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Killam Properties Inc. Announces Fourth Quarter and Year-end 2011 Results Highlighting an 18.4% Increase in FFO Per Share in the Fourth Quarter and a 4.3% Increase in FFO Per Share For the Year

PRESS RELEASE 
                                                                            KILLAM PROPERTIES INC.
Halifax, Nova Scotia
March 6, 2012

KILLAM PROPERTIES INC. ANNOUNCES FOURTH QUARTER AND YEAR-END 2011 RESULTS HIGHLIGHTING AN 18.4% INCREASE IN FFO PER SHARE IN THE FOURTH QUARTER AND A 4.3% INCREASE IN FFO PER SHARE FOR THE YEAR

Killam Properties Inc. ("Killam" or the "Company") (TSX: KMP) today announced its financial results for the fourth quarter and fiscal year ended December 31, 2011, and provided an update on acquisition activity in 2012.

Fourth Quarter Highlights

· Generated funds from operations ("FFO") of $0.161 per share, an 18.4% increase from $0.136 per share during the fourth quarter of 2010.
· Increased same store net operating income ("NOI") by 2.8%.
· Completed $38.1 million in acquisitions, including buildings in Halifax, Nova Scotia; St. John's, Newfoundland; London, Ontario; and an MHC in Saint John, New Brunswick.
· Acquired the Company's first property in partnership with Kuwait Finance House ("KFH"), a $33.3 million building in London, Ontario.
· Raised $40.3 million from a public offering of common shares, primarily to support the Company's acquisition and development programs.
· Recorded unrealized fair value gains of $8.9 million on the Company's investment properties, compared to $14.2 million during the fourth quarter of 2010.
· Earned net income attributable to shareholders of $0.27 per share, compared to $0.36 per share in the fourth quarter of 2010.

2011 Highlights

· Generated FFO of $0.698 per share, a 4.3% increase from $0.669 per share generated during 2010.
· Implemented a 3.6% increase to the dividend to $0.58 per share per annum.
· Increased same store NOI by 0.3%.
· Achieved same store revenue growth of 2.6%.
· Reduced the weighted average interest rate on total debt to 4.94% from 5.17%.
· Completed $106.5 million in acquisitions, including $97.1 million in apartment acquisitions, $2.5 million in MHCs, $2.8 million in land for development and $4.1 million for a 50% interest in a two building commercial property, the location of Killam's head office.
· Completed first apartment development and began construction of four new apartment developments.
· Recorded unrealized fair value gains of $52.1 million on the Company's investment properties, compared to $39.1 million during 2010.
· Earned net income attributable to shareholders of $1.45 per share, compared to $1.24 per share in 2010.


Financial Highlights (in thousands, except per share information)

For the three months ended,Dec 31, 2011Dec 31, 2010 Change
Property Revenue$32,484$29,6719.5%
Net Operating Income$19,341$17,6029.9%
Income Before Fair Value Gains and Income Taxes$7,765$6,29723.3%
Fair Value Gains$8,918$14,195(37.2%)
Net Income (applicable to common shareholders)$12,608$16,246(22.4%)
Funds from Operations$7,549$6,09823.8%
Funds from Operations per Share$0.161$0.13618.4%
Share Outstanding (weighted average)46,72844,9274.0%


For the year ended,Dec 31, 2011Dec 31, 2010Change
Property Revenue$125,761$114,8539.5%
Net Operating Income$76,945$71,4107.8%
Income Before Fair Value Gains and Income Taxes$32,671$29,9219.2%
Fair Value Gains$52,070$39,09833.2%
Net Income (applicable to common shareholders)$65,965$53,78622.6%
Funds from Operations$31,757$29,0369.4%
Funds from Operations per Share$0.698$0.6694.3%
Share Outstanding (weighted average)45,52343,3934.9%

As at                                                                Dec 31, 2011Dec 31, 2010Change
Total Assets$1,329,531$1,116,33319.1%
Total Liabilities$816,988$689,29218.5%
Total Equity$512,543$427,04120.0%
Debt as a % of Assets56.2%57.0%â 80 bsp


18.4% Growth in FFO per Share in the Fourth Quarter

FFO is recognized as the industry-wide standard measure for real estate entities' operating performance, and management considers FFO per share to be a key measure of Killam's operating performance. The calculation of FFO includes adjustments specific to the real estate industry applied against net income to calculate a supplementary measure of performance that can be compared with other real estate companies and real estate investment trusts (REITs). FFO does not have a standardized meaning under International Financial Reporting Standards ("IFRS") and therefore may not be comparable to similarly titled measures presented by other public companies.

Killam earned FFO of $0.161 per share during the fourth quarter, compared $0.136 per share during the fourth quarter of 2010. The 18.4% increase was primarily attributable to the positive impact of both 2010 and 2011 acquisitions and increased earnings associated with the Company's same store properties, partially offset by increased convertible debenture interest and an increase in the number of shares outstanding. Impacting Killam's 2011 fourth quarter results was a $0.4 million expense related to the remediation of an oil spill at one of the Company's MHCs in Ontario. Standard collection methods to recover the cost is underway, but given the uncertainty of collection, the decision was made to record this cost in the fourth quarter. Excluding this non-recurring expense, FFO per share would have been $0.170 in the quarter.


4.3% Growth in FFO per Share in 2011

FFO increased to $0.698 per share in 2011, up 4.3% from $0.669 in 2010. Excluding the $0.4 million oil remediation cost expensed in the fourth quarter, as noted above, FFO would have been $0.707 per share in 2011, representing 5.7% growth from 2010. The growth in FFO per share is primarily attributable to contributions from 2010 and 2011 acquisitions and increased earnings attributable to same store properties, partially offset by higher interest costs associated with the increased convertible debentures outstanding, and an increase in the number of shares outstanding. The convertible debentures and equity raised in 2011 were primarily to fund acquisitions and development. Not all the funds raised were deployed in 2011, resulting in a dilutive impact on FFO per share. At December 31, 2011, Killam had a cash balance of $43.3 million that is available to fund much of the Company's acquisition and development programs in 2012.


0.3% Same Store NOI Growth in 2011

Killam achieved consolidated same store NOI growth of 2.8% in the fourth quarter, and growth of 0.3% for the year. Annual same store NOI growth of 2.3% from the MHC portfolio offset a decrease in same store NOI of 0.3% from the apartment portfolio. Consolidated same store results for the fourth quarter and for 2011 are summarized below:

Consolidated Same Store (in thousands)
For the three months ended,Dec 31, 2011Dec 31, 2010Change% Change
Property Revenue$27,425$26,833$5922.2%
Property Expenses
   Operating Expenses5,1245,137(13)(0.0%)
   Utility and Fuel Expenses3,5173,4061113.3%
   Property Taxes2,7832,728552.0%
Total Operating Expense11,42411,2711531.4%
NOI$16,001$15,562$4392.8%


Consolidated Same Store (in thousands)
For the year ended,Dec 31, 2011Dec 31, 2010Change% Change
Property Revenue$109,689$106,927$2,7622.6%
Property Expenses
Operating Expenses19,46218,5019615.2%
Utility and Fuel Expenses13,79412,7441,0508.2%
Property Taxes10,92010,3705505.3%
Total Operating Expense44,17641,6152,5616.2%
NOI$65,513$65,312$2010.3%


Same store operating revenues increased by 2.6% year-over-year due to rental increases. Same store expenses increased by 6.2% in the year. The largest increase was from utilities, which were up 8.2%, including a 19.3% increase in the cost of heating oil and natural gas.


Occupancy of 97.6%

Killam's consolidated occupancy at December 31, 2011, was 97.6% compared to 98.3% at December 31, 2010. The occupancy and average rents by core market for apartments, and for MHCs as a whole are shown in the chart below:


Dec 31, 2011

Dec 31, 2010

ApartmentsUnitsOccupancy

Average
Rent

UnitsOccupancy

Average
Rent

Halifax, NS4,41097.3%$8564,32598.3%$824
Moncton, NB1,42694.1%$7791,13896.5%$741
Fredericton, NB1,29397.9%$82298396.1%$771
Saint John, NB1,14397.0%$7201,14398.5%$703
St. John's, NL74298.7%$69568999.1%$651
Charlottetown, PE68798.3%$84763898.9%$824
Other Atlantic Locations44894.9%$75244897.5%$723
Ontario39496.7%$1,48936294.7%$1,491
Total Apartment Portfolio10,54397.0%$8329,72697.8%$803
MHC Portfolio9,44198.3%$2379,29098.8%$231
Total Portfolio19,98497.6%
19,01698.3%


Not included in the occupancy stats above are 182 apartment units (including three newly constructed properties acquired in 2011 in their initial lease-up phase), 150 MHC sites that had not been previously rented or are off-line, and the 1,592 sites in the Company's seasonal resort portfolio.

Apartment occupancy levels decreased during the fourth quarter due primarily to softness in the Moncton market, following an increase in new rental construction completions in the city, and increased turnover in more price sensitive properties in both Dartmouth and Saint John, following aggressive rental increases in the second half of 2011. Demand remains robust in the majority of Killam's core apartment markets.

Killam has experienced a reduction in occupancy at its MHCs, from 98.8% at December 31, 2010, to 98.3% at December 31, 2011. The change in occupancy is the result of a reduction in sites rented by third party retailers who were paying rent to reserve sites for future home sales, and approximately 24 tenants who moved during the year.


$52.1 Million in Fair Value Adjustments

Management uses the fair value approach to account for Killam's investment properties and investment properties under construction under IFRS. Killam's investment properties and investment properties under construction were valued at $1.26 billion at December 31, 2011, up $180 million over the fair value of $1.08 billion at December 31, 2010. This increased value is attributable to acquisitions, developments and fair value gains reflecting capitalization rate ("cap rate") compression. The fair value adjustment during the fourth quarter of 2011 was $8.9 million. The following table summarizes the changes in the value of Killam's investment properties for 2011:

Change in Investment Properties and Investment Properties Under Construction (in millions)
For the year ended December 31, 2011

Investment
Properties

Investment
Properties
Under
Construction

Total
Beginning Fair Value $1,081.8

$1.0

$1,082.8
Acquisition of Properties96.0

-

96.0
Transfer to Investment Properties Under Construction(5.4)

5.4

-
Transfer from Investment Properties Under Construction4.7

(4.7)

-
Capital Investment17.5

9.7

27.2
Interest Capitalization-

0.2

0.2
Fair Value Adjustment52.1

-

52.1
Ending Fair Value$1,246.7

$11.6

$1,258.3



Progress on Developments

During 2011, Killam completed its first apartment development and began construction of four additional apartment buildings. The developments underway total 282 units, and are expected to be completed during the first quarter of 2013. As at December 31, 2011, the value of investment properties under construction was $11.6 million. The expected total cost of the developments is $57.8 million and represents 4.6% of the Company's investment property portfolio.


Capital Raised in 2011 to Fund Growth

Killam raised $86.3 million through the capital markets in 2011, primarily to fund acquisitions and development activities. The funds were partially deployed during the year to acquire $106.5 million in property and invest $9.7 million in development activities. As at December 31, 2011, Killam had $43.3 million in cash and expects to generate $7.0 million in new mortgage proceeds in 2012 from unencumbered assets, for total capital available of approximately $50.3 million.


Benefiting from Low Interest Rates

Killam benefitted from the low interest rate environment in 2011, successfully refinancing $51.7 million in maturing mortgages at a weighted average interest rate of 3.38%, 217 basis points lower than the weighted average rate of 5.55% on the debt prior to refinancing. In addition, the Company took advantage of low long-term rates by fixing 10-year rates for 43% of apartment refinancings and new mortgages.


Acquisition Activity in 2011

Killam completed $106.5 million in acquisitions in 2011, including transaction costs, in-line with its target of completing between $100 and $150 million in acquisitions for the year. The acquisitions were primarily focused on apartments in Atlantic Canada and were completed at an average cap rate of 6.1%. Management had expected to complete more acquisitions in Ontario in 2011, but due to the competitiveness of the acquisition market and escalating prices, Killam completed only one acquisition in Ontario during the year. The building acquired, 180 Mill Street, was purchased through Killam's partnership with KHF. The partnership was established in 2010 to acquire up to $250 million in multi-residential properties. Killam accounts for its 25% interest in the $33.3 million property using the equity method.


2012 Acquisition Activity

Killam's first acquisition in 2012 was completed on February 27, 2012, with the purchase of Chapter House, a luxury four-story concrete apartment building located in Halifax on University Avenue, within walking distance to the entertainment and shopping district and the QE II Hospital complex. Chapter House was built in 2004 and is a 97,600 square foot mixed-use property that contains 14 one bedroom units, 29 two bedroom units, 14,500 square feet of commercial space and one level of underground parking with 63 parking stalls. The average residential rent is $1,750 per month and the average size of the residential units is 1,025 square feet. The commercial space is 100% leased with an average net rent of $22.75 per square foot. The purchase price of $13.8 million was satisfied with the assumption of a mortgage of $7.7 million at 5.91% and the balance in cash. The cap rate is approximately 6.1%.

Killam has also agreed to acquire Brentwood Apartments, a 240-unit, three-building complex for $19.2 million ($80,000/unit). This property, located on Olivet Street in Halifax, contains 42 one bedroom units and 198 two bedroom units and has an average rent of $763 per month. The complex was built in 1968 and is well located on the Halifax peninsula, adjacent to the Halifax Shopping Centre, the dominant enclosed mall in Halifax. The purchase price of $19.2 million is expected to be satisfied with a new CMHC mortgage of approximately $14.0 million at 3.0% and the balance in cash. The cap rate on the acquisition is approximately 6.25%, and it is expected to close before the end of March 2012.


Management's Comments

"2011 was a year of continued growth through acquisitions and development, and a challenging year due to higher than normal operating costs", noted Philip Fraser, Killam's President and CEO. "The majority of the buildings we purchased in 2011 are of newer construction, including three assets still in their initial lease-up phase. We believe that our focus on acquiring new properties, combined with our development program, differentiates Killam and will lead to higher risk adjusted returns to shareholders over the course of the business cycle, and improve the quality of our portfolio."

"The average cost of heating oil, which increased by 30% during the year, had a negative impact on same store apartment results in 2011. During the second half of 2011 and early 2012, to combat this effect, we completed natural gas conversions at another 15 properties in Halifax, representing approximately 1,000 rental units. With the cost of heating oil currently more than three times the cost of natural gas, the benefit from these conversions is immediate. We expect to continue to invest in natural gas conversions in Halifax as the gas distribution network expands in the city and believe that the cost savings from gas conversions will contribute to meeting our same store NOI growth target of between 2% and 4% in 2012."

"Halifax is one of our strongest markets, and looking forward, we expect our Halifax portfolio to generate above-average revenue growth, benefiting from increased demand for housing following the commencement of Irving Shipbuilding's $25 billion shipbuilding contract. The 25-year contract is expected to lead to economic, employment and population growth in Halifax. We expect that our well-located and diverse portfolio of buildings will allow Killam to benefit from increased housing demand in the city."


Financial Statements

Killam's December 31, 2011, Audited Financial Statements and Notes and Management's Discussion and Analysis can be found under the 2011 Financial Reports of the Investors section of Killam's website at www.killamproperties.com/investor-relations.


Q4 Conference Call

Management will host a conference call to discuss these results on Wednesday, March 7, 2012, at 12:00 PM Atlantic time (11:00 AM Eastern). The dial-in numbers for the conference call are 647-427-7450 (in Toronto) or 888-231-8191 (toll free, within North America).

A live audio webcast of the conference call will be accessible on the Company's website at www.killamproperties.com/investor-relations/events-and-presentations and at www.newswire.ca.

A replay will be available by dialing 416-849-0833 (Toronto) or 800-642-1687 (toll-free) and using the passcode 44181362 until March 14, 2012, or on the Company's website for 90 days after the conference call.


Corporate Profile

Killam Properties Inc., based in Halifax, Nova Scotia, is one of Canada's largest residential landlords, owning, operating and developing multi-family apartments and manufactured home communities.

For Further Information Please Contact:

Killam Properties Inc.
Dale Noseworthy, CA, CFA
Vice President, Investor Relations and Corporate Planning
dnoseworthy@killamproperties.com
Phone: (902) 442-0388

Note: The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein. Certain statements in this report may constitute forward-looking statements relating to our operations and the environment in which we operate, which are based on our expectations, estimates, forecast and projections, which we believe are reasonable as of the current date. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of Killam to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For more exhaustive information on these risks and uncertainties, you should refer to our most recently filed annual information form which is available at www.sedar.com. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made and should not be relied upon as of any other date. Other than as required by law, Killam does not undertake to update any of such forward-looking statements.





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