September 2016 Disclaimer This presentation is confidential and is - - PowerPoint PPT Presentation
September 2016 Disclaimer This presentation is confidential and is - - PowerPoint PPT Presentation
Management Presentation (TSXV:ED.UN) September 2016 Disclaimer This presentation is confidential and is being supplied to you solely for your information and may not be reproduced or distributed to any other person or published, in whole or in
This presentation is confidential and is being supplied to you solely for your information and may not be reproduced or distributed to any other person
- r published, in whole or in part, for any purpose. No reliance may be placed for any purpose whatsoever on the information contained in this
presentation or the completeness or accuracy of such information. No representation or warranty, express or implied, is given by or on behalf of Edgefront REIT (the “REIT”), or its unitholders, trustees, officers or employees or any other person as to the accuracy or completeness of the information or opinions contained in this presentation, and no liability is accepted for any such information or opinions. This presentation contains forward-looking statements which reflect the REIT’s current expectations and projections about future results. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this presentation. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect, including, but not limited to: the ability of the REIT to obtain necessary financing
- r to be able to implement its business strategies; satisfy the requirements of the TSX Venture Exchange with respect to the plan of arrangement;
- btain unitholder approval with respect to the plan of arrangement; the level of activity in the retail, office and industrial commercial real estate markets
in Canada, the real estate industry generally (including property ownership and tenant risks, liquidity of real estate investments, competition, government regulation, environmental matters, and fixed costs, recent market volatility and increased expenses) and the economy generally. While the REIT anticipates that subsequent events and developments may cause its views to change, the REIT specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the REIT’s views as of any date subsequent to the date of this presentation. Although the REIT has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the REIT. This presentation includes industry data and forecasts obtained from independent industry publications, market research and analyst reports, surveys and other publicly available sources and in certain cases, information is based on the REIT’s own analysis and information or its analysis of third-party
- information. Although the REIT believes these sources to be generally reliable, market and industry data is subject to interpretation and cannot be
verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Accordingly, the accuracy and completeness of this data is not guaranteed. The REIT has not independently verified any of the data from third party sources referred to in this presentation nor ascertained the underlying assumptions relied upon by such sources.
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Disclaimer
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Overview of the REIT
- Edgefront REIT (TSXV:ED.UN) (“Edgefront” or the “REIT”) is a
unique industrial-focused REIT that owns 20 properties and has a current market capitalization of ~$77 million
- Focused on acquiring single tenant industrial properties leased
to high quality tenants with long-term leases and embedded rent escalations (approximately $175K in 2016 escalations)(1)
- Strong sponsorship from TriWest Capital Partners (“TriWest
Capital”)
- Founded in 1998, TriWest Capital is one of Canada’s
leading private equity firms having raised over $1.25 billion of committed capital with a track record of strong equity returns
- Provides the REIT with a pipeline of attractive investment
- pportunities to acquire on a non-marketed basis
through TriWest Capital’s portfolio companies
1) Represents an approximate 1.5% increase over 2015 property revenue of $12.0M
- Unique Growth-Oriented REIT with an Established Pipeline of Acquisition Opportunities
– Industrial-focused REIT supported by TriWest Capital, one of Canada’s leading private equity firms
- Experienced Management Team with a Proven Track Record of Success
– Edgefront’s CEO, Kelly Hanczyk, is the former CEO of TransGlobe Apartment REIT
- Strong Sponsorship from TriWest Capital
– Indirectly own over 50 properties through current ownership of companies, with 14 of the 20 properties in the REIT’s portfolio sourced through TriWest
- High Quality Portfolio Focused on Strategic Single Tenant Properties
– Consists of 100% occupied industrial real estate that is primarily mission critical to its tenants
- Attractive Yield Through Stable Distributions; Strong Fundamentals
– ~8.6% cash distribution yield with a YTD Q2 AFFO payout ratio of 74.5%, down from 78.4% for 2015 – Consistent AFFO per unit growth with 2015 AFFO per unit 3.0% higher than 2014
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Investment Highlights
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Source: FactSet, Bloomberg, and Consensus Research
Capitalization and Trading Overview
A. 14-JAN-14 Completed a $68M acquisition of ten industrial properties located in Western Canada totaling 436,412 square feet and ~122 acres of land B. 15-JUL-14 Completed a $19.2M public equity offering and a $35.7M acquisition of three industrial properties in Alberta totaling 277,748 square feet and 57 acres of land C. 6-JUL-15 Announces agreement to acquire two industrial properties for $16M in BC and Ontario financed by a VTB of $12.3M and $3.7M in cash D. 20-JUL-15 Announces agreement to acquire an industrial property in Alberta for approximately $22M financed by a VTB of $2.0M, assumption of $11.6M in mortgages, and $8.5M in cash E. 04-NOV-15 Announces agreement to acquire two industrial properties for $12.1M in BC and Saskatchewan financed by a VTB of $5.3M and $6.8M in cash F. 27-JUL-16 Announces agreement to acquire an industrial property in Cambridge, Ontario for $8.4M financed by a VTB of $1.9M and $6.5M in cash
Capitalization Unit Price Performance Commentary Key Financial Metrics
Values in $M except per share amounts Share Price (September 2, 2016) $1.85 Shares Outstanding 41.5 Market Capitalization $76.7 Add: Net Debt $80.5 Enterprise Value $157.3 52 Week High $1.90 52 Week Low $1.40 Share Price as a % of 52 w eek high 97.4%
Price to 2016E FFO 9.5x Price to 2016E AFFO 9.3x Price to 2017E FFO 9.0x Price to 2017E AFFO 8.4x 2016E AFFO Payout Rat 80.6% Debt to GBV 49.2% Distribution Yield 8.6% NAV per unit $2.15 Premium (Discount) to N (14.0%) Implied Cap Rate 8.3% 2016E AFFO Yield 10.7%
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$50 Million of Acquisitions in 2015
455 Welham Road, Barrie, ON 555 Adams Road, Kelowna, BC 4271-5 Avenue East, Prince Albert, SK
* Combined going-in cap rate for the Barrie and Kelowna acquisition of 7.6%. Both acquisitions were financed with a VTB of $12.3M and cash of $3.7M. * Going-in cap rate of 7.6%; financed with a VTB of $2.0M, the assumption of a $11.5M mortgage and cash of $8.5M. * Multi-tenant industrial property; tenants include Reidco Metal Industries, Concept Manufacturing, and OPT Precision Tool Manufacturing (average lease terms of 3.8 years). * Going-in cap rate of 8.0%; financed with a VTB of $3.2M and $1.4M in cash.
Date: July 2015 GLA: 109,366 Price: $8.5M Tenant: Prodomax Date: August 2015 GLA: 29,471 Price: $21.9M Tenant: Canada Cartage Date: December 2015 GLA: 24,600 Price: $4.6M Tenant: Broda Date: July 2015 GLA: 94,594 Price: $7.5M Tenant: Various
4700 & 4750 102 Avenue SE, Calgary, AB
The transactions added $50M of asset value, increasing total assets to over $160M and added $19.6M of market capitalization via vendor take-backs at a premium to the then market price
1) Edgefront also completed the acquisition of a multi-tenant industrial property in Prince George, BC at a going-in cap rate of 7.9% on December 1, 2015 for $7.5M
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August 2016 Acquisition
* Going-in cap rate of 7.5%; financed through the issuance of $1.9M in units, a new $5.5M mortgage, and the balance from available cash
Date: August 2016 GLA: 150,000 Price: $8.4M Tenant: Kromet International Inc.
200 Sheldon Drive, Cambridge, ON
The transaction added $8.4M of asset value, increasing total assets to ~ $170M and added $1.9M
- f market capitalization via unit consideration issued at a premium to the then market price
Portfolio and Tenant Overview
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High Quality Portfolio Focused on Strategic Single Tenant Properties
Edgefront owns and operates 20 industrial real estate properties in Western Canada, Ontario, and Prince Edward Island 46% of the portfolio by square footage is located in Alberta Portfolio is 100% occupied (14 straight quarters of 100%
- ccupancy)
Average remaining lease term of 9.4 years at June 30, 2016 In 2015, Edgefront acquired 5 industrial properties for ~ $50M In August 2016, Edgefront acquired an industrial property for $8.4M
Yellowknife (2) Clairmont (2) Grande Prairie Kamloops Lethbridge Barrie Charlottetown Calgary (2) Edmonton Lloydminster Moose Jaw Saskatoon (2) Kelowna
Portfolio by GLA Locations Overview of Portfolio Top Tenants Portfolio consists of ~ 1,180,000 sq. ft. and is allocated by province and territories as follows:
1) Current or previous portfolio company of TriWest Capital Prince George Prince Albert Cambridge 5.9% 15.7% 52.2% 15.2% 10.6% 0.40% NWT BC Alberta Saskatchewan Ontario PEI Tenant Profile # of Properties Leased % of Base Rent % of GLA Weighted Average Remaining Lease Term (Years) Westcan LP (1) 9 40.7% 36.3% 9.4 Triple M Housing (1) 1 14.5% 19.4% 13 Canada Cartage 1 12.8% 2.5% 8.5 Northern Mat & Bridge (1) 2 8.9% 4.1% 9.9 Multi-Tenant Industrial 2 9.0% 12.5% 5.2 Prodomax Automation 1 4.8% 12.7% 9.1 Kromet International 1 4.8% 9.3% 4.2 Broda Construction (1) 1 2.8% 2.1% 9.6 Canadian Chartered Bank 1 0.9% 0.4% 5.1 RTL Construction LP (1) 1 0.8% 0.7% 9.5 20 100.0% 100.0% 9.2
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Source: SEDAR as at Q2 2016
Industry Leading Occupancies and Lease Terms
Occupancy Average Lease Term
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Strong Tenants Under Long-Term Leases
Portfolio consists of industrial real estate properties that are “mission critical” to its tenants with built-in rental increases that are triple net to the landlord
Founded in 1960 Westcan is one of the largest bulk commodity haulers in Western Canada. The company also provides civil and ice road construction services. The company has approximately 1,000 employees. Founded in 1999 Northern manufactures, rents, delivers, installs, removes, and manages a complete suite of matting and bridge products that are used in remote areas. Founded in 1981 Triple M housing provides fully integrated factory-built housing for individuals and companies known as manufactured homes that can be transported and assembled on site. Founded in 1914 Canada Cartage is one of Canada’s largest fleet
- utsourcing transportation and
supply chain providers with over 115 clients. The company has approximately 4,000 trucks and
- ver 3,500 employees.
Founded in 1974 Prodomax is one of North America’s largest automation companies, specializing in manufacturing production systems for automotive companies. Founded in 1957 Broda Construction Group is a heavy construction company specializing in aggregate processing, earthwork, civil construction, and concrete
- production. The company has
approximately 200 employees.
Management and Trustees of the REIT
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Experienced Leadership
Key Management Board of Trustees
Cody Church Chairman of the Board
- Co-founded TriWest Capital in 1998
- Previously held senior roles with EXOR America, a
New York-based private equity firm and with Credit Suisse First Boston in the Leveraged Finance Group Mario Forgione Trustee
- President of Edgemere Capital, a private company
specializing in land development
- Previously the Chairman and CEO of Depco
International Ted Manziaris Trustee
- President and Co-founder of Turtle Island Recycling
- Corp. from 1991 to 2011
- Currently serves as VP, Business Development at
GFL Environmental Corp., which acquired Turtle Island in December 2011 Brad Cutsey Trustee
- President of InterRent REIT
- Previously Managing Director and Head of Real
Estate Investment Banking with Dundee Capiital Markets Brian Felesky Trustee
- Previously Vice Chairman, Investment Banking
(Canada), Credit Suisse
- Founding partner of Felesky Flynn LP where he
specialized in corporate tax law Kelly C. Hanzyck President, CEO & Trustee
- Former CEO and Trustee of TransGlobe Apartment REIT
- Extensive experience in all disciplines of industrial,
commercial and residential real estate Robert P. Chiasson CFO & Secretary
- Former Corporate Controller of InStorage REIT
- Former Director of Accounting of Samuel Manu-Tech
- 18 years of experience in corporate financial
management Lorne Jacobson Trustee
- Co-founded TriWest Capital
- Previously was a partner at Bennett Jones where he
specialized in corporate and securities law
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Strong Sponsorship from TriWest Capital
- Founded in 1998, TriWest Capital is one of Canada’s leading private
equity firms having raised over $1.25 billion of committed capital
- Track record of strong equity returns
- Focused on Western Canada
- 15+ years experience investing in 32 companies representing a broad
cross-section of the economy, with strong representation from the service, manufacturing and distribution sectors
- TriWest Capital’s funds indirectly own a significant amount of real
estate through current ownership of 14 companies
- TriWest Capital consists of a small, core group of professionals with
significant operational and transactional experience
- Takes on an active role with their management partners
- 14 of the 20 properties in the REIT’s portfolio have been sourced
through TriWest Capital
- Certain members of TriWest Capital and certain Officers and
Trustees acquired $2.1 million of units in the July 2014 Offering Overview Select Portfolio Companies
Financial Overview
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Historical Financial Performance
FFO & AFFO PER UNIT
$ M $ per unit
GBV & DEBT RATIO
$ M $ M
REVENUE AND QUARTERLY GROWTH NOI & NOI MARGIN
1.5 1.8 2.6 2.7 2.7 2.7 3.0 3.6 3.7 3.8
0.0% 15.9% 45.2% 5.7%
- 0.1%
- 0.6%
10.7% 20.0% 24.7% 6.3%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Revenues Revenue Growth
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Conservative Capital Structure
Debt Summary Debt Maturity Schedule
- ~ 49.2% Debt to Gross Book Value
- 5.0 years weighted average term to maturity for the
mortgages payable
- 3.37% weighted average effective interest
- $60M total Credit Facility
- ≈$54.0M drawn
- 95% of total debt is fixed rate
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Analyst Recommendations
Source: Equity research reports
DUNDEE CAPITAL MARKETS 22-AUG-16
“Continues to Grow Organically, Producing Stable Cash flows. One of the Best Values in the Sector. The nature of the leases on the properties which Edgefront owns continues to translate into steady cash flows. ED's portfolio remains minimally impacted by the volatility of energy and mining sectors. We note the 9.4 years weighted average remaining lease term, with a 100% occupancy level at the moment. With a 2016E AFFO payout ratio of 90%, we feel ED currently represents an excellent yield vehicle. In terms of external growth, management continues to see good demand from potential property vendors for VTB transactions..”
ECHELON WEALTH PARTNERS 18-AUG-16
“Edgefront’s occupancy remains at its steady state of 100% due to the REIT’s heavy use of the sale-leaseback operating model. This marks Edgefront’s 14th straight quarter of 100% occupancy.” “Edgefront continues to be our Small Cap Top Pick and we believe the REIT offers investors amongst the best risk-adjusted returns in the Canadian REIT universe.”
Selected Analyst Commentary
Edgefront is covered by two analysts with a consensus target price of $2.25, an implied return of 21.6% to the September 2, 2016 price of $1.85
($ per Unit where applicable)
FFO AFFO 2016E 2017E 2016E 2017E Echelon Wealth Partners Robert Sutherland 22-Aug-16 Buy $2.20 18.9% $0.20 $0.22 $0.22 $0.25 $2.20 (15.9%) Dundee Capital Markets Frederic Blondeau 18-Aug-16 Buy $2.30 24.3% $0.19 $0.19 $0.18 $0.19 $2.10 (11.9%) Average (Consensus) $2.25 21.6% $0.20 $0.21 $0.20 $0.22 $2.15 (14.0%) NAV / UNIT Premium/ (Discount) to NAV BROKER ANALYST DATE RATING TARGET PRICE IMPLIED RETURN (%)