Pioneer Property Group ASA

Investor Presentation • Jan 21, 2016

Pioneer Public Properties ASA

Investor Presentation, Pareto Securities Nordic Bond Conference

January 2016

Disclaimer and important notice

THIS COMPANY PRESENTATION (THE "PRESENTATION) HAS BEEN PRODUCED BY PIONEER PROPERTY GROUP ASA (THE "COMPANY"), SOLELY FOR INFORMATION PURPOSES TO SELECTED PERSONS. NOTHING IN THIS PRESENTATION SHALL BE CONSIDERED OR DEEMED TO CONSTITUTE AN OFFER OR AN INCITEMENT TO INVEST IN THE COMPANY.

THE INFORMATION CONTAINED IN THIS PRESENTATION HAS NOT BEEN INDEPENDENTLY VERIFIED. NO REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED) IS MADE AS TO THE ACCURACY OR COMPLETENESS OF ANY INFORMATION CONTAINED HEREIN, AND IT SHOULD NOT BE RELIED UPON AS SUCH. NO SHARES OR OTHER SECURITIES ARE BEING OFFERED PURSUANT TO THIS PRESENTATION. THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER TO SELL OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER OR INVITATION FOR THE SALE OR SUBSCRIPTION OF, OR A SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR, ANY SHARES OR OTHER SECURITIES IN ANY JURISDICTION, NOR SHALL IT OR ANY PART OF IT OR THE FACT OF ITS DISTRIBUTION FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY OFFER, CONTRACT, COMMITMENT OR INVESTMENT DECISION RELATING THERETO, NOR DOES IT CONSTITUTE A RECOMMENDATION REGARDING THE SECURITIES OF THE COMPANY. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY PREFERENCE SHARES OR OTHER SECURITIES REFERRED TO IN THIS PRESENTATION, EXCEPT ON THE BASIS OF INFORMATION, AND SUBJECT TO THE CONDITIONS SET FORTH, IN THE PROSPECTUS TO BE PREPARED IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS DESCRIBED HEREIN.

NONE OF THE COMPANY OR THE MANAGERS OR ANY SUCH PERSON'S DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS OR REPRESENTATIVES (COLLECTIVELY THE "REPRESENTATIVES") SHALL HAVE ANY LIABILITY WHATSOEVER ARISING DIRECTLY OR INDIRECTLY FROM THE USE OF THIS PRESENTATION OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION WITH THE PRESENTATION. BY ATTENDING A MEETING WHERE THIS PRESENTATION IS MADE, OR BY READING THE PRESENTATION SLIDES, YOU ACKNOWLEDGE THAT YOU WILL BE SOLELY RESPONSIBLE FOR YOUR OWN ASSESSMENT OF THE MARKET AND THE MARKET POSITION OF THE COMPANY AND THE PREFERENCE SHARES AND THAT YOU WILL CONDUCT YOUR OWN ANALYSIS AND BE SOLELY RESPONSIBLE FOR FORMING YOUR OWN VIEW OF THE POTENTIAL FUTURE PERFORMANCE OF THE COMPANY, ITS BUSINESS AND ITS SHARES AND OTHER SECURITIES. THE CONTENT OF THIS PRESENTATION ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS, INVESTMENT OR TAX ADVICE. EACH RECIPIENT SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, INVESTMENT AND TAX ADVISERS TO LEGAL, BUSINESS, INVESTMENT AND TAX ADVICE.

AN INVESTMENT IN THE PREFERENCE SHARES INVOLVES RISKS, AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION, INCLUDING AMONG OTHERS, RISKS OR UNCERTAINTIES ASSOCIATED WITH THE COMPANY'S BUSINESS; DEVELOPMENT INCLUDING CHANGES IN PUBLIC PLANNING REGULATIONS IMPACTING ON THE USE OF THE PROPERTIES AS PRESCHOOLS; GROWTH MANAGEMENT; FINANCING; RELATIONS AND CONTRACTUAL ARRANGEMENTS WITH NORLANDIA CARE GROUP ("NCG") ,THE ESPIRA GROUP ("ESPIRA") OR OTHER KINDERKARTEN OPERATORS AND THE FINANCIAL DEVELOPMENT OF SUCH PARTIES; AND, MORE GENERALLY, GENERAL ECONOMIC AND BUSINESS CONDITIONS; CHANGES IN DOMESTIC AND FOREIGN LAWS AND REGULATIONS, INCLUDING PUBLIC PRESCHOOLS SUBSIDY REGIME; TAXES; CHANGES IN COMPETITION AND PRICING ENVIRONMENTS; FLUCTUATIONS IN INTEREST RATES AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALISE; OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT; ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS PRESENTATION. PLEASE READ THE FOLLOWING SECTION FOR SOME OF THE FACTORS INVESTORS SHOULD CAREFULLY CONSIDER BEFORE INVESTING IN THE COMPANY.

THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS RELATING TO THE BUSINESS, FINANCIAL PERFORMANCE AND RESULTS OF THE COMPANY AND THE INDUSTRY IN WHICH IT OPERATES. FORWARD-LOOKING STATEMENTS CONCERN FUTURE CIRCUMSTANCES AND RESULTS AND OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS, SOMETIMES IDENTIFIED BY THE WORDS "BELIEVES", "EXPECTS", "PREDICTS", "INTENDS", "PROJECTS", "PLANS", "ESTIMATES", "AIMS", "FORESEES", "ANTICIPATES", "TARGETS", AND SIMILAR EXPRESSIONS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESENTATION, INCLUDING ASSUMPTIONS, OPINIONS AND VIEWS OF THE COMPANY OR CITED FROM THIRD PARTY SOURCES ARE SOLELY OPINIONS AND FORECASTS AND ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL EVENTS TO DIFFER MATERIALLY FROM ANY ANTICIPATED DEVELOPMENT. NONE OF THE COMPANY OR THE MANAGERS OR ANY OF THEIR REPRESENTATIVES PROVIDE ANY ASSURANCE THAT THE ASSUMPTIONS UNDERLYING SUCH FORWARD-LOOKING STATEMENTS ARE FREE FROM ERRORS NOR DOES ANY OF THEM ACCEPT ANY RESPONSIBILITY FOR THE FUTURE ACCURACY OF THE OPINIONS EXPRESSED IN THIS PRESENTATION OR THE ACTUAL OCCURRENCE OF THE FORECASTED DEVELOPMENTS. THE COMPANY ASSUMES NO OBLIGATION, EXCEPT AS REQUIRED BY LAW, TO UPDATE ANY FORWARD-LOOKING STATEMENTS OR TO CONFORM THESE FORWARD-LOOKING STATEMENTS TO OUR ACTUAL RESULTS.

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THE MANAGERS AND/OR THEIR EMPLOYEES MAY HOLD SHARES, OPTIONS OR OTHER SECURITIES OF THE COMPANY AND MAY, AS PRINCIPAL OR AGENT, BUY OR SELL SUCH SECURITIES. THE MANAGERS MAY HAVE OTHER FINANCIAL INTERESTS IN TRANSACTIONS INVOLVING THESE SECURITIES.

THE PRESENTATION IS MADE SUBJECT TO NORWEGIAN LAW AND ANY DISPUTE ARISING IN RESPECT OF THIS PRESENTATION IS SUBJECT TO THE EXCLUSIVE JURISDICTION OF NORWEGIAN COURTS.

Introduction to Pioneer Property Group

Summary

• PPG owns 112 kindergartens through four separate SPVs
• The properties are located in and around Norwegian cities. Greater Oslo Region (26%) and Bergen (30%) constitute the majority
• Properties are leased out to Norlandia (29%), Espira (53%) and Kidsa (18%)
• Weighted average remaining lease term across the portfolio is 18.7 years
• Key group financials, based on Q3/2015:
• Total annualized rental income of NOK 204m
• Property value: NOK 3,413m
• Total bank- and bond loans: NOK 1731m
• Total outstanding preference shares: NOK 650m

Company structure

The Norwegian kindergarten market

Regulatory framework

• Kindergarten-law ("Barnehageloven")

• All children between 1-6 have a legal right to attend kindergarten in their home municipality
• Private operators are secured "equal treatment" including financial support

• Equal financial treatment

• Private preschools receive 100% subsidies as the actual costs in the municipalities own-run kindergartens per child
• Parents pay a maximum contribution of NOK 2655 per month per child, but less if in low-income category

• Property market strictly regulated

• License to build a preschool not be given unless there is a demand in the relevant area
• Permission not given on a time-limited basis

Total market value in excess of NOK 50bn

Public kindergartens Private kindergartens

Avg. children per kindergarten

Private preschools have boosted coverage rates

Children in preschool (1-5 years)

Private preschools fully integrated

• Government stimulus through cheap state-financed loans and equal treatment of subsidies for private and public players have contributed to strong growth for private preschools in order to reach the target of full coverage for all children
• The market remains fragmented with many local/small operators
• Supply side is strictly regulated in order to avoid oversupply and consequently low utilization and higher cost per child

Preschool coverage rates

• Coverage ratios have stabilized around 90%, where private operators account for approx. 53% of the market

Norwegian Government secures rental income

Kindergartens in densly populated areas

Triple net lease contracts secures low capex and minimal operational costs

• All Properties are modern and in line with current regulations
• No need to upgrade the portfolio in the foreseeable future (no imminent capital expenditures of material size)
• The lease agreements with NCG are structured on a «bareboat» triple net basis where the tenant is responsible for all operating expenditures, including (but not limited to):
• General maintenance (interior and exterior)
• Insurance
• All public duties
• The Espira leases are on a double net basis (triple net less real estate insurances and property taxes)
• Will eventually be replaced with triple-net contracts
• Further development of the properties is possible conditioned on both parties agreeing

No CAPEX & OPEX requirements at the Issuer's part

New build cost development underscores solid asset backing

Comments

• The average cost to construct a preschool place has increased significantly over the last decade
• With the de-facto monopoly status existing preschools have one could argue that they should be valued higher than newbuilds as they are built primarily in the most densely populated areas

• NCG currently building for approx 400k per child

• Example: Bærum Preschool Plan assumes a cost of NOK 70 million per preschool, with a targeted size of 80-120 children in capacity per preschool

• This corresponds to cost per preschool place of NOK 584' 876', significantly above the historical cost per place
• If considering the market rent of Newsec of NOK 21,000 per child per year, the gross yield is between 2.4-3.6%
• Based on a required yield of 6% the rent should range between NOK 35,000-52,500 per child per year

Total cost per child development

Budgeted cost/child Bærum municipality 2013-2022

Key financials Q3/2015 progressing as expected

Q3 Summary

• First full operational quarter of PPG, since the formation of the group 12th May 2015
• Key financials in line with expectations
• First dividend paid to preference shareholders 30th September
• NOK 2.74 per share for Q2 and Q3
• From Q4 onwards, regular pref-share dividends are NOK 1.875 per share
• Improvement potential within restructuring of senior debt
• As loans expire, PPG expects to refinance at lower rates
• Solid cash buffer to secure preference share payments
• Approx MNOK 64 of cash in PPPII and PPPIII

Key financials Q3/2015

MNOK (IFRS)	Q3	Annualized (x4)
Rental income	51.1	204.2
EBITDA	45.0	179.8
Interest bearing debt	1,731.0
Husbanken	547.0
Commercial bank	617.3
PPPII bond	193.8
PPPIII bond	372.9
Interest payable	21.6	86.4
Effective interest rate		4.99%
Subordinated shareholder debt	164.3
Non-payable accumulating interest	2.05	8.2
Outstanding preference shares	650.0
Quarterly dividend (ex Q2 component)	1.875	7.500
Cash balance	211.0

Strategy

Key focus on care services real estate

• Pioneer Property Group shall own, manage and develop real-estate for government-backed care-service operators
• To date the company has started consolidation of- and developed the Norwegian marked for preschool properties

Consolidate market through acquisitions and broaden foot-print into other care-services real estate

• Build upon the company's strong financial capacity and professional real-estate management
• The preschool market still highly fragmented and ripe for further consolidation through additional acquisitions
• Opportunities materializing within related care services real estate, with similar characteristics as the pre-school market (long-term lease contracts, public- and government-backed tenants)

Financial ambitions • Continue to build portfolio through market consolidation and acquisitions • Acquisitions to be equity financed on a deal-by-deal basis • Listing of the company's preference shares will give easy access to future preference share issues • Best-in-class debt finance structures Targets

Strategy

Appendix

Main terms preference shares and bonds

Pioneer Property Group – Preference shares Pioneer Public Properties II - Bond Pioneer Public Properties III - Bond

Issuer:	Pioneer Property Group ASA
Number of outstanding shares:	6,500,000
Dividend:	NOK 7.5 per share annum, quarterly payments
Dividend step-up:	NOK 1 per share annum from 1 July 2020, however only up to a maximum of NOK 10 per annum
Non-dividend:	Any unpaid amounts hall accrue and be subject to a 5% interest pro annum until paid. No value transfer to ordinary shares until the preference shares have received full dividend including interest
Voting rights:	1/10 vote per share
Redemption:	May be carried out after resolution by the general meeting at NOK 130 per share until 1 July 2020, at NOK 100 per share thereafter
Listing:	Oslo Axess

Issuer:	Pioneer Public Properties II AS
Volume:	NOK 200m
Maturity:	05.04.2018
Coupon:	3mN+5.00%
	1st lien in 12 kindergarten properties,
	2nd lien in 11 kindergarten properties,
Security:	1st priority share pledge in
	subsidiaries, guarantee from Norlandia
	Care Group AS
	NOK 20m after 3 years, NOK 6m after 4
Amortization:	years
Call options:	Non-call
Additional properties:	No additional properties or debt
	*Minimum liquidity of NOK 5m
Financial covenants:	*Minimum market value clause: Market
	value of properties > 120% of total debt
Capital distibutions:	No distributions
Change of control:	Put at 100%
Listing:	Nordic ABM
Trustee:	Nordic Trustee ASA

Issuer:	Pioneer Public Properties III AS
Volume:	NOK 385m (NOK 500m borrowing limit)
Maturity:	27.06.2019
Coupon:	3mN+4.50%
	2nd lien in 45 kindergarten properties,
Security:	shares, intercompany loans, master
	leases and master lease guarantees
	7% of the issued bond amount (incl. tap
Amortiztion:	issues) in year 2, 3 and 4. Remaining to
	be paid at maturity
	Make-whole in year 1-2, thereafter
	callable @ 104%, 102%, 101% and
Call options:	100% after year 2, 3, 4 and 4.5
	respectively
	Additional properties may be added on
	a 1st or 2nd lien basis (provided that
Additional properties:	such properties have Husbanken loans)
	at maximum 73% LTV
	*Minimum liquidity equivalent to 6
	months of interests under the
	outstanding amount of the Bonds
Financial covenants:	*Minimum market value clause:
	(Market value + cash) > 120% of total
	debt (less subordinated debt)
Capital distibutions:	Maximum 25% of net profit
Change of control:	Put at 100%
Listing:	Nordic ABM
Trustee:	Nordic Trustee ASA

Portfolio overview

Large portfolio within four main geographical clusters, three strong counterparties and very long lease terms

Solid asset backing

• In the listing prospectus (preference shares) the portfolio was valued at NOK 3.4 billion, a yield of 6.0% based on the current rent levels
• In April 2015 Newsec conducted a valuation of the Issuer's preschool portfolio
• Assumed prime yield of 5.5% and a market rent of NOK 21,000 per children per year
• The portfolio was valued at NOK 3.6 billion corresponding to a blended yield of 6.36% and ~NOK 323,000 per preschool place
• The current lease agreements are 100% annually CPI adjusted implying that values will increase over the duration of the Notes
• The figure on the right shows the implied value of the portfolio at maturity of the Notes based on yield level and different CPI-levels
• The inflation goal of Norway is 2.5%

Recent valuations Loan to value development with 2.5% inflation

Valuation sensitivity in 2025 by inflation

Tenant and lease overview

Long contracts with strong counterparties

• Norlandia Preschools leases its properties on 20 year contracts (+ 2x10 year option) through a triple-net master lease contract with 100% annual CPI-adjustment. Average 17 years remaining lease
• Espira properties are leased on a double net (triple net less real estate insurances and property taxes) basis with 100% annual CPI adjustment. Average 19 years remaining lease
• The Espira lease agreements are irrevocable and expire in 2018 and 2019, of which 31 year end 2018
• Espira have an option to extend some of the lease contracts 10+5 years, which are deemed likely to be exercised as they are considered to be "in the money" and competing kindergartens in the same area are not likely to be sanctioned
• Kidsa Drift signed a new 20 year triple net lease in April 2015
• If Espira or Kidsa Drift do not exercise their renewal options or for some other reason do not fulfil their obligations, Norlandia Preschools has an obligation to assume operations of the preschools and step in to the lease contracts at the same payment terms with 20 years duration from 2014 and 2015, respectively
• The agreement regulating Norlandia Preschools' step-in obligation is a triple net master lease contract

No. of properties (112)	45	42	25
Number of children (11,082)	5,947	3,318	1,817
Property value (NOK 3,417m)	NOK 1,801 (53%)	NOK 980m (29%)	NOK 636m (19%)
Rent (NOK 205m)	NOK 108m	NOK 59m	NOK 38m
Weighted average lease term (years)	19	17	20

Key people

Board of Directors

Roger Adolfsen, Chairman

• Co-founder and owner of a number successful businesses. Together with brother Kristian Adolfsen, numerous controlling interests and operational influence within several industries. See Adolfsen.com for detailed information.

Even Carlsen, Board Member

• Co-founder of Norlandia Preschools. Currently Chairman of Hero Group AS.

Nina Torp Høisæter, Board Member

• CEO of Aberia Healthcare AS

Sandra Riise, Board Member

• CEO of Accounting Norway

Geir Hjorth, Board Member

• Ower and CEO of Alter Ego Gruppen AS

Management

Runar Rønningen (CEO)

• MBA in finance and authorized financial analyst (AFA) from NHH
• Financial journalist between 1992 and 1999, including five years in the journal Kapital
• Ten years experience from leading roles in Nordic investment and brokerage houses, including H&Q Norden and Fondsfinans

Martin P. Hoff (CFO & IR responsible)

• Graduated from Boston University 1995
• Worked within the financial markets since 1997
• Work experience includes analyst at SEB Enskilda Securities, consultant with McKinsey & Co., CFO at Tandberg Television, and senior analyst at Arctic Securities

Norwegian preschool's regulatory system

	Key characteristics
Statutory right to a place	• From January 1st 2009 all Norwegian children between 1-5 years have a statutory right to a place in a preschool • In 2002, the main political parties initiated a program to reach "full coverage" - Initiative included a legal right of approval for private preschools meeting certain requirements and financial subsidies
	• The municipalities are responsible for both the financing of the preschools and that a sufficient number of preschool places are available
	• The key element of preschool legislation is that private and public preschools are entitled to the same subsidies
Private and public preschools are entitled to the same subsidies	• The average cost per child in public preschools is the basis for the support to private units in the same municipality as preschools are organized to break-even
	• The actual subsidies range in per cent of public cost base from a minimum of 98% to a maximum of 100%. The arrangement implies that private units have the potential to make profits if they operate more efficiently than the public segment
	- The national contribution level for 2015 are NOK 207,100 per 0-2 year child and NOK 105,600 per 3-6 year child
	• In addition to the governmental support, parents can be charged up to NOK 2,580 per month (11 months/year)
	- Parental support account for approx. 15% of the total income in private preschools
	- Parental support was kept flat in 2007-2013 at NOK 2,330, before gradually increasing to NOK 2,580 from 1 May 2015
Market is strictly regulated	• The market is strictly regulated, and the license to build a preschool will not be given unless there is a demand in the relevant area
	- The permission is not given on a time-limited basis and follows the preschool (i.e. the owner of the preschool)
	- Private preschools face equal minimum requirements with regards to space, service requirements and employees per enrolled child
	• Avoids oversupply and consequently low utilization and higher cost per child

Norwegian preschool market

	Key characteristics
Private sector penetration	• Above 53% market penetration for private preschools in Norway, i.e. an integrated part of the preschool system • The large share of private companies makes the private players an essential and irreversible part of the preschool market • The sector is still very fragmented making further consolidation likely. The four largest preschool operators in Norway account for around 10% of the total revenues
Preschool attendance	• High degree of attendance in preschools in Norway with 90% of all children aged 1 – 5/6 years in preschools
Urbanization	• All markets are experiencing accelerating urbanization driving demand for child-care services in urban areas • Preschools mainly compete on proximity to the household which means that most of the scale advantages and professionalization of preschools can be translated into healthy margins for best-in-class players

More children in larger private preschools

Average number of children per Preschool

Number of Preschools with public/private split

Economy of scale

• The size of the preschools have steadily increased, as the economy of scale has become evident
• The average number of children per preschool overall is 46, while the average number in the Issuer's portfolio is 99

• Based on this, the operators' prospects for maintaining solid operating margins for the Issuer's portfolio is very promising

• The number of preschools have been quite stable, while the percentage share of private preschools have increased steadily to 53%

• With economies of scale becoming increasingly important, larger kindergartens have been replacing smaller kindergartens, resulting in a slight decline in number of kindergartens over the last couple of years
• In order to maintain full preschool coverage in the country, the system is dependent on the private players. In addition, the municipalities are saving money on having the private players own and operate their most "costly" preschool, as the average cost for the public preschool will be lower and consequently the support to the private players will go down

Overview of largest private preschool providers