strictly private and confidential naiop toronto 2009 forecast breakfast
TRANSCRIPT
Strictly Private and Confidential
NAIOP Toronto
2009 Forecast Breakfast
Disclaimer
This presentation was prepared exclusively for the benefit and internal use of the recipient for the purpose of considering the transaction or transactions contemplated herein. This presentation is confidential and proprietary to RBC Capital Markets and may not be disclosed, reproduced, distributed or used for any other purpose by the recipient without our express written consent.
The information and any analyses contained in this presentation are taken from, or based upon, information obtained from the recipient or from publicly available sources, the completeness and accuracy of which has not been independently verified, and cannot be assured by RBC Capital Markets. The information and any analyses in these materials reflect prevailing conditions and our views as of this date, all of which are subject to change.
To the extent projections and financial analyses are set forth herein, they may be based on estimated financial performance prepared by or in consultation with the recipient and are intended only to suggest reasonable ranges of results. The printed presentation is incomplete without reference to the oral presentation or other written materials that supplement it.
Employees of RBC Capital Markets are expressly prohibited from offering directly or indirectly a specific price target, or offering or threatening to change research, a rating or a price target, to a company as inducement for the receipt of business or compensation.
3
Canadian Real GDP
-4
-2
0
2
4
6
8
00 01 02 03 04 05 06 07 08 09 10
Annualized % change, quarter-over-quarter
Forecast
Source: Statistics Canada, RBC Economics Research
Canada’s real GDP Growth
Annual Growth rates
'07 '08f '09f '10f
2.7 0.6 0.0 2.7
4
Equity Market Volatility
CBOE S&P500 Volatility Index (VIX) - 2002 – present
5
15
25
35
45
55
65
75
85
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Ind
ex L
evel
5
Financial Index Performance
Canadian and U.S. Financial Index Performance - 2005 – present
20%30%
40%50%
60%70%
80%90%
100%110%
120%130%
140%150%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Rel
ativ
e P
erfo
rman
ce
S&P 500 Financial Index S&P/TSX Financial Index
6
Canadian Labour Market
7
Bank of Canada Overnight Rate and 10-Year GoC Yield
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10
BoC overnight rate
10 year bond yield
%
Forecast
Bank of Canada overnight rate & 10 year bond yield
Source: Bank of Canada, RBC Economics Research
8
Corporate Bond Spreads
U.S. Corporate Bond Spreads
Canadian Corporate Bond Spreads
Source: RBC Capital Markets
Source: Bloomberg
0
100
200
300
400
500
600
700
Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Spr
ead
over
US
T (
bps)
AA A BBB
564 bps
327 bps
394 bps
0
100
200
300
400
500
600
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Spr
ead
over
GoC
(bp
s)
AA A BBB
458 bps
531 bps
299 bps
9
Canadian CMBS Spreads
Canadian CMBS Spreads
Source: RBC Capital Markets
0
100
200
300
400
500
600
700
800
Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08
Spr
eads
(bp
s)
AAA 10 year AA 10 year A 10 year BBB 10 year
700 bps
800bps
550 bps
450 bps
10
U.S. High Yield Spreads Since January 2008
Spread (bps)
Source: Bloomberg
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
HY Index SpreadBB SpreadB SpreadCCC Spread
1,683 bps
1,141 bps
1,450 bps
3,037 bps
11
REIT Index Performance and Cdn. REIT Price Premium / Discount to NAV
2008 Index Price Performance Historical Premium/Discount to NAV
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
J an-08
Feb-08
Mar-08
Apr-08
May-08
J un-08
J ul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
S&P/TSX REIT Index RMZ Index S&P/TSX CompositeNote: Price only return
-30%
-20%
-10%
0%
10%
20%
30%
40%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Group-Average Premium (Discount) To NAV Period Average
Maximum: 28.0%
Current: -12.4%
Average: 5.4%
Source: RBC Capital Markets Research
Maximum: -25.0%
-41.5%
-43.1%
-35.0%
12
Canadian REIT Universe – Equity Market Capitalization
$0
$5
$10
$15
$20
$25
$30
$35
Q1/95 Q1/96 Q1/97 Q1/98 Q1/99 Q1/00 Q1/01 Q1/02 Q1/03 Q1/04 Q1/05 Q1/06 Q1/07 Q1/08 Current
$14.3 Billion
Nov-05: O&Y REIT privatized, equity value of $1.0B
Jun-06: TGS NA REIT privatized, equity value of $265MM
Jan-07: Summit REIT privatized, equity value of $2.1B
Feb- 07: Retirement Residences REIT privatized, equity value of $780MM
Apr-07: Sunrise Senior Living REIT acquired, equity value of $1.1B
May-07: Alexis Nihon REIT acquired, equity value of $0.5B
Aug-07: Dundee REIT: Cancellation of ~66% of its units following a
large portfolio sale to GE Real Estate, equity value of $1.1B
Sep-07: Legacy Hotels REIT acquired, equity value $1.5B
Dec-07: CHIP REIT privatized, equity value $925MM
Dec-07: IPC US REIT acquired, equity value of $425MM
Total Equity Capitalization of Canadian REIT Universe ($billions)
13
Canadian REIT ComparablesNAV Estimate (2) Market Cap
19-Jan-09 2008 Price Mkt Cap FFO Multiples (2) Prem / App.
Canadian REITs Close Change ($MM)(1) Yield 2009E 2010E Per Unit (Disc) CR
Commercial REITs
Allied Properties REIT $11.90 -40.0% $372 11.1% 6.9 x 7.2 x $15.25 -22.0% 8.75%
Artis REIT $7.15 -51.1% $236 15.1% 4.2 x 4.5 x $8.25 -13.3% 9.00%
Calloway REIT $12.40 -53.7% $1,176 12.5% 7.0 x 7.3 x $15.00 -17.3% 8.00%
Cominar REIT $16.13 -21.5% $739 9.0% 8.8 x 8.4 x $15.75 2.4% 8.50%
CREIT $21.00 -22.1% $1,282 6.5% 9.0 x 8.9 x $24.00 -12.5% 7.75%
Crombie REIT $8.00 -30.3% $419 11.1% 5.6 x 5.6 x $9.58 -16.5% 9.00%
Dundee REIT $10.90 -62.6% $229 20.1% 3.6 x 3.9 x $18.50 -41.1% 9.00%
H&R REIT $7.93 -62.4% $1,161 9.1% 5.1 x 5.9 x $12.50 -36.6% 8.25%
Huntingdon REIT $0.25 -91.3% $18 0.0% 1.4 x n/a $0.46 -45.1% 10.18%
InStorage REIT $3.77 -46.4% $98 0.0% 11.4 x n/a $4.00 -5.8% 8.25%
Morguard REIT $10.84 -11.2% $640 8.3% 9.1 x 9.2 x $12.50 -13.3% 8.00%
Primaris Retail REIT $11.30 -41.5% $703 10.8% 8.7 x 8.7 x $14.25 -20.7% 8.00%
Retrocom Mid-Market REIT $1.69 -63.7% $47 26.6% 3.3 x n/a $2.43 -30.5% 9.85%
RioCan REIT $13.50 -37.4% $2,976 10.2% 8.8 x 8.7 x $16.00 -15.6% 7.75%
Scott's REIT $4.27 -42.9% $32 19.9% 4.3 x n/a $5.51 -22.6% 8.98%
Whiterock REIT $14.80 -56.8% $58 22.7% 3.6 x n/a $28.35 -47.8% 7.88%
Total / Weighted Average -38.8% $10,185 10.2% 7.7 x 7.9 x -17.7% 8.09%
Residential REITs
Boardwalk REIT $25.25 -42.6% $1,359 7.1% 10.5 x 11.0 x $34.63 -27.1% 7.00%
CAP REIT $14.65 -1.8% $988 7.4% 11.4 x 11.0 x $15.25 -3.9% 6.75%
InterRent REIT $1.30 -73.1% $24 9.2% 5.7 x 5.8 x $2.29 -43.2% 7.69%
Lanesborough REIT $2.99 -53.9% $53 18.7% 4.7 x 5.4 x $3.90 -23.3% 8.50%
Northern Property REIT $18.21 -27.5% $456 8.1% 8.6 x 8.4 x $18.00 1.2% 9.00%
Total / Weighted Average -26.7% $2,879 7.6% 10.4 x 10.5 x -14.7% 7.26%
Hospitality REITs
Holloway Lodging REIT $1.13 -77.9% $44 18.6% 2.9 x n/a $2.75 -58.9% n/a
InnVest REIT $3.53 -64.1% $263 21.2% 2.9 x 2.9 x $5.00 -29.4% 9.00%
Royal Host REIT $3.29 -49.5% $68 20.1% 5.0 x 4.8 x $2.60 26.5% 10.00%
Total / Weighted Average -63.1% $375 20.7% 3.3 x 3.3 x -22.7% 9.21%
Seniors Housing REITs
Chartwell Seniors Housing REIT $5.65 -52.4% $574 13.1% 8.0 x 7.8 x $6.50 -13.1% 8.50%
Extendicare REIT $5.77 -53.2% $428 14.6% 4.1 x 3.7 x $9.35 -38.3% 14.00%Total / Weighted Average -52.7% $1,002 13.7% 6.3 x 6.1 x -23.8% 10.85%
1. Based on most recent publicly available information
2. Estimates from RBC Research, except for Charter, Crombie, Huntingdon, Retrocom, Scott's, Whiterock, InterRent, Lanesborough, Holloway, Extendicare, BTB, Charter, Lakeview and Temple, whose estimates are consensus
14
Transaction
Date Announced/Closing Date
8/14/2007 /12/12/2007
8/1/2007 /12/4/2007
7/12/2007 /9/18/2007
6/4/2007 /8/24/2007 (Real Estate
Sale) / 8/27/2007 (Equity
Investment)
1/12/2007 /4/26/2007
12/1/2006 /5/22/2007
10/5/2006 /2/2/2007
8/30/2006 /1/26/2007
TransactionValue US$1.4 Billion $1.2 Billion $2.5 Billion
i) $2.3B in Direct Real Estate
ii) $165MM of Equity (~16%)
$2.3 Billion $1.0 Billion $2.8 Billion $3.3 Billion
Bid Price US$9.75 $19.10 $12.60 $47.50 $16.50 $18.60 $8.35 $30.00
Price Prior to Announcement US$9.30 $14.26 $12.00 $39.96 $11.05 $14.89 $6.79 $25.45
Bid Premium Over
Prior Day Price4.8% 33.9% 5.0% 18.9% 49.3% 24.9% 23.0% 17.9%
Implied Cap Rate at Bid Price(1) 7.5% 6.7% 6.5% 6.0% 5.8% 6.8% 8.4% 6.0%
FFO Multiple(1,2) 10.9x 12.2x 12.7x 16.3x 21.0x 13.4x 10.0x 15.1x
AFFO Multiple(1,2) 15.5x 15.2x 20.1x 20.5x 22.6x 18.2x 13.0x 18.1x
(1) Implied cap rates and FFO/AFFO multiples are based on consensus street estimates
(2) Multiples are based on 1-year forward estimates
Canadian REIT M&A Overview: Deals Completed in 2007 2007 was an extremely active year for REIT M&A market in Canada, with transactions totaling ~$17 billion in value being
completed
acquisition of a large portfolio of real
estate from, and an equity stake in
acquisition ofacquisition of acquisition of acquisition ofacquisition ofacquisition ofacquisition of
15
Class ‘A’ Cap Rate Trends1 Vs. 10-Year GoC Bond Yields
Source: Altus InSite Investment Trends Survey
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
Ca
p R
ate
December 31, 2008
GoC: 2.69% Power: 6.80%
CBD: 6.60% Multi: 7.50%
Single: 7.20% Reg: 6.1%
December 31, 2007
GoC: 3.99% Power: 5.90%
CBD: 5.90% Multi: 6.50%
Single: 6.30% Reg: 5.50%
Multi-Tenant IndustrialSingle-Tenant IndustrialPower Centres
CBD Office
Regional Mall
10-Year GoC Yield
Note 1: Toronto cap rates used as proxy
The “rear view” nature of this information is likely causing it to underestimate current market cap rates
YoY Change
GoC: -1.30% Power: +0.90%
CBD: +0.70% Multi: +1.00%
Single: +0.90% Reg: +0.60%
16
Canadian GoC Bond Yields and Mortgage Rates
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
Source: RBC Capital Markets
10-Year Mortgage
Spread
10-Year GoC Yield