real estate investment trusts ben mckay bradley verbeek edmond yee sean mcilmoyle

Real EstateInvestment Trusts

Ben MckayBradley Verbeek

Edmond YeeSean McIlmoyle

Agenda

H&R

Calloway

RioCan

Overview

What is a REIT? Real Estate Investment Trust

Pools capital from investors

Invests in real estate assets (homes, buildings, or mortgages)

Distributes at least 90% of income to investors as dividends

Investors purchase REIT units instead of directly purchasing real estate

REITs Structure

Unitholder

Trustee

Management

PropertiesREITInvestment

Distributions

Property Income

Ownership

Act on Behalf of Unitholders

Trustee Fees

Management Fees

Management Services

Shareholders’ BenefitsProfessional Management

Portfolio Diversification

Liquidity

High Yields

Transparency

REITs Classification

•Invest in and Own Properties

•Revenue from Rent

Equity

•Loan Money for Mortgages

•Invest in Existing Mortgages or MBS

•Revenue from Interest

Mortgage

•Invest in Properties and Mortgages

•Revenue from Rent and Interest

Hybrid

Value Drivers

Interest Rates

Rise in Interest Interest Expense Increase Dividend Yield

Decrease

Drop in Interest Interest Expense Decrease Dividend Yield

Increase

Portfolio Diversification

REITs Timeline

1960 1970

1980

1990

2000

2010

1960: REITS are Created (USA)

1960: NAREIT Formed

1965: First NYSE REIT (Continental Mortgage Investors)

1969: First European REIT (Netherlands)

1972: NAREIT Unveils REIT Index

1989-1991: Dramatic Real Estate Downturn

1993: REITS Introduced in Canada

American REITs

Office Buildings12% In-

dustrial Fa-cili-ties5%

In-dustrial

& Of-fice3%

Shopping Centres9%

Regional Malls11%

Frees-tanding

Retail2%

Apartments13%

Di-versi-

fied6%

Lodging/

Re-sort

s5%

Self Storage6%

Health Care13%

Specialty6%

Hybrid REITs1%

Mortgage REITs9%

153 REITs

$389 Billion Market Capitalization

Canadian REITS

Diversified34%

Hos-pital-

ity2%

In-dus-trial0%

Resi-dential

15%

Office6%

Medical Offices

1%

Retail35%

Seniors Housing7%

35 REITs

$29 billion market capitalization

Market Cap Growth (Canada)

REIT Index Performance

S&P/TSX Capped REIT vs. S&P/TSX Composite (1 yr)

S&P/TSX Capped REIT vs. S&P/TSX Composite (10 yr)

S&P/TSX Capped REIT vs. S&P/TSX Income Trust (1 yr)

S&P/TSX Capped REIT vs. S&P/TSX Income Trust (10 yr)

REIT Requirements (Canada)

Minimum of 150 unit holders, and are listed on a recognized Canadian Exchange

No more than 50% of the shares can be held by five or fewer individuals

At least 95% of its income must be derived from the disposition of or income earned from qualifying investments

At least 80% of its property must be held in any combination of real property in Canada and other qualifying investments

No more than 10% of its property should consist of bonds, securities or shares in the capital stock of any one corporation or debtor

Income is not taxed within the trust as long it is distributed to unit holders

Market Cap of Canadian Publicly Traded FTEs

Rapid growth of income trusts up to 2006 because of imbalanced tax treatment

Tax Fairness Plan Applicable to all Canadian trusts companies that begin trading after

Oct. 31, 2006, except qualified REITs to reduce companies converting to trusts

At no time in the year hold any non-portfolio property other than real properties situated in Canada

Have no less than 95% of its income for the year income from properties (whether in Canada or abroad, and including dividends, interest, rents, etc. and taxable capital gains from dispositions of real properties)

Have no less than 75% of its income for the year income that is directly or indirectly attributable to rents from, mortgages on, or gains from the disposition of, real properties situated in Canada

Hold throughout the year real properties situated in Canada, cash, and debt or other obligations of Governments in Canada with a total fair market value that is not less than 75% of its equity value

Affected REITsCross-border REITs

Significant US or Foreign Holdings

Hotel REITs & Senior Housing REITsPassive Income vs. Active Income

Impact of Tax Fairness Plan

Impact of Tax Fairness Plan

Factors to ConsiderManagement

Portfolio Diversification

Low Leverage

Net Asset Value per Share (NAV)

Earnings Available for DistributionFFO & AFFO

Cash Distribution to UnitholdersFFO or AFFO Payout Ratio

Operating Performance:Net Income

Net Income = Revenue – Expenses

Depreciation makes up large part of expenses.

Poor measure of performance because real estate often appreciates rather than depreciate.

Operating Performance: FFO & AFFO

Funds from Operations (FFO) = Net Income + Depreciation – Gain on Sales of Property

Adjusted Funds from Operations (AFFO) = Funds from Operations – Capital Expenditures

REIT Market Caps

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Chartw

ell

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Company

Mark

et

Cap

italiza

tion

($

M)

DiversifiedResidential

Retail

Stock Price Overview

RioCan Real Estate Investment

1 year with SMA 50 and SMA 200

5 year with SMA 50 and SMA 200

1 year compared to iShare S&P TSX Capped REIT

5 year compared to iShare S&P TSX Capped REIT

Company Overview

About RioCan• Largest REIT in Canada with 314 properties, including 10 under

development, owned interests totalling over 46 million sq. ft. (75 million sq. ft. including partners’ interests and  shadow anchors) and an enterprise value of $11.9 billion

• Since, Q4 2009 RioCan has assembled a portfolio of 40 shopping centres, or 5.8 million square feet with a fair value in excess of $1.2 billion

• Focused on retail real estate

• Full service real estate entity with property management, asset management, leasing, acquisitions, development and financing capabilities with 615 employees

• Approximately 7,000 tenants, no tenant representing over 4.8% of annualized rental revenue

About RioCan

“RioCan’s core strategy is the ownership and management of community oriented neighbourhood shopping centres anchored by supermarkets, together with a rapidly expanding mix of new format retail centres. Its investment strategy is to focus on stable, lower risk, predominantly retail properties in either stable or high growth markets in order to create stable and, over time, growing cash flows from the property portfolio.”

Unit Holders Summary

About RioCan

Distribution History

Portfolio HighlightsAs at September 30, 2011:• High proportion of national tenants• Approximately 86.0% of the annualized rental revenue is derived from national and anchor tenants• Stable occupancy levels at 97.5% (total portfolio)• For the quarter ended September 30, 2011, RioCan retained approximately 89% of expiring leases at an average net rent increase of 7.2%• US Expansion:  – Focus on grocery anchored strip centres – 97.8% occupancy at September 30, 2011

Property Diversification(Canadian Portfolio)

Geographic Diversification

Top 10 Tenants –Canada and US

Target Entry into Canada

• Target has selected 24 locations across five provinces that are owned by RioCan and its partners currently occupied by Zellers.• Currently in discussions with Target to expand a number of the selected locations and is expected to be the anchor tenant at RioCan’s St. Clair and Weston Road development project.• Target has committed substantial capital to remodel and renovate the selected locations, which will serve to modernize and bring the stores to a format that is in keeping with a typical Target store.• RioCan will be Target ’s largest landlord in Canada.

Tanger Joint Venture• RioCan has entered into an arrangement to form an exclusive joint venture arrangement with Tanger factory Outlet Centers, Inc. for the acquisition, development and leasing of sites across Canada that are suitable for development as outlet shopping centres

• It is the intention of the joint venture to develop as many as 10 to 15 outlet centres in larger urban markets and tourist areas across Canada, over a five to seven year period. Any projects developed will be co-owned on a 50/50 basis and will be branded as Tanger Outlet Centres

Top 10 Tenants - US

Recent U.S Expansions

Advance in U.S market due to the lowered real estate prices

Cedar shopping centers: 80% Interest (Massachusetts, Pennsylvania, and Connecticut). 22 income properties

Inland Western: 80% interest for usd $123.3 million and assume $68.2m property level debt with average interest rate of 5.6% and average term 6 years.

(Dallas – Fort Worth, Houston, and Austin

Recent U.S Expansions(cont’d)

Kimco Realty – 31.7% Acquired Las Palmas Market Place in El Paso for $26.4695 million.

Sterling Organization Partnership – 80% ownership in August 2011. Focused on the opportunistic acquisition of quality grocery anchored and Big Box power center

Recent U.S Expansions(cont’d)

Stable Occupancy

Lease Rollover

Acquisition Activity2010

Strong Development Pipeline

At September 30, 2011

• Total developments comprise 8.9 million square feet, including shadow anchors

• RioCan and partners’ owned interest consists of 7.4 million square feet

• Total estimated project cost is $1.8 billion, with RioCan’s interest being approx. $1.4 billion

• Invested $427 million in these projects

• Generate unlevered yield between 7% to 11%, at a weighted average of 8.5% to 9.5%

Debt Maturity Schedule

Capital Structure

Portfolio Leasing Activity

Portfolio Leasing Activity

Outlook and Strategy• Robust acquisition activity the past two years will have an impact in 2011 and 2012.

• Year to date RioCan completed total acquisitions of $620 million at an average cap rate of 6.7%

• In 2010, RioCan completed total acquisitions of $986 million at an average cap rate of 7.6%

• Contractual Rent Steps of $1 million expected in  remainder of 2011 and $4 million in 2012

• Increased development activity is expected in 2011 and 2012

• US tenant expansion into Canada

• Target, Marshall’s, J. Crew, Kohl’s, Bed Bath & Beyond, Dick’s Sporting Goods

• Interest savings on maturing debt are expected to continue in 2012

• Mortgage debt maturing in 2012 currently carries an average interest rate of 5.8% providing an opportunity for RioCan to reduce interest expense at current interest rate

Senior Management Team

CEOEdward Sonshine, Q.C.

•Ceo of RioCan since it became a REIT in 1993

• Member of board of directors of Royal Bank of Canada, Ciniplex Galaxy Income Fund, and chair of Chesswood income fund.

• BA university of Toronto, LLB Osgoode Hall Law School

CFO and Senior Vice President

Raghunath Davloor C.A.

CFO and Senior Vice President of RioCan since February 2008

More than 25 years of real estate, management, finance, accounting and tax experience

Prior to joining RioCan in February, 2008, he served as Vice President & Director of Investment Banking at TD Securities

Bachelor of Commerce degree from the University of Manitoba and is a Chartered Accountant. 

Executive Vice President & Chief Operating Officer

Frederic A. Waks

Joined RioCan in 1995 and became COO in 2008

30 years of real estate experience starting in 1981 with Royal LePage

1984 joined First Plazas as vice president of leasing/marketing

1988 he moved to Domion Trust

1993 Vice President of leasing at Confederation Life

Active community member and is on the board of a number of local and national charities

Financial Performance

Quarterly Balance Sheet

Annual Balance Sheet

Consolidated Statement of Earnings (Annual)

Quarterly Income Statement

Annual Cash Flow

Annual Cash Flow cont…

Quarterly Cash Flow

Quarterly Cash Flow cont…

Funds From Operations (FFO)

AFFO

Recommendation

Hold(LONG TERM BUY)

CALLOWAYReal Estate Investment Trust

“The Right Fit for Customers,Communities, and Investors”

Stock Price Overview

Market Capitalization Summary

Calloway REIT

1 year with SMA 50 and SMA 200

5 year with SMA 50 and SMA 200

1 year compared to iShare S&P TSX Capped REIT

5 year compared to iShare S&P TSX Capped REIT

Company Overview

About Calloway Calloway Real Estate

Investment Trust is an unincorporated open-ended mutual fund trust governed by the laws of the Province of Alberta.

Calloway’s purpose is to own and manage dominant shopping centers that provide retailers with a platform to reach their customers through convenient location, intelligent designs, and a desirable tenant

Portfolio Highlights

Portfolio Highlights

Recent NewsHighlights of the year to date

Maintained portfolio occupancy rate above the 99% level Renewed 90% of expiring leases with an average rent

increase of 8.1% Acquired 3 Walmart anchored shopping centres Entered into agreements with Target and Loblaws to

convert select stores into Target and Loblaws stores Issued $90 million in unsecured debentures bearing

interest at 4.7% per annum to finance Walmart acquisitions Invested $46.6 million in the quarter to complete the

development and lease up of 181,317 square feet of leasable area with a 7.2% yield

FFO increased by $8.5 million ($0.025 per unit) to $41.4 million

Distribution History

Revenue by Province

Area by Province

Top 25 Tenants

Portfolio Occupancy and Age

Calloway has maintained high and industry-leading occupancy

Portfolio of high quality, newly developed assets with an average age of 9.1 years

Lease Maturity• Average lease term of 8.3 years• Average remaining lease term for Walmart is 11.3 years• Average remaining lease term excluding Walmart is 6.2 years• Average lease term of top 10 tenants is 9.7 years• Average retention rate of over 90% and lifts on renewals of 7.3%

Strategic Partners - Walmart

Number of Walmarts/ Supercenters 76 / 49

Number of Walmarts / Supercenters (including

shadows)93 / 57

Total GLA in Walmart anchored centres (sq. ft.) 21,551,445

Largest landlord of Walmart Canada

Strategic Partners - SmartCentres

Largest full service development company of open format shopping centres in Canada

SmartCentres owner, Mitchell Goldhar, owns 21.5% of Calloway

SmartCentres has had a long standing relationship with Walmart

Development Pipeline

Future Development Pipeline

Income Properties and Properties under Development

Management Team

Chief Executive OfficerAl MalwaniPresident, CEO

• Replaced Simon Nyilassy as CEO on May 2, 2011

• Chartered accountant• MBA from the University of

Toronto and a Masters of Laws from Osgoode Hall Law School

• Previously the President of Exponent Capital Partners, a real estate advisory and private equity firm

• Previously the CFO for Oxford Properties Group for over 10 years

Chief Financial Officer

Bart MunnChief Financial Officer

• Chartered Accountant• Bachelor of Commerce from Queen’s

University• Vice President and CFO of Morguard

Corporation (1999-2005)• Vice President and CFO of Morguard

Real Estate Investment Trust (1997-1999)

• Senior Vice President Finance and Administration for Morguard Investments Limited (1991-2005)

Executive Vice President

Rudy GobinExecutive Vice President Asset Management

• Chartered Accountant• Bachelor of Commerce from the

University of Toronto• Former Strategy Officer of Calloway• Former Executive Vice President,

Finance and Operations of SmartCentres (2001-2006)

• CFO of Nexacor Realty Management (1998-2001)

Financial Performance

Quarterly Balance Sheet

Annual Balance Sheet

Capital Structure

Annual Income Statement

Quarterly Income Statement

Annual Cash Flow

Annual Cash Flow

Quarterly Cash Flow

Quarterly Cash Flow

AFFO and FFO

Cash Flow

Financial and Operational Highlights

Recommendation

HOLD

H&R REIT

H&R Stock Stock Overview

5 Year: 50 and 200 SMA

1 Year: 50 and 200 SMA

5 Year: H&R vs. S&P/TSX Capped REIT

About H&R Reit

H&R ReitReal Estate Investment Trust

Headquartered in Downsview, Canada

Owns and manages a portfolio 282 properties:37 office properties121 industrial properties131 retail properties 3 development projects

Properties consist of over $39 million square feet has an aggregate total NBV of $5.3 billion as of December 31, 2010

H&R ReitTwo primary objectives:

Provide unitholders with stable and growing cash distributions, generated by the revenue it derives from investments in income producing real estate properties

Maximize unit value through ongoing active management of the REIT’s assets, acquisition of additional properties and the development and construction of projects which are pre-leased to creditworthy tenants

H&R ReitThe REIT’s strategy:

Accumulate a diversified portfolio of high quality income producing properties in Canada and the United States

Attract creditworthy tenants and focus on long-term leases.

Management

Management ProfileThomas J. Hofstedter

President and Chief Executive Officer

Has more than 30 years of real estate industry experience Became President and Chief Executive Officer of H&R REIT

at its creation in December 1996 Responsible for building most of the properties that

comprised the initial assets of the REIT In addition to commercial development, has experience in

high-rise residential and was responsible for building many prominent Toronto condominiums such as Wellington Square, the Penrose, the Metropole and others

Management ProfileLarry Froom, CA

Chief Financial Officer

Has over 15 years of real estate industry experience Joined H&R Developments in 1997 as Controller, was

promoted to VP - Finance for the H&R Group in 2003, was appointed VP - Finance for H&R REIT in January 2006 and CFO in September 2006

Responsible for overseeing all financial transactions, Unit offerings and investor relations. Prior to joining H&R, he was manager at Ernst & Young where he serviced clients in the real estate industry

Management ProfileNathan Uhr

Chief Operating Officer

Has over 30 years of real estate industry experience H&R Developments' Director of Leasing and Property

Management and held various other positions with H&R over 20 years before becoming Vice-President, Acquisitions of H&R REIT, at its inception, in December 1996.

Leads the due diligence team on any acquisition or mezzanine financing planned by the REIT and is responsible for management and leasing issues relating to the REIT's properties

Recent Events

Recent Events November

H&R sold $187 million of stapled units at a price of $22.00 per unit. The REIT will concurrently sold $75 million principal amount of 4.50% convertible unsecured subordinated debentures

$100 million Senior Unsecured Debenture Financing at 4.9% Announcement of Q3 ended September 30, 2011 financial statements

October Completed the acquisition of the Two Gotham Tower for U.S. $415.5 million. The

tower is described as a State-of-the-Art office tower in Long Island City, New York known as Two Gotham Center.

June Completed the acquisition of the “Atrium on Bay” in Toronto, Ontario for gross

proceeds of $344.8M. The REIT will assume a 7-year non-recourse mortgage of $190M. The acquisition is conditional upon the vendor meeting certain conditions.

Acquisition of 1M sq.ft. industrial property, Georgia, USD$56M

May Completed offering $200 million offering of Stapled Units at $22.15 Acquisition of PWC Data centre, Georgia, USD$61M Acquisition of Two industrial properties, eastern Canada, $20M

Recent Events February

4th quarter results announced along with an increase in the quarterly distribution policy

Purchased a 42,000 square foot retail property in Teaneck, New Jersey for a purchase price of U.S. $10.3M. A mortgage payable of U.S. $6.4M was assumed on closing.

Purchased a 116,000 square foot retail property in Columbus, Ohio for a purchase price of U.S. $21.7M.

January $180 million Senior Unsecured Debenture Financing at 4.778% Completed the acquisition of the remaining 20% beneficial interest,

not already owned by the REIT, of a property under development for an aggregate cash purchase price of approximately $11,000. The REIT now owns 100% of approximately 81 acres of land located in Brampton, Ontario (known as Airport Road).

Internal ReorganizationCreated H&R Finance Trust in Oct, 2008

Unit holder's investments held through two separate trusts

Trade together as “Stapled units” Shared the same ticker symbol

The sole activity of Finance Trust is to provide capital funding to H&R REIT (U.S.) Holdings Inc. ("U.S. Holdco"), a wholly owned U.S. subsidiary of the REIT

Purpose To save U.S tax

Portfolio of Properties

Flagship PropertiesTransCanada Tower, Calgary, Alberta

936,000 square footTransCanada Pipelines20-year lease commenced on May 1,

2001100% Ownership Interest

Place Bell, Ottawa, Ontario987,328 square footBell Canada, Public Works of Canada,

Accenture and Gowling Lafleur Henderson LLP.

100% Ownership Interest

Flagship PropertiesTelus, Burnaby, BC

686,697 square foot office complexTelus20-year lease100% Ownership Interest

Bell Canada and Bell Mobility Mississauga, Ontario1.1M square foot office complexBell Canada and Bell Mobility20-year lease100% Ownership Interest

Top 10 Assets As at June 30, 2011

List of Tenants and Credit Rating

The Bow: Under Development

The Bow: Under Development

2 million sq. ft. office complex in Calgary for EnCana Corporation

Completion by 2012

Fully pre-leased for 25 years

Budgeted cost of $1.6 billion

Set to incur approximately $360 million in development costs over the next twelve months

77% complete and on budget

Locked in 97% of total budgeted costs before contingencies and has successfully secured all of the financing required

The Bow: Under Development

3 months behind schedule with potential cost of $4.7 million for the delay. $30 million in contingency is available to cover this.

The first four tranche completion dates upon which floors are scheduled to be delivered are as follows: floors 1-14 by July 3, 2011 floors 15-24 by August 29, 2011 floors 25-42 by October 12, 2011 Schedule of completion of floors 43-59 is expected to be

set by the end of March 2011

Year one projected income is approximately $94 million.

Rent step ups will be 0.75% per annum on office space and 1.5% per annum on parking income for the full 25-year term.

The Bow Budget

2010 Acquisitions

2010 Dispositions

Portfolio Overview

Number of Properties by Type of Asset

4%15%

81%

United States

Office Industrial Retail

17%

57%

25%

Canada

Office Industrial Retail

Net Book Value

Net Book Value by Region

43%

14%

10%

6%

26%

2010

Ontario AlbertaOther QuebecUnited States

43%

14%

10%

6%

27%

2009

Ontario AlbertaOther QuebecUnited States

Operating Income

45%

29%

26%

By Type of Asset

Office Industrial Retail

47%

22%

16%

8%7%

By Geographic Region

Ontario United StatesAlberta OtherQuebec

Lease Expiries in Next 5 Years

Key Performance Drivers

Average Age of Portfolio From Date Built or Renovated

Mortgages Payable

Financial Information

Average Shares Outstanding

Year 2010 2009 2008 2007 2006 2005 2004 2003

Basic units (in millions)

144.35

142.51

135.00

124.19

109.39

95.43 88.44 74.68

Financial Highlights

Financial Highlights

Monthly Distribution Schedule

Updated Distribution Schedule

Net Property Operating Income

Debt to Gross Book Value

All numbers in 000’s except unit and per unit amounts

Financial Statements Analysis

Q3 2011 Balance Sheet

2010 Balance Sheet

2010 Income Statement

Q3 2011 Income Statement

2010 Cash Flow Statement

Q3 2011 Cash Flow Statement

Funds from OperationsNormalized Funds from Operations

Adjusted Funds from Operations

FFO, NFFO, and AFFO

Funds From Operations

Normalized Funds From Operations

Adjusted Funds From Operations

BuyRecommendation