Management’s Discussion and Analysis Dollar amounts are in thousands of Canadian dollars (except as noted) As an owner of real estate, Killam is subject to federal, provincial and municipal environmental regulations. These regulations may require the  Company 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 the Company’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. The Company 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 the Company may be subject to more stringent environmental laws and regulations in the future. The  Company 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. Killam carries comprehensive general liability, fire, flood, extended coverage and rental loss insurance with policy specifications, limits and  deductibles customarily carried for similar companies. There are, however, certain types of risks (generally of a catastrophic nature) that are  either uninsurable or would not be economically insurable. 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 the Company’s operations. In the provinces that Killam currently operates, Prince Edward Island, and Ontario have rent controls. As  well, Nova Scotia has rent control for MHCs. Killam is exposed to volatile utility costs and increasing property taxes. Utility expenses, mainly consisting of oil, natural gas, water and electricity  charges, have been subject to considerable price fluctuations over the past several years. 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. Killam invests in energy efficiency initiatives to reduce its reliance on utility costs; however Killam remains exposed to  price volatility. The Company has the ability to fix rates through the use of swap contracts for a portion of its oil and natural gas consumption to  reduce the impact of fluctuations in commodity prices. To address the risk of property tax increases, Killam, along with the assistance of outside  consultants, reviews property tax assessments and, where warranted, appeals them. Killam is currently not cash‑tax taxable due to its ability to reduce taxable income through unclaimed CCA, and does not expect to be cash taxable  for at least the next three to five years. A change in circumstances that could result in the Company paying cash taxes in advance of this estimate  may have a negative impact on Killam’s liquidity. To mitigate against this risk, Killam is working with tax advisors to identify those issues that may  impact a change in the Company’s tax situation. Dividend payments may exceed actual cash available from time to time because of items such as mortgage principal repayments, capital  requirements, and redemption of shares, if any. The Company may be required to use part of its debt capacity, raise additional equity, or reduce  dividends in order to accommodate such items, and there can be no assurance that funds from such sources will be available on favourable  terms, or at all. In the application of Killam’s accounting policies, which are described in Note 2 of the consolidated financial statements, Management is required  to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other  sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates. The judgments, estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in  the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision  affects both current and future periods.  In the process of applying the Company’s accounting policies, Management has made the following judgments, which have the most significant  effect on the amounts recognized in the consolidated financial statements: Environmental Risk General Uninsured Losses Rent Control Risk  Utility and Property Tax Risk  Taxes Dividend Payments  Significant Accounting Judgments, Estimates and Assumptions Judgments Other Than Estimates 60  Killam ProPerties inc | 2013