Mr. Dale Noseworthy reports

KILLAM PROPERTIES INC. ANNOUNCES STRONG Q1-2015 RESULTS WITH 25% FFO PER SHARE GROWTH

Killam Properties Inc. is releasing its financial and operating results for the first quarter ended March 31, 2015.

First quarter highlights:

• Generated funds from operations (FFO) per share (diluted) of 15 cents, a 25.0-per-cent increase from 12 cents in the first quarter of 2014;
• Increased same-store rental revenue by 2.4 per cent;
• Achieved same-store net operating income (NOI) growth of 5.0 per cent;
• Completed a $27.5-million acquisition and a $22.5-million development;
• Achieved interest expense savings, reducing the weighted average interest rate on mortgages at March 31, 2015, to 3.51 per cent, from 3.60 per cent at Dec. 31, 2014.

                                   FINANCIAL HIGHLIGHTS 
                        (in thousands, except per-share amounts) 
                                                                  Three months     Three months
                                                                ended March 31,  ended March 31,
                                                                          2015             2014

Property revenue                                                       $39,536          $35,065
Net operating income                                                   $20,655          $17,620
Income before fair value losses, gain on disposition 
and income taxes                                                        $9,122           $7,046
Fair value gains                                                          $793               $0
Net income attributable to common shareholders                          $6,922           $4,869
Earnings per share (diluted)                                             $0.11            $0.09
Funds from operations                                                   $8,922           $6,827
Funds from operations per share (diluted)                                $0.15            $0.12

25-per-cent growth in FFO per share

Killam generated FFO per share growth of 25.0 per cent quarter over quarter, earning 15 cents per share in the first quarter of 2015, compared with 12 cents in the first quarter of 2014. The earnings growth was primarily attributable to same-store property NOI growth of 5.0 per cent, contributions from acquisitions and stabilized developments, and interest expense savings from refinancings.

Strong NOI growth in the first quarter

              CONSOLIDATED SAME-STORE NOI 
               (in thousands of dollars) 
                                                           
                      For the three months ended March 31,
                                         2015        2014

Property revenue                      $34,619     $33,804
Property expenses                             
Operating expenses                    $(5,803)    $(5,766)
Utility and fuel expenses             $(6,927)    $(7,044)
Property taxes                        $(4,022)    $(3,977)
Total property expenses              $(16,752)   $(16,787)
Net operating income                  $17,867     $17,017

Killam's same-store revenue grew by 2.4 per cent in the quarter, achieved through increased rental rates, an 80-basis-point improvement in apartment occupancy levels and a reduction in rental incentives. All regions contributed positively to revenue growth, with the largest gains realized in St. John's, Fredericton and Ontario. Killam's Halifax portfolio, which accounted for 40 per cent of the company's same-store apartment NOI in the first quarter of2015, generated a 2.1-per-cent increase in revenue growth, attributable to a 70-basis-point improvement in occupancy and a 1.5-per-cent increase in average rents.

Killam's same-store total property expenses decreased by 0.2 per cent in the first quarter of 2015, contributing to the 5.0-per-cent NOI growth. During the first quarter of 2015, the company benefited from lower oil prices, with the apartment portfolio enjoying a 24.4-per-cent reduction in oil expense. Total natural gas costs were comparable quarter over quarter, as higher natural gas prices in both Halifax and Ontario offset lower pricing in New Brunswick. Killam successfully managed controllable costs through a continued focus on regional efficiencies. Despite a 15-per-cent increase in snow removal costs as a result of record snowfall in many of Killam's core markets in Atlantic Canada in the first quarter of 2015, operating expenses increased by only 0.6 per cent.

$28-million acquisition completed in the first quarter

On March 31, 2015, the company completed a $27.5-million acquisition in Halifax. The acquisition includes a modernized heritage complex, with 158,000 square feet of office and retail space, for $22.3-million, representing a capitalization rate of 7.0 per cent. Killam also acquired a 50-per-cent interest in 47,650 square feet of vacant land adjacent the commercial property for $5.2-million. An approved development agreement allows for the construction of a 280-unit multiresidential property on the vacant land.

Killam and its 50-per-cent partner expect to begin construction during the second half of 2015. Management continues to look for acquisition opportunities and has maintained its 2015 target of completing $75-million in acquisitions, with 50 per cent of acquisitions outside Atlantic Canada.

Developments contribute positively to FFO

Killam completed the 102-unit Chelsea Place development in St. John's during the first quarter and the property is currently 87 per cent leased. Developments, including Chelsea Place and two projects completed in 2013, and fully stabilized during the second half of 2014, contributed $300,000 to FFO growth in the quarter.

The company's 122-unit Saginaw Gardens development in Cambridge, Ont., is expected to be completed during the second quarter and is currently 39 per cent preleased. Saginaw Gardens is expected to contribute positively to FFO during the second half of 2015.

Interest expense savings on mortgage refinancings

Killam benefited from interest rate savings on mortgage refinancings during the first quarter of 2015, and reduced its weighted average mortgage interest rate to 3.51 per cent, from 3.60 per cent at Dec. 31, 2014. Total debt as a percentage of total assets was 55.1 per cent at March 31, 2015, compared with 54.9 per cent at Dec. 31, 2014. Killam's interest coverage ratio for the last 12 months was 2.25 times, up from 2.18 times at Dec. 31, 2014.

Management's comments

"We are pleased to present strong financial results for the first quarter," noted Philip Fraser, Killam's president and chief executive officer. "FFO per share growth of 25 per cent reflects the positive impact of our recent acquisitions and developments, and 5-per-cent NOI growth from our same-store properties.

"Realizing revenue growth from our existing portfolio is important for Killam's FFO per share growth. We are pleased to have achieved occupancy improvement from our stabilized properties this quarter, as well as increased rental revenue in each of our core markets. Killam's committed employees are making the difference by focusing on strong customer relationships and keeping our properties well maintained.

"Lower utility costs also contributed to the 5-per-cent NOI growth. Unlike the last two years, where first quarter utility costs increased by 18.5 per cent and 19.2 per cent (2014 and 2013), utility costs were down 2.0 per cent for our-same store properties in the first quarter of 2015. Although natural gas prices remained high during the winter in Atlantic Canada, Killam realized a 1.1-per-cent savings in same-store natural gas expense in the first quarter of 2015. Lower oil costs also contributed to utility savings.

"The strategy of geographic diversification and increased investment in Ontario and Alberta is reflected in Killam's first quarter 2015 results, with 19.9 per cent of apartment NOI generated in Ontario and Alberta, compared to 12.7 per cent in the first quarter of 2014. We look forward to growing Killam's investment in these regions to reach our goal of generating 50 per cent of Killam's NOI outside Atlantic Canada."

Financial statements

Killam's first quarter 2015 financial statements and notes, and management's discussion and analysis, can be found under financial reports in the investor relations section of Killam's website.

Results conference call

Management will host a conference call to discuss these results on Wednesday, May 6, 2015, at 9 a.m. Eastern Time. 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.

We seek Safe Harbor.