NICOLA US REAL ESTATE LP 2019 ANNUAL REPORT NICOLA US REAL ESTATE LP is an investment portfolio comprised of industrial, office and retail properties located in Seattle, Denver, San Francisco, Phoenix, Houston, Chicago and Las Vegas, and in over 16,000 multi-family apartment units located in the South and Southeast U.S., offered to clients of Nicola Wealth. www.nicolawealth.com NICOLA US REAL ESTATE LP | Annual Report 2019 2019 HIGHLIGHTS DEAR INVESTOR, We are pleased to present our Annual Report for Nicola US Real Estate LP RETURN (NUSRELP) for 2019. This comprehensive report outlines a clear picture of both (Net of Fees) the current financial position and the results for the year. All amounts noted in 13.0% this report are in US dollars. NUSRELP generated a return of 13.0% (2018 11.4%) to investors after fees in 2019, another strong result in a competitive investing environment in the U.S. This ASSETS UNDER return is comprised of an Income Return of 5.2% (2018 6.1%) and a Capital Return MANAGEMENT of 7.8% (2018 5.3%). We have a long term investment horizon in the U.S. and will $1,785.0m continue to focus on cash flow to generate returns. We invested in capital expenditure projects on various assets to secure quality tenants. NET ASSET VALUE We acquired 17 properties during the year, which has an up front impact on $801.4m returns; however, we are confident these assets will be accretive to the portfolio over the medium to long term. NET ASSET VALUE Real estate is a long term investment and our historic performance with the PER UNIT portfolio has generated 11.2% since inception in 2010, and $100,000 invested since then is now worth $277,186. $161.22 (Class O & N-O) Net Asset Value (NAV) per unit for Class O increased to $161.22 at December 31, $161.01 (Class A & N-A) 2019, up from $151.79 a year ago, which equates to a 6.2% increase. In addition, Distributions of $9.11 (2018 $8.67) were paid during 2019, 6% of the prior year NAV. REVENUE Assets Under Management (AUM) increased to $1,785 million from $1,455 million during 2019, a 23% increase, and NAV increased to $801 million from $686 $152.5m million in 2018, a 17% year over year increase. We have assembled an experienced and talented Asset Management team with NET INCOME an institutional grade technology platform to ensure the portfolio is managed to the highest standard. Senior Management invests their own equity into all $89.9m the real estate products and have a “hands-on” approach on all major decisions, ensuring the properties are well-leased, professionally managed and the portfolio is focused on generating strong long-term income returns. OBJECTIVE & STRATEGY Our objective is to provide clients of Nicola Wealth access to long term ASSETS UNDER MANAGEMENT investments in real estate throughout the USA. Returns are generated from rental ASSETS($ millions UNDER atMANAGEMENT year end) ($ millions at year end) income, capital appreciation and historically stable distributions primarily from 2,000 $1,785 net operating income. 1,800 1,600 $1,455 Our strategy is to invest in stabilized income producing properties with a long 1,400 $1,244 term investment horizon. This includes a limited amount of “build to own” 1,200 $1,055 developed properties. The portfolio is diversified by asset type (industrial, office, 1,000 $879 800 retail and multi-family) and geographic locations across the USA. 600 $544 400 $349 200 - 2013 2014 2015 2016 2017 2018 2019 3 NICOLA US REAL ESTATE LP | Annual Report 2019 PORTFOLIO HIGHLIGHTS PORTFOLIO OCCUPANCY 1,600,000 BY SF In 2019, we started with 75 properties valued at $1,347 million. During the year, we 1,500,000 7,000,000 acquired 17 properties, including 9 commercial properties and interests in 8 multi- 1,400,000 6,000,000 1,250,000 95% 94% family properties: 1,200,000 5,000,000 • Deer Valley, Phoenix, AZ • Riverbend Apartments, League 1,000,000City, 1,000,000 TX • Preserve at Baywood Phase I, 800,000 4,000,000 Pasadena, TX • 101 University, Denver, CO 750,000 600,000 3,000,000 • Preserve at Baywood Phase II, • Gateway Corporate Center, Seattle, 95% Pasadena, TX WA (4 buildings) 500,000 400,000 2,000,000 • San Palmilla, Webster, TX • LV Industrial Portfolio - The Park at 93% 200,000 250,000 • Riverbend Martketplace, Fort Arville, Las Vegas, NV 1,000,000 Lauderdale, FL • LV Industrial Portfolio - Valley View - Business Park, Las Vegas, NV Industrial -Retail Office Seniors Self - • Riverbend Marketplace Outparcels, Office Industrial Retail Multi-Storage Fort Lauderdale, FL • LV Industrial Portfolio - Valley View family • Bradford Mill, Lousville, KY Commerce Center, Las Vegas, NV Occupied Unoccupied • Redmond West, 9511-9521 Willows • Clearwater Farm, Louisville, KY Road, Redmond, WA • Encore Grand Mission, Houston, TX • Northbridge at Mellenia Lake, GROSS ASSET VALUE Orlando, FL BY TYPE In addition we sold the following 7 properties: Other Industrial Retail 6% 6% • Maynard Building, Seattle, WA • Calais Park, St. Petersburg, FL 5% • Quilt Building, Seattle, WA • Champion Woods, Houston, TX • Riverbend Marketplace Outparcels, • Park 9, Orlando, FL Fort Lauderdale, FL • Park at Waterford, Kemah, TX Office 25% We ended the year with 85 properties valued at $1,691 million. Multi- Each quarter we submit our property performance data to MSCI (formerly Family IPD), the world’s leading independent real estate benchmarking service. As you 58% will see in the graph on page 8, we consistently outperform the benchmark on Income Return - we believe this strategy will produce positive returns. STRATEGIC OUTLOOK GROSS ASSET VALUE The U.S. real estate market is significantly larger than the Canadian market, it has BY LOCATION more depth and investment opportunities to choose from and therefore offers Arizona more potential for growth. We continue to look for investments in major markets California Other 2% 3% in the Western U.S., including Seattle, Houston, Denver, Las Vegas and Phoenix, as 12% Florida well as looking to expand into other major cities such as Portland and Los Angeles. 12% Washington We will continue to expand our multi-family portfolio along with our partner, 17% Georgia Venterra, who focuses on the South and Southeast United States. Venterra provides 13% superior returns supported by thorough research of markets and excellent customer service, identifying properties where value can be added through redevelopment Nevada Illinois or improvement of existing assets. Our portfolio is performing well and we remain 2% 2% positive on the long-term economic outlook in the U.S. Texas If you have any further questions please contact your advisor at Nicola Wealth. 37% Mark Hannah Managing Director Nicola US Real Estate LP 4 4 NICOLA US REAL ESTATE LP | Annual Report 2019 MANAGEMENT’S REPORT ON PARTNERSHIP PERFORMANCE TOTAL RETURN For the year ended December 31, 2019, the partnership generated a return of 13.0% (2018 11.4%) for Class O, net of fees and expenses. The table below shows the 1, 3, 5 year and since inception returns (Class O). PINNACLE PEAK COMMERCE CENTRE, Since Inception 1 Year 3 Year 5 Year Phoenix, AZ (June 2010) Total Returns 13.0% 11.3% 12.1% 11.2% The chart below shows the annual historical returns for Class O, by year, for Nicola US Real Estate LP: RETURNS 11.2% since 16.00% inception 13.60% 13.70% 14.00% 12.78% 13.00% 12.00% 11.40% 11.19% 11.40% 9.70% 10.00% 8.08% 8.00% 6.00% VININGS 4.00% 2.95% Stafford, TX 2.00% 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NUSRELP was launched in June 2010, and the chart below shows the value of $100,000 invested since inception through December 2019 (assuming all distributions were reinvested). Since that date, the value has increased to $277,186 for Class O units. $100,000 INVESTED SINCE INCEPTION $300,000 $277,186 $280,000 $260,000 $240,000 WESTOVER OAKS $220,000 San Antonio, TX $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 144/156 SECOND STREET San Francisco, CA 5 NICOLA US REAL ESTATE LP | Annual Report 2019 FINANCIAL HIGHLIGHTS YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 $ (MILLION) $ (MILLION) Property Revenue 152.0 129.3 Other Revenue 0.4 0.0 Total Revenue 152.4 129.3 Operating Expenses 73.5 57.9 REEDO BUILDING Mortgage Interest 30.5 25.5 Seattle, WA Management Fees 7.4 6.3 General Admin 0.4 0.3 Total Expenses 111.8 90.0 Income for the year before 40.6 39.3 undernoted items Fair value adjustments 60.8 40.2 including gains and losses on sale of rental properties Incentive Fee Expense (11.5) (10.9) Net Income for the Year 89.9 68.6 ONE O’HARE Rosemont, IL AS AT AS AT DECEMBER 31, 2019 DECEMBER 31, 2018 $ (MILLION) $ (MILLION) Rental Properties 1,690.6 1,346.6 Other Assets 94.4 108.1 Total Assets 1,785.0 1,454.7 Mortgages and Loan payables 895.4 699.0 Other Liabilities 88.2 69.7 Total Liabilities 983.6 768.7 NET ASSET VALUE 801.4 686.0 MERCER POINTE Bellevue, WA WESTGATE I Houston, TX 6 NICOLA US REAL ESTATE LP | Annual Report 2019 NAV PER UNIT (CLASS O) CHANGE IN NET ASSET VALUE (NAV) (at year end) $161.22 Effective January 2019, Units were reclassed into 4 classes (Class O, N-O, A and $151.79 $139.80 $144.50 $130.30 N-A).