Management’s Discussion and Analysis Dollar amounts are in thousands of Canadian dollars (except as noted) Marketing and leasing initiatives have been a priority at Killam, including increasing the number of leasing agents, investment in marketing  promotions (including a successful radio campaign) and expanding incentive offerings at specific properties. Management was pleased with the  improvements realized during the second half of the year. The marketing and leasing focus will continue in 2014 and will also include programs  targeting tenant retention. Killam’s expanded leasing process and well‑maintained, quality asset base has enabled Killam to outperform CMHC’s  reported averages in Killam’s core markets in Atlantic Canada. Killam’s increased investment in Ontario has also been beneficial in 2013, with  improvement in occupancy during each quarter of the year. Halifax, representing 45% of Killam’s apartment NOI, ended the year with 96.0% occupancy compared to 96.6% at year‑end 2012. CMHC  reported vacancy of 3.2% in Halifax in October for its Fall 2013 Rental Market Report, compared to Killam’s vacancy of 2.7% for October.  Competition has increased in Halifax due to new supply with rental construction levels above the ten‑year annual average of 760 units per year,  for the last three years, including apartment starts of 1,565, 1,437 and 1,258 in 2011, 2012 and 2013, respectively (as reported by CMHC). CMHC  expects new starts to stay above the 10‑year average into 2014 and throughout 2015 and 2016. Offsetting new supply is positive net‑migration  leading to population growth and increasing demand for rental units from an aging population that is transitioning away from home ownership  and into the rental market. The population of Halifax grew by 4.7% (18,000 people) from 2006 to 2011, as reported by Statistics Canada. Despite  increased rental supply in the city, Killam continues to achieve rental rate growth, with average rents for same store properties located in Halifax  up 1.8% over the last year. Same store revenue was up 1.7% year‑over‑year. The improved top‑line growth in Halifax reflects the marketing and  leasing changes and the quality and central locations of Killam’s apartment portfolio. Looking to 2014 and beyond, population growth, fuelled in part by the $25 billion, 25‑year, Irving Shipbuilding Contract, is predicted to increase  demand for rental product and absorb the new supply. In addition, Nova Scotia’s offshore oil industry has potential for growth with BP and Shell  both launching seismic surveys off the province’s coast. New Brunswick’s rental market also experienced softness over the last year. As CMHC reported in its Fall 2013 Rental Market Report, the overall  vacancy for the province’s urban centres was 8.9% for october 2013, 200 bps higher than october 2012. cmHc reported Fredericton as the  strongest of the larger centres in new Brunswick, with 6.2% vacancy (compared to 4.0% for october 2012), while the weakest market was saint  John, with CMHC reporting 11.4% vacancy in Fall 2013 compared to 8.7% for 2012. CMHC reported Moncton with 9.1% vacancy for October  2013, compared to 6.7% a year earlier, with new supply to the market contributing to the vacancy rise. Despite the more challenging rental market in 2013, Killam achieved occupancy gains in all three new Brunswick markets and achieved higher  occupancy rates than those reported by CMHC in all New Brunswick markets . Killam has successfully responded to the increased competition  in New Brunswick by expanding marketing programs and rental incentives. These incentives include offering one‑month free rent on some  new leases, allowing for early move‑ins or including electricity in the rental rates where this is becoming the norm (most notably in Moncton).  Enhanced training of leasing representatives in each of the New Brunswick cities has improved the leasing process for prospective tenants and  contributed to increased leasing activity in the summer months and even stronger occupancy in Q4. As noted above, Killam’s New Brunswick  occupancy levels were well above the market averages, with Fredericton ending the year with 96.3% occupancy, saint John ending the year at  94.4% and moncton at 97.1%. St. John’s, NL, remains a strong market within the Company’s apartment portfolio with occupancy between 97.0% and 99.0% during the year. Demand for rental units are expected to remain high in St. John’s as strong economic growth continues to attract population growth from other  areas of the province and high home prices deter many from home ownership. The St. John’s market leads Killam’s portfolio for same store  rental rate growth with a 3.5% increase in average rates in 2013. Killam experienced a rebound in occupancy levels in Charlottetown during 2013 after a sharp decline in the later part of 2012 due to new supply  and a slowdown in the number of immigrants coming to the province as part of Pei’s Provincial nominee Program. this has proven to be a  shorter‑term challenge as Killam improved occupancy in Charlottetown by 400 bps at December 31, 2013, compared to December 31, 2012,  ending the year at 95.6% occupancy. Ontario now represents approximately 12% of Killam’s apartment NOI and equity earnings on a go‑forward basis. Management was pleased  to report strong improvement in occupancy levels in its Ontario portfolio in 2013. The most notable improvement was in Ottawa. Killam’s  repositioning of a portfolio of four buildings acquired in September 2012 is complete and the Company is now realizing positive return on  the investment with the portfolio’s occupancy at 97.5% at year‑end, up 1,100 bps from 86.5% a year earlier. Killam’s apartment occupancy in  Ontario was 98.6% at December 31, 2013, compared to 93.1% at December 31, 2012. Average rent for the Ontario portfolio decreased 5.8%  as at December 31, 2013, when compared to 2012 due to the addition of lower priced units in the past twelve months. Rents for same store  properties were flat in the year as the focus was on occupancy improvement. Overall, Ontario’s same store rental revenue was up 2.3%. Looking forward to 2014, Management expects to realize occupancy gains in the year compared to 2013 overall and to continue to outperform  CMHC averages in its core markets. However, occupancy levels are expected to remain below the levels experienced in 2010 and 2011 due to the  increased competitiveness in certain markets in Atlantic Canada, including Halifax.  Killam ProPerties inc | 2013  37