Killam Apartment REIT Investor Presentation January 2017 1 - - PowerPoint PPT Presentation

Killam Apartment REIT

Investor Presentation

January 2017

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This presentation may contain forward‐looking statements with respect to Killam Apartment REIT and its operations, strategy, financial performance and condition. These statements generally can be identified by use of forward‐looking words such as “may”, ”will”, “expect”, “estimate”, “anticipate”, “intends”, “believe” or “continue”

• r the negative thereof or similar variations. The actual results and performance of

Killam Apartment REIT discussed herein could differ materially from those expressed

• r implied by such statements. Such statements are qualified in their entirety by the

inherent risks and uncertainties surrounding future expectations. Important factors that could cause actual results to differ materially from expectations include, among

• ther things, general economic and market factors, competition, changes in

government regulation and the factors described under “Risk Factors” in Killam' annual information form and other securities regulatory filings. The cautionary statements qualify all forward‐looking statements attributable to Killam Apartment REIT and persons acting on its behalf. Unless otherwise stated, all forward‐looking statements speak only as of the date to which this presentation refers, and the parties have no obligation to update such statements.

Cautionary Statement

Cautionary Statement

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Killam Apartment REIT is a growth‐oriented Canadian real estate investment trust. Killam owns, manages and develops multi‐family residential properties in Atlantic Canada, Ontario and Alberta. Killam's portfolio includes $1.9 billion in real estate assets, including 13,952 apartment units and 5,165 manufactured home community (MHC) sites.

Killam Apartment REIT

Market cap1 $860M Annual distribution $0.60 Distribution yield 5.0%

• Avg. daily volume

133K

1) Includes exchangeable units

About Killam Apartment REIT

89% 9% 2%

Net Operating Income (NOI) by Sector

Apartments MHCs Commercial 43% 22% 18% 8% 6% 3%

NOI By Province

Nova Scotia New Brunswick Ontario NFLD PEI Alberta 3

Why Invest in Killam

 Clearly defined strategy – growth from same property portfolio, acquisitions and developments.  High‐quality portfolio with investment in newer properties.  Growing funds from operations (FFO) & adjusted funds from operations (AFFO) per unit.  Stable distributions with improving payout ratio.  Strengthened balance sheet with increased flexibility.  Interest saving opportunities on refinancings.  Established development program with robust development pipeline.  Positioned to benefit from economic growth in Atlantic Canada and population growth in Central Canada.

Why Invest in Killam

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Killam Apartment REIT

Clearly Defined Strategy

Killam’s strategy is to maximize its value and long‐term profitability by concentrating on three key areas of growth:

#1 Increasing earnings from its existing portfolio #2 Expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties #3 Developing high‐quality properties in its core markets

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Killam Apartment REIT

Clearly Defined Strategy

#1) Increasing earnings from the existing portfolio.

Revenue Growth + Expense Management = Increased Net Operating Income (NOI)

2.9% 2.6% 1.9% 1.8% 1.7% 2.2% 1.8%

Historic Same Property Revenue Growth

• Improved occupancy
• Growing rental rates
• Reduced incentives
• Capital upgrades
• Quality product & service
• 90% tenant satisfaction

rating

94.3% 93.6% 94.2% 95.6% 94.7% 94.9% 94.7% 95.8% 95.5% 94.8% 95.3% 95.7% 95.7% 95.6% 95.8%

Apartment Quarterly Occupancy $ occupancy as a % of gross potential rents 1

95.1% Average

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• 1. This measures dollar occupancy achieved and is typically ~1% lower than occupancy on a unit count basis at the

end of each quarter, but is better management information.

Killam Apartment REIT

Clearly Defined Strategy

#1) Increasing earnings from the existing portfolio.

Revenue Growth + Expense Management = Increased NOI

• Energy initiatives
• Water saving programs
• Maximizing economies of

scale Killam has increased its same property NOI an average of 3.0% per year over the last 10 years.

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5.1% 2.1% 8.4% 4.8% 0.3% 2.0% (0.4%) (0.9%) 4.2% 4.7%

Same Property NOI Growth 2007- 2016

Average Growth of 3.0%

* Record high natural gas prices in Atlantic Canada impacted NOI growth in 2013 & 2014.

• Employee training
• Investment in technology
• Tenant education

Killam Apartment REIT

Clearly Defined Strategy

#2) Expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties.

5,000 10,000 15,000

Units/sites

Apartment Units & MHC Sites

Apartment Units MHC Sites

$‐ $20 $40 $60 $80 $100

Annual Apartment NOI

$ millions Alberta Ontario Atlantic Canada

Killam's strong operating platform can support a larger and more geographically diverse portfolio. Increased investment in core markets outside Atlantic Canada will enhance Killam's diversification and exposure to urban centres in Canada that have higher population growth. Since its first acquisition in 2002, Killam’s portfolio has grown annually through acquisitions. Killam is expanding its portfolio by acquiring centrally located buildings in urban markets, increasing its

• wnership in Ontario and Alberta, and adding to its established

portfolio in Atlantic Canada. 8

Killam Apartment REIT

Clearly Defined Strategy

#3) Developing high-quality properties in its core markets.

$5 $8 $14 $8 $15 $35 $24 $19 $25 $25 $17

$0 $20 $40 $60 $80

Developments Completed Per Year

$ millions

Killam augments its external growth opportunities with

• developments. Killam has invested over $130 million in

developments since its first project was completed in 2011. With an experienced team and a development pipeline of

• ver 1,200 units, developments are an important

component of Killam’s growth. Killam can develop to yields higher than those achievable through acquisition, contributing to net asset value (NAV) growth per unit.

* forecast

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Killam Apartment REIT

Clearly Defined Strategy

Over $130 million of developments completed.

10 49 units ‐ Charlottetown, PEI 63 units ‐ Halifax, NS 101 units ‐ Fredericton, NB 47 units – Charlottetown, PEI 71 units – St. John’s, NL 102 units – St. John’s, NL 122 units ‐ Cambridge, ON 70 units – Halifax, NS

High‐Quality Portfolio

18% 19% 9% 8% 23% 23%

Apartment NOI by Year of Construction

2010 and newer 2000‐2009 1990‐1999 1980‐1989 1970‐1979 Pre 1970

Killam has one of the newest apartment portfolios in Canada; 37% of Killam’s apartment NOI comes from properties built in 2000 or later. Management believes that increasing Killam’s ownership in new, high‐quality buildings will result in long‐term demand for its properties, reduce annual capital requirements related to deferred maintenance, and transform Killam’s portfolio into one of the highest quality portfolios in Canada.

$0 $1,000 $2,000 $3,000 2013 2014 2015

Average Capital Spend Per Unit by Building Age

For the years ended Dec 31 0 ‐ 10 years 11 ‐ 20 years 21 ‐ 30 years 31 ‐ 40 years 41 + years

Killam is growing its portfolio of high‐quality properties by focusing

• n developments and acquiring newer properties.

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The annual capital spend per unit is lower for newer properties. For example, Killam’s average spend for properties 0 to 10 years

• ld was $700 per unit in

2015 compared to $2,600 per unit for buildings over 40 years

• ld.

Overall, Killam’s average capital spend was $2,178 per apartment unit in 2015.

9.7% FFO Per Share Growth 2015

$0.71 $0.72 $0.79 $0.60 $0.61 $0.68

2013 2014 2015

FFO & AFFO Per Unit

For the years ended Dec 31

FFO AFFO

Growing FFO & AFFO per Unit

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$0.54 $0.59 $0.65 $0.46 $0.51 $0.58

2014 2015 2016

YTD FFO & AFFO Per Unit

For the nine months ended Sept 30

FFO AFFO FFO and AFFO per unit growth has been attributable to:

• same property NOI

growth

• interest expense

savings

• accretive acquisitions
• developments

$0.58 $0.60 $0.60 $0.60 $0.60

96% 98% 88% 80% 75%

70% 75% 80% 85% 90% 95% 100%

$0.57 $0.58 $0.58 $0.59 $0.59 $0.60 $0.60 $0.61 2013 2014 2015 2016* 2017*

Killam’s Annual Dividend/Distribution & Payout Ratio

Dividend/Distribution AFFO Payout Ratio

88% AFFO Payout Ratio in 2015

*The 2016 and 2017 adjusted funds from operations (AFFO) payout ratio represents the consensus estimate based on the current annual distribution of $0.60.

Improving AFFO Payout Ratio

81%

AFFO Payout Ratio at Sept 30, 2016

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Financial & Operating Performance

Stable Balance Sheet

55.2% 51.6% 52.9% 54.9% 55.7% 53.2% Debt as a % of Total Assets At Dec 31

Sept 30, 2016 Dec 31, 2015 Mortgage debt as a % of total assets 50.9% 50.4% Weighted average interest rate on mortgage debt 3.08% 3.27% Weighted average term to maturity 4.2 years 4.2 years Debt service coverage ratio (rolling 12 months) 1.52 1.35 Interest coverage ratio (rolling 12 months) 2.81 2.34 CMHC‐insured apartment mortgages 76% 73%

Strengthened Balance Sheet with Increased Flexibility

1.98 2.09 2.21 2.34 2.81 Interest Coverage Ratio At Dec 31

Killam completed a $98 million equity raise on June 2, 2016. Part of the proceeds were used to redeem $57.5 million of convertible debentures on July 4, 2016. The interest coverage estimate at July 4, 2016 normalizes for the impact

• f redeeming the $57.5 million of convertible debentures.

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Credit Facility Expanded : Following the all cash acquisition of Garden Park Apartments on June 30, 2016, Killam established a new $30M demand credit facility and increased its acquisition capacity to $100 million.

3.81% 3.69% 3.73% 2.92% 2.59% 2.70% 3.16% 3.28% 3.13%

0% 1% 2% 3% 4% 5% 6% 7% 8% $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Interest Rate Mortgage Maturities ($M)

Mortgage Maturities by Year As at Sept 30, 2016

Mortgage Maturities Weighted Average Interest Rate (Apartments) 5 year rate 10 year rate

Interest Saving Opportunities on Refinancings

Current rate for 5‐year CMHC insured debt is approximately 2.2%. Current rate for 10‐year CMHC insured debt is approximately 2.8%. 15

Robust Development Pipeline

2014 & Q1 2015

Propert y Cit y

Developments Underway The Alexander - Phase 1* Halifax, NS S aginaw Phase II Cambridge, ON Development Opportunities - 2017 S pring Garden Terrace Land Halifax, NS The Governor (Phase 2 of the Alexander)* Halifax, NS S ilver S pear* Mississauga, ON Future Development Opportunities - 2018 and beyond Grid 5 Land* Calgary, AB Carlt on Houses Halifax, NS Medical Arts (S pring Garden) Halifax, NS 1335 Hollis S treet Halifax, NS Block 4 S

• t. John's, NL

Topsail Road S

• t. John's, NL

Total Development Opportunities * Represent s Killam's 50% interest in pot ential development units. Fut ure development Fut ure development As of right Approved development agreement 106 Approved development agreement Fut ure development 198 Fut ure development Under const ruction - 2017 completion In design and approval process As of right

St at us

93 S t art in Q3-2016 1,237

Development Opportunities

225

Development Pot ent ial in Unit s

64 200 80 30 70 121 50

Killam is targeting yields of 5.5% ‐ 6.0% on developments, and cap rate values upon completion of 4.5% ‐ 5.0%, contributing to NAV per unit growth.

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Investment Opportunity

Improved Economics in Atlantic Canada

Benefiting from Economic Growth in Atlantic Canada

17 Halifax is expected to have one of the fastest growing economies in Canada, with 2.9% growth expected in 2016, according to the Conference Board of Canada’s Winter 2016 Metropolitan Outlook. Approximately 36% of Killam’s NOI is generated in Halifax, the largest city in Atlantic Canada.

Commitment/ Size ($) 1,000‑1,500 direct up to 11,500 indirect $2.1 billion (British Petroleum and Shell Canada) Various Halifax Construction Projects $1‑2 billion 3‑4 years Not available Investments underway include the new convention centre, two new military facilities, and various real estate projects in Halifax. New Brunswick Saint John Mill Upgrade $450 million 3 years 2014‐2017 600 direct The two‐phase upgrade began in 2014, corresponding with a 20% increase in the NB softwood that will be made available to the forestry industry. Energy East Pipeline $12 billion (proposed total project cost) 6 years (development phase) 3,700 during development Application submitted to National Energy Board in 2014. An estimated $2.8 billion of GDP contribution for New Brunswick during the project. Newfoundland and Labrador Muskrat Falls Hydro Project $7 billion 5 years 2012‐2017 1,500 direct with peak

• f 3,100.

Construction of the 824 megawatt hydroelectric dam is underway, as well as the transmission line between Muskrat Falls and Churchill Falls. Maritime Link $1.6 billion 4 years 2013‐2017 Average of 300 direct, with a peak of 600 Subsea cable designed to transport electricity from NL to NS. Construction began in 2014. First power is planned for delivery in 2017. Hebron Oil Project $14 billion 10 years 2010‐2024 3,000 ‑ 3,500 direct The reserve estimate for Hebron is over 700 million barrels of oil. The project started in 2010 and will run until 2024. Suncor has reconfirmed its commitment to Hebron (Jan 13, 2015) and expects it to come online in 2017. Development drilling will continue until 2024. (1) Project details including commitment, size, term and job growth are taken from various sources, such as company press releases, economic studies and related websites. Province Project(1) Term Estimated # of Jobs Comments Nova Scotia Irving Shipbuilding Contract $25 billion 25‑year contract. Started in 2015 Irving finished a $350M modernization of the Halifax shipyard and began cutting steel in September 2015 for phase I of the contract, 6 Arctic Offshore Patrol Ships. The second and more significant phase of the contract, building ~15 surface combatant ships, is expected to begin in 2020. Energy Exploration off NS Coast 6 years (exploration phase) 2013‐2019 Not available Shell drilled its first exploration well during 2015. BP expects to drill its first exploration well in 2017. This offshore oil activity has the potential for long‑term investment and employment opportunities in the region.

Investment Opportunity

Improved Economics in Atlantic Canada

3.8% 8.6% 5.7% 5.9% 4.6% 9.0% 3.0% 3.4% 7.4% 5.5% 4.2% 4.7% 8.5% 3.5% 2.6% 6.0% 4.4% 1.7% 7.9% 8.5% 3.7%

CMHC Vacancy in Atlantic Canada

2014 2015 2016

Atlantic Canada is experiencing improved apartment occupancy

• levels. In their Fall 2016

Rental Market Report, CMHC reported lower vacancies in four of six

• f Killam’s core markets

in Atlantic Canada, versus an overall increase for Canada.

Source: CMHC Fall 2015 and Fall 2016 Rental Market Reports.

Benefiting from Improved Occupancy in Atlantic Canada

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Rental Units: 70 Start Date: December 2014 Completion: August 2016 Move‐ins started in Sept 2016 Location: Downtown Halifax Lease‐up: 100% Cost: $14.7 million ($210,000/door) Expected Yield: 5.5% Expected Value: 4.75% cap rate Average Unit Size: 636 sf Average Rent: $1,400 ($2.20/sf)

Current Developments

Southport, Halifax, NS

Focus on Developments

Southport – Completed August 2016

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Current Developments

Southport, Halifax, NS

Focus on Developments

Southport – Completed August 2016

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Focus on Developments

The Alexander ‐ 2017 Completion

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Rental Units: 242 units, 6,500 sf of retail space Ownership: Killam 50%, Partners 50% Start Date: Q3‐2015 Projected Completion: Q4‐2017 Location: Downtown Halifax across from the waterfront Cost: $35 million (Killam’s cost) ($276,000/ residential door) Expected Yield: 5.5% Expected Value: 4.75% cap rate Average Unit Size: 740 sf Average Rent: $1,740 ($2.35/sf)

Focus on Developments

The Alexander ‐ 2017 Completion

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View from upper floors

The Alexander, Halifax

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The Alexander, Halifax

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The Alexander, Halifax

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The Alexander, Halifax

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Future Developments

Saginaw 2, Cambridge, ON

Rental Units: 93 units Start Date: Q3‐2016 Projected Completion: Q1‐2018 Location: Adjacent Saginaw Gardens, Saginaw Parkway, Cambridge Cost: $25.1 million ($269,000/door) Expected Yield: 5.5% Expected Value: 4.75% cap rate Average Unit Size: 1,025 sf Average Rent: $1,665 ($1.62/sf)

Focus on Developments

Saginaw Gardens II – Started in Q3‐2016

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Building Description: 246 apartment units 8,195 sf of commercial space Location: 1472 Martello Street, Halifax 2016 Acquisition: Remaining 51.0% interest $23.7 million June 2016 closing

2016 Acquisitions

Garden Park Apartments, Halifax

2016 Acquisitions

Garden Park Apartments, Halifax

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2016 Acquisitions

270 Parkside Drive, Fredericton

existing Killam properties 270 Parkside Drive is located in close proximity to 355 Killam units in Fredericton, and across from Killam’s regional office in the city.

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Building Description: 173 units 3rd of a five‐building portfolio with a shared clubhouse Location: 1047 Canadian Shield Ave, Kanata 2016 Acquisition: 50% of building III $31.1 million June 2016 closing Previous Purchases: 2011 – 25% of building I 2014 – 50% of building II & additional 25% of building I

2016 Acquisitions

Kanata Lakes Apartments, Ottawa

2016 Acquisitions

Kanata Lakes Apartments III

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2016 Acquisitions

Kanata Lakes Apartments III

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Well Positioned for Growth

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Killam is well positioned for long‐term success with a focus on the follow key initiatives:

• Attention to curb appeal and long‐term value enhancement with capital

programs and customer‐focused service.

• Cost management with ongoing process improvements.
• Growing the portfolio and expanding geographically with accretive

acquisitions.

• Augmenting the quality of the portfolio with developments in core markets.
• Strengthening its balance sheet with lower debt levels.
• Increasing capital flexibility with an expanded line‐of‐credit, growing portfolio
• f unencumbered assets and improved AFFO payout ratio.

Contact Information

Philip Fraser President & CEO 902‐453‐4536 pfraser@killamreit.com Robert Richardson, FCPA, FCA Executive Vice President & CFO 902‐442‐9001 rrichardson@killamreit.com Dale Noseworthy, CPA, CA, CFA Vice President, Investor Relations & Corporate Planning 902‐442‐0388 dnoseworthy@killamreit.com

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