Management’s Discussion and Analysis Dollar amounts are in thousands of Canadian dollars (except as noted) Killam’s weighted average cost of natural cost on a per Gj basis increased by 32% in the year. Excluding the delivery charge component of the  cost, the actual commodity cost increased by a weighted average of 80% compared to 2012. This cost increase resulted in approximately $1.2  million in additional natural gas expense in the year. Killam saw a decrease in the cost per Gj in Nova Scotia in December year‑over‑year due to  fixed contracts noted above, however colder than normal weather resulted in an increase of 17% in heating degree days in the fourth quarter,  more than offsetting the price savings. Pricing increased in New Brunswick in December 2013, as noted in the graph above, and reflects the spike  in day pricing during the exceptionally cold weather during the second half of December 2013.  Looking forward, Management expects to see continued volatility in natural gas prices in New Brunswick and Nova Scotia in periods of cold  weather in the Northeastern US due to limited pipeline capacity and increasing demand from utilities. Originally expected to be a 2013  winter costing issue, this volatility may continue in periods of cold weather until additional pipeline infrastructure is built. In the short‑term,  Management will continue to manage assets to minimize its natural gas usage and is working with natural gas suppliers to explore fixing a  portion of its gas requirement in next year’s heating season. Despite the volatility in gas prices since late 2012, natural gas is generally more  economical than oil. Management monitors this price differential and has the capacity to switch to oil when it is more economical for a small  number of assets with dual‑fired capacity. Electricity costs also increased in 2013, up 11.3% year‑over‑year. Killam’s rental incentives have increased the amount of rents with electricity  included at certain New Brunswick properties to compete with similar promotions offered by other apartment owners in the market. Rents are  typically increased to offset this additional expense, however tenants are attracted to fixing the cost of electricity in a monthly rental payment. Same store water expense increased by 3.1% for the year. Increased water rates in Halifax contributed to this increase, but were partially offset  by water saving initiatives. Water cost as a percentage of revenue is expected to increase over the next year and a half due to increased water  rates in Halifax that became effective July 2013. An additional increase will come into effect in April 2014. Killam is evaluating the full impact  of these increases, but expects a 10% to 15% increase in water costs in 2014 compared to 2013. Killam will continue to invest in water saving  initiatives to mitigate its exposure to these increased costs. Net revenue growth of 1.6%, offset by increased property operating expenses, has resulted in a decrease in same store apartment NOI by 1.0%  during 2013. Excluding the impact of the spike in natural gas costs, same store NOI would have increased by 1.0% in 2013. Same store NOI results  by city, as shown in the chart below, vary depending on changes in occupancy levels in each market and the higher utility costs experienced in  some regions during 2013.  For the years ended December 31, Apartment Same Store NOI by City Halifax’s NOI was generally flat in 2013 as higher rental revenue was offset by increased utility expenses. The highest same store NOI growth for  the year was achieved at properties located in the St. John’s and Ontario markets, posting gains of 4.5% in each region. These markets were not  impacted by higher natural gas costs and have experienced strong revenue growth year‑over‑year. Saint John was Killam’s softest market with higher vacancy rates driving the 14.1% decline in NOI in 2013 compared to 2012. The decline in  overall 2013 occupancy in Charlottetown compared to 2012 resulted in decreased NOI of 6.5%. Fredericton and Moncton both recorded negative NOI growth, 1.1% and 2.6%, respectively, for the year due to higher vacancy in 2013 compared  to 2012, partially offset by positive rental rate growth in each region.  Other Atlantic locations include seven properties in other cities in Atlantic Canada. These properties realized NOI growth in 2013 due to rental  rate increases, lower vacancy and minimal operating expense growth as they are not heated with natural gas. Killam ProPerties inc | 2013  39 2013 2012 $ change % change Halifax $30,093 $30,052 $41 0.1% moncton 6,652 6,724 (72) (1.1)% Fredericton 6,978 7,163 (185) (2.6)% saint John 3,997 4,654 (657) (14.1)% ontario 4,470 4,278 192 4.5% st. John’s 4,705 4,502 203 4.5% Charlottetown 3,722 3,979 (257) (6.5)% Other Atlantic locations 2,359 2,264 95 4.2% $62,976 $63,616 $(640) (1.0)%