CSL CANADIAN STUDENT LIVING GROUP INC. Investor Presentation August 2016
Disclaimer This presentation is not a solicitation of an offer to purchase securities. This presentation is not, and in no circumstances is to be construed as, a prospectus or advertisement or public offering or private placement of the securities referred to herein in any jurisdiction. No securities commission or similar authority in Canada or in any other jurisdiction has reviewed this material or in any way passed upon the merits of the securities offered hereunder or thereunder and any representation to the contrary is an offence. Forward-Looking Information: Certain information in this presentation may constitute forward-looking information within the meaning of applicable securities legislation. All information contained herein, other than statements of current and historical fact, is forward-looking information. Generally, forward-looking information can be identified by use of words such as may, will, expect, believe, plan, would, could and other similar terminology. All of the forward-looking information herein is qualified by this cautionary statement. Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by CSL (which used in this presentation includes its predecessors, DAQ and CHC and others) as at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results, performance or achievements, industry results or events to be materially different from those expressed or implied by the forward-looking information. The material factors or assumptions that CSL identified and applied in drawing conclusions or making forecasts or projections set out in the forward-looking information include, but are not limited to: global economic and financial conditions; the timing and completion of the proposed transactions; the possibility that not all acquisitions will be completed at closing; future contractual commitments; outlook for operations; the ability to obtain terms of expected mortgage and other financing; future debt levels, financial capacity, liquidity and capital resources; expectations regarding benefits of certain transactions and capital investments; expected financial results; expected future dividends; and CSL s ability to benefit from the transactions described herein and the ability to grow through the capital markets. Numerous risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forwardlooking statements, including, but not limited to: the conditions to the consummation of the arrangement between DAQ and CHC ( Arrangement ) or the acquisition of the CHC or CHC LP assets or the acquisition properties may not be satisfied or waived; entering into definitive agreements in respect of the co-ownership partner and acquisition assets; risks relating to the failure to obtain necessary shareholder, court and regulatory approvals for the Arrangement or acquisition of the CHC or CHC LP assets; the filing and/or mailing of documentation relating to the Arrangement may not be completed on a timely basis; high levels of redemptions by DAQ shareholders; the anticipated strategic, operational and competitive benefits may not be realized; the Arrangement or the terms of the acquisition of the CHC and CHC LP assets may be modified, restructured or terminated; events or series of events may cause business interruptions; CSL s ability to raise additional capital; the availability of equity and debt financing and/or refinancing on acceptable terms; successful integration of CSL with the acquisition properties and the realization of any anticipated synergies; the availability of future cash flows available for the payment of dividends. Given these risks, uncertainties and other factors, investors should not place undue reliance on forward-looking information as a prediction of actual results. The forward-looking information reflects CSL s current expectations and beliefs regarding future events and operating performance and is based on information currently available to CSL. Although CSL has attempted to identify important factors that could cause actual results to differ materially from the forward-looking information contained herein, there are other factors that could cause results not to be as anticipated, estimated or intended. The forward-looking information contained herein is current as of the date of this document and, except as required under applicable law, CSL does not undertake to update or revise it to reflect new events or circumstances. Non-IFRS Measures: Certain non-ifrs measures, including AFFO, FFO, NOI and payout ratio, are used in this presentation as indicators of financial performance. Readers are cautioned that the foregoing are not defined performance measures under IFRS and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to financial measures as reported by those entities. AFFO references are calculated in the same manner as CHC in its public disclosures. Please refer to CHC s Management s Discussion and Analysis of Financial Position and Results of Operations for the three months ended March 31, 2016 and 2015, filed on SEDAR, to see how AFFO is reconciled. CSL 1
Introduction CHC Student Housing Corp. ( CHC ) Dundee Acquisition Ltd. ( DAQ ) Only publicly-traded student housing company in Canada Four operating properties with 832 beds Experienced asset and property management team Management team operates additional ~2,000 beds Contracts and/or advanced discussions with asset owners regarding purchase of assets First SPAC ever listed in Canada $113 million of cash held in escrow to be used to fund a Qualifying Acquisition Long-term real estate expertise Long-term value investor CANADIAN STUDENT LIVING GROUP INC. ( CSL ) First mover advantage in Canada within a proven sector in other global markets Attractive, diversified and modern purpose-built student housing portfolio Experienced management team and high-quality partners Long-term growth strategy through operating excellence combined with additional asset acquisitions and development investments CSL 2
Investment Highlights Stable Asset Class with Compelling Market Fundamentals Significant Growth Opportunities through Market Expansion and Consolidation West Village Suites, Hamilton, Ontario Premier Company with Best-in-Class Portfolio of Assets Experienced Management Team Long-Term Value Creation Strategy Luxe I, Waterloo, Ontario Optimal Capital Structure to Support Growth Attractive Valuation Metrics Mann, Ottawa, Ontario CSL 3
Purpose Built Student Housing Market Substantial global business with Canada still in its infancy, 10 years behind the US and UK markets Global Market Canadian Opportunity Over $15 billion invested globally within the sector during 2015 Combined market capitalization of pure-play student housing companies of over $17 billion Purpose-Built Student Housing (1) Number of Beds % of Students UK 524,000 23% FRANCE 375,000 16% NETHERLANDS 100,000 15% Similar Supply / Demand Dynamics Stable and growing student population International student growth Demographic preference shift to quality and security Government initiatives to invest in education Universities accommodate only 13% of student enrollment Limited funds to grow on-campus beds Traditional student housing does not meet the needs of modern day students USA 2,400,000 12% GERMANY 259,000 10% AUSTRALIA 90,000 7% SPAIN 90,000 6% CANADA (2) 26,000 3% Management projects purpose-built student housing will grow from 26,000 to over 200,000 beds in the next 10 years (1) Savills: Spotlight - World Student Housing 2015/2016. (2) CHC management estimate. CSL 4
Transaction Overview CSL to be created through the proposed merger of CHC and DAQ, as well as a series of accretive asset acquisitions 1 CHC / DAQ Merger 2 3 (Share-for-Share Exchange) 4 Properties CHC LP Asset Acquisition (Cash and Share Consideration) 4 Properties + Operating Asset Acquisitions (Cash Consideration) 6 Properties + 2016 New Asset Acquisitions (Cash and Share Consideration) 6 Properties 2,832 Beds ~$250mm Transaction Value CHC / DAQ merger Attractive base asset value Share price not reflective of full value Platform provides access to ~3,000 beds CHC LP acquisition High-quality portfolio at attractive asset value with 99% occupancy for upcoming 2016/17 school year High-quality management team 708 Beds ~$60mm Transaction Value Close simultaneously with CHC / DAQ merger High-quality portfolio with 97% projected occupancy for 2016/17 school year Attractive asset values Geographic overlap with current portfolio 70% of beds in current markets Economies of scale 30% of beds in attractive, new markets 1,164 Beds ~$110mm Transaction Value Close simultaneously with or shortly after CHC / DAQ merger High-quality brand new portfolio with 98% projected occupancy for 2016/17 Attractive asset values Top local developers and builders Long-term working relationship with CHC management Premier assets in each market Occupancy to commence in September 2016 Note: Figures for beds and transaction value of transactions are based on 100% of assets and not proportionate, except for Mann at 50%. CSL 5
Canada s Premier Student Housing Company 1 Best-in-Class Portfolio 2 Experienced Management Team High-quality assets vs. peers and traditional student housing 20 properties (1) Up to 4,700 total beds (1) Attractive amenities catering to student tenants Strong student communities Average property age of 7.2 years 2016/17 expected school year occupancy over 96% Properties located at an average distance of 0.7 km to campus Currently manage 60% of total beds CHC management has demonstrated the ability to improve key operating metrics on assets since purchased Occupancy increased 5% (2)(3) NOI margin improved by 2% from 2015 (2) Monthly rent increased by $75 per bed (2) Extensive relationships with local owners/developers have generated an attractive future acquisition pipeline 3 Investment Strategy for Value Creation 4 Capital Structure to Support Growth Improve current operations to drive AFFO per share Use retained cash flow to drive AFFO growth through acquisitions and/or development projects Highest quality assets targeted Strong developers and builders Located in existing and new markets Access to additional external capital to fund accretive transactions Appropriate leverage profile for asset class Expected payout ratio of 50% is the lowest amongst public multi-residential comparables Expected retained cash flow invested in growth opportunities Investment partner expected to provide capital flexibility and expertise Planned acquisition facility Expected access to development mezzanine facility (1) Assuming all proposed acquisitions are completed. (2) Percentages reflect historical vs. current statistics. (3) Rates based on physical occupancy at properties currently. CSL 6
A Well-Diversified and Newly Built Portfolio Institution Diversification (1) UOIT Ontario Québec Trois-Rivières New Brunswick Fredericton 2% 3% 2% 4% 6% 6% 7% 8% 1% 19% 17% Wilfrid Laurier Waterloo Brock University McMaster Western Georgian College U of Q at Trois Queen's Sudbury Ottawa Montreal 8% 17% University of Ottawa University of New Brunswick Windsor 3 Kingston Laurentian Barrie 4 Oshawa Hamilton Waterloo 2 2 St. Catharines London 44.0 years Newly Built Portfolio (Age) 48.0 years Windsor 7.2 years Canadian Multi- Family(2) On-Campus Canadian Student Housing (3) (4) (1) By beds (shown at 100% ownership except Mann asset in Ottawa at 50% ownership). (2) Statistics Canada. Pre-1920 to 2011 weighted average age based on renter households. (3) E&Y report as of April 2012. (4) Weighted by beds (pro-forma expected CSL interest). CSL 7
Select CHC & CHC LP Assets Summary (CHC & CHC LP Properties) 1 Luxe I 2 Luxe II Average age: 9 years Average 2016/17 occupancy: 95% Average 2015/16 rent / bed / month: $608 Average distance to campus: 0.6 km Waterloo, ON Waterloo, Laurier CSL Expected Ownership: 100% Beds: 536 Age (years): 4.9 2016/17 occupancy: 100% Average 2015/16 rent per bed: $618 per month Distance to campus (km): 0.4 Waterloo, ON Waterloo, Laurier CSL Expected Ownership: 100% Beds: 419 Age (years): 2.9 2016/17 occupancy: 100% Average 2015/16 rent per bed: $615 per month Distance to campus (km): 0.4 3 West Village Suites 4 Village Suites 5 675 Richmond Hamilton, ON McMaster CSL Expected Ownership: 100% Beds: 449 Age (years): 7.9 2016/17 occupancy: 98% Average 2015/16 rent per bed: $622 per month Distance to campus (km): 1.0 Oshawa, ON UOIT CSL Expected Ownership: 100% Beds: 588 Age (years): 5.9 2016/17 occupancy: 97% Average 2015/16 rent per bed: $554 per month Distance to campus (km): 0.5 London, ON Western CSL Expected Ownership: 100% Beds: 387 Age (years): 1.1 2016/17 occupancy: 97% Average 2015/16 rent per bed: $854 per month Distance to campus/downtown (km): 1.3 CSL 8
Select Acquisition Assets Mack Alfred Taylorwood I, II, III Kingston, ON Queen s Beds: 72 CSL Expected Ownership: 50% Age (years): 3.0 2016/17 occupancy: 98% Average 2016/17 rent per bed: $747 per month Distance to campus (km): 0.7 Kingston, ON Queen s Beds: 69 CSL Expected Ownership: 50% Age (years): 5.0 2016/17 occupancy: 98% Average 2016/17 rent per bed: $706 per month Distance to campus (km): 0.7 Oshawa, ON UOIT Beds: 464 CSL Expected Ownership: 50% Age (years) (1) : 1.3 2016/17 occupancy: 97% Average 2016/17 rent per bed: $697 per month Distance to campus (km): 0.1 Mann James Lake Ottawa, ON Ottawa Beds: 385 CSL Expected Ownership: 25% Expected occupancy date: September 2016 2016/17 occupancy: 99% Average 2016/17 rent per bed: $912 per month Distance to campus (km): 0.2 St. Catharines, ON Brock Beds: 210 CSL Expected Ownership: 50% Expected occupancy date: September 2016 2016/17 occupancy: 95% Average 2016/17 rent per bed: $618 per month Distance to campus/downtown (km): 0.4 St. Catharines, ON Brock Beds: 258 CSL Expected Ownership: 50% Expected occupancy date: September 2016 2016/17 occupancy: 95% Average 2016/17 rent per bed: $620 per month Distance to campus/downtown (km): 0.4 Note: Beds shown at 100% ownership basis. (1) Bed weighted average. Taylorwood III is expected to be occupied in September 2016. CSL 9
Upgraded and Diversified Portfolio The transactions are expected to substantially transform CHC in terms of scale and quality of assets CSL CHC Student Housing CSL Canadian Student Living Group (Pro Forma) Proportionate Beds 832 beds 3,891 beds (1) Occupancy 75.0% (2015/16) 96.3% (1) (Projected) Average Monthly Rent per Bed $628 (2015/16) $629 (1) (Projected) Average Distance to Campus 0.7 km 0.7 km Average Building Age 17.5 years 7.2 years Largest Single Market Exposure (% of Portfolio) (2) 47% (London) 25% (Waterloo) (1) 100% ownership basis, except Mann property in Ottawa at 50% ownership interest. (2) Market exposure is based on proportionate number of beds. CSL 10
CSL Organizational Structure Aggregate transaction value of up to $420 million Canadian Student Living Group Inc. (1) Co-Ownership Partner 100% 50% 50% Wholly-Owned Assets Property Name City University Beds Richmond (2) London, ON Western 395 Donnelley Windsor, ON Windsor 117 Trois Trois-Rivières, QC Université du Québec 310 Barrie (3) Kingston, ON Queen s 18 Luxe I & II Waterloo, ON Waterloo, Laurier 955 Village Suites Oshawa, ON UOIT 588 West Village Suites Hamilton, ON McMaster 449 Lisgar Sudbury, ON Laurentian 70 Dunns* Fredericton, ON UNB, St. Thomas 126 Pine* Montreal, QC McGill 50 Total 3,078 Co-Ownership Assets Property Name City University Beds Taylorwood I, II, III Oshawa, ON UOIT 464 Mack Kingston, ON Queen s 72 Alfred Kingston, ON Queen s 69 Georgian Barrie, ON Georgian 360 James^ St. Catharines, ON Brock 210 Lake^ St. Catharines, ON Brock 258 Mann^(4) Ottawa, ON Ottawa 193 Total 1,626 World class real estate investment partner Long-term investor buying alongside CSL Targeting growth of coownership assets and providing access to capital for CSL Note: All properties are under purchase and sale agreements except those labelled with an asterisk (*) are under letters of intent or a caret (^) are under agreements in principle. (1) Company is expected to be renamed Canadian Student Living Group Inc. ( CSL ). Transaction is subject to TSX and other regulatory approvals. (2) CSL will add eight additional beds at this property for occupancy in May 2017. (3) Property may be transferred to co-ownership assets given ownership overlap in that market. (4) Figures for beds are based on 100% of assets, except for Mann at 50%. CSL 11
Attractive Valuation / Prime Position to Grow Asset Base CSL is attractively valued relative to peers P / 2017E AFFO Multiple (1) Growth Strategy 23.1x 24.7x Diversified asset mix in 13 cities Expansion to new markets and economies of scale within existing markets 18.4x Appropriate leverage profile for asset class 15.6x Lowest expected payout ratio (50%) as compared to peers in sector Growth financed with retained free cash flow and/or accretive financings Strategic co-ownership partner investing alongside CSL Acquisition facility to provide cash flexibility Development mezzanine facility to fund future projects US Student Housing UK Student Housing Average Comparable Canadian Multi- Family Average (2) (3) (4) CSL Long-term relationship with local developers and asset vendors Ongoing discussions to potentially acquire an additional 6,000 beds Note: Market data based on closing price as at August 19, 2016; financial information as at June 30, 2016 or latest available. (1) Based on average of analysts' estimates. (2) Comprised of American Campus Communities and Education Realty Trust. (3) Comprised of Unite Group Plc; based on Bloomberg estimate. (4) Comprised of InterRent REIT and Killam Apartment REIT. CSL 12
Long-Term Return / Growth Strategy Fully-financed combination of organic growth, capital structure efficiencies and FCF investment in acquisitions and development projects expected to drive 10% AFFO growth (1) Organic Growth Investment / Acquisition Growth 45% 40% Dividend Yield AFFO Growth 35% 30% 25% 20% Fully Financed 15% 10% 5% 0% Dividend Yield NOI Growth Cost of Debt Upside FCF Investment Acquisitions Initial dividend yield at ~3% Growth with AFFO Revenue growth from rental income increases Operational synergies and expense savings Regular refinancing of maturing debt Introduction of CMHC debt guarantee to portfolio Opportunity to purchase established low risk assets at attractive valuations Acquire properties above and beyond FCF-financed purchases Purchase at accretive cap rates (1) Assuming all properties are acquired upon closing of transaction. CSL 13
CSL Positioned to Deliver Long Term Growth Stable Asset Class with Compelling Market Fundamentals Over the past 10 years, Canadian student enrollment has averaged growth of 2.4% per year and international enrollment has averaged growth of ~6% per year The sector has achieved 44 consecutive quarters with same store revenue growth in the US Significant Growth Opportunities through Market Expansion and Consolidation Early stage and fragmented market creates an opportunity for CSL to acquire assets at accretive valuations and work with local developers to grow the purpose-built student housing sector in Canada Premier Company with Best-in-Class Portfolio of Assets Aggregate expected portfolio of up to 4,700 beds diversified across 13 cities in Canada High-quality assets with an average property age of 7.2 years and 0.7 km distance to campus Experienced Management Team Experienced management with extensive knowledge of existing assets and markets Proven track record of improving asset operating performance Long-Term Value Creation Strategy Fully financed organic growth plan through rental premium, economies of scale and cost synergies Long-term working relationships with experienced local developers and builders CSL acquisition criteria focused on high-quality value accretive assets Optimal Capital Structure to Support Growth Appropriate leverage profile for asset class Low payout ratio to fuel long-term acquisition growth Access to capital and resources from co-ownership partner Attractive Valuation Metrics Expected 2017E P/AFFO multiple of 15.6x Discount to peers trading at 2017E P/AFFO multiple ranges of 18.4x to 24.7x (1) (1) Market data as of August 19, 2016. Canadian comparable peers at 18.4x include InterRent REIT and Killam Apartment REIT; US comparable peers at 23.1x include American Campus Communities and Education Realty; and UK comparable peers at 24.7x includes Unite Group Plc. CSL 14