1. No category

Investor Presentation
May 2015
Disclaimer
An investment in the securities of PRO Real Estate Investment Trust (“PROREIT” or the “REIT”) described in this document is subject to a number of risks that should be considered by a prospective
purchaser. The REIT has not authorized anyone to provide prospective purchasers with additional or different information. The REIT is not offering to sell the units in any jurisdictions where the offer
or sale of such units is not permitted. For investors outside Canada, the REIT has not done anything that would permit the offering or possession or distribution of this document in any jurisdiction
where action for that purpose is required, other than in Canada. Prospective purchasers should not assume that the information contained in this document is accurate as of any date. In this
presentation, all amounts are in Canadian dollars, unless otherwise indicated.
Certain statements contained in this presentation constitute forward-looking statements within the meaning of Canadian securities laws that reflect the current expectations of management regarding
our future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements are only management’s beliefs, expectations and intentions and are not
guarantees of performance. Wherever possible, words such as “may”, “would”, “could”, “will”, “believe”, “expect”, “estimate”, “intend” and similar expressions have been used to identify these forwardlooking statements. Some of the specific forward-looking statements in this presentation include, but are not limited to, statements that are described in further detail under “Notice Regarding ForwardLooking Statements” in the preliminary prospectus. These forward-looking statements reflect management’s beliefs with respect to future events and are based on information currently available to
management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Important assumptions relating to the forward-looking statements contained in
this presentation include the REIT’s future growth potential, expected capital expenditures, competitive conditions, results of operations, future prospects and opportunities, industry trends remaining
unchanged, future levels of indebtedness, the ability to secure debt financing on terms acceptable to the REIT, the tax laws as currently in effect remaining unchanged, and the current economic
conditions remaining unchanged. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may
be expressed or implied by such forward-looking statements, including, without limitation, risks and uncertainties relating to the portfolio, expectations regarding future occupancy rates of our
properties. Although the forward-looking statements contained in this presentation are based upon what management currently believes to be reasonable assumptions, we cannot assure prospective
investors that actual results, performance or achievements will be consistent with these forward-looking statements. We do not intend, and do not assume any obligation, to update these forwardlooking statements, except as required by law. We cannot assure you that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in
such statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and accordingly investors are cautioned not to put undue reliance on forwardlooking statements due to the inherent uncertainty therein.
This presentation includes certain financial measures such as NOI, FFO and AFFO that have not been prepared in accordance with International Financial Reporting Standards. See “Non-IFRS
Financial Measures” in the preliminary prospectus.
The REIT is not a trust company and is not registered under applicable legislation governing trust companies as it does not carry on or intend to carry on the business of a trust company. The REIT
currently qualifies as a mutual fund trust for the purposes of the Income Tax Act (Canada) and offers and sells its units to the public. The units are not “deposits” within the meaning of the Canada
Deposit Insurance Corporation Act (Canada) and are not insured under the provisions of that act or any other legislation. Investors who are not residents of Canada for tax purposes should consult
their own tax advisors concerning the tax consequences to them of the offering. There are limits on ownership of units by non-residents of Canada, as described in the REIT’s amended and restated
declaration of trust made as of March 11, 2013.
An investment in units is subject to a number of risk factors that should be carefully considered by a prospective purchaser. Cash distributions by the REIT are not guaranteed and will be based, in
part, upon the financial performance of the REIT’s properties, which is susceptible to a number of risks. These risks, and other risks associated with an investment in units, include but are not limited to
those related to the real estate industry, the REIT and its business and the offering.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. The units have not been, and will not be, registered under the United States
Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons (as defined in
Regulation S under the 1933 Act), except pursuant to an exemption from the registration requirements of those laws.
2
INVESTMENT HIGHLIGHTS
Investment Highlights
Attractive yield, low-risk diversified commercial property REIT
•
Portfolio of high-quality commercial real estate
•
Geographic focus on stable Eastern Canadian markets
•
High-quality tenants with long-term leases
•
Experienced management team and board with a proven track record of value
creation
•
Alignment of interests through an efficient management structure, strong corporate
governance and significant retained interest
•
Excellent accretive growth opportunities
4
Compelling Investment Metrics
PROREIT (PRV.UN)
Attractive yield, low-risk diversified commercial property REIT
Attractive yield and valuation versus peers
Yield:
9.4%
Distributions:
$0.21 per annum ($0.0175 monthly)
Tax deferral:
100% (estimated)
Payout ratio(1):
93.9%
Estimated discount to NAV:
3.5% (IFRS), 11.2% (stabilized NAV)(2)
Price/AFFO(1):
9.9x
Strong balance sheet
GBV:
$142 million
Debt/GBV(1):
58.8%
Quality Tenants
•
•
•
Government and national tenants represent 81.5% of base rent
Investment grade tenants represent 55.3% of base rent
Weighted average lease term of 7.6 years
(1)
(2)
Reflects the 3 months ended Dec 31, 2014, taking into account certain normalization items, annualized, and adjusted for
the sale of 985 Godin.
Internal estimate, based on occupancy of 95% and applying a 3.5% portfolio premium to IFRS value (represents an
implied cap rate of ~7.1%)
5
MANAGEMENT
& GOVERNANCE
Track Record of Value Creation
 50+ years of collective experience
 Acquired and managed over $4.2 billion of assets at CANMARC REIT
 Extensive network of real estate and capital markets relationships to source
high-quality acquisitions
 CANMARC REIT was a diversified REIT with a national portfolio (115
properties with 9.4 million square feet of GLA; eastern Canada focus)
 Acquired by Cominar REIT in 2012 for $1.9 billion
James W. Beckerleg
Chief Executive Officer
and Trustee
Gordon Lawlor, CA
Chief Financial Officer
 43% compounded annualized total return since IPO
 TSX REIT Index returned 28% over the same period
100%
CANMARC REIT
S&P/TSX Capped REIT Index
75%
50%
25%
Mark O’Brien
Director of Acquisitions
Alison Schafer, CPA, CA
Director of Finance
0%
May-2010
Oct-2010
Mar-2011
Aug-2011
Jan-2012
7
Strong Governance and Board Independence
Name
Role
Experience
John Levitt
• Chair, Independent Trustee
• Partner at EDEV Real Estate Advisors
• Former trustee of CANMARC REIT
• Former senior management of O&Y Properties Corporation
Shenoor Jadavji
• Trustee
• Founded Lotus Pacific Investments Inc. in 1995
• Acquired, developed, managed and sold over $1 billion of real
estate
Gérard Limoges
• Independent Trustee
• Former trustee of CANMARC REIT
• Former deputy chairman of Ernst & Young Canada
Vitale Santoro
• Trustee, Secretary
• Partner at Osler, Hoskin & Harcourt LLP
Ronald Smith
• Independent Trustee
• Former member of the Canada Pension Plan Investment Board
• Former senior VP and CFO of Emera Inc.
James Beckerleg
• Trustee, President, CEO
• Former president and CEO of CANMARC REIT
Gordon Lawlor
• CFO
• Former CFO of CANMARC REIT
Over 100 years of collective experience operating,
acquiring and financing real estate
8
Management Agreement

Competitive asset management structure tied to achieving objectives

No fees for disposition, financing, leasing, construction, or development

Pre-determined internalization at $500 million of GBV

Non-compete
Manager

Labec Realty Advisors Inc.
Annual Asset Management Fee

0.25% of Adjusted Cost Base of REIT’s Assets
Acquisition Fee



1.00% on first $100 million
0.75% on next $100 million
0.50% on excess of $200 million
Term

5 years with renewals on mutual agreement
Internalization

At $500 million of GBV
(per fiscal year)

Significant retained interest (29.1%)

Management, Board and affiliates: 15.7%

Vendors (Broccolini Construction, national publicly traded REIT, others): 13.4%
9
Strategic Relationship
LOTUS CRUX
 Strategic relationship enhances geographic expertise and provides a pipeline of future
acquisitions and investment opportunities
 Lotus Crux is a partnership controlled by Lotus Pacific Investments Inc. and Crux Capital
Corporation
 Key principals are Shenoor Jadavji of Vancouver and Peter Aghar of Toronto
 Lotus Pacific and Crux Capital, in aggregate, own and manage over $400 million of commercial
real estate
 Relationship governed by the Strategic Investment Agreement, the Sub-Manager
Agreement, and the Support Agreement
 Lotus Crux has invested $6.7 million in PROREIT
 Initial investment via recent offering ($2.30 per unit)
10
BUSINESS STRATEGY &
PORTFOLIO OVERVIEW
Objectives and Strategy
Objectives
Growth Strategies
INTERNAL



Provide stable and growing cash
distributions from investments in real estate
properties in Canada
Expand asset base and enhance value of
assets (initial target is $500 million of
assets)
Increase the REIT’s NOI and AFFO per unit,
through accretive acquisitions and internal
growth strategies

Focus on office, retail and industrial
properties in Eastern Canada with selective
exposure to Western Canada

Capitalize on revenue growth opportunities

Implement operating improvements and preventative
maintenance programs

Identify expansion opportunities
EXTERNAL

Identify accretive acquisitions of income-producing
commercial properties and portfolios

Minimize risk through portfolio diversification

Selectively develop and expand properties in vibrant
urban and suburban centers

Strategic relationship with Lotus Crux
12
Current Portfolio Overview
 22 income-producing commercial properties
 Over 1.0 million square feet of GLA
 Platform for growth in REIT’s target markets of Quebec, Atlantic Canada and Ontario, with
selective expansion into Western Canada (Alberta and British Columbia)
QC
BC
NB
Quebec
City
AB
Saint John
ON
NS
Halifax
Montreal
Ottawa
PROREIT
Edmonton
Vancouver
Lotus Pacific
Toronto
Crux
Capital
Current Portfolio
13
Quality Properties
3200-3600 Guénette Street
Montreal, QC
10100 Cote-de-Liesse
Montreal, QC
7405 127th Avenue
Edmonton, AB
55 Technology Drive
Saint John, NB
1670 Notre Dame Street
Quebec City, QC
135 Main St.
Moncton, NB
14
Quality Properties
2485 King George Highway
Miramichi, NB
1850 Vanier Blvd
Bathurst, NB
267 Commerce Street
Beresford, NB
370 Connell Street
Woodstock, NB
87 Warwick Street
Digby, Nova Scotia
2 Lawrence Street
Amherst, NS
15
Diversified Portfolio
# of Properties
GLA (square feet)(1)
Occupancy
Office
3
125,407
85.0%
Retail
12
432,995
88.9%
Industrial
4
231,623
100.0%
Commercial Mixed Use
3
224,532
97.6%
Total
22
1,014,557
93.1%
Property Type
Base Rent by Asset Class(2)
Base Rent by Province(2)
Alberta
7.8%
Industrial
17.0%
Office
13.3%
Retail
49.2%
Commercial
Mixed Use
20.5%
(1)
(2)
Pro forma for the sale of 985 Godin.
Based on in-place and committed base rent.
New Brunswick
42.5%
Quebec
34.1%
Nova Scotia
15.6%
16
High Quality Tenant Profile

Total of 68 tenants

Well diversified by industry sector

Government and national tenants represent 81.5% of base rent

Investment grade tenants represent 55.3% of base rent
Base Rent by Tenant Profile(1)
Base Rent by Tenant Industry(1)(2)
Government
8.3%
Technology
7.4%
Local
5.0%
Government
14.6%
Industrials
17.6%
Regional
13.4%
National
73.2%
Consumer
Discretionary
23.0%
Consumer
Staples
26.1%
Other
5.1%
(1)
(2)
Based on in-place and committed base rent.
“Other” includes professional services (3.4%), healthcare (0.9%), telecom (0.3%), and vendor leases (0.5%).
Financial
Services
6.2%
17
Top Ten Tenants
#
% of In-Place
Base Rent(1)
Tenant
GLA
(square feet)
Weighted Average
Remaining Lease
Term (years)
Credit Rating(2)
1
10.8%
86,913
13.1
BBB-, BBB
2
8.7%
42,039
9.0
BBB, BBB
3
7.8%
88,840
13.1
4
5.8%
50,732
5.0
Baa2, BBB-
5
5.7%
20,771
7.3
Aa3, A+, AA
6
5.3%
65,000
5.0
A+, AH
4.6%
35,350
5.2
8
4.4%
43,236
9.7
9
3.9%
34,235
3.0
A3, A-
10
3.7%
24,275
4.6
Aa2/A+/AH
Top 10 Sub-Total
60.7%
491,391
8.5
Other tenants
39.3%
455,275
6.1
-
67,891
-
100.0%
1,014,557
7.6
7
Adetel Group
Vacant
Total
Top ten tenants account for 60.7% of base rent;
Seven of the top ten tenants have an investment grade credit rating
(1)
(2)
Based on in-place and committed base rent.
Source: Moody’s, S&P, and DBRS. Credit rating assigned to tenant or its parent.
18
Lease Maturity Profile(1)
 Overall weighted average occupancy rate of 93.1% with a remaining lease term of 7.6 years
 Investment grade tenants have a weighted average remaining lease term of 8.6 years

Represent 55.3% of base rent
 Staggered lease maturity profile

Not more than 13.7% of the base rent matures in any given period

For 2015, approximately 75% of the original expiring base rent has already been renewed

Recently entered into a new lease with a major retailer for previously
50.3%
64.4%
vacant 23,000 square feet in Woodstock, NB
15.8%
6.0%
4.8%
13.4%
2.7%
12.8%
3.1%
3.7%
2015
2016
13.7%
2.2%
2017
2018
2019
2020 and Thereafter
Base Rent
(1)
Based on in-place and committed base rent.
GLA
19
FINANCIAL
Financial Information(1)(2)
Q4 2014
Annualized
NOI
9,623
G&A
(860)
Interest and financing costs
FFO
(3,612)
5,151
Straight line rent
(76)
Amortization of financing costs
384
Normalized tenant inducements & leasing costs
(111)
Normalized Capex
AFFO
Units outstanding
AFFO per unit
(1)
(2)
(17)
5,331
23,826
0.224
FFO, AFFO and NOI are not measures recognized under Canadian GAAP and do not have standardized meanings prescribed by Canadian GAAP; FFO, AFFO and NOI as computed by the
REIT may differ from similar computations as reported by other real estate investment trusts and, accordingly, may not be comparable to FFO, AFFO and NOI as reported by other such issuers.
Taking into account certain normalized items, and adjusted for the sale of 985 Godin.
21
Debt Strategy
 Debt/GBV of 58.8%(1)
 Total debt: $84.2 million
 Interest coverage ratio of 3.0x
 Total debt weighted average rate: 3.81%
 Total debt weighted average term: 5.1
years
Debt Maturity Profile
Debt Composition
(C$ millions)
Type
December 2014
Operating Loan
$1.0M
24.8
24.9
2019
2020+
19.4
Credit Facility
$6.8M
8.8
First Mortgages
$76.4M
Total
$84.2M
(2)
2015
3.0
3.4
2016
2017
Principal Amortization
(1)
(2)
Adjusted for the sale of 985 Godin.
Includes $6.8 million revolving credit facility.
2018
Debt Maturities
22
Comparable REITs – Valuation Metrics
(C$ millions, except per unit amounts)
Comparable
Price
(Apr 29, 2015)
Market
Capitalization
Enterprise
Value
Distribution
Yield
P/AFFO
(2015E)
Payout Ratio
(2015E)
Debt/
GBV(1)
H&R
$23.32
$6,795.4
$13,281.8
5.8%
14.8x
85.4%
45.6%
Cominar
$19.16
$3,209.3
$7,751.2
7.7%
12.4x
94.8%
54.4%
CREIT
$45.51
$3,304.0
$5,202.7
3.8%
16.2x
62.3%
38.6%
Artis
$14.91
$2,032.2
$4,976.2
7.2%
11.6x
83.7%
48.4%
Morguard
$17.33
$1,077.4
$2,428.5
5.5%
13.2x
73.3%
45.2%
Agellan Commercial
$9.38
$220.4
$526.6
8.3%
10.3x
85.3%
53.0%
Melcor
$8.60
$184.9
$558.4
7.8%
10.2x
80.4%
44.0%
BTB
$5.08
$172.3
$563.3
8.3%
11.6x
96.2%
67.9%
Slate Office
$8.12
$145.3
$480.7
9.2%
11.4x
105.6%
58.8%
Average
7.1%
12.4x
85.2%
50.7%
Small Cap Average(2)
8.4%
10.9x
91.9%
55.9%
9.4%
9.9x
93.9%
58.8%
PROREIT(3)
$2.23
$53.1
$133.6
(1) Includes convertible debentures.
(2) Small cap average comprised of Agellan Commercial, BTB, Melcor, and Slate Office.
(3) Reflects the 3 months ended Dec 31, 2014, taking into account certain normalization items, annualized, and adjusted for the sale of 985 Godin.
Source: S&P Capital IQ, consensus estimates, Canaccord Genuity Research, company reports.
23
Comparable REITs – Operating Metrics
(C$ millions)
Comparable
Large Cap Average(1)
GBV
Market
Number of
Capitalization Properties
GLA
(000s square feet)
Distribution
Yield
P/AFFO
(2015E)
Occupancy
Weighted
Avg.
Lease Term
$7,094.6
$3,283.7
287
30,237
6.0%
13.6x
95.6%
5.9
Agellan Commercial
$597.5
$220.4
26
4,349
8.3%
10.3x
93.1%
3.9
Melcor
$586.7
$184.9
71
4,821
7.8%
10.2x
92.7%
na
BTB
$657.8
$172.3
38
2,735
8.3%
11.6x
92.4%
5.5
Slate Office
$476.7
$145.3
35
2,906
9.2%
11.4x
95.1%
5.3
Small Cap Average(2)
$579.7
$180.7
43
3,703
8.4%
10.9x
93.3%
4.9
PROREIT(3)
$141.5
$53.1
22
1,014
9.4%
9.9x
93.1%
7.6
(1) Large cap average comprised of H&R, Cominar, CREIT, Artis and Morguard REIT.
(2) Small cap average comprised of Agellan Commercial, BTB, Melcor, and Slate Office.
(3) Reflects the 3 months ended Dec 31, 2014, taking into account certain normalization items, annualized, and adjusted for the sale of 985 Godin.
Source: company reports , S&P Capital IQ.
24
Investment Highlights
Attractive yield, low-risk diversified commercial property REIT
•
Portfolio of high-quality commercial real estate
•
Geographic focus on stable Eastern Canadian markets
•
High-quality tenants with long-term leases
•
Experienced management team and board with a proven track record of value
creation
•
Alignment of interests through an efficient management structure, strong corporate
governance and significant retained interest
•
Excellent accretive growth opportunities
25
APPENDIX
Portfolio Overview
Property
Location
Year Built/ Renovated
# of Tenants
GLA (square feet)
Occupancy
Office Properties
55 Technology Drive
Saint John, NB
26-32 Prince Arthur/11-15 Princess
Amherst, NS
325 Hymus Boulevard
Pointe-Claire, QC
1999
1
50,732
100.0%
1957/1974/2008
7
50,681
76.3%
1977/2011
1
23,994
71.8%
9
125,407
85.0%
1972/2001
8
114,247
84.3%
2009
1
21,212
76.2%
1980/2008
1
19,000
100.0%
Sub Total
Retail Properties
370 Connell Street
Woodstock, NB
2 Lawrence Street
Amherst, NS
1670 Notre Dame Street
L’Ancienne-Lorette, QC
135 Main Street
Moncton, NB
449 Principale Street
Daveluyville, QC
2466 - 2480 King George Highway
2012
1
10,574
100.0%
1987/2011
1
6,762
100.0%
Miramichi, NB
1994/2009/2010
14
70,546
100%
2485 King George Highway
Miramichi, NB
2000
1
18,600
100%
8934 -8944 Commercial Street
New Minas, NS
1988/1997/2007/2008
7
51,650
88.0%
11047 Henri Bourassa Boulevard
Quebec City, QC
1983
1
11,700
100.0%
879 Main Street
Beresford, NB
1984/1986/2009/2010
7
39,870
100.0%
267 Commerce Street
Beresford, NB
2011
1
7,530
100.0%
87 Warwick Street
Digby, NS
1973/2013
6
61,304
76.5%
50
432,995
89.9%
Sub Total
Commercial Mixed Use Properties
3200-3260 Guénette Street
St. Laurent, QC
2007
4
99,535
100.0%
5655 de Marseille Street
Montreal, QC
1968/2013
1
65,000
100.0%
1850 Vanier Boulevard
Bathurst, NB
1989
7
59,997
90.8%
12
224,532
97.5%
Sub Total
Industrial Properties
26 Hymus Boulevard
Pointe-Claire, QC
1975
6
87,316
100.0%
10100 Cote-de-Liesse Road
Lachine, QC
2004
3
55,471
100.0%
7405 127th Avenue
Edmonton, AB
1970/1994
1
29,450
100.0%
9002 20th Street
Edmonton, AB
1978/1989
1
59,390
100.0%
11
231,623
100.0%
1,014,557
93.1%
Sub Total
(1)
Total
82
(1)
68 separate and discreet tenants, after accounting for tenants that occupy space in more than one property.
27
Eastern Canada Market Overview
Eastern Canadian Focus on Quebec, Atlantic Canada, and Ontario

Amongst the largest economies in Canada

Represents 64.7% of Canadian GDP ($1.0 trillion) and 70.1% of Canadian population (24.0 million people)

Ontario and Quebec are the two largest Canadian provincial economies

Economies have demonstrated stability over time

Modest GDP growth is expected over the next 5 years

Benefit from continued U.S. economic recovery and appreciation of U.S. dollar

Eastern Canada represented 60% of Canadian merchandise exports in 2012
2.4%
2.4%
2.2%
1.3%
Volatility of GDP Growth (2009 – 2013)
Canada
Ontario
Atlantic Canada
Quebec
28
Eastern Canada Market Overview

Large and fragmented real estate markets




1.2 billion square feet of industrial space
(70.6% of Canadian supply)
GTA and GMA are Canada’s two largest real estate
markets
Stable real estate fundamentals


294 million square feet of office space
(67.6% of Canadian supply)
Stable occupancy rates and rental rates over time
Compelling risk-adjusted property-level
investment metrics

Appealing capitalization rates vs. national averages in
most major cities
Capitalization Rate Spreads to National Averages
Basis points
100
80
60
40
20
0
Office
Industrial
-20
Retail
-40
Montreal
Toronto
Ottawa
Halifax
29
Western Canada Market Overview


Large and fragmented real estate markets

129 million square feet of office space (29.8% of Canadian supply)

410 million square feet of industrial space (23.8% of Canadian supply)

Vancouver, Calgary and Edmonton are the three largest real estate markets in Western Canada
Economic growth and low unemployment drive strong real estate fundamentals

Expected significant net rental rate growth

Declining vacancies

Healthy, projected positive net absorption
Rental Rate CAGR - Office Market(1)
1.0%
2.1%
5.5%
7.4%
Canada
Vancouver
Calgary
Edmonton
(1)
Rental Rate CAGR - Industrial Market(1)
2.0%
Canada
0.2%
2.6%
5.7%
Vancouver
Calgary
Edmonton
All statistics measured over the past 4 years, except Edmonton, which is measured over the past 2 years.
30
Western Canada Market Overview
Increasing exposure to Western Canada (Alberta and British Columbia)



Large, dynamic economies
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Represents 31.4% of Canadian GDP ($0.5 trillion) and 25.3% of Canadian population (8.6 million people)
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Alberta and British Columbia are the third and fourth largest Canadian provincial economies
Amongst the fastest growing economies in Canada
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Forecasted GDP growth (2014F – 2018F): Alberta (2.9%) and British Columbia (2.6%) versus Canada (2.1%)
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Energy sector continues to drive growth
Forecasted unemployment rates below national average
Average GDP Growth (2014F – 2018F)
2.1%
Canada
2.6%
British Columbia
Average Unemployment (2014F – 2018F)
2.9%
5.9%
Alberta
Canada
5.4 %
British Columbia
4.6%
Alberta
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