Management’s Discussion and Analysis Dollar amounts are in thousands of Canadian dollars (except as noted) Apartment Property Expenses Utility and Fuel Expense ‑ Same Store Killam’s apartment properties are heated with a combination of natural gas (55%), electricity (36%), oil (8%) and other sources (1%). Electricity costs at the unit level are usually paid directly by tenants, reducing Killam’s exposure to the majority of the 4,500 units heated with  electricity. Fuel costs associated with natural gas or oil fired heating plants are paid by Killam. As such, the Company is exposed to fluctuations  in natural gas and oil costs, which represent 40.9% of total same store utility and fuel costs in 2013. Killam invests in green initiatives at its  properties to maximize efficiencies, including converting many of its Halifax properties to natural gas from oil over the last three years as natural  gas infrastructure has been expanded in the city. The decision to convert was supported by the substantial price difference between the cost of  natural gas and oil in recent years. As noted in the table above, Killam’s utility and fuel expenses increased 14.6% in 2013 compared to 2012. The increase was primarily attributable  to higher natural gas, electricity costs and water costs.  Killam’s natural gas expenses increased by 67.3% in 2013 due to higher gas prices in Atlantic Canada and an increase in properties burning  natural gas following conversions of certain Halifax heating plants from oil to gas in 2012 and 2013. The reduction in oil expense in the quarter  and year‑to‑date reflects this reduction in oil exposure. As the following chart highlights, the per gigajoule (Gj) commodity cost for natural gas in New Brunswick and Nova Scotia was much higher  than NYMEX in 2013 and less correlated to NYMEX than in previous years. (NYMEX is the New York Mercantile Exchange, a commodity futures  exchange. Henry Hub, a gas distribution hub in Louisiana is the pricing point for natural gas futures contracts traded on NYMEX). The cost of  natural gas in Atlantic Canada and New England experienced a spike from December 2012 until late spring 2013 and a second spike in December  2013, compared to other areas of Canada. Those spikes were both due to increased demand from utilities in Northeast New England and a  shortage of gas pipeline capacity in Northeastern New England and Atlantic Canada. A temporary decline in gas supply off the coast of Nova  Scotia further contributed to the high pricing in the first part of the year. 38  Killam ProPerties inc | 2013  $4.40  $9.97  $15.49 $0  $2  $4  $6  $8  $10  $12  $14  $16  $18  D e $_{c}$ 2 0 0 9 F e b  2 0 1 0 a p $_{r}$ 2 0 1 0 $_{J}$u n  2 0 1 0 a u g  2 0 1 0 o c $_{t}$ 2 0 1 0 D e $_{c}$ 2 0 1 0 F e b  2 0 1 1 a p $_{r}$ 2 0 1 1 $_{J}$u n $_{ }$2 0 1 1 a u g  2 0 1 1 o c $_{t}$ 2 0 1 1 D e $_{c}$ 2 0 1 1 F e b  2 0 1 2 a p $_{r}$ 2 0 1 2 $_{J}$u n  2 0 1 2 a u g  2 0 1 2 o c $_{t}$ 2 0 1 2 D e $_{c}$ 2 0 1 2 F e b  2 0 1 3 a p $_{r}$ 2 0 1 3 $_{J}$u n  2 0 1 3 a u g  2 0 1 3 o c $_{t}$ 2 0 1 3 D e $_{c}$ 2 0 1 3 Henry Hub  new Brunswick Gas  Historic Natural Gas Pricing ($ per Gj) Henry Hub Vs. Heritage Gas For the years ended December 31,  Same store apartment property expenses increased5.5% for the year ended December 31, 2013, due primarily to increased utility and fuel  expenses as a result of high natural gas prices in Atlantic Canada, and higher electricity costs. 2013 2012 % change natural gas $4,565 $2,729 67.3% oil 1,523 2,095 (27.3)% electricity 5,197 4,671 11.3% Water 3,582 3,474 3.1% other 30 33 (9.1)% Total utility and fuel expenses $14,897 $13,002 14.6%