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Choice Properties REIT - Q2-2020 Earnings, Price Target Update

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Choice Properties REIT (CHP.UN) portfolio consists of 724 properties including 18 properties in development, totaling 65.6M sq. ft. with a fair value of $15.2B as at Jun-30-2020. This is a decrease from 753 properties comprising 63.8M sq. ft. at Dec-31-2018 with a fair value of $15.5B. The decrease was from sale of 30 shopping centre properties during Q3-2019 that were previously acquired from Loblaws (L-TSX). George Weston Group (WN-TSX) who controls Loblaw's owns approximately 63% of Choice Properties REIT. In May-2018 Choice Properties REIT merged with Canadian Real Estate Investment Trust (REF.UN), increasing the number of properties from 540 to 751 and total assets from $9.9B to $15.6B. This transformed Choice Properties REIT from a shopping centre focused REIT to a diversified portfolio holding office, industrial and residential development properties. By net operating income shopping centres contribute 78%, industrial 15% and office properties 7%. The residential portfolio is a recent addition to the Choice Properties asset mix that includes densifying existing retail sites with residential buildings. The residential properties are located in Canada's largest cities and include both newly developed purpose built rental buildings and residential- focused mixed use communities, many of which are in close proximity to public transportation. Total budgeted development for the portfolio is approximately $1B of which $450M has been spent with $450M to complete over the next three years.

Choice Properties has further growth potential across the expanded portfolio with greenfield, intensification, redevelopment and residential opportunities. The portfolio comprised of retail properties, predominately leased to necessity-based tenants, industrial, office and residential assets concentrated in major markets. The strategic alliance with its principal tenant, Loblaw who are controlled by George Weston (WN) aligns the interests of the major shareholder with Choice Properties REIT.

Choice Properties' portfolio includes 576 retail properties, 112 industrial properties, 15 office complexes, 4 multi-family residential buildings and 18 development properties. The retail properties are made up of: (i) 280 properties with a stand-alone Loblaw-bannered retail store; (ii) 233 properties anchored by a retail store operating under a Loblaw banner that also contains one or more third-party tenants; and (iii) 63 properties containing only third-party tenants. Approximately 72% of base rent is derived from properties in large and medium urban markets and 57% from large urban markets, with a particular concentration in Ontario at 40% of net operating income, Alberta – 20%, Qubec-14%, BC-11%, Atlantic Canada 10% and the balance in Manitoba and Saskatchewan.

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