Jeffrey Olin, President, CEO & Portfolio Manager - - PowerPoint PPT Presentation

Jeffrey Olin, President, CEO & Portfolio Manager

• lin@visioncap.ca

October 24th 2019

Presented By:

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Capitalize for Kids

Capitalize for Kids – About Vision Capital

Vision Opportunity Funds: Overview & Strategy

2

Notes: (a) Source Cambridge ‘Comparing listed REITs with Private Equity Real Estate’ by Brad Chase 08/16/2017 (b) Vision Opportunity Fund Limited Partnership Class A units, (c) Correlation to the indices calculated over a rolling 5 year period (d) Refers to the iShares 7- 10 Year Treasury Bond ETF (IEF).

Real Estate Securities as an Asset Class

• Increasingly recognized by institutional investors as a differentiated asset class
• Alternative to investing in hard assets and direct property investing
• Listed real estate securities have outperformed direct property holdings and private equity real estate funds over the recent 25 years(a)

Differentiator

• Vision’s investments have minimal overlap with other alternative asset funds

Returns

• Cumulative return of 314.1% and 13.5% CAGR since inception (July 2008) (b)

vs the Vision benchmark indexcumulative return of 105.8% and 6.6% CAGR

• Down market capture ratio of 0.17% serving to preserve capital in down markets
• After 11 years: No years of negative performance

Active Investing

• Vision has benefited from 17 takeovers with an average takeover premium of 30%

Low Correlation

• Low correlation to(c)
• S&P TSX Index: 0.49
• S&P/TSX Capped REIT Index: 0.30
• MSCI US REIT Index: 0.43
• Negative correlation to bonds since inception(d)

Geographic Focus

• Invests primarily in North America

Depth of Experience

• The 3 portfolio managers/advisors have a combined total of over 100 years of experience in property and real estate securities

Alignment

• The portfolio managers/advisors have significant personal investments in the Vision Opportunity Funds
• The Vision Opportunity Funds’ strategic investor base consists of pension funds, endowments, family offices and high net worth individuals
• Investors Include:
• Over 40 Executives of North American REITs/REOCs, direct property family offices and;
• 15 Prominent Portfolio Managers

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Capitalize for Kids – About Vision Capital

Summary Overview

3 Long Real Estate

• The ability to buy real estate cheaper in the stock market than in the property market
• Generate positive performance by buying real estate at a discount to its net asset value

Shorting Real Estate

• Capitalize on a bearish outlook from negative supply and demand factors
• Generate positive performance through long-short pair trades without taking market exposure
• One can’t short an overvalued mall or office building, but can short overvalued securities

Value-Add Approach

• Active, value-add, and strategic investing by property type and geographic region
• Concentrated portfolio of ideas
• Vision has benefited from 17 takeovers with an average takeover premium of 30%

Diversification

• Spread one’s limited capital over a range of properties
• Provides diversification by property type (multifamily, office, industrial, etc.)
• Geographic and regional diversification

Liquidity

• Anticipate and respond to changes in economic, political and real estate fundamentals
• Significantly lower transaction and friction costs relative to property market transactions
• Flexibility to act quickly and reposition
• Nobody calls in the middle of the night to fix the heater

Superior Quality Investments

• Access to professional, best in class management teams
• Protected by corporate governance and financial transparency
• Access to highest quality property portfolios not available in private markets

The Vision Opportunity Funds’ focus on publicly-traded real estate securities

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Capitalize for Kids

Capitalize for Kids – About Vision Capital

Outperformance through Volatile Markets

4

Notes: 1-2, 4, 5-7: Please see footnotes slide. 3: The Vision Performance Benchmark Index is an equally weighted average of the S&P/TSX Capped REIT Total Return Index, Scotiabank Canadian Hedge Fund Index, HFRI Index and the MSCI US REIT Index and assumes monthly rebalancing to an equal-weight benchmark. For additional clarifying notes and details of the Vision Opportunity Funds, please contact us and/or refer to www.visioncap.ca

The Vision Opportunity Funds have received numerous Global and Canadian industry awards and recognition for their leading absolute and risk-adjusted total returns including multiple awards from Morningstar, S&P Capital IQ and the Canadian Hedge Fund of the Year Awards.

Vision Opportunity Fund vs. Major Indexes (Total Return & CAGR)

Performance Record from July 1, 2008 – Sept 30, 2019 CAGR 1.8% 3.2% 4.3% 6.0% 6.6% 8.8% 10.2% 13.5% 22.4% 43.0% 61.3% 82.1% 105.8% 157.0% 199.6%

314.1%

0% 50% 100% 150% 200% 250% 300% 350% Scotia Canadian Hedge Fund Index¹ HFRI Index S&P/TSX Composite Index² MSCI IPD US Property Index⁴ Vision Performance Benchmark Index³ MSCI US REIT Index⁵ S&P/TSX Capped REIT Index Vision Opportunity Fund LP ⁶⁻⁷

Since inception, the Vision Opportunity Funds have significantly outperformed global real estate focused funds, broad stock market indices and Global and Canadian alternative investment fund indices.

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Capitalize for Kids

Capitalize for Kids – About Vision Capital

Vision’s Focus on Risk-Adjusted Total Returns

5

Notes: (a) The Sharpe ratio measures the return in excess of the risk-free rate relative to the volatility of the return. The higher the Sharpe ratio, the better returns the fund has yielded in relation to its risk. (b): The Sortino ratio is a variation of the Sharpe ratio which differentiates harmful volatility from volatility in general by replacing standard deviation with downside deviation in the denominator. Thus the Sortino Ratio is calculated by subtracting the risk free rate from the return of the portfolio and then dividing by the downside deviation. The downside deviation is defined as the volatility of returns below the risk free rate. The Sortino ratio measures the return to "bad" volatility or a measurement of return per unit of risk on the

• downside. A large Sortino Ratio indicates a low risk of large losses occurring.

(c): Up-Market and Down-Market Capture Ratios are statistical measures of an investment manager's overall performance in up and down markets. The ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen or fallen. A negative down market capture ratio indicates that the fund increased on average during the months when the index decreased. (d): Correlation is a statistical measure of how two securities move in relation to each other. A Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same

• direction. A correlation co-efficient close to 0 implies that the performance of two securities have little to no correlation. The correlation figures presented are the coefficient of monthly net returns comparing the Vision LP A vs. the stated index over the last 5 years.

Vision’s strategy of targeting long-term out-performance on a risk-adjusted basis is favourably reflected by several metrics, including the up-market and down-market capture ratios.

Variability of portfolio returns

S&P/TSX Index Vision LP Sharpe Ratio(a) 0.27 1.20 Sortino Ratio(b) 0.44 2.16 5-Year Standard Deviation of Returns 8.8% 5.8%

Up- and Down-Market Capture Ratios(c)

Up-Market Capture Ratio 70.7% Down-Market Capture Ratio 0.2%

Correlation of Monthly Returns(d)

S&P/TSX Index 0.49 S&P/TSX Capped REIT Index 0.30 MSCI US REIT Index 0.43 iShares 7-10 Year Treasury Bond ETF

• 0.14

In addition, since inception, the average ge prof

• fit

t per trade de on prof

• fita

itabl ble e trades des is 3.75 times es the loss ss on unpr prof

• fitabl

able e trades. des. Vision’s near zero down-mar market et captur ture ratio io reflects the managers’ view that the “best way to make money for investors is not to lose it.”

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12.1% 9.8% 9.2% 7.1% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Multifamily Retail Industrial Office

• Most defensive real estate sector
• Everyone needs to live somewhere
• Mortgage financing from Fannie Mae and Freddie Mac:
• Offer cheap debt
• Unlike commercial real estate, even in credit crisis financing is always available
• Affordable apartments provide offense and defense
• Offense:
• If supply and demand favourable, short term leases generate highest rent growth
• Defense:
• Recession resilient due to low price point

Capitalize for Kids – Why U.S. Multifamily

Why U.S. Rental Apartments?

6

Top Performing Sector

20-Year Annualized Returns by REIT Sub Sector (1998-2018)

Strong demand for multifamily throughout cycles provides outsized returns

Source: S&P Global

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Capitalize for Kids – Why U.S. Multifamily

Growth of the Millennial Cohort

7

• The millennial generation (birth years early 1980s through early 2000s) has a total population of 75

million

• Includes 66 million people aged 20 to 34:
• This is the prime cohort to form new households and have a 60% to 70% propensity to rent
• Representing 20% of U.S. population
• There are more individuals in their early 20s than at any time in U.S. history
• 68% of these younger adults rent
• Generation Z (birth years 1997 and beyond) is forecasted to be the most populous generation of all

at over 82 million

Strong demand backdrop supporting current rent growth, with stronger fundamentals to come

Source: Axiometrics, Marcus & Millichap, Witten Adivsors

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Capitalize for Kids – Why U.S. Multifamily

Millennials Love to Rent & Seniors Want/Need To Rent

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Higher propensity to rent and largest cohorts – Millennials & seniors are strong demand drivers for affordable multifamily

Proje jected cted 2019 U.S. Popul pulati ation n by Year r of Birth rth and Nativit ity

The leading edge of the Baby Boomers turns 75 in 2021

Source: U.S. Census Bureau and Raymond James research. As of July 2019

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Capitalize for Kids – Why U.S. Multifamily

Household Formations Driven by Rental

9

Renting by necessity and lifestyle are driving homeownership down

• Virtually all net growth in U.S. household formations over the past decade has been driven by the

rental category

• During 1Q19 U.S. Census Bureau reported nearly 500,000 new renter households year-over-year
• Individuals are increasingly preferring a renter’s lifestyle
• Stricter lending criteria by mortgage lenders has contributed to

significant decline in home ownership

Source: U.S. Census Bureau and Raymond James research. As of Q1 2019

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Capitalize for Kids – Why U.S. Multifamily

Household Formations Occurring Later in Life

10

Delayed family formation will continue to drive demand for rental accommodations while reducing demand for single-family housing

Median ian Age at First t Marr rriage: iage: 1950 0 to 2018

Source: CDC/National Center for Health Statistics, U.S. Census Bureau and Raymond James research. As of September 2018

Median an Age

Avera rage e Age of Mother ers at First t Child ld Birth th, , 1970-2017 2017

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Capitalize for Kids – Why U.S. Multifamily

Growing Class of Singles

11

Singles have a much higher propensity to rent relative to those who are married

Singles s Comp mpris ise Half the U.S.

• S. Popul

ulation ion

Source: U.S. Bureau of Labor Statistics and Raymond James research. As of June 2019

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Capitalize for Kids – Why U.S. Multifamily

Young Professionals Staying at Home Longer

12

Pent up demand for rental housing is growing

• Economic conditions and or changes in preferences have delayed over 2 million young

professionals from leaving home, resulting in significant pent up demand for rental housing

• Pre-recession +27% of 18 to 34 year olds were living at home, recently this has grown to +31%

Student nt Loan Debt t and Millenni nnial Home meow

• wne

nershi rship Rate Young ng Adul ults ts Livi ving ng (18-34) ) at Home me: 1983-2018

Source: U.S. Bureau of Labor Statistics and Raymond James research. As of November 2018

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$617 $715 $849 $895 $1,004 $1,048 $1,563 $1,926 $2,285 $2,778 $2,606 $2,954 $400 $400 $600 $600 $800 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $2,600 $2,800 $3,000 1970 1970 1980 1980 1990 1990 2000 2000 2010 2010 2016 2016 Monthly Rent Monthly Income

Capitalize for Kids – Why U.S. Multifamily

Income Levels Favour Rental Lifestyle

13

Middle income families ($40k-$70k) who rent spend

• n average 10% less income on housing than middle

income families involved in home ownership.

Averag age Monthl thly Inco come me vs. Averag age Monthl nthly y Rent from 1970 70-2016 2016

89% 69 69%

Despite the headlines of increasing rents average rents as a percentage of income has decreased from 39.5%to 35.5%over the past 50 years

U.S. House sehold

• ld Compos
• siti

ition

• n By Inco

come me Bracket acket

Source: U.S. Bureau of Labor Statistics, Pew Research Center, and Raymond James

• research. As of April & August 2019

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Capitalize for Kids – BSR REIT

BSR REIT: A Compelling Opportunity

14 Wimbledon Green, Little Rock, AR Madrone, Austin, TX

Ticker

TSE: HOM_U

Market Cap (millions) $682.5 Properties 47 Suites 10,268 Average Monthly Rent $858 Occupancy 95.0% Yield 4.8% BSR REIT

Over 50% of in-place NOI is earned from Texas

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Capitalize for Kids – BSR REIT

Experienced Management With Strong Alignment

15

Insiders of BSR own approximately 50% of the units outstanding

• With BSR since 2016
• From 2004-2015, President of Summit Asset Management LLC
• Holds graduate degree in business from University of Texas at Austin and the Southwestern

Graduate School of Banking at Southern Methodist University

Blake Brazeal

President & Chief Operating Officer

Susan Koehn

Chief Financial Officer

• With BSR since 2014
• From 2005 to 2013, Senior Director of Financial Reporting at Education Realty Trust, Inc.,

a NYSE-listed collegiate housing REIT

• Held various positions at PwC

Daniel Oberste

Chief Investment Officer

• With BSR and predecessor company since 2009
• Attorney with 11 years of real estate experience
• Responsible for sourcing, underwriting and managing acquisitions, dispositions and

financings

• Chair – University of Arkansas at Pulaski Technical College Foundation

John Bailey

Chief Executive Officer

• CEO of BSR and predecessor company since 2012
• 30+ years of real estate experience
• Serves on board of directors for the Salvation Army, Centennial Bank (Little Rock),

University of Arkansas at Little Rock Board of Visitors

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Capitalize for Kids – BSR REIT

Demand Outpacing Supply in BSR’s Core Markets

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Dynamic supply and demand fundamentals support long term growth

Five e Year Project cted ed Forec ecast: t: Popula ulati tion

• n Growth

wth Outpacin cing New Supply ly

Moreover, at average monthly rents of $858, well below the replacement cost rents required for new developments, BSR is largely immune from the impact of any new supply

Source: REIS, Inc.

Five e Year Project cted ed Forec ecast: t: Job Growt wth Outpacin cing New Supply ly

12.6x 8.5x 7.5x 4.0x

0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x

Southwest National Average South Atlantic Gateway Markets

29.9x 25.2x 20.2x 7.4x

0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x

Southwest South Atlantic National AverageGateway Markets

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Capitalize for Kids – BSR REIT

Where Is the Population Moving to?

17

Lower taxes and higher quality of life driving job growth to the Sun Belt

Employ loymen ent Growth h Project ction ions Popul ulati ation

• n Growth

h Projections ections

Rank MSA 2017-2022 2017-2022 Annualized % Change 1 Austin 114,800 22,960 11.00% 2 Orlando 129,100 27,820 11.10% 3 Dallas - Fort Worth 373,800 74,760 10.30% 4 Houston 311,500 62,300 10.20% 5 San Antonio 102,800 20,560 9.90% 6 Phoenix 172,000 34,400 8.50% 7 Las Vegas 80,900 16,180 8.00% 8 Tampa- St. Petersburg 98,900 19,780 7.40% 9 Miami 82,300 16,460 7.00% 10 Seattle 112,000 22,400 6.60% Rank MSA 2017-2022 2017-2022 Annualized % Change 1 Orlando 388,300 77,660 15.50% 2 Austin 297,100 59,420 14.10% 3 Las Vegas 290,500 58,100 12.90% 4 Phoenix 536,900 107,380 11.40% 5 Charlotte 268,800 53,760 10.60% 6 Atlanta 615,000 123,000 10.50% 7 Dallas - Fort Worth 711,500 142,300 9.70% 8 Houston 641,500 128,300 9.30% 9 Tampa- St. Petersburg 250,800 52,160 8.50% 10 San Antonio 200,700 40,140 8.10%

Source: Moody’s Analytics, April 2018

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Capital Investment Per Suite Pre Renovation Rent

Capitalize for Kids – BSR REIT

Core Strategy: Buy Well, Add Value, Surface Value

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Before After er

An experienced, conservative management team has repeatedly proven they can achieve compelling returns in executing value add programs

$1,100 $10,000

Wimberly Apartments Dallas, Texas

Year 1 ROIC Cap Rate Value Creation Per Suite

18% 5.25% $24,286

Post Renovation Rent

$1,250

Annualized Incremental Rent

$1,800

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Capitalize for Kids – BSR REIT

Capital Recycling: High Grading the Portfolio

19

Value Creation in Primary Markets: Buy, Operate, Hold

Madrone & Cielo Apartments, Austin, TX

• BSR is taking advantage of historic low cap rate spreads between Class A and B assets located in primary

market and secondary markets.

• Management has committed to recycle all non-core assets and focus only its core markets of Austin,

Dallas, Houston, Little Rock and Oklahoma City.

• In doing so, current pro forma NOI exposure in Texas, would grow from 50% to 70%

Management alignment is a differentiator: Won’t grow just to pursue external growth to become big

Pro forma NOI by Core Markets

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Compan any Ticker Yield ld FFO O Payo yout Ratio io 2020 FFO O Multi tipl ple Prem emium um/ Discount nt to NAV Impli lied ed Cap Rate Camden Property Trust

CPT

2.8% 62.7% 21.8x 9.2% 5.1% Independence Realty Trust

IRT

4.8% 96.0% 18.5x 16.9% 5.1% Mid-America Apartment Communities Inc.

MAA

2.8% 61.0% 21.1x 19.3% 4.9% NextPoint Residential REIT

NXRT

2.2% 67.9% 25.9x 31.7% 4.8%

Average 3.2% 3.2% 71.9% 71.9% 21.8x 21.8x 19.3% 19.3% 4.9% 4.9% BS BSR REIT

HOM.UN

4.4% 4.4% 66.7% 66.7% 14.6x 14.6x

• 11.0%

11.0% 6.4% 6.4%

Capitalize for Kids – BSR REIT

Compelling Valuation: BSR Trading Well Below Peers

20

Source: Bloomberg, as of Oct. 23rd, 2019

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Capitalize for Kids – BSR REIT

We Have Seen This Movie Before

21

Starwood acquired Milestone in January 2017 at a 9% premium to IFRS NAV Cortland acquired Pure in September 2019 at a 11% premium to IFRS NAV

Mileston tone e Apartm rtmen ent REIT IT Pure re Multi ti-Fam amily ly REIT IT

Source: Bloomberg, and Company Filings

173.4%

• $
• $4.0

$ $1.0 $ $6.0 $ $11.0 $ $16.0 $ $21.0 $ $26.0 $ $31.0 $ $36.0 $ $41.0 IPO -

• 2013

2014 2014 2015 2015 2016 2016 Take keove ver -

• 2017
• 2
• 20%

0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100% 120% 120% 140% 140% 160% 160% 180% 180% 200% 200%

Cumulative Total Return

Average Daily Value $CAD Cumulative Total Return 146.1%

• $
• $0.3

$ $0.8 $ $1.8 $ $2.8 $ $3.8 $ $4.8 $ $5.8 $ $6.8 IPO -

• 2

2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 Take keove ver -

• 2019

2019

• 5
• 5%

15% 15% 35% 35% 55% 55% 75% 75% 95% 95% 115% 115% 135% 135% 155% 155%

Average Daily Value $ CAD Millions

Average Daily Value $CAD Cumulative Total Return

173.4% 3.4% 146.1% 6.1%

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Capitalize for Kids – BSR REIT

We Have Seen This Movie Before

22

Liquidity

Premium/Discount to NAV

After er

Liquidity

Premium/Discount to NAV

Befor

• re

Externally Managed Internally Managed Internally Managed

This is not technology or healthcare etc. In the Real Estate sector, the Private Market dwarfs Public Markets, which is a unique asset class differentiator to identify, arbitrage and surface value

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Capitalize for Kids – BSR REIT

BSR REIT: Many Factors to Close the Gap

23

• Overhang from poorly executed IPO
• Early stages
• Prove me story
• Off the radar screen in U.S.
• Unknown in Canada
• Select assets are in secondary markets
• Limited research coverage
• Limited institutional ownership

Why is BSR Under Valu lued? Cataly lyst sts s to Surfacin cing Value lue

• Broader institutional ownership
• Increasing asset and market capitalization size
• Growth in cash flow
• Growth of NAV
• More research coverage
• More liquidity
• Rerating to lower cap rate from asset recycling
• Recognition of management competence
• Long term growth or M&A

Cap Rate

6.00%

5.75% 5.50% 5.25%

5.00%

4.75% NAV/Unit

$12.82

$13.80 $14.86 $16.02

$17.30

$18.72 Implied price return

12.5%

21.1% 30.4% 40.5%

51.8%

64.2% Distribution Yield

4.4%

4.4% 4.4% 4.4%

4.4%

4.4% Total Return

16.9%

25.5% 34.8% 44.9%

56.2%

68.6%

Source: Bloomberg, as of Oct. 21st 2019

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Capitalize for Kids – BSR REIT

Why BSR REIT?

24

Supply/Demand Supply/Demand Supply/Demand

• Unlike previous U.S. based Canadian listed multifamily REITs, BSR is internally managed with a broad and deep platform
• High insider ownership; management purchased units on the IPO at IPO pricing
• John Bailey, CEO, takes no salary; all compensation is in units
• BSR operates in the highest population and employment growth markets in the U.S., leading to strong rent growth

Differentiated, Disciplined and Focused Strategy Highly Aligned, Experienced and Competent Management Team

• Management has a strong track record of creating value for unitholders
• Affordable rents in high growth markets allow for offense and defense throughout cycles
• Largely immune to any new supply
• Low capex in assets allow for higher retention of free cash flow – e.g., No boiler rooms or elevators to repair
• BSR trades at an 11.0% discount to its current NAV compared to U.S. peers at 19.3% premium.
• Asset recycling into core markets will generate a rerating of the portfolio cap rate
• Lower cap rates + lower capex generates superior absolute and relative IRRs

Compelling Valuation The Right Asset Class: Multifamily Apartments

• Long term demographic and secular support
• Always available and cheap mortgage financing
• Every dollar invested in the repositioning program creates nearly $1.50 to $3.00 in value!

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Capitalize for Kids – Liberty Property Trust

Liberty: Most compelling industrial REIT opportunity in the public or private market

25

Source: Citigroup, Green Street Advisors | Data as of close of October 23rd, 2019

U.S. industrial REITs

Company Ticker Prem./ (Disc.) to NAV Implied Cap Rate 2020E AFFO multiple 2020E AFFO growth Eastgroup Properties EGP +26% 4.1% 29x 7% Prologis PLD +25% 4.0% 30x 4% Terreno Realty TRNO +23% 3.4% 43x 14% Rexford Industrial Realty REXR +26% 3.4% 39x 15% First Industrial Realty Trust FR +12% 5.0% 27x 6% Duke Realty DRE +8% 4.9% 26x 4% AVERAGE EXCLUDING LPT +20% 4.1% 32x 8% Liberty Property Trust LPT

• 16%

5.3% 24x 13%

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Capitalize for Kids – Liberty Property Trust

Liberty: Conversion to pure-play industrial and activism will collapse the discount and offers compelling total returns

26

Source: Liberty Property Trust documents, Green Street Advisors

• Ultimate conversion to pure-play industrial REIT should lead to a re-rating of the stock
• Out of the entire real estate universe:

▪

Green Street Advisors, a leading real estate research firm, assigns Liberty the second highest odds of a corporate event (including M&A) at 40%

▪

Only four other REITs have odds that are greater than 20%

• CEO William Hankowsky:

▪

Joined Liberty nearly 19 years ago

▪

Now in his late-60s

▪

No succession planning has yet been announced

• Activist investors have been urging management and the Board to consider a range of strategic options to close

the REIT’s discount to NAV. Comparable Cap rate NAV/share Price return Div yield

Colony 4.2% $66 30% 3% Public REITs 4.1% $68 33% 3%

36% 33% Total return

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Appendix

Contact Us

27

Darren Kosack

Senior Vice President, Sales & Marketing Email: kosack@visioncap.ca Tel: (647) 726-1499 Vision Capital Corporation 150 King St W., Suite 1201 Toronto, Ontario M5H 1J9 www.visioncap.ca

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Capitalize for Kids – Liberty Property Trust

Industrial real estate: long-term secular tailwinds to propel growth across the sector

28

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Capitalize for Kids – Liberty Property Trust

Demand: E-commerce penetration expected to increase

29

Source: Prologis, Euromonitor (forecast as of December 31, 2018), CBRE, eMarketer

5 10 15 20 25 30 35 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18E '19F '20F '21F '22F U.S. China Europe Japan Brazil-Mexico %

E-commerce as a % of total retail sales expected to rapidly increase in the U.S.

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Capitalize for Kids – Liberty Property Trust

Demand: New industrial square footage needed to keep up with growth in e-commerce sales

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$1 billion of E-commerce

sales requires approximately

1.25 million SF of fulfillment space(1)

E-commerce

sales requires approximately

3 times the square footage

• f warehouse vs. bricks and mortar

Projected E-comm sales(2) from 2018 through 2021 could drive approximately

339 million SF of incremental demand

Incremental SF estimated from E-Comm per year

(square feet millions)

29 29 31 31 30 30 38 38 42 42 51 51 62 62 68 68 78 78 90 90 103 103

2011 2013 2015 2017 2019 2021

Proje jecte cted cumulati lative ve 339 million

• n square

re feet et throu

• ugh 2021

(1) Metric per BMO Capital Markets Inc - Industrial Macro Review, October 2018. (2) Assumes E-comm sales growth of 15%, which is consistent with he actual 2015-2018 quarterly growth rate range of 15-17%

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Capitalize for Kids – Liberty Property Trust

Example: Online-shopping returns boosts the industrial sector

31

“Reverse Logistics” a term for e-commerce returns, is the No.1 new user of warehouse space in the United States.

Online shoppers return an estimated 30% of the goods they buy

The return of goods purchased online leads to “Reverse Logistics” which requires more labor and more industrial space Handle returns in house Requires an additional 15-20% more space

Source: As per CBRE Research. Holiday Season Heightens Challenge of Online Retailers as of December 2018

Outsource the return process 3PLs occupy approximately 700 mill sq. ft. 3PLs have been growing at 3-5% annually

Increased Demand for Industrial Space

Benefiting listed warehouse REITs

In store shoppers return approximately 8% of goods

Vs. Retailers have 2 options… Both options lead to…

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Capitalize for Kids – Liberty Property Trust

Demand: The need for speed

32

Source: Deloitte, Prologis Research

Respondents who view 3-4 days shipping time as too slow

37% 58% 65% 0% 10% 20% 30% 40% 50% 60% 70% 2015 2016 2017

“Amazon.com Inc. has agreed to take space in a first-of-its kind three-story warehouse, a new type of distribution center that could reduce delivery times in congested cities to hours

s rather than days.” – Wall Street Journal,

September 2019

Rising expectations from customers for same-day delivery, across all of the U.S., pushing companies to rapidly expand their supply chain network

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Capitalize for Kids – Liberty Property Trust

Supply: Industrial supply in better shape than last cycle, supported by stronger occupancy and rent growth backdrop

33

Source: CoStar, JLL, CBRE, Prologis

Net absorption has signific nifican antl tly outp tpac aced ed completions in this cycle

+ =

Vacancy Rates today at ~4.8

.8% % are 300 basis points nts lower er

than last cycle low Stronger Rent

nt Growth

• wth this cycle

2.7% 2.6%

• 0.5%
• 4.2% -2.8%
• 0.1%

2.0% 3.7% 5.1% 6.3% 6.6% 6.4% 4.7% 5.5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q3

Annualized U.S. rent growth (%)

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Industrial rents comprise a small percentage of supply chain costs

34

Source: Deloitte, AT Kearney, IMS Worldwide, public company filings, Prologis Research

Transportation 45-55% Labour 25-30% Inventory costs 20-25% Rent ~5%

Percentage of supply chain costs

Savings in labour and transportation costs impact a tenant’s choice in location significantly more so than rent

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Investment: Positive fundamentals driving an increase in capital investment in industrial real estate

35

Source: Real Capital Analytics, JLL Research

U.S. industrial transaction volume (US$bn)

YTD transaction volume is nearly a third higher, year-over-year, driven by large portfolio transactions

/

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Capitalize for Kids – Liberty Property Trust

Investment: Industrial real estate returns have been stable

36

Source: NCREIF

Year-over-year total returns for U.S. real estate

Private capital is also attracted to the asset class due to its stability in returns

0% 5% 10% 15% 20% 25% 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 Industrial Apartment Retail Office Hotel

/

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Capitalize for Kids – Liberty Property Trust

Valuation: Cap rates continue to decline, portfolios pricing at premiums

37

Source: Real Capital Analytics, JLL Research, Thomson Reuters

Industrial cap rates are nearly 40 basis is point ints lower er this year

5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

%

“… the level and the availability of high-quality portfolios is dwindling and these portfolios are going into capital sources that are permanent.” – Hamid Moghadam, CEO (Q2 2019 earnings call)

/

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Capitalize for Kids – Liberty Property Trust

Valuation: Cap rates in secondary markets declining as competition increases

38

Source: CBRE

U.S. industrial Class A cap rates by market tier

Spread in cap rates between primary and secondary industrial markets has fallen to its lowest level in 10 years

/

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Capitalize for Kids – Liberty Property Trust

Liberty Property Trust: Overview

39

Liberty Property Trust (“Liberty”)

• Liberty (NYSE: LPT) owns and manages 111 million square feet of industrial properties and less than 6 million

square feet of office properties, across the United States and the United Kingdom

• Market Cap: US$7.9 billion
• Dividend Yield: 3.2%

Industrial assets

Source: Liberty Property Trust (as of Q2 2019)

Top markets % of net rent Lehigh Valley 18.7% Houston 9.0% Carolinas 8.9% Central PA 7.3% Chicago 6.6% Southern California 5.8%

/

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Capitalize for Kids – Liberty Property Trust

Liberty: Supply chain attraction to Lehigh Valley

40

Lehigh Valley strategic location for industrial real estate

• Close proximity to major hubs

▪ 1.5 hour drive to NYC ▪ 1 hour drive to Philadelphia

• Multiple modes of transportation

▪ Major roadways (P.A. and N.J. Turnpikes, I-78) ▪ Ports (NJ, NYC, Philadelphia, Wilmington) ▪ Airports (LaGuardia, JFK, Newark, Philadelphia, Lehigh Valley International) ▪ Rail

• Immediate access to large portion of the U.S.

▪ Overnight shipping to more than 1/3 of the country

• Very favourable labour market

▪ Large availability of skilled labour ▪ Lower cost of living relative to nearby NYC and Philadelphia

• More affordable rent

▪ Rents in the Lehigh Valley are less than in NJ and Philadelphia by up to 33%

Source: NFI Industries, CBRE

/

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Capitalize for Kids – Liberty Property Trust

Liberty: Brand name top tenants

41

Source: Liberty Property Trust documents, as of Q2 2019

Liberty’s top six tenants

/

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Capitalize for Kids – Liberty Property Trust

Liberty: Underperformance attributed to complexity

42

Total return

Source: Bloomberg

• 50%

0% 50% 100% 150% 200% Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Bloomberg Reit Industrial/Warehouse Index LPT

Liberty has underperformed industrial REITs over the past five years:

• Largely due to its complexity of owning a

combination of office and industrial real estate

• Management missteps in office

development projects and being over budget in fixed price contracts

• Writedown on Camden Waterfront

project

• Concerns over distraction from small

U.K. holdings

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Liberty: Complexity removed with conversion to pure-play industrial REIT

43

Source: Liberty Property Trust documents

• After reducing its suburban office exposure over the past few years, Liberty announced at the end of last year

that it intends to exit the office business in its entirety, becoming a pure-play industrial REIT

• The REIT is on track to exit its wholly-owned office properties, potentially as soon as the end of this year

Liberty’s portfolio composition

Industrial, 51% Flex, 12% Office, 37% Industrial, 89% Flex, 0% Office, 11% Industrial, 94% Flex, 0% Office, 6% 2014 End of 2018 On Track

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Liberty: Most compelling industrial REIT opportunity in the public or private market

44

Source: Citigroup, Green Street Advisors | Data as of close of October 23rd, 2019

U.S. industrial REITs

Company Ticker Prem./ (Disc.) to NAV Implied Cap Rate 2020E AFFO multiple 2020E AFFO growth Eastgroup Properties EGP +26% 4.1% 29x 7% Prologis PLD +25% 4.0% 30x 4% Terreno Realty TRNO +23% 3.4% 43x 14% Rexford Industrial Realty REXR +26% 3.4% 39x 15% First Industrial Realty Trust FR +12% 5.0% 27x 6% Duke Realty DRE +8% 4.9% 26x 4% AVERAGE EXCLUDING LPT +20% 4.1% 32x 8% Liberty Property Trust LPT

• 16%

5.3% 24x 13%

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Liberty: Attractively valued relative to its peers

45

Industrial real estate capitalization rates for public REITs and recent private portfolio transactions

Source: Citigroup, Prologis, Colony Capital

5.3% 5.0% 4.7% 4.1% 3.8% 3.4% 3.4% 4.6-4.8% 4.5% 4.2% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Liberty Property Trust First Industrial Realty Trust Duke Realty GLP (US$18.7bn, acquired by Blackstone) IPT (US$4.0bn, acquired by Prologis) Colony Capital (US$5.9bn, acquired by Blackstone) Eastgroup Properties Prologis Rexford Industrial Realty Terreno Realty Private Public

Liberty’s implied capitalization rate is materially higher compared to both recent private portfolio transactions and where other public industrial REITs are trading

/

Capitalize for Kids

Capitalize for Kids – Liberty Property Trust

Liberty: Conversion to pure-play industrial and activism will collapse the discount and offers compelling total returns

46

Source: Liberty Property Trust documents, Green Street Advisors

• Ultimate conversion to pure-play industrial REIT should lead to a re-rating of the stock
• Out of the entire real estate universe:

▪

Green Street Advisors, a leading real estate research firm, assigns Liberty the second highest odds of a corporate event (including M&A) at 40%

▪

Only four other REITs have odds that are greater than 20%

• CEO William Hankowsky:

▪

Joined Liberty nearly 19 years ago

▪

Now in his late-60s

▪

No succession planning has yet been announced

• Activist investors have been urging management and the Board to consider a range of strategic options to close

the REIT’s discount to NAV. Comparable Cap rate NAV/share Price return Div yield

Colony 4.2% $66 30% 3% Public REITs 4.1% $68 33% 3%

36% 33% Total return

/

Capitalize for Kids

Appendix

Contact Us

47

Darren Kosack

Senior Vice President, Sales & Marketing Email: kosack@visioncap.ca Tel: (647) 726-1499 Vision Capital Corporation 150 King St W., Suite 1201 Toronto, Ontario M5H 1J9 www.visioncap.ca