2017 Nanaimo Harbour Rent Study Zone 3A - Nanaimo Port Authority

Appraisal Report Nanaimo Harbour Rent Study Zone 3A – South Harbour LSA June 2017 for Nanaimo Port Authority

CUNNINGHAM & RIVARD APPRAISALS LTD. [email protected] w www.crisland.com Victoria Office 103 – 771 Vernon Avenue Victoria, BC V8X 5A7 Tel: (250) 381-4455

Nanaimo Office 70 Prideaux Street Nanaimo, BC V9R 2M5 Tel: (250) 753-3428

December 12, 2017

Duncan Office 300 – 394 Duncan Street Duncan, BC V9L 3W4 Tel: (250) 737-1777

Our File: CR17-13873 (Zone 3A)

Nanaimo Port Authority Box 131, 100 Port Drive Nanaimo, BC V9R 5K4 Attention:

Mike Davidson

Dear Mr. Davidson: Re:

Nanaimo Harbour Rent Study 2017 – Zone 3A South Harbour LSA

At your request, I have completed an appraisal report providing an opinion of the rentable value for Zone 3A – South Harbour LSA within Nanaimo Harbour for the purpose of providing rental rate consistency in conjunction with current market conditions for lease renewal purposes. The opinions expressed herein are the generic current market rentable value for land covered by water located within Nanaimo Harbour. In summary and based on my research and analyses, it is my opinion that as of June 2017, the respective generic market rentable value for each property type in Zone 3A – South Harbour LSA within Nanaimo Harbour is:Zone 3A – South Harbour LSA Land Covered by Water

Rent Rate / acre $1,330

Rent Rate / SF $0.03

Land Value / acre $22,166

The Zone 3A lands were inspected in May 2017 and all necessary investigations and analyses were completed. The accompanying report, which forms the basis of my value opinions, subject to the assumptions and limiting conditions contained in the body of this report, is enclosed. This report has been prepared for Nanaimo Port Authority for lease renewal/negotiation purposes. No other users were intended and I deny any liability in this respect. I hereby certify that I have no interest, present or contemplated, in the subject property. Yours truly, CUNNINGHAM & RIVARD APPRAISALS LTD.

David L. Kirk AACI, P.App., RI(BC) DLK/sc DAVID L. KIRK, AACI, P.APP., RI(BC) JASON MIKES, AACI, P.APP. GREG ROUNIS, BBA, AACI, P.APP. P. SIMON WAINWRIGHT, BBA, AACI, P.APP. DAVID T. OSLAND, AACI, P.APP., FELLOW DOYLE CHILDS, AACI, P.APP. K. ALLAN BROWN, B.COM, AACI, P.APP., RI(BC) ROBERT FLEMING, AACI, P.APP. KATIE SNELL, AACI, P.APP. HUGH P. GALVIN, CRA DAVID VAN VEEN, BA, MA, CRA DAVID MATKOVICH, CRA, CRP DAVID THOMPSON, CANDIDATE KELLY SAYERS, BBA, CANDIDATE JAY TEARE, CANDIDATE

AERIAL PHOTO OF HARBOUR STUDY AREA

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TABLE OF CONTENTS Page DEFINITION OF APPRAISAL PROBLEM AND PERTINENT INFORMATION ............................................ 1 ASSUMPTIONS AND LIMITING CONDITIONS ........................................................................................... 4

PROPERTY DESCRIPTION REGIONAL DATA.......................................................................................................................................... 7 GENERAL DESCRIPTION OF HARBOUR LANDS ....................................................................................10 LAND USE CONTROLS ..............................................................................................................................11

VALUATION ANALYSIS HIGHEST AND BEST USE .........................................................................................................................21 VALUATION TECHNIQUES ........................................................................................................................22 ZONE 3A SUMMARY ..................................................................................................................................23 ZONE 3A – SOUTH HARBOUR LSA .............................................................................................24 RENTABLE VALUE SUMMARY .................................................................................................................28 CERTIFICATION .........................................................................................................................................29 QUALIFICATIONS OF APPRAISER ...........................................................................................................30

ADDENDA MARKET BASED EVIDENCE CONSULTING REPORT .............................................................................. 1

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DEFINITION OF VALUATION ASSIGNMENT AND PERTINENT INFORMATION Definition of the Valuation Assignment The Nanaimo Port Authority (NPA) has the mandate to negotiate and administer the lease of lands lying within the bed of the public harbour of Nanaimo. The NPA is further mandated to realize economic rents from both the private and public sector for their exclusive possession, use and enjoyment of harbour lands, be those lands filled or land covered by water. the generic estimation of market rentable value for the land lying within the bed of the public harbour, the zoning, use and redevelopment potential for the adjoining upland is not considered in this report. Purpose and Function of the Report The purpose of this appraisal report is to estimate the generic fair market rent for upland and /or filled land and land covered by water all lying within the ownership and/or jurisdiction of the Nanaimo Port Authority based on current market evidence. An accepted Canadian definition of market rent, from The Appraisal of Real Estate (3rd Canadian Edition, copyright 2010), is as follows:Fair Market Rent means, for any particular period, the amount of annual rent for which a willing and knowledgeable lessor would rent the property in the free and open commercial market to a willing and knowledgeable lessee. The property being available for leasing at the commencement of the period assuming that at such time:i) ii) iii) iv) v) vi) vii)

the property is owned by the lessor in fee simple or equivalent and has no charges or encumbrances existing against title that limits use of the property; the property includes the improvements supplied and installed by the lessor and does not include improvements supplied and installed by the lessee (tenant improvements); all necessary services to the property are available from the utility sources which are nearest to the property and which have adequate capacity to provide such services; motor vehicle access from a public highway to the property is available without cost to the lessee; the property is leased for the use permitted in the lease; a reasonable time is permitted to find a willing and knowledgeable lessee; and the lessor and lessee are acting at arm’s length and neither is acting under compulsion.

Intended Use of the Appraisal I prepared this report for use by Nanaimo Port Authority for lease negotiation and lease renewal purposes. I did not intend for any others to use this report and strictly deny any liability in this respect. A party receiving a copy of this report does not become an intended user unless authorized by the appraiser. Scope of the Appraisal This report encompasses the research and analysis necessary to provide a full estimate of market rentable value for the various zones within Nanaimo Harbour and meets the consulting requirements of the Canadian Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Institute of Canada effective May 1, 2016.

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Extraordinary Assumptions, Limiting Conditions, and Hypothetical Conditions An Extraordinary Assumption refers to a hypothesis, either supposed or unconfirmed, which, if not true, could alter the appraiser’s opinions and conclusions. Full disclosure of any Extraordinary Assumption must accompany statements of each opinion / conclusion so affected (Appraisal Institute of Canada’s Canadian Uniform Standards of Professional Appraisal Practice). An Extraordinary Limiting Condition refers to a necessary modification or exclusion of a Standard Rule. The burden is on the appraiser to explain and justify such necessity in the report, and to conclude before accepting an assignment and invoking an Extraordinary Limiting Condition that the scope of work applied will result in opinions / conclusions that are credible (Appraisal Institute of Canada’s Canadian Uniform Standards of Professional Appraisal Practice). Hypothetical Conditions may be used when they are required for legal purposes, for the purpose of reasonable analysis, or for purposes of comparison. For every Hypothetical Condition, an Extraordinary Assumption is required in the report. The Hypothetical Condition must be clearly disclosed in the report, with a description of the hypothesis, the rationale for its use, and its effect on the result of the assignment. An analysis based on a Hypothetical Condition must not result in an appraisal report that is misleading (Appraisal Institute of Canada’s Canadian Uniform Standards of Professional Appraisal Practice). The following assumptions were made with respect to the determination of the fair market rent:•

absolutely, or fully, net rent fixed for a minimum one year and maximum five year period; and

•

no extraordinary issues or conditions which would interfere with the property or any other aspect of the use of the lease premises; and

•

that the property is not affected by First Nations claims;

Data Research Publications produced by the City of Nanaimo and Nanaimo Port Authority provided information on applicable land use controls. Sources of market evidence included the local Real Estate Board, Land Title Office transactions (including those reported by Data Systems and local assessors) and real estate agents, vendors and purchasers active in the market. BC Online service provided information on the state of title. Audits and Technical Investigations I did not complete technical investigations such as: − − − − −

Detailed inspections or engineering review of any structure, roof or mechanical systems, if applicable; An environmental review; A site or building survey with respect to any individual parcel; Investigations into the bearing qualities of the soils with respect to any individual parcel; Audits of financial and legal arrangements.

Verification of Third Party Information The analysis set out in this report relied on written and verbal information obtained from a variety of sources we considered reliable. All reasonable efforts have been undertaken to verify this information from primary sources. The mandate for this appraisal did not require a report prepared specifically for in-depth cross-examination within a court or arbitration hearing, so I did

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not include full documentation, confirmation and/or include the reference material to primary sources for all information reported herein. Litigation and Compliance with Supreme Court Civil Rules In the event that this report is used in a civil action, the appraiser is aware of and acknowledges a duty to assist the British Columbia Supreme Court and not be an advocate for any party. This appraisal report is prepared in conformity with the appraiser’s duty to the court. If the appraiser is called upon to give oral or written testimony, that testimony will be in conformity with the duty to the court. Possession Neither possession of this report nor a copy of it carries with it the right of publication. All copyright is reserved to the author and is considered confidential by the author and his client. It shall not be disclosed, quoted from or referred to, in whole or in part, or published in any manner without the express written consent of the appraiser. This is subject only to confidential review by the APPRAISAL INSTITUTE OF CANADA as provided in the Canadian Uniform Standards. Competency Provision The Canadian Uniform Standards require that competency for the type of assignment must be demonstrated by the appraiser. In this regard, I advise that I have completed a number of rental studies and rental arbitrations on Harbour Land throughout Vancouver Island and have firsthand knowledge of the issues involved in the valuation of this type of real estate. Title The Nanaimo Harbour Land is held by Her Majesty the Queen in Right of Canada, as represented by Nanaimo Port Authority (NPA). The Federal Government (Minister of Transport) has granted NPA management responsibilities for the lands, pursuant to the Canada Marine Act. Title to the Nanaimo Harbour Lands has not been created.

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ASSUMPTIONS AND LIMITING CONDITIONS This consulting valuation report has been made with the following general assumptions, including any other that may be set out in the report:1.

The lands lying within the public harbour are considered to be free and clear of any or all liens or encumbrances unless otherwise stated.

2.

Responsible ownership and competent property management are assumed.

3.

The information furnished by others is believed to be reliable, but no warranty is given for its accuracy.

4.

Any plans and illustrative material in this report are included only to help the reader visualize the property.

5.

It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them.

6.

It is assumed that the property is in full compliance with all applicable federal, provincial, and local environmental regulations and laws unless the lack of compliance is stated, described, and considered in the appraisal report.

7.

It is assumed that the property conforms to all applicable zoning and use regulations and restrictions unless a non-conformity has been identified, described and considered in the report.

8.

It is assumed that all required licenses, certificates of occupancy, consents, and other legislative or administrative authority from any local, provincial, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based.

9.

It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report.

10.

Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of hazardous materials may affect the value of the property. The value estimated is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

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11.

Possession of this report, or a copy thereof, does not carry with it the right of publication.

12.

The appraiser, by reason of this report, is not required to give further consultation or testimony or to be in attendance in court with reference to the property in question unless arrangements have been previously made.

13.

Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which the appraiser is connected) shall be disseminated to the public through advertising, public relations, news, sales, or other media without the prior written consent and approval of the appraiser.

14.

Unless otherwise stated in the report, the only party who may rely on the opinions expressed in this report is the client. This report assumes that only the addressee will rely upon it, and only for the intended use stated herein. No one else may rely on this report without the written consent of the appraiser, which may not be provided retroactively. We expressly deny any legal liability for unauthorized reliance and for any other use.

15.

This report is valid only if it bears the original signature and seal of the author unless sent electronically, in which case, the report must contain a digital signature and be received in a PDF, or similar, format.

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PROPERTY DESCRIPTION

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REGIONAL DATA Vancouver Island is situated off the southwest coast of British Columbia and is the largest North American island in the Pacific Ocean. It is divided into seven regional districts stretching south to north: the Capital District, Cowichan Valley, Alberni-Clayoquot, Nanaimo, Comox Valley, Strathcona and Mount Waddington. The Regional District of Nanaimo (RDN) is the 2nd most heavily populated part of the region with a population of 155,698 people (2016 Census). Incorporated in 1874, the City of Nanaimo is the second largest urban centre on Vancouver Island with a total land area of 91.2 square km. It is situated on the east coast of Vancouver Island, 23 km west from Vancouver and 113 km north of Victoria, the capital of British Columbia, on Trans Canada Highway No. 1. While migration to the area softened in the late 1990s, Nanaimo is now seeing an increase in the number of people moving here from within BC and other provinces. Population projections indicate growth will continue. According to the 2016 census, the city’s population was 90,504, indicating an average annual growth rate of approximately 8% since the 2011 census population (83,810). The climate is one of the more moderate in Canada with an average year-round temperature of 10°C (50°F) and extremes of -6°C (20°F) and 32°C (90°F). Average precipitation is 990 mm (39 inches) with most rain and snow falling between November and April. For the majority of the 20th century, the local economy was heavily dependent on the coal and the forest industries. Within the past several years, however, the local economy has become much more diversified. Significant contributors to the local economy include tourism, fishing, government offices, wholesale and retail trade, education, and construction. The city remains an important world shipping port for forest products, with port facilities at Duke Point and in the inner harbour. The 220-hectare Duke Point Industrial Park and Deep Sea Port, plus the BC Ferries terminal, is the largest industrial park on the Island. The Pacific Biological Station, which is located in Nanaimo, has been instrumental in the research and development of the aquaculture industry in Western Canada, making Nanaimo the nucleus of this Industry. Vancouver Island University offers aquaculture education as well as up to four years of other community and university courses. Transportation facilities include the BC Ferry Corporation and Seaspan Coastal Intermodal which travel between Nanaimo and the Mainland. BC Ferries carries passengers, cars and freight, while Seaspan Coastal Intermodal carries freight only. Greyhound Lines bus service travels between Victoria and Port Hardy on Vancouver Island, including service to and from the Mainland via BC Ferries. The E & N Railway operates local freight service within Nanaimo. Air service includes the Nanaimo Airport, located 16 km south of Nanaimo in Cassidy, and seaplane flights from the Inner Harbour to Vancouver. A parkway bypass route around Nanaimo, and the Duke Point highway have greatly improved local traffic patterns. In the retail sector, Nanaimo offers Nanaimo North Town Centre, which is anchored by Sears, London Drugs, Canadian Tire and Lowes, and Woodgrove Centre, which is anchored by The Bay, WalMart and Toys Я Us. Together with the stand-alone big-box stores such as Costco, Home Depot and Great Canadian Superstore, and approximately 135,000 m² of other shopping centres, Nanaimo is an ideal location for shoppers from mid to northern Vancouver Island.

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Local economic and real estate market conditions generally mirror the balance of the Province outside of the Lower Mainland, with most key indicators having recovered to, or at least near, pre-global recession levels of 2008/’09. The economic recovery period was highlighted by a number of significant new commercial and industrial construction and renovation projects, signals of investor confidence in the City and region as a whole. Government services cutbacks have contributed to relatively high office vacancy, whereas positive in-migration and demographic changes have led to historically low residential vacancy; however overall, the IC&I market can generally be characterized as stable. Industry forecasters remain generally optimistic about the stability of the local area; however, national and world-wide economic factors continue to impose challenges to the market. Sources of information: City of Nanaimo website: www.nanaimo.ca Regional District of Nanaimo website: www.rdn.bc.ca BC Stats: www.bcstats.gov.bc.ca

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Location Maps

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GENERAL DESCRIPTION OF HARBOUR LANDS Location The Harbour Lands are located within the City of Nanaimo. The Harbour Lands are effectively divided into six zones being:Zone 1 – Newcastle Island Passage; Zone 2 – Marine Basin and Cameron Island; Zone 3 – Assembly Wharf; Zone 3A – South Harbour LSA; Zone 4 – Protection Island; Zone 5 – Duke Point Industrial Park; Site Data This report pertains to lands lying within the bed of the public harbour of Nanaimo (Harbour Lands). The Harbour Lands are either filled land or land covered by water under the administrative control of the NPA. The Harbour Lands have been divided into specified zones (noted above) however, this report only addresses the Zone 3A – South Harbour LSA lands. The generic market rentable values contained within this report do not, unless specifically mentioned, apply to the adjacent fee simple upland. Site Improvements and Servicing The estimated generic market rentable values for the Harbour Lands are provided under the assumption that the lands are vacant and un-improved and do not include services, unless specifically mentioned. Environmental Hazards The appraiser is not aware of any environmental hazards relating to any existing or proposed use and is not qualified to comment on the current environmental condition of any of the Harbour Lands. No hazardous substances were called to the attention of the appraiser, nor did the appraiser become aware of such, during the property inspection. The appraiser has no knowledge of the existence of hazardous substances on or in any of the Harbour Lands unless otherwise stated. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. For the purpose of this report the Harbour Lands are considered to be free of any environmental hazards or contamination. If any further clarification in this regard is required, it is suggested that an environmental assessment report be prepared.

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LAND USE CONTROLS Zoning The Harbour Lands are zoned pursuant to the City of Nanaimo Zoning Bylaw 4500 and differ from zone to zone as follows:Zone 1 – Newcastle Island Passage Zone 2 – Marine Basin and Cameron Island Zone 3 – Assembly Wharf Zone 3A – South Harbour LSA Zone 4 – Protection Island Zone 5 – Duke Point Industrial Park

W-2 / W-3 W-2 W-2 Un-zoned W-2 / Un-zoned W-4 / I4

NPA Land Use Plan Notwithstanding the zoning of the Harbour Lands through the City of Nanaimo Zoning Bylaw 4500, the Harbour Lands are administered through the Nanaimo Port Authority Land Use Plan. The Land Use Plan is an existing and future land use guide that acts in a similar fashion to zoning and OCP bylaws although with broader goals supporting the greater good of the community while also satisfying Federal Transportation goals and requirements. The Land Use Plan identifies General Policies and Environmental Policies and specifies the following Land Use Designations:• • • •

Port Industrial Use Port Transportation Use Marine Related Commercial Environmental Protection/Recreation

The Land Use Plan includes Land Use Maps identifying the preceding zones. Excerpts of the NPA Land Use Plan are included on pages 12 - 18 herein.

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Nanaimo Port Authority Land Use Plan

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CANADA MARINE ACT Under the Canada Marine Act (CMA), Nanaimo Port Authority (herein referred to as NPA) is responsible for the administration, management and control of land and water within its jurisdiction. Some have argued that the CMA reduces the use potential, and by extension the value of Port land1, and an examination was undertaken in an attempt to determine whether the CMA has any obvious implications on property value. CMA establishes the capacity and powers granted to a Port Authority, with activities limited to those relating to shipping, navigation, transportation of passengers and goods, the handling and storage of goods, and “other activities that are deemed in the letters patent to be necessary to support Port operations”. CMA also contains a number of provisions suggesting that regulated Ports are to operate on a prudent business basis. The directors and officers of a Port Authority are to act honestly, and in good faith, with a view to the best interest of the Port Authority; and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. CMA identifies an objective to manage the marine infrastructure and services in a “commercial” manner that encourages and takes into account input from users and the community in which the port or harbour is located. CMA is silent on direction to Port Authorities on how to balance conflicts between “commercial” management in relation to user and community “input”. The Management Regulation for Port Authorities deals with management of Port Authorities but fails to provide specific regulations respecting real property value. While the theme of CMA is prudent management, there is no discussion of non-market considerations in real state dealings. Policy guiding Port Authorities, and pursuant to Treasury Board directives, requires that consideration received for the disposal of surplus property (a lease qualifies as surplus property) be “justified in relation to the market value of the real property”; and the PWGSC Water Lot Appraisal Guidelines provide the basis for the estimation of market value. Under the letters patent, issued by the Minister of Transport pursuant to CMA, the Port Authority is required to ensure that all leases and licences involving real property must be for no less than market value. In summary, CMA does not provide specific guidelines addressing the determination of real property value however, the act requires prudent business management and adherence to Treasury Board directives, these requiring ‘market value transactions’. Port Authorities are required to develop land use plans for lands under their administration. These land use plans are to take into account relevant social, economic and environmental considerations; as well as local zoning bylaws. Appraisal standards rely on these controls in the determination of highest and best use, ultimately leading to the selection of “comparable data” and market value. Notwithstanding CMA and its potential to impact value or not, Port Authority land use plans would, to the extent that they affect land use. 1Port

Authorities normally do not sell the land under their administration, usually leasing the land on a long term basis instead. In economic theory, market value and market rent have a direct relationship. The mathematical formula for this relationship is V=I/R, where V is market value, I is income (rent) and R is a market derived rate of return (found in the marketplace).

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VALUATION ANALYSIS

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HIGHEST AND BEST USE An accepted definition of highest and best use is: "That reasonably probable and legal use of vacant land or an improved property which is physically possible, appropriately supported, financially feasible, and that results in the highest value." The highest and best use of a property is an economic concept that measures the interaction of four criteria: legal permissibility, physical possibility, financial feasibility, and maximum profitability. Determining the highest and best use of a property is a critical appraisal component that provides the valuation framework that market participants and appraisers require to identify and analyze comparable market information for valuation purposes. An appraiser considers highest and best use of the property as if vacant separately from the highest and best use of the property as improved. This is because the highest and best use of the site as if vacant and available for development determines the value of the land, even if the property’s existing improvement does not represent the highest and best use of the site. Highest and Best use of land is the use among all reasonable alternative uses that yields the highest present land value, after payments are made for labour, capital and co-ordination. The conclusion assumes that the parcel of land is vacant or can be made vacant by demolishing any improvements. Harbour Lands stand apart from fee simple lands and the concept of highest and best use can differ between the two. Additionally, the Harbour Lands are subject to the NPA Land Use Plan and, to a lesser extent, the City of Nanaimo Zoning Bylaw. The NPA Land Use Plan and the City of Nanaimo Zoning Bylaw are more or less consistent with one another with respect to land uses with only a few exceptions (identified and addressed later in this report). Harbour Lands most commonly lay adjacent to (or front) privately owned fee simple land or property not administered by the NPA. The Harbour Lands then, are subject to the demand of the upland fee simple owner (or third party non-owner with consent of the fee simple upland owner) for their use. This demand may or may not be consistent with the upland use therefore, the concept of highest and best use cannot automatically be determined for the upland and applied to the Harbour Land. This is clearly evident where fee simple uplands are in transition from previous marine or industrial use to multiple family residential uses. The multiple family residential use does not physically require use of the Harbour Land (other than for aesthetic appeal) and demand for the Harbour Land is then driven by some alternative (or unrelated) use, the most common being marina or moorage uses. Zone 3A – South Harbour LSA are un-zoned Harbour Lands lying within the Nanaimo River Estuary and used solely for the purpose of log booming and storage (log storage area or LSA). These inter-tidal lands are very suitable for this purpose and provide adequate protection to the booms to warrant continuation of this use. Notwithstanding the economics of the forest industry, these lands have little alternate use potential consequently; the highest and best use is a continuation of the existing use.

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VALUATION TECHNIQUES In formulating an opinion of the generic fair market rentable value of the Harbour Lands, consideration must be given to the method of valuation. In the generic estimation of market rentable value for the Harbour Lands, the direct comparison approach and return on market value approach were considered. A summation of these methods is as follows:Direct Comparison Approach A process in which a rentable value indication is derived by comparing the Harbour Lands to similar properties that are under lease or available for lease, applying appropriate units of comparison, and making adjustments to the lease or rental rates of the comparables based on the elements of comparison. Return on Market Value Approach The Return on Market Value Approach involves the application of a market derived percentage rent to the hypothetical or equivalent market value of the land in the generic estimation of market rentable value. This method requires the application of the direct comparison approach first in the estimation of the hypothetical or equivalent market value of the Harbour Land parcel and then secondly, the application of a market derived rate of return (percentage rent) in the estimation of rentable value. The Treasury Board directives referred to under the heading of Canada Marine Act, requires that consideration received for the disposal of surplus property (a lease qualifies as surplus property) be “justified in relation to the market value of the real property”; and the PWGSC Water Lot Appraisal Guidelines provide the basis for the estimation of market value. This guidance effectively requires the appraiser to consider the ‘Utility Method’ which is built upon the foundation of the Return on Market Value Approach. Method(s) Applied The Return on Market Value Approach and/or the Direct Comparison Approach (or both where necessary) were applied in the generic estimation of market rentable value for each respective zone comprising the Nanaimo Harbour Lands.

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ZONE 3A – SOUTH HARBOUR Land Use Plan: Zoning:

Port Transportation Environmental Protection/Recreation Un-zoned

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Description of land: The South Harbour LSA is comprised of land covered by water that lies in the Nanaimo River Delta and to a great extent, is inter-tidal. The lands covered by water are only used for log booming and storage. The Nanaimo Harbour log booming area is the most desirable on Vancouver Island due to the natural fresh water flush provided by the Nanaimo River. Highest and best use:

Continuation of the existing use.

Zone 3A Rental Valuation: The lands covered by water within Zone 3A are inter-tidal lands utilized for the sole purpose of industrial log booming and storage and not attached to an upland component. The ability to store logs within a waterlot most often requires the consent of the upland owner who maintains the right in law (riparian right) to the leasehold interest in the adjoining waterlot. The Province of BC provides the leasehold tenure for log storage on water however, this tenure cannot be granted without consent of the upland owner (where the upland is privately held). The South Harbour LSA is under the administration of the NPA who also act as the holder of the riparian interest in the surrounding upland. The achievement of upland owner consent, paid as a fee and not a rent, is the more common standard within the industry followed by a lease or licence of provincial or federal water where logs are actually stored. This common standard is applied in the Fraser River, Gulf Islands, Ladysmith Harbour and Cowichan Bay. In the determination of rent for the South Harbour LSA, a comparison of the total cost of competing log storage areas must be undertaken and this comparison cannot ignore the cost of consent in addition to provincial or federal levies charged. Province of BC Model The Province of BC maintains a pricing guide for Log Handling and Storage within Crown Tenured Water and the September 2015 amendment indicates the zonal pricing for the following Regions:Howe Sound Sechelt/Jervis Inlets South Coast (incl/Nanaimo) Lower Fraser River Victoria Harbour - Lower Victoria Harbour - Upper

$6,178 per ha ($2,500 per acre) $3,768 per ha ($1,525 per acre) $4,200 per ha ($1,700 per acre) $5,127 per ha ($2,075 per acre) $8,649 per ha ($3,500 per acre) $7,413 per ha ($3,000 per acre)

The Province of BC maintains a 7.5% percentage rent for licences and an 8% percentage rent for lease tenures. The calculation of rent for a provincial tenured waterlot (LSA) is then the area of the waterlot multiplied by the pricing guide unit rate (above) multiplied by either 7.5% or 8% (depending on tenure). The Province of BC pricing guide and lease/licence return rates have remained unchanged since 2004. The rentable value range of the Provincial Model, calculated at 8% of the pricing guide values, equates to $122 to $280 per acre. The achievement of upland owner consent is required where the log storage tenant is not the upland owner or where the Province does not maintain the riparian right to the water. The rates for upland consent vary considerably as these agreements are privately negotiated between the third party tenant and upland owner.

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The rates charged for upland consent are reported to lie within a range of approximately $6 to $7 per lineal foot of waterfrontage. The waterlot area beyond the waterfront has no impact upon the upland consent rate. There is limited local market evidence available with examples of some recent and somewhat dated available direct market evidence for upland consent and log booming rental rates is summarized as follows:-

Location

Landlord

Lineal Footage

License Fee per Foot

Upland Consent Fee/yr

Waterlot Area (acres)

Waterlot Fee per year

Total Fee per Acre per annum

Ladysmith Harbour

Chemainus First Nation

7,365

$7.11 (2013)

$52,431

59.0

$8,030

$1,025

Ladysmith Harbour

Chemainus First Nation

1,690

$5.92 (2013)

$10,005

12.8

$1,632

$909

Northumberland Strait

Mark Coates

2,800

$7.21 (2017)

$20,188

18.9

$2,410

$1,195

Northumberland Strait

Mark Coates

3,080

$7.21 (2017)

$22,207

21.2

$2,703

$1,175

The upland consent fee and waterlot licence fee for the two Chemainus First Nation Indicators are the more dated (2013) whereas, the upland consent rates for the latter two Indicators are more recent (2016 rates with CPI increases for 2017). The waterlot fees per year calculated in the table above are estimated based upon the provincial pricing guide (unchanged since 2004). This combined provincial pricing guide and consent fee evidence indicates a minimum allinclusive range of rentable value (for sites in excess of 12 acres), expressed on a price per acre basis of $909 to $1,195 for salt water storage. In addition to this combined evidence, I have one example of an actual log sorting ground lease where the upland property owner effectively sublets his provincial waterlot (inclusive of his upland consent). This is a Log Sorting Ground Use Agreement between Mark Coats (upland owner and provincial waterlot lessee) and Rapid Towing (use agreement tenant) where the parties have agreed to a ten year use agreement for District Lot 236, Nanaimo District at an annual rent of $24,000. This agreement commenced on January 1, 2015. The waterlot comprises 16.43 acres and is located below the Gabriola Bluffs within Northumberland Strait (between the two Coats examples in the table above). The rent equates to a gross amount of $1,460 per acre per annum however, the provincial pricing guide cost of the provincial lease equates to $2,235 per annum or $136 per acre per annum which results in an effective rent of $1,324 per acre per annum. By contrast, the Nanaimo Port Authority 2017 log storage rate for Zone 3A is $1,324 per acre and the Nanaimo River Estuary maintains the benefit of a fresh-water flush which prolongs storage time periods. Port of Vancouver Model Port of Vancouver maintains a log storage pricing guide within the Fraser River with the rates escalating by CPI plus 0.5 from the base rate set in 2010. The Port of Vancouver undertook a study of LSA’s in 2015 with the consultants’ recommendation that the rates be decreased,

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marginally below the 2015 rates, and then future rent increases be tied to general waterlot rental rates within the jurisdiction. Although the consultants’ recommendation would have resulted in a slight reduction in LSA rates (in the short term), the industry rejected this recommendation (not wanting future increases tied to general market conditions) and opted to maintain the annual CPI increases. Port of Vancouver CPI escalated 2016 rates summarized for Zones 2 and 4, being the most relevant or comparable to the Nanaimo River Estuary, are as follows:Zone 2 – Below Port Mann Foreshore Mid-Channel (1 side) Mid-Channel (2 sides)

$2,628 per ha ($1,063 per acre) $3,286 per ha ($1,330 per acre) $3,944 per ha ($1,596 per acre)

Zone 4 – North Arm

$3,801 per ha ($1,538 per acre)

Port Metro Vancouver draws the distinction that foreshore requires upland ownership or upland consent; mid-channel (1 side) relates to accessibility from only one side with no upland ownership/consent and mid-channel (2 sides) relates to accessibility from both sides with no upland ownership/consent.

This dated local data and Port of Vancouver data provides sufficient evidence to indicate that the Zone 3A log storage areas are rentable at no less than a minimum of $1,140 per acre and no more than a maximum of $1,538 per acre (for sites in excess of 12 acres in size). The Zone 3A log storage areas have historically been recognized by the industry as a superior storage location for boom transport (weather sheltered and easier ingress/egress without navigating narrow tidal channels) and have the advantage of the fresh-water flush from the Nanaimo River. These factors, coupled with the fact that the bulk of local evidence is dated, leads to a reasonable expectation that the current market rental rate lie approximately 10% above the dated Northumberland Strait evidence and at least 10% below the North Arm Fraser River rate. This provides rentable value parameters of approximately $1,255 to $1,385 per acre. Nanaimo River Estuary LSA Association The Nanaimo River Estuary LSA Association, comprising a membership of Coastland Wood Industries Ltd., Nanaimo Forest Products Ltd. and Western Forest Products Inc., have submitted a Market Based Evidence Consulting Report (dated May 2017) which concludes the following ranges of value for log storage areas in Nanaimo Harbour:Parcel Lot 303 – 66.644 acres: Parcel Lot 304A – 115.471 acres: Parcel Lot 304B – 14.480 acres:

Value range - $50,000 - $75,000/ac Value range - $30,000 - $35,000/ac Value range - $250,000 - $275,000/ac

The Market Based Evidence Consulting Report does not provide estimates of market rent however, the range of rents calculated at a rate of 6% of the estimated per acre value rates equates to $1,800 to $16,500 per acre. These projected rent rates greatly exceed the existing NPA 2017 LSA rate and the Port of Vancouver 2016 LSA rates. A copy of the Market Based Evidence Consulting Report is included in the addenda herein for reference.

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Summary In summary, the local rentable value data (from Northumberland Strait) coupled with the current 2017 NPA LSA rates provides the most compelling evidence in support market rent position for the Nanaimo Harbour LSA and the market rentable value for the Zone 3A Harbour Land is estimated as follows:-

Land Covered by Water

Rent Rate / acre

Rent Rate / SF

Land Value / acre

$1,330

$0.03

$22,166

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ZONE 3A – SOUTH HARBOUR LSA Rentable Value Summary Land Covered by Water

Rent Rate / acre $1,330

Rent Rate / SF $0.03

Land Value / acre $22,166

Exposure Time Exposure time is the time a property remains on the market. In a rentable value appraisal, the term means the estimated length of time an owner would likely need to market the leasehold interest before the hypothetical consummation of a lease contract at market rent on the effective date of the appraisal. An opinion of exposure time is a retrospective estimate that has its basis in an analysis of past events assuming a competitive and open market. The period of exposure time occurs immediately before the effective date of the appraisal. The overall concept of reasonable exposure time encompasses not only adequate, sufficient and reasonable time, but also adequate, sufficient and reasonable marketing effort. Exposure time is different for various types of real estate and value ranges and under various market conditions. In my view, the Harbour Lands remain in demand and would achieve lease status within a time typical for its market. Given current economic conditions, this exposure time would be in the order of 120 to 360 days for properties that were reasonably priced and professionally marketed. This estimate does not include the time for typical due diligence and closing time subsequent to achievement of an offer to lease or an agreement in principle.

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CERTIFICATION I certify to the best of my knowledge and belief, that:1.

The statements of fact contained in this report are true and correct;

2.

The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal impartial, and unbiased professional analysis, opinions and conclusions;

3.

I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved;

4.

I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment;

5.

My engagement in and compensation for this assignment were not contingent upon developing or reporting predetermined results, the amount of the value estimate, or a conclusion favouring the client;

6.

My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Canadian Uniform Standards of Professional Practice of the Appraisal Institute of Canada;

7.

I have the knowledge and experience to complete the assignment competently;

8.

No one provided significant professional assistance to the person signing this report;

9.

As of the date of this report, the undersigned has fulfilled the requirements of the Appraisal Institute of Canada’s Continuing Professional Development Program;

10.

The undersigned personally inspected the subject property in May 2017.

December 12, 2017 David L. Kirk AACI, P.App., RI(BC)

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QUALIFICATIONS OF APPRAISER David L. Kirk, AACI, P. App., RI (BC) Education and Memberships Accredited Appraiser and .............................................................. Appraisal Institute of Canada Professional Appraiser AACI, P. App. – June 29, 1992 Certificate No. 3216 Professional Member

Real Estate Institute of British Columbia RI (BC) - December 11, 1992 Certificate No. 2760

Environment Canada Ecological Gifts Program

Appraisers Workshop – February 2002

Education and Memberships 36 years experience in comprehensive appraisal of residential, commercial, industrial and agricultural properties for sale, purchase, mortgage, taxation, assessment, expropriation and other purposes. Recognized as an expert witness before the Supreme Court of British Columbia and the Expropriation Compensation Board of British Columbia. President of Cunningham & Rivard Appraisals Ltd. Completed Appraisals and Related Assignments for:Bank of Montreal

TD/Canada Trust

Royal Bank of Canada

HSBC Bank Canada

Canadian Imperial Bank of Canada

Canadian Western Bank

Scotiabank

Coastal Community Credit Union

Vancity Credit Union

Island Savings Credit Union

Coast Capital Savings Credit Union

Capital Regional District

Cowichan Valley Regional District

Regional District of Nanaimo

Alberni-Clayoquot Regional District

Comox Valley Regional District

City of Victoria

City of Parksville

Township of Esquimalt

City of Colwood

City of Nanaimo

City of Port Alberni

City of Duncan

District of North Cowichan

District of Oak Bay

Town of Ladysmith

Town of Qualicum Beach

Town of Sidney

Government of Canada

Government of British Columbia

Greater Victoria Harbour Authority

Nanaimo Port Authority

Port Alberni Port Authority

Transport Canada

Langley Airport

Nanaimo Airport Commission

Pitt Meadows Airport

School District 68 (Nanaimo)

School District 69 (Qualicum)

And Many Others

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ADDENDA

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MARKET BASED EVIDENCE CONSULTING REPORT

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