Management’s Discussion and Analysis Dollar amounts are in thousands of Canadian dollars (except as noted) MHCs ‑ Capital Spend A summary of the capital spend on the MHC segment is included below: For the years ended December 31, 2013 2012 % change Water & sewer upgrades $2,212 $1,812 22.1% roads and paving 255 421 (39.4)% equipment 21 36 (41.7)% other 465 527 (11.8)% Site expansion and land improvements 552 549 0.5% Total capital spend ‑ MHCs $3,505 $3,345 4.8% average number of units outstanding 7,207 8,251 (12.7)% capital spend per unit $486 $405 20.0% Management expects to spend between $300 and $400 in capital per MHC site on an annual basis. As with the apartment portfolio, a portion of  the MHC capital is considered maintenance capital and a portion is value enhancing. Management estimates that $100 per unit is maintenance  capital, including costs to support the existing infrastructure, and the remaining amount increases the value of the properties, with improved  roadways, ability to accommodate future expansion, and community enhancements, such as the addition of playgrounds. The cost of most  capital projects will be recovered through above guideline increases in the provinces with rent control, leading to increased NOI for the  investment.  For the year ended December 31, 2013, Killam spent $2.2 million on water and sewer upgrades, an increase of 22.1% over 2012 due to the  installation of several new water systems and upgrades to existing water and sewer infrastructure. This capital work fluctuates from year‑to‑year  with only $1.8 million invested in 2012 but $3.1 million in 2011. the high water upgrade costs in 2013 resulted in the per unit mHc spend being  above Killam’s expectation of $300 ‑ $400 per year. As with the apartment portfolio, the timing of capital spending changes based on requirements at each community. Killam expects to invest $1  million to $2 million during 2014 on capital improvements across the MHC portfolio. The Company’s sources of capital are cash generated from operating activities, credit facilities, mortgage financing and refinancing, and equity  and debt issuances. The Company’s primary use of capital includes property acquisitions and developments, major property improvements,  recurring property maintenance, debt principal and interest payments, and payment of dividends. The Company anticipates meeting all current  and future obligations with current cash and cash equivalents, cash flow generated from operations and conventional mortgage refinancing and  that the Company will be able to obtain financing on reasonable terms. Killam’s ability to grow through acquisitions and development will be dependent on the ability to access mortgage debt, construction financing  and to raise equity in the capital markets. Killam had cash on hand of $27.7 million at December 31, 2013, primarily as a result of the net  proceeds of $42.6 million related to the sale of the ten MHC properties in the fourth quarter of 2013. Killam utilized part of the sale proceeds  to retire a $10 million vendor take‑back (“VTB”) loan and acquire additional properties, and expects to redeploy the remaining funds during the  first quarter of 2014. Based on 60% debt on acquisitions, the Company expects to complete an additional $60 million in accretive apartment  acquisitions. The Company also has $139.3 million in debt maturing during 2014 and expects to generate approximately $50 million in surplus  cash to be used for its 2014 capital program and to fund additional acquisitions throughout the year. Liquidity and Capital Resources 52  Killam ProPerties inc | 2013