Management’s Discussion and Analysis Adjusted Funds From Operations (“AFFO”) Dollar amounts are in thousands of Canadian dollars (except as noted) AFFO is a supplemental measure used by real estate analysts and some investors to represent FFO after taking into consideration the capital  spend related to maintaining the earning capacity of a portfolio versus NOI enhancing capital investments. AFFO is a non‑IFRS measure and  Management believes that significant judgment is required to determine the annual capital expenditures that relate to maintaining earning  capacity of an asset compared to the capital expenditures that will lead to higher rents or more efficient operations.  In order to provide investors with information to assist in assessing the Company’s payout ratio, Management has calculated AFFO using  the industry standard of $450 per apartment unit. the mHc industry does not have a standard amount for “maintenance” related capital  expenditures. Management has assumed $100 per MHC site as a reasonable estimate of non‑NOI enhancing capital expenditures per MHC site.  The weighted average number of rental units owned during the year was used to determine the capital adjustment applied to FFO to calculate  aFFo. For the years ended December 31, (1) Based on Killam’s annualized dividend of $0.58. The dividend increase to $0.60 was not effective until the January 2014 dividend and therefore did not impact the 2013 payout ratio. 2013 2012 % change Funds from operations $38,770 $36,096 7.4% Maintenance Capital Expenditures apartments (5,342) (4,952) 7.9% mHcs (685) (791) (13.4)% Adjusted funds from operations $32,743 $30,353 7.9% AFFO/ share ‑ basic $0.60 $0.60 ‑% AFFO/ share ‑ diluted $0.60 $0.59 1.7% AFFO payout ratio ‑ basic (1) 96% 96% ‑% FFO per Share ($) Q1 Q2 Q3 Q4 2011 2012 2013 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 46  Killam ProPerties inc | 2013