net income is due to fair
value write-downs on investment properties of $19.9 million in 2022, compared to fair value gains of $239.7 million in 2021. These
fair value losses reflect an expansion of cap-rates during the year. Killam's weighted average cap-rate for its apartment portfolio as at
December 31, 2022 was 4.48%, a 7 bps increase from the weighted average cap-rate as at December 31, 2021. The fair value losses
were partially offset with robust NOI growth driven by strong apartment fundamentals. Killam's NOI grew by $23.7 million, or 12.9%
year-over-year, driven by acquisitions, completed developments, and increased earnings from the existing portfolio.
Achieved FFO per Unit Growth of 3.7% and AFFO per Unit Growth of 3.3%
Killam's FFO per unit was $1.11 in 2022, a 3.7% increase from $1.07 in 2021. AFFO per unit increased 3.3% to $0.93, compared to $0.90
in 2021. The growth in FFO and AFFO was attributable to increased NOI from Killam's same property portfolio and incremental
contributions from acquisitions, which total over $500 million since the beginning of 2021. This growth was partially offset by a 7.2%
increase in the weighted average number of Trust Units outstanding, along with higher interest expense as a result of rising interest
rates.
Revenue Growth Drove Same Property NOI Growth of 4.7%
Killam generated 4.7% same property NOI growth during the year, with a 4.5% increase from the apartment portfolio, a 7.9% increase
from the commercial portfolio and a 6.0% increase from the MHC portfolio. Same property revenue growth of 5.0% was driven by higher
rental rates across all three business segments, coupled with a 130 bps increase in apartment occupancy. Total same property operating
expenses increased 5.4% in 2022, driven primarily by higher natural gas pricing in Killam's core markets, which resulted in a 13.3%
increase in same property utility and fuel expenses. Same property general operating expenses were managed below inflation, only
increasing by 3.6%, while property tax expenses increased modestly by 2.2%.
Rising Interest Rates
The maturity dates of Killam's mortgages are staggered to help mitigate interest rate risk. During the year, Killam refinanced
$151.6 million of maturing mortgages with $213.0 million of new debt at a weighted average interest rate of 3.70%, 90 bps higher
than the weighted average interest rate of the maturing debt. Interest expense related to Killam's credit facilities increased as
variable interest rates rose sharply in 2022.
Progress on ESG Initiatives
Killam continues to reduce its environmental impact and ensure its buildings are sustainable and resilient to climate change. In 2022,
Killam invested $8.5 million in energy projects, which included $3.2 million in building efficiencies, including improved insulation and
cladding, $2.1 million in new high efficiency boilers, $1.4 million in window replacements, $1.3 million in solar panels and $0.5 million in
the installation of electric vehicle chargers.
In the fourth quarter, Killam commissioned its sixth geothermal heating and cooling system, increasing the number of apartment units
using geothermal technology to over 1,000. The newest installation is at Civic 66, Killam's 169-unit development in Kitchener, Ontario,
which is scheduled to open in the first half of 2023. This system is expected to reduce heating and cooling energy consumption by
approximately 25% compared to conventional heating and cooling systems.
7
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
2022 Strategic Targets and Performance
Growth in Same Property NOI
2022 Target
Achieve same property NOI growth averaging 2.0%–3.0%.
2022 Performance
Killam exceeded its target, achieving 4.7% same property NOI growth in 2022.
Expand Portfolio
2022 Target
2022 Performance
Complete a minimum of $150 million in acquisitions.
Killam grew its portfolio by $118.6 million in 2022, with acquisitions in Halifax, Waterloo, Guelph,
Victoria, and Courtenay. Management made the decision to slow its acquisition program in the
latter half of 2022 due to rising interest rates and economic uncertainty.
Geographic Diversification
2022 Target
Earn at least 35% of 2022 NOI outside Atlantic Canada.
2022 Performance
Killam exceeded its target, generating 35.8% of 2022 NOI outside Atlantic Canada.
Development of High-Quality Properties
2022 Target
Complete construction of four buildings and break ground on two additional developments in 2022.
2022 Performance
Killam completed three developments in 2022: Latitude, The Kay and Luma. Due to construction
delays, The Governor, a 12-unit building located in Halifax, is expected to be completed in mid-2023.
Killam also broke ground on The Carrick, a 139-unit building in Waterloo, ON, and the second phase
of Nolan Hill in Calgary.
Strengthened Balance Sheet
2022 Target
Maintain debt as a percentage of total assets ratio below 45%.
2022 Performance
Sustainability
2022 Target
Killam's debt as a percentage of total assets was 45.3% as at December 31, 2022. The increase in the
ratio is attributable to a higher balance on Killam's credit facilities from acquisitions during the year
and the recognition of fair value losses ($19.9 million) related to investment properties due to a
moderate expansion of cap-rates in the latter part of the year.
Invest a minimum of $8.0 million in energy initiatives in 2022.
2022 Performance
Killam exceeded its target, investing $8.5 million in energy-efficiency initiatives in 2022.
2023 Strategic Targets
Growth in Same Property NOI
2023 Target
Achieve same property NOI growth averaging 3.0% – 5.0%.
Capital Recycling
2023 Target
Geographic Diversification
Sell a minimum of $100 million of non-core assets.
2023 Target
Earn at least 36% of 2023 NOI outside Atlantic Canada.
Development of High-Quality Properties
2023 Target
Complete construction of two development projects and break ground on one additional
development in 2023.
Strengthened Balance Sheet
2023 Target
Sustainability
2023 Target
Reduce debt as a percentage of total assets to below 45%.
Invest a minimum of $8.0 million in energy initiatives in 2023.
8
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Outlook
Strong Demand for Rental Housing Expected to Drive Market Rents Higher
Killam expects strong demand for apartments to continue in 2023, resulting in increasing market rents and maintaining high occupancy
across the portfolio. Management expects to increase rents to market rates as units turn and are released, which is expected to lead to
continued top-line growth. For renewals, 2023 rent growth is likely to be tempered by government-imposed rental rate restrictions in
four of Killam's core markets, namely Ontario (capped at 2.5% in 2023), Nova Scotia (capped at 2.0% in 2023), British Columbia (capped
at 2.0% in 2023) and Prince Edward Island (rental increases not allowed in 2023). Canada recently updated its immigration target to
welcome 465,000 new permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025, which is expected to further contribute to
the strong demand for apartments and mark-to-market opportunities.
Continued Expansion of Unit Repositioning Program
Management is committed to Killam's unit repositioning program, completing 617 repositions in 2022, and plans to complete a
minimum of 450 additional units in 2023, down compared to 2022 due to lower expected turnover. Killam is improving repositioning
efficiencies and targeting improved performance metrics, including the percentage of repositionings completed in 28 days. Unit
upgrades costing more than $10,000 are considered repositioned, 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, as well as the use of in-
house labour. Killam has over 5,500 units that are eligible for repositioning as they come vacant.
Inflation and Higher Operating Expenses
Killam monitors inflation given the risk of increasing operating and capital costs. Approximately 58% of Killam's units are heated with
natural gas, and fluctuations in natural gas pricing impacts Killam's operating costs. Domestic and and international gas markets
continue to experience volatility which is expected to lead to higher year-over-year energy costs in 2023. Investments in energy and
water-saving initiatives, as well as operational efficiencies, are expected to help offset a portion of rising operating costs. Management
expects to invest a minimum of $8.0 million in energy-related projects in 2023. These projects should contribute to same property NOI
growth by reducing consumption and also improve Killam’s sustainability metrics. Inflationary pressures are expected to result in higher
than normal increases in general operating expenses, including contract services and repairs and maintenance.
Positive Same Property NOI Expected
Despite inflationary pressures, Killam expects top-line revenue growth to drive same property NOI growth in 2023. Management's target
for NOI growth in 2023 is 3.0%–5.0%.
Population Growth and Opportunity in Halifax
Halifax, which contributed 33.5% of Killam's NOI in 2022, has experienced acceleration in population growth over the past few years.
Halifax's population grew by 2.1% in 2021, followed by 4.5% in 2022, with a record number of interprovincial migrants moving to the
city. Halifax's age profile is also shifting downward. In 2022, for the third consecutive year, the largest age group of newcomers that
moved to Halifax was the 25–39 age group, accounting for 36% of the city's population growth. These trends are projected to continue
in 2023, increasing demand for apartments in the region. Per the Canadian and Mortgage Housing Corporation (CMHC) Rental Market
Report based on data as of October 2022, Halifax had both record low vacancy as well as some of the highest leasing spreads on
turnover in the country.
$94 Million of Developments Expected to be Completed in 2023
Development remains an important component of Killam's growth strategy, and Killam expects to complete $94 million in development
projects in 2023, with another project expected to be completed in 2024. The completion and stabilization of these projects is expected
to contribute positively to Killam’s future FFO per unit growth. Killam has a robust development pipeline of over 4,200 units, with 70% of
the future projects located outside of Atlantic Canada.
Increased Borrowing Costs on Mortgage Renewals
Killam has $276.5 million of mortgages maturing in 2023, with an average interest rate of 3.07%, and a further $308.7 million maturing
in 2024, with an average interest rate of 2.56%. With current borrowing costs above these levels, Management anticipates higher
interest expense on refinancings. 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 58. Killam
expects to reduce its variable rate interest expense in 2023. Management is focused on reducing its variable rate debt through the
placement of permanent fixed rate mortgages on its completed developments, increased CMHC insured mortgages on its existing
portfolio, and from its planned capital recycling program. Management is committed to reducing debt as a percentage of total assets to
45% or below in 2023.
9
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2022 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 increasing 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 3.2% per annum over the past decade; in the last five years, Killam has
averaged 4.2% growth.
Historic Same Property NOI Growth
4.8%
4.1%
5.1%
4.7%
2.3%
2018
2019
2020
2021
2022
Expand the Portfolio through Acquisitions
Killam owns and operates one of Canada's newest apartment portfolios. Newer 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. Killam continues to expand its portfolio by acquiring well-located assets in Ontario, Alberta and British Columbia, and
continues to add to its established portfolio in Atlantic Canada. Acquisition activity varies by year depending on opportunities and access
to capital. Killam acquired $118.6 million in assets in the first half of 2022; however, following rising interest rates and economic
uncertainty, Management made the decision to slow its acquisition program in the second half of the year.
Annual Acquisitions ($ millions)
$200
$167
$125
$103
$115 $106
$121
$85
$45
$16
$36
$3
$160
$54 $72
$315
$200
$191 $211
$399
$119
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
2 0 2 2
10
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2022 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 sixteen projects to date, investing $467 million to construct 1,807 units (1,505 units, when counting Killam's 50% interest in
joint arrangement developments). Killam has an experienced development team who hold architectural and engineering degrees and
oversee all projects. New property construction enables Killam to control the quality and features of its buildings. Killam targets building
at a 50–150 bps discount to the market capitalization rates (cap-rates) on completion, creating value for its unitholders. Killam currently
has a development pipeline of approximately 4,200 units.
Apartment Developments Complete ($ millions)
$69
$105
$5
$—
$33
$14
$15
$5
$38
$22
$10
$152
$94
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022(1) 2023(2)
(1) In 2022, there were two completed developments in which Killam has a 50% ownership; as such, only Killam's portion of related development costs
has been included in this total.
(2) Developments expected to be completed in 2023.
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 larger urban centres with high rates of population
growth. In 2022, 35.8% of Killam's NOI was generated outside Atlantic Canada, 280 bps higher than in 2021.
% of Killam's NOI Generated Outside Atlantic Canada
Apartment
MHC
Commercial
40%
30%
20%
10%
—%
4%
8%
4%
11%
4%
16%
4%
17%
4%
19%
2%
3%
3%
4%
3%
3%
3%
3%
22%
23%
26%
27%
3%
3%
30%
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
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2022 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 850 subsidized
apartment units throughout its portfolio. The focus on fostering a sense of community is a priority at Killam. Killam has a long-term
target to increase the number of subsidized affordable housing units in its portfolio by 20% between 2020 and 2025.
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 Killam's carbon footprint across the portfolio with a focus
on reducing waste, greenhouse gas emissions and water usage.
• Support and invest in Killam's 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 Killam's properties.
• Support community initiatives in the communities in which Killam operates, with an emphasis on affordable housing.
• Establish and implement robust governance policies and practices.
• Report annually on Killam's ESG programs, new initiatives and performance against targets.
• Review Killam's annual ESG benchmark ratings (from various industry bodies) and target areas for improvement each year.
Killam's 2022 ESG Progress
Killam made solid progress towards all of its ESG targets in 2022. Killam invested $8.5 million in energy-efficiency projects. This included
its sixth geothermal heating and cooling system, increasing its total unit count using geothermal technology to 1,021 apartment units. As
of December 31, 2022, Killam has 17 photovoltaic solar arrays producing power, with an expected 1,716 MWh of annual energy
production. This is the equivalent amount of energy to supply 324 apartment units with electricity annually, based on the average
consumption per unit in Killam's apartment portfolio. With these initiatives, Killam will benefit from reduced energy consumption and
reduced greenhouse gas emissions in the years to come. Additionally, Killam is rolling out Level II EV charging stations across its
portfolio, with 151 charging stations installed at 22 properties to date, plus an additional 103 charging stations at 15 different properties
underway.
Killam continues to pursue building and healthy-living certifications for its apartment units, and in 2022 it earned certifications for 1,500
additional units. Killam began piloting building program certifications in 2021, and has earned a total of 2,488 apartment unit
certifications to date, representing 12.7% of its apartment portfolio. Ensuring its buildings have the best operating and healthy living
standards for Killam’s residents is inherent with these certification practices, and Killam has recognized many benefits from
implementing these certifications. Killam has a long-term target to pursue green building health and operating certifications across a
minimum of 20% of its portfolio by 2025.
Killam recognizes that housing affordability is a challenge in Canada and is committed to doing its part. Killam supports affordable
housing with more than 850 subsidized suites in its apartment portfolio, and maintains average rent in each market well below the 30%
threshold of median household income for that specific market, which is the affordability threshold used by CMHC. Killam is pleased to
report that it once again achieved a strong 86% resident satisfaction score for 2022 in a survey performed by Narrative Research, a third-
party provider.
As well, Killam successfully increased its global real estate sustainability benchmark (GRESB) rating, earning a green, three-star
designation for its 2022 real estate assessment, a 15% score improvement from its 2021 rating. Killam also earned a GRESB Public
Disclosure survey rating of “A”, outperforming its GRESB-determined comparison group and global ratings.
Finally, Killam is committed to 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.
12
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2022 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, 2022:
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 and 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 and Labrador
Total MHCs
Prince Edward Island (5)
Ontario
Nova Scotia (6)
New Brunswick
Total Commercial
Total Portfolio
5,847
139
5,986
2,246
1,529
1,202
96
5,073
1,592
523
1,839
3,954
955
148
1,103
1,163
86
1,249
764
882
1,646
67
2
69
39
23
14
1
77
11
5
13
29
13
2
15
24
2
26
4
6
10
$59,941
$1,467
$61,408
$18,425
$13,421
$7,789
$707
$40,342
$11,856
$5,894
$21,329
$39,079
$7,971
$804
$8,775
$9,448
$589
$10,037
$7,619
$9,323
$16,942
29.0%
0.7%
29.7%
8.9%
6.5%
3.7%
0.3%
19.4%
5.7%
2.8%
10.3%
18.8%
3.9%
0.4%
4.3%
4.6%
0.3%
4.9%
3.7%
4.5%
8.2%
Manufactured Home Community Portfolio
516
19,527
5
231
$6,842
$183,425
3.3%
88.6%
Sites
2,850
2,284
671
170
5,975
Number of
Communities
18
17
3
2
40
Commercial Portfolio (4)
Square
Footage (5)
383,222
311,106
218,829
33,215
946,372
Number of
Properties
1
2
5
1
9
280
NOI ($) (2)
$5,295
$6,166
$758
$401
$12,620
NOI ($) (2)
$2,632
$5,062
$2,736
$437
$10,867
$206,912
NOI (2)
(% of Total)
2.5%
3.0%
0.4%
0.2%
6.1%
NOI (2)
(% of Total)
1.3%
2.5%
1.3%
0.2%
5.3%
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 apartment properties in Ontario,
representing a proportionate ownership of 672 units of the 1,343 units in these properties. Killam manages the operations of all the co-owned apartment properties.
(2) For the year ended December 31, 2022.
(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 SF 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.
(6) Square footage includes Killam's 50% ownership interest in two office properties that are third-party managed.
13
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2022 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 personnel.
Diversified Exposure to Rent Control
Approximately 40% 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 Labrador 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 subject to rent control. The government put forward legislation
that prevents property owners from increasing rent in 2023; however, to mitigate the financial impact, the government subsequently
announced a rental unit property tax subsidy to help offset increasing costs for property owners associated with the 2023 rental
freeze. The subsidy aims to provide relief on provincial property taxes payable in 2023.
Nova Scotia
Killam's Nova Scotia portfolio accounts for 33.5% of apartment NOI. In November 2020, the province announced a temporary rent
restriction measure, limiting rental increases on lease renewals to 2.0% 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 21.3% of apartment NOI, is subject to rent control. Rental rate increases were capped at 1.2%
in 2022 and are capped at 2.5% in 2023. 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 also has rent
control for MHCs.
British Columbia
British Columbia, making up 3.7% of Killam's apartment NOI, also has rent control in place. Rental rate increases were capped at 1.5% in
2022 and are capped at 2.0% in 2023.
In all of the regions impacted by permanent rent control, owners may apply for above-guideline increases 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 77.2% 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 supports affordable housing with more than 850 subsidized affordable suites through community and government partnerships,
representing approximately 5% of its apartment portfolio. In addition, Killam's average rent in each market is well below the 30%
threshold of median household income for that specific market, which is the affordability threshold used by CMHC. Killam's MHC
portfolio also provides an affordable living alternative for a single-family home, with average monthly land rent being $290 per site.
Killam has a 2025 goal to increase its number of subsidized affordable apartment units by 20%, from its base of 750 in 2020 and has
already committed 40% affordability at two properties under CMHCs MLI select program in early 2023.
Providing High Quality Customer Service
Annually, Management engages an independent market research firm to measure tenants’ satisfaction through an online survey (4,171
respondents in 2022). Killam’s 2022 survey results support its focus on service, with tenants giving Killam an impressive 86% overall
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 3,954 apartment units, up from 225 units in 2010
when Killam first entered the market, and includes properties in Ottawa, Toronto, London, Guelph and Kitchener-Waterloo-Cambridge.
During 2022, Killam added 108 units to its Ontario portfolio through acquisitions, and 316 units (Killam's portion of ownership) through
the completion of three developments. Killam also owns a portfolio of 1,646 units in Calgary and Edmonton. In January 2020, Killam
acquired its first apartment property in Greater Victoria and now owns 516 units in the province. Killam added 49 units to its Victoria
portfolio in Q1-2022, and 150 units located in Courtenay, BC, in Q2-2022. In addition to apartments, 38% of Killam’s MHC sites and 33%
of Killam's commercial square footage is located in Ontario.
14
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2022 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 10–20% higher than Killam's total apartment weighted average rent. The
differential between market and in-place rents reflects Killam's relative affordability within its markets, as well as opportunities for
rental increases when 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 2022
tenant demographic by age.
Under 20
20 to 25
25 to 35
35 to 55
55 to 65
65 to 75
75 Plus
2022 Tenant Demographic by Age
75 Plus, 11.8%
Under 20, 0.8%
65 to 75, 8.7%
55 to 65, 8.8%
35 to 55, 26.5%
20 to 25, 11.9%
25 to 35, 31.5%
Core Market Update
Halifax
Twenty-nine percent of Killam’s NOI was generated by its Halifax apartment properties for the year ended December 31, 2022. Halifax is
the largest city in Atlantic Canada and is home to 19% of Atlantic Canadians. Halifax’s diverse economy generates 56% of Nova Scotia’s
GDP and is home to 47% of the province’s population. With six degree-granting universities and three large college campuses, Halifax
has approximately 35,560 full-time students, including 7,290 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 single largest employer. There is also
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. Over 300 companies are participating in ocean-
sector businesses in Nova Scotia, with more than 80 innovators of new, high-tech products and services.
According to CMHC's Rental Market Report, the city's rental market totals 56,100 units, with an additional 5,920 rental units currently
under construction. Halifax's vacancy rate remained at a record low of 1.0% in 2022, consistent with the rate in 2021, and down from
1.9% in 2020. This was the second lowest vacancy rate in Canada and can be attributed to the city's rising population and lack of housing
availability, specifically in the city's downtown core. CMHC reported that the average monthly rent increased 8.9% in 2022, the highest
single-year increase and four times above the average historical growth rate.
Scotiabank’s December 2022 provincial analysis report noted that Halifax has seen a recent surge in interprovincial migration. The
economic outlook notes that this recent increase in population has brought robust growth to the housing sector. Though rising interest
rates have resulted in a housing downturn, residential construction investment is still tracking strong growth and is well above the
national average. Scotiabank expects construction activity to continue in 2023, with solid demand from the rising population.
The following chart summarizes Halifax's population growth from 2005 to 2022:
Historical Population Growth, Halifax Annually from July 1 - June 30
r
a
e
Y
t
n
e
r
r
u
C
h
t
w
o
r
G
n
o
i
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p
o
P
l
25,000
20,000
15,000
10,000
5,000
—
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
2 0 2 2
Population
Population Growth
Source: Statistics Canada
500,000
400,000
300,000
T
o
t
a
l
l
P
o
p
u
a
t
i
o
n
15
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Between July 1, 2021 and June 30, 2022, Halifax's population grew by 4.5%, the largest annual increase the city has seen in decades. This
growth rate is the second-fastest across Canada's 35 largest cities, behind only Moncton, and is driven by immigration and urbanization.
During this period, international migration was the largest source of new residents, representing 60% of the total, while interprovincial
migration represented 38%. This is the highest number of interprovincial migrants Halifax has ever seen. Net natural growth contributed
2% of the growth in this period, while intraprovincial migration contributed a loss of less than 1% in the population growth.
The following chart summarizes Halifax's population growth by source from 2010 to 2022:
Population Growth by Source
Net Persons, Halifax, 2010 to 2022
24,000
20,000
16,000
12,000
8,000
4,000
0
l
h
t
w
o
r
G
n
o
i
t
a
u
p
o
P
r
a
e
Y
t
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e
r
r
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C
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Natural
Intraprovincial
Interprovincial
International
Source: Statistics Canada
For the year ended December 31, 2022, Statistics Canada estimated total net population growth in Nova Scotia to be over 32,500, which
included the highest net interprovincial migration to Nova Scotia in over ten years. In 2022, Nova Scotia's population also passed the
one million mark.
RBC's December 2022 Provincial Outlook details that Nova Scotia's rapidly expanding population will help cushion the economy against a
recession. Due to high inflation and increased interest rates, consumer spending is expected to dip in 2023, contributing to slowing
economic growth from a forecasted 2.0% GDP growth rate in 2022 to 1.2% in 2023. With the recent record levels of international and
interprovincial newcomers, the arrival of younger migrants has helped rejuvenate the population, with the median age dropping from
45.1 years in 2018 to 44.2 years in 2022. This increase in working-age migrants has helped the province meet the demands of
employers, and is expected to support employment growth through 2023.
In response to an increasing population, there has been an increase in housing starts over the last five years. Despite this supply
increase, housing prices were up an average of 16.1% in 2022 compared to 2021.
The following chart summarizes Halifax's housing start activity from 2015 to 2022:
Halifax Total Housing Starts
Total Singles/Semi-Detached/Row
Apartment Vacancy
Total Apartment/Condo Units
Average Total Starts
Total Starts
4,000
s
t
i
n
U
f
o
r
e
b
m
u
N
3,000
2,000
1,000
0
Source: CMHC
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
2
2
0
2
V
a
c
a
n
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y
P
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r
c
e
n
t
a
g
e
4.0%
3.0%
2.0%
1.0%
0.0%
16
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
New Brunswick
Nineteen percent of Killam’s NOI was generated by apartments in New Brunswick's three major urban centres – Fredericton, Moncton
and Saint John – for the year ended December 31, 2022. 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. Given the relatively affordable cost of living, New Brunswick has become a destination for both Canadians and
newcomers.
The province saw an increase in net migration from other provinces, and the second highest percentage of net non-permanent
residents in Canada in 2022, as noted in RBC's December 2022 Provincial Outlook report. Moncton's population grew by 5.3%
between July 1, 2021 and June 30, 2022, the highest growth rate across Canada's 35 largest cities, as measured by Statistics Canada.
According to CMHC, New Brunswick's vacancy was 1.9% in 2022, compared to 1.7% in 2021.
According to Scotiabank's December 2022 provincial analysis report, declining exports and weaker demand from the US and Europe
will impact New Brunswick's economic growth in 2023; however, economic growth is estimated to be above the national average.
Scotiabank further notes that the province has the lowest debt-to-disposable income ratios in the country, which will help support
consumption in a high-interest-rate environment. RBC's December 2022 Provincial Outlook report agreed with this analysis,
forecasting New Brunswick's GDP growth to be 1.1% in 2023, compared to a projected 2.1% in 2022.
St. John's, Newfoundland
Four percent of Killam’s NOI was generated by apartments in St. John's, Newfoundland for the year ended December 31, 2022. RBC's
December 2022 Provincial Outlook notes that increased oil and mining production coupled with a growing population is expected to
stimulate demand for goods and services within the province in 2023. RBC forecasts the GDP growth rate in Newfoundland to be 1.8%
in 2023, higher than the projected 0.9% in 2022. Following five consecutive years of declines in population, 2022 saw record
immigration and the resumption of positive net interprovincial migration flows in Newfoundland, boosting population growth to a 12-
year high at 1.3%, as measured by Statistics Canada. RBC expects this trend to continue in 2023 in part thanks to Canada’s increased
immigration targets. Improved demographics will further sustain stronger demand for goods and services, as well as housing in the
region.
Prince Edward Island
Five percent of Killam's NOI was generated by apartments in Prince Edward Island for the year ended December 31, 2022. According
to RBC’s December 2022 Provincial Outlook report, PEI’s economic outlook is positive, with a forecasted GDP growth rate of 1.3% in
2023, compared to a projected 2.3% in 2022. Low levels of household debt coupled with a booming population are expected to
support household spending and residential investment in the province. In 2022, the province welcomed its largest number of
migrants on record, with the population growing 3.8%, as measured by Statistics Canada. RBC notes that population growth on the
island is on track to be the fastest among the provinces for a sixth consecutive year in 2023. This surge in population is making a
material impact on household consumption, and has resulted in retail sales increasing more than 20% from their pre-pandemic levels.
Additionally, vacancy has decreased in the region, down 40 bps to 0.9% in 2022, compared to 1.3% in 2021, as reported by CMHC.
Ontario
Killam's Ontario apartment portfolio generated 18.8% of its NOI for the year ended December 31, 2022. RBC’s December 2022
Provincial Outlook notes that rising interest rates and a higher cost of living in Ontario are expected to result in economic tightening in
the province. Ontario continues to be driven by advances in the healthcare industry and activity in real estate and professional
services industries. Although residential activity has been strong, RBC reports this is expected to slow and decline due to high inflation
and rising interest rates. These financial pressures are expected to slow household spending in 2023, causing challenges for
businesses. RBC forecasts Ontario's GDP to decline by 0.1% in 2023, compared to a projected growth rate of 3.2% in 2022. However,
this decline is not expected to continue, with a growth rate of 1.1% forecasted in 2024. According to CMHC, Ontario's vacancy rate
decreased to 1.8% in 2022, down from 3.4% in 2021.
Alberta
Eight percent of Killam's NOI was earned in Alberta for the year ended December 31, 2022. According to RBC's December 2022
Provincial Outlook report, Alberta is expected to achieve a GDP growth rate of 1.9% in 2023, the highest among the provinces, compared
to a projected 4.9% in 2022. This growth is driven by the massive upswing in global energy markets, which RBC expects to continue in
2023, at least in the short term. Scotiabank's December 2022 provincial analysis report noted that drilling activity has trended higher in
2022, and that the Alberta Energy Regulator expects oil and gas capital spending to increase by 56% in 2023 and remain above levels
preceding the pandemic. The completion of the region's Trans Mountain pipeline expansion will also increase the transportation
capacity for crude oil, and will open up new export avenues in the coming year. However, RBC notes that soaring interest rates and
elevated inflation are expected to weigh on household and business spending in 2023. Alberta’s housing sector is poised to remain
buoyant in 2023, largely due to the region's increasing population. Statistics Canada reports that Alberta's population grew by 3.0% in
2022, the highest level since 2013–2014. This has led to decreased vacancy in Alberta, which is down 280 bps to 3.7% in 2022, compared
to 6.5% in 2021, as reported by CMHC.
British Columbia
Killam earned 3.3% of its NOI in the British Columbia market for the year ended December 31, 2022. RBC's December 2022 Provincial
Outlook reported British Columbia's forecasted GDP growth rate to be 0.3% in 2023, compared to a projected 3.1% in 2022. This
decrease in growth is attributed to higher interest rates and inflation, decreasing household spending in the region. RBC notes that
British Columbians carry the heaviest debt loads in Canada, making them especially sensitive to interest rate increases. However,
record immigration flowing into the province is expected to boost residential capital investment, as builders, developers and
policymakers address long-standing supply issues. Statistics Canada reported that British Columbia's population grew by 2.5% in 2022,
and housing starts are projected to ramp up to 49,800 units in 2023, from 48,000 units in 2022. Additionally, vacancy has decreased
modestly in the region, down 10 bps to 1.3% in 2022, compared to 1.4% in 2021, as reported by CMHC.
17
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART IV
2022 Operational and Financial Results
Consolidated Results
For the years ended December 31,
Total Portfolio
Same Property (1)
Property revenue
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
Total operating expenses
NOI
Operating margin %
2022
$328,847 $290,917
$287,970 $274,386
2021 % Change
13.0%
2022
2021 % Change
5.0%
52,308
30,106
39,521
47,482
24,683
35,517
$121,935 $107,682
$206,912 $183,235
63.0%
62.9%
10.2%
22.0%
11.3%
13.2%
12.9%
(10) bps
45,625
26,152
33,875
44,027
23,078
33,143
$105,652 $100,248
$182,318 $174,138
63.5%
63.3%
3.6%
13.3%
2.2%
5.4%
4.7%
(20) bps
(1) Same property results exclude acquisitions and developments completed during the comparable 2022 and 2021 periods, which are classified as non-
same property. For the year ended December 31, 2022, NOI contributions from acquisitions and developments completed in 2022 and 2021 were
$28.3 million. For the year ended December 31, 2021, NOI contributions from acquisitions and developments completed in 2021 were $12.2 million.
Killam achieved strong overall portfolio performance for the year ended December 31, 2022. Revenues grew by 13.0%, offset by
increases in total operating expenses of 13.2%, due to strong same property performance along with contributions from acquisitions
and developments. Overall NOI grew by 12.9% for the year. Same property results include properties owned during comparable 2022
and 2021 periods. Same property results represent 85.8% of the fair value of Killam's investment property portfolio as at December 31,
2022. Non-same property results include acquisitions, dispositions and developments completed in 2021 and 2022 and commercial
assets acquired for future residential development.
Same property revenue grew by 5.0% for the year ended December 31, 2022, compared to the same period in 2021. This growth was
driven by a 130 bps increase in apartment occupancy due to strong market conditions, rental rate growth and growth in both seasonal
MHCs and commercial revenues. Total same property operating expenses increased 5.4% for the year ended December 31, 2022, below
the average rate of inflation of 6.8% in Canada during 2022. This change was driven by significant increases in natural gas pricing across
Killam's portfolio, which contributed to a 13.3% increase in utility and fuel expenses for the year. Same property general operating
expenses and property taxes increased modestly by 3.6% and 2.2% for the year, respectively. Overall, same property NOI grew by 4.7%
for the year ended December 31, 2022.
Operating Margin % (Total Portfolio)
62.8%
62.9%
62.6%
63.0%
62.9%
61.5%
2017
2018
2019
2020
2021
2022
18
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Results
For the years ended December 31,
Property revenue
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
Total operating expenses
NOI
Operating margin %
Apartment Revenue
Total
Same Property
2022
2021 % Change
2022
2021 % Change
$289,790 $254,955
13.7%
$255,022 $243,259
4.8%
44,452
26,766
35,147
39,699
21,866
31,334
$106,365
$92,899
12.0%
22.4%
12.2%
14.5%
38,889
23,656
30,422
37,480
20,847
29,783
$92,967
$88,110
$183,425 $162,056
13.2%
$162,055 $155,149
3.8%
13.5%
2.1%
5.5%
4.5%
63.3%
63.6%
(30) bps
63.5%
63.8%
(30) bps
Total apartment revenue for the year ended December 31, 2022, was $289.8 million, an increase of 13.7% over the same period in 2021.
Revenue growth was augmented by contributions from recently acquired and developed properties. Same property apartment revenue
grew by 4.8% for the year ended December 31, 2022, driven by a 130 bps increase in occupancy and increased year-over-year average
rent of 3.7% . The operating margin on Killam's same property apartment portfolio for the year ended December 31, 2022, was down 30
bps to 63.5%, mainly caused by above-average increases in utility and fuel expenses.
19
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2022 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
2022
2021
Change
(bps)
2022
2021
Change
(bps)
Total Occupancy
Same Property Occupancy
Nova Scotia
Halifax
Ontario
Ottawa (2)
London
KWC-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland and Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary (3)
Edmonton
British Columbia
Victoria
Total Apartments (weighted average)
5,986
99.0%
98.2%
80
99.0%
98.1%
90
1,592
523
1,839
2,342
1,529
1,202
86.5%
98.7%
97.0%
98.8%
97.6%
98.1%
94.0%
97.3%
98.7%
97.4%
97.7%
97.7%
(750)
140
(170)
140
(10)
40
95.8%
98.7%
99.2%
99.1%
97.6%
98.1%
94.0%
97.3%
98.9%
97.5%
97.7%
97.7%
180
140
30
160
(10)
40
1,103
95.4%
92.4%
300
95.7%
92.1%
360
1,249
99.4%
96.1%
330
99.5%
96.9%
260
764
882
516
19,527
97.1%
96.1%
98.4%
97.3%
87.6%
94.0%
97.9%
96.6%
950
210
50
70
96.6%
96.7%
98.3%
98.3%
92.8%
94.1%
97.9%
97.0%
380
260
40
130
(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 2022 occupancy for Ottawa was impacted by Latitude and Luma, recently completed development projects undergoing initial lease-up.
(3) Total 2021 occupancy for Calgary was impacted by Nolan Hill, a 233-unit development that was undergoing initial lease-up during the first half of
2021.
y
c
n
a
p
u
c
c
O
99%
98%
97%
96%
95%
94%
93%
Historical Same Property Apartment Occupancy & Rental Incentives (as a % of Revenue)
Occupancy %
Rental Incentives (as a % of Revenue)
98.1%
98.7%
1.0%
97.2%
96.5%
0.8%
0.6%
0.4%
0.2%
0.0%
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
Q 1-2022
Q 2-2022
Q 3-2022
Q 4-2022
Killam saw a decrease in rental incentives as a percentage of total revenue in 2022 after an uptick in 2021. Rental incentives decreased
in all of Killam's regions during the year except for Ontario and Alberta, which saw increases of 18% and 13%, respectively. Over 60% of
the incentives in 2022 were in Alberta. The offering of rental incentives in all regions decreased in the latter part of the year as
occupancy rose, and this trend is expected to continue in 2023.
20
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Year-Over-Year 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 (1)
Total Apartments (weighted average)
Average Rent
Same Property Average Rent
# of Units
2022
2021
% Change
2022
2021
% Change
5,986
$1,282
$1,231
4.1%
$1,281
$1,231
4.1%
1,592
523
1,839
2,342
1,529
1,202
$1,909
$1,443
$1,524
$1,121
$1,188
$973
$1,818
$1,388
$1,421
$1,082
$1,121
$920
5.0%
4.0%
7.2%
3.6%
6.0%
5.8%
$1,862
$1,443
$1,659
$1,100
$1,188
$973
$1,818
$1,388
$1,597
$1,062
$1,121
$920
2.4%
4.0%
3.9%
3.6%
6.0%
5.8%
1,103
$1,006
$983
2.3%
$1,010
$987
2.3%
1,249
$1,116
$1,106
0.9%
$1,092
$1,082
0.9%
764
882
$1,299
$1,506
$1,277
$1,492
516
19,527
$1,722
$1,289
$1,771
$1,228
1.7%
0.9%
(2.8) %
5.0%
$1,296
$1,495
$1,272
$1,480
$1,858
$1,264
$1,771
$1,219
1.9%
1.0%
4.9%
3.7%
(1) The decline in the average net rent in the Victoria region relates to two acquisitions completed in Q2-2022, consisting of 199 units.
Same Property Rental Increases – Tenant Renewals Versus Unit Turns
The rental increases in the table below reflect rental increases achieved on units renewed or turned for the year ended December 31,
2022, whereas rental increases in the previous section reflect the year-over-year change in average rent by region as at December 31,
2022, compared to December 31, 2021.
Killam historically turned approximately 30%–32% of its units each year; however, turnover has declined over the past three years. Due
to the tightening of the housing and rental markets across Canada, turnover levels in 2022 were 22%, down from 26% in 2021.
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 50 bps increase in its same property weighted
average rental increase year-over-year, up from 3.0% in 2021 to 3.5% in 2022. This increase was a result of higher rental increases on
both unit turns and lease renewals. The weighted average rental increase on unit turns was up 220 bps to 10.0%, compared to 7.8% in
2021. Continued population growth across Canada continues to drive higher market rents. The chart below summarizes the rental
increases earned during the years ended December 31, 2022 and 2021.
For the years ended December 31,
Lease renewal
Unit turn
Rental increase (weighted avg)
2022
2021
Rental
Increases
1.8%
10.0%
3.5%
Turnovers &
Renewals (1)
78.2%
21.8%
Rental
Increases
1.5%
7.8%
3.0%
Turnovers &
Renewals (1)
74.1%
25.9%
(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.
21
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2022 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.
10.0%
5.0%
—%
30%
20%
Apartments - Historical Same Property Rental Rate Growth
6.4%
6.3%
8.2%
7.8%
10.0%
1.7%
2.7%
2.1%
3.6%
3.4%
1.7%
1.5%
3.0%
1.8%
3.5%
2018
2019
2020
2021
2022
Upon Lease Renewal
Upon Unit Turn - Combined
Combined Average Increase %
Percentage of Units Turned Annually
32%
30%
29%
26%
2018
2019
2020
2021
22%
2022
Apartment Expenses
Total operating expenses for the year ended December 31, 2022, were $106.4 million, a 14.5% increase over the same period in 2021.
The increase was primarily due to incremental costs associated with recent acquisitions and developments, coupled with increased
natural gas pricing experienced in 2022.
Total apartment same property operating expenses for the year ended December 31, 2022, were 5.5% higher compared to 2021. This
increase was primarily due to higher utility and fuel expenses driven by increased natural gas costs, which were up 35.8% compared to
December 31, 2021. Additionally, oil and propane costs increased significantly, up 32.9% for the year ended December 31, 2022.
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 3.8% for the year ended December 31, 2022, was largely due to higher salary costs,
increased contract service costs and higher property administration expenses. These increases reflect inflationary cost pressures.
Same Property Utility and Fuel Expenses
For the years ended December 31,
Natural gas
Electricity
Water
Oil & propane
Other
Total utility and fuel expenses
2022
2021
% Change
$8,534
$6,284
7,442
6,143
1,463
74
7,327
6,067
1,101
68
$23,656
$20,847
35.8%
1.6%
1.3%
32.9%
8.8%
13.5%
22
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Killam’s apartment portfolio is heated with natural gas (56%), electricity (36%), oil (3%), 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 Killam's 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 25% of Killam’s total apartment same property operating expenses for the year
ended December 31, 2022, and increased 13.5% year-over-year.
Same property natural gas costs increased by 35.8% for the year ended December 31, 2022, which was primarily attributable to
significant increases in natural gas pricing in all of Killam's core market, compared to the same period in 2021. Consumption of natural
gas was up modestly by 0.9% year-over-year due to a colder winter at the beginning of 2022. Colder weather was offset slightly by
increased efficiencies from boiler upgrades, contributing to reduced consumption levels.
Electricity costs increased modestly by 1.6% for the year ended December 31, 2022. Increases were moderated 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 the installation of solar panels.
Water expenses increased by 1.3% for the year ended December 31, 2022, due to a modest increase in water rates coupled with a 1.8%
increase in water consumption during the year.
Heating oil and propane costs increased by 32.9% for the year ended December 31, 2022, compared to 2021. This is the result of
increased oil prices, which increased by 60.4% in Prince Edward Island during the year. The majority of Killam's heating oil and propane
costs are in Prince Edward Island. This increase was partially offset by increased efficiencies seen from boiler upgrades.
Property Taxes
Same property property tax expense for the year ended December 31, 2022, was $30.4 million, a 2.1% increase from the same period in
2021. Killam actively reviews its property tax assessments and appeals tax assessment increases wherever possible in order to minimize
this impact.
23
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2022 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
2022
2021 % Change
2022
2021 % Change
2022
2021 % Change
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
$93,793
$89,370
4.9%
($32,759) ($30,241)
93,793
89,370
4.9%
(32,759)
(30,241)
8.3%
8.3%
4.9%
5.8%
8.4%
6.5%
1.7%
1.9%
2.4%
1.9%
0.9%
0.9%
6.7%
6.7%
$61,034
$59,129
61,034
59,129
10,855
10,574
5,774
5,512
11,986
11,704
28,615
27,790
17,542
16,405
13,431
12,418
7,807
7,172
38,780
35,995
8,488
8,488
8,749
8,749
5,080
6,215
7,750
7,750
8,527
8,527
4,916
6,166
11,295
11,082
5,094
5,094
4,876
4,876
(5,436)
(5,184)
(3,165)
(2,992)
(5,677)
(5,235)
(14,278)
(13,411)
(12,300)
(12,093)
(8,243)
(8,087)
(6,250)
(6,102)
(26,793)
(26,282)
(4,076)
(4,038)
(4,076)
(4,038)
(6,248)
(5,858)
(6,248)
(5,858)
(3,342)
(3,021)
10.6%
(3,606)
(3,398)
(6,948)
(6,419)
(1,865)
(1,861)
(1,865)
(1,861)
6.1%
8.2%
0.2%
0.2%
16,291
15,758
8,939
8,504
17,663
16,939
42,893
41,201
29,842
28,498
21,674
20,505
14,057
13,274
65,573
62,277
12,564
11,788
12,564
11,788
14,997
14,385
14,997
14,385
8,422
9,821
7,937
9,564
18,243
17,501
6,959
6,959
6,737
6,737
3.4%
5.1%
4.3%
4.1%
4.7%
5.7%
5.9%
5.3%
6.6%
6.6%
4.3%
4.3%
6.1%
2.7%
4.2%
3.3%
3.3%
$255,022
$243,259
4.8%
($92,967) ($88,110)
5.5%
$162,055
$155,149
3.2%
3.2%
2.7%
4.8%
2.4%
3.0%
6.9%
8.2%
8.9%
7.7%
9.5%
9.5%
2.6%
2.6%
3.3%
0.8%
1.9%
4.5%
4.5%
4.5%
24
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
MHC Results
For the years ended December 31,
Property revenue
Property operating expenses
NOI
Operating margin %
Total Portfolio
Same Property
2022
2021 % Change
2022
2021 % Change
$19,790
$18,578
7,170
6,824
$12,620
$11,754
6.5%
5.1%
7.4%
$19,469
$18,403
7,157
6,784
$12,312
$11,619
5.8%
5.5%
6.0%
63.8%
63.3%
50 bps
63.2%
63.1%
10 bps
Killam's MHC business segment generated 6.1% of Killam's NOI for the year ended December 31, 2022. 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 October. Overall, the MHC portfolio generated same property
NOI growth of 6.0% for the year ended December 31, 2022. This growth is mainly attributable to increased seasonal revenue,
achieved through annual rent increases, plus higher transient revenue compared to 2021.
For the years ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2022
2021 % Change
2022
2021 % Change
2022
2021 % Change
Permanent MHCs
$12,923
$12,578
2.7%
($4,500)
($4,379)
2.8%
$8,423
$8,199
2.7%
Seasonal Resorts
6,546
5,825
12.4%
(2,657)
(2,405)
10.5%
3,889
3,420
13.7%
$19,469
$18,403
5.8%
($7,157)
($6,784)
5.5%
$12,312
$11,619
6.0%
For the year ended December 31, 2022, same property permanent MHCs generated a 2.7% increase in NOI. Average rent increased
2.5%, to $290 per site at December 31, 2022, compared to $283 per site at December 31, 2021, and occupancy for the year
increased modestly by 10 bps to 98.4%, compared to 98.3% in the same period in 2021. Revenue and NOI growth is further
augmented through MHC site expansions at some of Killam's communities.
Killam's seasonal resort portfolio achieved strong same property revenue growth in 2022, resulting in a 12.4% increase in same
property revenue for the year compared to the same period in 2021. Offsetting this was an increase in property operating expenses,
up 10.5% in 2022 compared to the same period in 2021. Driving this was a 24.6% increase in utility and fuel expenses for the year
ended December 31, 2022, caused by increased pricing coupled with higher consumption, as many of the communities reached full
occupancy after being impacted by COVID restrictions in 2020 and 2021. Overall, same property seasonal MHCs had a 13.7%
increase in NOI for the year ended December 31, 2022.
25
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Commercial Results
For the years ended December 31,
Property revenue
Property operating expenses
NOI
Total Portfolio
Same Property
2022
2021 % Change
2022
2021 % Change
$19,267 $17,384
10.8%
$13,479
$12,724
8,400
7,959
5.5%
5,528
5,354
$10,867
$9,425
15.3%
$7,951
$7,370
5.9%
3.2%
7.9%
Killam's commercial business segment contributed $10.9 million, or 5.3%, of Killam's total NOI for the year ended December 31, 2022.
Killam's commercial portfolio contains 946,372 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 and is the property manager; the Brewery Market, a 180,000 SF retail and office property in downtown
Halifax; as well as other smaller properties located in Halifax and Moncton. Total commercial occupancy increased by 240 bps in 2022 to
93.0%, compared to 90.6% in 2021. Commercial same property results represent approximately 58.8% 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.
The increase in NOI during the year ended December 31, 2022, relates to the increase in occupancy coupled with increasing rental rates
on renewals. In 2022, Killam successfully leased a net new 49,730 SF of commercial space across the portfolio. Killam has also renewed
over 108,600 SF of commercial space during 2022, with a weighted average net rate increase of 11.4%.
26
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2022 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
2022
2021 % Change
$206,912
$183,235
1,797
1,059
(61,499)
(51,521)
(573)
(573)
(17,153)
(15,988)
12.9%
69.7%
19.4%
—%
7.3%
2,234
(1,869)
(219.5) %
29,497
(26,107)
(213.0) %
(19,870)
239,684
(108.3) %
141,345
327,920
(18,813)
(42,393)
$122,532
$285,527
(56.9) %
(55.6) %
(57.1) %
Net income and comprehensive income decreased by $163.0 million for the year ended December 31, 2022, as a result of an
impairment of $19.9 million in the fair value of Killam's investment properties, compared to $239.7 million of fair value gains for the
same period in 2021. This was offset with a $23.7 million increase in net operating income driven by acquisitions, developments and
same property NOI growth, along with fair value gains on the mark-to-market adjustments on Killam's unit-based compensation and
Exchangeable Units of $31.7 million in 2022, compared to a fair value loss of $28.0 million for the year ended December 31, 2021.
Financing Costs
For the years ended December 31,
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 on derivative liability
Interest on lease liabilities
Capitalized interest
2022
2021 % Change
$54,077
$46,683
15.8%
3,774
2,790
3,846
171
(88)
391
1,063
2,766
3,784
255.0%
0.9%
1.6%
65
163.1%
(167)
386
(47.3) %
1.3%
13.2%
19.4%
(3,462)
(3,059)
$61,499
$51,521
Total financing costs increased $10.0 million, or 19.4%, for the year ended December 31, 2022, compared to the same period in 2021.
Mortgage, loan and construction loan interest expense increased $7.4 million, or 15.8%, which coincides with an increase in Killam's
mortgage, loan and construction loan debt of $81.5 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, 2022, was 3.70%, 90 bps higher than the weighted average interest rate on maturing debt.
Interest on Killam's credit facilities increased $2.7 million for the year ended December 31, 2022, compared to the same period in
2021. This rise is due to a $59.3 million increase in drawn credit facilities as at December 31, 2022, compared to December 31, 2021,
which has been used for acquisition and development costs incurred during the year.
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 1.6% for the year ended December 31, 2022, following new
debt placement on acquisitions and mortgage refinancings. This expense may fluctuate annually with refinancings.
27
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Capitalized interest increased $0.4 million for the year ended December 31, 2022, compared to the same period in 2021. 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.
Administration Expenses
For the years ended December 31,
Administration
As a percentage of total revenues
2022
2021 % Change
$17,153
$15,988
7.3%
5.2%
5.5%
(30) 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, 2022, total administration expenses increased by 7.3% compared to the same period in 2021, due
to higher travel expenses, increased wages, as well as higher information technology costs. Administration expenses as a percentage
of total revenues were 5.2% for 2022, 30 bps lower than 2021.
Fair Value Adjustments
For the years ended December 31,
Investment properties
Deferred unit-based compensation
Exchangeable Units
2022
2021
% Change
($19,870)
$239,684
(108.3) %
2,234
(1,869)
(219.5) %
29,497
(26,107)
(213.0) %
$11,861
$211,708
(94.4) %
Killam recognized fair value losses on impairment of $19.9 million related to investment properties for the year ended December 31,
2022, compared to fair value gains of $239.7 million for the year ended December 31, 2021. The fair value losses are a result of
moderate capitalization rate expansion, however, the impact on value was partially offset by NOI growth driven by strong apartment
fundamentals.
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,
2022, there was an unrealized fair value gain of $2.2 million, versus a $1.9 million loss in the same period in 2021, 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, 2022, there was an unrealized gain of $29.5 million,
compared to an unrealized loss of $26.1 million in the same period in 2021. The unrealized gain in the year reflects a decrease in
Killam's unit price as at December 31, 2022, compared to December 31, 2021.
28
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Deferred Tax Expense
For the years ended December 31,
2022
2021
% Change
$18,813
$42,393
(55.6) %
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 decreased by $23.6 million for the year ended December 31, 2022, compared to the same period in
2021, primarily due to fair value losses on investment properties recorded in 2022.
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)
Outstanding
Number of Units (000s)
as at December 31,
2022
115,517
2021 % Change
7.5%
107,435
3,994
4,030
119,511
111,465
167
161
119,678
111,626
(0.9) %
7.2%
3.7%
7.2%
2022
116,801
3,898
120,699
—
—
(1) Units are shown on an after-tax basis. RTUs are net of attributable personal taxes when converted to REIT units.
29
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2022 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, it may not be comparable to similarly titled measures presented
by other publicly traded companies. FFO for the years ended December 31, 2022 and 2021 is 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 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)
2022
2021 % Change
$122,532
$285,527
(57.1) %
(2,234)
1,869
(219.5) %
(29,497)
26,107
(213.0) %
19,870
(239,684)
108.3%
(13)
302
23.1%
4.3%
42,393
(55.6) %
(16)
315
18,813
2,790
(88)
96
22
2,766
(167)
106
29
$132,603
$119,235
$1.11
$1.11
119,511
119,678
$1.07
$1.07
111,465
111,626
0.9%
47.3%
(9.4) %
(24.1) %
11.2%
3.7%
3.7%
7.2%
7.2%
Killam earned FFO of $132.6 million, or $1.11 per unit (diluted), for the year ended December 31, 2022, compared to $119.2 million, or
$1.07 per unit (diluted), for the year ended December 31, 2021. FFO growth is primarily attributable to contributions from acquisitions
and completed developments ($9.1 million), same property NOI growth ($7.7 million), and a moderate increase in capitalized interest
($0.4 million). These increases were partially offset by a 7.2% increase in the weighted average number of units outstanding, as well as
higher interest costs ($2.6 million) and administration costs ($1.2 million).
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 64, and
Killam's sources of funding are disclosed in the Liquidity and Capital Resources section on page 56 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:
30
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2022 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
2022
$91,388
(30,965)
(27,603)
(12,873)
(71,441)
$19,947
22%
18,678
$1,068
2021
$70,711
(21,264)
(26,588)
(6,226)
(54,078)
$16,633
24%
17,364
$958
$948
2020
$57,961
(14,055)
(22,956)
(7,704)
(44,715)
$13,246
23%
16,209
$817
(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, 2022, Killam updated its maintenance capex reserve to reflect the actual capital investment for the most
recent three years (2020–2022), which is equivalent to $948 per unit. Based on this calculation, Management has selected $950 per unit
for its maintenance capex reserve for 2022, an increase from the 2021 reserve of $900 per unit. Management will maintain this reserve
in its calculation of AFFO throughout 2023, 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 2022 compared to 2021 and 2020, 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 2022, approximately 22% 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, 2022, 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 $330 over the past three years. Management selected $300 per MHC site for its maintenance capex reserve for
2022, consistent with its 2021 reserve of $300 per site.
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. Due to an increase in capital investment in its commercial properties, Killam increased its
annual capex reserve to $0.80 per square foot for 2020 and 2021. For 2022, Killam updated its maintenance capex reserve to reflect the
actual capital investment for the most recent three years (2020–2022), which is equivalent to approximately $0.96 per square foot.
Based on this calculation, Management has selected $0.95 per square foot for its commercial maintenance capex reserve for 2022, an
increase from prior year that reflects Killam's greater maintenance capital investment on commercial properties.
31
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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)
2022
2021 % Change
$132,603
$119,235
(20,318)
(18,023)
(196)
(532)
(356)
(418)
$111,557
$100,438
$0.93
$0.93
75 %
$0.90
$0.90
11.2%
12.7%
(44.9) %
27.3%
11.1%
3.3%
3.3%
76 %
(100) bps
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
119,511
111,465
119,678
111,626
7.2%
7.2%
(1) Based on Killam's annual distribution of $0.7000 for the year ended December 31, 2022, and $0.6867 for the year ended December 31, 2021.
The payout ratio of 75% for the year ended December 31, 2022, improved 100 bps compared to the year ended December 31, 2021. The
improvement is attributable to a 11.1% increase in AFFO, driven by contributions from acquisitions and developments and same
property NOI growth, and offset by a 7.2% 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.
32
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2022 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, 2022 and 2021) 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)
2022
$125,331
2021
$140,542
% Change
(10.8) %
8,372
(20,318)
(324)
(3,846)
(22)
(16)
$109,177
84,722
$24,455
78%
(13,894)
(18,023)
(224)
(3,784)
(29)
(13)
$104,575
77,925
$26,650
75%
(160.3) %
12.7%
44.6%
1.6%
(24.1) %
23.1%
4.4%
8.7%
(8.2) %
300 bps
(1) Includes distributions on Trust Units, Exchangeable Units and restricted Trust Units, as summarized on page 67.
(2) Based on Killam's annual distribution of $0.69996 for the year ended December 31, 2022, and $0.68668 for the year ended December 31,
2021.
Killam's ACFO payout ratio is 78% for the year ended December 31, 2022. 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
In accordance with the guidelines set out in 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.
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
2022
2021
$122,532
$285,527
$125,331
$140,542
$84,722
$37,810
$63,101
$40,609
$77,925
$207,602
$233,506
$62,617
(1) Killam has a distribution reinvestment plan which allows unitholders to elect to have all cash distributions from the Trust reinvested in additional units.
33
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2022 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) Killam currently has capacity of approximately $80.0 million of capital under its credit facilities and cash on hand and
acquisition capacity of over $150.0 million.
(iii) Mortgage refinancings and construction loans are expected to be sufficient to fund value-enhancing capex, principal
repayments and developments. Killam has $268.6 million of mortgage debt scheduled for refinancing in 2023, expected to
lead to upfinancing opportunities of approximately $90.0 million.
(iv) Upcoming mortgage maturities are expected to be renewed through Killam's mortgage program.
(v) Killam has unencumbered assets of approximately $75.0 million, on 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, 2022, was 45.3%.
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, 2023, 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.
2022
3.8
45.3%
3.31x
1.51x
11.21x
2.74%
3.01%
2021
4.0
45.0%
3.53x
1.53x
11.33x
2.58%
2.52%
Change
(0.2) years
30 bps
(6.2) %
(1.3) %
(1.1) %
16 bps
49 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, 2022
December 31, 2021
$1,979,442
$1,915,334
121,014
94,972
$2,195,428
$4,849,903
45.3 %
61,730
77,596
$2,054,660
$4,568,903
45.0 %
(1) Excludes right-of-use asset of $9.6 million as at December 31, 2022 (December 31, 2021 - $9.6 million).
Total debt as a percentage of total assets was 45.3% at December 31, 2022, compared to 45.0% at December 31, 2021. The 30 bps
increase is attributable to an increased total debt balance as at December 31, 2022, compared to December 31, 2021. Increased total
debt is due to mortgages being placed on recently acquired assets, along with an increased balance on Killam's drawn credit facilities as
at December 31, 2022. This is partially offset by an increase in total assets, due to recently completed acquisitions and developments.
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.
34
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2022 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). This analysis excludes the impact of any change in NOI growth.
Cap-rate Sensitivity
Increase (Decrease)
(0.50) %
(0.25) %
—%
0.25%
0.50%
Fair Value of Investment
Properties (1)
$5,393,122
$5,091,436
$4,812,801
$4,582,293
$4,365,481
Total Assets
$5,430,224
$5,128,538
$4,849,903
$4,619,395
$4,402,583
Total Debt as % of Total
Assets
40.4%
42.8%
45.3%
47.5%
49.9%
Change (bps)
(480)
(250)
—
230
460
(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, 2022 and 2021:
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, 2022
December 31, 2021
% Change
122,532
18,813
61,499
573
(2,234)
(29,497)
19,870
191,556
3,437
194,993
$2,186,275
11.21x
285,527
42,393
51,521
573
1,869
26,107
(239,684)
168,306
12,999
181,305
$2,054,225
11.33x
(57.1) %
(55.6) %
19.4%
—%
(219.5) %
(213.0) %
(108.3) %
13.8%
(73.6) %
7.5%
6.4%
(1.1) %
(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 12 months.
Interest and Debt Service Coverage
Twelve months ending,
NOI
Other income
Administration
Adjusted EBITDA
Interest expense (1)
Interest coverage ratio
Principal repayments
Interest expense (1)
Debt service coverage ratio
December 31, 2022
December 31, 2021
% Change
206,912
1,797
(17,153)
191,556
57,851
3.31x
69,033
57,851
1.51x
183,235
1,059
(15,988)
168,306
47,746
3.53x
62,246
47,746
1.53x
12.9%
69.7%
7.3%
13.8%
21.2%
(6.2) %
10.9%
21.2%
(1.3) %
(1) Interest expense includes mortgage, loan and construction loan interest and interest on credit facilities, as presented in Note 22 to the consolidated
financial statements.
35
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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, 2022, was 2.74%, 16 bps higher
compared to the rate as at December 31, 2021.
Refinancings
For the year ended December 31, 2022, Killam refinanced the following mortgages:
Apartments
MHCs and Commercial
Mortgage Debt
Maturities
$130,321
21,251
$151,572
2.69%
3.51%
2.80%
Mortgage Debt
on Refinancing
Weighted
Average Term
Net Proceeds
$182,597
30,429
$213,026
3.47%
5.12%
3.70%
8.2 years
5.0 years
7.8 years
$52,276
9,178
$61,454
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
2023
2024
2025
2026
2027
Thereafter
Balance
December 31
$244,568
285,172
345,393
239,278
130,452
651,289
$1,896,152
Weighted Avg
Int. Rate %
2.99%
2.55%
2.06%
2.35%
3.48%
2.92%
2.68%
% CMHC
Insured
52.1%
73.0%
52.6%
82.4%
74.6%
100.0%
77.2%
$31,966
23,568
20,804
7,611
33,080
3,993
$121,022
Balance
December 31 (1)
$276,534
308,740
366,197
246,889
163,532
655,282
$2,017,174
Weighted Avg
Int. Rate %
3.07%
2.56%
2.09%
2.36%
3.81%
2.92%
2.74%
3.62%
2.75%
2.61%
2.69%
5.12%
3.31%
3.62%
(1) Excludes $2.6 million in variable rate demand loans secured by land for future development, which are classified as mortgages and loans
payable as at December 31, 2022.
Apartment Mortgage Maturities by Year
Amount maturing ($)
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
2.99%
2.55%
2.06%
2.35%
3.48%
3.40%
2.85%
2.56%
8%
7%
6%
5%
4%
3%
2%
1%
0%
I
n
t
e
r
e
s
t
R
a
t
e
2023
2024
2025
2026
2027
2028
2029
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, 2022, approximately 77.2% of Killam’s apartment mortgages
were CMHC-insured (72.5% of total mortgages, as MHC and commercial mortgages are not eligible for CMHC insurance)
(December 31, 2021 - 75.0% and 70.5%). The weighted average interest rate on the CMHC-insured mortgages was 2.71% as at
December 31, 2022 (December 31, 2021 - 2.54%).
36
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The following tables present the NOI for properties that are available to Killam to refinance at debt maturity in 2023 and 2024:
2023 Debt Maturities
Apartments with debt maturing
MHCs and Commercial with debt maturing
2024 Debt Maturities
Apartments with debt maturing
MHCs and Commercial with debt maturing
Number of
Properties Estimated NOI
Principal
Balance
(at maturity)
36
11
47
$25,779
$239,349
4,118
29,249
$29,897
$268,598
Number of
Properties Estimated NOI
Principal
Balance
(at maturity)
48
5
53
$30,635
$267,020
3,862
22,150
$34,497
$289,170
Future Contractual Debt Obligations
As at December 31, 2022, the timing of Killam's future contractual debt obligations is as follows:
Twelve months ending December 31,
2023
2024
2025
2026
2027
Thereafter
Mortgage and
Loans Payable
$340,107
Construction
Loans (1)
$94,972
345,433
372,184
239,442
166,902
555,706
—
—
—
—
—
Credit Facilities
$9,014
112,000
—
—
—
—
Total
$444,093
457,433
372,184
239,442
166,902
555,706
$2,019,774
$94,972
$121,014
$2,235,760
(1) Construction loans are demand loans that are expected to be replaced with permanent mortgage financing on development completion lease-up.
Construction Loans
As at December 31, 2022, Killam had access to six variable rate non-revolving demand construction loans for the purpose of financing
development projects, totalling $152.8 million. As at December 31, 2022, $95.0 million was drawn on the construction loans
(December 31, 2021 - $77.6 million). Payments are made monthly on an interest-only basis. The weighted-average contractual
interest rate on amounts outstanding at December 31, 2022, was 5.19% (December 31, 2021 - 2.01%). Once construction is complete
and rental targets achieved, construction financing is expected to be replaced with permanent mortgage financing. Killam expects to
place permanent financing on two construction loans (with a total balance of $57.9 million at December 31, 2022) during Q1-2023.
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, 2021 - $155.0 million and $15.0 million) that can be used for acquisition and general business purposes.
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, 2022. The facility matures December 16, 2024 and includes a one-year extension option.
The $15.0 million demand facility bears interest at prime plus 125 bps on advances and 155 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, 2022. Subsequent to year-end the demand facility was increased to $25.0 million.
As at December 31, 2022
$155.0 million facility
$15.0 million facility
Total
Maximum Loan
Amount (1)
$175,000
15,000
$190,000
Amount
Drawn
$112,000
9,014
$121,014
Letters of
Credit
$—
2,320
$2,320
Amount
Available
$63,000
3,666
$66,666
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
As at December 31, 2021
$155.0 million facility
$15.0 million facility
Total
Maximum Loan
Amount (1)
$175,000
15,000
$190,000
Amount
Drawn
$54,500
7,230
$61,730
Letters of
Credit
$—
1,745
$1,745
Amount
Available
$120,500
6,025
$126,525
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
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
Transfer from land for development
Capital expenditures and development costs (1)
Fair value adjustment - Apartments
Fair value adjustment - MHCs
Fair value adjustment - Commercial
Balance, end of year
2022
2021
% Change
$4,637,792
$4,284,030
135,196
39,813
201,319
55,528
$4,812,801
$4,540,877
8.3%
(32.8) %
(28.3) %
6.0%
2022
2021
% Change
$4,284,030
$3,570,198
116,377
170,337
1,394
104,726
(20,050)
(16,570)
(2,452)
393,028
17,254
—
76,940
210,829
12,844
2,937
$4,637,792
$4,284,030
20.0%
(70.4) %
887.2%
N/A
36.1%
(109.5) %
(229.0) %
(183.5) %
8.3%
(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 higher inflation and increased borrowing costs as at December 31,
2022, 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 higher inflation and interest rates and other consequential changes on Killam's
business and operations, both in the short term and in the long term. The fair value losses recognized during the quarter were driven by
an expansion in cap-rates, partially offset by 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, 2022 and December 31,
2021, is as follows:
For the years ended December 31,
Capitalization Rates
Apartments
MHCs
2022
High
7.00%
6.50%
Effective
Weighted
Average
4.48%
5.78%
Low
3.00%
5.00%
2021
High
7.00%
6.50%
Effective
Weighted
Average
4.41%
5.59%
Low
3.25%
5.25%
Killam's effective weighted average cap-rates for its apartment and MHC portfolios at December 31, 2022, were 4.48% and 5.78%, an
increase of 7 bps for apartments and 19 bps for MHCs compared to December 31, 2021. The increase in average cap-rates for
apartments and MHCs are due to marginal expansion of cap-rates during the year. Killam will continue to monitor the acquisition market
to identify cap-rate changes. The change in the weighted average cap-rates compared to December 31, 2021, is also impacted by
acquisitions and developments.
38
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Fair Value Sensitivity
The following table summarizes the impact of changes in cap-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) %
$465,868
170,216
(92,958)
(328,744)
(541,220)
Change in Stabilized NOI (1)
(1.00) %
$518,050
219,380
(46,479)
(284,671)
(499,315)
— %
$570,231
268,545
—
(240,598)
(457,410)
1.00%
$622,412
317,709
46,479
(196,525)
(415,505)
2.00%
$674,593
366,873
92,958
(152,453)
(373,601)
(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.
2022 Acquisitions – Investment Properties
Property
1477 & 1479 Carlton Street
510-516 Quiet Place
150 Wissler Road (2)
Craigflower House
1358 & 1360 Hollis Street
665 & 671 Woolwich Street (3)
Location
Halifax, NS
Waterloo, ON
Acquisition
Date
16-Feb-22
7-Mar-22
Ownership
Interest
100 %
100 %
Property Type
Apartment
Apartment
Units/
SF
4
24
Waterloo, ON 17-Mar-22
Victoria, BC 31-Mar-22
03-Apr-22
Halifax, NS
100 % Commercial/Development Land
Apartment
100 %
Apartment
100 %
Guelph, ON 29-Apr-22
100 % Apartment/Development Land
621 Crown Isle Blvd
Courtenay, BC 18-May-22
1876 & 1849 Riverside Lane
Highland Village
Total Acquisitions
Courtenay, BC 18-May-22
04-Jul-22
Amherst, NS
100 %
100 %
100 %
Apartment
Apartment
Permanent MHC
—
49
27
84
56
94
99
Purchase
Price (1)
$3,500
7,900
3,850
14,000
6,200
25,000
21,900
33,700
2,500
$118,550
(1) Purchase price does not include transaction costs.
(2) Property has in-place income acquired for future development potential located adjacent to Killam's Northfield Gardens complex in Waterloo.
(3) Property includes an existing 84-unit apartment building and an adjacent parcel of land for future development potential.
Investment Properties Under Construction
As at December 31,
Balance, beginning of year
Fair value adjustment
Capital expenditures
Interest capitalized
Transfer to inventory
Transfer to investment properties
Transfer from land for development
Balance, end of year
2022
$201,319
19,801
63,217
2,559
(3,073)
(170,337)
21,710
$135,196
2021
% Change
$128,100
11,097
73,005
2,239
—
(17,254)
4,132
$201,319
57.2%
78.4%
(13.4) %
14.3%
N/A
887.2%
425.4%
(32.8) %
39
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2022 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
Capital expenditures
Interest capitalized
Acquisitions
Transfer to investment properties
Transfer to IPUC
Balance, end of year
2022
$55,528
2,536
853
4,000
(1,394)
(21,710)
$39,813
2021
% Change
$43,620
1,905
820
13,315
—
(4,132)
$55,528
27.3%
33.1%
4.0%
(70.0) %
N/A
425.4%
(28.3) %
Killam's development projects currently underway as at December 31, 2022, include the following three projects:
Property
Location Ownership
Number of
Units (1)
Project Budget
(millions) Start Date
Estimated
Completion
Anticipated All-
Cash Yield
Halifax, NS
Kitchener, ON
Waterloo, ON
Governor
Civic 66
The Carrick
Total (2)(3)
(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 2024. 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.
$24.3
$69.7
$83.5 Q2-2022
Q2-2023
Q1/Q2-2023
2024
4.00%–4.25%
4.75%–5.00%
4.00%–4.25%
12
169
139
320
100%
100%
100%
2021
2020
$177.5
(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 early 2023. The investment in the townhouses is recorded in residential inventory.
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, and The Brewery Market in Halifax, NS. The budget for the
development is $24.3 million. Construction financing is in place and the project is expected to be completed in Q2-2023.
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 on a phased basis by floor through Q1 and Q2-2023. 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. To date, fair value
gains of $6.7 million have been recorded related to this property.
The Carrick
The Carrick, the first phase of a multi-phase project located next to Killam's Westmount Place property in Waterloo, ON, broke ground in
Q2-2022. This 139-unit project is expected to be completed in 2024 and has a development budget of $83.5 million.
40
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Future Development Pipeline
Killam has a development pipeline, with almost 70% of the future projects located outside of Atlantic Canada. Killam targets yields 50–
150 bps higher than the expected market cap-rate on completion. Below is a listing of land currently available for future development:
Property
Location
Developments expected to start in 2023
Killam's
Interest
Development
Potential
(# of Units) (1) Status
Estimated
Year of
Completion
Halifax, NS
Waterloo, ON
Waterloo, ON
Halifax, NS
Halifax, NS
Ottawa, ON
Calgary, AB
Eventide & Aurora
Developments expected to start in 2024–2026
Westmount Place Phase 2
Northfield Gardens Expansion
Medical Arts
Hollis Street
Gloucester City Centre Phase 3
Nolan Hill Phase 3 (2)
Additional future development projects
Nolan Hill Phase 4 (2)
671 Woolwich St.
Christie Point
Quiet Place
Gloucester City Centre (Phase 4–5) Ottawa, ON
Westmount Place (Phase 3–5)
Kanata Lakes
St. George Street
Stratford Land
Sherwood Crossing
15 Haviland
Topsail Road
Block 4
Total Development Opportunities
Calgary, AB
Guelph, ON
Victoria, BC
Waterloo, ON
Waterloo, ON
Ottawa, ON
Moncton, NB
Charlottetown, PE
Charlottetown, PE
Charlottetown, PE
St. John's, NL
St. John's, NL
100%
100%
100%
100%
100%
50%
10%
10%
100%
100%
100%
50%
100%
50%
100%
100%
100%
100%
100%
100%
Final planning approval expected
in Q1-2023
120
150 In design
150 Concept design
200 Concept design
100 Concept design
200 Concept design
200 In design
200 Future development
150 Future development
312 Development agreement in place
300 Future development
400 Future development
800 Future development
80 Future development
60 Future development
100 Future development
325 Future development
60–90 Future development
225 Future development
80 Future development
4,227
2025
2026
2026
2027
2027
2027
2027
TBD
TBD
TBD
TBD
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.
41
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2022 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, 2022, Killam invested $104.7 million of capital in its existing portfolio, compared to $78.9 million
for the same period in 2021, an increase of 32.8% year-over-year. This increase reflects Killam's growing asset base, as well as the timing
of larger multi-phase capital projects, increased investment in energy initiatives and Killam's expanded 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
2022
2021
% Change
$91,388
$70,711
6,242
7,096
5,423
2,744
$104,726
$78,878
29.2%
15.1%
158.6%
32.8%
2022
2021
% Change
$44,249
$27,899
29,635
27,784
5,481
8,513
3,510
4,482
8,165
2,381
$91,388
$70,711
18,678
$4,893
17,364
$4,072
58.6%
6.7%
22.3%
4.3%
47.4%
29.2%
7.6%
20.2%
(1) Weighted average number of units, adjusted for Killam's 50% ownership in jointly held properties.
Killam invested $4,893 per unit for the year ended December 31, 2022, compared to $4,072 per unit for the same period in 2021. The
increase relates to larger multi-phase capital projects focused on increasing the resiliency of Killam's buildings, along with the continued
expansion of Killam's unit repositioning program. 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-five percent of Killam's apartments, as a
percentage of 2022 forecasted NOI, were built in the past 10 years, and the average age of Killam's portfolio is 27 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 2022
maintenance capex for properties built in the past 10 years was $530 per unit vs. $1,380 per unit for units that were 41+ years old.
$1,500
$1,000
$500
$0
Average Maintenance Capital Investment per Unit by Building Age
(Based on 2022 Actual Investment)
$970
$880
$530
$1,190
$1,380
0-10 years
11-20 years
21-30 years
31- 40 years
41 + years
Maintenance Capex per unit
42
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2022 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 $1,870 per unit, compared to $6,690 per unit for buildings over 40 years old.
Average Capital Spend per Unit by Building Age
$7,500
$6,000
$4,500
$3,000
$1,500
$—
2018
2019
2020
2021
2022
0-10 years
11-20 years
21-30 years
31-40 years
41+ years
Building Improvements
Of the $91.4 million total capital invested in the apartment segment for the year ended December 31, 2022, approximately 48% was
invested in building improvements, up from 39% of the total capital investment for the year ended December 31, 2021. 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, 2022, compared to the same period in 2021, relates primarily to the timing of
multi-phase building envelope projects and the increased size of Killam's apartment portfolio.
Unit Renovations and Repositionings
For the year ended December 31, 2022, Killam invested $29.6 million in unit renovations, a 6.7% increase over the total investment
of $27.8 million for the same period in 2021. 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%–40%. 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 2022, Killam
repositioned 617 units, up 12% from 551 units in 2021, with an average investment of approximately $31,100 per unit, generating an
average ROI of 13%. A summary of the repositioning activities for the year ended December 31, 2022 is set out below:
Region
Nova Scotia
New Brunswick
Ontario
Newfoundland and Labrador
Alberta
British Columbia
Total (weighted average)
2022 Repositioning Program
Units
Repositioned
Average
Investment per
Unit
Avg Return on
Investment
306
219
72
5
8
7
617
$25,960
$34,780
$40,700
$39,290
$33,640
$32,580
$31,100
14%
11%
19%
11%
9%
28%
13%
Killam achieved its target of completing a minimum of 600 repositionings in 2022, and estimates that the repositioning opportunity
within its portfolio is approximately an additional 5,500 units. This should generate an estimated $23.1 million in annualized revenue,
representing an approximate $342.3 million increase in net asset value.
Energy
Killam continues to invest in energy-efficiency initiatives, augmenting its sustainability programs and reducing operating expenses.
Killam is committed to continuously lowering and reporting on its greenhouse gas emissions and also completing benchmarking using
third-party validation. In 2022, Killam invested $8.5 million in energy-related capital projects, an increase of 4.3% compared to the same
period in 2021. These projects included installation of geothermal heating and cooling systems at two new development projects,
installation of photovoltaic solar panels at select properties, installation of EV chargers, boiler, heat pump and window replacements,
insulation upgrades, as well as electricity and water conservation projects.
43
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2022 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
2022
2021
% Change
$2,057
$1,749
1,106
1,806
1,149
124
$6,242
5,924
$1,054
843
1,871
558
402
$5,423
5,875
$923
17.6%
31.2%
(3.5) %
105.9%
(69.2) %
15.1%
0.8%
14.2%
Management expects to invest between $750 and $1,000 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, 2022, was $6.2 million, compared to $5.4 million for the year ended
December 31, 2021. The increase in capital investment relates to various community enhancements, paving and land improvements,
as well as water and sewer upgrades which typically result in a reduction in water consumption. 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, 2022, Killam invested $7.1 million in its commercial portfolio, compared to $2.7 million for the
year ended December 31, 2021. These investments relate primarily to property upgrades and tenant improvements for new leasing
opportunities at Killam's three stand-alone commercial properties: The Brewery, Westmount Place and Royalty Crossing. The timing
of capital investment will vary based on tenant turnover.
44
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2022 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, 2022, no unitholders redeemed units.
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
Normal Course Issuer Bid
2022
2021
% Change
$81,673
$74,912
2,790
259
2,766
247
$84,722
$77,925
(25,032)
(25,657)
(259)
(247)
$59,431
$52,021
29.9 %
33.2 %
9.0%
0.9%
4.9%
8.7%
(2.4) %
4.9%
14.2%
In May 2022, Killam announced that the TSX had accepted Killam's notice of intention to make a normal course issuer bid for its Trust
Units. Under the normal course issuer bid, Killam may acquire up to 3,000,000 Trust Units commencing on June 2, 2022, and ending on
June 1, 2023. All purchases of Trust Units are made through the facilities of the TSX at the market price of the Trust Units at the time of
acquisition. Daily repurchases by Killam are limited to 53,703 Trust Units, other than block purchase exemptions. Any Trust Units
acquired will be cancelled.
45
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2022 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:
Property revenue
NOI
Net income (loss)
FFO
FFO per unit - diluted
AFFO
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$84,534
$85,301 $81,548 $77,464 $76,998 $76,244 $70,300 $67,375
$53,169
$56,792 $51,685 $45,263 $47,921 $50,455 $44,596 $40,263
($9,810) $3,600 $68,716 $60,027 $74,801 $46,634 $136,672 $27,420
$32,719
$37,144 $34,078 $28,665 $30,514 $34,246 $29,369 $25,106
$0.27
$0.31
$0.28
$0.24
$0.27
$0.30
$0.27
$0.23
$27,417
$32,188 $29,002 $23,739 $25,669 $29,510 $24,774 $20,485
AFFO per unit – diluted
$0.23
$0.27
$0.24
$0.20
$0.22
$0.26
$0.23
$0.19
Weighted average units – diluted (000s)
120,676
120,292 119,938 117,765 114,571 114,250 109,929 107,669
For the three months ended December 31, 2022, Killam generated a net loss of $9.8 million as a result of fair value losses in the quarter
related to cap-rate expansion, compared to fair value gains in Q4-2021.
Q4 Consolidated Results
For the three months ended December 31,
Property revenue
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
Total operating expenses
NOI
Operating margin %
Total Portfolio
Same Property (1)
2022
2021 % Change
2022
2021 % Change
$84,534
$76,998
9.8%
$72,775
$69,718
4.4%
14,629
13,616
7.4%
12,585
11,991
7,111
9,625
6,332
9,129
12.3%
5.4%
6,077
8,327
5,499
8,246
$31,365
$29,077
7.9%
$26,989
$25,736
$53,169
$47,921
11.0%
$45,786
$43,982
5.0%
10.5%
1.0%
4.9%
4.1%
62.9%
62.2%
70 bps
62.9%
63.1%
(20) bps
(1) Same property results exclude acquisitions and developments completed during the comparable 2022 and 2021 periods, which are classified as non-
same property. For the three months ended December 31, 2022, NOI contributions from acquisitions and developments completed in 2022 and 2021
were $9.0 million. For the three months ended December 31, 2021, NOI contributions from acquisitions and developments completed in 2021 were
$5.2 million.
For the three months ended December 31, 2022, Killam's consolidated NOI grew by 11.0%. Revenues were up 9.8%, offset by total
operating expense increases of 7.9%. These increases relate to growth of Killam's existing portfolio, coupled with expansion through
acquisitions and developments completed over the last 12 months.
Consolidated same property revenue grew 4.4% for the three months ended December 31, 2022, compared to the same period in 2021,
due to higher rental rates and apartment occupancy. Total same property operating expenses increased by 4.9%, resulting in
consolidated same property NOI growth of 4.1% in Q4-2022, compared to Q4-2021.
46
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2022 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
2022
2021 % Change
2022
2021 % Change
2022
2021 % Change
Property revenue
$65,132
$62,247
4.6%
$4,291
$4,154
3.3%
$3,352
$3,317
1.1%
Property operating expenses
General operating expenses
10,777
10,271
4.9%
1,194
1,179
Utility and fuel expenses
Property taxes
5,541
7,452
4,972
7,403
Total property expenses
$23,770
$22,646
NOI
$41,362
$39,601
11.4%
0.7%
5.0%
4.4%
386
195
379
190
$1,775
$1,748
$2,516
$2,406
1.3%
1.8%
2.6%
1.5%
4.6%
614
150
680
541
148
653
$1,444
$1,342
13.5%
1.4%
4.1%
7.6%
$1,908
$1,975
(3.4) %
Operating margin
63.5%
63.6%
(10) bps
58.6%
57.9%
70 bps
56.9%
59.5%
(260) bps
Apartment Same Property
Killam’s same property apartment portfolio realized NOI growth of 4.4% for the three months ended December 31, 2022, compared to
the three months ended December 31, 2021. This was due to a 4.6% increase in revenues, which was offset by a 5.0% increase in total
property operating expenses. Revenue growth was generated from a 4.3% increase in the average rental rate on units renewed or
turned in the quarter, coupled with a 50 bps increase in occupancy, from 98.2% to 98.7%.
General operating expenses increased 4.9% in Q4-2022 compared to the same period in 2021, due to inflationary cost pressures,
including higher salary costs, increased property administration expenses and higher insurance costs.
Utility and fuel expenses were 11.4% higher for the three months ended December 31, 2022, as compared to the same period in 2021.
This increase was driven by further increases in natural gas costs, which were up 36.7% in the fourth quarter compared to Q4-202, as a
result of higher commodity costs. Oil costs were also up by 13.8% compared to Q4-2021, as a result of a 55.8% increase in commodity
pricing quarter-over-quarter.
Property taxes increased modestly by 0.7% quarter-over-quarter. Higher property tax assessments and rate increases were partially
offset by successful property tax appeals.
Q4-2022 Occupancy
Apartment Occupancy Analysis by Core Market (% of Residential Rent) (1)
For the three months ended December 31, # of Units
Halifax
Ottawa (2)
London
KWC-GTA
Moncton
Fredericton
Saint John
St. John's
Charlottetown
Calgary
Edmonton
Victoria
5,986
1,592
523
1,839
2,342
1,529
1,202
1,103
1,249
764
882
516
Total Apartments (weighted average)
19,527
Total Occupancy
Same Property Occupancy
2022
99.0%
92.2%
98.9%
98.8%
99.4%
98.1%
98.2%
97.6%
99.5%
99.2%
97.0%
97.7%
98.2%
2021
98.9%
94.7%
99.5%
99.0%
98.4%
97.6%
98.6%
94.9%
99.4%
97.0%
95.2%
99.2%
98.1%
Change
(bps)
10
(250)
(60)
(20)
100
50
(40)
270
10
220
180
(150)
10
2022
99.0%
97.9%
98.9%
99.4%
99.4%
98.1%
98.2%
97.7%
99.5%
99.3%
97.7%
97.3%
98.7%
2021 Change (bps)
98.9%
94.7%
99.5%
99.3%
99.0%
97.6%
98.6%
95.0%
99.3%
96.3%
96.0%
99.2%
98.2%
10
320
(60)
10
40
50
(40)
270
20
300
170
(190)
50
(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) Q4-2022 occupancy for Ottawa was impacted by two recently completed development projects undergoing initial lease-up.
Overall apartment occupancy increased 10 bps to 98.2% in the fourth quarter of 2022 compared to 98.1% for the fourth quarter of 2021,
due to strong market fundamentals. Same property occupancy was 98.7%, a 50 bps increase compared to Q4-2021.
47
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2022 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
2022
2021 % Change
2022
2021 % Change
2022
2021 % Change
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
$23,853
$22,887
23,853
22,887
4,201
2,284
4,500
3,983
2,187
4,295
10,985
10,465
7,612
5,569
3,597
7,309
5,237
3,418
16,778
15,964
3,243
3,243
3,767
3,767
2,230
2,525
4,755
3,064
3,064
3,701
3,701
2,039
2,414
4,453
1,751
1,751
1,713
1,713
4.2%
4.2%
5.5%
4.4%
4.8%
5.0%
4.1%
6.3%
5.2%
5.1%
5.8%
5.8%
1.8%
1.8%
9.4%
4.6%
6.8%
2.2%
2.2%
($8,243)
($7,741)
6.5%
$15,610
$15,146
(8,243)
(7,741)
6.5%
15,610
15,146
(1,431)
(1,346)
(831)
(795)
(1,456)
(1,336)
(3,718)
(3,477)
(3,132)
(3,074)
(2,111)
(2,070)
(1,539)
(1,530)
(6,782)
(6,674)
(1,083)
(1,056)
(1,083)
(1,056)
(1,620)
(1,549)
(1,620)
(1,549)
(877)
(928)
(808)
(859)
(1,805)
(1,667)
(519)
(519)
(482)
(482)
6.3%
4.5%
9.0%
6.9%
1.9%
2.0%
0.6%
1.6%
2.6%
2.6%
4.6%
4.6%
8.5%
8.0%
8.3%
7.7%
7.7%
2,770
1,453
3,044
7,267
4,480
3,458
2,058
9,996
2,637
1,392
2,959
6,988
4,235
3,167
1,888
9,290
2,160
2,160
2,008
2,008
1,353
1,597
2,950
1,231
1,555
2,786
1,232
1,232
1,231
1,231
$65,132
$62,247
4.6%
($23,770) ($22,646)
5.0%
$41,362
$39,601
3.1%
3.1%
5.0%
4.4%
2.9%
4.0%
5.8%
9.2%
9.0%
7.6%
7.6%
7.6%
9.9%
2.7%
5.9%
0.1%
0.1%
4.4%
2,147
2,147
2,152
2,152
(0.2) %
(0.2) %
Same Property Rental Increases – Tenant Renewals Versus Unit Turns
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 120 bps increase in its same property weighted
average rental increase in Q4-2022, up to 4.3%, compared to 3.1% in Q4-2021. This increase was a result of higher rental increases on
both unit turns and lease renewals. The weighted average rental increase on unit turns was up 320 bps to 12.0%, compared to 8.8% for
the same period in 2021. Additionally, Killam saw a 70 bps increase in the weighted average rental increase on lease renewals quarter-
over-quarter, up from 1.4% in Q4-2021 to 2.1% in Q4-2022. The chart below summarizes the rental increases earned during the three
months ended December 31, 2022 and 2021.
For the three months ended December 31,
Lease renewal
Unit turn
Rental increase (weighted avg)
2022
2021
Rental
Increases
2.1%
12.0%
4.3%
Turnovers &
Renewals (1)
78.4%
21.6%
Rental
Increases
1.4%
8.8%
3.1%
Turnovers &
Renewals (1)
77.0%
23.0%
(1) The percentage of total units renewed and turned during the quarter is based on the number of units at the end of the quarter.
48
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
MHC Results
For the three months ended December 31,
Property revenue
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
Total operating expenses
NOI
Operating margin %
Total Portfolio
Same Property
2022
2021 % Change
2022
2021 % Change
$4,347
$4,161
4.5%
$4,291
$4,154
3.3%
1,200
1,159
3.5%
1,194
1,179
401
198
513
190
(21.8) %
4.2%
386
195
379
190
$1,799
$1,862
(3.4) %
$1,775
$1,748
$2,548
$2,299
10.8%
$2,516
$2,406
1.3%
1.8%
2.6%
1.5%
4.6%
58.6%
55.3%
330 bps
58.6%
57.9%
70 bps
The MHC same property portfolio generated a 4.6% increase in NOI in the fourth quarter, compared to Q4-2021. Revenues grew by
3.3% quarter-over-quarter due to a 2.4% increase in permanent MHC rental rates and increased revenue from Killam's seasonal
resorts. Total same property operating expenses increased modestly by 1.5% due to higher utility recoveries in Q4-2022 compared to
Q4-2021, resulting in only a 1.8% increase in utility and fuel expenses. Same property general operating expenses and property taxes
also experienced small increases, up by 1.3% and 2.6% in the fourth quarter respectively.
Commercial Results
For the three months ended December 31,
Property revenue
Property operating expenses
NOI
Total Portfolio
Same Property
2022
2021 % Change
2022
2021 % Change
$4,992
$4,689
6.5%
$3,352
$3,317
2,211
2,046
$2,781
$2,643
8.1%
5.2%
1,444
1,342
$1,908
$1,975
(3.4) %
1.1%
7.6%
Killam's overall commercial portfolio saw a 6.5% increase in revenue and a 8.1% increase in property operating expenses, resulting in a
5.2% increase in NOI in the fourth quarter, compared to Q4-2021. Earning growth at Charlottetown's Royalty Crossing was a key
contributor to the 5.3% growth in Q4 2022.
The commercial same property results in Q4-2022 include: Westmount Place, located in Waterloo; the Brewery Market in downtown
Halifax; three smaller 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 by 1.1% during Q4-2022, as rental rate increases were offset by a slight
increase in vacancy. Same property operating expense increased by 7.6%, largely due to timing of repairs and maintenance costs
coupled with property tax increases. This resulted in a 3.4% decrease in NOI during the quarter, compared to the same period in 2021.
49
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4 FFO
For the three months ended December 31,
Net income (loss)
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 loss (gain) on derivative liability
Internal commercial leasing costs
Depreciation on owner-occupied building
Change in principal related to lease liabilities
FFO
FFO per unit – diluted
FFO per unit – diluted
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
$2,022
($9,810)
309
3,898
2021
% Change
$74,801
(113.1) %
831
9,370
(62.8) %
(58.4) %
34,084
(66,012)
(151.6) %
(4)
3,363
688
71
90
24
6
(4)
10,716
701
(69)
147
26
7
$32,719
$30,514
$0.27
$0.27
120,510
120,676
$0.27
$0.27
114,408
114,571
—%
(68.6) %
(1.9) %
(202.9) %
(38.8) %
(7.7) %
(14.3) %
7.2%
—%
—%
5.3%
5.3%
Killam earned FFO of $32.7 million, or $0.27 per unit (diluted), for the three months ended December 31, 2022, compared to
$30.5 million, or $0.27 per unit (diluted), for the three months ended December 31, 2021. FFO growth is primarily attributable to
contributions from acquisitions and completed developments ($1.8 million), same property NOI growth ($1.8 million), and a reduction in
administration costs ($0.5 million). These increases were offset by a 5.3% increase in the weighted average number of units outstanding,
as well as higher interest costs related to Killam's credit facility and higher rates on refinancings ($1.9 million).
Q4 AFFO
For the three months ended December 31,
2022
2021
% 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
$32,719
$30,514
(5,123)
(4,666)
(27)
(152)
(47)
(132)
$27,417
$25,669
$0.23
$0.23
77 %
$0.22
$0.22
7.2%
9.8%
(42.6) %
15.2%
6.8%
4.5%
4.5%
78 %
(100) bps
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
120,510
120,676
114,408
114,571
5.3%
5.3%
The payout ratio of 77% for the three months ended December 31, 2022, improved 100 bps compared to the payout ratio in Q4-2021.
The stability is attributable to a 6.8% increase in AFFO, driven by contributions from acquisitions and developments and same property
NOI growth, offset by the impact of a 5.3% increase in the weighted average number of units outstanding.
50
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2022 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
2022
2021
2020
$328,847
$290,917
$261,690
$122,532
$285,527
$146,040
$132,603
$119,235
$104,678
$1.11
$1.07
$1.00
$4,812,801
$4,540,877
$3,741,918
$4,859,530
$4,578,507
$3,776,560
$2,586,199
$2,467,038
$2,008,302
$0.70
$0.69
$0.68
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
Pandemics, epidemics or disease outbreaks, such as the COVID-19 pandemic, may 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. Although mass vaccination programs have been implemented in many jurisdictions
worldwide and governments at varying levels have substantially removed restrictions relating to the COVID-19 pandemic, there can be
no certainty such measures will successfully control the spread or resurgence of COVID-19 or its variants, and the COVID-19 pandemic or
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, its variants, or other outbreaks 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 has been 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. Any such actions or
changes in operations in response to COVID-19 could materially impact the business, operations and financial results of Killam. Future
developments relating to the COVID-19 pandemic or other pandemics, epidemics or disease outbreaks, such as the possible resurgence
in COVID-19 or its variants and the severity thereof, 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 or other pandemics. There are no
comparable recent events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, it is not possible to
reliably estimate the duration and severity of the ultimate and long-term consequences of the COVID-19 pandemic, as well as their
impact on the financial position and results of Killam for future periods.
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. Further, there can be no assurance that any governmental action to
mitigate inflationary cycles will be taken or be effective. Central banks have increased interest rates in response to inflation, and
additional rate increases may occur. Governmental action, such as the imposition of higher interest rates or wage controls, may
negatively impact Killam's financial results. In particular, certain of Killam's debt is at variable rates of interest exposes Killam to interest
rate risk. If interest rates increase, Killam’s debt service obligations on the variable rate indebtedness would increase, as discussed under
"Interest Rate Risk" below. Continued inflation, any governmental response thereto, or Killam's inability to offset inflationary effects
may have a material adverse effect on Killam's business, financial condition and results of operations.
51
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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. Despite these risk mitigation efforts,
any increases in interest may have an adverse effect on Killam's business, financial condition and results of operations.
As at December 31, 2022, $218.6 million of Killam's debt had variable interest rates, including four construction loans totalling
$95.0 million, amounts drawn on credit facilities of $121.0 million and one demand loan totalling $2.6 million. These loans and facilities
have interest rates of prime plus 0.55%–1.25% or 105–155 bps above BAs (December 31, 2021 - prime plus 0.5%–1.25% or 105–245 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 $276.5 million. Assuming these mortgages are refinanced at
similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $2.8 million per year.
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, which may have a material adverse effect on Killam's business, financial condition and results of
operations. Killam manages cash resources based on financial forecasts and anticipated cash flows. The maturities of Killam’s long-
term financial liabilities are set out in note 26 to the consolidated financial statements. Killam staggers the maturities of its debt,
minimizing exposure to liquidity risk in any year. In addition, Killam’s apartments qualify for CMHC-insured debt, reducing the
refinancing risk on maturity. Killam’s MHCs and commercial properties do not qualify for CMHC-insured debt; however, they continue
to have access to mortgage debt.
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 4% of tenant receivables as at December 31, 2022 or 2021. Any credit risk that materializes may have a material adverse
effect on Killam's business, financial condition and results of operations.
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 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. Any
development risk that materializes may have a material adverse effect on Killam's business, financial condition and results of
operations.
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.
52
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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.
In response to COVID-19, Ontario capped residential rents on existing tenants for 2024 at 2.5% and British Columbia capped residential
rent increases on existing tenants at 2.0% for 2023. 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. 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 in order 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 is at the sole discretion of the Board, 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.
53
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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).
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;
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
•
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 and the ability of the Trust to undertake future
financings and acquisitions, and could also adversely affect the marketability of the Trust’s securities.
The REIT Exception is applied on an annual basis. Accordingly, if the Trust did not qualify for the REIT Exception in a particular taxation
year, it may be possible to restructure the Trust such that it may qualify in a subsequent taxation year.
There can be no assurances, however, that the Trust will be able to restructure such that it will not be subject to the tax imposed by the
SIFT Rules, or that any such restructuring, if implemented, would not result in material costs or other adverse consequences to the Trust
and unitholders. The Trust intends to take such steps as are necessary to ensure that, to the extent possible, it qualifies for the REIT
Exception and any negative effects of the SIFT Rules on the Trust and unitholders are minimized.
Other Canadian Tax Matters
There can be no assurance that Canadian federal income tax laws, the terms of the Canada-United States Income Tax Convention, or the
administrative policies and assessing practices of the Canada Revenue Agency will not be changed in a manner that adversely affects the
REIT or unitholders. Any such change could increase the amount of tax payable by the REIT or its affiliates and/or unitholders or could
otherwise adversely affect unitholders by reducing the amount available to pay distributions or changing the tax treatment applicable to
unitholders in respect of distributions. In structuring its affairs, the Trust consults with its tax and legal advisors and receives advice as to
the optimal method in which to complete its business objectives, while at the same time minimizing or deferring taxes where possible.
There is no guarantee that the relevant taxing authorities will not take a different view as to the ability of the Trust to utilize these
strategies. It is possible that one or more taxing authorities may review these strategies and determine that tax should have been paid,
in which case the Trust may be liable for such taxes.
Competition for Real Property Investments
Killam competes for suitable real property investments with individuals, corporations and institutions (both Canadian and foreign) that
are presently seeking, or that may seek in the future, real property investments similar to those desired by Killam. Many of these
investors will have greater financial resources than those of the Trust. An increase in the availability of investment funds, and an
increase in interest of real property investments, would tend to increase competition for real property investments, thereby increasing
purchase prices and reducing yields therefrom. In addition, Killam may require additional financing to complete future real property
acquisitions, which may not be available on terms acceptable to Killam.
Future Acquisitions of Real Property Investments
Unitholders will have no advance opportunity to evaluate the merits and risks of any future acquisitions of real property investments
made by Killam and will need to rely on the experience and judgment of Management. There can be no assurance that any such
acquisitions will be successfully completed. Management and the Board will have responsibility for and substantial discretion in the
making of such acquisitions. Therefore, the future profitability of Killam will depend upon the ability of Management to identify and
complete commercially viable acquisitions.
Zoning and Approval
Future acquisitions and development projects may require zoning and other approvals from local government agencies. The process of
obtaining such approvals may take months or years, and there can be no assurance that the necessary approvals for any particular
project will be obtained. Holding costs accrue while regulatory approvals are being sought, and delays could render future acquisitions
and developments uneconomical and may have a material adverse effect on Killam's business, financial condition and results of
operations.
Dependence on Key Personnel
The success of Killam will be largely dependent upon the quality and diversity 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.
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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, they 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, 2022, were $0.3 million (December 31, 2021 - $0.3 million). There is no assurance that any
lease will be extended or renewed on terms acceptable to Killam or at all. The extension or renewable of any ground lease on terms less
favourable to Killam or the expiration of any ground lease may have a material adverse effect on Killam's business, financial condition
and results of operations.
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 its ESG targets are insufficient, could adversely affect, among
other things, Killam's cost of capital, reputation and ability to attract capital or obtain insurance.
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.
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
International Conflict
International conflict and other geopolitical tensions and events, including war, military action, terrorism, trade disputes, and
international responses thereto have historically led to, and may in the future lead to, uncertainty or volatility in global energy and
financial markets. Russia's invasion of Ukraine has led to sanctions being levied against Russia by the international community and may
result in additional sanctions or other international action, any of which may have a destabilizing effect on global economies. Volatility in
energy and financial markets, including increased commodity prices, may adversely affect Killam's business, financial condition and
results of operations. The extent and duration of the current Russian-Ukrainian conflict and related international action cannot be
accurately predicted at this time and the effects of such conflict may magnify the impact of the other risks identified in this MD&A. The
situation is rapidly changing and unforeseeable impacts, including on Killam, its stakeholders, and parties on which we rely, may
materialize and may have an adverse effect on Killam's business, results of operation and financial condition.
Legal and Litigation Risk
Killam is subject to a wide variety of laws and regulations across all jurisdictions and faces risks associated with legal and regulatory
changes. If Killam fails to monitor and become aware of changes in applicable laws and regulations or if Killam fails to comply with these
changes in an appropriate and timely manner, it could result in fines and penalties, litigation, or other significant costs, as well as
significant time and effort to remediate any violations. Further, Killam may be involved in various claims and actions arising in the course
of operations. Accruals for litigation, claims and assessments are recognized if Killam determines that the loss is probable, and the
amount can be reasonably estimated. Killam believes it has made adequate provisions for such legal claims. Although the outcome of
these claims is uncertain, Killam does not expect these matters to have a material adverse effect on Killam's financial position, cash
flows or operational results. If an unfavorable outcome were to occur, there exists the possibility of a loss or material adverse impact on
Killam's financial position in the period in which the outcome is determined. Additionally, any legal claims or violations could result in
reputational damage to Killam both from an operating and an investment perspective.
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) to the consolidated financial statements. In
applying this policy, judgment is applied in determining the extent and frequency of utilizing independent, third-party appraisals to
measure the fair value of the Trust’s investment properties.
Additionally, judgment is applied in determining the appropriate classes of investment properties in order to measure fair value. The
Trust also undertakes internal capital improvements and upgrades. Such work is specifically identified, and the Trust applies judgment in
the estimated amount of directly attributable salaries to be allocated to capital improvements and upgrades of its investment
properties.
(iii) Financial instruments
The Trust’s accounting policies relating to financial instruments are described in note 2(M) to the consolidated financial statements.
Critical judgments inherent in these policies related to applying the criteria set out in IFRS 9 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.
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2022 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
(v) Revenue recognition
The Trust applies judgment about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a
customer. The Trust concluded that revenue for property management and ancillary services is to be recognized over time because the
tenant simultaneously receives and consumes the benefits provided by the Trust. Rents charged to tenants are generally charged on a
gross basis, inclusive of property management and ancillary services. If a contract is identified as containing more than one performance
obligation, the Trust allocates the total transaction price to each performance obligation in an amount based on an expected cost plus a
margin approach.
Key Accounting Estimates and Assumptions
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting
period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year. Actual results could differ from estimates.
(i) Valuation of investment properties
The choice of valuation method and the critical estimates and assumptions underlying the fair value determination of investment
properties are set out in note 5 to the consolidated financial statements. Significant estimates used in determining the fair value of the
Trust’s investment properties include capitalization rates and stabilized net operating income used in the overall capitalization rate
valuation method. A change to any one of these inputs could significantly alter the fair value of an investment property. Please refer to
note 5 for sensitivity analysis.
IPUC 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 23 to the consolidated financial statements.
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 and October 2022, the IASB issued amendments to IAS 1 Presentation of Financial Statements to specify the
requirements for classifying liabilities as current or non-current. The amendments clarify the definition of a right to defer settlement,
clarify what is meant by 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, 2024. The amendments must be applied
retrospectively, earlier application is permitted and must be disclosed. Management has determined that the Exchangeable Units will be
required to be presented as current. 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.
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2022 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, 2022, 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 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, 2022, 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. Based on that assessment, Killam determined that the
ICFR were designed and operating effectively as at December 31, 2022, and did not make any changes to the design of ICFR in 2022 that
have materially affected, or are reasonably likely to materially affect, the ICFR.
Related Party Transactions
Killam owns a 50% interest in two commercial properties located at 3700 & 3770 Kempt Road in Halifax, NS, and the remaining 50%
interest in these properties is owned by an executive and Trustee of Killam. These properties are managed by a third party. Killam's head
office occupies approximately 26,000 SF of one of the buildings with base rent of approximately $14.00 per SF, of which 50% is paid to
the related party based on the ownership interest.
The remuneration of directors and other key management personnel, which include the Board of Trustees, President & Chief Executive
Officer, Executive Vice President, Chief Financial Officer and other Vice-Presidents of Killam is as follows:
For the years ended December 31,
Salaries, board compensation and incentives
Deferred unit-based compensation
Total
Subsequent Events
2022
$5,978
2,191
$8,169
2021
$6,162
2,078
$8,240
On January 17, 2023, Killam announced a distribution of $0.05833 per unit, payable on February 15, 2023, to unitholders of record on
January 31, 2023.
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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, 2022, 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, 2023
Philip Fraser
President and Chief Executive Officer
Dale Noseworthy
Chief Financial Officer
Page 82
Page 83
Page 84
Page 85
Page 86
Consolidated Statements of Financial Position
In thousands of Canadian dollars,
Note
December 31, 2022
December 31, 2021
[5]
[8]
[9]
[10]
[6]
[9]
$4,812,801
$4,540,877
7,879
4,318
7,931
4,375
$4,824,998
$4,553,183
$9,150
9,580
4,597
11,205
34,532
$6,484
7,768
212
10,860
25,324
$4,859,530
$4,578,507
[17]
$2,273,169
$2,111,327
162
142
$2,273,331
$2,111,469
$1,639,335
$1,678,391
9,627
63,187
245,817
4,200
—
9,604
94,461
227,004
6,376
20
$1,962,166
$2,015,856
$340,107
121,014
94,972
67,940
624,033
$2,586,199
$4,859,530
$236,943
61,730
77,596
74,913
451,182
$2,467,038
$4,578,507
[11]
[12]
[16]
[23]
[19]
[11]
[13]
[14]
[15]
[28]
[29]
ASSETS
Non-current assets
Investment properties
Property and equipment
Other non-current assets
Current assets
Cash
Rent and other receivables
Residential inventory
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
1
Page 87
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
[20]
Year ended December 31,
2022
2021
$328,847
$290,917
[21]
[22]
[19]
[16]
[5]
[23]
(52,308)
(30,106)
(39,521)
(47,482)
(24,683)
(35,517)
(121,935)
(107,682)
$206,912
$183,235
1,797
1,059
(61,499)
(51,521)
(573)
(17,153)
2,234
29,497
(19,870)
141,345
(573)
(15,988)
(1,869)
(26,107)
239,684
327,920
(18,813)
(42,393)
$122,532
$122,532
$285,527
$285,527
122,516
285,514
16
13
$122,532
$285,527
122,516
285,514
16
13
$122,532
$285,527
2
Page 88
Consolidated Statements of Changes in Equity
In thousands of Canadian dollars,
Year ended December 31, 2022
Trust Units
Contributed
Surplus
Retained
Earnings
Non-controlling
Interest
Total Equity
As at January 1, 2022
$1,230,307
$795
$880,225
$142
$2,111,469
Units issued on exchange of
Exchangeable Units
Distribution reinvestment plan
Deferred Unit-based compensation
Issued for cash
Net income
Distributions on non-controlling interest
Distributions declared and paid
Distributions payable
As at December 31, 2022
1,777
25,000
752
93,471
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
122,516
—
(74,805)
(6,869)
—
—
—
—
16
4
—
—
1,777
25,000
752
93,471
122,532
4
(74,805)
(6,869)
$1,351,307
$795
$921,067
$162
$2,273,331
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
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
See accompanying notes to the consolidated financial statements.
3
Page 89
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
Interest expense on Exchangeable Units
Unrealized gain on derivative liability
Straight-line rent
Net impact of lease liabilities
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
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
Restricted cash
Acquisition of investment properties, net of debt assumed
Repayment (advance) on loan receivable
Development of investment properties
Capital expenditures
Cash used in investing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements.
Year ended December 31,
Note
2022
2021
$122,532
$285,527
(11,861)
(211,708)
573
3,846
2,191
18,813
171
2,790
(88)
(164)
62
573
3,784
2,078
42,393
65
2,766
(167)
(306)
68
[25]
(13,534)
15,469
$125,331
$140,542
(5,934)
93,471
(1,269)
(4,122)
104,361
(1,566)
283,027
381,133
(163,461)
(101,866)
(69,033)
(62,246)
59,284
96,058
54,701
54,140
(78,682)
(17,889)
16
—
(59,094)
(51,455)
$154,383
$355,191
62
357
(103,338)
(338,068)
225
(80,077)
(93,920)
(4,375)
(77,962)
(76,812)
($277,048)
($496,860)
2,666
6,484
$9,150
(1,127)
7,611
$6,484
4
Page 90
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, 2022. 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, 2022 were authorized for issue in
accordance with a resolution of the Board of Trustees of Killam on February 16, 2023.
(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 of the current inflationary environment, higher
interest rates and potential for government intervention and how increased uncertainty could impact the valuation of investment
properties. Killam has used the best information available as at December 31, 2022, 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 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.
5
Page 91
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 significant 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
% Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(ii) Joint arrangements
Killam has interests in and joint control in six properties, one development project 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 accounted for as asset acquisitions.
(E) Revenue Recognition
(i) Rental income
Revenue from rental properties represents the majority of Killam’s revenue and includes rents from tenants under leases, parking
income, laundry income and other miscellaneous income paid by the tenants under the terms of their existing leases. Rental
revenue from investment properties is recognized on a straight-line basis over the lease term. Rental payments are due from
tenants at the beginning of the month. The operating leases entered into with tenants create a legally enforceable right to control
the use of an identified asset by the tenant for a period of time and also require Killam to provide additional services. IFRS 16,
Leases (“IFRS 16”), provides guidance on “lease components” such as base rent, realty tax and insurance recoveries, which
therefore are outside of the scope of IFRS 15, Revenue from Contracts with Customers ("IFRS 15"). Property management and
ancillary income (such as utilities, parking and laundry) are considered non-lease components and are within the scope of IFRS 15.
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.
6
Page 92
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(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 recognized on a straight-line basis from
the date the lease termination is agreed to until the effective date of the lease termination.
(F) Tenant Inducements
Incentives such as cash, rent-free periods and move-in allowances may be provided to lessees to enter into a lease. These
incentives are amortized on a straight-line basis over the term of the lease as a reduction of rental revenue.
(G) Investment Properties
Investment properties include multi-family residential properties, MHC's and commercial properties held to earn rental income
and properties that are under construction or development for future use as investment properties and land held for future
development. Killam considers its income properties to be investment properties under IAS 40, Investment Property ("IAS 40"),
and has chosen the fair value model to account for its investment properties in the consolidated financial statements. Fair value
represents the amount at which the properties could be exchanged between a knowledgeable and willing buyer and a
knowledgeable and willing seller in an arm's length transaction at the date of valuation.
Killam's investment properties have been valued on a highest and best use basis and do not include any portfolio premium that
may be associated with the economies of scale from owning a large portfolio or the consolidation of value from having compiled a
large portfolio of properties over a long period of time, mostly through individual property acquisitions.
Investment properties are measured initially at cost, including transaction costs. Transaction costs include deed transfer taxes and
various professional fees. Subsequent to initial recognition, investment properties are recorded at fair value. Fair value is
determined based on a combination of internal and external processes and valuation techniques. Gains and losses arising from
changes in fair values are included in the consolidated statements of income and comprehensive income in the year in which they
arise. Investment property is derecognized when it has been disposed of or permanently withdrawn from use and no future
economic benefit is expected. Any gains or losses on the retirement or disposal of investment properties are recognized in the
consolidated statements of income and comprehensive income in the year of retirement or disposal.
Properties under development are also adjusted 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.
7
Page 93
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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) Residential Inventory
Residential inventory consists of assets acquired or developed that Killam does not intend to use for rental income purposes and
plans to sell in the ordinary course of business. Killam expects to earn a return on such assets through a combination of property
operating income earned during the holding period and sale proceeds. Inventory represents townhouses and manufactured
homes available for sale. Residential inventory is valued at the lower of cost and net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business based on market prices at the reporting date less costs to complete and
the estimated costs of sale.
(K) Consolidated Statements of Cash Flows
Cash consists of cash on hand and bank account balances excluding restricted cash.
(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.
8
Page 94
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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.
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.
9
Page 95
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
Exchangeable Units
The Exchangeable Units are considered a financial liability as there is a contractual obligation for the Trust to deliver Trust Units
upon exchange of the Exchangeable Units. The distributions on the Exchangeable Units are recognized as financing costs in the
consolidated statements of income and comprehensive income. The distributions payable as at the reporting date are reported
under other current liabilities on the consolidated statements of financial position. The Exchangeable Units are measured at each
reporting date at fair value, 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.
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 26 for further details.
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.
10
Page 96
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(N) Hedging Relationships
Killam may use interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are
initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair
value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
At the inception of a hedge relationship, Killam formally designates and documents the hedge relationship to which it wishes to
apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how Killam will
assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows
attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or
cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the
financial reporting periods for which they were designated.
Cash flow hedges
For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in
cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast
transaction.
The effective portion of the gain or loss on the hedging instrument is recognized directly in equity through other comprehensive
income, while any ineffective portion is recognized immediately in the consolidated statements of income and comprehensive
income. Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when
the hedged financial income or financial expense is recognized.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in equity are
transferred to the consolidated statements of income and comprehensive income. If the hedging instrument expires or is sold,
terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously
recognized in equity remain in equity until the forecast transaction or firm commitment occurs.
(O) 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.
(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.
11
Page 97
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(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.
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.
12
Page 98
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
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.
(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 a relative selling price method.
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.
13
Page 99
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
3. Critical Accounting Judgments, Estimates and Assumptions (continued)
(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.
(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 23.
IAS 7 Statement of Cash Flows - Demand Deposits with Restrictions on Use
In April 2022, the IFRS Interpretations Committee (the Committee) reached a conclusion on whether an entity includes a demand
deposit as a component on cash and cash equivalents in the statement of cash flows and financial position when the demand
deposit is subject to contractual restrictions on use agreed with a third party. The Committee concluded that restrictions on the
use of a demand deposit arising from a contract with a third party does not result in the deposit no longer being cash, unless those
restrictions change the nature of the deposit in a way that it would no longer meet the definition of cash in IAS 7. The conclusion is
applied in Killam's statement of financial position as at December 31, 2022, and the comparative period and the statement of cash
flows for the year ended December 31, 2022 and 2021, with a change in presentation of cash and cash equivalents and other
current assets.
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 and October 2022, the IASB issued amendments to IAS 1 Presentation of Financial Statements to specify the
requirements for classifying liabilities as current or non-current. The amendments clarify the definition of a right to defer
settlement, clarify what is meant by 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, 2024. The amendments must be applied
retrospectively, earlier application is permitted and must be disclosed. Management has determined that the Exchangeable Units
will be required to be presented as current. 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 100
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties
As at December 31, 2022
Apartments
MHCs Commercial
IPUC
Land for
Development
Total
Balance, January 1, 2022
$3,897,354
$231,370
$155,306
$201,319
$55,528
$4,540,877
Fair value adjustment on investment properties
(20,050)
(16,570)
(2,452)
19,801
—
(19,271)
Acquisitions
Transfer from IPUC
Capital expenditures
Transfer from land for development
Transfer to inventory
Interest capitalized on IPUC and land for development
109,840
170,337
91,388
1,394
—
—
2,577
—
6,242
—
—
—
3,960
—
4,000
120,377
—
(170,337)
—
—
7,096
—
—
—
63,217
21,710
(3,073)
2,559
2,536
170,479
(23,104)
—
—
853
(3,073)
3,412
Balance, December 31, 2022
$4,250,263
$223,619
$163,910
$135,196
$39,813
$4,812,801
As at December 31, 2021
Apartments
MHCs Commercial
IPUC
Land for
Development
Total
Balance, January 1, 2021
$3,218,369
$212,699
$139,130
$128,100
$43,620
$3,741,918
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
210,829
382,129
17,254
68,773
—
—
12,844
2,937
11,097
—
237,707
404
—
10,495
—
13,315
406,343
—
(17,254)
—
—
5,423
2,744
73,005
1,905
151,850
—
—
—
—
4,132
$2,239
(4,132)
—
$820
$3,059
Balance, December 31, 2021
$3,897,354
$231,370
$155,306
$201,319
$55,528
$4,540,877
During the year ended December 31, 2022, Killam acquired the following properties:
Property
Location
Acquisition
Date
Ownership
Interest
1477 & 1479 Carlton Street
Halifax, NS
16-Feb-22
Property Type
Apartment
Units/
SF Purchase Price (1)
$3,500
4
510-516 Quiet Place
150 Wissler Road (2)
Craigflower House
1358 & 1360 Hollis Street
665 & 671 Woolwich Street (3)
621 Crown Isle Blvd
100 %
100 %
Waterloo, ON
7-Mar-22
Apartment
24
Waterloo, ON
17-Mar-22
100 % Commercial/Development Land —
Victoria, BC
31-Mar-22
Halifax, NS
03-Apr-22
100 %
100 %
Apartment
Apartment
Guelph, ON
29-Apr-22
100 % Apartment/Development Land
Courtenay, BC
18-May-22
1876 & 1849 Riverside Lane
Courtenay, BC
18-May-22
Highland Village
Total Acquisitions
Amherst, NS
04-Jul-22
100 %
100 %
100 %
Apartment
Apartment
Permanent MHC
49
27
84
56
94
99
7,900
3,850
14,000
6,200
25,000
21,900
33,700
2,500
$118,550
(1) Purchase price does not include transaction costs.
(2) Property has in-place income acquired for future development potential located adjacent to Killam's Northfield Gardens complex in Waterloo.
(3) Property includes an existing 84-unit apartment building and an adjacent parcel of land for future development potential.
15
Page 101
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
Acquisition
Date
Ownership
Interest
Calgary, AB
21-Jan-21
Charlottetown, PE
29-Jan-21
Halifax, NS
29-Jan-21
Moncton, NB
01-Feb-21
Stratford, PE
01-Feb-21
Halifax, NS
07-May-21
Charlottetown, PE
01-Jun-21
St. John's, NL
08-Jun-21
Kitchener/Waterloo, ON
30-Jun-21
Moncton, NB
15-Sept-21
Stratford, PE
06-Oct-21
Moncton, NB
18-Oct-21
Edmonton, AB
28-Oct-21
Stratford, PE
29-Oct-21
Edmonton, AB
9-Nov-21
Halifax, NS
1-Dec-21
Moncton, NB
20-Dec-21
100 %
100 %
100 %
100 %
100 %
100 %
25 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Property Type
Apartment
Purchase Price (1)
$49,500
Development Land
Development Land
Apartment
Development Land
Development Land
Commercial
Apartment
Apartment
MHC Land
Apartment
Apartment
Apartment
Development Land
Apartment
Apartment
Apartment
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, 2022, Killam capitalized salaries of $6.2 million (year ended December 31, 2021 - $4.3 million),
as part of its project improvement, suite renovation and development programs. For the year ended December 31, 2022, interest
costs associated with the general corporate borrowings used to fund development were capitalized to the respective development
projects using Killam's weighted average borrowing rate of 3.01% (December 31, 2021 - 2.52%). 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 $4.6 billion as at December 31, 2022 (December 31, 2021 - $4.3 billion), have been
pledged as collateral against Killam's mortgages, construction loan and credit facilities.
16
Page 102
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 26 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 22
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.
17
Page 103
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 3.25% to 7.00%, applied to a stabilized net operating income ("SNOI") of $190.5 million (December 31, 2021 - 3.00% to
7.00% and $172.4 million), resulting in an overall weighted average effective cap-rate of 4.48% (December 31, 2021 - 4.41%). The
stabilized occupancy rates used in the calculation of SNOI were in the range of 96.0% to 99.0% (December 31, 2021 - 94.0% to
99.0%). Using the direct income capitalization method, the MHC properties were valued using cap-rates in the range of 5.25% to
6.50%, applied to a SNOI of $12.6 million (December 31, 2021 - 5.00% to 6.50% and $12.5 million), resulting in an overall weighted
average effective cap-rate of 5.78% (December 31, 2021 - 5.59%). The stabilized occupancy rate used in the calculation of SNOI was
98.1% (December 31, 2021 - 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 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 7.67% (December 31,
2021 - 7.48%).
Killam reviewed its valuation of investment properties in light of higher inflation and increased borrowing costs as at December 31,
2022. It is not possible to forecast with certainty the duration and full scope of the economic impact of COVID-19, current inflationary
pressures 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, expense growth 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, higher inflation and increased borrowing costs.
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:
Apartments
MHCs
December 31, 2022
December 31, 2021
Low
3.25%
5.25%
High
7.00%
6.50%
Effective
Weighted
Average
4.48%
5.78%
Low
3.00%
5.00%
High
7.00%
6.50%
Effective
Weighted
Average
4.41%
5.59%
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) %
$518,050
219,380
(46,479)
(284,671)
(499,315)
(1) Includes Killam's apartment and MHC portfolios, which are valued using the direct income capitalization method, and commercial
(2.00) %
$465,868
170,216
(92,958)
(328,744)
(541,220)
— %
$570,231
268,545
—
(240,598)
(457,410)
2.00%
$674,593
366,873
92,958
(152,453)
(373,601)
1.00%
$622,412
317,709
46,479
(196,525)
(415,505)
(0.50) %
(0.25) %
—%
0.25%
0.50%
assets valued using a discounted cash flow approach. The sensitivity for commercial assets is calculated using an implied
capitalization rate based on the stabilized NOI of the properties.
18
Page 104
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
6. Residential Inventory
Residential inventory consists of assets that are for sale in ordinary course of business and MHC home inventory.
Balance, beginning of period
Net change in MHC home inventory
Transferred from IPUC
Capital expenditures
Sale of inventory under construction
Balance, end of period
Year ended
December 31, 2022
Year ended
December 31, 2021
$212
(60)
3,073
5,780
(4,408)
$4,597
$9
203
—
—
—
$212
As at December 31, 2022, residential inventory consists of the development of townhouses in Charlottetown, PE, and MHC home
inventory intended for resale. In December 2022, Killam sold a 50% interest in the development of the townhouses in
Charlottetown, PE.
7. Joint Operations and Investments in Joint Venture
Killam has interests in six properties, one development project 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, 2022, the fair value of the investment properties subject to joint control was $364.8 million
(December 31, 2021 - $371.5 million).
19
Page 105
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
8. Property and Equipment
As at
Land
Building
Heavy equipment
Vehicles
Furniture, fixtures and office equipment
Leasehold improvements
Less accumulated depreciation
December 31, 2022
December 31, 2021
Cost
$270
2,243
524
3,218
7,012
3,971
17,238
(9,359)
$7,879
Accumulated
Depreciation
$—
Cost
$270
598
2,245
227
1,462
6,086
498
2,901
6,836
986
3,971
9,359
16,721
(8,790)
$7,931
Accumulated
Depreciation
$—
564
203
1,283
5,887
853
8,790
9. Other Current Assets and Non-Current Assets
Cash and Cash Equivalents
As at December 31, 2022, Killam had $9.2 million (December 31, 2021 - $6.5 million) in cash and cash equivalents, consisting of $2.5
million in operating cash and $6.7 million in security deposits (December 31, 2021 - $0.5 million and $6.0 million).
Other Current Assets
As at
Restricted cash
Deposits
Prepaid expenses
Restricted cash consists of property tax reserves.
Other Non-Current Assets
December 31, 2022
December 31, 2021
$1,377
1,548
8,280
$11,205
$1,437
1,575
7,848
$10,860
As at December 31, 2022, Killam had a $0.1 million derivative asset (December 31, 2021 - $0.02 million derivative liability) and a loan
receivable of $4.3 million (December 31, 2021 - $4.4 million) from its 25% joint owner of 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 in June 2021.
20
Page 106
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
10. Rent and Other Receivables
As at
Rent receivable
Other receivables
December 31, 2022
December 31, 2021
$1,457
8,123
$9,580
$809
6,959
$7,768
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.
11. Mortgages and Loans Payable
As at
December 31, 2022
December 31, 2021
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
Mortgages and loans payable
Fixed rate
Variable rate
Total
Current
Non-current
2.74 %
6.25 %
$1,976,842
2,600
$1,979,442
340,107
1,639,335
$1,979,442
2.58 %
2.37 %
$1,907,064
8,270
$1,915,334
236,943
1,678,391
$1,915,334
Mortgages are collateralized by a first or second charge on the properties of Killam.
As at December 31, 2022, unamortized deferred financing costs of $39.1 million (December 31, 2021 - $37.0 million) and mark-
to-market adjustments on mortgages assumed on acquisitions of $1.2 million (December 31, 2021 - $0.8 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, 2022, are as follows:
Principal Amount
% of Total Principal
2023
2024
2025
2026
2027
Subsequent to 2027
Unamortized deferred financing costs
Unamortized mark-to-market adjustments
340,107
345,433
372,184
239,442
166,902
555,706
$2,019,774
($39,115)
($1,217)
$1,979,442
16.8%
17.1%
18.4%
11.9%
8.3%
27.5%
100.0%
21
Page 107
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
12. Lease Liabilities
Balance, beginning of year
Net change in lease liabilities
Balance, end of year
2022
$9,604
23
$9,627
2021
$9,573
31
$9,604
As at December 31, 2022, the right-of-use assets and lease liabilities are $9.6 million (December 31, 2021 - $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, 2022, were $0.4 million
(December 31, 2021 - $0.4 million).
13. 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, 2021 - $155.0 million and $15.0 million) that can be used for acquisition and general business purposes.
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, 2022. The facility matures December 16, 2024 and includes a one-year
extension option.
The $15.0 million demand facility bears interest at prime plus 125 bps on advances and 155 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, 2022.
As at December 31, 2022
$155.0 million facility
$15.0 million facility
Total
As at December 31, 2021
$155.0 million facility
$15.0 million facility
Total
Maximum Loan
Amount(1)
$175,000
15,000
$190,000
Maximum Loan
Amount(1)
$175,000
15,000
$190,000
Amount Drawn
Letters of Credit Amount Available
112,000
9,014
$121,014
—
2,320
$2,320
$63,000
3,666
$66,666
Amount Drawn
Letters of Credit
Amount Available
54,500
7,230
$61,730
—
1,745
$1,745
$120,500
6,025
$126,525
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
14. Construction Loans
As at December 31, 2022, Killam had access to six variable rate non-revolving demand construction loans for the purpose of
financing development projects, totalling $152.8 million. As at December 31, 2022, $95.0 million was drawn on the
construction loans (December 31, 2021 - $77.6 million). Payments are made monthly on an interest-only basis. The weighted-
average contractual interest rate on amounts outstanding at December 31, 2022, was 5.99% (December 31, 2021 - 2.01%).
Once construction is complete and rental targets achieved, construction financing is expected to be replaced with permanent
mortgage financing.
22
Page 108
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
15. Accounts Payable and Accrued Liabilities
As at
Accounts payable and other accrued liabilities
Distributions payable
Mortgage interest payable
Security deposits
16. Exchangeable Units
December 31, 2022 December 31, 2021
$44,004
7,096
4,250
12,590
$67,940
$53,109
6,737
3,873
11,194
$74,913
2022
2021
Number of
Exchangeable Units
Value
Number of
Exchangeable Units
Value
Balance, beginning of year
4,004,270
$94,461
4,101,520 $70,177
Exchangeable Units exchanged for Trust Units
(106,250)
(1,777)
(97,250)
(1,823)
Fair value adjustment
Balance, end of year
—
(29,497)
—
26,107
3,898,020
$63,187
4,004,270 $94,461
The Exchangeable Units are non-transferable, but are exchangeable, on a one-for-one basis, into Killam Trust Units at any time
at the option of the holder. Prior to such exchange, distributions will be made on these Exchangeable Units in an amount
equivalent to the distributions that would have been made had the Units been exchanged for Killam Trust Units.
17. Unitholders' Equity
By virtue of Killam being an open-ended mutual fund Trust, unitholders of Trust Units are entitled to redeem their Trust Units at
any time at prices determined and payable in accordance with the conditions specified in Killam’s 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, 2022, no unitholders redeemed Units.
The Units issued and outstanding are as follows:
Balance, December 31, 2021
Distribution Reinvestment Plan
Restricted Trust Units redeemed
Units issued on exchange of Exchangeable Units
Units issued for cash
Balance, December 31, 2022
Number of Trust Units
110,557,466
1,360,631
61,205
106,250
4,715,000
Value
$1,230,307
25,000
752
1,777
93,471
116,800,552
$1,351,307
23
Page 109
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
17. Unitholders' Equity (continued)
Units issued for cash
Price per Unit
Gross Proceeds Transaction Costs Net Proceeds
Units Issued
Bought-deal (February 4, 2022)
Over-allotment (February 4, 2022)
$20.80
$20.80
Total
$85,280
12,792
$98,072
$4,080
521
$4,601
$81,200
12,271
$93,471
4,100,000
615,000
4,715,000
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.
Normal Course Issuer Bid
In May 2022, Killam announced that the TSX had accepted Killam's notice of intention to make a normal course issuer bid for its
Trust Units. Under the normal course issuer bid, Killam may acquire up to 3,000,000 Trust Units commencing on June 2, 2022, and
ending on June 1, 2023. All purchases of Trust Units are made through the facilities of the TSX at the market price of the Trust
Units at the time of acquisition. Daily repurchases by Killam are limited to 53,703 Trust Units, other than block purchase
exemptions. Any Trust Units acquired will be cancelled.
18. Distributions
Killam paid distributions to its unitholders during 2022 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, 2022, the distributions declared related to the Trust Units were $81.7 million (year ended
December 31, 2021 - $74.9 million). For the year ended December 31, 2022, distributions declared related to the Exchangeable
Units were $2.8 million (year ended December 31, 2021 - $2.8 million). The distributions on the Exchangeable Units are
recorded in financing costs.
19. Deferred Unit-based Compensation
Restricted Trust Units ("RTUs") are awarded to members of the senior executive team and director-level employees as a
percentage of their compensation. The Trust also grants RTUs subject to performance conditions under the RTU Plan for certain
senior executives. Non-executive members of the Board of Trustees have the right to receive a percentage of their annual
retainer in the form of RTUs.
The number of RTUs awarded are based on the volume weighted average price of all Trust Units traded on the TSX for the five
trading days immediately preceding the date on which the compensation is awarded. The RTUs earn distributions based on the
same distributions paid on the Trust Units, and such distributions translate into additional RTUs. The initial RTUs, and RTUs
acquired through distribution reinvestment, are credited to each person's account and are not issued to the employee or Board
member until they redeem such RTUs. For employees, the RTUs will be redeemed and paid out in Trust Units by December 31
of the year in which the RTUs have vested.
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, 2022, is $4.2 million, which includes $1.5 million related to RTUs subject to
performance conditions (December 31, 2021 - $6.4 million and $2.6 million). For the year ended December 31, 2022,
compensation expense of $2.2 million (year ended December 31, 2021 - $2.1 million) has been recognized in respect of the
RTUs.
24
Page 110
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
19. 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
20. Revenue
2022
2021
Number of
RTUs
Weighted
Average Issue
Price
Number of
RTUs
Weighted
Average Issue
Price
359,172
133,652
(127,867)
(12,502)
14,030
366,485
$18.10
20.91
17.10
19.88
18.46
$19.44
351,734
143,054
(148,016)
—
12,400
359,172
$16.93
18.14
13.09
—
19.92
$18.10
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.
21. Other Income
Management and leasing fee revenue
Interest revenue
Home sale revenue
For the years ended December 31,
2022
$240,058
75,635
13,154
2021
$212,369
66,911
11,637
$328,847
$290,917
For the years ended December 31,
2022
1,199
356
242
$1,797
2021
701
237
121
$1,059
25
Page 111
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
22. 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 on derivative liability
Interest on lease liabilities
Capitalized interest
For the years ended December 31,
2022
$54,077
3,774
2,790
3,846
171
(88)
391
(3,462)
$61,499
2021
$46,683
1,063
2,766
3,784
65
(167)
386
(3,059)
$51,521
26
Page 112
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
23. Deferred Income Tax
Trusts that satisfy the REIT Exemption are excluded from the specified investment flow-through ("SIFT") definition and therefore
will not be subject to taxation under the SIFT Rules. Effective December 31, 2021, Killam qualified for the REIT Exemption and
continues to meet the REIT Exemption as at December 31, 2022, 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, 2022, 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
$18,947
1,092
(1,909)
683
2021
$235,765
(17,267)
3,636
4,870
2022
$254,712
(16,175)
1,727
5,553
$227,004
$18,813
$245,817
Recognized in
consolidated
statement of
income and
comprehensive
income
$43,812
(2,060)
(107)
748
2020
$191,953
(15,207)
3,743
4,122
2021
$235,765
(17,267)
3,636
4,870
$184,611
$42,393
$227,004
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
2022
2021
$141,345
$327,920
28.3%
39,987
(38,493)
(1,727)
(480)
(442)
19,968
$18,813
28.3%
92,933
(91,409)
(3,636)
(65)
21
44,549
$42,393
27
Page 113
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
24. 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, 2022
Apartments
MHCs
Commercial
Total
Property revenue
Property operating expenses
Net operating income
$289,790
(106,365)
$183,425
$19,790
(7,170)
$12,620
$19,267
$328,847
(8,400)
(121,935)
$10,867
$206,912
Year ended December 31, 2021
Apartments
MHCs
Commercial
Total
Property revenue
Property operating expenses
Net operating income
As at December 31, 2022
Total investment properties (1)
Mortgages payable/construction loans
As at December 31, 2021
Total investment properties (1)
Mortgages payable/construction loans
$254,955
(92,899)
$162,056
$18,578
(6,824)
$11,754
$17,384
$290,917
(7,959)
$9,425
(107,682)
$183,235
Apartments
$4,425,272
$1,947,387
Apartments
$4,154,201
$1,872,976
MHCs
Commercial
Total
$223,619
$90,598
$163,910
$4,812,801
$36,429
$2,074,414
MHCs
Commercial
Total
$231,370
$83,013
$155,306
$4,540,877
$36,941
$1,992,930
(1) Total investment properties for the Apartments segment includes IPUC and land held for development.
28
Page 114
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
25. Supplemental Cash Flow Information
Net income items related to investing and financing activities
Interest paid on mortgages payable and other
Interest paid on credit facilities
Net change in non-cash operating assets and liabilities
Rent and other receivables
Other current assets
Accounts payable and other liabilities
For the years ended December 31,
2022
2021
$54,647
3,774
$58,421
($1,812)
(363)
(6,974)
($13,534)
$47,212
1,063
$48,275
($1,207)
669
16,007
$15,469
26. Financial Instruments and Financial Risk Management Objectives and Policies
Killam’s principal financial liabilities consist of mortgages, credit facilities, construction loans and trade payables. The main
purpose of these financial liabilities is to finance investment properties and operations. Killam has various financial assets, such as
tenant receivables, 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.
29
Page 115
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
The significant financial instruments and their carrying values as at December 31, 2022, and December 31, 2021, are as follows:
As at
Classification
Financial assets carried at FVTPL:
Derivative asset (1)
Financial liabilities carried at amortized cost:
Mortgages and loans payable (2)
Financial liabilities carried at FVTPL:
Exchangeable Units
Derivative liability (1)
Deferred unit-based compensation
December 31, 2022
December 31, 2021
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$68
$68
—
—
$1,979,442
$1,926,902
$1,915,334
$1,964,015
$63,187
—
$4,200
$63,187
—
$4,200
$94,461
$20
$6,376
$94,461
$20
$6,376
(1) The $0.07 million derivative asset is included in other non-current assets within the consolidated statements of financial position
(December 31, 2021 - $0.2 million derivative liability included in other non-current liabilities).
(2) Mortgages and loans payable does not include construction loans and credit facilities, the carrying value of these line items represents fair
value.
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, 2022, which is in-line with Killam's weighted average years to maturity of 3.8 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, 2022
December 31, 2021
4.41 %
5.41 %
2.40 %
3.00 %
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
December 31, 2022
December 31, 2021
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Investment properties
Derivative asset (1)
Liabilities
Exchangeable Units
Derivative liability (1)
Deferred unit-based compensation
—
—
—
—
—
—
$4,812,801
$68
$63,187
—
—
—
—
$3,459
$741
—
—
—
—
—
—
$4,540,877
—
$94,461
$20
—
—
—
$4,859
$1,517
(1) The $0.07 million derivative asset is included in other non-current assets within the condensed consolidated interim statements of financial
position (December 31, 2021 - $0.02 million derivative liability included in other non-current liabilities).
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, 2022.
30
Page 116
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
Risk Management
Killam may enter into derivative transactions, primarily interest rate swap contracts to manage interest rate risk arising from
fluctuations in bond yields, as well as natural gas and oil swap contracts to manage price risk arising from fluctuations in these
commodities. It is, and has been, Killam’s policy that no speculative trading in derivatives shall be undertaken. The main risks
arising from Killam’s financial instruments are interest rate risk, credit risk and liquidity risk. These risks are managed as follows:
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, 2022, $218.6 million of Killam's debt had variable interest rates, including construction loans totalling $95.0
million, amounts drawn on credit facilities of $121.0 million and one demand loan totalling $2.6 million. These loans and facilities
have interest rates of prime plus 0.55% - 1.25% or 105 - 155 bps above BAs (December 31, 2021 - prime plus 0.5% - 1.25% or
105-245 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 $276.5 million. Assuming these mortgages are
refinanced at similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $2.8 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, 2022 or 2021.
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, 2022, Killam refinanced $130.3 million of maturing apartment mortgages with new
mortgages totaling $182.6 million, generating net proceeds of $52.3 million. In addition, during the year ended December 31,
2022, Killam refinanced $21.3 million of maturing MHC and commercial mortgages with new mortgages totaling $30.4 million,
generating net proceeds of $9.2 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
2023
2024
2025
2026
2027
Thereafter
340,107
345,433
372,184
239,442
166,902
555,706
Construction
loans (1)
94,972
—
—
—
—
—
Credit facilities
9,014
112,000
—
—
—
—
Total
444,093
457,433
372,184
239,442
166,902
555,706
(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.
$2,019,774
$94,972
$121,014
$2,235,760
31
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Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
27. 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, 2022
December 31, 2021
$1,979,442
$1,915,334
121,014
94,972
$2,195,428
$4,849,903
45.3 %
61,730
77,596
$2,054,660
$4,568,903
45.0 %
(1) Excludes right of use asset of $9.6 million as at December 31, 2022 (December 31, 2021 - $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)
$5,393,122
$5,091,436
$4,812,801
$4,582,293
$4,365,481
Total Assets
$5,430,224
$5,128,538
$4,849,903
$4,619,395
$4,402,583
Total Debt as % of
Total Assets
40.4%
42.8%
45.3%
47.5%
49.9%
Change (bps)
(480)
(250)
—
230
460
(1) The cap-rate sensitivity is calculating 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. The
sensitivity for commercial assets is calculated using an implied capitalization rate based on the stabilized NOI of the properties.
28. 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 which are expected to
occur in late 2023.
Killam entered into a supply contract for natural gas to hedge its own usage, which is summarized below:
Area
Ontario
Alberta
Alberta
Utility
Gas
Gas
Usage Coverage
Term
Cost
25%
25%
December 1, 2021 - October 31, 2023
$4.70/GJ
December 1, 2021 - December 31, 2023
$3.81—$4.77/GJ
Electricity
25%—50%
January 1, 2023 - December 31, 2024
$123.86/MWh
32
Page 118
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
29. Financial Guarantees
Killam is the guarantor on a joint and several basis for mortgage debt held through its joint operations. As at December 31, 2022,
the maximum potential obligation resulting from these guarantees is $71.2 million, related to long term mortgage financing
(December 31, 2021 - $75.1 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, 2022,
determined that a provision is not required to be recognized in the consolidated statements of financial position (December 31,
2021 - $nil).
30. Related Party Transactions
Killam owns a 50% interest in two commercial properties located at 3700 & 3770 Kempt Road in Halifax, NS, and the remaining
50% interest in these properties is owned by an executive and Trustee of Killam. These properties are managed by a third party.
Killam's head office occupies approximately 26,000 square feet 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
2022
$5,978
2,191
$8,169
2021
$6,162
2,078
$8,240
On January 17, 2023, Killam announced a distribution of $0.05833 per unit, payable on February 15, 2023, to unitholders of
record on January 31, 2023.
33
Page 119
Five-Year Summary
Five-Year Summary
In thousands (except per unit)
Statement of Income Information
2022
2021
2020
2019
2018
Revenue
Operating expenses
Net operating income
Other income
Financing costs
Administration
Depreciation
Fair value adjustments
Loss on disposition
Deferred tax expense
Net income
$328,847
$290,917
$261,690
$242,164
$215,959
($121,935)
($107,682)
($97,836)
($89,828)
($80,247)
$206,912
$183,235
$163,854
$152,336
$135,712
$1,797
$1,059
$641
$6,059
$965
($61,499)
($51,521)
($48,919)
($47,443)
($42,648)
($17,153)
($15,988)
($13,936)
($14,881)
($14,201)
($573)
($573)
($630)
($720)
($859)
$11,861
$211,708
$54,620
$230,079
$127,877
$-
$-
$-
($1,269)
($197)
($18,813)
($42,393)
($9,590)
($40,636)
($31,478)
$122,532
$285,527
$146,040
$283,525
$175,171
Net income attributable to unitholders
$122,516
$285,514
$146,024
$283,536
$175,144
Funds From Operations (FFO)
2022
2021
2020
2019
2018
FFO
FFO per unit (diluted)
$132,603
$119,235
$104,678
$93,884
$81,808
$1.11
$1.07
$1.00
$0.98
$0.94
Statement of Financial Position Information
2022
2021
2020
2019
2018
Total assets
Total liabilities
Total equity
$4,859,530
$4,578,507
$3,776,560
$3,380,100
$2,824,406
$2,586,199
$2,467,038
$2,008,302
$1,777,733
$1,655,456
$2,273,331
$2,111,469
$1,768,258
$1,602,367
$1,168,950
Statement of Cash Flow Information
2022
2021
2020
2019
2018
Cash provided by operating activities
$125,331
$142,542
$123,514
$95,208
$89,738
Cash provided by financing activities
$154,383
$355,191
$224,396
$149,708
$237,657
Cash used in investing activities
($277,048)
($496,860)
($358,155)
($232,904)
($335,606)
Unit Information(1)
Weighted average number of units (diluted)(1)
Units outstanding at December 31(1)
Unit price at December 31
2022
119,678
120,699
$16.21
2021
111,626
114,561
$23.59
2020
104,503
107,314
$17.11
2019
95,914
102,017
$18.94
2018
87,185
90,212
$15.89
Market Capitalization at December 31(1)
$1,956,531
$2,702,494
$1,836,143
$1,932,202
$1,433,469
Distributions paid per unit
$0.70
$0.70
$0.68
$0.66
$0.64
(1) Includes Trust Units and Exchangeable Units.
Page 120
Executive Team
Left to Right
Philip Fraser, President & Chief Executive Officer
Robert Richardson, Executive Vice President
Dale Noseworthy, Chief Financial Officer
Michael McLean, Senior Vice President, Developments
Ruth Buckle Senior, Vice President, Property Management
Erin Cleveland, Senior Vice President, Finance
Carrie Curtis, Vice President, Ontario & Alberta
Brian Jessop, Vice President, Operations
Jeremy Jackson, Vice President, Marketing
Colleen McCarville, Vice President, Human Resources
Board of Trustees
Trust Information
PHILIP FRASER
President & CEO, Killam Apartment REIT
Halifax, Nova Scotia
AUDITORS
Ernst & Young, LLP
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(1)(2)
President, Landal Inc.
Moncton, New Brunswick
JAMES LAWLEY
President, Salters Gate Developments
Halifax, Nova Scotia
DOUG MACGREGOR(1)
Trustee
Toronto, Ontario
LAURIE MACKEIGAN, CPA, CA, CPA (IL)(2)(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
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
UNIT LISTING
Toronto Stock Exchange (TSX)
Trading Symbol: KMP.UN
2022 ANNUAL DISTRIBUTION
$0.70 per unit
HEAD OFFICE
3700 Kempt Road, Suite 100
Halifax, NS B3K 4X8
902.453.9000
866.453.8900
INVESTOR INQUIRIES
investorrelations@killamreit.com
902.442.5322
(1) Member of the Governance and ESG Committee.
(2) Member of the Compensation and Human Resources Committee.
(3) Member of the Audit Committee.
Annual
Meeting
The Annual Meeting of
Unitholders will be held on
Friday, May 5, 2023
9:00 am Atlantic Time
Courtyard by Marriott
5120 Salter Street, Halifax, NS
Page 121
Killam
Apartment
REIT
Suite 100
3700 Kempt Road
Halifax, Nova Scotia
B3K 4X8
1.866.453.8900
killamreit.com
TSX: KMP.UN
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