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KILLAM PROPERTIES INC. REPORTS FIRST QUARTER 2011 RESULTS AND A 3.6% INCREASE IN THE MONTHLY DIVIDEND

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^{Published in Business and Finance on Tuesday, May 10th 2011 at 16:45 GMT by Market Wire}  

HALIFAX, May 10 /CNW/ - Killam Properties Inc. (TSX: KMP KMP:DB.A) today announced its financial results for the first quarter ended March 31, 2011. Killam reported, in accordance with International Financial Reporting Standards ("IFRS"), net income of $15.7 million for the three months ended March 31, 2011, compared to $6.5 million for the three months ended March 31, 2010.

These inaugural IFRS results, and all future results, will be reported under IFRS and 2010 historical results have been restated to IFRS for comparison purposes. A reconciliation of the results as reported under prior Canadian GAAP and under IFRS is included in the notes to Killam's First Quarter 2011 Financial Statements.

In addition, concurrent with the adoption of IFRS, Killam has chosen to change its definition of funds from operations ("FFO") to be consistent with REALPac's revised definition for IFRS; REALpac is Canada's senior national industry association for owners and managers of investment real estate.

Highlights of Killam's First Quarter 2011

• Earned net income attributable to common shareholders of $15.6 million, or $0.35 per share, compared to $6.4 million, or $0.16 per share during the first quarter of 2010.
• Earned net income before fair value gains and income taxes of $6.7 million, or $0.150 per share, compared to $6.0 million, or $0.155 per share during the first quarter of 2010.
• Increased FFO by 12.5% to $6.5 million, from $5.8 million during the first quarter of 2010.
• Generated FFO of $0.145 per share, compared to $0.149 per share earned during the first quarter of 2010. The 12.5% growth in FFO in the quarter was offset by a 15.5% increase in the number of weighted average shares outstanding.
• Achieved same store rental revenue growth of 2.5% during the first quarter.
• Maintained same store net operating income ("NOI") of $15.1 million, compared to $15.1 million earned during the first quarter of 2010, as higher operating costs, including higher energy costs, offset the benefit of increased revenue.
• Continued high occupancy rates, ending the first quarter with apartment occupancy at 97.6% and manufactured home community ("MHC") occupancy at 98.8%.
• Recorded a $13.0 million fair value gain during the first quarter of 2011, compared to a $2.7 million gain during the first quarter of 2010.
• Debt levels remained conservative, with an interest coverage ratio of 2.0 times, compared to 1.9 times during the first quarter of 2010 and debt as a percentage of total assets of 56.2%.
• Acquired two parcels of land for development totalling 3.7 acres in St. John's, NL, where Killam expects to build approximately 200 units over the next three years.
• Continued progress on the Charlotte Court development in Charlottetown, PE, with the first of the two buildings over 50% complete.

Financial Highlights (in thousands, except per share information)

FFO Definition Changed

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 IFRS or GAAP and therefore may not be comparable to similar titled measures presented by other public companies.

REALpac has recommended guidelines for a standard industry calculation of FFO based on IFRS.  Effective January 1, 2011, Killam has changed its definition of FFO based on this recommendation and calculates FFO in accordance with the REALpac definition; prior to 2011 Killam's definition of FFO differed from REALpac as Killam adjusted for the amortization of financing costs, non-cash debenture interest and non-cash share compensation. Killam's 2010 comparable FFO results have been recalculated with the new definition for comparative purposes.

FFO Per Share of $0.145 During the First Quarter

Killam's calculation of FFO and FFO per share for the first quarter of 2011 and 2010, in thousands of dollars, is as follows:

Killam earned $6.5 million in FFO in the first quarter of 2011, a 12.5% increase from the first quarter of 2010. The $115 million in new properties acquired in 2010 accounted for the majority of the income growth, partially offset by an increase in interest expense on the Company's convertible debentures.

FFO per share for the first quarter of 2011 was $0.145 per share, down 2.7% from $0.149 per share earned during the first quarter of 2010. The increase in FFO in the quarter was offset by a 15.5% increase in the weighted average number of shares outstanding, as a result of the $50.6 million common share issue that closed on March 25, 2010.

Consolidated Same Store NOI Consistent Quarter-Over-Quarter

Killam's same store properties, which account for 96% of the Company's portfolio, generated NOI of $15.1 million during the first quarter of 2011, consistent with $15.1 million earned during the first quarter of 2010. Consolidated revenue growth of 2.6% was offset by a 6.3% increase in expenses. The MHC portfolio outperformed the apartment portfolio in the quarter, generating NOI growth of 3.9%, compared to a 1.2% reduction in NOI realized from the apartment portfolio, due primarily to higher heating costs.

Killam's same store apartment portfolio achieved revenue growth of 2.0% during the first quarter of 2011 due primarily to increased rental rates; however, the increase in apartment operating costs more than offset this revenue growth. Expenses were up 6.0%, including a 7.2% increase in the cost of energy and utilities, attributable largely to a 30% increase in the average cost of oil in the quarter. Approximately 31% of Killam's apartment units are heated by oil, exposing the Company to fluctuations in the cost of this commodity. Killam's dependence on oil has decreased over the last five years as the Company has converted many oil heating plants to natural gas. Also impacting Killam's apartment operating expenses during the first quarter was increased snow removal costs due to higher than normal snowfall during the first quarter.

As noted, Killam's MHC portfolio achieved 3.9% same store NOI growth during the first quarter. The properties' 5.1% increase in revenue, attributable primarily to increased rental rates, more than offset a 7.6% increase in operating costs related to increased snow clearing and water and waste-water testing and repairs.

Occupancy Remains Strong

Killam's consolidated occupancy at March 31, 2011, was 98.2%, compared to 98.5% at March 31, 2010, and 98.3% at December 31, 2010.  The change year-over-year is shown in the chart below.

The apartment occupancy decreased slightly, by 20 basis points quarter-over-quarter. Improved occupancy levels in Halifax were offset by lower occupancy in New Brunswick. Moncton experienced a 240 basis point decrease in occupancy, ending the quarter with an occupancy rate of 96.5%, a rate similar to the occupancy at March 31, 2009. Occupancy levels remained high in St. John's and Charlottetown, where both were over 98% at the end of the first quarter.

Killam's occupancy rates at its Ontario properties, although below the apartment portfolio average, have improved each quarter since the three properties were acquired during the second quarter of 2010. Occupancy of 95.0% at March 31, 2011, represents a 220 basis point improvement over occupancy of 92.8% at June 30, 2010, and a 20 basis point improvement from December 31, 2010.  Management expects continued improvement in occupancy at the Ontario properties throughout 2011 as leasing remains active at all three properties.

The MHC portfolio had a vacancy rate of 1.2%, with an average monthly rent of $232. Not included in the MHC vacancy numbers are 144 MHC sites that have not been previously rented and 376 transient sites in Killam's seasonal resort portfolio. These units are excluded from vacancy statistics in the table above.

Fair Value of Investment Properties Increased

Management uses the fair value approach to account for Killam's investment properties under IFRS. Killam's investment properties and investment properties under construction were valued at $1.102 billion at March 31, 2011, up $19 million, or 1.8% over the fair value of $1.083 billion at December 31, 2010. This increased value is attributable to some market capitalization compression and a 0.7% increase in the portfolio's normalized NOI. The properties' normalized NOI and assumed capitalization rates are the two key components used to determine the fair value of the investment properties.

Killam invests capital to maintain and improve the operating performance of its properties and to develop new properties. During the first quarter of 2011 Killam invested a total of $4.2 million in capital investments, including $2.3 on property improvements and $1.9 million on development projects.

The following table summarizes the changes in the value of Killam's investment properties for the first quarter ended March 31, 2011.  The fair value adjustment noted below, in millions of dollars, flows through the income statement.

Debt Equal to 56% of Assets

Killam's total gross debt of $638.9 million at March 31, 2011 represents 56.2% of the Company's total assets including the fair value of Killam's investment properties. The Company continues to have access to debt and was successful at refinancing maturing debt during the quarter at attractive interest rates. The average term to maturity of Killam's mortgage debt is 3.8 years. Killam's annualized interest coverage ratio improved during the first quarter to 2.0 times compared to 1.9 times at March 31, 2010.

Acquisition Activity Expected to be Weighted to the Second Half of 2011

During the first quarter of the year, the Company completed the acquisition of two parcels of land totalling 3.7 acres in St. John's, NL, for $2.4 million, where management expects to develop approximately 200 units. The first development project at the centrally located site will be a 72-unit building, with construction expected to begin during the third quarter of 2011.

Killam has agreed to acquire a six building, 310-unit apartment portfolio in Fredericton, NB. The purchase price of $36.1 million ($116,500 per suite) will be satisfied with the assumption of $15.5 million in existing mortgages with a weighted average interest rate of 4.77%, and the balance in cash. The transaction is scheduled to close in June 2011. The cap rate on the acquisition is approximately 6.2%. The portfolio, with an average age of nine years, is currently 99% occupied and contains 35 one-bedroom, 212 two-bedroom and 63 three-bedroom units. The average rent is $931 per month, with tenants responsible for their own heating costs.

Management has an active deal flow with potential acquisitions in Atlantic Canada and Ontario. Killam expects to complete between $100 million and $150 million in acquisitions in 2011.

Killam's Annual Dividend Increased 3.6% to $0.58

The Board of Directors of Killam today approved a 3.6% increase to the Company's dividend, increasing the annual dividend from $0.56 per share to $0.58 per share. The monthly dividend will be $0.04833 per share, up 3.6% from $.046668 per share.  This is the first increase to Killam's dividend since it was initiated in March 2007. The increase will become effective for the June 2011 dividend, to be paid in July 2011.

Management's Comments

"We are enthusiastic about the growth potential for Killam in 2011", noted Philip Fraser, Killam's President and Chief Executive Officer. "We have an active acquisition pipeline with potential acquisitions in Atlantic Canada and Ontario and look forward to announcing details on the assets once the purchases are finalized, predominately in the second half of 2011."

"We are also pleased to announce that our development program is progressing smoothly. We plan to start construction on additional developments during the next two quarters, including a 101-unit building in Fredericton, adjacent to Forest Hills, and we hope to begin construction of a 72-unit building in St. John's on the land we acquired during the first quarter. We believe that there will be strong demand for new rental product in St. John's, a market that has seen very little new rental construction in over 30 years. We look forward to updating you on these projects over the next 12 to 18 months."

"We are pleased to announce a 3.6% increase in our dividend. We have seen our annualized FFO dividend payout ratio decrease since the dividend was initiated in 2007. The Board's decision to increase the dividend today reflects an expectation of continued growth in FFO in the future."

Financial Statements

Killam's March 31, 2011 Financial Statements and Notes and Management's Discussion and Analysis can be found at [ www.killamproperties.com ].

First Quarter Conference Call

Management will host a conference call to discuss these results on Wednesday, May 11, 2011 at 10:00 AM Atlantic time (9:00 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 ] 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 60652523 until May 18, 2011, or on the Company's website for 90 days after the conference call.

Annual and Special Meeting

Killam's Annual and Special Meeting of Shareholders will be held on Wednesday, May 11, 2011 at 2:00 PM Atlantic time (1:00 PM Eastern) at the Four Points Sheraton, 1496 Hollis Street, Halifax, Nova Scotia. A live audio webcast of the Annual and Special Meeting will be accessible on the Company's website at [ www.killamproperties.com/events-and-presentations.asp ] and at [ www.newswire.ca ].

Corporate Profile

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

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.