Global Research Published by Raymond James & Associates

December 4, 2013

True North Apartment REIT (TN.UN:TSX)

Initiation of Coverage

Ken Avalos, RJA, (727) 567-1756, [email protected] Johann Rodrigues, (Associate), RJL, 416.777.7189, [email protected]

Rating _________________________________ Market Perform 3

Real Estate: Multiresidential ________________________________________

Current and Target Price __________________ Target Price (6-12 mos): NM A Small-Cap Apartment Consolidator with an Outsized Distribution Yield Current Price (Dec-02-13) C$8.19 Total Return to Target NM 52-Week Range C$10.53 C$7.70 Event: We are initiating coverage of True North Apartment REIT with a Market Suitability High Risk

Perform rating.

Recommendation: We recommend investors wait to buy True North units.

Market Data ____________________________ Market Capitailzation (mln) C$194 Current Net Debt (mln) C$300 Driven by a combination of solid occupancy and pricing power, the Enterprise Value (mln) C$494 apartment sector is the only publicly traded real estate property type in Units Outstanding (mln, f.d.) 23.2 52,090 Canada where we see a relatively high level of NOI and earnings growth Average Daily Volume C$0.70/8.4% visibility. In addition, with access to CMHC debt, the sector remains better Distribution/Yield 6.20% protected from any potential financing issues related to increasing cap rates Implied Cap Rate Market Value per Apartment Suite C$85 or disruption in the capital markets. D/TEV 60% True North offers investors what we believe to be an attractive and safe D/EBITDA 10.6x

Analysis:

♦

♦

distribution. The company pays a $0.70/unit annualized distribution, or 8.4%, a 582 basis point spread over the 10-year GOC yield. This compares to a longterm REIT yield spread of 430 bps, and well in excess of the apartment REITs/REOCs we cover, which pay 4.7% on average. ♦ We believe management has the opportunity to generate 300–500 bps of NOI margin expansion. The key to us is the ability to drive NOI growth in an accretive (to NAV) fashion in order to overcome some of its ‘qualitative’ challenges and capture a more loyal unitholder base. ♦ True North offer an attractive distribution yield and discount to NAV. Offsetting these factors is lower same-property NOI growth prospects, we believe more cap rate risk, modestly higher leverage, and an external structure that is generally less attractive to institutions. In addition, its peers all trade at near double-digit discount to NAVs. Given these factors, we are initiating at a Market Perform rating. Valuation: True North currently trades at 12.8x and 11.9x our 2013 and 2014 AFFO estimates, compared to the Canadian apartment REITs that trade at 17.3x and 15.9x consensus 2013 and 2014 AFFO. We rate True North a Market Perform.

Earnings & Valuation Metrics ______________ 2012A 2013E 2014E NAV C$9.00 NA Prem./Disc. to NAV -7.3% NA P/FFO NM 11.7x 10.8x FFO Payout NM 98% 90% AFFO C$0.11 C$0.65 C$0.70 P/AFFO NM 12.8x 11.9x AFFO Payout NM 107% 100% Company Description_____________________

FFO

Q1 Mar

Q2 Jun

Q3 Sep

Q4 Dec

Full Year

NOI (mln)

2012A

NA

NA

2013E

0.14A

0.18A

C$0.06 0.20A

C$0.07

C$0.13

C$6.8

0.18

0.72

27.8

2014E

0.19

0.19

0.21

0.20

0.78

34.8

True North Apartment REIT is an externally managed owner of multi-family residential properties across Canada.

Source: Raymond James & Associates, Thomson One

Please read domestic and foreign disclosure/risk information beginning on page 34 and Analyst Certification on page 34.

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True North Apartment REIT

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Contents

Investment Thesis .................................................................................... 3 Company Overview .................................................................................. 5 Performance and Events Since Conversion .............................................. 6 Portfolio Overview ................................................................................... 6 Where We Stand Today and the Outlook Going Forward ....................... 8 External Growth Overview ....................................................................... 9 Multi-Family Sector Overview .................................................................. 11 Management Team and Governance Overview ...................................... 14 Recent Results .......................................................................................... 17 Capital Structure Overview ...................................................................... 18 Forecast Overview.................................................................................... 19 Valuation Overview .................................................................................. 19 Conclusion ................................................................................................ 23 Investment Risks ...................................................................................... 24 Appendix A: Forecasted Financial Statements ......................................... 26 Appendix B: External Management Agreement....................................... 28 Appendix C: Pictures of Select True North Properties ............................. 29 Appendix D: Multi-Family Valuation Table............................................... 33

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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

Global Research

True North Apartment REIT

Investment Thesis True North Should Benefit from Strong Multi-Family Fundamentals for the Next Few Years. We believe the multi-family sector is poised for several years of strong earnings growth. Driven by a combination of solid occupancy and decent to strong (depending on region) pricing power, the apartment sector is the only publicly traded real estate property type in Canada where we see a relatively high level of NOI and earnings growth visibility. In addition, with access to CMHC debt, the sector remains better protected from any potential financing issues related to increasing cap rates or disruption in the capital markets. The apartment sector in Canada is characterized by high occupancy and decent pricing power (despite some provincial rent control) and a favorable pricing advantage given the high cost of owning in many markets. There is also the ability to acquire at well below replacement cost, though underwriting capex can be significantly more difficult than in the United States given the general age of the stock. Still relatively low rents (compared to newer stock or ownership) provide a long runway for cash flow growth at the company level. In some markets, given low acquisition yields, development has returned. Nonetheless, most of the new development, as well as condos entering the rental pool, is typically at significantly higher price points than where the public REITs generally play, providing rental rate upside and helping mitigate vacancy risk. Immigration is a key demand driver, increasing the Canadian population by 1% each year and this demographic is typically a heavy user of the typical Canadian apartment stock, where rents average $800–$1,000. We expect demand and affordability to continue to support sector fundamentals, and with occupancy levels near historical peak, pricing power should remain solid. Potential for Substantial NOI Growth/Margin Expansion. One of the more interesting dynamics that we’ve encountered with True North thus far in its life as a public entity has been acquisitions (either third party or from its external manager, Starlight Investments Ltd., “Starlight”) that have been somewhat underwhelming in terms of going in returns and submarkets. That said, we have been pleasantly surprised at what seems to be slightly more NOI upside post ownership and have developed a positive opinion of the company’s operating expertise at the asset level. Thus far, the REIT has been bringing new properties into the portfolio at margins of 50%–55%. Obviously, there are varying degrees of capex required depending on the acquisition profile, be it stabilized or a bit more value add. Given the company’s relatively high distribution, we’d expect a majority of the assets to be generally stabilized, with the occasional opportunity for modest repositioning. With that said, we still think there exists the potential for margin expansion based on industry average margins, as well as the history at TransGlobe Apartment REIT. Based on TransGlobe’s peak levels of 57%–60%, we believe management has the opportunity to generate an incremental 300–500 basis points of NOI margin, given (our opinion) a somewhat similar portfolio in terms of quality and location. As always, timing and capex requirements are the question; for modeling purposes we have assumed the company generates average NOI margins of 55% and 56% in 2013 and 2014 respectively. The key to us is the ability to drive NOI growth in an accretive (to NAV) fashion, helping mitigate cap rate risk and overcome some of its ‘qualitative’ challenges and capture a more loyal unitholder base. Above Average, Relatively Safe Distribution Yield. In today’s environment of low yields across most asset classes, True North offers investors an attractive and we believe safe distribution. The company pays a $0.70/unit annualized distribution, which equates to an 8.4% yield and a 582 basis point spread over the 10-year GOC yield, highly attractive from a current and historical “spread” perspective. The current REIT/REOC yield spread over the 10-year GOC is 294 basis points, well below the historical

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True North Apartment REIT

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spread which has averaged 430 basis points over the last 15 years. True North’s current yield is also well in excess of the apartment REITs/REOCs we cover, which pay a 4.7% distribution yield on average. Perhaps more importantly is the safety of the distribution; our belief is that the distribution is well covered given the sound fundamentals in the multi-family market. Our 2014E AFFO payout ratio of 100% is higher than we’d like but not untenable. From a true cash flow perspective, we think the company, post capex, will need to finance $0.20/unit of the distribution, or roughly $5 million on an annual basis, very manageable in our opinion for a nearly $500 million enterprise. We expect occupancy in the portfolio to be steady and improve over time and, barring any significant economic shock, do not foresee sizable risk to the current distribution. In our opinion, the sizable discount to its Canadian apartment peers (i.e., lower equity valuation) reflects the company’s small market cap and relative illiquidity, but also a lack of institutional support. In a world with yields still near historical lows, even with a recent 10-year GOC/Treasury increase, we believe the fact that True North can trade at such a significant discount reflects more than simple size concerns. True North was structured as a yield oriented investment, using stabilized acquisitions and leverage to generate an above average yield of 7% at IPO. The hope was that the initial distribution yield discount would prove attractive and close, providing better equity “currency” and allow the company to bulk up quickly and continue its spread investment strategy. At this point, our belief is that with most REIT/REOC equity prices challenged, the equity driven, spread investment game is at least on pause. Since May our view has been that investors should focus their capital on REITs/REOCs that are better positioned to generate outsized NOI growth, via internal activity, development or ideally, both. At this point, we believe the company offers a strong income alternative for investors, but a marginally less attractive total return proposition than most of the other apartment REITs we cover, with marginally more cap rate risk. Although our view is that rates will be flat to down in the near term (3–6 months), we still believe the intermediate and long-term will bring rising rates/multiple compression and we recommend investors focus on companies with outsized internal growth prospects, which provides the best defense to cap rate risk in our opinion. Access to CMHC Financing. The ability to access CMHC financing (and eliminate refinancing risk via insurance) is one of the key benefits that set apart the multifamily sector in Canada from other commercial property types. We believe that as interest rates inevitably begin to rise, there will be significant risk to more highly leveraged and aggressive real estate investors. The risk is twofold: first, cap rates will rise in the private market, which is 5x the size of the public market, and there will be equity needed to refinance many properties. Secondly, we would expect overall lending conditions to become somewhat more restrictive and perhaps more expensive if spreads do not compress enough to offset the increase in benchmark rates. If in fact rising rates/multiple compression occurs in a material and disruptive fashion, companies with access to capital (both from an operating and growth perspective) and balance sheet strength and/or flexibility should be able to survive and thrive. Much like in the US, where apartment REITs had access to capital, we believe CMHC will benefit Canadian apartments in this fashion. At this point, 33% of True North’s debt is CMHC insured, and over the long run we expect the company to continue migrating in that direction. The multi-family sector is quite liquid and the nature and size of the company’s assets make them relatively attractive to lenders and easily financeable, even in difficult market environments. Current Valuation Discount Reflects Size, Leverage, SPNOI Growth and External Structure. On an AFFO basis, True North units are trading at 12.8x our 2013 AFFO per share estimate ($0.65) and 11.9x our 2014 AFFO per share estimate ($0.70). This represents a sizable discount to the rest of the Canadian multi-family REITs, which trade at 17.3x and 15.9x consensus AFFO estimates, respectively. On an © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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True North Apartment REIT

implied cap rate basis, the REIT trades at 6.2% based on November 29’s $8.34 closing price. We find this valuation attractive on both metrics given that apartment pricing (based on recent transactions) remains below that in True North’s markets, and the fact that there is likely embedded NOI growth in True North that can be extracted with minimal capital and basic operational focus. Additionally, the REIT trades at a 9% discount to our NAV, compared with an 11% discount for the apartment sector on average as well as at $85,000 per suite, compared with $130,000 for the sector as a whole. Exhibit 1: Summary of True North’s Financial and Valuation Metrics Metric True North CDN Multi-Family US Multi-Family Average Average Implied Cap Rate 6.2% 6.0% 5.9% Dividend Yield 8.4% 4.7% 3.5% 2014E AFFO Payout 100% 70% 58% 2013E P/AFFO 12.8x 17.3x 18.9x 2014E P/AFFO 11.9x 15.9x 16.9x Prem./Disc. To NAV (7.3%) (11.2%) (17.5%) D/TEV 60% 52% 33% *Note: RJA estimates used for True North and US Average, consensus from SNL used for Canadian Average Source: SNL Financial, Raymond James & Associates

Company Overview True North Apartment Real Estate Investment Trust (True North) is a multi-family REIT with an acquisition growth focus. The portfolio is concentrated in what we would characterize as secondary and tertiary submarkets of major metros across Canada, with a current footprint that is largely focused in Atlantic Canada, Ontario and Quebec. True North was created via a Capital Pool Company (Wand Capital Corporation) in January 2012 and completed its IPO on March 9, 2012 at $10/unit (split adjusted). The company was subsequently converted into a REIT on June 5, 2012, in concert with the acquisition of its Initial Portfolio, an aggregate of 129 residential suites in Guelph, Kitchener and Waterloo, Ontario. The company is externally asset managed by Starlight, an entity owned by the largest unitholder Daniel Drimmer. As is always the case, there are both pros and cons with this type of structure, which we discuss in detail below. Property management is generally outsourced to market leading third-party providers, an arrangement which is generally viewed as more tolerable by sophisticated investors given the company’s size. From a day to day or “corporate” management perspective, the REIT is managed by CEO Leslie Veiner and CFO Martin Liddell, who are employed (and compensated) by True North. We have spent a fair amount of time touring assets with management, and we’ve had numerous discussions about our views on the company’s acquisition strategy and structure. Our takeaway is that they are doing a good job at the asset level, focusing on maximizing NOI with smart capex. On the investor relations front, they are aware of the challenges from an institutional investor perspective and, given that they are also unitholders, understand that executing the business plan is made more difficult by a general dislike of the external structure, which we believe drives a valuation discount.

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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

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True North Apartment REIT

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Performance and Events Since Conversion The price at conversion on June 5, 2012 $10.00/unit (adjusted for a 2.5:1 reverse split completed on May 3, 2013, in conjunction with its graduation to the TSX from the Venture exchange) implies a total return of -9.2% since conversion. This compares to -4.0% for the REIT index as a whole and +0.9% on average for the other Canadian apartment REITs. Since conversion, the REIT has acquired an additional 5,966 apartment suites, for an aggregate value of $481 million, diversifying its geographic footprint to Alberta, Quebec, New Brunswick and Nova Scotia, and bringing the current portfolio to 5,996 suites (accounting for the divestiture of 101 suites last quarter and the conversion of two storage spaces into suites). Asset growth has come quickly, and in our opinion, at going-in returns that to some degree have put the REIT “in the box” from an equity issuance perspective. Said another way, there was a gap between NAV and issuance pricing, and the only way to close that gap is to use the dry powder for assets that are NAV accretive, not just FFO accretive. At this point, much of the dry powder has been consumed, and in our opinion, the REIT would be better served backing off the acquisition pace and focusing on driving NOI at the property level and closing the NAV to issuance price gap. Based on conversations with management, we think they agree, particularly given the equity pricing. At this point, we expect True North to focus on improving property level cash flow, with potential opportunistic acquisitions.

Portfolio Overview The company’s portfolio comprises 5,877 units across 53 properties and five key provinces as at quarter end (5,996 suites accounting for post-quarter activity). The REIT has 41% of its suites located in Ontario and 36% located in Quebec. A further 21% is located in Atlantic Canada with the remaining 2% in Alberta. Exhibit 2: True North’s Geographic Portfolio Mix by Suites (September 30, 2013) Alberta, 2% New Brunswick, 9%

Nova Scotia, 12% Ontario, 41%

Quebec, 36%

Source: True North Apartment REIT, Raymond James & Associates Additionally, 64% of the suites comprising the portfolio contain two or more bedrooms:

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Exhibit 3: True North’s Portfolio Mix by Suite Size (September 30, 2013)

Bachelor, 2.9% Three Bedrooms, 13.9%

Five Bedrooms, 0.3%

Two Bedrooms, 50.5%

One Bedroom, 32.4%

Source: True North Apartment REIT, Raymond James & Associates The company has grown significantly from its initial 129 suites, acquiring 5,966 suites over the past 18 months for $481 million, or $81,000 per suite. This includes the additional 267 suites acquired postquarter for an aggregate value of $22.8 million ($85,000/suite). Exhibit 4 details the REIT’s acquisitions including the initial properties. Exhibit 4: True North’s Acquisitions Property Date Location Closed 35 Mowat Jun-7-12 Ontario 444 Victoria Jun-5-12 Ontario 57-499 Albert Jun-6-12 Ontario Montreal Jul-17-12 Quebec Trossacks Aug-9-12 Ontario Blue-Starlight Oct-1-12 ON/NB/NS 183 Lisgar Jan-22-13 Ontario Rocky 3 Feb-20-13 AB/BC/ON/QC Ontario Feb-28-13 Ontario Trenton Oct-1-13 Ontario Montreal Oct-1-13 Quebec Total Source: True North, Raymond James Ltd.

Suites

17 72 40 1,528 220 2,076 40 1,570 265 119 148 6,095

Purchase Price ($mln) $1.3 $7.6 $5.1 $121.0 $17.5 $139.0 $2.4 $152.8 $25.7 $10.5 $12.3 $495.2

Price Per Suite

Cap Rate

$76,000 $105,000 $127,000 $79,000 $80,000 $67,000 $60,000 $97,000 $97,000 $88,000 $85,000 $81,000

6.0% 6.3% 6.0% 7.1% 6.3% 6.2% 6.5% 5.5% 5.7% 5.8% 5.8% 6.2%

Starlight Fee ($mln) $$$$1.30 $0.15 $0.94 $0.02 $1.59 $0.26 $0.10 $0.12 $4.48

NOI and Capital Expenditures The Canadian apartment stock is characterized by older properties, often dating back to the 1970s and 1980s. As construction costs have increased over the last few decades, and with rental rates not keeping pace, residential apartments typically sell for below replacement cost. The older stock, and associated economics helps underpin strong sector fundamentals; i.e., apartments provide a compelling value proposition for a group of tenants that are not in a position or choose not to own a home. However, the age and physical condition of the buildings means capital expenditures are frequent for much of the apartment universe, and many of our companies spend in excess of $1,500-$2,000 per unit annually in © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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order to maintain or modestly improve portfolios. True North’s portfolio is no different with the average age of True North’s portfolio estimated to be roughly 30 years. From a modeling perspective, we’ve assumed True North spends roughly $500 per unit on an annual basis for maintenance capex, and an additional $8 million, or ~$1,350/unit on investment capital below the line. The ability to generate outsized NOI growth will determine whether this capital is earning above the REIT’s cost of capital (i.e., growing NAV). In our coverage universe we’ve seen apartment companies generate anywhere between high single digits to even low 20% cash on cash returns for “in suite” capital improvements, so our view is that companies generally earn their cost of capital by investing in the portfolio. A larger question is whether the NOI gains can compensate for the rest of the investment capital that is required to keep these older buildings in good condition.

Where We Stand Today and the Outlook Going Forward As described above, the company has been an aggressive acquirer since conversion, potentially too aggressive given what has happened in the equity markets, as having some dry powder today would be highly valuable in our opinion. We have always been proponents of sacrificing speed of acquisitions for quality and NOI growth, as the equity capital deployed is usually far scarcer than the assets being purchased. In our opinion, many small-cap REITs in Canada lack this “discipline”, some might say religion, and acquire aggressively with a focus on FFO as opposed to NAV and little concern for the availability of the next equity slug. To some degree, True North has exhibited a few of these characteristics. Given the dynamics/pricing of the CPC/IPO to conversion, there was $22 million of scrape (i.e., a gap between the unit pricing and NAV), or $0.40 per unit. Essentially the company was somewhat of a blind pool, and investors provided equity capital in the hopes that access to the external manager’s $2 billion acquisition pipeline would give the company the ability to deploy capital at below-market rates and close the NAV gap. In fact, the company bought assets at cap rates that did not generate enough NOI to close that gap, at least year one. This makes raising more equity difficult when markets become more discriminating. Our view as mentioned above was that even before the mid-year correction in REITs, True North was already ‘in the box’ so to speak from a capital perspective. With public real estate unit prices volatile since mid-year, the market has instilled a governor on most public REITs, despite what is still a sizable gap between private and public market valuations. Private market cap rates remain low, and though transaction velocity has slowed, pricing remains firm. We must acknowledge this and attempt to determine where the right risk-adjusted spot to be is from an investment perspective. At this point, our recommendations are focused on apartments as a sector, and outside of that picking individual names that we believe can generate outsized NOI growth, to offset what we expect will be inevitable multiple compression as interest rates rise, and have solid balance sheets to weather potential disruption in the capital markets. True North, like most of the apartment REITs, has the ability to generate NOI growth via rental rate increases, occupancy gains, and expense leverage. The key question for us is how much of that NOI growth actually translates into NAV growth? We recognize that this will be a function of NOI growth as well as capex requirements for the portfolios. We think for companies like Boardwalk and CAP REIT that have invested heavily in recent years, and Killam which owns a newer portfolio, the positive impact will be better than for companies playing in lower quality product or in more challenged markets. Companies like InterRent will need to find deeper value-add projects and generate outsized NOI growth and strong ROIC to drive NAV, something they have proven to be skilled at doing.

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We don’t know where True North sits on that spectrum yet. Our initial impression from an operating perspective is that the REIT and its third party property managers are doing a good job at the asset level. We’ve toured a large percentage of the portfolio on numerous occasions and come away impressed with the asset level focus on NOI. We’ve seen numerous examples of strong, accretive NOI growth at the property level, from smart capex driving rent increases to the unearthing of complete rentable suites that were being used as storage by previous owners. In that regard, we think True North is doing a sound job with the portfolio it owns. If rapid asset growth and good (so far) real estate operations were the only thing needed to capture loyal institutional and retail unitholders as well as earn a premium multiple in the public markets, then we believe that True North would be having an easier go of things in the public markets. The reality is that there are many more factors, both qualitative and quantitative that influence public company valuations. In our opinion, the key issues for True North are less about operating the assets well (we think the company has access to the resources from that perspective), but more about the qualitative perceptions ranging from the rapid asset growth and asset quality/location to the potential for management conflicts driven by the external management agreement.

External Growth Overview True North’s acquisition strategy has focused on multi-residential properties across Canada, primarily in secondary and tertiary markets. This is helpful on the acquisition side, and management believes secondary market assets are more stable and provide higher cap rates on a going-in basis. In addition, the company’s target markets have less exposure to the condominium building boom and potential inventory overhang. The REIT will also consider growing into the US, opportunistically, with a cap of 20%–25% of the portfolio. Management’s view on acquiring in the US is that at certain times, they can get newer product at better cap rates, financed well, and deliver attractive returns on equity. While on a spreadsheet this all makes sense, we also must acknowledge the additional risk that entering the US introduces. As always, it helps to be local when investing in real estate, and there are subtle nuances that are difficult to appreciate when allocating capital from afar. The US market is significantly more dynamic and competitive from numerous angles, which introduces risk to cash flows that Canadian multi-family investors generally aren’t accustomed to facing. In addition, the introduction of US assets also adds complexity to a story that needs to be simplified in our opinion. With all that said, if done well, a US segment can add quality cash flows with more growth potential to a portfolio, much like RioCan has done with their US endeavor. True North focuses on assets where professional management can add value, i.e. properties that are characterized by owner neglect and/or deferred general maintenance, due to lack of access to capital or simply lack of professional management experience. The company believes that by simple property level execution, smart capital, curb appeal and professional management, it can raise occupancy levels and drive rents. From an asset size view, we would expect the company to generally play in the $5 to $50 million property size for the foreseeable future, given the inefficiencies and fragmented ownership in that segment of the market. From a return perspective, acquisitions will be yield focused, and management will look for opportunities to incrementally improve NOI, but investors should not expect deep redevelopment projects, a la InterRent, at this point in the company’s life cycle.

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After touring a majority of the company’s assets with both Starlight asset managers and local property managers we are far less concerned about the company’s ability to execute on the NOI front than the company’s ability to adapt and overcome the more qualitative issues. At this point, with the uncertainty surrounding where long-term rates will settle in the near to intermediate term, we think it’s a relatively risky proposition to be acquiring sizable pools of assets in “less core” sub markets, where there is more cap rate risk and less visibility on top line growth. And given the company’s cost of capital currently, we don’t think it can compete for core asset in top tier markets given cap rates as low as sub-4% in some cases. CMHC financing and the ability to drive slow steady increases in NOI at the property level mitigate risk to some degree, but when presented with more compelling alternatives from an NOI growth, quality and governance perspective, we would expect institutional capital to flow in that direction. Pipeline and Future Growth The company has a potential $2 billion pipeline of assets given its relationship with Starlight. We believe this would give True North access to multi-family product in size unmatched by anyone except perhaps CAP REIT in the Canadian multi-family space. Our initial expectation was that the REIT would be able to leverage this relationship/pipeline to source outsized going-in returns as well as potential upside. This would help close the NAV gap, provide strong support for the distribution, and the basis for NOI growth which we believe is needed to offset the coming multiple compression and capture additional shareholders. Our view is that investors need to be compensated from a total return perspective for taking equity risk over an investment in bonds. To date, we would characterize going-in cap rates on acquisitions as generally around market, although management has made clear on numerous occasions the acquisitions are well below appraised value. Frankly, we don’t think it matters, as we believe that what a buyer is willing to pay on a going-in cap rate doesn’t tell the story entirely given any number of variables including location, asset quality, capex, growth, and debt against the asset. At this point, we aren’t sure that recent acquisition returns have met the REIT’s long-term cost of capital, but this is not a problem exclusive to just True North. We think many of the smaller cap or recent vintage IPOs in the Canadian REIT space are buying assets at cap rates below their respective long-term cost of capital. Clearly, when unit prices were high, the ‘spot’ cost of capital allowed for many of the aggressive small-cap REITs to make acquisitions that were FFO accretive, though only time will tell if these deals were NAV accretive. True North has an advantage in that we believe the portfolio has cash flow upside; the magnitude of that has yet to be determined, but our view is that a long term 2%–3% NOI growth target should be a company target. This should generate cash flow at a level that should allow the gap between the NAV (which we estimate at roughly $9.00) and prior issue prices (which were $9.80, $10.68 and $10.00, respectively) to close, barring cap rate expansion.

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True North Apartment REIT

Multi-Family Sector Overview The multi-family market in Canada is comprised of roughly 1.8 million purpose built units. In our opinion, the apartment sector in Canada has been a highly resilient sector in terms of occupancy and cash flow, more so than the US where occupancy and supply/demand are more volatile. In addition to the supply/demand volatility sector wide in the US, US operators have a greater affinity for pushing rents at the expense of occupancy while Canadians would rather see lower turnover and maintain buildings that are close to fully occupied. Exhibit 5: Historical Multi-Family Occupancy Rates – Canada vs. US 100% 99% 98% 97% 96% 95% 94% 93% 92% 91% 90% 1Q05

1Q06

1Q07

1Q08

1Q09 Canada

1Q10

1Q11

1Q12

1Q13

US

Source: CMHC, REIS, Raymond James & Associates In terms of the demand side of the equation, according to CMHC, employment is expected to increase 1.4% in each of the next two years, further bolstering the case for continued steady apartment occupancy. Additionally, net migration into Canada is expected to approximate 260,000–270,000 annually for the next few years. This coupled with natural population growth, is expected to add roughly 1% to Canada’s population annually for the next few years.

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Exhibit 6: Population Projections per Canadian Region

Source: Statistics Canada, Raymond James & Associates For context, CMHC expects multi-family starts to be roughly 107,800 in 2013 and 105,700 units in 2014. This compares to starts of 131,170 in 2012 and 111,558 in 2011. Included in this are rental starts of roughly 20,000–22,000 per year. Exhibit 7: Historical Rental Starts in Canada 40,000 35,000

Rental Starts

30,000 25,000 20,000 15,000 10,000 5,000

2014E

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

-

Source: CMHC, Raymond James & Associates Rent Control Economics Mute New Supply: One of the main reasons no material apartment supply has been built in Canada for decades is the existence of rent control. Four Canadian provinces have strict forms of rent control: British Columbia, Manitoba, Ontario and Prince Edward Island (PEI). Quebec does not have a standard guideline, but instead employs a grid based system which serves as a guidance tool for landlords. That said, there is no cap on rent increases upon turnover. The way the process generally works is that the provincial government sets annual “maximum allowable” rent increases that landlords can apply each year. This only applies to existing tenants and

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in most cases the landlord can mark the apartment to market on turnover. The maximum allowable guidelines are outlined in the table below. The ranges shown below for PEI cover heated dwellings. Exhibit 8: Provincial Rent Maximum Increase Guidelines Province 2012 2013 2014 British Columbia 4.3% 3.8% 2.2% Manitoba 1.0% 1.0% 2.0% Ontario 3.1% 2.5% 0.8% Prince Edward Island 3.2% 5.0% 2.0% Source: Landlord and Tenant Board, Raymond James & Associates

10-Yr Avg. 3.6% 1.7% 2.0% 3.2%

Overlaid on top of the demand and supply side factors is housing affordability that continues to deteriorate. Currently, home prices are 5.3 times median household income across Canada. However, the Toronto and Vancouver metropolitan areas greatly surpass this at 7.4x and 10.9x, respectively. As a comparison, the average US home is roughly 3.5x median household income, and a healthy range is approximately 2x–4x. Exhibit 9: Current Average Home Price / Median Household Income 12.0x 10.9x 10.0x

8.0x

7.4x

6.0x

5.3x 4.6x

4.0x

4.6x 3.9x

3.6x

3.4x

2.0x

0.0x Halifax

Montreal

Ottawa

Toronto

Winnipeg

Calgary

Vancouver

Canada

Source: CREA, Statistics Canada, Raymond James & Associates Generally speaking we expect continued solid performance from the apartment sector as single family and condo affordability remains challenging, and traditional demand drivers such as household formation and net migration remain steady. CMHC Financing Is and Will Be Key: Like their counterparts in the US, multi-family investors have access to insured debt, which is one of the key benefits that set apart the Canadian multi-family sector from other commercial property types. In Canada, this takes the form of CMHC debt, characterized typically by lower spreads with significantly more flexibility than conventional property level financing. Among the more attractive attributes of this paper is the ability to top out financing, no “reunderwriting” upon refinancing and generally more attractive, flexible terms than conventional property mortgages. We believe that as interest rates inevitably begin to rise, there will be significant risk to more highly leveraged and aggressive real estate investors. The risk is twofold: first, cap rates will rise in the private market, which is 5x the size of the public market, and there will be equity needed to refinance many © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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properties. Secondly, we would expect overall lending conditions to become somewhat more restrictive and perhaps more expensive if spreads do not compress enough to offset the increase in benchmark rates. If in fact rising rates/multiple compression occurs in a material and disruptive fashion, companies with access to capital (both from an operating and growth perspective) and balance sheet strength and/or flexibility should be able to survive and thrive. Much like in the US, where apartment REITs had access to capital, we believe CMHC will benefit Canadian apartments in this fashion. At this point, 33% of True North’s debt is CMHC insured, and over the long run we expect the company to continue migrating in that direction. Condos Are a Short-Term Risk and a Long-Term Opportunity: From a risk perspective, should the condominium market continue to cool, it may lead to a temporary dip in apartment occupancy as a small segment of condo owners offer drastic reductions in rent to cover a portion of their costs. However, our opinion remains that given the basis of the assets/construction cost, this product is at a different price point than the product found in publicly traded REIT portfolios and so any occupancy disruption would be minimal and short lived. In fact, we’d expect well capitalized apartment owners to be able to source fairly attractive product at some point from broken development or condo deals, providing much needed newer (less capex intensive) product and a different price point to round out portfolios. Over the intermediate term, we expect apartment occupancy to remain above 95% and the multi-family REITs to be able to drive same property NOI growth in the low to mid-single digits (depending on region/rental control), which should drive high single to low double digit FFO growth on an annual basis. The key issue, however, is whether this NOI growth will drive NAV or will capex eat away at the accretion?

Management Team and Governance Overview From a public company perspective, True North’s existing management brings a good deal of capital markets experience, albeit with a decisively senior care spin to it. That said, both the CEO and CFO have been a part of at least one other REIT/REOC from IPO through at least the initial phase of the company’s life cycle. Both have experience in acquisitions, asset management, and capital markets. From an investor relations point of view, the jury is still out and a verdict a long way from being returned. Although Mr. Veiner and Mr. Liddell are the public face of the company, and are doing their best to market the story to potential investors, to date institutions have not shown a willingness to listen. Based on the feedback we’ve received from institutions, the external management structure is a negative, and the external agreement introduces perceived conflicts. Overall, we agree with this sentiment and believe that the company will always trade at a discount unless the structure/perceived conflicts are addressed. We understand that there will be investors that never get comfortable with the structure and/or management. Like always, we try to not be dogmatic and approach this like any other potential investment opportunity, asking, can this management team make money for investors? Management has help from a strong sector backdrop, a significant dividend yield, access to ‘cheap’ debt capital, a robust pipeline with decades’ long relationships, and the ability to drive cash flow at the property level. The question is: will property level cash flow growth be sufficient to drive NAV growth and support the valuation. It’s possible that if enough value is created at the asset level, institutional investors will have to take at a look at the equity at some point. But it is our belief that cash flow driven growth of NAV will need to be

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highly compelling for True North to capture institutional mind share given other ‘cleaner’ apartment stories with solid growth. Leslie Veiner – Chief Executive Officer and Trustee Mr. Leslie Veiner, CA has been the Chief Executive Officer of True North since August 27, 2012. Prior to joining the REIT, he provided seniors housing advisory services through his consulting company Hippo Capital Corporation. Mr. Veiner served as the Chief Financial Officer of TransGlobe Apartment REIT and TransGlobe Property Management Services Ltd. from inception until privatization, which provides unique perspective on several of the assets in the portfolio or potential acquisition candidates. From 2003 to 2008, Mr. Veiner was employed by Chartwell Senior Housing Real Estate Investment Trust, holding the positions of Senior Vice President Real Estate from 2005 to 2008 and Chief Financial Officer from its inception in 2003 to 2005. From 2000 to 2003, Mr. Veiner served as Chief Financial Officer of Alert Care Corporation, which sold its properties pursuant to the formation of Chartwell Senior Housing Real Estate Investment Trust and from 1995 to 2000 he held senior financial positions with a real estate company and a healthcare company. Mr. Veiner has a Bachelor of Commerce and a Graduate Diploma in Accounting from the University of Cape Town, South Africa. He is a Chartered Accountant with seventeen years of experience in public accounting, real estate management, development and healthcare Martin Liddell – Chief Financial Officer Mr. Martin Liddell serves as the Chief Financial Officer and Secretary of True North, after serving as the Chief Financial Officer of Wand Capital. From January 2006 to June 2011, he served as the Chief Financial Officer and Executive Vice-President at Leisureworld Inc., with senior management expertise in finance, mergers and acquisitions, and public company reporting. He also played a critical role in taking the company public in March 2010. Previously, Mr. Liddell held the position of Chief Financial Officer of NBS Technologies Inc. and prior to this, he served in a variety of increasingly senior corporate development and financial management roles at Tyco International Ltd., from 2000 to 2005. Mr. Liddell holds a Bachelor of Arts (Honours) in accounting and finance from John Moores University, United Kingdom, and received his Chartered Accountant designation in 1995. He is a member of the Institute of Chartered Accountants in England and Wales (ICAEW), and a member of Financial Executives International (FEI). Investor Sentiment Surrounding the External Management Structure When evaluating True North as an investment as compared to other apartment REITs, investors must be sure to understand its external management agreement. To be blunt, we are typically not fans of externally asset managed structures, preferring that management be 100% aligned with investors and incentivized to deliver total return before all else. More specifically, we are usually fine with external property management agreements, but dislike asset management, capital allocation and/or financing decisions being made by external parties. The external management agreement at True North dictates that the company pays fees to its external asset manager based on assets under management, acquisition volume, FFO and no other earnings or cash flow related metrics. In the minds of investors, these factors introduce the potential for perceived or real conflicts at several levels. Investors can choose to believe that management teams will buy large portfolio of lower quality/higher yielding assets to generate higher FFO or transaction fees, push leverage to juice FFO, or any litany of conflicts, whether real or not. At the end of the day, our advice to companies that choose to structure this way is that it will cost them institutional shareholders, as well as create a valuation discount, driving up the cost of equity capital and to some degree making management’s job incrementally more difficult. To help mitigate potential conflict and show his alignment, the biggest perceived beneficiary of the external structure, Mr. Drimmer has maintained a high percentage of ownership of the REIT, currently ~19%, and which we expect will fluctuate between 15%–20%. He has been an active buyer in all offerings, as well as the public market, purchasing what we estimate to be roughly four million © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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REIT/Class B units in offerings or the aftermarket. Our understanding is that he has also taken units instead of cash for any equity interests in “vended in” properties, and that most of his units are in the company’s DRIP program, so he is aligned in that regard. The chart below illustrates the composition of ownership True North holder base on a relative basis to the other apartment REITs as of November 15, 2013. Exhibit 10: True North’s Ownership by Group vs. Sector Average (As at November 15, 2013)

Source: CapitalIQ, Raymond James & Associates Investors have to decide whether they can live with what we would characterize as a sub-optimal structure for the ability to participate in what should be extremely rapid asset growth and, if capital is allocated well, cash flow, distribution and NAV growth as well. Additional Perspective Management structures at Canadian REITs have continued to evolve over the last decade, for better and worse at different times. Ten years ago, roughly 52% of publicly traded REITs/REOCs were internally managed. Following the US’ lead, the late 2000s saw internal management structures become ‘best practice’ in Canada and a wave of internalizations followed. Entering 2012, the majority of Canadian REITs were internalized (66%) and recent IPOs up to that point were roughly split between the two structures. However, since January 2012, the market has seen 19 IPOs come to market (including True North), of which 16 have had external management structures. That has taken the sector backwards somewhat in terms of mix, with only 51% of listed equity REITs now internally managed. While not ideal, we understand that an external management structure can sometimes be beneficial in terms of gathering market intelligence, access to a deep and broad set of platform capabilities, and this may make sense as a REIT works to reach the scale needed to economically justify internalization. However, the preferred evolution from an institutional owner’s perspective is that a REIT should abandon an external management structure upon reaching a size threshold, as Artis REIT, Calloway REIT and Pure Industrial REIT have done in recent years among others. It should go without saying that we believe any internalization event should be at no cost to unitholders. External advisory agreements exist for a multitude of REITs given recent IPOs. Starlight’s asset management “fee” (detailed in Appendix B) does not appear to be out of line with other agreements, with one exception: related party transactions (for which the company gets a 1% of the purchase price of a property, on the first $100 million, 0.75% of the purchase price of a property on the next $100 million and 0.50% of the purchase price on properties in excess of $200 million). Given the scope of Starlight’s portfolio and plans to vend a large portion of this into True North over the next few years, the © 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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acquisition fees on related party transactions could be quite substantial, again introducing a perceived conflict in the minds of some investors. Corporate Governance, Board of Trustees The True North Board of Trustees currently has seven trustees, including Mr. Veiner and Mr. Drimmer. In aggregate, the trustees own 19.6% of True North’s outstanding units, with Mr. Drimmer owning 18.0% and Mr. Veiner owning 0.1%. Daniel Drimmer – Chairman of the Board of Trustees Daniel Drimmer brings more than 15 years of management experience and a distinctive executive style as the founder and Chairman of the Board of True North REIT. Mr. Drimmer has been involved in excess of $9.0 billion worth of acquisition and financing transactions in residential and commercial real estate. In addition to True North, Mr. Drimmer is the founder, President and Chief Executive Officer of Starlight Investments Ltd. Prior to the formation of Starlight, Mr. Drimmer established TransGlobe Investment Management Ltd. and TransGlobe Property Management Services Ltd. (collectively, “TransGlobe”) in 1995 and was TransGlobe’s President from November 1996 to August 2011. In 2010, Mr. Drimmer was also the sponsor and creator of TransGlobe Apartment Real Estate Investment Trust. Under Mr. Drimmer’s leadership, TransGlobe expanded from its original portfolio of seven properties to approximately 31,000 residential suites and approximately 5 million square feet of gross leasable area of commercial space. Mr. Drimmer obtained a Bachelor of Arts degree from the University of Western Ontario, a Master of Business Administration degree and a Master’s degree in Contemporary European Policy Making from European University in Geneva, Switzerland. Exhibit 11 details compensation at the REIT for the year ending 2012, as well as the primary drivers for executive bonuses and other additional compensation. Exhibit 11: True North’s Management Compensation and Ownership (As at Nov. 15, 2013) Executive Title Compensation Ownership Comp. Drivers (2012Y) Leslie Veiner, C.A. CEO, $217,211 0.109% Unit Price Performance, AFFO Trustee Targets, Acquisition Targets, Balance Sheet Performance Martin Liddell CFO $359,166 0.185% Unit Price Performance, AFFO Targets, Acquisition Targets, Balance Sheet Performance Daniel Drimmer Chairman $17.96% N/A Alon Ossip Trustee $0.858% N/A Michael Knowlton Trustee $0.027% N/A Denim Smith Trustee $0.112% N/A Robert McKee Trustee $0.310% N/A Graham Rosenberg Trustee $0.002% N/A Source: True North Apartment REIT, Capital IQ, Raymond James & Associates

Recent Results 3Q13 Review For the quarter ending September 30, 2013, FFO was $4.6 million ($0.20 per unit) compared to $1.1 million ($0.15 per unit) for the same period in 2012. With a quarterly distribution of $0.17, True North finished 3Q13 with an FFO payout ratio of 86%.

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AFFO for the quarter was $4.2 million ($0.18 per unit) compared to $1.0 million ($0.13 per unit) for 3Q12. True North’s AFFO payout ratio for the quarter was 94%. For nine months to date, FFO was $11.4 million ($0.53 per unit) and AFFO was $10.5 million ($0.48 per unit). The REIT’s FFO and AFFO payout ratios for the nine months were 96% and 107%, respectively. During the quarter, True North disposed of a 57 suite property in Hanover, Ontario for $5.7 million (5.85% cap rate) as well as a 44 suite property in Saanich, British Columbia for $6.9 million (4.43% cap rate).

Capital Structure Overview As typical of newer REITs, True North has maintained a debt-to-gross-book-value (D/GBV) ratio that has tended to be in the upper range of multi-family Canadian REITs. Given current equity pricing, we suspect that management will attempt to fund any future acquisitions using asset sales and debt capital. As a result, we believe True North will continue to be one of the more levered apartment REITs in the near-term. At quarter end, its D/GBV was 56% (based on a 5.77% IFRS cap rate) while its interest coverage was 3.3x and its D/EBITDA was 10.6x. We do note that as its margins improve and cash flows increase, debt metrics should improve organically. Also at quarter end, the REIT had roughly $291 million in mortgages payable at a weighted average interest rate of 2.98%. The REIT also has a credit facility of $25 million, secured by eight properties, on which roughly $4 million is currently drawn. Exhibit 12: True North’s Debt Maturity Schedule 180

6.00%

Maturing Mortgage Balance ($mln)

160

5.00% 140 120

4.00%

100

30%

3.00%

80 2.00%

60 40

1.00%

7% 20

Weighted Average Interest Rate (%)

59%

3%

1%

0.00%

0 2014

2015

2016

Total Mortgages Payable

2017

2018+

W.A. Interest Rate

Source: True North Apartment REIT, Raymond James & Associates

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Forecast Overview NOI Growth and Margin Assumptions We assume that True North should be able to generate 2%–2.5% organic growth given room for margin expansion and current rental increase guidelines. We have forecasted NOI margins of 55% and 56% for 2013 and 2014 respectively, with seasonality in-line with the overall Canadian apartment sector. G&A Assumptions We assume corporate level G&A expenses of 6.0% of revenue over the forecast period. G&A at True North covers legal and audit fees, trustee fees, IR expenses, expenses associated with the REIT’s unit option plan and asset management fees payable to Starlight. Financing Cost Assumptions We assume that True North refinance their 2014 mortgage maturities at an average rate of 3.15%. Capital Expenditure Assumptions We assume $500 per suite of maintenance capex annually at the AFFO line. External Growth Assumptions We assume that True North acquires $100 million of properties in 2014, split fairly evenly each quarter and at a weighted average cap rate of 5.75%. We have not assumed any incremental acquisitions in 4Q13. Capital Issuance Assumptions In order to maintain current leverage levels given the above acquisition forecast, we assume that True North issues $45 million of equity in 1H14.

Valuation Overview Our Current View on NAV and Interest Rates Generally speaking, net asset value is among our preferred valuation metrics despite the shortfalls and subjectivity based on forecasting NOI run rates, cap rates, and capturing any hidden value on the balance sheet. We believe that over time, REITs/REOCs will trade within +/- 20% of their NAVs depending on investor sentiment and where we are in the real estate/interest rate cycle. Over the last six months, since the interest rate driven correction began in May, we believe the market is in a state of uncertainty regarding the eventual timing and magnitude of long-term interest rate increases, as well as the impact on cap rates. Currently, our view on interest rates is over the short-term (3–6 months), they will be flat to down, based on the slowing housing market in the US and overall sluggishness in the Canadian economy. Longer-term, like most, we think rates will eventually work higher, as always timing and magnitude are the questions we can’t answer. To that end, we are focused on names that we believe can generate outsized NAV growth, which will help offset what we expect to be higher cap rates/lower multiples. NAV Analysis Today, our list of 16 REITs/REOCs under coverage carry an average discount of 9% to our estimated NAVs. The universe of 46 Canadian REITs/REOCs that we track is currently trading 8% below

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our/consensus NAV estimates. In our opinion this reflects the uncertainty regarding long-term rates, as well as cap rates and NOI growth. Given this uncertainty, investors must pay particular attention to capital structure, and the impact on NAV sensitivity given that leverage works both to the upside and downside in terms of amplifying equity returns, i.e. higher risk, higher return. Said another way, and quite logically, more highly leveraged entities have higher sensitivity to cap rate changes, in both directions. In the case of True North, we use a 6.0% cap rate for True North’s portfolio which is a blended cap rate based on the different markets in which it operates. The table below details the inputs and weightings for our cap rate calculation. Exhibit 13: Cap Rate Calculation Region Cap Rate % of Suites Alberta 5.75% 1.6% Atlantic Canada 6.25% 21,1% Ontario 5.80% 41.2% Quebec 6.00% 36.1% Total Source: CB Richard Ellis, Raymond James & Associates

Weighted Average 0.1% 1.3% 2.4% 2.2% 6.0%

Exhibit 14: True North’s Net Asset Value Calculation ($mln) Amount Base NOI $30.0 Cap Rate 6.0% Estimated Value of Properties 502.0 +Value of Other Assets 7.4 =Total Assets 509.3 -Net Debt (300.4) =NAV 209.0 Units 23.2 NAV per Unit $9.00 Current Unit Price $8.34 Premium/(Discount) to NAV -7.3% Source: Raymond James & Associates True North’s 7% discount compares to an average NAV discount of 11% for the Canadian apartment REIT sector on average.

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Exhibit 15: True North’s Premium/Discount to Net Asset Value vs. Sector 0%

Prem./Disc. to NAV

-5%

-2.9%

-2.7%

MEQ

NPR

-7.3%

-10%

-8.6%

-9.2% -10.3% -13.3%

-15% -15.2% -17.0%

-20%

-19.2%

-25% MRG

CAR

KMP

MST

RUF

BEI

IIP

TN

Note: RJA estiamtes used for CAR, KMP, BEI ad IIP. Consensus from SNL used for others. Source: SNL Financial, Raymond James & Associates Cap Rate Risk & Sensitivity One of the primary concerns investors have articulated to us in recent months is that cap rates “have to” rise as interest rates increase. While we agree that in general cap rates will follow interest rates to some degree, we also believe that the magnitude of cap rate increases is only one of the factors when contemplating buying REIT/REOC equities. In addition to current income yield and implied cap rates, the ability to grow NOI and offset multiple compression is critical. With that said, we think True North will likely be in the low single-digit growth range from a sameproperty NOI perspective, which in our universe places the REIT toward the lower end of the rankings on that metric. Exhibit 16: True North’s FFO Growth vs. Multi-Family Sector Averages 10% 9%

9%

9%

8% 8%

8%

8%

FFO Growth (YoY)

7% 6% 5% 4% 3%

2%

2% 1% 0% 2013E True North

2014E Canada Multi-Family

US Multi-Family

Source: Raymond James & Associates

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From a downside risk perspective, given leverage, even modest changes to our cap rate assumption can have a sharp impact on NAV. For example, a 25 bps increase in our applied cap rate (4% increase), would reduce our NAV by nearly $1.00/unit, or almost 11%. This compares unfavorably to other apartment names that we cover where the impact of a 25 bps change would range from 7% to 9% depending on leverage. The mathematical analysis is always easy to understand, a more difficult analysis for us is how to handicap a property portfolio from a fundamental perspective. That is, variables that drive “real” cap rates: NOI growth, capex, obsolescence, demographics, geographic viability, the potential for redevelopment or intensification or any other number of variables which to some degree, are subjective. We have toured a large portion of the assets owned by every one of the REITs in our universe. As always, without the benefit of seeing the rent rolls/Argus runs, budgets, engineering reports, etc., it’s basically a best estimate game for an analyst, but in our opinion, the True North portfolio would be ranked in the lower tier of the names we cover. We think the Boardwalk, CAP REIT, InterRent and Killam portfolios would be more attractive to own (at this point in their life cycle) from an institutional perspective. Based on these views, we think there is marginally more cap rate risk in the True North portfolio than there would be in the BEI, CAR or KMP portfolios. Compared to InterRent, it’s a little more difficult for us to handicap, but in our opinion, IIP is likely to deliver 2x–3x the same-property NOI growth that investors will get from the True North portfolio, helping mitigate cap rate risk. AFFO Multiple Comparison From a multiples perspective, units of True North trade at a sizable discount to the multifamily REIT sector. On an AFFO basis, True North units are trading at 12.8x our 2013 AFFO per unit estimate ($0.65) and 11.9x our 2014 AFFO per unit estimate ($0.70). This represents a sizable discount to the rest of the Canadian multi-family REITs, which trade at 17.3x and 15.9x consensus AFFO estimates, respectively. We think this gap will close as the market begins to see the company’s operational push continue to drive rents, margin expansion, and NOI growth, augmented by accretive acquisitions. Exhibit 17: True North’s P/AFFO Multiple vs. Sector 25x 21.7x 19.7x

20x 17.3x 15.9x

15x

P/AFFO

12.8x

11.9x

10x

5x

0x 2013E True North

2014E Canada Multi-Family

US Multi-Family

Source: Raymond James & Associates

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Distribution The REIT pays a monthly distribution of $0.05825 per unit ($0.70 annualized), which equates to a distribution yield of 8.4% and a 582 basis point spread over the 10-year GOC yield, highly attractive from a current and historical “spread” perspective. The current REIT/REOC yield spread is 294 basis points, well below the historical average of 430 basis points over the last 15 years. True North’s current yield is also well in excess of the apartment REITs/REOCs we cover, which pay a 4.7% yield on average. Perhaps more importantly is the safety of the distribution; our belief is that the distribution is well covered given the sound fundamentals in the multi-family market. Our 2014 AFFO payout ratio of 100% is higher than we’d like but not untenable. From a true cash flow perspective, we think the company, post capex, will need to finance $0.20/unit of the distribution, or roughly $5 million on an annual basis, very manageable in our opinion for a nearly $500 million enterprise. We expect occupancy in the portfolio to be steady and improve over time, and barring any significant economic shock, do not foresee sizable risk to the current distribution. In our opinion, the sizable discount to its apartment peers (i.e., lower equity valuation) reflects the company’s small market cap and relative illiquidity, but also a lack of institutional support. In a world with yields still near historical lows, even with a recent 10-year GOC/Treasury increase, we believe that the fact that True North can trade at such a significant discount reflects more than simple size concerns. True North was structured as a yield oriented investment, using stabilized acquisitions and leverage to generate an above average yield, of 7% at IPO. The hope was that the initial dividend yield discount would prove attractive and close, providing better equity “currency” and allow the company to bulk up quickly and continue its spread investment strategy. At this point, our belief is that with most REIT/REOC equity prices challenged, the equity driven, spread investment game is at least on pause. Since May our view has been that investors should focus their capital on REITs/REOCs that are better positioned to generate outsized NOI growth, via internal activity, development or ideally, both. At this point, we believe the company offers a strong income alternative for investors, but a marginally less attractive total return proposition than most of the other apartment REITs we cover, with marginally more cap rate risk. Although our view is that rates will be flat to down in the near-term (3–6 months), we still believe the intermediate and long-term will bring rising rates/multiple compression and we recommend investors focus on companies with outsized internal growth prospects, the best defense to cap rate risk in our opinion.

Conclusion True North units offer an above average, and we believe safe, distribution yield and an attractive discount to NAV. Offsetting these factors is lower same-property NOI growth prospects, we believe more cap rate risk, modestly higher leverage, and an external structure that is generally less attractive to institutions. In addition, the peers all trade at near double digit discount to NAVs. Given these factors and relative valuation, we are initiating at a Market Perform rating.

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Investment Risks Company Specific Risks Dependence and Potential Conflicts of Interest with Starlight As a rule of thumb, we prefer that management be 100% aligned with investors, be employees of the REIT, and incentivized via compensation structures to deliver total return before all else. As such, an external management structure is less ideal than the alternative. More specifically, we are usually fine with external property management agreements, but dislike asset management, capital allocation and/or financing decisions being made by external parties. In the case of True North, the fact that fees are paid based on asset size, acquisition volume, FFO (which can incentivize management to buy higher yielding/lower quality assets) versus total return, all provide the potential for conflicts at worst, and at best, poor optics. In an attempt to mitigate this, Daniel Drimmer, has tried to align himself with shareholders via a high percentage of ownership of the REIT, which we expect will fluctuate between 15%–20% as Starlight assets are vended in. In the case of True North, investors have to make a decision as to whether they can live with what we would characterize as a sub optimal structure for the ability to participate in what should be extremely rapid asset growth, and if capital is allocated well, cash flow, distribution and NAV growth as well. Furthermore, the REIT is dependent upon Starlight for operational and administrative services relating to the REIT’s business. Should Starlight terminate the Management Services Agreement, the REIT may be required to engage the services of an external asset manager. The REIT may be unable to engage an asset manager on acceptable terms, in which case the REIT’s operations and cash available for distribution may be adversely affected. Cap Rate Risk As is the case with all real estate companies, there exists the potential for cap rates to rise, adversely affecting valuations. We believe this to be more likely today, given where we are in the real estate cycle, with cap rates at all-time lows. While mitigated by internal cash flow growth, companies will higher leverage, as is the case with True North, will feel a greater impact than peers. Condo Market Risk From a risk perspective, should the condominium market continue to cool, it may lend to a temporary dip in apartment occupancy as a small segment of condo owners offer drastic reductions in rent to cover a portion of their costs. However, our opinion remains that this product is at a different price point than the product found in publicly traded REIT portfolios and so any occupancy disruption would be minimal and short lived. Industry Specific Risks Economic Risk An extended downturn in the national economy could negatively affect consumers' disposable income and spending patterns, job growth, travel expenditures, interest rates, and subsequently, the stock price of REITs in any sector. In addition, fluctuations in certain local or regional markets throughout the country could impact key properties in a REIT's portfolio, which could be located anywhere in the nation geographically. In a depressed economic environment, access to equity capital may also be restricted or costly, to the point of becoming impractical. It is important to note that the performance of the real estate industry in general typically trails that of the national economy. Interest Rate Risk The REIT industry has historically been negatively correlated with changes in interest rates. In addition, many REITs are exposed to variable interest rates, which could lead to increased interest expense during times of rising interest rates and could ultimately impair net income. Certain parts of a REIT's business may be dependent upon achieving a spread between its cost of financing and the yield achieved on

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acquisitions. In an environment with high or rising interest rates, a REIT's ability to attain this spread may be diminished. Capital Markets Risk Access to the capital markets is crucial to the growth prospects of any company and REITs are no exception. If the ability to execute deals involving the issuance of debt or equity securities becomes impaired, the end result could be minimal or no growth for the companies. The loss of capital market access could be caused by a level of financial leverage through mortgage financing of properties that is too high, an increased tenant credit risk, or any other factor that might be seen to significantly impede REIT operations. Regulatory Risk The real estate industry is subject to extensive and complex regulations. The provinces of British Columbia, Manitoba, and Ontario are subject to rent control legislation which limits the annual rent increases apartment operators can impose on tenants. These guidelines change on an annual basis, often quite substantially. Furthermore, there is discussion surrounding imposing such rent increases restrictions in other provinces. There is a risk that unforeseen future regulations may adversely affect a company's development schedule, net income, or competitive position. REITs also enjoy the benefit of tax exemption at the corporate level on certain parts of income; any regulatory change to this status may make REIT units relatively less attractive and impact demand for units. Tenant Credit Risk Any REIT may have significant tenant risk, related to the credit-worthiness and/or concentration of tenants in the portfolio. Any negative change to a tenant may negatively affect a REIT's revenue, profits, and subsequently, the stock price.

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Appendix A: Forecasted Financial Statements Exhibit 18: True North’s Income Statement Income Statement ($000s) Renta l Revenue Property Opera ti ng Cos ts Rea l ty Ta xes Trus t Expens es Fa i r Va l ue Adjus tment of Inves tment Properti es

Fi na nce Income Fi na nce Cos ts Fi na nce Cos ts - Di s tri buti ons on Cl a s B LP Uni ts Fi na nce Cos ts - Fa i r Va l ue Adjus tments Fi na nce Cos ts - Ga ins Net Income (Loss)

2012A 11,678

2013E 50,374

2014E 61,606

3,533 1,227 2,560 3,371 10,691

16,651 5,958 3,225 (26,500) (666)

19,522 7,286 3,378 30,186

50 (2,053) (854) (13,825) (15,695)

58 (9,260) (2,192) 5,954 2,629 48,228

40 (11,084) 20,377

Source: True North Apartment REIT, Raymond James & Associates Exhibit 19: True North’s Funds from Operations and Adjusted Funds from Operations Funds from Operations ($000s) Net Income (Loss) Trust Expense Fair Value Adjustment of Investment Properties Finance Costs Funds From Operations FFO per Unit FFO Payout Ratio

2012A (14,854) 496 3,371 14,679 3,692 $

Adjusted Funds from Operations ($000s) Funds from Operations Sustaining Capital Expenditures Other Charges Adjusted Funds From Operations AFFO per Unit AFFO Payout Ratio

0.13 $ 83% 2012A 3,692 (683) 367 3,376

$

0.11 $ 91%

2013E 48,228 440 (26,500) (6,314) 15,854 0.72 $ 98% 2013E 15,854 (2,815) 1,312 14,351 0.65 $ 107%

2014E 20,377 732 21,109 0.78 90% 2014E 21,109 (3,385) 1,387 19,111 0.70 100%

Source: True North Apartment REIT, Raymond James & Associates

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Exhibit 20: True North’s Balance Sheet Balance Sheet ($000s) Assets Investment Properties Instalment Notes Receivable Deposits Tenant and Other Receivables Prepaids and Other Assets Restricted Cash Cash and Cash Equivalents Total Assets

2012A

2013E

2014E

294,148 231 1,400 1,725 487 2,157 300,148

534,942 1,998 536 2,466 1,807 2,546 145 544,440

634,942 2,998 536 2,466 1,807 2,546 657 645,952

Liabilities Mortgages Payable Class B LP Units Revolving Credit Facility Tenant Rental Deposits Accounts Payable and Accrued Liabilities Finance Costs Payable Distributions Payable Total Liabilties

174,882 29,326 1,184 7,017 582 700 213,691

311,421 36,525 3,900 2,687 7,431 781 1,081 363,826

384,928 36,525 3,900 2,687 7,431 781 1,081 437,333

Unitholders' Equity Total Liabilities & Unitholders' Equity

86,457 300,148

180,613 544,440

208,619 645,952

2012A

2013E

2014E

(15,695) 16,682 3,883 3,263 8,133

48,354 406 (26,310) (902) 21,548

20,377 9,294 (11,581) 18,090

(135,108) (2,454) (487) (138,049)

(89,949) 5,658 (11,994) (2,059) (98,344)

(100,000) (8,000) (108,000)

107,852 32,355 (1,301) (4,242) (2,591) 132,073

59,332 3,900 34,923 (4,276) (7,172) (11,923) 74,784

41,040 73,507 (7,000) (17,124) 90,422

2,157 2,157

(2,012) 2,157 145

512 145 657

Source: True North Apartment REIT, Raymond James & Associates Exhibit 21: True North’s Cash Flow Statement Cash Flow Statement ($000s) Operating Activities Net Income (Los s ) Fi na nce Cos ts - Net Other Cha rges Cha nge i n Non-Ca s h Opera ti ng Worki ng Ca pi ta l Net Cash Provided by Operating Activities Investing Activities Acqui s i ti on of Inves tment Properti es Proceeds from Sa l e of Inves tment Properti es Addi ti ons to Inves tment Properti es Cha nge i n Res tri cted Ca s h Net Cash Provided by Investing Activities Financing Activities Proceeds from Is s ua nce of Units Credi t Fa ci l i ty - Proceeds a nd Repa yments Mortga ges Pa ya bl e - Proceeds a nd Di s cha rges Mortga ges Pa ya bl e - Pri nci pa l Pa yments Other Cha rges Di s tri buti ons to Uni thol ders Net Cash Provided by Financing Activities Change in Cash - Continuing Operations Ca s h, Begi nni ng of Peri od Cash at End of Period

Source: Raymond James & Associates

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Appendix B: External Management Agreement External Management Agreement The REIT is externally managed by Starlight, a company affiliated with Mr. Drimmer. However, the management team is employed directly by the REIT. Property management services are provided by a network of ‘best-in-class’ local property management companies. As part of the asset management agreement, Starlight is to provide the REIT with the following: • • • • • • • • •

Advise on strategic matters, including potential acquisitions, dispositions, financings, development, re-development, repositioning of assets and value maximization; Identify, evaluate, recommend and assist in the structuring and negotiating of acquisitions and dispositions; Appoint property manager(s) to the REIT for each of the properties; Make recommendations concerning the raising of funds by way of debt, equity or otherwise as well as arrange for the financing, refinancing or restructuring of the properties; Make recommendations regarding the payment of distributions; Provide office space, equipment, supplies and administrative, clerical and secretarial support services; Manage regulatory compliance and financial reporting requirements; Assist with investor relations; and, Other duties as reasonably necessary.

The asset management agreement is for a term of ten years and is renewable for further five year terms, unless terminated. If not terminated, Starlight will automatically be rehired at the expiration of each term. Starlight is able to terminate the agreement, at any time, upon 180 days’ notice subsequent to the initial ten year period. True North can terminate the agreement in the event of default or insolvency of Starlight or at the end of the renewal term if the independent trustees determine Starlight has not been meeting its obligations. Such a termination is approved by at least two-thirds of the votes cast by Unitholders and requires 12 months’ prior written notice. Asset Management Fees Base Fee: 0.35% of the historical purchase price of the properties plus any capital expenditures. Performance Fee: 15% of FFO per Unit (above certain run rate) plus 50% of the increase in the weighted average CPI (above the previous year’s FFO). Capital Expenditures Fee: 5% of all hard construction costs (in excess of $1 million, excluding work done on behalf of tenants or any maintenance capex). Acquisition Fee: 1% of the purchase price of a property, on the first $100 million, 0.75% of the purchase price of a property on the next $100 million and 0.50% of the purchase price on properties in excess of $200 million. In addition, the REIT will reimburse Starlight for all reasonable and necessary actual out-of-pocket costs and expenses incurred by Starlight in connection with the performance of the services described in the asset management agreement. At this time, there is no plan for internalization of the management structure.

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Appendix C: Pictures of Select True North Properties 68 Hillside - Toronto

836 Talwood – Peterborough

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True North Apartment REIT

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190 Nonquon - Oshawa

380 Gibb - Oshawa

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True North Apartment REIT

444 Victoria – Guelph

739 Birchmount - Toronto

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True North Apartment REIT

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909 Clonsilla - Peterborough

Source: True North Apartment REIT

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Appendix D: Multi-Family Valuation Table Ticker Boardwalk REIT BEI.UN CAP REIT CAR.UN InterRent REIT IIP.UN Killam Properties KMP Mainstreet Equity MEQ Milestone Apartment REIT MST.UN Morguard N.A. REIT MRG.UN Northern Property REIT NPR.UN Pure Multi-Family REIT RUF.U True North Apartment REIT TN.UN Group Average

Price Target 29-Nov Rating Price $ 59.15 SB1 $ 65.00 $ 20.50 OP2 $ 23.50 $ 5.51 SB1 $ 6.50 $ 10.69 OP2 $ 12.00 $ 34.50 NC NC $ 9.62 NC NC $ 9.52 NC NC $ 28.06 NC NC $ 4.51 NC NC $ 8.34 MP3 NA

FFO/Unit 12A 13E 14E 2.87 3.21 3.37 1.46 1.57 1.63 0.30 0.36 0.41 0.71 0.72 0.81 1.18 1.75 2.09 NA 0.88 1.04 0.33 0.72 0.81 2.26 2.26 2.47 0.12 0.38 0.48 0.14 0.31 0.33

AFFO/Unit 12A 13E 14E 2.57 2.89 3.05 1.34 1.42 1.48 0.26 0.32 0.36 0.60 0.61 0.69 1.26 1.43 1.79 NA 0.69 0.80 0.47 0.65 0.77 1.84 1.93 2.14 0.11 0.33 0.41 0.13 0.65 0.70

FFO Multiples 12A 13E 14E 20.6x 18.4x 17.5x 14.0x 13.1x 12.6x 18.2x 15.2x 13.6x 15.0x 14.9x 13.3x 29.2x 19.8x 16.5x NA 11.0x 9.3x 28.8x 13.2x 11.8x 12.4x 12.4x 11.4x 37.6x 11.7x 9.4x 59.6x 26.9x 25.3x 18.1x 15.6x 14.5x

AFFO Multiples 12A 13E 14E 23.0x 20.4x 19.4x 15.3x 14.4x 13.8x 20.8x 17.5x 15.2x 17.9x 17.6x 15.4x 27.4x 24.1x 19.3x NA 13.9x 12.0x 20.3x 14.7x 12.4x 15.3x 14.5x 13.1x 41.0x 13.8x 10.9x 64.2x 12.8x 11.9x 19.7x 17.3x 15.9x

NAV Est. $ 65.14 $ 24.70 $ 6.03 $ 12.60 $ 35.52 $ 11.09 $ 11.78 $ 28.85 $ 5.03 $ 9.00

Prem./ Disc. Implied to NAV Cap. -9.2% 5.6% -17.0% 5.9% -8.6% 6.0% -15.2% 6.5% -2.9% 5.8% -13.3% 5.8% -19.2% 6.4% -2.7% 7.1% -10.3% 6.0% -7.3% 6.2% -11.2% 6.0%

Note: Bolded companies indicate current Raymond James & Associates coverage. Non-covered estimates are based on consensus from SNL. Source: Raymond James & Associates, SNL Financial

Company Citations Company Name Artis REIT

Ticker AX.UN

Exchange TSX

Boardwalk REIT

BEI.UN

TSX

Calloway REIT

CWT.UN

TSX

Canadian Apartment Properties REIT

CAR.UN

TSX

CSH.UN.T IIP.UN

TSX

Killam Properties Inc.

KMP

TSX

Leisureworld Senior Care Corp.

LW

TSX

Pure Industrial Real Estate Trust

AAR.UN

TSX

RioCan REIT

REI.UN

TSX

Chartwell Seniors Housing REIT InterRent REIT

Tyco International Ltd.

TYC

Currency Closing Price RJ Rating RJ Entity C$ 14.33 3 RJ & Associates C$ 58.46 1 RJ & Associates C$ 24.83 2 RJ & Associates C$ 20.50 2 RJ & Associates NC C$ 5.69 1 RJ & Associates C$ 10.49 2 RJ & Associates C$ 11.52 2 RJ & Associates C$ 4.41 3 RJ & Associates C$ 24.20 2 RJ & Associates NC

Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.

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Important Investor Disclosures Raymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in the United States. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, FL 33716, (727) 567-1000. Non-U.S. affiliates, which are not FINRA member firms, include the following entities which are responsible for the creation and distribution of research in their respective areas; In Canada, Raymond James Ltd. (RJL), Suite 2100, 925 West Georgia Street, Vancouver, BC V6C 3L2, (604) 659-8200; In Latin America, Raymond James Latin America (RJLatAm), Ruta 8, km 17, 500, 91600 Montevideo, Uruguay, 00598 2 518 2033; In Europe, Raymond James Euro Equities, SAS (RJEE), 40, rue La Boetie, 75008, Paris, France, +33 1 45 61 64 90. This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Investors should consider this report as only a single factor in making their investment decision. For clients in the United States: Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask your Financial Advisor for additional details and to determine if a particular security is eligible for solicitation in your state. The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. Persons within the Raymond James family of companies may have information that is not available to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute transactions in the securities listed in this publication that may not be consistent with the ratings appearing in this publication. Additional information is available on request.

Analyst Information Registration of Non-U.S. Analysts: The analysts listed on the front of this report who are not employees of Raymond James & Associates, Inc., are not registered/qualified as research analysts under FINRA rules, are not associated persons of Raymond James & Associates, Inc., and are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public companies, and trading securities held by a research analyst account. Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Ratings and Definitions Raymond James & Associates (U.S.) definitions

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Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James Ltd. (Canada) definitions Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Raymond James Latin American rating definitions Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James Euro Equities, SAS rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon. In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments. Rating Distributions Coverage Universe Rating Distribution

Investment Banking Distribution

RJA

RJL

RJ LatAm

RJEE

RJA

RJL

RJ LatAm

RJEE

Strong Buy and Outperform (Buy)

50%

61%

43%

44%

24%

39%

0%

0%

Market Perform (Hold)

44%

38%

57%

36%

8%

20%

0%

0%

Underperform (Sell)

7%

1%

0%

20%

1%

0%

0%

0%

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Suitability Categories (SR) Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small dividend, and the potential for long-term price appreciation. Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.

Raymond James Relationship Disclosures Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months. Company Name

Disclosure

Artis REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Artis REIT. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Artis REIT. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Artis REIT. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Artis REIT. Raymond James Ltd. makes a market in the securities of Artis REIT. Raymond James Ltd. or an affiliate received non-securities related compensation from Artis REIT within the past 12 months.

Boardwalk REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Boardwalk REIT.

Calloway REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Calloway REIT.

Canadian Apartment Properties REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Canadian Apartment Properties REIT. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Canadian Apartment Properties REIT. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Canadian Apartment Properties REIT. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Canadian Apartment Properties REIT.

InterRent REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of InterRent REIT. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to InterRent REIT. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to InterRent REIT. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to InterRent REIT.

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Company Name

Disclosure

Killam Properties Inc.

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Killam Properties Inc. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Killam Properties Inc.

Leisureworld Senior Care Corp.

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Leisureworld Senior Care Corp. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Leisureworld Senior Care Corp. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Leisureworld Senior Care Corp. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Leisureworld Senior Care Corp.

Pure Industrial Real Estate Trust

Raymond James Ltd - the analyst and/or associate has viewed the material operations of Pure Industrial Real Estate Trust. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Pure Industrial Real Estate Trust. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Pure Industrial Real Estate Trust. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Pure Industrial Real Estate Trust.

RioCan REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of RioCan REIT. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to RioCan REIT. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to RioCan REIT. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to RioCan REIT. Raymond James Ltd. or an affiliate received non-securities related compensation from RioCan REIT within the past 12 months.

True North Apartment REIT

Raymond James Ltd - the analyst and/or associate has viewed the material operations of True North Apartment REIT. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to True North Apartment REIT. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to True North Apartment REIT. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to True North Apartment REIT.

Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have target prices and thus valuation methodologies. Target Prices: The information below indicates our target price and rating changes for TN.UN stock over the past three years. Valuation Methodology: To do

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Risk Factors General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. Specific Investment Risks Related to the Industry or Issuer True North Apartment REIT To do

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at rjcapitalmarkets.com/Disclosures/index. Copies of research or Raymond James’ summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000, toll free 800237-5643 or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716. For clients in the United Kingdom: For clients of Raymond James & Associates (London Branch) and Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and is not intended for use by clients. For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of interest management. RJA, RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct Authority in the United Kingdom. For clients in France: This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monétaire et Financier” and Règlement Général de l’Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted. Raymond James International and Raymond James Euro Equities are authorized by the Autorité de contrôle prudentiel et de résolution in France and regulated by the Autorité de contrôle prudentiel et de résolution and the Autorité des Marchés Financiers. For Canadian clients:

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True North Apartment REIT

This report is not prepared subject to Canadian disclosure requirements, unless a Canadian analyst has contributed to the content of the report. In the case where there is Canadian analyst contribution, the report meets all applicable IIROC disclosure requirements. Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client releasable research

This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and criminal penalties for copyright infringement.

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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

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© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863