Message from the CEO

Since inception Management has sought to build a high-quality real estate portfolio that provides investors with the opportunity to invest in desirable local communities, all while preserving long-term unit value and maintaining a consistent distribution rate. Thank you for trusting us to manage your investment responsibly – we take pride in managing the REIT in the best interest of the unitholders.

At the end of each calendar year, AIE REIT requisitions third-party appraisals that form the foundation of our NAV; unitholders can expect the announcement of AIE REIT’s year-end unit value in March 2023. Additionally, AIE REIT has established an internal valuation process and will issue quarterly unit value adjustments moving forward.

The third-party appraisals determine the value of each income property by dividing the net operating income (“NOI”) for each property by the market capitalization rate (“Cap Rate”). Last year, both inputs of this equation performed in a way that was positive for price appreciation (i.e., higher NOI / lower Cap Rate). As interest rates rose in 2022, buying slowed; however, unlike the residential housing market, purchase prices and Cap Rates for income properties have remained stable in our core communities. Management continues to believe in the fundamentals of investing on Vancouver Island and in the Okanagan and will continue to grow the portfolio in an accretive manner.

Now, while Management continues to believe in the fundamentals of investing in our core communities, market shifts cannot be underestimated. Management will remain conservative and work diligently to protect against risk factors. In 2021, Management’s actions to hedge against risk factors included securing long-term financing on a majority of the portfolio at lower interest rates in anticipation of higher interest rates in 2022, or later. This protection against interest rate increases allowed Management to focus on improving the current portfolio and remain selective when underwriting potential acquisitions.

So, despite the current stability of income property Cap Rates in our core communities, Management believes there is potential for Cap Rates to increase in the medium-term. Although such movements could adversely affect property values, they present an opportunity to increase yields for those buyers who know their markets well. Management will remain focused on increasing Net Operating Income and acquiring accretive assets as a means of protecting unitholder value against potential Cap Rate risk.

 

Portfolio Overview

(1) As of September 30, 2022.

(2) AFFO Payout ratio is a non-IFRS measure used to evaluate the Trust’s ability to cover its distributions.

(3) An annualized return based on a single unit investment in the AIE REIT, inclusive of unit price changes and distributions.

 Legal Disclaimers

These materials are not to be distributed, reproduced or communicated to a third party without the express written consent of All Island Equity REIT. These materials should be read in conjunction with the Trust’s Offering Memorandum dated July 27, 2022, including the risk factors identified therein. This letter has been provided for general information purposes only and is not intended to be a solicitation to purchase Units of AIE REIT or advice regarding the suitability of the investment for specific investors. This letter contains forward-looking statements. These statements relate to future events or the Trust’s views or predictions of possible future performance, operations, acquisitions and strategy based on assumptions and expectations which may not prove to be accurate. Such forward-looking statements involve risks, uncertainties and other factors, including the impact, severity and duration, of COVID-19, which may cause actual results, performance or achievements of AIE REIT to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For more information on these risks and uncertainties, you should refer to the Trust’s most recent Offering Memorandum. Any opinions expressed herein are effective as at the date of the letter. Management does not undertake to notify the reader of any subsequent change of circumstance or opinion unless required by law. Past results are not indicative of future performance. There is no assurance that the properties acquired by the Trust will perform as expected. NAV and AFFO  are not measures recognized under IFRS and does not have standardized meaning prescribed by IFRS. The Trust’s calculation of NAV, AFFO, and Annualize Returns may differ from other REITs.