Acquisition and Portfolio Management Strategy
(a) Target Markets ”“ superior returns are available in income-producing mid-market properties in both primary and secondary markets across Canada.
(b) Mid-market Deal Size ”“ acquisitions have been be in the $3-$30 million range per asset. Management believes that target market assets in this range are typically too large for local investors to acquire and too small to be attractive to larger real estate investment trusts or institutional buyers, reducing overall buyer competition.
(c) Geographical Diversification ”“ assets are expected to be acquired across Canada with an initial focus on geographic markets east of Ottawa, Ontario, in clusters and asset sizes that will ensure regional economies of scale.
(d) Solid Tenant Base with Long-Term Leases ”“ focus on acquiring assets with long-term leases, low vacancy rates or high credit tenants including government, national, or multinational businesses. In addition to providing cash flow stability and security, these tenants typically require fewer resources to oversee and manage.
(e) Limited Capital Expenditures ”“ assets are expected to be acquired in good physical condition with little or no deferred maintenance. Preference is given to assets with leases in place that allow maintenance expenditures to be paid by the tenant (triple net leases).
(f) Asset Management ”“focus on target markets and asset mix. Adjustments to the target markets and the asset mix will enable BTB REIT to maintain an optimal portfolio with the focus of producing stable, growing distributable income for Unitholders.
(g) Attractive Financing ”“ a favorable debt and interest rate market exists and management prudently utilizes and manages its leverage within a range of 60-75% to maximize return on equity while maintaining cash flow stability. Long term fixed rate amortizing debt is primarily used.
Portfolio Management Strategy:
BTB internal growth strategy focuses on increasing rental income through actively managing the tenant mix of each property, leasing vacant space and maintaining good relations with tenants. Many assets currently targeted for acquisition are owned and managed by smaller, local operators that are not typically core real estate investors or operators. Management’s extensive experience capitalizes on upside potential in individual properties. While the acquisition strategy of BTB focuses on acquiring properties with top-tier tenants with long-term leases, BTB accesses the leasing community and retains appropriate brokers to replace and upgrade tenants. BTB has implemented and actively manage an on-going capital improvement program to ensure that the quality of the portfolio meets the standards of equivalent properties and allows the properties to retain structural and aesthetic integrity for its intended useful life.
BTB’s external growth strategy is focused on acquisitions. The REIT actively seeks accretive acquisitions in both primary and secondary markets that present opportunities for favorable returns. BTB has initially focused on acquiring income-producing office, industrial and retail properties in geographic markets east of Ottawa, Ontario with the objective of expanding west in Canada and thereby creating and enhancing a geographically diversified portfolio. BTB believes that current market conditions are providing buyers of real estate the opportunity to benefit from attractive yields on an leveraged basis, and the availability of both short and long-term financing at favorable interest rates.
Throughout the acquisition process, BTB identifies potential property acquisitions using investment criteria that focus primarily on return on equity, security of cash flow, and the potential for capital appreciation. Additionally, BTB considers the potential to increase value by more efficient management of the assets being acquired, maximizing productivity gains, and accessing capital for expansion and development of those assets, which access might not otherwise be available to competitors and other property owners.
BTB has implemented an investment strategy to allow it to pursue the acquisition of commercial properties, from several sources, including:
(a) private owners pursuing off-market transactions in both primary and secondary markets;
(b) institutional investors disposing of commercial properties in order to rebalance their investment portfolios; and
(c) BTB REIT’s network of contacts in real estate development and ownership, including real estate brokers and institutional and other owners of commercial real estate that are in the process of, or are contemplating, divesting certain real estate investments as part of rebalancing their investment portfolios.
BTB REIT achieves internal growth by capturing market rate rents as existing leases expire and by renewing existing tenant leases, if possible, since renewals, contrasted with tenant replacements, often minimize transaction costs associated with marketing, leasing and tenant improvements and avoid costs of renovations and interruptions in rental income resulting from periods of vacancy. Where an existing tenant chooses not to renew its lease, BTB REIT identifies, as early as possible, a replacement tenant at the best available market terms and lowest possible transaction costs.