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Real Estate Investment Trusts

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  1. Real EstateInvestment Trusts Ben Mckay Bradley Verbeek Edmond Yee Sean McIlmoyle

  2. Agenda

  3. 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

  4. REITs Structure Trustee Trustee Fees Act on Behalf of Unitholders REIT Distributions Property Income Unitholder Properties Investment Ownership Management Services Management Fees Management

  5. Shareholders’ Benefits • Professional Management • Portfolio Diversification • Liquidity • High Yields • Transparency

  6. REITs Classification

  7. Value Drivers • Interest Rates • Rise in Interest  Interest Expense Increase  Dividend Yield Decrease • Drop in Interest  Interest Expense Decrease  Dividend Yield Increase

  8. Portfolio Diversification

  9. REITs Timeline 1972: NAREIT Unveils REIT Index 1969: First European REIT (Netherlands) 1993: REITS Introduced in Canada 1960: REITS are Created (USA) 1960: NAREIT Formed 1989-1991: Dramatic Real Estate Downturn 1965: First NYSE REIT (Continental Mortgage Investors)

  10. American REITs • 153 REITs • $389 Billion Market Capitalization

  11. Canadian REITS • 35 REITs • $29 billion market capitalization

  12. Market Cap Growth (Canada)

  13. REIT Index Performance

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

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

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

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

  18. 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

  19. Market Cap of Canadian Publicly Traded FTEs Rapid growth of income trusts up to 2006 because of imbalanced tax treatment

  20. 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

  21. Affected REITs • Cross-border REITs • Significant US or Foreign Holdings • Hotel REITs & Senior Housing REITs • Passive Income vs. Active Income

  22. Impact of Tax Fairness Plan

  23. Impact of Tax Fairness Plan

  24. Factors to Consider • Management • Portfolio Diversification • Low Leverage • Net Asset Value per Share (NAV) • Earnings Available for Distribution • FFO & AFFO • Cash Distribution to Unitholders • FFO or AFFO Payout Ratio

  25. 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.

  26. 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

  27. REIT Market Caps

  28. Stock Price Overview

  29. RioCan Real Estate Investment

  30. 1 year with SMA 50 and SMA 200

  31. 5 year with SMA 50 and SMA 200

  32. 1 year compared to iShare S&P TSX Capped REIT

  33. 5 year compared to iShare S&P TSX Capped REIT

  34. Company Overview

  35. 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

  36. 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.”

  37. Unit Holders Summary

  38. About RioCan

  39. Distribution History

  40. Portfolio Highlights As 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

  41. Property Diversification(Canadian Portfolio)

  42. Geographic Diversification

  43. Top 10 Tenants –Canada and US

  44. 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.

  45. 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

  46. Top 10 Tenants - US

  47. 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

  48. 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

  49. Recent U.S Expansions(cont’d)