Real Estate Investment Trust(REIT)

Vivian KeeFiona KoCarol Liu

Xaviera Tam

Agenda

1. Industry Overview

2. Canadian REITs & Tax Fairness Plan

3. Benefits of REITs

4. RIO CAN

5. HR REITs

6. Vanguard (ETF)

What’s REIT?

An income trust company that accumulates a pool of money to buy, develop, manage, and sell assets in Real Estate

Must distribute at least 90% of taxable income as dividend

Established in Canada in 1993 It can be privately held, publicly traded, or

non-exchange traded

“REITs are best performing asset class in the past month, led by REITs in UK and Japan.”

Global Equity Research

Nov 9, 2006

Types of REIT

1. Equity REITs• Invest and own properties• Most revenues come from rents

2. Mortgage REITs• Loan money for mortgages to owners of real estate, or

purchase existing mortgages or mortgage-backed securities

• Revenues come from interest earned on mortgage loans

3. Hybrid REITs• Combination of Equity and Mortgage REITs

Types of Property

1. Multi-residential

2. Industrial

3. Office

4. Self storage

5. Diversified

REITs around the World

US REITs

Established in 1960 160 Equity REITs in US with market capitalization of US

$423 billion Qualifications:

Corporation or business trust 75% of assets must be real estate assets, cash, or

government securities 95% of gross income must from rents, mortgage interests,

plus passive income (dividend or interest income) Permitted to invest in foreign assets Minimum distributions of 90% of taxable income

Australian REITs

LPT (Listed Property Trusts) Established in 1985 37 LPTs with market capitalization of US $60 billion Qualifications:

Fixed Trusts Must invest in assets that generate rental income Permitted to invest in foreign assets Must distribute 100% of income and 100% of capital gains

as dividends

Canadian REITs

Established in 1993 27 REITs listed on TSX with market

capitalization of $27 billion Added into the S&P/TSX Composite Index on

Jan 26, 2005 Qualifications are updated with respect to

Tax Fairness Plan

Tax Fairness Plan Announced on Nov 1st, 2006 Is applicable to all Canadian trusts companies,

except REITs given certain conditions Before the plan, trust companies do not need to pay

corporate tax Federal and Provincial government lose $1 billion

annually in tax revenue to trusts Main purpose is to reduce the growing number of

companies converting to trust Effective for trusts that begin trading after Oct 31,

2006 Four year transition period for existing trusts (2011)

Income Trusts

New Definition of Canadian REIT

1. At no time in the year, shall a REIT hold non-portfolio property other than real properties situated in Canada.

2. Have no less than 95% of its income for the year income from properties, whether in Canada or abroad (including dividends and interest come)

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

4. Hold throughout the year real properties situated in Canada, cash, and debt or other obligations of Government of Canada with a total fair market value that is no less than 75% of its equity value.

“At Risk” REITs

Cross-border REITs Fail to comply with Rule 3

Significant US or foreign holdings

Hotel REITs & Senior Housing REITs Fail to comply with Rule 2

Passive Income vs. Active Income

Examples of “At Risk” REITs

Chartwells Senior Housing (CSH.un) Internally manages its own and third party

properties Violates Rule 2 25% of properties located in US Violates

Rule 3 Sunrise REIT (SZR.un)

80% of assets located in US Canadian REITs book value of $260 M vs. REITs

equity value of $630 M Violates Rule 4

Summary of Effects

Both Income Trusts and REITs index value fell

Investors are panic and uncertain Volumes traded were particularly high In the near future, most likely, there will be

stronger funds into REITs as investors reallocate capital out of income trusts into REITs

Value Drivers

Rise in Interest Rates – Renting increases Fall in Interest Rates – Interest expense reduces

Benefits to REIT Unitholders No corporate tax – no double taxation Taking a real stake in the ownership of property via

increases and decreases in value Participating in the income generated by the

property Does not need large capital investments Diversification – relatively low correlation between

REIT and publicly traded real estate stock returns and the returns of other market sectors

Liquid Relatively higher returns than other major indexes

REITs vs. Index

REIT vs. S&P 500

NAREIT Equity Index

S&P 500

Dividend Growth vs. CPI

Diversification

Diversification

Diversification

Factors of Choosing REIT

1. Internalized Management• Ability to choose the right investments

2. Diversification• Types of properties invested

3. Strong Growth Prospects4. Low Leverage 5. Earnings

• FFO, instead of Net Income

6. Cash Flows• Available cash for dividend distribution

Exchange: TSX

Symbol: REI.UN-T

RioCan Today

Total outstanding units: 198,735Market value: C$5,216,793.75

Current Overview Canada’s largest REIT and the 2nd largest public real estate

entity in Canada (Equity REIT) Went public in 1993 Currently ranked the 16th largest owner of shopping centres in

North America (GLA)1and largest in Canada Enterprise value in excess of $7 billion Focused on ownership and management of “Retail” real

estate, a defensive asset class –Dominant owner of community and new format retail in

Canada –RioCan has largely become the “Urban Market” REIT

Current Overview Ownership interest in 200 retail properties, including 14 under

development, diversified throughout Canada –72% of all Canadians live within 30 kilometers of a RioCan

property Proven track record of delivering stable growth while

maintaining a conservative balance sheet Strong, creditworthy tenant base –Long lease term profile with Canada’s best known tenants –Almost 5000 tenancies A full-service real estate entity

Management Group

Management Group

Board of Trustees

Canadian vs. US

Only six metropolitan markets within Canada have in excess of one million

people

Canada’s Six Urban Markets

Primary Marketing Strategy

Geographic DistributionBased on Gross Revenue

Gross Revenue from Six Urban Makets

Stability of Revenue Stream

A diverse, high quality investment grade tenant base and long lease0-term profile provides substantial income stability.

RioCan Development Program

RioCan Development Program

Redevelopment and Expansionof Existing Properties

Recent Investment Activities

Focused investment strategy on increasing exposure to the unenclosed new format asset class 6 years ago, led to: Average of $500MM of acquisitions in each year (including

partners’ interests) A total of 23MM sq. ft. Average cap rate of 9.3% Average price per sq. ft. of $130

Portfolio repositioning strategy in 2005: Acquired a total of 1.9MM sq. ft. (new format retail in primary

markets) Disposed of 21 non-core shopping centrestotaling 3.4MM sq.

ft. 12 enclosed malls, none of which were located in Canada’s 6

primary markets

Forward Looking Information

Price in the Past 1 Year

Price in the Past 5 Years

1 Year Comparison with S&P

5 Years Comparison with S&P

RioCan Financial

06 Q3 Balance Sheet

06 Q3Income Statement

06 Q3CashFlowStatement1 of 2

06Q3CashFlowStatement2 of 2

05 Balance Sheet

05

Income

Statement

05CashFlowStatement2 of 2

05CashFlowStatement1 of 2

Financial Summary

Distribution History

Year Pre-Split DistributionDistribution

YTD 2006 　 C$1.08 so far, expecting C$1.32

2005 　 C$1.27

2004 　 C$1.23

2003 　 C$1.14

2002 　 C$1.11

2001 　 C$1.08

2000 　 C$1.07

1999 　 C$1.04

1998 　 C$0.95

1997 C$1.55 C$0.78

1996 C$1.30 C$0.65

1995 C$1.15 C$0.58

Continuous Distribution Increase

Changes in Payout Ratio

Recommendation

H&R REIT

Open-ended Real Estate Investment Trust

Open 24.360 Bid 24.910

High 25.280 Ask 25.000

Low 24.220 EPS 0.85

Volume 583,740 P/E 29.40

52-Week High 24.440Indicated Annual

Div.1.37

52-Week Low 18.250 Yield 5.63

 Last:  C$ 24.950 Net Change:   C$ 0.600 % Change:   2.46%

Latest Price As of Nov 16, 2006

Market Capitalization: $2,756,065,872

Units Outstanding: 124,372,465

Closing Price based on 3 Years (Weekly)

H&R REIT vs. S&P500 (3Years - Weekly)

Closing Price based on 5 Years (Monthly)

H&R REIT vs. S&P500 (5 Years - Monthly)

Corporate Information IPO in December 1996. Owns, manages and acquires income producing properties, and

provides mezzanine financing for development projects. H&R REIT is a TSX-listed, open-ended Real Estate Investment

Trust. The REIT holds interests in 34 office properties, 113 single-tenant industrial properties, 133 retail properties and 2 development projects, principally in the Greater Toronto Area.

 Office Industrial Retail Developments

Number of Properties

34   113   133   2  

Net RentableArea (sf) *

8,001,647   23,185,863   9,570,546   N/A  

Book Value($ millions) *

$ 1,548 $ 1,371 $ 1,400 $ 29

Selected Tenants    Bell Canada Inc., TransCanada Pipelines, Bell

Mobility, Royal Bank of Canada, Public Works of Canada,

Nestle, Telus Communications,

Americredit, Telemedia, Sony

Pictures Entertainment

Canadian Tire, Purolator Courier

Limited, Nestle USA, Finning International

Inc., Circuit City, Nortel Networks,

Asea Brown Boveri, Sherwin Williams,

Sysco Food Services of Canada  

Rona Inc., Lowe's, Shell Oil Products, Home Depot, Wal-

Mart, Chapters, Nike, Canadian Tire,

Famous Players, Eckerd, Walgreens,

Sobey's, A&P, Shoppers Drug Mart

 

 

Portfolio As of November 10, 2006

Growth over 9 years (End of 2005)

1996 Today (2005)

Properties 27 227

Assets $270M $3.8B

Market Cap. $170M $2.3B

Average term of leases 8yrs 12.3yrs

Average term of mortgages

8yrs 11.1yrs

Distributable Income per unit

$0.75 $1.46

Diversification of Rental Area

Book Value by Geographic Region

Operating Income by Type of Asset

Flagship Properties 320 Front Street, Toronto, 590,000 sq.ft. – lead

tenant Royal Bank Nestle building, North York, 360,000 sq.ft. – lead

tenant Nestle Canada

Key Acquisitions in 2001

LocationPrice

[CAD$]

Est. Levered Return

Lease Term

[Years]

Purolator Courier Distribution Centres

12 across Canada

$83M 14% 20

Bell CanadaOffice/data Centres

Montreal and Toronto

$124M 18% 20

TransCanada Pipelines Office Tower

Calgary $263M 17% 20

Key Acquisitions in 2003

LocationPrice

[CAD$]

Est. Levered Return

Lease Term

[Years]

Finning International Facilities

Western Canada

$79M 17% 20

Bell Canada Complex

Mississauga $140M 13% 20

Place Bell Canada Ottawa $224M 16% 14

Circuit City Distribution Centre

Marion, Illinois

$48M 14% 19

Lowe’s Home Improvement stores

Georgia,Alabama

$43M 14% 17

Key Acquisitions in 2003 - US

TenantsPrice [CAD]

Est. Levered Return

28 Stand alone retails properties

Lowes, Home Depots, Walgreens, Sams Club

$292M 15%

6 Distribution Centres Georgia Pacific, Sherwin, Williams, Jones Apparel

$123M 13%

Management Profile Thomas J. Hofstedter, President & CEOfounded H&R REIT in 1996; more than 25 years in commercial real estate; CA.

Initial Assets:• 567,861 square foot office complex located at 310-320-330 Front Street West in Toronto, tenants as NCR and the Royal Bank;

•359,227 square foot office tower located at 25 Sheppard Avenue West in Toronto, head office of Nestlé Canada;

•153,314 square foot office building located at 145 Wellington Street West in Toronto, corporate head office of AIG.

Management Profile

Eric Cohen, Chief Financial Officer joined H&R REIT in 1996; 16 years in commercial real

estate; CA.

Nathan Uhr, Vice President, Acquisitions joined H&R REIT in 1996; 30 years in commercial real

estate.

“Two-part” Strategy

Establishing strong, stable cash flow by locking in the company portfolio’s income yield regardless of real estate cycles.

“Two-part” Strategy

Building a portfolio that can withstand the inevitable economic and real estate cycles in various markets and generate a dependable income stream.

Through acquisitions, new developments or expansions.

Maintain a balanced mix of properties

H&R REIT

Financial Information

End of December 2005

Summary of Financial Information

H&R REIT

First Quarter 2006 Report

H&R REIT

Second Quarter 2006 Report

H&R REIT

Third Quarter 2006 Report

Annual EPS Report

Distribution HistoryCash Distribution Per Unit

(approximately 91% of Distribution Income Per Unit)Payout Period - Monthly

Year Distribution

1997 $0.6800

1998 $1.0300

1999 $1.1040

2000 $1.1090

2001 $1.1640

2002 $1.1990

2003 $1.2240

2004 $1.2440

2005 $1.3044

2006 Commencing Jan 2006 $0.1112 per unit ($1.3344 on an annualized basis)

Recommendation

Current Market Information

Quick Facts as of 11/ 15/ 06

Last Sale $75.23

(11/15/06) Net Change 0.09 % Change 0.12 Previous Close $75.14 Open $75.25 Today's High $75.45 Today's Low $75.00 Today's Volume 89,000 52 Week High $76.80 52 Week Low $59.13 Shares Outstanding (000s) 17,959 Net Assets $1,351,055,570

Current Market Information

Vanguard REIT ETF

What does the fund do?an exchange-traded share class of Vanguard® REIT

Index Fund, which employs a “passive

Management” investment approach

designed to track the performance of  the MSCI®

US REIT Index, a benchmark of U.S. property trusts

that covers about two-thirds of the value of the entire

U.S. REIT market.

Portfolio Holdings

97.91 % REITS ( High industry concentration risk)

2.09 % Short term reserve holdings to maintain liquidity for redemptions

ETF Information

Target REIT Composite is the MSCI US REIT Index adjusted to include a 2% cash position (Lipper

Money Market Average).

Management Profile

Gerard C. O'Reilly,

Principal Manager Portfolio manager. Advised the fund since 2004. Worked in investment management since

1992. B.S., Villanova University.

Management Profile

George U. Sauter Oversees Vanguard’s Quantitative

Equity and Fixed Income Groups With Vanguard since 1987 Quantitative Equity Group manages

indexed and structured equity portfolios covering U.S. and international markets.

advised Vanguard REIT ETF since 2004 chief investment officer. A.B. in economics from Dartmouth

College and an M.B.A. in finance from the University of Chicago.

MCSI REIT Index

Top Ten Holdings

1. Simon Property Group Inc.

•Delaware corporation that operates as a self- administered and self-managed real estate investment trust.

•ownership, development, and management of retail real estate, primarily regional malls, Premium Outlet® centers and community/lifestyle centers.

•As of December 31, 2005, the Company owned or held an interest in 286 income- producing properties in the United States, which consisted of 171 regional malls, 33 Premium Outlet centers, 71 community/lifestyle centers, and 11 other shopping centers or outlet centers in 39 states and Puerto Rico, ten parcels of land held for future development, ownership interests in 51 European shopping centers in France, Italy and Poland, five Premium Outlet centers in Japan, and one Premium Outlet center in Mexico.

2. Equity Residential

engaged in the acquisition, development, ownership, management and operation of multifamily properties.

is structured as an umbrella partnership REIT, under which all property ownership and business operations are conducted through the Operating Partnership and its various subsidiaries.

strategy for accomplishing these objectives includes: Leveraging the Company's size and scale in four critical ways: Investing in apartment communities located in strategically targeted markets, to maximize its total return on an enterprise level; Meeting the needs of the Company's residents by offering a wide array of product choices and a commitment to service; Engaging, retaining, and attracting the people by providing them with the education, resources and opportunities to succeed; and Sharing resources, customers and practices in property management and across the enterprise.

3. Equity Office Properties Trust

was organized in 1996 and began operations in 1997 owns all of its assets and conducts all of its operations through EOP Partnership and

its subsidiary entities. As of December 31, 2005, the Company owned whole or partial interests in 622

office properties comprising 111.5 million square feet in 16 states and the District of Columbia.

owns, manages, leases and develops office properties. At December 31, 2005, the Company had a national office portfolio comprised of whole or partial interests in 622 office buildings located in 16 states and the District of Columbia.

owns premium quality office buildings.

4. ProLogis

an international operating company organized as a Real Estate Investment Trust (REIT).

the largest publicly held, U.S. headquartered, global owner and operator of distribution properties.

Founded in 1991 a service-oriented company focusing on meeting the needs of customers

through the unique ProLogis Operating System® - made up of over 1,200 real estate professionals working together to provide quality facilities and

services to customers in North America, Europe and Asia.

Geographical Diversification

•100% invested in the US

•Limited Diversification

•High geographical concentration risk

Performance History

Current Performance

Annual ReportTotal Returns

Annual Report

Annual Report

Expense Ratios

Vanguard Index Participation Receipts – VIPERs

a VIPER can be bought and sold anytime during the trading day at the current market  price

Cumulative Returns

Statement of Net Assets

Statement of Operations

Financial Highlights

Notes

Management Fees

Capital Share Transactions

In Kind Redemptions

Semi Annual Report

Total Return

Semi Annual Report

Expense Ratios

Statement ofNet Assets

Statement of Operations

Statement of Changes in Net Assets

Financial Highlights

NotesManagement Fees

Capital Share Transactions

In Kind Redemptions

Distribution

Valuation 31-Jul-06 31-Jan-06 31-Jan-05

NAV 68.73$ 64.07$ 51.77$

NAV Growth 7% 24% 5%

Expenses 0.120 0.120 0.180

Distributions 1.082 3.561 1.270

Investment Income 940.00$ 1,750.00$ 670.00$

Yield 4.00% 3.80%

Price 68.88$ 64.07$ 51.77$

P/E 45.000 38.000

Unrealized and Realized Gain on Assets 4.80$ 14.12$ 2.97$

Unrealized andf Realized Asset Gain Growth -66% 376%

Net Assets 1,363.00$ 871.00$ 198.00$

NA Growth 56% 340%

Shares issued 10139.000 10668.000 3828.000

Rate of Share Issuance -5% 179%

Redeemed shares 3900.000 900.000 0.000

Rate of Redemption 333% 0%

Net Share Issuance 6239.00 9768.00

Rate of Net Share Issuance -36%

Recommendation

Hold until further evaluation at year end.ExpensiveCan be costly to trade based on

percentage commissions.High P/E