2006 CDN Real Estate Industry 020806 REV2

2006 Canadian Real Estate Industry: Building Growth
February 2006
Gail Mifsud (416) 777-7084 Li Zhang (416) 777-7042
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Equity Research Canada
2006 Canadian Real Estate Industry: Building Growth
February 8, 2006
Gail Mifsud (416) 777-7084 Li Zhang (416) 777-7042
All expressions of opinion reflect the judgment of the Research Department of Raymond James Ltd. or its affiliates (RJL), at this date and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete. Other departments of RJL may have information which is not available to the Research Department about companies mentioned in this report. RJL may execute transactions in the securities mentioned in this report which may not be consistent with the reports conclusions. RJL may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this report. For institutional clients of the European Economic Area (EEA): This document (and any attachments or exhibits hereto) is intended only for EEA Institutional Clients or others to whom it may lawfully be submitted. RJL is a member of CIPF. 2006 Raymond James Ltd.
PLEASE SEE END OF REPORT FOR IMPORTANT DISCLOSURES
Table of Contents
Introduction Foreword Economic Forecast Canadian Economy Chugs Along U.S. Economic Growth Moderating A Polar Canadian Economy Yield Curve Flattens Interest Rates to Edge Higher 2006 Canadian Interest Rate Forecast Outlook for the Canadian Economy Real Estate Outlook The Economy and Real Estate A Marriage of Convenience Canadian Property Market Pros and Cons Excess Capital Chases Real Estate Building Growth Office Construction Outlook Industrial Market Retail Market Apartment Market Hotel Market Real Estate Equity Market Performance Outlook for 2006 2006 Investment Performance Recommendations Top Picks for 2006 Runners Up in 2006 Property Investment and Market Review High Levels of Acquisition Activity Continues Capitalization Rates Decline Further in 2005 Selected Fundamental Highlights of Investment Market Survey The Canadian Office Market Fundamentals Recovering, Property Values Stabilize Class "A" Vacancy Rate Declines Office Market Posts Solid Positive Absorption New Supply Building New Construction Pipeline Full Rental Rates are Gradually Improving Suburban Office Market Rebounds 2006 Office Market Outlook The Canadian Industrial Market 2006 Outlook for Industrial Market Consumer Spending Drives Retail Property Values 3 3 5 5 5 6 7 8 9 11 14 14 14 15 16 17 17 18 18 18 20 21 23 25 26 29 32 34 34 38 38 40 40 41 42 42 43 43 45 46 48
Raymond James Equity Research - Canada
Table of Contents (contd)

Canadian Retail Sales Growth Healthy 2006 Outlook for the Retail Market The Canadian Residential Apartment Market Properties Appreciate, Vacancy Stabilizes Housing Market Experiencing Record Growth Apartment Vacancy Forecast to Rise 2006 Outlook for Apartment Sector The Canadian Lodging Sector The Lacklustre Recovery A Lodging Industry Rebound Canadian Dollar Impacts Lodging Demand Occupancy Gains, ADR to Follow 2006 Outlook for the Lodging Sector Comparative Analysis Financial Position, Operating Risk and Growth Potential Financial and Operating Outlook 2006 Outlook FFO Growth Rate and Outlook Adjusted FFO (AFFO) Growth Rate and Outlook Net Asset Values (NAV) Asset Growth and Positive Investment Leverage 2006 Acquisition Outlook Debt-to-Equity and Leverage Ratios Public Capital Issues Debt to Gross Book Value Debt to Net Asset Value Outlook for 2006 Rental Income Leverage Rental Income Growth Pre-Interest Expense Rental Growth Post-Interest Expense 2006 Outlook for Rental Income Growth Average Cost of Debt Near-Term Debt Maturities Bank Loans and Floating Rate Debt Interest Coverage Ratio Rental Income Interest Coverage Relative Interest Expense Investment Returns Net Income Investment Returns Funds from Operation (FFO) REITs Overviews Appendices 48 53 54 54 54 58 60 61 61 63 63 64 66 67 69 69 69 74 78 81 85 85 86 89 91 93 94 95 96 98 99 101 103 104 106 109 111 113 115 117 253
REITs Overviews
Boardwalk REIT Canadian Apartment Properties (CAP) REIT Chartwell Seniors Housing REIT Cominar REIT Canadian REIT (CREIT) Dundee REIT First Capital Realty Inc. H&R REIT IPC U.S. REIT Morguard REIT Primaris Retail REIT Retirement Residences REIT RioCan REIT Summit REIT Lodging REITs CHIP REIT InnVest REIT Legacy Hotels REIT Royal Host REIT 119 127 134 142 149 156 163 171 178 186 193 200 207 215 223 224 231 238 246
Figures and Tables

Figures Figure 1 Figure 2 Figure 3 Figure 4a Figure 4b Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 Figure 10 Figure 11 Figure 12 Figure 13 Figure 14 Figure 15 Figure 16 Figure 17 Figure 18 Canadas Real Gross Domestic Product (GDP) U.S. Real Gross Domestic Product (GDP) CPI Index, 2001-2005 10-Year Commercial Mortgage Rates vs. Bond Yields, 1984-2005 Historical Spread Commercial Mortgage Rates and Bond Yields, 1984-2005 Ranked Returns for REITs in 2005 (in %) Toronto Office Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 Toronto Industrial Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 Toronto Neighbourhood Mall Cap Rates vs. Commercial Mortgage Rates,1990-3Q05 Toronto Apartment Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 Toronto Office Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 Toronto Industrial Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 Toronto Neighbourhood Malls Cap Rates vs. Commercial Mortgage Rates, 1990 Canadian Regional Shopping Centre Sales Per Square Foot, 2000-2005 Power Centre New Supply (sq ft), 2000-2005 Toronto Apartment Cap Rates vs. Commercial Mortgage Rates, 1990-3Q05 SAAR Housing Starts in Canada, 1960-2005 Percentage Change in Housing Starts, 1990-2005 Percentage Change in Building Permits, 1990-2005E 5 6 7 8 9 21 37 37 37 37 39 45 48 51 52 54 55 56 56
List of Figures and Tables (contd)

Figure 19 Figure 20 Figure 21 Figure 22 Figure 23 Tables Table 1 Table 2 Table 3a Table 3b Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 Table 16 Table 17 Table 18 Table 19 Table 20 Table 21 Table 22 Table 23 Table 24 Table 25 Table 26 Table 27 Table 28 Table 28b Table 29 Table 30 Table 31 Table 32 Table 33 Provincial GDP Growth Rates Comparative Total Return of Selected Indices Raymond James Real Estate Investment Overview Real Estate Industry Report Card Going-in Capitalization Rate by Asset Classes Major Investment Transactions by City, 1995, 2000-1H05 Major Investment Transactions by Property Type, 1995, 2000-1H05 Office Cap Rates for Selected Cities Canadian Office Vacancy Rate, 2000-2006 Class A Office Vacancy Rates, 1990, 1995, 2000-2005 Office Market Statistics, All Classes Canadian Office Absorption, 2000-2005 Canadian Office New Supply, 2000-3Q05 Net Effective Rents, Central Area Class A, 1999-2006 National Suburban Class A Office Statistics, 2000-3Q05 National Industrial Statistics, 1993, 1996, 2000-2005 Canadian Annual Retail Sales Growth, 2000-2005 Profile of Canadian Shopping Centre Industry Shopping Centre Performance of Selected Companies, 2000-2004 Rental Apartments Vacancy Rates, Selected Urban Centres, 1992, 1995, 2000-2005 Canadian Hotel Transactions, 1993-2005 Key National Lodging Statistics, 2000-2006 Funds From Operation (FFO) Growth Rate Funds From Operation (FFO) Per Diluted Unit Growth Rate Adjusted FFO (AFFO) Growth Rate Adjusted FFO (AFFO) Per Diluted Unit Growth Rate Premium to Net Asset Value, 2002 vs. 2005 Implied Cap Rate Based on Recent Stock Price Valuation- Commercial REITs (Net Asset Value) Valuation Lodging REITs (EV/EBITDA Multiples) Percentage Growth of Assets Debt to Equity at Book Value New Equity Capital 2005 Capital Markets Activity Debt to Gross Book Value 7 20 27 28 32 33 33 38 40 40 41 41 42 43 43 46 49 49 50 58 61 65 75 77 79 80 82 82 83 84 87 88 89 90 92 New and Resale Housing Price Index, 1993-2005 Average Rent for 2-Bedroom Apartments for Metropolitan Areas (1995-2004) Canadian Lodging Cap Rates vs. Commercial Mortgage Rates, 1993-2005 Annual RevPAR and GDP Growth, 2000-2006 RevPAR Growth ($) and Annualized Change 57 59 62 63 65
List Figures and Tables (contd)

Table 34 Table 35 Table 36 Table 37 Table 38 Table 39 Table 40 Table 41 Table 42 Table 43 Table 44 Table 45 Table 46 Appendices Appendix I Appendix II Appendix III Appendix IV Appendix V Appendix VI U.S. REIT Yields by Property Type U.S. P/FFO Multiples by Asset Class U.S. Real Estate Capital Market Transactions U.S. Cap Rates by Asset Class, 2Q98-4Q05 U.S. Spread, Prime Mortgages vs. 10-Year Treasuries CMBS Market 255 255 255 256 256 256 NAV Leverage, 2002 vs. 2005 Rental Income Leverage Rental Income Growth Percentage Growth in Rental Income Before Interest Expense Percentage Growth in Rental Income After Interest Expense Average Cost of Debt Debt Exposure at Latest Interim Period Bank Loans and Floating Rate Debt Interest Coverage Rental Income Interest Coverage Relative Total Interest Expense Net Income Return on Equity FFO Return on Equity 94 96 98 100 100 102 103 105 108 111 113 114 116
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Industry Perspective and Outlook
INTRODUCTION
In the 2006 Raymond James Canadian Real Estate Review, we begin with a brief economic overview, including a forecast of economic and financial variables that influence the growth prospects of the real estate industry. A review of each property sector is also presented, along with the investment outlook for 18 publicly-traded real estate companies under our research coverage universe. To evaluate future growth and investment return potential, our industry overview is followed by a detailed comparative analysis of the real estate industrys financial and operating parameters. The last section includes brief individual company reports which highlight major portfolio and financing activities completed during the year, and outlines the strengths and challenges faced by each firm. This section also includes the company stock recommendation and target price, forecast earnings model, operating summary and valuation analysis.
FOREWORD
In keeping with the tradition of this publication, we have built our forecast upon economic fundamentals to determine the repercussions for the Canadian real estate industry. Twin influences of historically low interest rates and an insatiable demand for yield investments have had a profoundly positive impact on valuations of both real property and real estate stocks since 2000. Traditionally, real estate stocks have correlated positively with bond yields, rising and falling in tandem. We saw this relationship play out in early spring 2005 (and spring 2004) as REIT stocks declined approximately 12% on the heels of a 40 basis-point increase in 10-year Canadian bond yields. Over the long term, we do not see this relationship disengaging; however, we anticipate that the strength of this union will diminish as the Canadian REIT market broadens. We anticipate that the Canadian REIT market will mirror the U.S. REIT market in that it is institutionally adopted as a unique investment asset class combining the stable characteristics of fixed-income investments and the growth-like opportunities found in common equities. In 2005, the key topics of discussion included the inclusion of income trusts (and REITs) in the benchmark S&P/TSX Index and the potential change in the tax status and treatment of distributions from income trusts. While fears that the former Liberal government would tinker with the tax status of trusts failed to materialize, it created uncertainty in the stock market. As a result, REITs experienced an average 10% decline in stock prices in the month of September 2005. This decline was shortlived as REITs rallied back in November as a minority government on the cusp of a non-confidence vote decided that every vote mattered and elected to leave the tax status of income trusts alone. Nonetheless, in our usual discussion of potential investment risks for the real estate sector, a new risk emerged at the forefront political risk.
Our concerns have been somewhat pacified as a newly elected Conservative government, with a loosely knit party, no experience at the helm of this country and a slim minority to boot is likely to: 1) Make a mistake on social policy first, and then follow up with a mistake on fiscal policy; 2) Buy voters with tax cuts and incentives, and 3) Avoid a web of political disasters that their predecessors tangled in. We believe, however, that this issue has the potential of re-emerging in the future as the prior government failed to address the real matters at hand the still unequal tax treatment of income trusts versus common stocks, foreign investors taxed at a lower rate than domestic investors in income trusts, and the premium paid in the market for income trusts, which places traditional, tax-paying corporations on an unequal footing. In real estate circles, talk centred around the abundance of capital bidding up asset values to new heights, debates on the viability of cap rates remaining at these historically low levels, the proliferation of REITs as a global investment vehicle, and the global reach and investment mandate of public and private real estate investors alike. It is clear that the sphere of influence has gravitated away from an age-old reliance on location and asset specific property supply/demand fundamentals. Increasingly, investors employ a world-view or macro industry perspective i.e., cap rates for commercial properties may be low in Canada, but prices can be justified as they are attractive from a global perspective or the lodging sector is two years into a multi-year upswing that should produce strong earnings growth and the potential for valuation multiple expansion for industry participants. Needless to say, it is more challenging to forecast the equity performance of real estate stocks in this unpredictable and volatile environment. More than ever, it appears that the market is moved by sentiment and speculation rather than fundamental stock analysis; perhaps reflecting the speed and delivery of information (right or wrong) today. Regardless, we remain dedicated to detailed quantitative and qualitative stock analysis, which includes a review of management strategy and execution ability; analysis of operational performance and asset quality; a financial review of leverage, rental income productivity, FFO growth and returns on equity; and lastly, valuation metrics such as net asset value, price-to-FFO and price-to-AFFO metrics. We continue to employ these metrics in guiding our stock ratings and expectations. We hope that you find this publication a useful and informative tool. This report would not have been possible without the dedication and support of Darren Martin, Director of Research; Gina Epondulan, Josie Klingbeil and Cynthia Lui, our dynamic publishing team; the senior management teams of the companies included in this report (you know who you are), and lastly, our clients for their continued support of our research over the years.
ECONOMIC FORECAST
Canadian Economy Chugs Along For 2006, the consensus growth rate for GDP is 3.1%, effectively predicting more of the same In 2005, the Canadian economy continued to expand as reflected in the real Gross Domestic Product (GDP) growth rate of 3%. This pace of growth was slightly ahead of 2004s GDP growth rate and an improvement from 2% in 2003. For 2006, the consensus growth rate for GDP is 3.1%, effectively predicting more of the same. Early indicators point to a slower rate of Canadian GDP growth in 2007 at 2.9%, reflecting a pull-back in global economic growth and the drag of a high Canadian dollar on domestic production.
FIGURE 1: CANADA'S REAL GROSS DOMESTIC PRODUCT (GDP)
(Yearly Annualized % Change)
YOY % Change
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
5.2% 3.4% 1.8% 2.0% 3.0% 3.1%
2.9%
2000
2001
2002
2003
2004
2005E
Source: Statistics Canada, Bloomberg Consensus Estimates
U.S. Economic Growth Moderating Given that the Canadian and U.S. economy are so intimately linked, it warrants discussion on the economic outlook for our southern neighbors. The figure below depicts the U.S. GDP growth rate from 2000 to 2006. Clearly, the U.S. economy has bounced back from eking out a 0.8% GDP growth rate in 2001. A bloated government with hefty expenditures, personal and dividend tax cuts, and historically low interest rates provided the needed stimulus to reinvigorate the U.S. economy in the post September 11 period. After peaking at 4.2% in 2004, the U.S. GDP growth rate is forecast to record a 3.1% growth rate in 2005. For 2006, economists are anticipating a slightly stronger rate of growth at 3.4%. In an effort to curb inflation and a run-on in housing prices, outgoing U.S. Federal Chairman, Alan Greenspan has increased the Federal Funds rate 14 consecutive times to 4.75% (discount rate at 5.75%). Today, the benchmark bank rate is at its highest level since May 2001, while the U.S. prime rate stood at 7.25%. In his last monetary address, however, Greenspan indicated that the central bank was keen on raising rates; however the dialogue of the report removed the reference at a measured pace. This caused a stir in the markets as Greenspan has had a long history of broadcasting to the market the Central Banks intentions with respect to the direction of interest rates.
2006E
Undoubtedly, incoming Fed chairman Ben Bernanke will be watched and heard closely for indications of whether he intends to continue to push interest rates higher. The twin deficits, a sagging dollar, an inverted yield curve, record personal debt levels, and an over-heated housing market present considerable threats to the future growth prospects of the U.S. economy. There is also mounting evidence to suggest that the U.S. economy is slowing down in the early days of 2006, which may curb Bernankes ability to continue to raise rates and ward off inflation.
FIGURE 2: US REAL GROSS DOMESTIC PRODUCT (GDP)
(Yearly Annualized % Change)
5.0% YOY % Change 4.0% 3.0% 2.0% 1.0% 0.0% 2000 2001 2002 2003 0.8% 1.6% 3.7% 2.7%
4.2% 3.1% 3.4%
2004
2005E
Source: FOMC, U.S. Department of Commerce, Bloomberg Consensus Estimates
A Polar Canadian Economy The national GDP growth rate fails to capture the polarity in the economic growth across the provinces On the surface, a 3% growth rate for Canadas GDP seems like a healthy rate of growth, particularly when compared to our G-7 allies. What the national GDP growth rate fails to capture, however, is the polarity in the economic growth rate across the provinces. Over the past few years, the divergence in the economic prospects of the regions is strikingly evident. Commodity rich provinces including Alberta, B.C. and Saskatchewan have fared well driven by the mining, oil and gas, agriculture, and forestry and transportation industries. Conversely, the Maritime Provinces have had rather limited growth as pipeline construction have failed to offset the failing fishery and forestry industries. Ontario and Quebec have chugged along given its core financial and service sectors. Selected markets within Central Canada, however, largely focused on the automotive, aerospace and textile manufacturing industries have experienced lackluster growth. Overall, global demand for Canadian natural resources has paved the way for continued economic expansion (albeit regionally focused) and buoyed the Canadian dollar.
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TABLE 1: PROVINCIAL GDP GROWTH RATES

(in mlns dollars)
2002 $14,344 $3,263 $24,833 $20,165 $225,581 $450,316 $34,092 $30,621 $128,334 $131,557 $1,068,540
2004 $14,994 $3,376 $25,665 $21,005 $235,916 $472,665 $35,578 $33,437 $139,475 $141,778 $1,130,405
% Change 4.5% 3.5% 3.4% 4.2% 4.6% 5.0% 4.4% 9.2% 8.7% 7.8% 5.8%
Newfoundland/Labrador PEI Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Canada
Notes: 1) GDP chained at 1997 dollars
Source: Statistics Canada
Despite solid economic growth, evidenced by the highest capacity utilization rates in five years, a 30-year record low unemployment rate of 6.6%, real wage growth and record business profits, inflation remains benign. The CPI Index has remained range bound from an annualized change of 1.7% at the low end to 2.8% at the high end over the last five years. The Bank of Canada continues to set monetary policy on the basis of a target band for inflation in the 1% to 3% range and is focused on core inflation levels at 2%. Since 1995, the long-term average for annualized change in the CPI Index has been historically low at 2.0%, while core inflation clocked in at 1.8% over the same period. We believe that inflation remains low due to cheap imports of consumer goods and declining prices for goods manufactured in Canada At December 2005, total CPI stood at 2.2%, with the core inflation rate at 1.6%. Contributors to the annualized growth in the inflation index were gasoline prices, homeowners replacement costs, and restaurant meals. Offsetting components included lower prices for computer equipment and supplies, fresh vegetables and traveler accommodations. Overall, we believe that inflation remains low due to cheap imports of consumer goods and declining prices for goods manufactured in Canada. In the near-term, the newly elected Conservative governments plan to trim the GST by 1% (effective in April 2006) is expected to reduce total inflation by 0.6%. Although this is not anticipated to have a lasting impact on total inflation, our economic forecast is for the next 12-month period. Yield Curve Flattens Not only has inflation pressures remained contained, so too have longbond yields. Ten year Canadian bond yields trended down nearly 30 basis points to 3.9% in 2005. Long bond yields have failed to react to the Bank of Canada pushing up short-term rates. Since September 2005, the Bank of Canada has increased the prime rate to 3.5%, up 1% after four consecutive rate hikes.
FIGURE 3: CPI INDEX, 2001 -2005
Percentage change from the same month of the previous year
All items excluding energy All items
Certainly, Canadian bond yields remain low, reflecting higher demand for Canadian bonds from global investors. Canadian bond yields are comparatively higher on a global basis, can be used as a tool to hedge commodity investment, and bond investors like to diversify outside of the U.S. economy. Another explanatory consideration is the fact that the borrowing requirements of Canadas three levels of government have declined over the past several years. Since 1997, the federal government has reduced its capital markets debt by $2 billion to $10 billion per year. In 2005, the federal government borrowed $35 billion, while the provincial and municipal governments collectively borrowed $38 billion. In 2006, the combined borrowing of the three levels of government is forecast to fall nearly 7%, largely due to lower borrowing by provincial and municipal governments. Theoretically, the decline in government borrowing requirements merits lower bond yields as the underlying credit risk is reduced. Interest Rates to Edge Higher The decline in the risk spread reflects the abundance of debt capital available and willingness by lenders to accept a lower risk premium In the table below, we have graphed 10-year commercial mortgage rates and the 10-year Canadian bond yield. Over the past 15 years, the diagram illustrates that commercial mortgage rates and bond yields have moved lower in tandem. At year-end, the risk spread stood at 145 basis points, down 50 basis points from 195 basis points in early 2000. The decline in the risk spread reflects the abundance of debt capital available and willingness by lenders to accept a lower risk premium. The average cost of mortgage debt for commercial REITs has declined by more than 100 basis points to 6.1% in 2005, down from 7.2% in 2000.
FIGURE 4A: 10-YEAR COMMERCIAL MORTGAGE RATES VS BOND YIELDS, 1984-2005
15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Percentage (%)
5.55%
4.10%
2004
Bond Yield
Commercial Mortgage Rate
Source: Mortgage rates provided by Standard Life, Bond Yields by Bank of Canada
2005
Since the mid-1980s, the spread on commercial mortgage rates and bond yields has ranged from 100 to 200 basis points. The spread peaked in February 2000 at 2.2% and hit a trough in February 1984 at 0.5%. Given the prospect for bond yields to remain low and availability of excessive capital that needs to be placed, we anticipate that the spread will continue to remain stable or slightly erode in the near term.
FIGURE 4B: HISTORICAL SPREAD COMMERCIAL MORTGAGE RATES AND BOND YIELDS, 1984 - 2005
3.00
2.00
1.00
0.00 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Spread (bps)
Source: Mortgage rates provided by Standard Life, Bond Yields by Bank of Canada
2006 Canadian Interest Rate Forecast The still-benign inflation rate outlook and an anticipated slowdown in the pace of Canadian economy will prevent long bond yields from rapidly accelerating The prospect of continued Canadian economic growth will likely spur the Bank of Canada to push short-term interest rates higher in the first half of 2006. However, we believe that the Banks ability to increase rates will be hampered by the strength of the Canadian dollar. We believe that as the impact of a US$0.87 dollar filters through the Canadian economy and adversely impacts economic growth, the Banks incentive to raise rates will diminish. We anticipate that long-term rates will move up gradually in response to short-term rates in the first half of the year. The still-benign inflation rate outlook and an anticipated slow-down in the pace of Canadian economy will prevent long bond yields from rapidly accelerating in the near term. Accordingly, we anticipate that REITs will continue to experience strong investment demand given the attractive risk-adjusted spread over long bonds, which stands currently at 250 basis points. If anything, we anticipate that this spread will continue to come under pressure, given the relative stability and quality of the underlying income stream from real estate companies today. The implication of this interest rate forecast on the Canadian real estate industry includes the following:
Based on current mortgage rates approximating 5.5%, real estate companies have the potential to reduce their average cost of debt by 9% or 60 basis points from the current average rate of 6.1%.
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An average cap rate of approximately 6.5% to 7.5% for higher-quality income properties provides a still accretive acquisition spread of 1% to 2%, lower than the 2.5% available during 2002. Accordingly, we are likely to continue to see a moderation in asset growth for the commercial REITs. The average commercial REIT yield spread over 10-year bond yields is currently at 2.5%, compared to 3.7% for year-end 2002. The recent increase in short-term interest rates enhances the appeal of longterm mortgage financing. Hence, we will continue to witness REIT management teams extending the weighted average term of mortgage debt. The current level of interest rates will continue to spur housing demand, albeit at a moderating pace. The utilization of variable rate financing is likely to become unfashionable as short-term interest rates have risen rapidly in the near term. Low interest rates will continue to foster a preference for debt leverage (over equity issuances), and we are likely to see debt-to-equity and debt-to-gross book value leverage ratios move higher. Interest coverage ratios and rental income interest coverage ratios are expected to remain healthy.
The availability of debt capital at attractively low interest rates has led to significant financing savings realized by real estate companies The availability of debt capital at attractively low interest rates has led to significant financing savings realized by real estate companies. This has been reflected in a decline in the average cost of mortgage debt for the REIT sector. This downward trend of interest rates has also translated into lower interest expense, which has helped mask weakness in same-property operating income over the past two years. The abundance of low-cost capital and accretive spreads over financing has also spurred strong acquisition growth during this period. These factors have meant that operating income continued to rise and FFO to expand, despite somewhat weak property fundamentals over the past few years. Given a more favourable outlook for real estate fundamentals and relatively stable bond yields, we believe that real estate companies have weathered through the storm. Low bond yields have also served to enhance the appeal of both real property and REITs, since both provide higher yields. This has resulted in rising property values and declining yields on property transactions and REIT stocks. This view is reinforced by the reduced spread of commercial mortgage rates over bond yields. Looking forward, we anticipate that modest increases in interest rates will be offset by growth in underlying operating income for real estate companies. This growth will mitigate the potential erosion of property values as cap rates edge slightly higher. The REIT industrys conservative balance sheet, well-leased high-quality portfolio and improving fundamentals will help the sector cope with the eventuality of higher interest rates.
Low bond yields have also served to enhance the appeal of both real property and REITs, since both provide a higher yield
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Outlook for the Canadian Economy As we reflect on the Canadian economy, our trepidation remains the following: 1) The implication of a sustained higher Canadian dollar on domestic producers, particularly auto, textile and aerospace manufacturers in Central Canada; 2) The ability of personal consumption to continue to support economic growth; 3) Lackluster business investment, which will be required to compensate for a potential pull-back in personal spending, and 4) The decline in our productivity levels relative to other G-7 countries, which threatens our standard of living in the long term. Offsetting these concerns includes our belief of the following: 1) Government spending is likely to continue to expand given a newly formed government; 2) A new minority government is likely to implement tax cuts for businesses and consumers to remain in power and secure future votes; 3) Despite all of the talk of high consumer debt levels, Canadians enjoy a relatively high level of equity in their homes and have not been as spend-bent as our U.S. neighbors, and 4) The balance sheets of Canadian businesses are relatively strong with cash reserves shored up for investment. This economic outlook forms the framework for the following forecast:
The variance in the GDP growth rate between Canada and the U.S. is expected to narrow in 2006. The foundation for continued Canadian economic growth appears sound and includes high capacity utilization rates, strong employment growth, record business profits, and high levels of business and consumer confidence. In addition, the promise of personal tax cuts and other incentives should provide continued stimulus to the Canadian economy in the near term. The growth in the U.S. economy appears to be moderating as the twin deficits, record levels of personal and corporate debt and an over-heated housing market threaten future growth. Real estate values and REIT FFO multiples have wiggle-room in Canada, while they appear to be heady in the U.S. While increases in short-term interest rates appear to remain on the agenda of both the Bank of Canada and the U.S. Federal Reserve, we believe that both Central Banks will be forced to reconsider future hikes. For Canada, the Bank of Canada will be faced with a high currency putting the brakes on domestic production growth. In the U.S., the newly appointed Federal Reserve chairman will have to balance the urge to raise rates to offset inflationary pressures with the risk that continuing increases will spark a correction in the housing market and cripple consumer confidence and retail spending which has propped up the economy over the past five years. The incremental benefit from real estate debt refinancing may continue to generate lower financing cost. The current spread between an average 6.1% portfolio mortgage debt cost and 10-year commercial mortgage rates is approximately 60 basis points.
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Debt capital availability is forecast to remain abundant in the year ahead. The risk spread of 145 basis points (commercial mortgages and 10-year bond yields) is expected to be stable with a bias to the downside. This also reflects improving property fundamentals and lenders willingness to tolerate higher loan-to-value ratios. Income capitalization rates will remain low as excess capital continues to invest in real estate. The supply of properties for sale will remain relatively healthy as private families take advantage of historically low cap rates. Interest coverage ratios are forecast to remain healthy as the potentially higher cost debt is offset by operating income growth. The accretive spread on acquisitions is forecast to remain positive, but may narrow slightly as cap rates lag rising bond yields in 2006. The Canadian office market will continue to recover due to strong employment growth and limited amounts of large, contiguous space available in the core markets of Toronto, Calgary and Vancouver. Net effective rental rates are forecast to improve in the year ahead. Shopping centre rental rates are expected to continue to trend upward, reflecting strong demand amongst retailers to expand into new locations and different retail formats. Strong levels of consumer confidence, supported by strong employment levels and wage growth, will positively impact retail sales. Industrial occupancy and rental rates will trend lower as the result of new speculative development and weakening export markets erode tenant profitability and demand for space. The residential rental market will be defined by stable to modestly declining occupancy rates and below-inflation increases in rental rates. New supply in the form of rental condominiums and the transition towards single and multifamily home ownership will continue in 2006. The housing market will moderate, but continue to support historically high levels of housing starts (200,000 units+) and resale activity. The affordability of housing and the appeal of real estate as an investment will support price increases, albeit at a slower pace. NOI growth for real estate companies will be supported by incremental acquisition activity and inflation-like same-property income growth. Operating margins are expected to remain relatively flat. We anticipate that FFO multiples will continue to edge higher from the current level of 13.1 times for 2006. This increase will augment the declining distribution yield provided by the REITs. Premiums to NAV, which currently stand at 18%, are forecast to fluctuate in the 0% to 20% range. This reflects the anticipation of continued volatility in the equity markets.
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REIT yields relative to 10-year Government of Canada bonds yields are likely to compress further in 2006 as strong investment demand for income willingly accepts a lower risk spread. The volume of new development activity will accelerate as excess debt and equity capital have pushed acquisition costs towards replacement costs. The economics of new development become increasingly attractive to public and private market real estate participants. Development will be broad-based across all property segments. Vanishing budget surpluses introduce the risk that governments re-address tax legislation to modify the flow-through status of income trusts, and potentially REITs.
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REAL ESTATE OUTLOOK

The Economy and Real Estate A Marriage of Convenience The real estate cycle has historically followed the economic cycle as real estate services the economy by providing a location to conduct business, warehouse and produce goods, sell goods to consumers, and provides housing and accommodations during business and leisure travel. Accordingly, real estate companies have significant earnings leverage as the economy and property fundamentals recover. Fundamentals for real estate encompass occupancy rates, rental rates, the supply and demand of commercial space, and contractual lease agreements that support a stable stream of cash flow. Different sectors display distinct property characteristics and generate differentiating yields based on the underlying asset class. Among the five sub-sectors of Canadian REITs, office and industrial are highly responsive to economic dynamics such as employment growth and corporate earnings and profitability; while sectors such as retail and lodging are more sensitive to changes in the level of consumer confidence and retail spending. Other sectors such as apartment rental and senior housing are largely dependent upon the demographic characteristics of the society (such as household income, population growth, and peoples lifestyle preference), and are therefore more defensive and less responsive to economic cycles. Real estate companies focused on the ownership of retail and office properties will enjoy positive earnings leverage in the year to come Given that the outlook for the Canadian economy in 2006 remains healthy, we believe that real estate companies focused on the ownership of retail and office properties will enjoy positive earnings leverage in the year to come. Canadian Property Market Pros and Cons The Canadian real estate property market is attractive to investors for a number of reasons: 1) Canada is politically stable (until recently) with steady economic growth outlook; 2) The real estate market is transparent and integrated; 3) Canadian lenders understand the real estate market and the presence of CMBS is flourishing; 4) Cap rates for income properties are comparatively higher in Canada at 6% versus the U.S. at 5%, the U.K. at 4%, Hong Kong at 3% and Japan at 3.5%, and 5) Property markets are relatively liquid to transact. Recall as well, that real estate has traditionally been viewed as a hedge against inflation, in addition to the benefit of potential capital gains. Given the recent acceleration in prices, the ability to offer modestly growing income is attractive. The primary issue with the Canadian property market is that it lacks depth. By this we mean that the availability of high quality product is limited, the number of core property markets can be counted on one hand, and real estate is tightly held, largely in the hands of Canadian pension funds. As a point of reference, real property transactions across Canada totaled $16.6 billion in 2005, this compares
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to more than $18 billion in the city of Manhattan alone. Domestic players have become more active in real estate transactions over the past year, as foreign investors constituted about 9.5% of property transactions versus 20% in 2004. Canadian pension funds have notably increased their exposure to real estate, with a 10% weighting in real estate compared to 2% in the early 1990s. Pension funds are generally disciplined long-term investors that are likely to hold on tightly to real estate. With deep pockets and lower targeted investment returns, pension funds have a competitive advantage over Canadian REITs in terms of acquiring assets. However, joint ventures between the two parties reflect the fact that REITs are able to provide professional, integrated real estate management. Recent examples of the mutually beneficial trend for real estate and institutions to form joint ventures include:
Glimcher Realty Trust (52%) and Oxford Properties Group (real estate arm of OMERS, 48%) to acquire anchored retail properties in the U.S. Initial portfolio purchase was the US$170 million Puente Hills Mall in Los Angeles for an estimated 7.3% cap rate. Each party intends to commit US$200 million of equity to the joint venture. ING Australia and Chartwell Seniors Housing REIT to acquire a portfolio of U.S. senior housing for $140 million (50% interest) for an estimated 7.5% cap rate. RioCan REIT and Canada Pension Plan (CPP) formed a joint venture to acquire regional shopping centres. This joint venture unsuccessfully bid on the Marche Central property in Montreal, which sold for $303 million in 2004. RioCans Retail Value Limited Partnership with TIA-CREFF and OMERS which committed $200 million in equity. RioCan generates management income from the partnership, in which it holds a 15% equity interest.
Excess Capital Chases Real Estate Real estate values have benefited from low bond yields, inconsistent returns provided by stock markets, and the graying of the population seeking yield investments There is no question that global real estate values have benefited from low bond yields, inconsistent returns provided by stock markets, and the graying of the population seeking yield investments. Global investors have flocked to real estate, both in the form of real property assets and publicly traded REITs. Hard assets and real estate stocks both offer higher yields than found in global bond markets. This has been reflected in the whopping increase of the global market capitalization of REITs, which has increased six-fold in the past fifteen years. In 1990, the global market capitalization of REITs stood at US$100 billion, which increased to US$300 billion in 2000, and doubled to US$600 billion in 2005. Furthermore, an estimated US$700 billion of capital was directed towards real estate last year, which was 20% higher than 2004. Leading real estate investors indicate that excess capital directed towards real estate has a remaining shelf life of two to four years.
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Undoubtedly, Canadian real estate property values and real estate stocks will benefit from too much capital (debt and equity) seeking to be deployed. On a comparative basis, the market capitalization of Canadian REITs is small potato, representing only 3% of the global market capitalization. Meanwhile, our neighbor to the south represents approximately half (50%) of the global market capitalization of real estate. Australia, which is a comparative country with Canada given the size and scope of our economies, represents 11% of the global market capitalization of real estate. This suggests that the public market capitalization of real estate in Canada has the potential to more than triple! Of course, the primary difference between the two countries is the fact that Australians have forced superannuation retirement savings, which has been funneled towards real estate investment. We believe that new real estate investment trusts will spring up in Canada, largely drawn out from family owned real estate business We believe that new real estate investment trusts will spring up in Canada, largely drawn out from family owned real estate business. We have seen this institutionalization of real estate occur since the correction of the last real estate cycle in the early 1990s. Two recent examples of this trend include Iberville Developments (Marcel Adams family) sale of retail assets to RioCan and to CPP, FirstPros (Goldhar) sale of portfolio of assets to Calloway REIT. Furthermore, data suggests that real estate held in private hands is approximately 20 times greater than institutionally held real estate market. Building Growth So what is the sum of excess capital and high property values? In one word DEVELOPMENT. We believe that the combination of excess debt and equity capital chasing real estate, combined with historically high property values that are quickly approaching replacement costs, will push the real estate industry into the next stage in the cycle the development stage. We are already witnessing the early stages of the development cycle blossoming In fact, we believe that we are already witnessing the early stages of the development cycle blossoming. This is reflected by a rise in the number of projects under construction and competition among developers to secure large lead tenants. New construction activity is broad-based across all of the property sectors. Consider the following: Cap rates have declined so precipitously that while still accretive over the cost of debt, when the cost of equity is factored in for acquisitions of the highest quality assets, returns are in the low to mid-single digits. Note that the increase in the debt leverage is a key factor. Development returns are more attractive ranging in the high single-digits to low teens. This assumes that demand for the space will be absorbed during the construction lead time or shortly thereafter. Debt capital has shown its willingness to accept lower risk spreads and higher loan-to-value ratios. Investors are willing to launch projects by lowering their pre-lease level requirements, which has traditionally been above 50% to 40%.
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New product is usually able to squeeze out tenants from older buildings mitigating development risk. Double digit FFO growth will not be achievable without some form of development activity.
The question becomes does fundamentals in the real estate sector merit new construction? For the most part, the industry could support incremental new development projects. The key of course is discipline on behalf of developers and lenders. Office Construction Outlook
The office sector continues to recover as 4Q05 represented the seventh consecutive quarterly decline in national vacancy rates. For 2006, the national vacancy rate is forecast to decline to 8.5%, down from 9.2% in 2005. Sub-let space is no longer an issue and should pave the way for a speedy recovery of the office market. Selected markets in Calgary, Toronto, and Vancouver have limited availability of large, contiguous blocks of office space in the downtown cores.
According to CB Richard Ellis, there is 6.2 million square feet of office space currently under construction
According to CB Richard Ellis, there is 6.2 million square feet of office space currently under construction. This is nearly triple the 2.3 million square feet added in 2005. CBRE estimates that 16.4 million square feet of space could be under construction within the next five years, of which 60% will be located in the downtown markets of Calgary, Toronto and Ottawa. In the last cycle, only 30% was located in the downtown core, with the remainder built in the suburbs. The long-lead time of 40 months or more for projects in the downtown core, should provide sufficient time for the office leasing momentum to take off. Projects under construction are unlikely to come to market until 2007. New buildings offer better layout and design, including state of the art HVAC and IT systems, which appeal to larger tenants. Toronto has 1.1 million sq.ft. under construction with 3.9 million sq.ft. expected, Calgary has 2 million sq.ft. under construction with 3 million sq.ft. in the pipeline, and Ottawa has 1 million sq.ft. under construction with an additional 1 million square feet anticipated to be built. Winnipeg, Montreal and Vancouver has 1.9 million, 1.4 million, and 1 million square feet, respectively under construction and planned in the near term.
Industrial Market
The development boom has already started in the industry market with approximately 25 million square feet built in 2005
The development boom has already started in the industry market with approximately 25 million square feet built in 2005. An estimated 17 million is slated to be built in 2006, of which approximately 45% is pre-leased. A number of U.S. industrial property developers have entered the Canadian scene, who have lower return thresholds, utilize higher debt leverage, build
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speculatively and are less risk adverse confident that new product will steal occupancy from older industrial buildings.
Short lead time for construction of 6 to 9 months means that new supply can enter the market rapidly. Returns on development are attractive high single digit versus transaction prices in the 6% to 9% range. New development concentrated in the single-tenant industrial buildings, which cost approximately $60 per square foot to build. Much of new demand in the industrial market is for warehouse space to store imported consumer goods. There is a scarcity of new, state-of-the-art, industrial warehouse buildings in the core cities of Vancouver, Calgary and Toronto. This provides support for net asset values, at least until new supply is available. Service land costs continue to escalate up 20% to 30% in the past two years, which should help keep a lid on excessive building.
Retail Market
New construction of retail space has remained relatively low, representing approximately 2% of total inventory annually since 1987. Considering that retail sales have increased per annum from 4% to 7%, there is merit to the idea that additional retail space is warranted.
New supply of retail space has largely been in the form of power centres in the suburban fringe, approximately 7.5 million square feet annually
New supply of retail space has largely been in the form of power centres in the suburban fringe, approximately 7.5 million square feet annually. Tenant demand for large format retail space has resulted in redevelopment of traditional enclosed malls. In many instances, enclosed malls are being turned inside-out (i.e., access to stores from the parking lot). Increasing development of neighbourhood and community malls surrounding new suburban housing communities along major arterial roadways.
Apartment Market
Full pipeline of condominiums already built and unsold and to be built, of which a portion will be acquired by investors for rental purposes. Limited new construction of rental apartment buildings, largely geared to the extreme end of the market subsidized housing and luxury and business stay rentals.
Hotel Market
On a national basis, a new supply of hotels is forecast to remain below 2% over the next few years. This has been consistent over the past five years. According to Lodging Economics, an estimated 60 new hotels representing 5,900 rooms are forecast for delivery in 2006. An additional 82 hotels with 7,700 rooms are scheduled to open in 2007. There is an estimated 211 hotel projects that are in the pipeline, representing some 26,300 rooms. It appears
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that the pipeline of new hotels to be constructed is accelerating. Of the 211 proposed hotels, approximately 75% have a nationally recognized brand.
New supply has been concentrated in certain markets including Niagara Falls, Toronto Airport, Torontos downtown and Vancouver airport. This has restricted the ability of hoteliers to increase average daily rates.
New hotel supply generally focused on limited service hotels, which has had a historic tendency to over-build given lower capital required and low barriers to entry
New hotel supply generally focused on limited service hotels, which has had a historic tendency to over-build given lower capital required and low barriers to entry.
Potential future risks to this development cycle include: 1) Speculative development as result of excess capital; 2) A slow down of the Canadian economy, which is a major growth driver for demand of commercial space; 3) Corporate consolidation reducing demand (i.e., bank mergers impacting financial office core in Toronto, oil and gas merger activity impacting office demand in Calgary); 4) Displacing the balance of supply and demand, resulting in flat rents; and 5) Escalating land and construction costs, which erode proforma development returns. Looking forward, we believe that the real estate companies, public and private, will look to augment their FFO growth via development opportunities. Among the REITs that we cover, a growing number are undertaking development, either inhouse or through a third party developer including: Cominar, Chartwell, CREIT, Dundee, First Capital, Morguard, Primaris, Retirement REIT, RioCan, and Summit. Given a tight acquisition market, we believe that REITs with exposure to development will be able to generate above-average FFO growth. Of course, we view REITs as conservative investment vehicles given that they pay out monthly distributions. Accordingly, we believe that development should remain a small part of their business.
We believe that the real estate companies, public and private, will look to augment their FFO growth via development opportunities
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REAL ESTATE EQUITY MARKET PERFORMANCE

Since 2000, the Canadian REIT sector has delivered more than a 20% average return annually and greater than 200% total return Consistent with the strong performance over the past five years, the Bloomberg Canadian REIT Index posted a strong 24% return over the year. This return followed significant returns of 17% in 2004 and 28% in 2003. This return far exceeded our expectations of returns in the 8% to 12% range. However, we were correct in our view that the REIT sector would not outperform the broader market index for the sixth consecutive year, as the S&P/TSX 60 Index posted an even stronger 26% return in 2005. Since 2000, the Canadian REIT sector has delivered more than a 20% average return annually and greater than 200% total return over the period. Wow! The U.S. REIT industry also beat expectations achieving an 8% return (12% for equity REITs only) compared to a paltry 5% for the S&P 500 Index, 1% for the NASDAQ, and a 0.6% decline for the Dow Jones. More importantly, the U.S. REIT industry did outperform the other market industries for the sixth consecutive year. So far in 2006, the U.S. REIT industry is on track to outperform for the seventh straight year as the NAREIT index is up 6.7%. Even more telling, the average dividend yield for U.S. Equity REITs of 4.4% is 20 basis points lower than the 10-year Treasury yield of 4.6%. This negative spread compares to a historical average positive risk spread of 100 to 200 basis points over the past decade.
TABLE 2: COMPARATIVE TOTAL RETURN OF SELECTED INDICES
Bloomberg Canadian REIT Index S&PTSX 60 Index NAREIT Composite Index S&P 500 Index Dow Jones Industrials NASDAQ Composite Index Data as of December 30, 2005 1999 8.0% 34.1% -6.5% 21.0% 25.2% 85.6% 2000 17.9% 7.9% 25.9% -9.1% -6.2% -39.3% 2001 27.9% -11.6% 15.9% -11.9% -7.1% -21.1% 2002 8.3% -13.9% 5.2% -22.7% -16.8% -31.5% 2003 27.9% 24.4% 38.5% 28.7% 25.3% 50.1% 2004 17.0% 13.8% 30.4% 10.9% 3.2% 8.6% 2005 24.0% 25.9% 8.3% 4.9% -0.6% 1.4%
Source: Bloomberg Inc. and RJ Research estimates and analysis
Considering that real estate fundamentals were relatively weak over this period, we believe that strong demand for yield-investments (and capital preservation) spurred stock performance. The compression in the yield spread amongst the REITs also suggests that differentiation of REITs on a risk-basis was limited. In reviewing the ranked returns performance below, selected senior REITs (CREIT, RioCan, Summit) posted very strong stock performance. This can largely be explained by the managements long track record, stability of income portfolios and the liquidity of the stocks. Relatively new REITs including Calloway, Primaris, Chartwell, and Sunrise also recorded double-digit total returns. These stocks have exhibited tremendous growth in their portfolios since their IPOs.
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FIGURE 5: RANKED RETURNS FOR REITS IN 2005 (IN %)

Westfield REIT 36.35 Summit REIT 28.39 RioCan REIT 26.93 CREIT 26.61 Calloway REIT 22.83 Allied Properties REIT 22.12 Primaris REIT 21.44 First Capital Realty 16.85 Northern Property REIT 16.83 Royal Host REIT 16.64 Sunrise Senior REIT 14.85 Boardwalk REIT 13.48 Chartwell Senior Housing REIT Note: Total returns as of December 31, 2005 12.03 Cominar REIT 10.8 Legacy Hotels Source: Bloomberg Inc 10.6 CHIP REIT 9.53 H&R REIT 7.19 IPC US REIT (C$) 7.19 IPC US REIT (US$) 7.1 CAP REIT 6.8 Morguard REIT 5.98 Alexis Nihon REIT 5.38 Innvest REIT 0.39 Dundee REIT 0 Whiterock REIT -4.55 Lanesborough REIT At December 31, 2005 119.51
Note: First Capital Realty is not a REIT

Source: Bloomberg and RJ Research estimates and analysis
Outlook for 2006 We forecast that Canadian Bloomberg REIT Index will slightly underperform the broader market index in 2006. This reflects the above-average returns the REIT sector has achieved since 2000. Our target total returns for the REIT sector range from 6% to 16%, which implies that the industry will provide the current going-in yield with modest capital appreciation. Our target prices assume a price-to-FFO multiple of 14 to 15 times based on our 2006 FFO estimates. We believe that the stock market will continue to exhibit volatility and heightened sensitivity to financial and political news including the direction of inflation, bond yields, economic growth and government instability and potential tax changes. We believe that any correction in the stock market performance will provide an attractive opportunity to establish or increase market positions of senior REITs, which have typically been expensive. This is particularly relevant given the private market pricing of real estate, as a prolonged correction would create merger and acquisition opportunities. High-quality REITs with a long track record of performance include Cominar, CREIT, H&R and RioCan. We anticipate that FFO growth per unit will remain modest in the 0% to 5% range on average with the mid-point on par with inflation. The bulk of this FFO growth will continue to be driven from acquisitions, although we expect the pace of acquisition growth to moderate over the year. Internal growth in the form of
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same-property operating income will range from 0% to 3% across the sector. The sectors that will experience above-average FFO growth include office and retail oriented REITs. We believe that fundamentals for the apartment sectors will continue to improve over the course of the year and expect relatively flat FFO performance. The impact of a higher Canadian dollar will constrain the earnings growth of the lodging REITs and industrial-focused REITs. We anticipate that an increase in short-term interest rates will have minimal impact on the REITs as exposure to current and floating rate debt remains limited. We believe that long-term interest rates will remain relative flat as inflation concerns ease. As a result, we expect cap rates to remain relatively low over the course of the year. These low cap rates will continue to provide support for REIT valuations. We anticipate REIT management teams will increase debt leverage ratios to drive FFO returns. For maturing debt, we anticipate that REITs will continue to extend the average mortgage term of debt. Given the lopsided nature of Canadas economic growth, we believe that companies with a location bias of properties in Western Canada will benefit in the near-term. This includes REITs such as CHIP REIT, Primaris Retail REIT and Boardwalk REIT. On a sector basis, we believe that investment portfolios should remain biased toward retail-oriented REITs given the healthy retail spending trends as consumer confidence remains high due to strong employment levels and real wage growth. Retail REITs have outperformed over the past few years, reflecting strong acquisition activity, incremental development activity and same-property operating income growth as a result of rental increases on leasing activity. Retailers continue to seek new retailing formats and remain in expansion mode. Figures on the level of new supply indicate there is opportunity to support new retail development. The top names we like in this retail space include First Capital Realty and Primaris. We would be a buyer of RioCan in the event of a stock market correction. Given strong job growth, we believe that investors should also weight their portfolio towards office-oriented REITs. Fundamentals in the office market continue to improve and the sector is poised to experience earnings leverage as occupancy and rents trend higher. While office projects under development are increasing, the construction lag until delivery should provide enough of a lead time to keep the office market fundamentals in balance. The names we recommend in this space include IPC US REIT and H&R REIT. We also favour diversified names such as CREIT and Cominar REIT, which have solid track records for above-average returns, and an attractive portfolio exposed to both the office and retail property segments.
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To conclude, REITs today provide a stable to modestly growing source of income for unitholders. Fundamentals in the real estate industry are stable to improving, which will foster operating income growth as we enter the next stage of the real estate cycle. The underlying value of real estate is supported by a universal demand for income and the recognition that REITs provide a hedge against inflation and offer potential capital gains. The longer-term value of real estate is also supported by economic growth. 2006 Investment Performance Recommendations Our recommendation for 2006 is based on the following economic and industryspecific factors:
The Canadian economy continues to exhibit good GDP growth rate as demand for our commodities and services excels. With little threat of real inflation on the near-term horizon, bond yields are likely to remain relatively low (although on an upward trend on a long-term basis). Property fundamentals for the office and lodging sector are expected to continue to improve over the year and remain relatively stable for the retail, industrial and apartment sector. REITs still provide an attractive risk-adjusted 250 to 300 basis-point spread over long-term bond yields. We believe that this spread will narrow in 2006. FFO per diluted unit is expected to accelerate in 2006 as the impact of last years acquisitions surfaces. Acquisition activity is anticipated to moderate and will be partially offset by improving operating margins as occupancy and rental rates improve in selected property sectors. Cap rates are showing indications of stabilizing and are likely to increase as we look ahead. Acquisitions remain accretive, albeit at a narrower spread. Debt leverage remains conservative by historical standards and the firms have abundant acquisition capacity. Balance sheets are sound and management teams are expected to exercise control in taking advantage of opportunistic equity capital. Interest and rental income coverage ratios are very strong, indicating that the sector is able to withstand higher interest expense.
Near term debt exposure is low on a percentage of total debt basis, which means little refinancing risk is evident. Bank loans, current debt and floating rate debt levels are very low, insulating the companies from a sudden spike in financing rates or increase in spreads.
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Operating margin on rental portfolios are expected to be stable and may increase for selected companies. General and administrative and trust expenses are expected to stabilize as the auditing and legal expenses and administrative staff handle increased compliance and regulatory matters subsidies. Lease rollover for the commercial REITs remains at or below typical roll-over levels for all property sectors. As a result, we do not anticipate significant gyrations in occupancy rates. Payout ratios are inversely related to debt leverage. On the whole, we believe that management teams are committed to reducing payout ratios. Capital markets will remain favourable to the REITs, in terms of new IPOs and secondary debt and equity offerings. An increasing proportion of the sectors FFO will be derived from other streams of income including asset and property management fees, development fees, mezzanine interest, and investment income. It largely reflects the goal to diversify and enhance income as the result of a highly competitive acquisition market. The weighted average cost of mortgage debt may decline further as there is approximately 60 basis-point difference from current commercial mortgage rates of 5.5% and REIT mortgage debt cost of 6.1%.. The underlying quality of property assets of the REITs has improved over the years, providing income stability and generally requiring less capital investment on leasing and capital expenditures as lease rollover and vacancy are typically lower. Abundant debt capital means that the spreads on financing should remain low, which is favourable for the REITs. Excess private and institutional equity capital should translate into continued demand for real property assets and REIT stocks. We are likely to see merger and acquisition activity heat up in 2006. The combination of limited liability protection and indexing has fostered greater acceptance of REITs as an investment class.
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Top Picks for 2006 CREIT (REF.UN)
A long track record of excellence including asset growth, operating income growth, and FFO growth. A well diversified portfolio both geographically and by asset class provides income stability. Over the past five years, management has stepped up the notch in terms of portfolio quality. The REITs conservative operating strategy designed to ensure income stability will benefit unitholders during an expected economic slowdown. Internal growth opportunities via its office portfolio; retail portfolio expected to continue its positive contribution to revenue growth; industrial portfolio will remain stable. Selective development opportunities with partners will augment FFO growth.
Cominar REIT (CUF.UN)
A consistent track record of superior FFO growth, conservative leverage and operational excellence. Core competency is sourcing underperforming properties (at higher yields) and re-developing and re-leasing the properties, resulting in significant income and value enhancement. Geographically focused on the Montreal and Quebec City markets expertise in these markets and familiarity with tenants provide a competitive edge. In-house development program that will construct $30 to $50 million in new projects will augment FFO growth. Disciplined management team will not stretch to acquire assets. Major stakeholders have a vested interest in maintaining the income stability of the REIT.
First Capital Realty (FCR)
Over the past five years, management has successfully de-levered the balance sheet, while simultaneously growing FFO and enhancing shareholder liquidity. Aggressive growth plans to double the size of the portfolio in the next few years. Management has acquired more than $1 billion in assets in the last couple of years. In-house development expertise, including more than 2 million of potential gross leaseable area, paves the way for continued FFO growth. Major shareholders with a commitment to grow this REIT.
Primaris Retail REIT (PMZ.UN)
A conservative balance sheet and prudent payout ratio provide income stability and opportunity for future distribution growth.
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This rapidly growing REIT has enhanced its geographic diversity and the caliber of its portfolio through accretive acquisitions. A strategic relationship with Oxford, the asset manager of the REIT, enables the trust to realize operating synergies and rely on expertise management. Growth opportunities via strategic acquisitions will continue to be a driver of FFO growth. Operationally, the trusts portfolio has generated strong increases in rental rates on lease renewals, high portfolio occupancy rate and above-average sales productivity.
InnVest REIT (INN.UN)
With a portfolio of limited service hotels concentrated in Ontario and Quebec, the REIT has significant leverage to the continued recovery in the lodging sector. Over the past year, the firm has invested in portfolio enhancements including re-branding initiatives, property upgrades, and customer loyalty programs. These initiatives should lead to above-average room revenue growth. A skilled management team with extensive experience in the lodging sector and a track record for executing acquisitions. Good growth potential via external acquisitions, including a potential foray into the U.S. lodging market.
Runners Up in 2006 IPC U.S. REIT (IUR.U-US$, IUR.UN- C$)
A perennial favourite, IPC US REIT continues to be a value name in the REIT space today. A highly skilled and experienced management team with a knack for creative deal-making and real estate investments. The operating portfolio has earnings leverage as the U.S. office market continues to improve. Near-term portfolio vacancy will provide future rental income growth. A solid balance sheet and the benefit of higher leverage should produce above-average FFO growth and distributions to unitholders.
H&R REIT (HR.UN)
A management team adverse to risk, effectively in the business of lease securitization, creates a rock solid income stream. A record of above-average portfolio asset growth that continues to meet the strict financial and risk parameters. Relatively new portfolio of assets has lower capex requirements. Limited lease roll-over also translates into lower costs for the REIT to maintain income stream. Track record of strong FFO growth.
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TABLE 3A: RAYMOND JAMES REAL ESTATE INVESTMENT OVERVIEW
Companies US$ C$ C$ C$ C$ C$ C$ C$ C$ US$ C$ C$ C$ C$ C$ 53.2 55.9 48.9 32.7 56.9 28.1 69.9 110.6 42.5 44.8 44.4 92.0 195.1 67.1 $1,173 $906 $739 $630 $1,277 $743 $1,607 $2,490 $421 $511 $757 $915 $4,390 $1,670 $26,954 $1.26 $1.08 $1.07 $1.20 $1.28 $2.20 $1.20 $1.33 $0.80 $0.90 $1.14 $0.84 $1.29 $1.55 5.7% 6.7% 7.0% 6.2% 5.7% 8.3% 5.2% 5.9% 8.1% 7.9% 6.7% 8.4% 5.7% 6.2% 6.7% $1.43 $1.20 $0.90 $1.54 $1.67 $2.47 $1.42 $1.72 $1.01 $1.08 $1.34 $0.79 $1.39 $1.81 $1.43 $1.16 $0.92 $1.48 $1.74 $2.40 $1.46 $1.72 $0.77 $1.04 $1.35 $0.77 $1.30 $1.82 $1.46 $1.15 $1.08 $1.51 $1.77 $2.45 $1.51 $1.74 $1.26 $1.03 $1.48 $0.83 $1.36 $1.88 15.4 13.5 16.8 12.5 13.4 10.7 16.2 13.1 9.8 10.6 12.7 12.6 16.2 13.8 13.4 15.4 14.0 16.4 13.0 12.9 11.0 15.8 13.1 12.9 11.0 12.6 12.9 17.3 13.7 13.7 15.1 14.1 14.0 12.8 12.7 10.8 15.2 12.9 7.9 11.1 11.5 12.0 16.5 13.2 12.8 $1.18 $1.01 $0.76 $1.18 $1.34 $1.70 $1.04 $1.43 $0.43 $0.67 1.08 $0.55 $1.19 $1.36 $1.18 $0.89 $0.82 $1.27 $1.44 $1.70 $1.06 $1.37 $0.53 $0.73 1.17 $0.50 $1.16 $1.46 $1.19 $0.95 $1.00 $1.34 $1.52 $1.95 $1.16 $1.41 $0.72 $0.81 1.32 $0.57 $1.24 $1.53 18.7 16.0 19.9 16.3 16.8 15.6 22.1 15.7 0.7 15.8 18.1 18.9 18.3 16.4 18.7 18.2 18.4 15.2 15.6 15.6 21.7 16.4 18.7 15.6 14.6 19.9 19.4 17.1 17.5 18.5 17.1 15.1 14.4 14.8 13.6 19.8 16.0 13.8 14.1 12.9 17.5 18.1 16.3 15.8 $22.00 $16.00 $16.00 $20.25 $24.50 $27.00 $25.00 $23.50 $10.50 $11.25 $18.50 $10.50 $24.00 $25.50 5% 5% 13% 11% 15% 10% 14% 10% 14% 6% 15% 14% 12% 9% 11% 236.5 $7,201 $0.72 2.4% $1.67 $1.80 $1.95 18.2 16.9 15.6 $1.21 $1.33 $1.36 25.2 22.9 22.4 $33.00 11% 3 3 3 3 1 1 3 1 2 2 4 1 2 3 4
Stock Symbol Yield 2004A 2006E 2004A 2006E
Price Rep. 2/6/06 Curr.
Shares O/S (mln) FFO 2005E Target Return Stock Rating Price/FFO 2004A 2005E 2006E AFFO 2005E Price/AFFO 2004A 2005E 2006E
Market Cap. (mln)
2005E Ind. Dist.
6-12 Mth Target Price
Brookfield Properties Corpo
BPO
$30.45
Boardwalk REIT Canadian Apartment Proper Chartwell Senior Housing R Cominar REIT CREIT Dundee REIT First Capital Realty Inc. H&R REIT IPC US REIT Morguard REIT Primaris Retail REIT Retirement REIT RioCan REIT Summit REIT Average
BEI.UN CAR.UN CSH.UN CUF.UN REF.UN D.UN FCR HR.UN IUR.UN MRT.UN PMZ.UN RRR.UN REI.UN SMU.UN
$22.05 $16.20 $15.11 $19.26 $22.45 $26.45 $23.00 $22.51 $9.90 $11.41 $17.04 $9.95 $22.50 $24.90
Lodging REITs EV $731 $1,148 $1,895 $404 $1.02 $1.11 $0.53 $0.42 $1.10 $1.18 $0.50 $0.59 $1.20 $1.28 $0.67 $0.65 11.5 11.2 15.8 14.5 13.3 10.7 10.6 16.8 10.3 12.1 9.8 9.7 12.5 9.3 10.4 2004A 2006E 2004A C$ C$ C$ C$ $237 $552 $1,022 $237 42.0 47.9 104.0 27.5 $494 $596 $874 $167 $2,131 $0.90 $1.13 $0.32 $0.42 7.7% 9.0% 3.8% 6.9% 6.9%
Stock Symbol Yield Net Debt 2004A
Price Rep. 1/9/00 Curr.
Units O/S (mln) FFO 2005E Price/FFO 2005E 2006E $58 $90 $152 $37
Market Cap. (mln)
2005E Ind. Dist.
EBITDA 2005E $67 $86 $152 $39
2006E $71 $93 $167 $42
EV/EBITDA Multiple 2004A 2005E 2006E 12.7 10.3 12.5 11.0 11.6 10.9 10.7 11.7 10.4 10.9 10.2 9.8 11.3 9.6 10.3
6-12 Mth Target Price $12.00 $13.00 $8.50 $6.00
Target Return 10% 13% 5% 6% 8%
Stock Rating 2 1 3 4
CHIP REIT Innvest REIT Legacy Hotel REIT Royal Host REIT Average / Sum
HOT.UN INN.UN LGY.UN RYL.UN
$11.76 $12.45 $8.40 $6.07
Notes: 1) REIT indicated distribution annualized and estimated for 2005. 2) Market Cap totals in Cdn $ - US$ market caps are converted at 1.20C$/US$ 3) Average yield, FFO multiples, and Target Return excludes Brookfield 4) Summit REIT 2004 FFO excluding straight-line rental income is $100.2 million or $1.73 per unit.
UR- Under review NM- Not meaningful
1= STRONG BUY, 2= OUTPERFORM, 3=MARKET PERFORM, 4=UNDERPERFORM
Source: RJ Research estimates and analysis
27
28
Growth Rate Potential Low High Moderate Aggressive Management Financial Structure Moderate Conservative Aggressive Conservative
TABLE 3B: REAL ESTATE INDUSTRY REPORT CARD

Investment Potential Income Appreciation Both Overall Investment Risk High Moderate Low Relative Value*
Company
Stock Symbol
Boardwalk REIT CAP REIT
BEI.UN CAR.UN
Chartwell REIT Retirement REIT
CSH.UN RRR.UN
3 3 3 2
Cominar REIT CREIT Dundee REIT H&R REIT Morguard REIT IPC US REIT Summit REIT
CUF.UN REF.UN D.UN HR.UN MRT.UN IUR.UN SMU.UN
1 1 3 2 4 2 4
First Capital Realty Primaris Retail REIT RioCan REIT
FCR PMZ.UN REI.UN
1 1 3 2 1 3 4
CHIP REIT InnVest REIT Legacy REIT Royal Host REIT
HOT.UN INN.UN LGY.UN RYL.UN
*Anticipated 1 year relative performance - 1 = Highest, 5 = Lowest
Property Investment and Market Review
29
30
PROPERTY INVESTMENT AND MARKET REVIEW

The Canadian property investment market during 2005 was notable for a number of factors including the following:
The second half of the year witnessed an across-the-board decline of cap rates driven by investor demand for yield in a low-interest rate environment. Cap rates for Canadian assets remain attractive on a global property market basis. Strong demand by foreign investors including Australians, Germans and Isrealis remained a market factor. Although it was domestic players, pension funds and REITs that were most active. Risk differentiation evident in 2001-2003, in which foreign buyers opted for the security of long-term leases and core markets seemed less evident. Senior real estate executives indicated that aggressive buyers and abundant capital have led to property prices approaching replacement cost, most notably in the industrial market. A number of experienced real estate management teams characterized the acquisition market as challenging and competitive with limited high quality product available to purchase and very high prices paid. Geographical diversity became an important theme for real estate management teams either into the U.S., British Columbia, or a flight to core urban markets. Despite an erosion of fundamentals in the apartment sector and a lagging recovery in the lodging sector, cap rates for both of these asset classes continued to decline. A number of real estate companies took advantage of market strength to sell non-strategic properties. As a result of narrowing acquisition spreads, a number of real estate companies pursued third party and in-house development. Several real estate companies have partnered with capital partners to source acquisitions and benefit from a lower cost of capital. In exchange, real estate companies earned asset and property management fees.
2005 was a sellers market. We expect this trend to continue as cap rates will remain low 2005 was undoubtedly a sellers market; a trend that we do not expect to shift this year as cap rates across all property sectors are forecast to remain low. Moreover, there remains excessive capital that is seeking to be deployed in real estate.
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TABLE 4: GOING-IN CAPITALIZATION RATE BY ASSET CLASSES

Industrial Multi-family Neighbourhood Mall Office
Source: Colliers International
Montreal 9.0% 7.0% 9.0% 8.3%
Ottawa 8.8% 6.5% 9.5% 6.3%
Toronto 7.8% 7.3% 9.5% 6.8%
Calgary 7.8% 6.5% 7.5% 7.0%
Vancouver 7.0% 5.5% 8.1% 7.0%
Victoria 9.0% 6.6% 9.0% 9.0%
Note: Cap rates as of the third quarter of 2005.
High Levels of Acquisition Activity Continues With bond yields at alltime lows, the demand for real estate as an investment product accelerated in 2005 With bond yields at all-time lows, the demand for real estate as an investment product accelerated in 2005. With an estimated $16.6 billion in Canadian real estate transactions posted during the year, 2005 marked the sixth consecutive year of more than $10 billion in properties transacted. Foreign investors accounted for approximately 9% domestic Canadian real estate investment, down from 20% in 2004. Institutional investors, in particular pension funds, picked up the slack competitively bidding for property portfolios including the Brookfield/ CPP/Alberta Treasury purchase of the $2 billion O&Y portfolio, CPPs purchase of a $1 billion stake in Oxford office properties and B.C pension funds purchase of the Menkes industrial portfolio for $400 million. This competitive bidding resulted in lower going-in capitalization rates across all property types. Transaction activity increased across each asset type and across every major city. For the first half of the year, transactions amounted to $9.2 billion, up 13% from $8.1 billion in the six-month period in 2004. For the year, transactions increased by 18% over the prior year. Geographically, Toronto accounted for the bulk of activity at $3.8 billion or 41% of all transactions posted in the six-month period. Vancouver and Montreal tied for second place at $1.4 billion each during the half-year. Transaction activity in Montreal was effectively double the pace in the first half of 2004. Calgary and Ottawa followed at $0.6 billion each during the half-year. These five cities combined accounted for 86% of all transactions in the first six months of the year. Transactions in Edmonton and Winnipeg were well ahead of the same pace last year.
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TABLE 5: MAJOR INVESTMENT TRANSACTIONS BY CITY, 1995, 2000-1H05

(in $mlns) Victoria Vancouver Calgary Edmonton Regina Saskatoon Winnipeg Toronto Kitchener/Waterloo Ottawa Montreal Halifax Rest of Canada Total 1995 24 480 364 128 n.a n.a 188 1,430 n.a 82 319 n.a n.a 3,015 2000 80 911 1,464 434 52 24 223 3,924 560 725 2,553 63 301 11,314 2001 92 1,240 1,289 430 66 26 76 3,695 269 758 1,202 148 n.a 9,291 2002 210 2,054 1,735 954 97 25 146 4,400 246 984 1,821 99 0 12,771 2003 185 2,331 1,548 974 76 40 302 4,373 351 1,072 1,564 70 31 12,917 2004 267 3,329 2,456 919 152 230 195 6,851 331 841 2,814 367 48 18,800 1H04 52 1,332 1,030 369 n.a 276 80 3,423 255 335 755 165 n.a 8,075 1H05 197 1,418 601 407 n.a 61 181 3,772 282 604 1,463 158 n.a 9,155
Notes: 1) 2000-1H05 major transactions are those over $1 million for all cities.
Source: Colliers International, 1995-2005 publications
By asset type, demand for office properties remained strong at $2.6 billion for the half-year, up 44% from the same period last year. This reflected two major portfolio transactions (O&Y and Oxford) completed during the period. For the 2002 to 2004 period, office properties accounted for one-quarter of transactions, down from more than 40% in 2000-2001. Industrial properties continued to be favoured by investors with transaction activity of $2.0 billion for the six-month period, more than $0.5 billion higher than the same period last year. Retail assets posted $2.0 billion of purchases, relatively unchanged from the previous year. Apartment transactions were $1.1 billion, down slightly from $1.6 billion in the half-year in 2004.
TABLE 6: MAJOR INVESTMENT TRANSACTIONS BY PROPERTY TYPE, 1995, 2000-1H05
(in $mlns) Office Industrial Retail Apartment Hotel Land Other Total 1995 594 278 845 390 314 n.a 594 3,015 2000 5,289 1,438 1,919 1,579 301 1,053 20 11,599 2001 3,989 1,993 1,688 1,712 276 n.a n.a 9,658 2002 3,050 2,293 2,590 2,341 264 2,150 84 12,772 2003 3,024 2,110 2,536 2,275 398 2,543 31 12,917 2004 4,794 3,467 4,572 3,071 335 2,788 60 19,087 1H04 1,828 1,436 1,888 1,622 1,183 119 8,075 1H05 2,636 1,962 1,999 1,185 1,151 111.1 9,043
Notes: 1) 1995 to 1H05 "Other" investments include senior housing, theatres and parkades.
Source: Colliers International, 1995-2005 publications
33
Capitalization Rates Decline Further in 2005 Historically, we have used data collected by PriceWaterhouseCoopers (PWC) in their Lincoln North Survey for the Greater Toronto Area as a proxy for the investment markets across the country. Unfortunately, PWC ceased publishing the data at the end of 2003. Hence, for 2004 and 2005, we have taken the midpoint of a range of cap rates provided by Colliers International in their quarterly Greater Toronto Investment Report. The two drawbacks include: 1) The numbers are not compatible on a historical basis; and 2) The figures reported by Colliers provide a range rather than precise data point. In reviewing the cap rates provided by Colliers, we believe that the cap rates tend to be higher. Overall, in reviewing the brokerage data and comparing notes with senior real estate executives, we believe that capitalization rates declined from 25 to 50 basis points across all property types over the course of the year. Some asset categories, namely neighbourhood malls and industrial assets appear to have experienced greater than a 50 basis point decline in capitalization rates. Over this same period, the 10-year commercial mortgage rate also declined 50 basis points from 6.0% to 5.5% at year-end. Note that in 2003 and 2004, cap rates had declined more rapidly than commercial mortgage rates. Accordingly, we believe that the movement in cap rates has decelerated and appears to be showing signs of stabilizing. Looking forward, we believe that the volume of transaction activity will decline further in 2006 Over the course of the year, the accretive spread on acquisitions has narrowed, particularly after we factor in the cost of equity. The resultant effect is that publicly traded real estate companies are having an increasingly difficult time in acquiring assets. This has translated into a moderation in the pace of asset growth for the REIT sector, down from the 20% plus range in 2000-2003 period to 14% in 2005. Looking forward, we believe that the volume of transaction activity will decline further in 2006. Private and institutional buyers generally have a lower cost of capital, lower hurdle rates, and the ability to increase leverage. These investors have typically sought high quality, well-leased assets in core urban markets. However, recent transaction activity in secondary market indicates that there is less emphasis on the core markets than a few years ago. We point to a narrowing of the spread between mid-town and suburban apartments, between core and suburban office, and between multi and single tenant industrial properties. Selected Fundamental Highlights of Investment Market Survey Office Sector
Office vacancy rates continued an improving trend in 2005 at 8.7%, the lowest level since 2001. Calgary, Edmonton and Vancouver posted the lowest vacancy rates across the country. Most of the leasing activity is renewal activity; however, corporate expansions are becoming more commonplace.
34
Rental rates are on an upward trend in most major markets. Net effective rents for Class A office space in Calgary, Edmonton, and Vancouver are up sharply. Absorption has accelerated throughout 2005 at 8.5 million square feet, well above the 5.7 million square feet in 2004 and negative absorption experienced in 2002 and 2003. New supply and projects under development total 5.5 million square feet and has risen dramatically, particularly in Calgary, Ottawa and Toronto. The downtown office market is recovering more rapidly than the suburbs. Cap rates are lower by 25 to 50 basis points with cap rate in the Toronto core at 7.8%. The national vacancy rate is expected to decline to 7.7% in 2006.
Retail Sector
Strong investment demand continues to exist for regional enclosed malls, neighbourhood malls and power centres. There has been good product available, particularly for enclosed regional malls in secondary markets and neighbourhood malls in core and suburban markets. With annualized year-over-year retail sales growth, excluding automotive sales, strong at 6.4% in 2005, retailers continue to expand. Regional shopping centres continue to report solid growth in their sales per square foot productivity. The average for 2005 was $486 per square foot, up 8% from $450 posted in the prior year. New supply continues to be dominated by large format centres, which added 7.6 million square feet in 2005. This pace of new supply has been consistent over the past three years. The retailing industry continues to be defined by expansion (Wal-Mart, Canadian Tire, Loblaws), consolidation (Rona/Revy, Indigo/Chapters, Metro/ A&P), bankruptcies (Dollarama, Bowrings), and horizontal integration (Home Depot/Hughes Supply Inc).
Industrial Sector
Manufacturing sector is operating at full capacity, notably for oil and gas, mining, and transportation industries. Uncertainty with respect to the automotive industry in North America, would adversely impact the manufacturing belt from Montreal to Windsor. Consider that General Motors accounts for $16 billion in annual business for Ontarios 400 auto parts companies and is the source of about 16,000 jobs in the province. The impact of the Canadian dollar felt most predominantly in Central Canada. Vacancy rates edged slightly higher to 5.0%, up from a low of 4.2% in 2001.
Absorption stood at nearly 24 million square feet, below new supply of close to 25 million square feet. Raymond James Equity Research - Canada
35
Approximately 22 million square feet expected to come on the market in 2006, of which approximately 45% is pre-leased. Average net rent per square foot decreased modestly in 2005. Compression in cap rates between multi and single-tenant industrial properties. Cap rates are down approximately 25 basis points for the year.
Apartment Sector
National vacancy rate stabilized at 2.7% in 2005, but up from 1.1% in 2001. Continued investment demand despite weak apartment fundamentals. Cap rates were relatively stable declining 25 basis points. Still strong housing market continues to result in substitution toward home ownership. Large pipeline of condominiums to be delivered in the next two to three years continue to pose a threat in major markets. Rents are flat in most markets, with selected markets experiencing a downward trend.
Lodging Sector
RevPAR growth of 1.7% has fallen short of earlier projections and below GDP growth rate. Canadian dollar continues to adversely impact domestic accommodation spending and U.S. visits. Cap rates have declined by approximately 50 basis points to 11%, while the average per door price has remained stable at $57,500. The volume of hotel transactions has increased significantly in 2005 to levels not seen since 1997-98. Supply growth remains minimal at 1%; however, it appears concentrated in selected urban markets and limited service hotels.
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FIGURE 6: TORONTO OFFICE CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
14.0 13.0 12.0 11.0
FIGURE 7: TORONTO INDUSTRIAL CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
14.0 13.0 12.0 11.0 Cap Rate (%) 10.0 9.0 8.0 7.0
5.5%
Cap Rate (%)
10.0 9.0 8.0 7.0 6.0 5.0 4.0 1/90 3/90 1/91 3/91 1/92 3/92 1/93 3/93 1/94 3/94 1/95 3/95 1/96 3/96 1/97 3/97 1/98 3/98 1/99 3/99 1/00 3/00 1/01 3/01 1/02 3/02 2/03 1/04 3/04 1/05 3/05 7.8%
8.0%
5.5%
Figure6.0 Toronto Industrial Cap Rates vs. Commercial Mortgage Rates 5:

5.0 4.0 1/90 4/90 3/91 2/92 1/93 4/94 3/94 2/95 1/96 4/96 3/97 2/98 1/99 4/99 3/00 2/01 1/02 4/02 1/04 4/04
7.8% 5.5% 1/05
Office Cap Rate - GTA Financial Core
10 Yr Commercial Mortgage Rate
Industrial Cap Rates - GTA Multi-Tenant
FIGURE 8: TORONTO NEIGHBOURHOOD MALL CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990-3Q05
14.0 13.0 12.0 11.0 9.0% Cap Rate (%)
FIGURE 9: TORONTO APARTMENT CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990-3Q05
14.0 13.0 12.0 11.0 Cap Rate (%)
8.6%
8.0%
5.5%
10.0 9.0 8.0 7.0 6.0 5.0
10.0 9.0 8.0 7.0
5.5%
5.5%
6.0 5.0
4.0 1/90 4/90 3/91 2/92 1/93 4/94 3/94 2/95 1/96 4/96 3/97 2/98 1/99 4/99 3/00 2/01 1/02 4/02 1/04 4/04 3/05
4.0 1/90 4/90 3/91 2/92 2/93 1/94 4/94 3/95 2/96 1/97 4/97 3/98 2/99 1/00 4/00 3/01 2/02 2/03 2/04
Neighbourhood Plazas
GTA Mid-town Apartment Cap Rates
Source: Mortgage rates provided Standard Life. Cap rates provided by PWC(1990-2003) and by Colliers (2004 -3Q05)
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3/05
THE CANADIAN OFFICE MARKET

Fundamentals Recovering, Property Values Stabilize High-quality buildings with long-term leases and credit-worthy tenants continue to attract investors and trade at higher prices Despite somewhat soft office fundamentals across the country, high quality buildings with long-term leases in place with credit-worthy tenants continue to attract and trade at higher prices. This reflects the limited product offerings in the Canadian office market, the abundance of debt and equity capital and stillaccretive yield spreads. Capitalization rates for office buildings in major Canadian cities ranged from 6.25% to 9.0%, with the lowest capitalization rates in Ottawa, Toronto, Vancouver and Calgary. Capitalization rates for office properties declined by an average of 25 to 50 basis points during 2005. During the year, the O&Y Properties and O&Y REIT office portfolio were auctioned, which represented a $2 billion transaction. A consortium led by Brookfield and including CPP and Alberta Treasury acquired the companies at a going-in cap rate of approximately 7.25%. In 2005, OMERS also sold a half interest of $1 billion of office assets to CPP, for an undisclosed cap rate.
TABLE 7: OFFICE CAP RATES FOR SELECTED CITIES
CBD Sales Price (C$PSF) 135 300 104 335 300 151 CBD Cap Rate (%) 8.25 6.25 8.50 6.75 7.00 9.00 Suburban Sales Price (C$PSF) 100 160 N/A 240 195 125 Suburban Cap Rate (%) 9.25 8.00 N/A 7.00 7.25 9.00
Market Montreal, QC Ottawa, ON Regina, SK Toronto, ON Vancouver, BC Victoria, BC

Source: Colliers International, 3Q05 Report
Office assets located in the Greater Toronto Area financial core, midtown, and the suburbs benefited from higher property values. Office properties in the financial core experienced a decline of cap rates from 8.38% in 4Q04 to 7.88% in 3Q05. The 50 basis point decline over the year matched the decline in 2004, but at a decelerated pace from 2003s 60 basis point decline. For mid-town office properties, cap rates fell to 9.13% in 4Q05, down from 9.39% in 4Q02 and 9.59% in 4Q01. Suburban office properties have seen an 87 basis point decline in capitalization rates to 8.38%, down from 9.25% a year earlier. Again, this speaks to the fact that buyers are becoming less selective in their investment criteria. The accretive spread for suburban office properties over 10-year commercial mortgage rates stood at 290 basis points at 3Q05, down from 325 basis points a year earlier. For properties in the downtown core the spread has remained consistent at 240 basis points.
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FIGURE 10: TORONTO OFFICE CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
14.0 13.0 12.0 11.0 Cao Rate (%) 10.0 9.0 8.0 7.0 5.5% 6.0 5.0 4.0 1/90 3/90 1/91 3/91 1/92 3/92 1/93 3/93 1/94 3/94 1/95 3/95 1/96 3/96 1/97 3/97 1/98 3/98 1/99 3/99 1/00 3/00 1/01 3/01 1/02 3/02 2/03 1/04 3/04 1/05 3/05 7.8%
Office Cap Rate - GTA Financial Core
Source: Mortgage rates provided Standard Life. Cap rates provided by PWC(1990-2003) and by Colliers (2004 -3Q05)
The office market continued to recover with a decline in the national vacancy rate in 2005, and expected to decline further in 2006
The office market continued to recover with a decline in the national vacancy rate to 8.6%, down from 10.9% in 2004 and 11.6% in 2003. For 2006, the national vacancy rate is forecast to decline a further 1% to 7.7%. Highlights include the following:
Calgary remains the strongest office market with a vacancy rate of 1.7% in 2005, down 600 basis points from 7.7% in 2004. Edmonton has also benefited from the boom in the oil and gas industry as the vacancy rate improved to 5.3%, down from 7.5% in 2004 and a rate of 13.7% in 1999. Torontos vacancy rate stood at 9.8%, down 160 basis points from 2004, but still higher than the 5.0% vacancy rate experienced in 2000. Vancouvers office market also experienced a rapid decline in vacancy to 7.6%, down 370 basis points from 11.3% and a significant improvement from a peak vacancy of 14.5% in 2003. Montreals vacancy rate remains high on a national basis at 12.6% at the end of 2005. The vacancy rate has improved 80 basis points from 13.4% last year, but it is expected to remain relatively flat in 2006.
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TABLE 8: CANADIAN OFFICE VACANCY RATE, 2000 - 2006

Halifax Montreal Ottawa Toronto Calgary Edmonton Vancouver National 2000 6.4% 11.0% 2.1% 5.0% 6.7% 12.8% 3.5% 6.6% 2001 8.7% 10.5% 5.8% 7.8% 7.3% 11.6% 8.8% 8.4% 2002 8.9% 11.6% 8.1% 10.7% 11.2% 11.9% 12.3% 10.9% 2003 10.3% 12.3% 9.7% 11.2% 11.3% 11.4% 14.5% 11.6% 2004 11.0% 13.4% 12.1% 11.4% 7.7% 7.5% 11.3% 10.9% 2005 8.4% 12.6% 9.6% 9.8% 1.7% 5.3% 7.6% 8.7% 2006E 8.6% 12.5% 8.2% 9.2% 1.2% 2.2% 6.6% 7.7%
Source: Data prior to 2004 from Royal LePage Commercial Inc.; 2004 and 2006 from Colliers International Inc.
Class A Vacancy Rate Declines The national vacancy rate for Class A office properties declined to 7.7% in 2005, down from 8.8% the prior year. Vacancy rates are down from a peak of 9.5% in 2003, but below 12.2% recorded in 1995 during the last real estate cycle. Vacancy rates are still well off the low of 4.3% recorded in 2000. Highlights included the following:
Calgarys Class A office vacancy rates have declined significantly from 6.9% in 2004 to 2.0% at the end of 2005. Montreals Class A vacancy rate actually increased 90 basis points to 11.3% from 10.4% a year earlier. Edmontons vacancy rate declined 180 basis points to 5.0%, while Vancouvers vacancy fell 390 basis points to 5.0%.
Montreals Class A vacancy rate was the highest across the country at 11.3%.
TABLE 9: CLASS "A" OFFICE VACANCY RATES, 1990, 1995, 2000 - 2005
Halifax Montreal Ottawa Toronto Winnipeg Calgary Edmonton Vancouver National
Source: Royal Lepage Commercial Inc.
1990 11.9% 8.0% 5.7% 10.0% 11.9% 10.3% 10.6% 10.3% 9.6%
1995 14.7% 12.3% 10.1% 15.2% 6.1% 10.0% 14.6% 7.2% 12.2%
2000 5.4% 5.3% 1.8% 2.3% 7.8% 5.9% 10.2% 2.6% 4.3%
2001 7.7% 5.1% 1.1% 5.6% 7.0% 5.6% 9.6% 8.0% 5.9%
2002 10.4% 7.9% 4.0% 9.6% n.a 7.4% 10.4% 11.8% 8.9%
2003 12.9% 10.4% 2.2% 10.5% 6.2% 7.4% 9.2% 11.2% 9.5%
2004 10.9% 10.4% 3.5% 9.8% 10.1% 6.9% 6.8% 8.9% 8.8%
2005 6.5% 11.3% 3.5% 10.4% n.a 2.0% 5.0% 5.0% 7.7%
Office Market Posts Solid Positive Absorption According to CB Richard Ellis, the national office market experienced 12.2 million square feet of positive net absorption. Downtown markets accounted for 6.4 million square feet of absorption, with suburban markets recording 5.8 million square feet. 2005s absorption figure is more than doubled the 5.7 million square feet of positive absorption recorded last year. More importantly, this marks the strongest pace of absorption since 2000, when the office market experienced 14.6 million square feet of positive absorption.
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TABLE 10: OFFICE MARKET STATISTICS, ALL CLASSES

2005 (sq.ft.) Halifax Montreal Ottawa Toronto Winnipeg Regina Calgary Edmonton Vancouver London Waterloo Region Total
Source: CBRE
Inventory 9,058,000 62,833,000 50,600,000 141,520,000 9,295,000 45,148,000 20,052,000 38,528,000 5,204,000 11,678,000 393,916,000
New Supply (105,000) 748,000 819,000 (109,000) 1,395,000
Under Construction 78,000 450,000 1,192,000 897,800 810,000 2,686,000 318,000 309,100 6,740,900
Absorption (YTD) 250,500 466,100 1,483,300 5,427,300 110,200 2,785,100 241,400 1,319,300 (137,200) 262,500 12,208,500
Toronto, Calgary and Vancouver recorded the strongest positive absorption levels at 2.7 million, 2.1 million and 1.4 million square feet, respectively. Ottawa also posted solid absorption at 1.0 million square feet. These four cities combined accounted for 85% of total office absorption.
TABLE 11: CANADIAN OFFICE ABSORPTION, 2000 - 2005
Halifax Montreal Ottawa Toronto Calgary Edmonton Vancouver National 2000 341,064 2,080,555 2,187,390 6,190,830 1,764,357 237,823 1,980,020 14,594,822 2001 (15,346) 1,142,180 143,832 (630,786) 918,704 146,068 (1,105,301) 668,325 2002 114,250 (87,294) (254,674) (1,298,274) (1,672,938) (94,277) (525,807) (3,739,359) 2003 (72,917) 261,551 (357,462) (292,117) 398,172 91,267 (197,312) (112,423) 2004 (203,017) 1,112,109 490,063 2,236,225 1,048,464 93,193 1,308,502 5,682,672 2005 250,500 466,100 1,483,300 5,427,300 2,785,100 241,400 1,319,300 12,208,400
Source: Data for 1999-2004 from Royal LePage Commercial Inc.; for 2005 from CBRE
New Supply Building New supply in 2005 is well below the level of supply over the past three years Nationally, new supply amounted to 1.4 million square feet in 2005, well below the 3 to 5 million square feet delivered annually over the past three years. As a relative percentage of the total inventory of office space, new supply stood at less than 1.0%, which is low by historical standards. New supply peaked in 2000 and 2001, and has since trended lower. Toronto and Ottawa recorded new space of 819,000 square feet and 748,000 square feet, respectively. Vancouver and Montreal, which have both added new supply in prior years, actually recorded a decline in supply of 109,000 and 105,000 square feet, respectively. Despite very strong demand, Calgarys office market added a paltry 42,000 square feet during the year.
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TABLE 12: CANADIAN OFFICE NEW SUPPLY, 2000 - 3Q05

Halifax Montreal Ottawa Toronto Calgary Edmonton Vancouver National 2000 120,255 223,974 1,127,338 2,566,934 1,964,322 80,000 985,536 7,068,359 2001 198,650 860,000 1,454,334 3,469,313 1,292,992 1,111,920 8,463,569 2002 0 770,000 0 2,646,251 125,000 0 1,045,932 4,619,965 2003 174,093 1,261,680 92,415 481,909 594,154 1,343,992 4,020,026 2004 593,000 502,027 1,142,271 350,370 326,580 3,056,870 3Q05 (105,000) 748,000 819,000 42,000 (109,000) 1,395,000
Note: 1) 3Q05 data exclude 4,233,000 (SF) under construction

Source: Data for 1999-2004 from Royal LePage Commercial Inc.; for 3Q05 from Colliers International
New Construction Pipeline Full The above table fails to capture the amount of office projects currently under construction. Nationally, an estimated 6.7 million square feet is under construction, including 4.4 million square feet in the downtown cores and 2.3 million square feet in the suburban areas. The bulk of this new construction activity is focused in the markets of Calgary, Ottawa, Toronto, and Winnipeg (yes, Winnipeg). Calgary has nearly 2.0 million square feet under construction in the downtown core and an additional 700,000 square feet in the suburbs totaling 2.7 million square feet or 40% of the total square footage under construction. Ottawa has 1.2 million square feet under construction, accounting for 18% of the total new construction. Approximately 831,000 square feet is under construction in the downtown core with the remaining 361,000 square feet being built in the suburbs. Torontos nearly 900,000 square feet of new construction is largely concentrated in the suburban markets, which represent 550,000 square feet. Despite the highest national vacancy rate, Montreal has 450,000 square feet currently under construction, including 330,000 square feet in the downtown core. Rental Rates Are Gradually Improving Net effective rents (NERs) for Class A office properties continued to improve in 2005, but remain below levels achieved five years ago. Torontos NER of $21.00 per square foot continues to be lower than $25.00 per square foot posted in 2004. Ottawas NER of $19.00 is well below the $25.00 per square foot earned in 2003. Calgarys NER improved from $18.00 in 2004 to $20.00 in 2005, reflecting strong demand. Montreals net rent declined from $13.50 in 2004 to $12.00, reflecting still-high vacancy in the city. Edmontons NER has rebounded to $8.00, up from $6.50 last year and are at a five-year high.
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TABLE 13: NET EFFECTIVE RENTS, CENTRAL AREA CLASS "A", 1999-2006
Toronto Ottawa Calgary Montreal Vancouver Regina Victoria Halifax Winnipeg Kitchener/Waterloo Saskatoon Edmonton Simple Average
Note: Net effective rents on per square foot basis.
Source: Data for 1999-2004 from Royal LePage Commercial Inc.; for 3Q05 from Colliers International
2001 $23.00 $20.00 $22.00 $14.00 $20.00 $11.80 $14.00 $14.00 $11.50 $12.00 $12.00 $5.00 $14.94
2002 $25.00 $21.00 $22.00 $16.00 $21.00 $12.00 $14.14 $16.00 $9.00 $13.00 na $6.00 $15.92
2003 $26.50 $25.00 $17.50 $16.00 $16.00 $14.00 $13.50 $11.00 $9.50 $9.00 $8.50 $6.50 $14.42
2004 $18.00 $18.00 $18.00 $14.00 $12.50 $15.00 $13.50 $11.20 $8.50 $9.00 $8.50 $6.50 $12.73
2005 $21.00 $19.00 $20.00 $12.00 $16.00 $16.00 $15.00 $13.00 $9.00 $10.00 $8.50 $8.00 $13.96
2006E $22.00 $19.25 $24.00 $12.00 $18.00 $16.00 $17.00 $12.50 $9.00 $10.25 $9.50 $10.00 $14.96
Suburban Office Market Rebounds Suburban markets continued to improve in 2005 with the average vacancy rate for Class A buildings at 10.8% at the end of the third quarter, down from 13.2% in 2004. This is well above the 6.6% vacancy rate recorded in 2000. Absorption for the year-to-date at 3.4 million square feet exceeds the annualized rate posted over the past four years. This reflected moderation in the amount of new supply in the suburban markets of Class A space.
TABLE 14: NATIONAL SUBURBAN CLASS "A" OFFICE STATISTICS, 2000 TO 3Q05
Inventory (sq.ft.) Vacancy Rate (%) Absorption (sq.ft.) New Supply (sq.ft.) Net Effective Rent ($ per sq.ft.) 2000 74,239,181 6.6% 5,518,873 5,192,445 $13.13 2001 80,884,421 10.5% 1,902,754 5,781,577 $13.41 2002 83,979,624 13.6% 825,689 3,472,053 $10.83 2003 83,571,246 14.6% 1,088,373 1,952,512 $7.71 2004 85,203,544 13.2% 2,665,806 1,603,903 $10.55 3Q05 85,102,000 10.8% 3,375,000 948,000 n.a
Source: data prior to 2005 from Royal Lepage Commercial Inc.; 2005 from Colliers International Inc.
2006 Office Market Outlook The national office vacancy rate is forecast to go down further this year; and net effective rents expected to gradually improve The office market continued to improve in 2005, as reflected by a declining national vacancy rate, positive net absorption at the strongest level since 2000, and improving net effective rents. Looking forward, the national office vacancy rate is forecast to improve 100 basis points to 7.7% this year. As long as vacancy edges downward, we would expect net effective rents to gradually improve. As we look at the office statistics, it is clear that 2003 was the year that occupancy rates bottomed, while rental rates hit a trough in 2004. As quickly as vacancy rates rose (up 5% from 2000-2003), they are forecast to decline (down 4% from 2003 to 2006). In large part, this reflects two factors: 1) The acceleration in the vacancy rate reflected a tremendous amount of sub-lease
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space on the market; and, 2) New supply has remained at very low levels over the past five years. Today, sub-leasing activity is no longer a major factor in the market. Factors that will keep construction in check include the rising cost of land and materials, and the scarcity of skilled labour With new construction projects amounting to 6.7 million square feet, we remain cautious that the office sector, which has been prone to over-build, will repeat history. This new space is largely concentrated in the cities of Calgary (40%), Ottawa (18%) and Toronto (13%). In historical context, this level of construction pales in comparison to 10 to 20 million square feet constructed in the early 1990s real estate cycle. Nonetheless, given a competitive acquisition market, preferential development returns, excess capital to be deployed, and lower banking lending criteria, we believe that we are on the cusp of the next building cycle. The one factor that we would point to that will keep construction in check is the rising cost of land, materials and the scarcity of skilled labourers. Corporate consolidation and the potential of bank mergers pose a risk for this sector, potentially increasing the availability of large blocks of office space, particularly in the downtown Toronto area in the bank towers. Corporate profitability and re-investment is a significant consideration as it fuels demand for office space and future expansion plans. For the most part, the leasing activity has reflected renewal activity rather than corporate expansions. We believe that REITs with concentrated ownership of office assets will experience significant earnings leverage as office fundamentals recover. With the sale of O&Y REIT to the Brookfield Consortium completed in November 2005, there is no Canadian REIT focused solely on the ownership of Canadian office buildings. As the name of the REIT suggests, IPC US REIT is a Canadian domiciled REIT which exclusively owns high quality office assets in mid-markets in the United States. Diversified trusts such as CREIT, Cominar, Dundee, H&R, and Morguard do own Canadian office assets within their portfolio.
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THE CANADIAN INDUSTRIAL MARKET

In 2005, going-in capitalization rates for multi-tenant industrial buildings in the Greater Toronto Area declined 100 basis points from 9.0% in 4Q04 to 8.0% in 4Q05. Cap rates for single-tenant industrial properties dropped 50 basis points to 8.0% mirroring this decline. The perception of industrial real estate as a stable asset class has led to a dramatic increase in property values for both single and multi-tenant buildings. In fact, the last time going-in cap rates for industrial assets were at this level was in 1989. Recall that 1989 was the peak of the last real estate cycle! There is no question that the decline in cap rates for industrial properties has exceeded the 50 basis point decline in commercial mortgage rates over the past year. This is a clear indication that the industrial property market has become over-heated. Industry executives have indicated that transaction prices on acquisitions are exceeding replacement costs in selected markets, including the Greater Toronto Area. Over the long-term, going-in capitalization rates for industrial multi-tenant properties in the Greater Toronto Area have ranged from 8% to 10% in the last decade. Despite the appreciation of the asset class, based on a current cap rate average of 8%, acquisitions remain accretive with 250 basis-point spread over the cost of debt. This explains how investors justify purchasing industrial assets.
FIGURE 11: TORONTO INDUSTRIAL CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
Figure 5: Toronto Industrial Cap Rates vs. Commercial Mortgage Rates 14.0
13.0 12.0 11.0 Cap Rate (%) 10.0 9.0 8.0 7.0 6.0 5.0 5.5% 4.0 1/90 3/90 1/91 3/91 1/92 3/92 1/93 3/93 1/94 3/94 1/95 3/95 1/96 3/96 1/97 3/97 1/98 3/98 1/99 3/99 1/00 3/00 1/01 3/01 1/02 3/02 2/03 1/04 3/04 1/05 3/05 8.0%
Industrial Cap Rates - GTA Multi-Tenant
Source: Mortgage rates provided Standard Life. Cap rates provided by PWC(1990-2003) and by Colliers (2004 -3Q05).
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Fundamentals for the Canadian industrial market have remained stable since 2000, with nationwide vacancy rates below 5%
Fundamentals for the Canadian industrial market have remained stable since 2000, with nationwide vacancy rates below 5%. Average net rental rates have ranged from $5.00 to $6.00 per square foot. With an estimated 22 million square feet of new space added, absorption was strong leading to a 10 basis point up tick in the vacancy rate to 5.0%. This vacancy rate reflected the highest level in more than five years. However, it is well below the 7% in 1996 and 11.6% in 1993. The net effective rental rate edged slightly lower at $5.30 per square foot. We believe that one factor that accounts for the stability of the industrial market over the past six years is the obsolesce factor. Although more than 100 million square feet of new supply has been added in the past six years, the gross inventory has actually declined by approximately 2% over the period. This reflects obsolesce of older industrial buildings with low ceilings and poor accessibility. For 2006, an estimated 17 million square feet of industrial square feet is forecast to be delivered, of which approximately 45% is speculative. This compares to a historical relationship of one-third speculative build and two-thirds pre-leased. In the context of total inventory of industrial space, the gross amount of new space is not material enough to disrupt the healthy balance of the industrial market. Nonetheless, we would expect the vacancy rate to creep up in 2006.
TABLE 15: NATIONAL INDUSTRIAL STATISTICS, 1993, 1996 , 2000 TO 2005

Inventory (sq.ft.) Vacancy Rate (%) Absorption (sq.ft.) New Supply (sq.ft.) Average Net Rent per sq.ft.) ($ $3.48 $3.68 $5.58 $5.49 $5.01 $5.30 $5.82 $5.52 1993 1,555,776,278 11.6% 930,603 10,023,039 1996 1,193,740,107 7.0% 11,277,906 10,687,441 2000 2001 2002 2003 1,306,045,252 1,309,897,723 1,342,607,908 1,309,056,432 4.3% 4.2% 4.8% 4.5% 28,548,351 17,358,244 1,895,721 15,735,450 23,901,422 17,766,287 11,819,356 9,934,005 2004 1,283,157,016 4.9% 2,565,687 15,570,463 2005 1,369,683,000 5.0% 23,467,100 14,928,000
Source: Data prior to 2004 from Royal Lepage Commercial Inc.; 2005 Data from from Colliers International and CBRE
2006 Outlook for Industrial Market Given the record low capitalization rates, it is not surprising that there has also been a boom in building activity, with some high profile U.S. industrial REITs such as ProLogis crossing the border. Even if we assume realizable cash-on-cash yields in the high-single digit range, these returns are superior to the current 6.5% to 8% yields for recently transacted industrial properties. We believe that an outcome of this speculative building activity is to put pressure on vacancy rates and rental rates.
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We view excessively high transaction prices, combined with speculative development as a real threat to underlying property values and property fundamentals for the industrial sector. With the shortest development lead-time, there is no question that over-building can quickly become an issue in the industrial market. As a by-product, location and underlying quality will become discriminatory factors if industrial property values correct. Landlords with deferred capital expenditures may be forced to re-invest in their assets to maintain occupancy rates. In our research universe, Summit REIT focuses primarily on the light-industrial, flex-space segment with its portfolio containing approximately 32 million square feet of gross leaseable area. Other diversified trusts including CREIT, Cominar, Dundee, Morguard and H&R REIT also have exposure to the industrial market.
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CONSUMER SPENDING DRIVES RETAIL PROPERTY VALUES

Capitalization rates across each type of retail asset in the Greater Toronto Area declined over the 12-month period, indicating higher property valuations. Neighbourhood plazas posted the largest decline, down 100 basis points from 4Q04 to 3Q05 to 8.5%. Power centres and community malls both recorded a 50 basis point reduction in cap rates to 8.5% and 9.0%, respectively. Over the past seven quarters (i.e., beginning of 2004), cap rates for retail properties have declined by 90 basis points for community and neighbour malls, and 50 basis points for power centres. The growing popularity of power centres as an investment class is evident in scanning the historical data back to 1996, in which cap rates hovered at 10%. Assuming an average cost of debt at 5.5%, the spread over 10-year commercial mortgage rates ranged from 300 to 350 basis points on average for retail assets. Importantly, the spread over the cost of debt has remained positive.
FIGURE 12: TORONTO NEIGHBOURHOOD MALLS CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
14.0 13.0 12.0 11.0 Cap Rate (%) 10.0 9.0 8.6% 8.0 7.0 6.0 5.0 4.0 1/90 3/90 1/91 3/91 1/92 3/92 1/93 3/93 1/94 3/94 1/95 3/95 1/96 3/96 1/97 3/97 1/98 3/98 1/99 3/99 1/00 3/00 1/01 3/01 1/02 3/02 2/03 1/04 3/04 1/05 3/05 5.5%
Neighbourhood Plazas
Canadian Retail Sales Growth Healthy Fundamentals for the retail sector remain strong, spurred by strong consumer spending on the heels of home equity loans, low borrowing rates and deferred purchasing plans Fundamentals for the retail sector remain strong, spurred by strong consumer spending on the heels of home equity loans, low borrowing rates and deferred purchasing plans. Over the past nine years, total annualized retail sales growth has exceeded the rate of inflation, averaging 5.3%. For 2005, the growth rate exceeded economists expectations at 6.2%. If we exclude automotive sales, the growth rate was very strong at 6.4% and above the average of 5.4% since 1997. General merchandise sales grew 4.7% for the year, half a point lower than 5.3% in 2004.
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TABLE 16: CANADIAN ANNUAL RETAIL SALES GROWTH, 2000 TO 2005

Total retail sales Non-automotive retail sales General merchandise sales 2000/99 6.3% 6.5% 4.4% 2001/00 4.4% 4.2% 3.2% 2002/01 6.0% 5.4% 4.8% 2003/02 3.1% 4.4% 3.1% 2004/03 4.1% 6.4% 5.3% 2005/04 6.2% 6.4% 4.7%
Note: 1) 2005/04 Retail trade growth based on data released in January 2006.
Source: Statistics Canada, Retail Trade data
The table below profiles the shopping centre industry in Canada spanning from 1987 to 2004. Over this period, the total gross leaseable area (GLA) for shopping centres greater than 40,000 square feet totaled 412 million square feet. This represented a 31% increase in shopping centre square footage since 1994. A notable trend has been an increase in the average size of shopping centres from 175,110 square feet in 1994 to 182,220 square feet in 2004. We believe that this speaks to the fact that the lions share of new supply added over the decade has been of large power centres. Shopping centres continue to account for the bulk of retail sales activity, representing 60.2% of total sales in 2004. The percentage of sales captured by shopping centres has increased over the past six years, but remains below the nearly 64% achieved in the early 1990s.
TABLE 17: PROFILE OF CANADIAN SHOPPING CENTRE INDUSTRY
Notes: 1) Shopping center inclined sales is the sum of furniture, home furnishings, computer, home hardware, building materials, supermarkets, convenience storse, alchol, drug stores, clothing and shoe stores, department stores, and other merchandise stores. 2) Percentage of shopping inclined sales includes restaurants, caterers and taverns. 3) Data for centres of 40,000 square feet and over.
Source: Statistics Canada, ICSC
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The strength of retail sales growth has been reflected in the sales performance of large regional malls operators. From 1997 to 2004, IvanhoeCambridge (formerly Cambridge Shopping Centres) and Cadillac Fairview Corporation, which collectively own approximately 20 million square feet of retail space, reported average sales growth of 2.4% and 2.7%, respectively. After a period of strong acceleration in sales per square foot from 1995 to 2000, the pace of sales growth remained relatively stable in the ensuing period. However, in 2004, the annualized sales for IvanhoeCambridge rose 3.9% to $452 per square foot, while sales productivity at Cadillac Fairview rose 6.0% to $539 per square foot. This may partially be explained by a decline in the amount of gross leaseable area as both entities have culled their portfolios of less productive assets.
TABLE 18: SHOPPING CENTRE PERFORMANCE OF SELECTED COMPANIES, 2000 - 2004
2000 IvanhoeCambridge (1,2,3,4) CRU Sales Growth CRU Vacancy Sales per sq.ft. Percentage Change in Sales per sq.ft. CRU GLA (000s sq.ft.) @ equity interest Cadillac Fairview (5,6) CRU Sales Growth CRU Vacancy Sales per sq.ft. Percentage Change in Sales per sq.ft. CRU GLA (000s sq.ft.) @ equity interest -1.2% 9.1% $431 -1.1% 6,131 2001 1.8% 9.4% $439 1.9% 9,083 2002 -0.3% 8.2% $438 -0.3% 10,197 2003 -0.6% 7.3% $435 -0.6% 10,401 2004 3.7% 8.3% $452 3.9% 9,409
5.0% 4.0% $494 3.6% 11,700
2.0% 5.0% $505 2.2% 11,500
1.0% 5.4% $507 0.0% 11,300
-1.0% 5.5% $508 -1.0% 10,400
2.0% 5.1% $539 6.0% 9,800
Notes: 1) Data provided by Ivanhoe Cambridge 2) 2000 for December fiscal end for Cambridge Shopping Centres Ltd.. 3) The 2001 figures represent the merged company Ivanhoe Cambridge. 4) 2002 figures updated to reflect December 2002 information. 5) Data provided by Cadillac Fairview. 6) 2000-2001 figures for the rolling year ending in November.
Source:
The trend we alluded to above is evident in the figure below, depicting national regional malls sales from 2000 to 2005. From 2000 to 2004, the regional mall space has reported relatively stable sales per square foot. We attribute this to a shift in consumer spending patterns from traditional enclosed shopping malls to big box power centres. The spike in 2005 spending at regional malls bodes well for regional mall owners.
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FIGURE 13: CANADIAN REGIONAL SHOPPING CENTRE SALES PER SQUARE FOOT, 2000-2005
$500 $486
$451 $450 Per Square Foot
$456 $451 $450 $450
$400
$350 2000 2001 2002 2003 2004 2005E
Note: 1) 2005E based on 12 rolling months till November 2005; 2005YTD is $413
Source: International Council of Shopping Centres
Reflecting the above, retail landlords retained pricing power to incrementally advance rental rates on expired and new leases in 2005. As a result, real estate companies with a portfolio focus of retail assets have experienced positive trends in same-property operating income. While the historical occupancy rate for the retail sector has volleyed between 90% and 96% over the past two decades, it has remained at the high end of this average over the past couple of years. New supply has been concentrated in large format centres surrounding major urban and suburban nodes across the country In addition to rental rate growth driven by expansion and development plans of their retail tenants benefiting from strong consumer spending, new supply has remained minimal. Over the past several years, new supply has been concentrated in large format centres surrounding major urban and suburban nodes across the country. Since 2003, power centre new supply has hovered around 7.5 million square feet annually. In 2005, 7.6 million square feet was added, which remains below the peak of 8.5 million square feet added in 1998. Overall, approximately 40 million square feet of power centre space has been built in the last five years.
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FIGURE 14: POWER CENTRE NEW SUPPLY (SQ.FT.), 2000-2005

9,000,000 8,000,000 7,000,000
Square Feet
6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 -
2000
Toronto
2001
Calgary
2002
Montreal
2003
Vancouver
2004
National
2005E
Source: Colliers International
Neighbourhood strip malls and enclosed community malls have bared the brunt of power centres attracting traditional mall tenants including general merchandisers such as Wal-Mart, and anchor department and food stores. In terms of street front retail, location remains the primary determinant of success and everevolving retailing trends result in continuous change of tenants. In the regional mall category, The Vaughan Mills Centre just north of Toronto in 2004 is the only enclosed mall constructed in more than a decade across the country. To remain competitive, many enclosed malls have undergone significant renovations and expansion. The recently announced take-over bid for The Hudson Bay Company, Canadas oldest retailer dating back to 1670, underscores one recurring theme amongst retailers change is constant. The acquisition of Sears Canada by its U.S. parent Sears Roebuck is another example of changing retail trends. The traditional department store is a dinosaur in todays competitive retailing industry. Price conscious consumers are consistently seeking value and will wait patiently for sales before purchasing an item. This evolution towards the lowest price business model has led to intense competition among retailers. Essentially, it requires retailers to have scale and mass purchasing power to exert influence on their suppliers to sell goods at lower margins. The introduction of Sams Club to the retail landscape has led to several food grocers including Loblaws to actively expand their business to acquire prime real estate locations and to reduce operating costs by negotiating with unions to reduce wage costs. This increasing competition has led to the expectation of a shakeout among Canadas five grocers with the likelihood of several casualties. As a result, community and neighbourhood retail stores that tend to be grocery anchored are likely to face the impending repercussions of consolidation within the food industry.
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2006 Outlook for the Retail Market For retail landlords, having the best location and presence in the primary retail nodes has become paramount In general, we believe that the retail landscape in Canada lacks scope, as there are only a couple dozen prominent retailers in the country, many of which are U.S. based. This provides a measure of income stability to the extent that retailers are better capitalized today than in the past. It also limits the potential upside for landlords, since their tenants have considerable clout when it comes to negotiating rents. For retail landlords, this means that having the best location and presence in the primary retail nodes has become paramount. The old adage location, location, location is appropriate. We believe that sustained low interest rates, wage rate growth, and strong employment levels will continue to bolster consumer confidence and retail spending levels in Canada. We anticipate that occupancy rates will remain high on a historical basis at 94% to 97%, and rental growth will continue to exceed inflation. This should result in growing rental income streams for real estate companies with a portfolio focus of retail assets including Cominar, CREIT, First Capital Realty, Primaris, and RioCan REIT.
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THE CANADIAN RESIDENTIAL APARTMENT MARKET

Properties Appreciate, Vacancy Stabilizes The graph below depicts the stabilization of capitalization rates for mid-town apartment properties in the Greater Toronto Area at 7.8% at the end of the third quarter of 2005. Despite historically weak apartment fundamentals, apartment ownership remains fashionable for large and small investors alike. Despite the 25 basis-point compression in residential cap rates, the spread over the cost of debt has remained healthy at 230 basis points. Given a 50 basis point decline in commercial mortgage rates over the year, the accretive gap has actually widened in 2005. Similar to other property sectors, the pricing gap between core and suburban markets cap rates has evaporated.
FIGURE 15: TORONTO APARTMENT CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1990 - 3Q05
14.0 13.0 12.0 11.0 Cap Rate (%) 10.0 9.0 7.8% 8.0 7.0 6.0 5.0 4.0 1/90 3/90 1/91 3/91 1/92 3/92 2/93 4/94 2/94 4/94 2/95 4/95 2/96 4/96 2/97 4/97 2/98 4/98 2/99 4/99 2/00 4/00 2/01 4/01 2/02 4/02 4/03 2/04 4/04 2/05 5.5%
GTA Mid-town Apartment Cap Rates
Housing Market Experiencing Record Growth The combination of low interest rates, strong employment levels, and real wage growth has increased demand for housing The combination of a historically low interest rates, strong employment levels, and real wage growth has greatly increased demand for single and multi-family housing. The seasonally adjusted annual rate (SAAR) of housing starts was 225,500 units across the country in 2005, down from 234,000 units in 2004, according to Canada Mortgage and Housing Corporation (CMHC). Despite the 2.5% decline over the previous year, housing starts remain at historically high levels. 2006 is expected to mark the sixth consecutive year that housing starts exceed 200,000 units. The last two periods in which housing starts were at these levels were from 1986 to 1989 and from 1975 to 1978. Both of these periods were followed by economic recessions and a sharp drop in housing starts.
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Since 1960, the average level of housing starts in Canada is 183,000 units. Hence, todays level of housing start is 25% above the long-term average. Nonetheless, housing and demographic forecasters anticipate that the pace of housing starts will decline in 2006 to 208,700 units and again in 2007 to 194,800 units. The graph below appears to indicate that 2004 was the peak of the housing cycle in terms of housing starts.
FIGURE 16: SAAR HOUSING STARTS IN CANADA, 1960- 2005
350
300 Canadian Housing Starts (000s)
250
200
150
100
50
0 2005E 1960 1965 1970 1975 1980 1985 1990 1995 2000
Canadian Housing Starts (000s)

The figure below depicts the percentage change in housing starts over the past 15 years. Housing starts jumped by more than 20% in 2002, then leveled off in 2003 and 2004, and have since declined in 2005. Note the nearly 40% decline in housing starts in 1990, following an investor-driven housing bubble in the early 1990s. Looking forward, we would expect that housing starts will continue to record annual declines in the pace of activity.
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FIGURE 17: PERCENTAGE CHANGE IN HOUSING STARTS, 1990-2005

30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0% 1990 1992 1994 1996 1998 2000 2002 2004
% Change in Housing Starts

The data for Canadian building permits indicate that the annual change declined from the period of 1991 to 1995 and again in 1998 to 2001. The 40% spike in the level of building permits issued in 2002 mirrors the housing start data. Note that the 2002 increase in building permits is double the annualized increase in housing starts recorded. This reflects the fact that building permits are leading indicators of construction activity. The gap between the time the building permit is issued and the housing start is recorded reflects construction lag time. Accordingly, the decline in building permits in 2005 is also of a greater magnitude.
FIGURE 18: PERCENTAGE CHANGE IN BUILDING PERMITS, 1990-2005
50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 1990 1992 1994 1996 1998 2000 2002 2004
% Change in Building Permits for New Dw elling Units

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Along with the extraordinary start volume, new housing prices experienced strong advances. 2005 was a record year in terms of re-sale activity, reaching a record high of 482,000 transactions with an average price of $248,900. Housing prices advanced 10% in 2005, the strongest growth in 16 years. Nationally, the most affordable cities to buy housing include Regina ($138,000), Winnipeg ($152,000) and Halifax ($202,000). The most expensive cities include Vancouver ($469,700), Toronto ($364,000) and Calgary ($283,400). Besides heightened consumer demand, the house price increase is also attributed to higher costs of land, labour and building materials. From 1997 to 2004, the housing price index has increased by 31%. A peak at resale housing price index, which measures the weighted average selling price of existing houses in Canada, also indicates a rising trend since 2000. According to Royal LePage, the national average house price is forecast to increase by 6% in 2006 to $271,800, while the volume of sales activity is expected to decline by 3% to 467,540 transactions. Housing prices are expected to remain strong in Alberta, British Columbia, and Saskatchewan. By city, Calgary is expected to see the strongest advance in housing prices up 9%, followed by Edmonton at 8%. Montreal is forecast to report a modest 2% appreciation in 2006.
FIGURE 19: NEW AND RESALE HOUSING PRICE INDEX. 1993- 2005
Source: Bank of Canada
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Apartment Vacancy Forecast to Rise Traditionally, the apartment market has been the safest asset class in real estate providing a basic need - shelter, and accordingly, relatively immune to economic cycles. However, the housing boom in Canada driven by record low interest rates has resulted in a substitution effect towards home ownership. Consequentially, rental apartment fundamentals have weakened over the past few years, which have been reflected in rising vacancy rates across most major markets. In 2005, the national apartment vacancy rate was unchanged from the prior year at 2.7%. It remains 50 basis points lower than the long-term average of 3.2% from 1992 to 2005. Recall that the national apartment vacancy rate bottomed in 2001 at 1.1%. Since then, the markets to record a significant increase in vacancy rates include Toronto, London, Ottawa, Edmonton, and Hamilton. Torontos vacancy rate has increased from 0.6% in 2000 to 3.7% in 2005. Ottawas vacancy rate has risen from 0.2% in 2000 to 4.2% in 2005. Edmonton has the highest vacancy rate at 4.5%, up from 0.9% in 2001. The apartment markets with vacancy rates below 2% include Calgary, Quebec City, Montreal, Vancouver, and Winnipeg. For 2006 and 2007, Canada Mortgage and Housing Corporation (CMHC) is forecasting national apartment vacancy rates to increase to 2.9%.
TABLE 19: RENTAL APARTMENTS VACANCY RATES, SELECTED URBAN CENTRES, 1992, 1995, 2000-2005
YOY Change 0.3 pts 0.5 pts 0.6 pts 0.1 pts 0.9 pts -0.8 pts -0.6 pts 0.5 pts -0.6 pts 0.4 pts -2.7 pts 0 pts Average 1992 2005 3.8% 3.9% 3.6% 1.5% 2.5% 4.5% 2.5% 3.6% 1.8% 5.0% 2.9% 3.2%
1992 1995 2000 2001 2002 Quebec City 6.3% 6.0% 1.6% 0.8% 0.3% Montreal 7.7% 6.2% 1.5% 0.6% 0.7% Winnipeg 6.1% 5.4% 2.0% 1.4% 1.2% Vancouver 1.6% 1.2% 1.4% 1.0% 1.4% Hamilton 2.3% 2.0% 1.7% 1.3% 1.6% Edmonton 4.0% 10.2% 1.4% 0.9% 1.7% Ottawa 1.3% 3.8% 0.2% 0.8% 1.9% London 3.4% 4.3% 2.2% 1.6% 2.0% Toronto 2.2% 0.8% 0.6% 0.9% 2.5% Halifax 5.7% 7.7% 3.6% 2.8% 2.7% Calgary 5.5% 3.6% 1.3% 1.2% 2.9% Canada 4.8% 4.3% 1.6% 1.1% 1.7% Average includes other minor metropolitan areas not mentioned above
Source: Canada Mortgage and Housing Corporation
2003 0.5% 1.0% 1.3% 2.0% 3.0% 3.4% 2.9% 2.1% 3.8% 2.3% 4.4% 2.2%
2004 1.1% 1.5% 1.1% 1.3% 3.4% 5.3% 3.9% 3.7% 4.3% 2.9% 4.3% 2.7%
2005 1.4% 2.0% 1.7% 1.4% 4.3% 4.5% 3.3% 4.2% 3.7% 3.3% 1.6% 2.7%
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The ability to increase rental rates in certain provinces (Ontario, Quebec, B.C.) is restricted due to rent controls introduced in the 1970s. As a result, the apartment sector has traditionally experienced minimal levels of new supply of rental accommodations and, until recently, enjoyed very strong occupancy rates. However, attractive mortgage rates and enhanced home ownership affordability rates has led to a substitution towards single and multi-family homes. Condominium apartments are particularly appealing to renters given their central location, lower entry price point, and enhanced lifestyle amenities. Condominium apartments are also attractive to investors given the minimal maintenance required. As a result, multi-family starts are accounting for a growing percentage of total housing starts. In 2005, multi-family starts accounted for 47% of total housing starts, up from 35% historically. Rents have been relatively stagnant over the past year, plus or minus 2% in most major markets Rents have been relatively stagnant over the past year, plus or minus 2% in most major markets. The figure below, which has not been adjusted for inflation, illustrates a flattening of monthly rents for two-bedroom apartments. In Toronto, rents peaked in 2001 and have experienced limited growth since. In Edmonton, rents moved up significantly in the 1997 to 2002 period, but have remained flat over the past three years. While the long-term trend for Calgary indicates that rents have increased, over the past four years, monthly rents have flat-lined. This is despite the fact that vacancy rates in Calgary remain low at 1.7%. Quebec City and Montreal continue to exhibit a steady increase in monthly rents.
FIGURE 20: AVERAGE RENT FOR TWO-BEDROOM APARTMENTS FOR METROPOLITAN AREAS (1995-2004)
$1,100 $1,000 $900
Monthly Rents
$800 $700 $600 $500 $400 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Canada Edmonton Quebec Montreal Toronto Calgary
Source: CMHC
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2006 Outlook for Apartment Sector Apartment vacancy rates are expected to increase slightly in 2006 and remain stable into 2007 Today, a still-large pipeline of condominiums under construction continues to threaten occupancy and rental rates, particularly in core markets such as Toronto, Montreal, Edmonton, and Vancouver. We believe that if the trend in rising housing prices continues, the affordability gap between home ownership and rental accommodations will widen. As a result, we should see a slow-down in housing activity. The moderation of housing starts, which in some ways reflects a catch up of pent-up demand in the mid to late 1990s, should ease the pressure on apartment occupancy. Accordingly, apartment vacancy rates are expected to increase slightly in 2006 and remain stable into 2007. We believe that rental apartment landlords such as Boardwalk and CAP REIT will benefit from rising population and immigration levels, and continued economic and job growth. On a longer-term basis, a rising interest rate environment will also cool the housing market and foster inflation-type increases in rental rates.
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THE CANADIAN LODGING SECTOR

The Lacklustre Recovery Hotel Transactions Increase in 2005 Canadian hotel investment activity accelerated in 2005, with $1.7 billion worth of transactions over the year. This is up considerably from $360 million in 2004, $469 million in 2003, and $540 million in 2002. The average price per room was $108,800, which is well above the $67,000 per door recorded in 2004 and $81,800 per door in 2002. Generally speaking, hotel transactions have trended downward since 1998. The limited transaction activity likely reflects weak lodging fundamentals and unwillingness on behalf of hotel investors to price transactions on weak trailing 12-month earnings. This also signifies the absence of distressed hoteliers, as bank lending for hotels has remained conservative since the early 1990s. The historical data also indicates that the boom in hotel transactions coincided with the launching of three Canadian hotel REITs in 1997, 1998 and 2002.
TABLE 20: CANADIAN HOTEL TRANSACTIONS, 1993-2005
No. of Hotels 104 50 51 49 41 48 41 176 106 75 67 47 46 Volume Millions Dollars $1,706 $360 $469 $540 $656 $443 $423 $1,324 $1,039 $770 $482 $144 $296 Annual Change n.m. -23.2% -13.1% -17.7% 48.1% 4.7% -68.1% 27.4% 34.9% 59.8% 234.7% -51.4% Price Per Room $108,800 $67,000 $62,200 $81,800 $112,500 $79,500 $87,700 $56,900 $56,800 $51,600 $46,600 $29,700 $38,400 Annual Change n.m. 7.7% -24.0% -27.3% 41.5% -9.4% 54.1% 0.2% 10.1% 10.7% 56.9% -22.7% -
2005 (1) 2004 (2) 2003 2002 (3) 2001 2000 1999 1998 1997 (4) 1996 1995 1994 1993
Notes:
Total transaction activity includes strategic sales, and sales in excess of $1 million. A trade is considered strategic when at least two of the following conditions exist: apricing premium is paid; the asset is located in a high barrier to entry market or within the geographic hub of an owners principal business; or the opportunity allows for the extension of the companys brand/portfolio. (1) Includes the sale of seven hotels owned by Westmont/Whitehall Partnership to InnVest REIT for $85.3 million (2) Includes the sale of nine hotels owned by Westmont/Whitehall Partnership t InnVest REIT for a total of $111 million (3) Includes the sale of 114 hotels owned by Westmont/Whitehall Partnership to InnVest REIT for approximately $865 million (4) Includes the sale of eleven Canadina Pacific hotels to Legacy Hotels REIT for $835.6 million
Source: Colliers International Hotels
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Similar to other commercial properties, capitalization rates for hotel properties declined in 2005 despite the lackluster improvement in lodging fundamentals. Since 2000, cap rates for hotel properties have ranged from 10% to 13%. In the mid-1990s, the sectors cap rates had declined into the high-single digit range. Data from Colliers International indicates that national hotel cap rates have declined by 50 basis points to average 11% in 2005. Based on commercial mortgage rates at 5.5%, this provides an attractive 550 basis point spread over the cost of debt. This spread is the largest amongst all commercial property assets and is indicative of the higher risk associated with hotel ownership. We should point out, however, that the cost of debt is typically higher for hotel operators, which would imply a lower spread than indicated above.
FIGURE 21: CANADIAN LODGING CAP RATES VS. COMMERCIAL MORTGAGE RATES, 1993-2005
13.0% 12.0% 11.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 5.5%
Hotel Cap Rate
10 Yr. Commercial Mortgage Rate
Notes: 1) 2001-2004 reflect mid-point of range 2) Cap rate for 2005 based on 1H05 data
Source: Colliers Hotels International, Standard Life
From 1997 to 2002, the spread had widened and has since remained relatively constant. This coincides with a compression in cap rates in the mid to late 1990s real estate cycle. Higher volume of hotel transactions in 2005 may indicate that over the past three years, hotel investments have gained in popularity as other commercial asset classes have become relatively expensive.
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A Lodging Industry Rebound Of all real estate asset classes, the lodging sector is the most highly levered to expansions and contractions in the overall economy. This reflects the sectors dependence on corporate profitability to spur business travel and consumer confidence to generate leisure travel. This relationship is depicted in the figure below, in which the annual GDP growth rate and RevPAR (revenue per available room) are graphed from 2000 to 2006. RevPAR, the most commonly quoted metric to measure hotel performance, is a function of the average daily room rate (ADR) and the average occupancy rate. In general, RevPAR and GDP growth rates have moved in tandem. The two notable exceptions include 2001 and 2003, years in which RevPAR declined while the overall economy posted modest growth. In 2001, the Canadian economy grew by 1.5%, while RevPAR declined by 1.3%. For 2006, the Canadian economy is expected to post a 3.1% GDP growth rate, while RevPAR is estimated to improve by 2.5%.
FIGURE 22: ANNUAL REVPAR AND GDP GROWTH, 2000 - 2006
5.0% 4.5% 4.0% 4.0% 6.0%
2.0% 3.5% 3.0% 2.5% -2.0% 2.0% -4.0% 1.5% 1.0% -6.0% 0.0%
2000
2001
2002
2003
2004
2005E
2006E
GDP Growth
Source: PKF Consulting, Statistics Canada
RevPAR Growth
Canadian Dollar Impacts Lodging Demand The Canadian hotel market continued to recover after four consecutive years of depressed occupancy and ADR levels In 2005, the Canadian hotel market continued to recover after four consecutive years of depressed occupancy and ADR levels. The most cited factor to explain this weakness over the past two years has been the impact of a high Canadian dollar relative to the U.S. dollar. As reported by Statistics Canada, U.S. traveler visits, which account for more than 80% of total foreign travel visits to Canada, reached a 30-year low for the month of August. U.S. business and leisure travelers are critical to the Canadian lodging industry as they are generate higher room rates and operating margins given their aptitude for spending within the hotel for food and beverage and other ancillary services. Not only has the
% RevPAR Growth
% GDP Growth
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appreciation of the Canadian currency impacted foreign travel visits, it has also undermined domestic travel as Canadians are traveling abroad in record numbers taking advantage of their stronger currency. Softness in domestic demand should not be treated lightly, as domestic tourism expenditures represent 71% of the total tourism expenditures in Canada and domestic spending on accommodations represents 53% of the total accommodation spending in 2004. Canada has typically run a deficit of tourism expenditures, as Canadians spend more abroad on travel than foreigners spend in Canada. Historically, changes in the size of this travel deficit are highly correlated with movements in the Canadian dollars exchange rate against the U.S. dollar. When the Canadian dollar peaked at $0.89US in October of 1991, the tourism expenditure deficit ranged from $6 to $8 billion in non-inflation adjusted terms. Canadians crossed the border to take advantage of the high Canadian dollar, despite a weak domestic economy. In 2002, this deficit narrowed to about $2 billion, when the Canadian dollar hit a low of $0.63US. Recently released data from Statistics Canada indicates that this trend has reversed given the 3% appreciation of the Canadian dollar to $0.86US in 2005 and more than 35% appreciation since 2003. The tourism expenditure deficit rose to $1.3 billion in the third quarter, up from $0.9 billion in the fourth quarter of 2004. While domestic demand has strengthened, it has failed to offset the decline in international travel demand. Occupancy Gains, ADR to Follow PKF Consulting is forecasting RevPAR to improve 3.9% in 2006 to $79.00 in Canada. This reflects a 160 basis point improvement in the occupancy rate to 65% and a 2.5% increase in the average daily rate to $122.00. Based on this forecast, the lodging sectors occupancy rate is expected to return to 2000s level, which was pre-September 11, 2001. Usually, hoteliers would forego occupancy rate to preserve average daily room rates. However, over the past few years the competitive lodging environment has introduced pricing pressure in several markets. As a result, ADR growth remains limited in most markets. For 2005, occupied room nights are forecast to improve to 79.7 million, up 4.6% over 2004 and compared to 71.3 million room nights in 2003. The figure below outlines RevPAR growth in dollar terms, unadjusted for inflation, and the annualized change in RevPAR. It clearly demonstrates the run up in RevPAR from 1995 to 2000, following a period of stagnant growth from 1992 to 1994. In 2003, the RevPAR decline reflects the impact of SARS on the lodging industry. The 2006 RevPAR forecast of $79.00 would mark four years of an upward trend.
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FIGURE 23: REVPAR GROWTH ($) AND ANNUALIZED CHANGE

$80.00 35.0% 30.0% $70.00 25.0% RevPAR Growth $60.00 20.0% 15.0% $50.00 10.0% $40.00 5.0% 0.0% $30.00 -5.0% $20.00 1992 1994 1996 1998 2000 2002 2004 2006E -10.0% RevPAR % Change
RevPAR
Source: PKF Consulting and Raymond James research and analysis
% Change
Fortunately, new hotel supply on a national basis remains at low levels at approximately 1% forecast for 2006. Between 1998 and 2002, hotel supply increased nationally at a compound annual rate of about 1.8% from an estimated inventory of 344,000 rooms in 1998 to 379,000 rooms in 2002. The nearly 7% growth of new hotel rooms from 2001 to 2004 exacerbated occupancy pressures in 2003. During 2005, an estimated 5,000 hotel rooms and 55 new hotels were opened. Key supply markets include Toronto Airport/West, Victoria, Vancouver Airport, Halifax/Dartmouth, and Toronto Downtown. In 2006, sixty new hotels are forecast to be constructed, representing 5,854 rooms. An additional 82 hotels with 7,722 rooms are anticipated in 2007. Nearly 85% of planned new hotels are located in the provinces of Ontario (83 of 211 hotels), British Columbia (40 hotels), Alberta (30 hotels) and Quebec (25 hotels). New supply tends to be concentrated in two major hotel markets of Toronto and Niagara Falls; followed by Vancouver, Montreal, Halifax and Edmonton. New supply tends to be focused on drive-to locations catering to the limited service market segment including such brands as Super 8, Days Inn, and Holiday Inn Express.
TABLE 21: KEY NATIONAL LODGING STATISTICS, 2000 - 2006
2000 Actual 348 65% $111 $72 2001 Actual 355 1.8% 62% -2.6% $114 2.7% $71 -1.7% 2002 Actual 359 1.4% 62% 1.0% $116 1.2% $72 0.9% 2003 Actual 363 1.0% 59% -4.3% $112 -3.0% $66 -8.0% 2004 Actual 367 1.1% 62% 5.1% $117 4.5% $73 10.6% 2005E 2006E Forecast Forecast 372 378 1.3% 1.6% 64% 65% 3.2% 1.6% $119 1.7% $76 4.1% $122 2.5% $79 3.9%
Supply (000) % Growth Occupancy % Demand Growth ADR % Growth RevPar % Growth
Source: PKF Consulting
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2006 Outlook for the Lodging Sector Overall, limited service and mid-market hotels with food and beverage should outperform fullservice hotels given lower customer traffic from foreign tourists We believe that the Canadian dollar will continue to impact both foreign and domestic accommodation spending. Having said that, we believe that the lodging sector will improve in terms of occupancy rates, average daily room rates and operating margins. This recovery will be aided by low levels of new supply. Overall, limited service and mid-market with food beverage, with lower customer traffic from foreign tourists, should outperform full service hotels. Since corporate travel accounts for more than 60% of accommodation demand for full service hotels, business profitability impacts full service operators more profoundly. Given this relationship, we believe that upscale operators such as Legacy Hotels REIT will experience meaningful earnings leverage as fundamentals recover. Given the capital-intensive nature of upscale lodging, there is a natural tendency for lower supply, effectively creating barriers to entry. However, we do not see this on the immediate horizon for 2006. Depending upon the market segment focus, Canadian hotel REITs can have different performance drivers. For example, Innvest has a diverse customer base with less dependence on cross-border or international travelers; while the performance of Legacy REIT depends largely upon international travelers and group business travelers in focused markets such as Toronto and Vancouver.
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Comparative Analysis
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FINANCIAL POSITION, OPERATING RISK AND GROWTH POTENTIAL

In this edition of the 2006 Raymond James Canadian Real Estate Review, we examine numerous financial and operating ratios in order to provide a comparative framework of publicly traded real estate investment trusts (REITs). Analysis is also undertaken to quantify relative operating risk and vulnerability to changing economic growth, interest rates and real estate market conditions. Throughout this analysis, we compare historic and interim operating results in order to determine the current position of the real estate cycle; along with a valuation for our universe of publicly traded real estate entities and the subsequent growth potential of these respective REITs. Our report also examines corporate operating strategies, the experience of management and managements ability to create shareholder value on a firm-byfirm basis. Although these factors are somewhat subjective and difficult to quantify, they are important in assessing a companys growth potential and vulnerability to market conditions within a cyclical industry. This analysis includes a review of the firms asset focus and portfolio quality, growth potential and the ability and likelihood of management being able to modify its operating strategy as economic and industrial conditions warrant. The valuation models and financial analyses provide indications as to the relative success of managements corporate strategies, the companys growth potential and the overall intrinsic value of the company. Companies are also compared to averages calculated for the entire industry. We believe that this comparative framework provides a measure of the optimum level of operating risk within the respective real estate sectors. It also highlights growth performance relative to an industry average. Readers are cautioned that the comments contained in the industry overview are general in nature. For a detailed analysis of corporate and REIT operating and financial results, please refer to the respective company profile sections included in this report.
FINANCIAL AND OPERATING OUTLOOK

2006 Outlook Ratio analysis presents further upside potential for REITs The pricing of real estate today (real property assets and REIT stocks) is based on strong investor demand for yield and still-attractive adjusted risk premium (which is currently 250 basis points above 10-year Canadian government bond). There is no question that investors are paying a hefty premium to own real estate stocks that have produced nominal FFO growth over the past two years. Undoubtedly, REITs are viewed as professionally managed, mature investments, owning well-leased property assets that provide income stability. We do not subscribe to the view that investors are pricing in significant growth in the future rental income of these REITs. We believe that the downward trend in FFO performance since 2003 and still high FFO payout ratios indicate that bottom-line growth has been allusive even if we have seen heady top-line growth.
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Despite lofty valuations, it is difficult to be pessimistic on the REIT sector given a review of the comparative ratios below:
Since the early 1990s, real estate companies have achieved moderate financial risk as the average book value debt-to-equity ratio stands at 2.05:1 at 3Q05 versus an industry average of 4.12:1 in 1989. This stable debt leverage reflects a combination of comparatively sound real estate fundamentals, limited development activity, the acquisition of higher quality, well leased assets and the sale of non-core unproductive assets. The adjusted average debt leverage for REITs has increased to 2.07:1 at 3Q05, up from 1.31:1 in 2000. This increase is consistent with a multi-year rising trend and is a reflection of managements preference for increased debt leveraged at a lower cost relative to equity capital. Overall, we believe that a further increase in industry leverage is quite manageable. The disclaimer is that debt leverage should not exceed the 75% loan-to-value ratio or 3.00:1 times. As a result of the decline in the average cap rate to 7.7%, down from 9.5% in 2002, the industrys average debt-to-NAV ratio declined from 1.27:1 to 1.19:1. The loan to market value ratio has remained consistent at approximately 57% over the past three years. These leverage ratios remain conservative by historical standards. In 2005, the debt-to-gross book value of assets ratio for the REIT industry remained constant at 56% over 2004, but up from 52% for 2001 and a low of 40% in 1997. This average does not include lodging REITs that traditionally have a leverage ratio approximating 40% of gross book value. Again, these ratios are reasonable by historic standards. Conservative industry leverage ratios have provided a financial cushion to compensate for the lack of strength in same-property fundamentals over the past two years. Looking forward, it will also aid the companies as the cost of financing maturing debt increases in tandem with rising bond yields. In 2005, a number of REITs experienced dilution from equity issues undertaken to fund acquisition growth. This dilution results from the necessary delay in raising the capital ahead of the closing on property transactions. In selected cases, management teams were opportunistic in raising capital taking advantage of attractively priced debt and lofty stock prices. As we look towards 2006, we anticipate the level of equity market transactions to ease reflecting lower acquisition volume.
Despite declines in cap rates across property sectors, the going-in yield on acquisitions remains positive over the cost of mortgage debt. Given a flattening of the bond yield curve, we anticipate that REITs will continue to extend the average mortgage term. In the recent past, acquisition financing with lower-cost floating rate debt increased positive leverage experienced on acquisitions.
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REIT valuations have remained aggressive at an average premium to NAV of 18%, on par with 17% witnessed at the same time last year. This compares to an average premium of 1% in 2002. The premium ranges from a high of 52% for RioCan REIT to 1% for CAP REIT. Note that our NAV model is inept at capturing future development income stream and applies conservative valuation to non-rental income streams, both of which are evident in the case of RioCan. Based on current trading pricings, the REIT sector is trading at an implied cap rate of 7.3%. This is 60 basis points higher than our average NAV cap rate for the sector of 7.9%. On a Price-to-FFO basis, the sector is priced at 13.1 times based on 2006E and 14.1 times on 2005E. This is towards the high end of the industrys average Price-to-FFO range of 6 to 15 times. It compares to forward multiples of 9.5 times in 1998, 8.5 times in 1999, 8.3 times in 2000, 9.4 times in 2001, 9.4 times in 2002, 9.3 times in 2003, and 10.6 times for 2004. We would raise the red flag if the forward 2006 FFO multiples advanced two points, implying an additional 16% stock price appreciation. During 2005, the yield on 10-year government bonds ended the year at 4.0%, lower than 4.6% at the end of 2004. At the same time, the risk premium mortgage spread over 10-year bonds declined by an estimated 20 basis points to 1.45% for an average commercial mortgage rate of 5.5% compared to 6.25% last year, 6.7% in 2002 and 7.8% in 2000. This lower cost of financing resulted in a decline in the average cost of real estate mortgage debt to 6.1%, down from 6.2% last year, 6.8% in 2002 and 7.2% in 2000. Although we believe that the sectors participants have largely refinanced their debt, excluding Boardwalk and Morguard REIT, given our outlook for relatively stable bond yields, the potential exists for further refinancing savings. Based on average portfolio mortgage debt at 6.1% and current financing rates at 5.5%, this implies there is up to a further 60 basis points of savings that may be realized. Access to public equity capital by REITs continued to improve during 2005, with nearly $2 billion raised via one IPO, 19 secondary equity offerings and a handful of debenture offerings. This compared to $1.1 billion raised in 2004 and $1.7 billion issued in 2003. Given the appreciation of real estate and growing popularity as an investment class, we anticipate new IPOs to emerge, including the recently announced Crombie REIT (a spinoff from Empire Co.). We believe that spin-outs of real estate assets held in large corporations like Empire and Magna will become an emerging trend as they unlock value and raise capital from virtually unlevered real estate assets. We would anticipate more exotic type REITs including specialized property segments such as student residences, public storage, medical buildings, restaurants, etc.
The average yield for commercial REITs has declined a full 100 basis points from 7.6% to 6.6% at the end of 2005. At this level, the risk-adjusted premium over 10-year Government of Canada bonds has declined to 2.6%, down from 3.0% in the previous year. Nonetheless, this compares to negative
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spread in the U.S. REIT industry where the average Equity REIT yield of 4.3% is 20 basis points below the 10-year treasury yield of 4.5%. We should point out that in the U.S., investors are pricing in a recovery of real estate fundamentals and meaningful FFO growth.
In 2005, the average cost of equity stood at 7.5% for the senior REITs, which approximates the going-in yield on high-quality income property acquisitions before factoring in transaction costs. As a result, management will continue to rely on lower-cost debt to justify acquisitions. With more than sufficient balance sheet capacity, we do not see this as an impediment to acquisition growth. Exposure to bank loans and floating rate stood at 5.1% of total debt, down from 5.8% in 2004. Note that in 1989, the percentage of floating rate debt for the real estate sector represented 49% of total debt! Given the relatively low exposure today, a spike in interest rates would not have a meaningful impact on the sector. Near-term debt maturities for 2006 and 2007 average 5.6% and 5.2%, respectively. Debt maturity for the REIT industry has decreased as a result of relatively stable debt leverage and a preference for long-term financing. Rental income leverage (debt/rental income) has increased to a ratio of 7.5 times after bottoming in 2001 at 6.3 times. The increase in this ratio indicates that narrower acquisition spreads and eroding same-property fundamentals and operating margins have resulted in limited portfolio productivity. Looking forward, we would expect this ratio to reverse reflecting internal growth momentum. Interest coverage from both rental income and total operating income remained strong during 2005. The coverage ratio for the trusts was 2.5 times, up from 2.3 times in 2000. The stronger trend speaks to the quality and stability of properties acquired over the past five years.
Growth of rental income prior to financing cost for 2005 is expected to slow down to an average of 13%, down from 18% in 2003 and 20% in 2002. If we factor in the performance of the lodging REITs, the average has been consistent at approximately 14%. This years pace is about 2% lower than the 5-year historical growth rate of 15%. This trend reflects a declining trend in asset growth in 2005, as the acquisition market has been challenging, in particular for the senior REITs. This significant growth of selected newer REITs including Chartwell, Dundee, IPC US REIT and Primaris Retail REIT accounts for the rental income growth.
The trend in the growth of rental income after financing expense indicates a moderating growth trend. The growth rate for companies averaged 14.5% in 2005, down from 23% in 2001 and 2002. It is also lower than the 5-year average of close to 18%. The diminishing benefit of debt leverage is apparent if we compare the percentage growth rates pre and post financing expense. In 2001, rental income growth of 16% provided a levered growth rate of 24%. For 2005, rental growth of 13% is expected to yield a levered growth rate of
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14.5%. Thus, the benefit of leverage has been nearly entirely offset by lower going-in acquisition yields. To a lesser extent, it also reflects weaker operating margins and same-property rental productivity. As long as this relationship between higher leverage and rental income growth remains positive, we are not concerned.
We also track the impact of debt and interest costs on portfolio profitability by comparing interest expense relative to rental income. For 2005, relative interest expense is expected to increase to 43.5%, up from 41.6% in 2004 and a low of 40.7% in 2002. Given the lower average cost of portfolio mortgage debt and slightly higher debt leverage, the increase in this ratio reflects declining operating margins. This ratio is expected to improve in 2006 as operating expenses stabilize and the contribution of acquisitions improves. Industry-wide portfolio asset growth increased by a healthy 11% in 2005. This is lower than the 13.5% posted in 2004 and the 5-year average of 15%. As illustrated in our real estate sector overview, new project development has begun to accelerate. Several REITs are undertaking some kind of in-house development including expansion, redevelopment and green-field development. Many REITs have also established relationships with third-party developers and receive an option to purchase the project upon completion via mezzanine funding commitments. The current level of development activity for the REIT sector does not imply significant risk as it represents a small proportion of overall assets. Adjusted FFO, which deducts capital expenditures, leasing and straight-line rents, is expected to grow over the forecast period. Todays management teams are much more in-tune with payout ratios and conserving cash to fund on-going obligations. This stems in part from the increasing institutionalization of the REITs and the whole income trust sector. Since 2000, the industrys return on equity based on FFO has remained relatively consistent in the mid-teens. We would expect the returns to increase as the erosion in unitholders equity to fund distributions subsides and improving property fundamentals and acquisitions provide incremental FFO growth. Average per-unit FFO flow growth for the sector is expected to bottom in 2005, registering an average decline of 1.4%. Our outlook for 2006 is more favourable at 4.5% as the economy and property sectors continue to recover.
Property values continue to increase as reflected by an average decline in our cap rates from 9.26% in 2002 to 7.9% in 2005. The sector is currently trading at an implied cap rate of 7.3% today as investors are willing to accept a stillattractive 325 basis point spread over 10-year bond yields. Given the tremendous demand for investment yield, we do not anticipate this demand to dry up suddenly.
Overall, as we review the above factors we believe that the REIT sector is poised for moderate growth in rental income, supported by recent acquisitions,
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stable to higher operating margins and improving same-property productivity. We believe that FFO growth will also be augmented as the result of still-accretive acquisitions; an increase in other income from management fees, mezzanine interest, and investment income, and higher achieved returns from development and expansion activities. Acquisition activity is expected to slow down in 2006; hence, we do not expect REITs to be as active raising capital. Given the strength of the industrys balance sheet and abundant acquisition capacity, we believe that a tighter acquisition spread will be offset by employing higher leverage. Some volatility in the pricing of REITs is expected as investors respond to higher bond yields and capitalization on attractive portfolio gains In terms of the pricing of real property, we expect cap rates will remain relatively stable, with a slight bias to increase by the end of the year. As a result, we anticipate that property values will ease, which would tip our NAV premiums above 20%. Therefore, we would expect to see some volatility in the pricing of REITs this year as investors respond to higher bond yields and capitalize on attractive portfolio gains. Still, the attractive yield spread over long bonds, the relative stability of the underlying income stream, and a positive long-term demand trend for income-yielding investments provides support for the sector. FFO Growth Rate and Outlook In 2004, accounting changes which allow for the inclusion of straight-line rental income has skewed the data for the forecast period relative to prior years data. Accordingly, we have segregated our table into two time periods, 2000 to adjusted 2004, in which FFO excludes straight-line rental income and 2004 actual to 2006, in which FFO includes straight-line rental income. The inclusion of straight-line rental income, which is most pronounced for office and diversified REITs, effectively bolsters FFO. We have also included FFO growth rate on a per unit basis to illustrate the bottom-line growth trend. Since 2000, the real estate industry has reported strong annualized FFO growth in dollar terms. The annualized pace of FFO growth in 2004 and 2003 was robust at 17% and 14%, respectively. This rate of growth was below 2002s whopping growth rate of 27.5%. The sheer growth in FFO on a dollar basis reflects significant acquisition activity over the time period.
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TABLE 22: FUNDS FROM OPERATION (FFO) GROWTH RATE

Comparable FFO 2001/00 Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT (3a) IPC US Income REIT (3b) Morguard REIT Primaris Retail REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (4) Senior REITs (5) -2.7% 29.6% -38.5% 3.2% --31.0% --8.1% --14.6% 10.5% 16.6% 16.2% 19.4% 2002/01 8.8% 20.5% -29.2% 40.6% --24.5% ---1.5% -71.4% 13.1% 56.0% 29.2% 27.5% 26.0% 2003/02 11.4% 4.6% -9.5% 14.9% -32.7% 7.5% 47.6% 57.9% 9.5% -10.5% 13.2% 19.0% 19.9% 14.3% 11.2% 2004/03 7.5% 39.7% n.m 25.3% 18.1% n.m 38.7% 21.6% 19.8% 16.1% 2.2% n.m -10.1% 9.7% 11.3% 16.7% 17.1% 18.3% REALPAC FFO 2005E/04 2006E/05E 0.6% 22.3% 48.5% 2.2% 7.4% 23.6% 44.7% 13.8% -2.4% -4.5% 18.5% 40.2% 7.8% 1.8% 19.1% 16.2% 16.8% 12.2% 2.6% 6.4% 36.8% 5.2% 6.1% 8.5% 20.8% 10.7% 67.3% 77.4% -0.5% 22.3% 13.0% 4.6% 7.1% 19.2% 12.0% 5.7%
Lodging CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average
2001/00 -6.3% --1.3% -8.2% -5.3% 5.7%
2002/01 14.9% --7.7% -11.7% -1.5% 13.8%
2003/02 -19.5% n.m -77.1% -35.7% -44.1% -12.1%
2004/03 10.6% 12.5% 201.2% 6.3% 57.7% 37.2%
2005E/04 2006E/05E 18.7% 7.1% 23.1% -4.1% 42.6% 20.1% 18.2% 12.8% 32.0% 23.8% 18.9% 19.1%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) IPC US REIT (a) used FFO as reported; (b) excluding Non-controlling Interest 4) Adjusted average excludes highest and lowest figures. 5) Senior REITs include CAP, CREIT, Cominar, H&R, Morguard, RioCan and Summit REIT. 6) FFO Growth rate based on the total FFO amount, not FFO per unit 7) From 2001-2004 Comparable FFO excludes straight-line rental income. 8) FFO from 2004-2006E includes straight-line rental income according to the REALPAC definition of FFO.
Source: RJ Research etimates and analysis
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For the forecast period, we anticipate the FFO growth in dollar terms to remain strong at nearly 17% in 2005 and to ease to 12% in 2006. Given current cap rates and a competitive acquisition landscape, we anticipate that acquisition growth will be constrained in 2006. Nonetheless, the double-digit growth rate we have forecast is nothing to balk at. We expect that Chartwell, IPC US REIT, First Capital and Primaris Retail REIT will lead the charge in terms of FFO growth. The laggard is Morguard REIT, which has grappled with operational issues during 2005 that is expected to carry-over into 2006. The data outlining FFO growth on a per unit basis provides a different picture of growth. From 2002 to 2003, the FFO growth rate per unit halved each year from 3.1% in 2002 to 1.6% in 2003. In 2004, the sector recorded a slight decline in the average FFO growth rate to -0.5%. If we exclude both IPC US REIT and Retirement REIT at the low end and CREIT at the high end, the growth rate for 2004 was effectively nil. For 2005, we are forecasting FFO per unit to average -1.1% for the commercial REITs. The firms with above-average FFO growth rates include retail-focused CREIT, First Capital Realty, and Primaris, and seniors housing operator Chartwell REIT. A number of the REITs are forecast to register a decline in annualized FFO per unit in 2005 including:
CAP REIT (weak fundamentals and dilution from recent equity offering); Dundee (dilution from convertible debenture offering, weak same-property results); H&R REIT (absence of mezzanine financing interest); IPC US REIT (two major tenant vacancies, debt refinancing charge not added back to FFO); Morguard REIT (departure of anchor tenants at two shopping centres); Retirement REIT (weak fundamentals); and RioCan REIT (debt refinancing charge not added back to FFO).
FFO per unit growth is believed to rebound for 2006 due to the recovery of demand and rent fundamentals, continued expansion and acquisitions, and the absence of debt financing For 2006, we believe that FFO growth per unit will rebound aided by the following:
The recovery of demand and rent fundamentals, notably for the office and hotel sector; Continued expansion plans for retailers positively impacting the retail-oriented REITs. The absence of debt financing and other one-time charges related to portfolio asset sales; and Selected acquisition activity at still-accretive spreads.
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TABLE 23: FUNDS FROM OPERATION (FFO) PER DILUTED UNIT GROWTH RATE
Comparable FFO 2001/00 Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT (3a) IPC US Income REIT (3b) Morguard REIT Primaris Retail REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (4) Senior REITs (5) -4.2% 5.3% -3.9% -8.7% --3.7% --10.2% --4.7% 0.3% 1.9% 2.3% 2.8% 2002/01 9.6% 4.2% -4.1% 16.6% -4.6% 2.9% ---10.9% --9.7% 4.9% 3.8% 3.0% 3.1% 3.7% 2003/02 9.5% 1.1% -4.4% 1.5% -0.7% 1.5% -5.8% 0.7% 3.1% --4.1% 4.0% 2.3% 1.6% 1.6% 2.6% 2004/03 3.6% -4.2% n.m 0.8% 10.4% n.m 0.0% 1.5% -10.2% -16.0% 0.0% n.m -20.8% 2.4% 0.0% -2.7% -0.5% 1.6% REALPAC FFO 2005E/04 2006E/05E 0.0% -3.5% 1.8% 0.0% 4.8% -2.9% 3.1% -0.4% -23.8% -33.5% -3.6% 1.0% -2.4% -6.5% 0.7% -4.3% -1.1% -1.2% 2.1% -0.9% 17.4% 2.0% 1.7% 2.1% 3.4% 1.2% 63.6% 72.9% -1.0% 9.6% 7.8% 4.6% 3.3% 12.7% 4.5% 1.6%
Lodging CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average
2001/00 -6.2% --24.2% -17.2% -15.9% -7.0%
2002/01 2.6% --14.2% 2.2% -3.1% -0.1%
2003/02 -21.2% 70.4% -81.3% -33.4% -16.4% -7.4%
2004/03 9.7% -7.6% 211.8% -15.2% 49.7% 23.5%
2005E/04 2006E/05E 7.8% 9.1% 39.2% -4.7% 41.4% 20.9% 8.3% 8.5% 34.0% 10.2% 15.4% 14.0%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) IPC US Income REIT (a) used FFO as reported; (b) excluding Non-controlling Interest 4) Adjusted average excludes highest and lowest figures. 5) Senior REITs include CAP, CREIT, Cominar, H&R, Morguard, RioCan and Summit REIT. 6) From 2001-2004 Comparable FFO excludes straight-line rental income. 7) FFO from 2004-2006E includes straight-line rental income according to the REALPAC definition of FFO.
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Adjusted FFO (AFFO) Growth Rate and Outlook In addition to funds from operation, we believe that adjusted FFO (AFFO) is an important metric of managements ability to added value and to measure portfolio productivity. Adjusted FFO is calculated by deducting from FFO (as defined by Real PAC) straight-line rental income, leasing costs and capital expenditures. Although this metric is not defined under GAAP accounting, we view AFFO as an indication of the net cash flow available to be distributed to unitholders. There is no doubt in our minds that AFFO payout ratios remain high for the REIT sector, averaging at 100%. However, we do believe that the conservative leverage ratio means that the REITs have adequate financial cushion to fund existing distributions to unitholders. By property sector, we would indicate that the residential apartment REITs, the seniors housing REITs and lodging REITs payout ratios are above average. Over time, we would expect the payout ratios to decline as management teams adopt more conservative payout policies and investors (retail and institutional) reward REITs accordingly. In dollar terms, AFFO growth rate remains strong at 25% for the commercial REITs in 2005 over the prior year. This double-digit growth rate mirrors the 2001-2002 level. Looking forward to 2006, we anticipate that the growth rate would moderate to 15%, as we remain conservative in forecasting acquisition growth. For the senior REITs, the adjusted FFO in dollar terms declines from 27% in 2002 to 18% in 2004 to 7% in 2006. This downtrend does not worry us, as in large part, it reflects more transparency and disclosure with respect to leasing and capital expenditure costs. It also reflects the fact that the portfolio growth trend for the seniors REITs has declined as the acquisition market remains tight and meaningful acquisition growth becomes challenging. Clearly, we would expect the newer REITs including Chartwell, Dundee, IPC US REIT and Primaris to benefit from significant growth moving forward. AFFO per unit growth rate is expected to rebound in 2005, reflecting accretive acquisitions, moderate levels of lease-roll-over, and conservative capital expenditures and leasing costs assumed On a per diluted unit basis, AFFO growth rate is expected to rebound in 2005 to 6.3%, versus nil in 2004. The bounce in AFFO per diluted unit reflects accretive acquisitions, moderate levels of lease-roll-over, and perhaps, overly conservative capital expenditures and leasing costs assumed. For 2006, we are forecasting good growth in AFFO per unit to 8.7%. In part, this may also reflect the fact that we have not modeled in equity offerings into our 2006 forecasts. A look at the performance of the seniors REITs underscores the reliability in their income stream as AFFO from 2000-2005 has averaged 2.8%.
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TABLE 24: ADJUSTED FFO (AFFO) GROWTH RATE

2001/00 Boardwalk REIT (1) CAP REIT Chartwell REIT (4) Cominar REIT CREIT Dundee REIT (4) First Capital Realty (2) H & R REIT IPC US Income REIT Morguard REIT Primaris Retail REIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (3) Senior REITs (6) n.m 33.1% -55.1% 12.7% -n.m 20.9% -5.7% --16.7% 13.3% 22.5% 19.3% 22.5% 2002/01 8.2% 20.7% -37.3% 43.9% -19.2% 40.0% n.m -19.1% -39.0% 13.1% 54.2% 25.6% 27.7% 27.1% 2003/02 23.5% 3.0% -9.6% 0.4% -5.9% 5.7% 52.1% 34.7% -17.9% 15.2% 21.2% 17.2% 15.2% 12.8% 2004/03 2005E/04 2006E/05E 9.1% 38.3% n.m 17.1% 25.4% n.m 0.3% 23.1% 23.3% 0.4% n.m -36.6% 8.4% 14.2% 11.2% 13.5% 18.1% -0.3% 20.1% 61.3% 28.5% 10.7% 39.8% 49.4% 9.5% 58.8% 12.7% 50.5% -0.2% 1.5% 27.4% 26.4% 25.7% 15.8% 2.3% 6.4% 39.4% -6.0% 10.1% 8.5% 22.1% 11.8% 35.4% 7.5% 22.1% 24.7% 7.3% 10.0% 14.4% 14.0% 6.7%
Lodging REITs CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average
2001/00 -8.1% --8.0% -10.2% -8.8% 6.9%
2002/01 16.8% --13.3% -15.8% -4.1% 10.8%
2003/02 -23.7% 52.4% -121.1% -52.5% -36.2% -9.5%
2004/03 2005E/04 2006E/05E 13.8% 22.1% 7.9% 9.8% nm 11.6% 11.7% 11.5% 24.9% -28.2% 183.5% 50.6% 38.5% 14.7% 121.5% 29.8% 43.5% 28.9%
1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) Adjusted average excludes highest and lowest figures. 4) Chartwell, Dundee, and Primaris AFFO are annualized for 2003 5) AFFO growth based on total AFFO amount, not AFFO per unit 6) Senior REITs include CAP, CREIT, Cominar, H&R, Morguard, RioCan and Summit REIT. 7) IPC US Income REIT (a) used FFO as reported; (b) excluding Non-controlling Interest 8) 2004 - 2006E net income includes straight-line rental income, prior periods exclude it.
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TABLE 25: ADJUSTED FFO (AFFO) PER DILUTED UNIT GROWTH RATE
2001/00 Boardwalk REIT (1) CAP REIT Chartwell REIT (4) Cominar REIT CREIT Dundee REIT (4) First Capital Realty (2) H & R REIT IPC US Income REIT (5) Morguard REIT Primaris Retail REIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (3) Senior REITs (6) Lodging REITs CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average -7.8% -16.4% -0.3% ---4.0% --19.5% --6.6% 2.8% 1.4% 2.6% 1.4% 2001/00 -7.3% --20.7% -19.0% -15.7% -7.1% 2002/01 9.1% 4.1% -10.6% 19.3% -8.1% 15.7% --18.3% --26.8% 4.9% 2.1% 2.9% 4.5% 5.5% 2002/01 2.2% --18.2% -2.5% -6.2% -1.6% 2003/02 20.9% 0.2% -4.1% -11.3% -5.9% -0.5% -3.0% 21.1% --10.8% 6.6% 3.9% 3.4% 3.0% 3.4% 2003/02 -24.4% 70.4% -117.7% -50.8% -30.6% -13.6% 2004/03 2005E/04 2006E/05E 4.4% -5.1% 42.3% -1.1% 17.1% 20.0% 0.6% 2.8% -19.8% -0.1% -3.6% -35.7% 0.4% -2.2% 1.4% 1.1% 1.7% 0.0% -12.0% 8.2% 7.2% 7.2% 11.1% 6.2% -4.3% 23.8% 9.0% 8.3% 19.8% -6.8% 14.5% 6.6% 6.7% 2.1% 0.8% 6.7% 22.0% 5.5% 5.6% 3.2% 4.6% 2.9% 35.8% 11.0% 12.8% 14.0% 6.9% 3.8% 9.7% 8.2% 6.1%
2004/03 2005E/04 2006E/05E 14.9% 19.3% 22.3% -7.6% nm 7.8% 5.0% 3.2% 13.1% -28.2% 75.0% 19.8% 13.2% 9.4% 128.6% 8.3% 42.2% 25.9%
Notes: 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) Adjusted average excludes highest and lowest figures. 4) Chartwell, Dundee, and Primaris AFFO are annualized for 2003; Retirement REIT annualized for 2001. 5) IPC US Income REIT (a) used FFO as reported; (b) excluding Non-controlling Interest 6) Senior REITs include CAP REIT, Cominar, H&R, Morguard, RioCan and Summit REIT. 7) 2004-2006E net income includes straight-line rental income, prior periods exclude it
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Net Asset Values (NAV) In calculating our net asset value (NAV) estimate, we traditionally utilize the current run-rate of operating income adjusted for straight-line rental income, apply a capitalization rate, deduct the book value of real estate assets, add back unitholders equity and determine the per unit amount. For the lodging REITs, we average the NAV estimates produced by using both 12-month trailing operating income and our yearly forecast. However, we are more likely to rely on EV/ EBITDA multiples for the lodging REITs. Calculating NAVs is as much an art as it is a science. While we use the hard numbers to derive the operating income, book value of real estate, and unitholders equity, selecting an appropriate cap rate is not so cut and dry. We believe that our capitalization rates are conservative, as we believe its prudent to err on the side of conservatism. The cap rates we select are based on four considerations: 1) Historical precedent cap rates that we have employed for the company; 2) Current transactions in the marketplace as collected and prepared by real estate brokerage houses including Colliers International and Royal LePage Commercial Inc; 3) The movement in long-bond yields as cap rates tend to be positively correlated, and 4) Recent acquisition and disposition activities of the REITs themselves. In presenting our NAV estimates for individual companies, we typically provide a range of capitalization rates, in addition to our suggested cap rate. These combined factors resulted in a cap rate range between 6.5% and 9%. In comparing these results to our 2002 report, we note a significant downward bias of 135 basis points in cap rates. According to our net asset value estimates, the sector is trading at an average premium of close to 18% today, compared to a slim 1% premium in 2002. The implied cap rate based on current stock prices for the REIT sector today is 7.26% or 60 basis points lower than our estimates. The market price of publicly traded real estate equity securities varies considerably over the duration of economic and real estate cycles. Over the past four cycles, discounts ranged in the low end of 40-50% and reflected such factors as excessive debt, over-supply in property markets and eroding operating income. Premiums have also reached the 15-20% level and were largely based on the expectation of very strong income growth. Generally speaking, such income growth expectations were rarely realized and pricing corrected as evidenced in the early 1980s and 1990s. Todays premium is significantly higher than longterm historical average of approximately 103%. Looking forward, we believe that cap rates will stabilize in 2006 and are likely to increase modestly in the back half of the year. This reflects our view that bond yields will also edge higher in the second half of 2006. This would imply modest value erosion in the portfolio over the period. However, we believe that stillaccretive acquisitions and small improvements in operating income from existing assets will partially offset the decline in market value of REITs.
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TABLE 26: PREMIUM TO NET ASSET VALUE, 2002 VERSUS 2005

2002 Equity Value (in 000s) REITs Boardwalk Equities Inc. $298,339 CAP REIT $262,483 Cominar REIT $245,745 CREIT $513,130 Dundee Realty Corporation $445,533 First Capital Realty $131,000 H&R REIT $766,986 IPC REIT $95,640 Morguard REIT $406,124 O&Y REIT $346,351 Residential Equities (RES) RE $208,368 RioCan REIT $1,348,320 Summit REIT $581,476 Average Per Basic Unit $5.97 $9.64 $9.48 $10.73 $28.19 $7.04 $10.84 $5.74 $9.16 $9.75 $7.81 $8.52 $12.72 NAV (in NAV Per Basic 000s) Unit $888,866 $17.78 $356,673 $13.10 $307,450 $11.87 $526,725 $11.02 $341,766 $22.08 $219,198 $11.78 $872,692 $12.55 $131,997 $7.92 $336,491 $8.18 $385,854 $10.87 $420,427 $14.87 $1,704,462 $11.37 $592,002 $12.95 Premium Cap Rate /Discount 7.75% -19.6% 8.00% 2.4% 10.50% 1.9% 9.50% 19.3% 9.75% -5.1% 9.50% 3.6% 9.25% 10.4% 10.50% -17.9% 9.25% 4.6% 9.75% -8.5% 8.25% -7.7% 9.00% 12.9% 9.50% 16.4% 9.27% 1.0% Price (15/01/03) $14.30 $13.41 $12.09 $13.15 $20.95 $12.20 $13.85 $6.50 $8.56 $9.95 $13.72 $12.84 $15.07
2005 Equity Value (in 000s) REITs Boardwalk REIT $310,906 CAP REIT $598,763 Chartwell REIT $460,502 Cominar REIT $320,903 CREIT $603,642 Dundee REIT $456,562 First Capital Realty $836,464 H&R REIT $1,053,401 IPC REIT $302,207 Morguard REIT $372,301 Primaris REIT $453,044 Retirement Residences REIT $755,362 RioCan REIT $1,684,470 Summit REIT $859,757 Average Per Basic Unit $5.84 $10.72 $6.80 $9.81 $10.60 $17.87 $11.97 $11.00 $7.10 $8.30 $10.20 $8.20 $8.63 $12.80 NAV (in NAV Per Basic 000s) Unit $1,135,756 $21.35 $882,527 $15.80 $609,578 $12.46 $536,431 $16.40 $1,112,058 $19.55 $511,155 $20.01 $1,330,275 $20.07 $1,671,247 $17.46 $399,201 $9.39 $481,061 $10.73 $582,750 $13.31 $953,414 $10.35 $2,927,721 $15.00 $1,339,954 $19.97 Premium Cap Rate /Discount 7.00% 3.3% 6.50% 0.9% 8.00% 24.9% 8.75% 17.7% 7.75% 16.5% 8.75% 33.3% 7.75% 14.9% 7.50% 23.1% 7.75% 6.0% 8.50% 3.2% 8.00% 28.9% 8.90% -3.6% 7.50% 51.8% 8.00% 27.7% 7.90% 17.8% Price (16/01/06) $22.05 $15.95 $15.56 $19.30 $22.78 $26.68 $23.07 $21.50 $9.95 $11.07 $17.15 $9.98 $22.77 $25.50
Notes: 1) Chartwell and H&R Eqity value do not include Non-controlling interest. 2) Dundee equity value includes Non controlling interest. 3) IPC is US$; Equity includes 4Q05 estimate using run rate as at 3Q05; NAV adjusted for minority interest. 4) Retirement Residences NAV per unit $10.93 with blended cap rate at 8.9%; and $10.35 with cap ex $75 million deducted.
TABLE 27: IMPLIED CAP RATE BASED ON RECENT STOCK PRICE

REITs NAV Per Unit Boardwalk REIT $21.35 CAP REIT $15.80 Chartwell REIT $12.46 Cominar REIT $16.40 CREIT $19.55 Dundee REIT $20.01 First Capital Realty $20.07 H&R REIT $17.46 IPC REIT $9.39 Morguard REIT $10.73 Primaris REIT $13.31 Retirement Residences R $10.35 RioCan REIT $15.00 Summit REIT $19.97 Average
Premium Cap Rate /Discount 7.00% 3.3% 6.50% 0.9% 8.00% 24.9% 8.75% 17.7% 7.75% 16.5% 8.75% 33.3% 7.75% 14.9% 7.50% 23.1% 7.75% 6.0% 8.50% 3.2% 8.00% 28.9% 8.90% -3.6% 7.50% 51.8% 8.00% 27.7% 7.90% 17.8%
Price Implied Cap (16/01/06) Rate $22.05 6.90% $15.95 6.45% $15.56 6.95% $19.30 7.85% $22.78 7.05% $26.68 7.75% $23.07 7.10% $21.50 6.90% $9.95 7.60% $11.07 8.40% $17.15 7.00% $9.98 9.00% $22.77 5.75% $25.50 6.90% 7.26%
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TABLE 28: VALUATION - COMMERCIAL REITS (NET ASSET VALUE)

Capitalization Rate 6.5% $1,338,217 $25.15 $969,838 $15.80 --$1,461,070 $25.69 ----$2,319,764 $24.24 ------$3,676,631 $18.84 --$1,764,222 $26.30 $1,667,247 $24.85 $3,468,600 $17.78 $3,275,429 $16.79 $3,095,580 $15.86 $1,576,959 $23.51 $808,741 $18.22 $757,086 $17.05 $708,993 $15.97 $809,523 $18.06 $752,544 $16.78 $699,496 $15.60 $649,984 $14.50 $664,107 $14.96 $2,927,721 $15.00 $1,492,691 $22.25 $581,126 $13.67 $530,772 $12.48 $483,890 $11.38 $440,134 $10.35 $399,201 $9.39 $603,666 $13.46 $622,116 $14.01 $2,770,691 $14.20 $1,413,859 $21.08 $2,139,620 $22.35 $1,972,344 $20.61 $1,816,604 $18.98 $1,671,247 $17.46 $1,535,268 $16.04 $1,740,182 $24.91 $1,646,489 $23.57 $1,559,258 $22.32 $1,477,842 $21.16 $1,401,678 $20.07 $1,330,275 $19.04 $1,407,787 $14.71 $360,827 $8.49 $560,243 $12.50 $582,750 $13.13 $2,623,476 $13.44 $1,339,954 $19.97 $907,233 $35.52 $845,346 $33.10 $787,727 $30.84 $733,949 $28.73 $683,641 $26.77 $636,477 $24.92 $1,380,926 $24.28 $1,306,507 $22.97 $1,237,221 $21.75 $1,172,553 $20.61 $1,112,058 $19.55 $1,055,343 $18.55 $1,002,066 $17.62 $592,171 $23.18 $1,263,199 $18.08 $1,288,032 $13.46 $324,778 $7.64 $519,452 $11.59 $545,769 $12.29 $2,485,183 $12.74 $1,270,528 $18.94 $789,681 $24.14 $750,111 $22.93 $713,270 $21.81 $678,884 $20.76 $646,717 $19.77 $616,561 $18.85 $588,232 $17.98 $882,527 $14.35 $801,684 $13.01 $726,615 $11.76 $656,724 $10.59 $591,491 $9.50 $530,468 $8.47 $473,258 $7.51 $419,516 $6.60 $561,570 $17.17 $951,922 $16.74 $550,472 $21.55 $1,200,069 $17.18 $1,175,322 $12.28 $290,849 $6.84 $481,061 $10.73 $510,964 $11.51 $2,355,025 $12.07 $1,205,186 $17.97 $1,233,237 $23.18 $1,135,756 $21.35 $1,044,998 $19.64 $960,290 $18.05 $881,047 $16.56 $806,757 $15.16 $736,969 $13.85 $671,287 $12.62 6.75% 7.0% 7.25% 7.5% 7.75% 8.0% 8.25% 8.5% 8.75% $697,385 $13.81 $368,934 $5.75 $536,431 $16.40 $904,644 $15.90 $511,155 $20.01 $1,140,546 $16.33 $1,069,053 $11.17 $258,860 $6.09 $444,863 $9.92 $478,148 $10.77 $2,232,305 $11.44 $1,143,578 $17.05
REITS $310,906 $5.84 $598,763 $10.72 $320,903 $9.81 $603,642 $10.60 $456,562 $17.87 836,464 $11.97 $1,053,401 $11.00 $302,207 $7.10 $372,301 $8.30 $755,362 $8.20 $859,757 $12.80 $859,757 $12.80
Unitholders Equity (in 000s)
Boardwalk REIT Per Unit
CAP REIT Per Unit
Cominar REIT Per Unit
CREIT Per Unit
Dundee REIT Per Unit
First Capital Realty Per Unit
H&R REIT Per Unit
IPC US REIT (US$) Per Unit (US$)
Morguard REIT Per Unit
Primaris REIT Per Unit
RioCan REIT Per Unit
Summit REIT Per Unit
Notes: 1) H&R equity value does not include non-controlling interest 2) Dundee REITs equity value includes non-controlling interest 3) IPC is US$; Equity includes 4Q05 estimate using run rate as at 3Q05; NAV adjusted for minority interest. 4) Retirement Residences NAV per unit $10.93 with blended cap rate at 8.9%; and $10.35 with cap ex $75 million deducted 5) Chartwells NAV per unit $12.46 with blended cap rate at 8%.
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2004A $58 $90 $152 $37 EBITDA 2005E $67 $86 $152 $39 9.0 ---$4.15 10.0 $10.29 $6.43 $4.79 $5.56 Historical EV/EBITDA 2006E Ranges $71 6.5 - 12.1 $93 9.4 - 15.8 $167 8.1 - 15.0 $42 6.5 - 8.9 6.5 -16.0 Current EV/EBITDA Multiple 2004A 2005E 2006E 12.8 11.0 10.3 12.9 13.5 12.5 12.2 12.2 11.1 11.0 10.4 9.6 12.2 11.8 10.9 EV/EBITDA Multiple Range 11.0 12.0 13.0 14.0 $11.88 $13.47 $15.06 $16.66 $8.23 $10.02 $11.82 $13.61 $6.25 $7.71 $9.18 $10.64 $6.98 $8.40 --15.0 $18.25 $15.41 $12.10 -16.0 $19.84 $17.20 $13.56 --
TABLE 28B: VALUATION - LODGING REITS (EV/EBITDA MULTIPLES)
Lodging REITs CHIP REIT Innvest REIT Legacy Hotel REIT Royal Host REIT Average
EV $737 $1,159 $1,861 $405
ASSET GROWTH AND POSITIVE INVESTMENT LEVERAGE

The cyclical nature of the real estate industry, along with considerable fluctuations in the cost of debt and equity capital, governs the economics of acquisition activity. From 1996 through to the year 2000, the high cost of capital, in particular, equity capital, moderated acquisition activity. During this time period, management teams focused on maximizing rental income growth by reducing operating costs, improving cost recoveries from tenants, achieving higher rental rates and increasing occupancy. Since 2001, however, acquisition activity for the REIT sector boomed as interest rates and distribution yields edged lower, providing an attractive cost of capital and positive investment leverage. As a result, average asset growth for the sector soared from 11.5% in 2000 to 21.0% in 2002. Over the five-year period, the average asset growth rate stood at 17.4%. During 2005, REITs continued to be active on the acquisition market recording average asset growth of 10.7%. However, the pace of acquisition activity has slowed over the previous years rate of 13.5%. Interestingly, if we segregate the senior REITs, which have a history spanning for at least five years, the decline in asset growth is meaningful. The average asset growth rate declined from 10.6% in 2004 to 4.2% in 2005. This compares to a five-year average growth rate of nearly 14% for the same group. This reflects several factors including the following: 1) Disciplined management teams that will not chase acquisitions; 2) The large portfolio size results in marginal rates of growth as the portfolio expands; 3) Limited availability of high quality property portfolios to purchase, and 4) Competitive acquisition yields below the REITs cost of capital. Increasingly, REITs are competing with foreign and institutional buyers with a lower cost of capital and/or lower hurdle return rates. This competitive demand for acquisitions has resulted in the average cap rate declining by approximately 25 to 50 basis points across all property types to approximately 7.5%. The average cost of 10-year mortgages during this period also declined to approximately 5.55% compared to 6.25% for the previous year. The net effect is that the accretive investment spread (prior to transaction costs) narrowed to 100 to 200 basis points across all property sectors, down from a range of 200 to 350 basis points a few years ago. The average cost of equity for the senior REITs averaged just below 7.0% for the year. This spread between the cost of equity (at 7.0%) and debt (at 5.5%) highlights managements preference to accept higher leverage ratios. 2006 Acquisition Outlook Historically low interest rates and bond yields have led to significant capital flows towards real estate, which consequently drives up property values The real estate industry has enjoyed the rising tide of asset value over the past five years. The capital appreciation realized has had little to do with growth in the underlying income stream. Rather, historically low interest rates and accompanying bond yields have led to significant capital flows directed towards real estate driving up property values. To their credit, REIT management teams actively grew their portfolios during this time period capitalizing on attractively priced real estate and equity capital. Looking forward, we expect this trend to Raymond James Equity Research - Canada
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continue in 2006 as the relatively high yield generated by income-producing properties attracts buyers. We anticipate a moderate increase in bond yields over the course of the year, but expect excess capital will keep cap rates low. As a result, we believe that the acquisition market will remain challenging for the REITs, in particular the senior REITs, in the year ahead. A reality of excess investment capital directed towards real estate is to spur merger and acquisition activity. Potential candidates in our REIT universe include: CAP REIT, CREIT, Retirement REIT, RioCan and Summit REIT. We may also see the privatization by majority shareholders REITs that are trading at a discount to intrinsic value, including Morguard REIT. Debt-to-Equity and Leverage Ratios The increase in the debt-to-equity ratio outlines the erosion of unitholders equity A review of the debt leverage table indicates that the average 2005 book value debt leverage for commercial REITs has steadily increased over the past six years to 2.07:1 at 3Q05, up from 1:31:1 in 2000. This experience has also been echoed by the lodging REITs as the average debt-to-equity increased from 0.83:1 in 2000 to 1.57:1 at 3Q05. The overall adjusted average for the industry, which excludes First Capital Realty and Boardwalk prior to its REIT conversion in 2004, has increased from 1.18:1 in 2000 to 1.96:1 at 3Q05. This trend can be explained by the significant acquisition activity undertaken by the companies over the past six years. Acquisitions have largely been funded by mortgage debt, which has been a cheaper source of capital than equity. The increase in the ratio also outlines the erosion of unitholders equity as distributions and expenditures to maintain the portfolio have exceeded funds from operations. Accordingly, the industry needs to continually raise equity capital to replenish its equity base. Selected company highlights include the following:
The ratio for the residential apartment (Boardwalk, CAP REIT, and ResREIT) and office-focused REITs (Dundee, H&R, IPC) are higher than the average for the commercial REITs. Both of these property sectors tend to employ higher leverage, due to attractive CMHC mortgage lending rates provided to residential property owners and due to lower cap rates facilitating the use of cheaper cost of debt for office property owners. The exception among the office REITs is O&Y REIT, which had the lowest ratio of 0.83:1 at 3Q05, as the company had raised $100 million of equity in 2004 with the expectation of sourcing major acquisitions, which failed to materialize and had sold its partial interest in joint assets to its partners in 2005 following the announced auction of the company. The senior REITs, namely Cominar, CREIT, RioCan, and Summit, had below average debt-to-equity ratios as these REITs have experienced a slower rate of asset growth, have raised equity given attractive pricing, and/or have lower adjusted payout ratios which has cushioned unitholders equity. First Capital Realty has experienced a spectacular decline in its leverage ratio, down from 10.26:1 in 2000, the year of the hostile take-over, to 1.71:1 at the
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TABLE 29: PERCENTAGE GROWTH OF ASSETS

(in $000s dollars) (% Change) YOY 5-Yr Averaqe (2000-2005) 5.7% 14.5% -15.6% 15.9% -17.2% 27.6% -4.8% 16.5% --1.3% 12.0% 19.1% 16.1% 14.9% 15.7% Five Yr Averaqe (2000-2005) -0.8% 3.4% 11.7% 1.7% 4.0%
REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT Morguard REIT O&Y REIT (3) Primaris Retail REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Total/Average Adjusted Average (5) Senior REITs (6)
2003 1,803,380 839,261 419,207 602,882 1,292,566 997,177 1,538,689 2,681,787 803,105 1,279,187 844,797 504,838 668,931 2,796,312 3,790,591 1,621,109 22,483,819
2004 1,809,139 1,862,455 740,252 705,654 1,468,705 1,199,792 1,892,050 3,300,913 1,029,342 1,251,468 1,115,754 755,224 670,292 2,774,131 3,952,278 1,931,290 26,458,739
2005 1,898,792 1,999,140 1,151,914 714,714 1,487,669 1,440,634 2,389,404 3,668,327 1,236,984 1,253,960 1,114,042 1,016,928 -2,870,083 4,227,733 1,962,807 28,433,131
2004/03 0.3% nm nm 17.0% 13.6% 20.3% 23.0% 23.1% 28.2% -2.2% 32.1% nm 0.2% -0.8% 4.3% 19.1% 13.7% 13.5% 12.5%
2005/04 5.0% 7.3% 55.6% 1.3% 1.3% 20.1% 26.3% 11.1% 20.2% 0.2% -0.2% 34.7% -3.5% 7.0% 1.6% 13.0% 10.7% 4.3%
Lodging CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Total/Average
2003 527,640 904,148 1,994,689 369,515 3,795,992
2004 569,077 887,054 1,934,900 388,881 3,779,912
2005 544,068 1,021,464 1,904,300 394,693 3,864,525
2004/03 7.9% -1.9% -3.0% 5.2% 2.1%
2005/04 -4.4% 15.2% -1.6% 1.5% 2.7%
REIT Adjusted Average Notes
10.5%
9.1%
11.9%
1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes highest and lowest figures. 6) Senior REITs include CAP REIT, Cominar, H&R, Morguard, RioCan and Summit REIT. 7) 5-Year average excludes Chartwell, Dundee, IPC, Primaris and ResREIT.
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end of the third quarter of 2005. This management team has demonstrated its ability to reduce debt leverage, while substantially increasing the size and quality of the portfolio. Retirement REIT has experienced a meaningful increase in its debt leverage from 1:42:1 in 2001, the year of its IPO, to 2.37:1 at 3Q05. The increase reflects two factors: 1) The 2002 merger with CPL Long Term Care REIT, in which it acquired portfolio of long-term care homes concentrated in Ontario with higher debt levels; and 2) Rising debt levels stemming from acquisitions, increasing capital expenditures to offset declining operating income, and increasing property leverage to maximize returns. The lodging REITs tend to employ lower debt leverage with the exception being Royal Host REIT that has consistently had higher debt leverage with a notably higher trend. Among the lodging REITs, CHIP REIT has always maintained a below-average debt leverage, reflecting a cautious and conservative management team.
TABLE 30: DEBT TO EQUITY AT BOOK VALUE

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT Morguard REIT O&Y REIT (3) Primaris Retail REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) Lodging REITs CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average (6) 2000 2.82 1.45 -1.20 1.05 -10.26 1.10 -1.43 --1.76 -1.00 1.49 2.36 1.31 2000 0.61 -0.71 1.16 0.83 1.18 2001 3.22 1.39 -0.86 0.89 -8.59 0.99 -1.34 1.03 -1.70 1.42 1.09 1.42 2.00 1.21 2001 0.66 -0.91 1.42 1.00 1.16 2002 3.58 1.72 -1.04 1.27 -7.44 1.62 2.49 1.82 0.92 -1.85 1.64 1.29 1.22 2.15 1.53 2002 0.81 1.02 1.00 1.46 1.07 1.41 2003 3.62 1.87 0.64 0.85 1.24 2.40 3.49 1.73 2.65 1.62 0.92 1.13 2.21 2.57 1.30 1.18 1.84 1.59 2003 0.85 1.13 1.27 1.85 1.28 1.52 2004 4.06 1.99 1.60 1.13 1.35 2.18 2.38 2.19 2.99 2.19 0.69 1.28 -1.98 1.40 1.42 1.92 1.89 2004 1.12 1.36 1.36 2.14 1.50 1.80 3Q05 4.98 2.17 1.28 1.17 1.39 3.03 1.71 2.32 3.43 2.24 0.83 1.18 -2.37 1.42 1.20 2.05 2.07 2005 0.92 1.49 1.42 2.45 1.57 1.96
Notes: 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes First Capital Realty and Boardwalk prior to 2004. 6) REIT industry average excludes First Capital Realty. 7) Convertible debentures are included as debt.
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Public Capital Issues Since 2000, the capital markets have been accommodating to debt and equity issuances of the REIT sector. Strong investor demand for yield-instruments led the sector to raise nearly $2 billion of public equity in 2005, including the $50 million IPO financing of Scotts REIT. Of the $8.5 billion of income trust secondary offerings completed in 2005, real estate financing activity accounted for approximately 23% of the total. Since 1997, the REIT sector has completed a whopping $16.1 billion of IPO and secondary equity and debt offerings. While the cost of mortgage debt remains below the average cost of equity, the appreciation of stock prices has led to a number of opportunistic equity issuances. By and large, proceeds raised from equity issuances were utilized to repay debt owning on short-term and current debt due to acquisition facilities and/or maturing mortgage debt. Capital raised during the year also ensured that REITs maintained leverage ratios in a narrow band, and well below their stated trust indenture limit.
TABLE 31: NEW EQUITY CAPITAL
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 Amount (in $millions) $1,500 $5,500 $416 $510 $1,413 $1,975 $1,747 $1,105 $1,974
As a result of relatively flat bond yields and modestly lower cap rates, the spread on property acquisitions has narrowed. Commercial mortgage rates ended the year at approximately 5.5% while the average cost of equity for the REIT industry was in the mid-7% range. This provided a 200 basis-point positive spread over the cost of debt, assuming going-in yields equaled the cost of equity raised. However, assuming a 60% debt-to-equity capital structure, the weighted average cost of capital (WACC) for the REIT sector was 6.3%. With going-in acquisition yields ranging from 6.5% to 8%, the accretive spread today is approximately 100 basis points. Even with the benefit of lower cost of capital today versus in prior periods, a number of REITs find it difficult to source economic transactions. This accretive is prior to considering transaction costs and higher trust expenses due to higher auditing fees and staff requirements to meet regulatory and compliance matters. Factors that influenced the real estate capital issue market included the following: Strong demand for income and the low risk-adjusted spread over bond yields indicate continued support for REIT financing activity; Differentiation of risk by property type and portfolio quality has eroded with a slim spread; Declining cap rates and stable bond yields have eroded the accretion spread on acquisitions, which will result in slower acquisition growth on a go-forward basis; Delay in investing capital raised due to competitive acquisition market has led to dilution of FFO for existing unitholders;
Flat bond yields and lower cap rates have led to narrowed spread on property acquisitions
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The overall decline in the average yield for the REIT industry year-over-year to 7.0% from 7.5% in 2004 has been somewhat offset by an average 25 basis point decline in industry cap rates; and The acceleration of stock market valuations has enhanced the appeal of private real estate companies to launch IPOs, particularly given the ability to raise capital efficiently. As a result, we would expect new IPOs to emerge in the coming year.
TABLE 32: 2005 CAPITAL MARKETS ACTIVITY

Amount Raised ($ mln) $50.0 $50.0 Yield at IPO Date 8.50% 8.50%
Date Name Initial Public Offerings 29-Sep-05 Scotts REIT Total/Average Completed Secondary Equity Offerings 07-Dec-05 Dundee REIT 07-Dec-05 Primaris Retail REIT 01-Nov-05 Allied Properties REIT 21-Oct-05 H&R REIT 12-Sep-05 Summit REIT 21-Jul-05 Chartwell Senior Housing REIT 12-Jul-05 CAP REIT 18-Jul-05 Primaris Retail REIT 18-Jul-05 Sunrise Senior Living REIT 29-Jun-05 Retrocom Mid-Market REIT 31-May-05 Sunrise Senior Living REIT 04-Apr-05 Allied Properties REIT 22-Mar-05 Chartwell Senior Housing REIT 16-Mar-05 H&R REIT 16-Feb-05 Calloway REIT 11-Feb-05 IPC US REIT 06-Jan-05 Northern Property REIT 04-Jan-05 RioCan REIT 04-Jan-05 Allied Properties REIT Total Convertible debenture 21-Oct-05 03-Oct-05 14-Jul-05 07-Mar-05 28-Feb-05
Ticker SRQ.UN
D.UN PMZ.UN AP.UN HR.UN SMU.UN CSH.UN CAR.UN PMZ.UN SZR.UN RMM.UN SZR.UN AP.UN CSH.UN HR.UN CWT.UN IUR.UN NPR.UN REI.UN AP.UN
$65.0 $90.0 $20.1 $150.0 $100.1 $155.0 $60.1 $75.0 $160.0 $50.0 $25.0 $30.1 $90.3 $100.0 $60.0 US$35.0 $40.1 $144.0 $24.7 $1,481.5
8.8% 7.0% 6.0% 6.7% 6.7% 7.0% 7.4% 7.7% 7.0% 12.4% 7.8% 8.1% 7.4% 6.8% 6.5% 7.6% 7.8% 7.2% 8.8% 7.6%
IPC US REIT Royal Host REIT Retrocom Mid-Market REIT Dundee REIT Retirement Residences REIT
IUR.UN RYL.UN RMM.UN D.UN RRR.UN
US$60.0 $50.0 $20.0 $100.0 $200.0 $442.0 $1,973.5
5.8% 6.0% 7.5% 5.7% 5.5% 6.1% 7.3%
Industry Total Note: 1) U.S. denominated offerings coverted to C$ at rate of 1.20.

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Debt to Gross Book Value Another indicator of debt leverage includes the ratio of debt-to-gross book value, which is calculated by dividing long-term debt by total assets plus accumulated depreciation. Note that our calculation of debt-to-gross book value may differ from that presented by the companies in their management and discussion analysis found in their quarterly reports. The variance largely stems from the interpretation of debt, i.e., whether it is inclusive or exclusive of short-term floating rate debt or convertible debentures. We have included current floating and fixed rate debt and treated convertible debentures as debt. Lodging REITs tend to employ lower levels of debt given stricter covenants and reduced availability of financing The ratio of debt-to-gross book value for the commercial REIT sector has remained consistent over the past six years in the low-to-mid 50% range. Again, we see that the apartment and office-focused REITs employ higher ratios than the industry average. Lodging REITs tend to employ lower levels of debt given stricter lending covenants and reduced availability of financing due to cyclicality, seasonality and unpredictability of earnings. Notable trends include the following:
On a book value basis, First Capitals leverage ratio has increased from 1.18:1 in 2000 to 1.73:1 at 3Q05 and remains above that of the REITs. The rising trend can be explained by significant acquisition activity, largely funded by securing mortgage debt. Note that the company has been very active raising equity, which has largely replaced convertible debentures. Lodging REITs have experienced a rising trend in debt-to-gross book value from 38% in 2000 to 47% at 3Q05. This may be explained by higher debt levels employed to offset declining property fundamentals and maintain distributions to unitholders, particularly in 2003. As well, the lodging REITs have generally been less active in the capital markets than commercial REITs. In which case, lodging REITs have been more inclined to raise debt capital than higher-priced equity capital.
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TABLE 33: DEBT TO GROSS BOOK VALUE

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT Morguard REIT O&Y REIT (3) Primaris Retail REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) Lodging REITs CHIP REIT InnVest REIT Legacy REIT Royal Host REIT Average REIT Industry Average 2000 0.70 0.57 -0.54 0.49 -1.18 0.50 -0.57 --0.62 -0.47 0.57 0.62 0.54 2000 0.32 -0.37 0.45 0.38 0.55 2001 0.71 0.55 -0.45 0.45 -1.18 0.48 -0.56 0.50 -0.61 0.56 0.48 0.56 0.59 0.52 2001 0.32 -0.42 0.54 0.43 0.55 2002 0.72 0.62 -0.49 0.53 -1.20 0.59 0.60 0.63 0.46 -0.63 0.57 0.52 0.52 0.62 0.56 2002 0.35 0.42 0.44 0.46 0.42 0.56 2003 0.71 0.63 0.37 0.44 0.52 0.56 1.38 0.61 0.63 0.67 0.37 0.52 0.67 0.68 0.53 0.51 0.61 0.55 2003 0.36 0.41 0.48 0.49 0.44 0.57 2004 0.64 0.64 0.55 0.49 0.53 0.55 1.55 0.63 0.64 0.67 0.41 0.53 -0.56 0.54 0.54 0.63 0.57 2004 0.40 0.50 0.48 0.48 0.47 0.60 3Q05 0.63 0.62 0.50 0.50 0.53 0.62 1.73 0.63 0.66 0.66 0.41 0.50 -0.58 0.54 0.50 0.64 0.56 2005 0.35 0.56 0.46 0.50 0.47 0.60
1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes First Capital Realty and Boardwalk prior to 2004.
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Debt to Net Asset Value Debt leverage based on net asset value (NAV) estimates has declined for the industry as a result of more aggressive cap rates and increased income property values Debt leverage based on our net asset value (NAV) estimates has declined for the industry at 1.19:1 in 2005, compared to 1.37:1 in 2002. The analysis of the debt to NAV ratios indicates that this more conservative leverage ratio is the result of more aggressive cap rates and increased income property values. The loan-to-market value ratio, which is calculated by dividing the debt by the market value of the income properties, has remained stable at 57%. Over the same period, the average capitalization rate employed to calculate our net asset value has declined by 180 basis points to 7.7%. The improvement in debt-to-NAV ratio did not reflect strengthening rental income, rather it was strong demand for real property investments driving property values higher. In the grand scheme of things, the industrys debt leverage remains conservative by historic standards and insulates the sector in periods of weak property fundamentals and slower economic growth. In the event of a revision of cap rates, the trusts are well-capitalized and with little refinancing risk. Moreover, the industrys balance sheet is sufficient to grow their portfolios without a dependency on the capital markets. Selected company highlights include the following:
CAP REITs loan-to-market value ratio increased from 55% to 60% over the period, despite a 150 basis point compression in the cap rate over the same period. This reflects the addition of debt related to its acquisition of the ResREIT portfolio in 2004. Cominars leverage ratio as indicated by NAV and loan-to-value are low relative to the industry. The data indicates consistency in the debt leverage as rental income growth related to acquisition and development activities have balanced the debt employed to fund the growth. CREITs ratios have decreased significantly on a debt-to-NAV and loan-tovalue basis over the period. In large part, this reflects the 175 basis point compression in the cap rate employed over the period. First Capital Realtys debt-to-NAV and loan-to-value ratios have decreased meaningfully as the company has worked to de-lever the balance sheet and acquire superior quality assets. IPCs loan-to-value ratio at 77% is the highest amongst the group. We speculate that this reflects its utilization of higher levels of property debt typical in the U.S and the relatively conservative cap rate we employed to derive the market value. Summits leverage ratios on a debt-to-NAV and loan-to-value basis are amongst the lowest in the group. The considerable appreciation of industrial property assets over the period, combined with a higher quality income stream versus the 2002 period account for the decline in the ratios.
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TABLE 34: NAV LEVERAGE, 2002 VS. 2005

2002 Loan-toDebt- toMarket Equity Debt-to Value Suggested Ratio NAV Ratio Ratio Cap Rate 1.42 58.6% 7.75% 3.58 1.21 54.9% 8.00% 1.72 ----0.76 43.2% 10.50% 1.04 1.23 55.3% 9.50% 1.27 ----4.53 81.9% 9.75% 7.44 1.37 57.9% 9.25% 1.62 1.97 66.4% 10.50% 2.49 2.00 66.8% 9.50% 1.82 --------1.05 51.3% 9.25% 1.29 1.40 58.4% 9.50% 1.22 2.35 1.69 59.5% 9.35% 1.56 1.37 56.8% 9.50% 2005 Loan-toDebt- toMarket Equity Debt-to Value Suggested Ratio NAV Ratio Ratio Cap Rate 1.36 58.8% 7.00% 4.98 1.49 60.2% 6.50% 2.17 0.97 56.3% 8.00% 1.28 0.70 43.8% 8.75% 1.17 0.75 46.3% 7.75% 1.39 1.83 70.0% 8.75% 3.03 1.02 62.7% 7.75% 1.71 1.46 57.9% 7.50% 2.32 1.81 77.5% 7.75% 3.43 1.73 65.7% 8.50% 2.24 0.91 43.7% 8.00% 1.18 2.14 67.5% 9.40% 2.37 0.82 49.0% 7.50% 1.42 0.77 44.9% 8.00% 1.20 2.14 1.27 57.5% 7.94% 2.20 1.19 56.7% 7.70%
REITs Boardwalk REIT CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty H & R REIT IPC US REIT Morguard REIT Primaris REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (1)
Notes: 1) The adjusted average for 2005 excludes the firms in which comparable 2002 data is not available. 2) The adjusted average for 2002 excludes First Capital Realty and Boardwalk.
Outlook for 2006 With low interest rates being the dominant factor supporting equity issues, the outlook for 2006 will be heavily dependent on the direction of economic growth. Higher interest rates may lead to increased investor focus on growth stocks with capital appreciation potential. As commercial mortgage rates and REIT yields edge higher, the industrys cost of capital also rises. Since cap rates tend to be a lagging indicator, the economic viability of acquisitions and the need for additional equity issues will be diminished. On the whole, the industrys balance sheet with low leverage can weather a revision in cap rates and provide capacity to grow, albeit at a moderated pace It is optimistic to expect that low interest rates can continue to support stock market appreciation and asset growth momentum. Looking forward, asset values and investment yields are expected to more closely reflect the underlying strength of property fundamentals. This transition is likely to be gradual as higher interest rates on the heels of moderated economic growth will lead to progressively stronger operating income, which will be partially offset by higher interest expense. On the whole, the industrys balance sheet with low leverage can weather a revision in cap rates and provide capacity to grow, albeit at a moderated pace.
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RENTAL INCOME LEVERAGE

The rental income leverage ratio divides total debt (including convertible debentures) by income prior to interest expense generated from rental income property portfolios. As such, it provides a measure of debt productivity in generating an income stream. Note that it excludes income from management fees and mezzanine financing. However, it does include non-recurring income from lease termination and seasonal revenues that are inclusive in property revenues. In examining the table, rental income leverage steadily improved since 2000. REIT performance indicates that the ratio bottomed in 2001 and has risen as management teams opted for higher debt leverage to finance acquisition growth. The increased leverage ratio reflects the following considerations: 1) Internal portfolio income growth has slowed since 2001 as a result of flat to depressed rental rates and stable to higher vacancy; 2) REIT management teams have employed debt leverage rather than raising higher priced equity capital; 3) Goingin acquisition cap rates have continued to trend lower over the period, and 4) Double-digit increases in energy costs, property taxes, and insurance have eroded property margins. Although operating costs are generally recoverable from tenants, this cost escalation impacts margins to the extent that vacancy exists and limits achievable rent on lease rollover. The decline of adjusted average leverage ratio from 2005 to 2006 reflects lower acquisition modeled for 2005 and flat sameproperty operating income growth forecast for 2006 Note that the adjusted average leverage ratio declines in 2006 to 6.75 from 7.51 in 2005, reflecting lower acquisition activity modeled for the year and relatively flat same-property operating income growth forecasted. Selected company highlights include the following: Cominar has consistently had a lower rental income leverage ratio than the peer group over the years. This reflects strong same-property income growth rate and lower debt leverage.
The residential apartment REITs experienced a bottoming of their leverage ratio in 2001, a time in which rental rates were at an all-time high and vacancy bottomed. First Capitals rental income ratio has been above the peer group average as the result of higher debt levels. The trend has been declining as the firm has de-leveraged its balance sheet. The office focused REITs including Dundee, H&R, and IPC US REIT have higher ratios than the peer group reflecting higher debt leverage and weak rental income growth as fundamentals have been soft since 2000. Senior REITs including CREIT, RioCan and Summit rental income leverage ratios have trended below that of the average group reflecting the stability of their underlying operating income.
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TABLE 35: RENTAL INCOME LEVERAGE

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell (6) Cominar REIT CREIT Dundee REIT (6) First Capital Realty (2)(5) H & R REIT IPC US REIT Morguard REIT O&Y REIT (3) Primaris Retail REIT (6) RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) 2000 8.62 7.32 -5.89 5.03 -10.69 6.63 -7.72 --6.76 -5.92 5.74 6.80 6.38 2001 8.14 6.60 -5.15 4.99 -9.42 5.89 -6.54 5.88 -6.35 8.81 5.85 6.89 6.58 6.29 2002 8.01 7.88 -5.08 6.62 -12.96 6.93 7.82 8.22 5.66 -6.58 8.44 6.15 6.23 7.34 6.87 2003 7.87 7.70 8.99 4.66 6.10 7.10 11.94 8.03 8.71 8.21 5.86 5.88 6.99 9.25 6.05 5.70 7.39 7.09 2004 8.02 11.35 10.96 3.93 6.23 7.10 9.52 7.74 8.32 7.73 4.92 7.29 -6.98 5.98 6.73 7.19 7.38 2005E 8.15 9.69 9.14 5.20 6.06 8.00 8.90 7.27 10.00 7.73 -6.76 -7.44 6.42 5.78 7.39 7.51 2006E 8.13 9.45 6.00 4.93 5.73 7.01 7.50 6.50 9.06 7.49 -5.18 -7.25 5.77 5.28 6.48 6.75
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical 5) Adjusted average excludes First Capital Realty for the entire period and Boardwalk prior to 2004. 6) Chartwell, Dundee and Primaris 2003 data are annualized
Rental Income Growth Pre-Interest Expense Last year, we had forecast a moderation of NOI growth reflecting slower acquisition activity and weak same-property operating income growth. The table indicates that rental income growth did in fact decline from 18% in 2003/02 to 14% in 2004/03. The rental income growth rate for 2004/03 period was 100 basis points lower than the 5-year average growth rate of 15.5%. If we consider the stronger-than-expected acquisition growth rate, it is clear that same property fundamentals weakened for the group. This is most apparent for apartment REITs and diversified commercial REITs that owned office properties. Overall, rental growth for 2005 is expected to be relatively unchanged Our forecast for 2005 anticipates rental growth of 14%, relatively unchanged from the prior year. This growth rate will be generated almost entirely from acquisitions undertaken during the course of the year rather than improved sameproperty performance. We also anticipate that the seniors REITs will continue to experience a slower rental income growth rate. Selected company highlights include the following:
Boardwalks rental growth rate of 2.2% in 2004 and 5.5% in 2005 is well off the five-year average growth rate of 9.5%. This reflects very low cap rates for apartment properties, which dampened acquisition growth, combined with flat to lower same-property rental income growth. CAP REITs average rental growth rate of 19% is reflective of their aggressive acquisition growth, which averaged 14.5% over the same period. As well, the 2000 to 2002 period experienced solid growth in rental income as apartment fundamentals were sound.
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Cominar has consistently had a superior track record in growing its rental income stream, which has averaged nearly 18% over the past five years. The growth rate is expected to decline to 8% in 2005, reflecting fewer acquisitions. Management remains steadfast in its strategy to acquire assets with a floor cap rate of 8.5%. CREITs rental growth rate for 2005 is forecast at 10%, which is below the five-year average of nearly 15%, and in line with the level of growth in the 1999 to 2001 period. First Capital is expected to deliver exceptionally strong rental income growth of approximately 25% in 2005, reflecting a combination of strong acquisition volume and solid same-property rental income growth. This is remarkably different from the 1999 to 2002 period, when the average growth rate was negative as the company sold its U.S. assets to Equity One in exchange for shares. H&Rs rate of rental income growth has been industry-leading over the past number of years. The five-year average growth rate of 30% is effectively double the average for the whole group. This reflects very high acquisition activity over the years, which has averaged approximately 28% over the fiveyear period. A diversified asset base and entry into the U.S. market has enabled the firm to continue to grow at above-average levels, despite declining cap rates. IPCs rental income growth rate in 2005 of 4% has been adversely impacted by two major tenant vacancies. We anticipate that 2006 will be a year of recovery of rental income growth as U.S. office markets improve and the currently vacant space is leased. Notably, the company has augmented its overall income via strategic debt investments in Class A U.S. office buildings that provide interest income to the REIT, which is not captured in this table. Morguards rental growth rate over the past five years has been roughly at half the rate of the sector as a whole. In 2005, the rental income is expected to remain flat over the previous year. The firm has been a net seller of real estate in the last two years as it attempts to shed unproductive office and industrial assets in Western Canada. RioCans rental income growth rate is forecast below 1% in 2005, well below its five-year average growth rate of approximately 14%. During the year, the firm executed on the sale of a portfolio of enclosed, regional malls in secondary markets to Retrocom Mid-Market REIT. We should point out that RioCan has enhanced its income stream through its joint venture partnerships whereby it earns management income, which is not captured in this table.
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Summit is forecast to deliver rental growth rate of close to 10% in 2005, despite only a 2% growth in assets. We attribute the growth in rental income from its strong same-property income results and high portfolio occupancy rate.
The income growth rate for all the lodging REITs over the five-year period has been anemic. Clearly, macro economic factors have been behind this weak lodging sector performance. The data for 2003 illustrates the significant impact of SARS on the Canadian lodging REITs.
TABLE 36: RENTAL INCOME GROWTH

(in $000s dollars) Commercial REITs Boardwalk REIT (1) CAP REIT (2) Chartwell REIT (3) Cominar REIT CREIT Dundee REIT (4) First Capital Realty (5) H & R REIT IPC US REIT (6) Morguard REIT Primaris REIT (7) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (8) Senior REITs (9) 2003 176,220 70,844 23,304 58,085 113,855 81,572 95,857 208,083 59,143 104,828 41,116 210,578 340,226 149,562 2004 180,027 108,680 37,972 66,794 130,933 97,609 129,259 254,444 81,521 107,935 56,658 234,147 362,463 162,188 2005E 189,938 135,770 64,543 72,045 143,950 116,967 161,225 310,595 84,697 107,689 78,877 240,171 365,093 178,098 % Change YOY 2003/02 8.0% 12.0% -14.6% 15.9% -22.4% 16.2% 45.3% 17.4% -31.7% 16.5% 16.1% 19.6% 18.1% 17.6% 2004/03 2.2% n.m n.m 15.0% 15.0% n.m 34.8% 22.3% 37.8% 3.0% n.m 11.2% 6.5% 8.4% 15.6% 14.5% 11.6% 5-Year Average 2005E/04 (2000-2005) 5.5% n.m 70.0% 7.9% 9.9% 19.8% 24.7% 22.1% 3.9% -0.2% 39.2% 2.6% 0.7% 9.8% 16.6% 13.3% 7.5% 9.5% 19.0% -17.9% 14.7% -13.2% 30.2% -7.9% --13.7% 9.3% 17.5% 16.3% 16.1%
Notes: 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) CAP REIT merged with ResREIT in 2004 and is excluded from 2004 average. 3) Chartwell completed its IPO in 2003 and is excluded from the 2003 average and the 5-year average. 4) Dundee converted into a REIT in July 2003 and is excluded from the 2003 average and the 5-year average. 5) First Capital is not a real estate investment trust. 6) IPC US REIT completed its IPO in December 2001 and is excluded from the 5-year average. 7) Primaris Retail REIT completed its IPO in 2003 and is excluded from the 2003 average and 5-year average. 8) Adjusted average excludes highest and lowest figures. 9) Senior REITs include CAP, Cominar, H&R, Morguard, RioCan and Summit. 10) Chartwell, Dundee and Primaris rental income data for 2003 are annualized. 11) Rental income excludes straightline rents in 2004 and 2005E.
Rental Growth Post Interest Expense A comparison of annual rental growth rates prior to and net of interest expense should demonstrate the benefit of low interest rates. Acquisitions with accretive spreads between debt cost and going-in investment yields improve NOI growth rates and return on equity for investors. It follows then, that we would expect that the percentage growth in rental income after leverage to be higher demonstrating the accretion of asset acquisitions. To the extent that the REITs acquire mature, high quality assets with stable income streams, this accretion should be apparent. The offsetting factor that would explain relatively flat or lower returns on debt leverage is operating margin erosion from increased Raymond James Equity Research - Canada
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portfolio operating costs that are not recoverable from tenants and same-property operating income weakness due to declining occupancy and/or rents. Selected company highlights include the following:
Boardwalk, Cominar, CREIT, IPC US REIT, and Summit have posted favourable rental income growth rates net of interest expense. This is a clear indication that acquisition activity has had a positive impact on bottom-line growth. In some respects, it also reflects well-timed (and attractively priced) convertible and unsecured debenture transactions undertaken following major acquisitions. Three senior REITs CAP REIT, H&R REIT, and RioCan REIT have achieved relatively flat rental income growth rates after debt leverage. In the case of H&R, we would attribute this to locking in for a longer mortgage term of 11.5 years versus the peer group at 6.5 years, which results in a higher average cost of debt of 6.7% versus 6.0% for the group. While CAP REIT also has a longer average mortgage term of 8.1 years, its cost of debt capital as a residential REIT is below that of the group due to attractively priced CMHC insured funds. Acquisitions have offset weakening same-property apartment fundamentals over the last few years. In the case of RioCan, the portfolio has been relatively stable; however, this analysis fails to capture its increasingly divergent income stream. Morguard and Retirement REIT have delivered below average rental rate growth after interest expense. For the most part, this reflects eroding operating fundamentals in their office portfolio and older industrial assets. The levered growth rates for the lodging REITs have been very weak over the past five years as eroding EBITDA failed to be offset by a lower cost of debt on refinancing.
2006 Outlook for Rental Income Growth Continued recovery in fundamentals will result in rental income growth from the existing portfolio On balance, we expect the pace of acquisition activity to moderate given the highly competitive market for real estate assets. As a result, we would expect to see rental income growth rates pull back into the mid-to-high single digit range. Regardless, we expect that continued recovery in fundamentals will result in rental income growth from the existing portfolio.
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TABLE 37: PERCENTAGE GROWTH IN RENTAL INCOME BEFORE INTEREST EXPENSE

Commercial REITs Boardwalk REIT (1) CAP REIT (2) Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty(3) H & R REIT IPC REIT Morguard REIT Primaris REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) 2001/00 11.9% 26.1% -26.6% 10.1% --2.1% 49.1% -15.4% --15.9% 2.9% 17.3% 15.6% 2002/01 19.9% 18.8% -25.3% 22.6% --13.9% 41.5% nm 3.9% -nm 28.8% nm 18.4% 19.9% 2003/02 8.0% 12.0% -14.6% 15.9% -22.4% 16.2% 45.3% 17.4% -31.7% 16.5% 16.1% 19.6% 18.1% 2004/03 2.2% n.m n.m 15.0% 15.0% n.m 34.8% 22.3% 37.8% 3.0% n.m 11.2% 6.5% 8.4% 15.6% 14.5% 2005E/04 5.5% n.m 70.0% 7.9% 9.9% 19.8% 24.7% 22.1% 3.9% -0.2% 39.2% 2.6% 0.7% 9.8% 16.6% 13.3% 5-Year Average (2000-2005) 9.5% 19.0% -17.9% 14.7% -13.2% 30.2% -7.9% --13.7% 9.3% 15.0% 15.3%
TABLE 38: PERCENTAGE GROWTH IN RENTAL INCOME AFTER INTEREST EXPENSE

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty(2) H & R REIT IPC US REIT Morguard REIT Primaris REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (3) 2001/00 19.7% 27.2% -34.3% 14.1% --7.4% 60.0% -8.8% --14.5% 9.0% 16.4% 23.5% 2002/01 24.6% 19.9% -31.5% 24.0% -41.9% 38.1% n.m -5.6% -n.m 29.9% n.m 25.5% 23.2% 2003/02 16.5% 11.5% -12.7% 13.0% -60.2% 7.1% 50.5% 7.7% -21.9% 11.1% 15.2% 20.7% 16.7% 2004/03 3.9% n.m n.m 16.9% 18.5% n.m 63.3% 23.7% 41.0% 5.9% n.m 8.6% 7.0% 7.8% 19.7% 14.8% 5-Year Average 2005E/04 (2000-2005) 13.7% 3.9% 19.5% n.m -61.3% 19.9% 4.3% 15.8% 9.5% -14.5% 37.1% 27.3% 30.1% 21.4% -11.0% 3.4% 0.0% -27.4% -2.1% 13.5% 4.8% 11.4% 13.6% 15.5% 18.3% 14.5% 17.7% 5-Year Average 2005E/04 (2000-2005) -0.9% 14.4% -2.9% -6.2% -6.2% -5.5% 16.9% 7.0% -4.2% 13.5% 14.4%
2001/00 -1.8% -11.5% -5.5% 1.4% 13.3%
2002/01 14.9% -5.2% -4.3% 5.3% 14.8%
2003/02 -32.8% n.m -20.4% -13.7% -22.3% 10.7%
2004/03 6.9% 24.2% 12.9% 5.2% 12.3% 14.7%
5-Year Average 2005E/04 (2000-2005) 0.2% 13.7% -7.3% 1.1% -3.7% -2.2% 7.5% 6.2% -0.3% 14.2% 13.5%
2001/00 -2.7% -0.5% -6.5% -2.9% 14.3%
2002/01 15.5% --5.8% -13.4% -1.2% 18.2%
2003/02 -43.2% n.m -53.3% -30.4% -42.3% 7.2%
2004/03 11.7% 15.8% 34.0% 5.7% 16.8% 18.8%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) CAP REIT merged with ResREIT in July 2004 and is excluded from the 2004 average. 3) First Capital is not a real estate investment trust. 4) Adjusted average excludes highest and lowest figures. 5) 5-Year average excludes Chartwell, Dundee, IPC, Primaris and Retirement REIT. 6) Rental income before interest expense adjusts for straightline rent in 2004 and 2005E.
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) Adjusted average excludes highest and lowest figures. 4) Chartwell, Dundee, and Primaris Rental Income for 2003 are annualized 5) 5-year average excludes Chartwell, Dundee, Primaris, IPC, and Retirement REIT. 6) Rental income adjusted for straight-line rent in 2004 and 2005E.
Average Cost of Debt Following a decade long declining trend in the average cost of debt, it is difficult to imagine that real estate companies will realize further savings from refinancing mortgage debt. In 2005, the average cost of portfolio debt declined 10 basis points over the prior year to 6.1%. The average cost of debt for commercial REITs has declined by 110 basis points from 7.2% in 2000. The lodging REITs have also realized the benefit of refinancing as the average cost of debt stood at 7.2%, down from 7.8% in 2000. The most significant improvements were achieved by H&R REIT (down 150 basis points since 2000 to 6.7%) and First Capital Realty (down 150 basis points to 6.3%). Summit and CREIT have also made significant strides in lowering their mortgage cost of debt by 136 basis points and 128 basis points, respectively. Two senior REITs, Morguard and RioCan REIT, reported modest declines of 40 basis points over the five-year period. Legacy Hotels REIT stands out as the only REIT to report an increase in the average cost of debt of 90 basis points since 2000 to 7.3%. This can be explained by $350 million of mortgage financings completed in 2002 on the Chateau Frontenac and Empress with a 10-year term at higher mortgage rates. Following four consecutive interest rate hikes by the Bank of Canada since September 2005, 10-year bond yields remain unchanged at 4%. Over the 20week period since early September, 10-year bond yields have moved in a narrow band from a low of 3.85% to a high of 4.18%. Meanwhile, 5-year bond yields have averaged 3.8%, with a low of 3.43% and a high of 3.95%. Despite the Bank of Canadas resolve to continue to increase short-term rates, we believe that long-term rates will increase at a snails pace. While the Bank of Canada has expressed concern about our economy operating at full capacity, we believe that this is sector-specific and core inflation remains in check. The continued appreciation of our dollar and the adverse impact on demand for Canadian manufactured goods to our key trading partner, the U.S., curbs the Banks ability to continue to raise short-term rates. To the extent that global demand for Canadian commodities continues, we believe that foreign investors will continue to keep long-bond yields in check. Based on an average spread of 145 basis points over 10-year bonds, commercial mortgage financing was available at rates ranging from 5.2% to 5.8% in 2005. We should note that from the 2000 to 2003 period, the average spread on 10-year commercial mortgage rates hovered at 180 basis points. The compression in the spread in a relatively short time reflects abundant capital to be deployed by the banks, insurance and life companies. Based on current financing rates, the potential refinancing savings is approximately half a percentage point (50 basis points) based on the current average cost of mortgage debt for the REIT sector. We would suggest, however, that the sector has largely realized the benefit of lower cost debt.
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TABLE 39: AVERAGE COST OF DEBT

2000-2005 Change bps pts 0.89 0.99 -1.10 1.28 -1.50 1.50 -0.40 ----0.40 1.36 1.05 2000-2005 Change bps pts 0.73 --0.90 0.70 0.52 0.79
Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC REIT Morguard REIT O&Y REIT (3) Primaris REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average
2000 6.3% 6.3% -7.3% 7.3% -7.8% 8.2% -7.0% --6.5% -7.3% 7.5% 7.2%
2001 6.2% 6.4% -6.8% 6.9% -7.4% 7.7% -6.7% 7.3% -6.4% 7.1% 7.0% 7.0% 6.9%
2002 5.9% 6.1% -6.6% 6.8% -7.3% 7.8% 7.1% 7.0% 7.2% -6.2% 6.7% 7.0% 6.9% 6.8%
2003 5.7% 6.0% 5.7% 6.3% 6.3% 6.9% 6.9% 7.0% 6.9% 6.9% 6.9% 5.6% 6.2% 6.2% 7.1% 6.7% 6.5%
2004 5.5% 5.4% 5.2% 6.3% 6.2% 6.6% 6.8% 6.9% 6.5% 6.7% 6.1% 5.8% 6.1% 6.0% 7.0% 6.2% 6.2%
3Q05 5.4% 5.3% 5.2% 6.2% 6.1% 6.2% 6.3% 6.7% 6.9% 6.6% 5.9% 5.6% -6.1% 6.9% 6.1% 6.1%
2000 7.7% -6.5% 9.1% 7.8% 7.5%
2001 7.7% -7.3% 8.7% 7.9% 7.4%
2002 7.7% 7.6% 7.2% 8.8% 7.8% 7.3%
2003 7.7% 7.4% 7.3% 8.7% 7.8% 7.1%
2004 7.7% 7.2% 7.3% 8.5% 7.7% 6.9%
3Q05 7.0% 6.2% 7.4% 8.4% 7.2% 6.7%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for
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Near-Term Debt Maturities The debt exposure table outlines principal payments and maturing debt as a percentage of total debt as at the third quarter of 2005. For the commercial REITs, the average percentage of debt maturing in 2006 is 7.9% and 8.3% in 2007. These figures represent a lower level of debt roll than we have seen in previous years. In many cases, REIT management teams have utilized attractive long-term rates and low spreads to extend their average mortgage term. For the hotel REITs, the average debt roll represents 5.6% of total debt in 2006 and 5.2% in 2007. Over the two-year period, the REITs with more than 25% of their total debt rolling include Morguard REIT (30%), Retirement Residences REIT (28%), and Boardwalk (27%). Three senior REITs Cominar, CREIT and Summit have approximately one-fifth of their total debt maturing as the average mortgage term is generally around five years. The two office REITs, H&R and IPC US REIT, and CHIP REIT have minimal debt roll in the near term. The analysis of nearterm debt maturities shows a lower level of debt roll than previous years We believe that the industrys near-term debt maturities are quite manageable and do not present a financial risk. We should note that in the past, the industry actively utilized bank operating lines to finance acquisition growth. Bank lines were subsequently repaid via proceeds raised from debt and equity issuances. We caution that in periods of stock price volatility (re: Spring and Fall 2005, Spring 2004), the ability to access the capital markets may be constrained.
TABLE 40: DEBT EXPOSURE AT LATEST INTERIM PERIOD
In ($000) Commercial REITs Boardwalk REIT CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (1) H&R REIT IPC REIT Morguard REIT Primaris REIT Retirement REIT RioCan REIT Summit REIT Average Repayable % of Total in 2006 Debt $168,315 10.9% $69,905 5.3% $33,342 5.7% $33,813 9.0% $95,305 11.4% $66,641 7.1% $44,227 3.1% $90,538 2.0% $0 0.0% $73,872 8.8% $80,825 15.2% $244,100 17.7% $78,532 3.3% $118,592 11.5% 7.9% Repayable % of Total in 2006 Debt $0 0.0% $8,615 6.2% $16,300 7.3% $21,733 8.8% 5.6% 6.7% Repayable % of Total in 2007 Debt $243,234 15.7% $73,265 5.6% $25,449 4.3% $47,293 12.6% $77,041 9.2% $51,052 5.5% $124,538 8.7% $119,355 2.6% $0 0.0% $177,753 21.1% $10,448 2.0% $137,900 10.0% $193,653 8.1% $116,237 11.3% 8.3% Repayable % of Total in 2007 Debt $0 0.0% $9,193 1.7% $108,500 10.6% $21,054 8.5% 5.2% 6.8% Total Debt $1,547,136 $1,315,021 $590,036 $374,467 $839,466 $936,236 $1,431,505 $4,625,246 $847,007 $843,059 $533,099 $1,376,443 $2,387,470 $1,029,240 2006 & 2007 % Total Debt 26.6% 10.9% 10.0% 21.7% 20.5% 12.6% 11.8% 4.5% 0.0% 29.8% 17.1% 27.8% 11.4% 22.8% 16.2% 2006 & 2007 % Total Debt 0.0% 7.9% 17.9% 17.3% 10.8% 13.5%
Total Debt $244,268 $555,594 $1,024,400 $246,621
Notes 1) First Capital is not a real estate investment trust.

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Bank Loans and Floating Rate Debt In a rising interest rate environment, increased exposure to floating rate debt and bank loans acts as a drag on FFO growth This year, we modified our comparative table on variable interest rate debt to include bank loans, which are often short-term in nature and may be at fixed or floating rates. Over the past several years, we witnessed firms extending their debt maturities to take advantage of attractively priced long-term debt, including the issuance of unsecured debentures. However, we are cognizant that the use of lower-rate floating bank loans bolsters FFO growth. In a rising interest rate environment, increased exposure to floating rate debt and bank loans exerts upward pressure on interest expense and acts as a drag on FFO growth. For the period ended September 30, 2005, the average variable rate debt position held by REITs was 5.1%, down from 5.8% in 2004. The level of bank loans and floating rate debt has been less than 1% over the past couple of years for the lodging REITs. Since 2001, the trend has been towards lower levels of bank and floating rate debt. At the end of the recent quarter, the companies with aboveaverage exposure included CREIT, First Capital Realty, Retirement REIT and Summit REIT. Selected company highlights include the following:
In 2005, Boardwalk completed $120 million unsecured debenture financing at an attractive 5.2% rate, which was applied to bank loans resulting in the nil exposure at the end of the third quarter. Cominars level of bank and floating rate debt at 5.3% versus nil over the past couple of years reflects the utilization of bank lines to fund development activity. Following the third quarter, First Capital completed a $100 million convertible debenture offering at an attractive 5.5%, which will be utilized to repay bank loans. IPC US REIT completed a $148 million refinancing of its long-term bank debt during the second quarter, resulting in cash proceeds to repay bank lines. Retirement REITs relatively high percentage reflects a $75 million mortgage bond with a one-year term and $67 million of mortgages maturing in 4Q05. In addition, it reflects acquisition and development activity undertaken over the course of the year; Summit has consistently employed higher floating and bank loan debt than the peer group, reflecting its aggressive acquisition strategy funded on its acquisition lines and later repaid via equity and debenture issuances. Post 3Q05, CHIP announced that it had refinanced $60 million of 7.95% debt that matured in December with new debt in the amount of $65 million at a 6.27% interest rate. This refinancing will result in $950,000 of annualized interest savings.
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TABLE 41: BANK LOANS AND FLOATING RATE DEBT

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H&R REIT IPC REIT Morguard REIT O&Y REIT (3) Primaris REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) Lodging REITs CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average 2000 0.0% 4.1% -16.3% 14.4% -9.9% 17.5% -13.6% --6.9% -1.4% 9.6% 9.4% 9.3% 2000 0.0% -25.8% 28.6% 18.1% 11.4% 2001 0.0% 0.0% -2.6% 5.4% -9.9% 0.3% -12.8% 7.3% -2.5% 3.0% 5.0% 3.9% 4.4% 3.9% 2001 0.0% -0.0% 22.3% 7.4% 5.0% 2002 0.0% 9.0% -13.0% 21.9% -14.4% 0.1% 2.3% 7.4% 9.4% -1.7% 21.7% 0.0% 8.4% 8.4% 7.9% 2002 0.0% 2.3% 11.2% 0.0% 3.4% 7.2% 2003 0.0% 7.4% 0.0% 0.0% 16.9% 5.7% 9.4% 3.4% 7.6% 7.5% 11.5% 7.0% 9.7% 14.3% 0.0% 20.0% 7.5% 7.4% 2003 0.0% 1.8% 0.0% 0.0% 0.5% 6.1% 2004 0.2% 7.2% 10.0% 0.0% 12.2% 3.9% 9.7% 4.2% 13.4% 3.2% 4.6% 0.0% -17.7% 0.0% 4.6% 6.1% 5.8% 2004 0.0% 1.4% 0.0% 0.0% 0.4% 4.9% 3Q05 0.0% 1.3% 2.0% 5.3% 7.8% 4.5% 13.6% 2.7% 0.4% 5.2% 21.3% 0.5% -13.9% 0.0% 6.4% 5.7% 5.1% 3Q05 2.9% 0.0% 0.0% 0.0% 0.7% 4.6%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes the highest and lowest figures.
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INTEREST COVERAGE RATIO

This coverage ratio schedule includes income from all operating sources including rental operations, interest and mezzanine interest, investment income, management fee income and seasonal revenues. As a result, it is a measurement of a firms ability to adequately fund its debt interest expense from all operations. Note that we have not made adjustments to reflect the fair market value of the debt. Pre-tax income, however, used in the calculation of the interest coverage ratio, does not include extraordinary and non-recurring items such as property gains, foreign exchange gains or losses, debt refinancing charges, property write-downs and other non-operating expenses. In addition, the coverage ratio does not include the principal payments on debt nor the cash recovery of costs from assets sales. The usefulness of this ratio is evident when examining a companys trend over a number of years rather than in any single year, since capital invested in real estate requires a period of time to produce a mature return. In particular, this applies to land and income property development and acquisitions. We would emphasize that interest coverage ratios should include capitalized interest if they are to provide an accurate picture of the companys financial health. Although accounting principles allow for the capitalization of interest on assets under development, we view firms that capitalize a large percentage of total interest incurred as higher-risk investments. This is based on the premise that the subsequent increase in book cost will require the realization of consistently rising asset values. Although this accounting principle has been designed to match future income with related expenses, it has historically provided considerable latitude in delaying the recognition of interest expense. It has also allowed for inflating values beyond reasonable levels that subsequently have had to be written down. A review of the interest coverage ratios indicates that industry coverage ratios have stabilized at very strong levels. This is a sharp contrast to the exceptionally weak financial health of the industry at the bottom of the last real estate cycle in the early 1990s. Todays average industry coverage ratio of 2.50 times is double the comparable ratio in the previous cycle. Including the lodging REITs, the ratio stands at 2.40 times. 2005s ratio strengthened over the previous years as a reflection of attractive debt refinancing rates offseting modest weakness in same-property operating income. For 2006, we are forecasting the ratio to be relatively flat at 2.38 times. Factors that are responsible for this financial strength include the following: Industry debt leverage ratios have remained conservative following the industry-wide restructuring of the early 1990s. REITs have limited investments in non-income producing assets.
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Expansion, redevelopment and green field development activity remains a small proportion of total assets.
Management teams have improved the quality of the real estate assets with the acquisition of well-leased assets as a result of the focus on maximizing income to be distributed to unitholders. Financing of new acquisitions has been at attractively low market rates. The spread on property acquisitions remains positive, providing a healthy cushion for debt service.
These combined factors are not likely to change significantly in 2006. Selected company highlights include the following:
CAP REITs interest coverage ratio has been on a downward trend since 2003, reflecting same-property operating income weakness due to weak fundamentals in the apartment sector. Cominar REIT continues to have industry-leading interest coverage ratio, underscoring the value they have added via their acquisition and development activity. CREIT continues to have superior interest coverage ratios, which has been improving over the years reflecting the acquisition strategy to acquire high quality assets. First Capital Realtys interest coverage ratio has improved dramatically since 2000, as the management team has worked diligently over the past five years to enhance the quality of the income stream through accretive acquisitions and reduced its costs of capital. IPCs interest coverage ratio is expected to rebound in 2006 as selected vacancies that occurred in 2005 are re-tenanted. Morguard REITs interest coverage ratio has been trending lower since 2000, reflecting higher vacancy in selected office assets in Western Canada and major tenant vacancies at two regional malls. Primaris Retail REITs coverage ratio remains above average over the forecast period, indicative of a core portfolio of regional mall assets experiencing strong rental income growth. Retirement REITs interest coverage ratio has fallen below the 2 times mark and is the lowest among the group. Higher vacancy in the long-term care market in Ontario and older portfolio of retirement homes in the province in need of capital repairs has impacted the rental stream. RioCan has consistently had an interest coverage ratio above the group average, highlighting the stability of its operating portfolio. Summit REITs interest coverage ratio continues to strengthen over the years as the firm has focused on the stable industrial market and enhanced the quality of the income stream.
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CHIP REITs interest coverage ratio is the strongest amongst the lodging REITs and the universe as a whole.
Legacys interest coverage ratio of 1.84 times is amongst the lowest in the REIT group, but has improved significantly from 1.36 times recorded in 2003. The ratio is well off the nearly 4 times coverage ratio achieved in 2000, the peak year for the lodging sector. Royal Hosts interest coverage ratio steadily declined since 2000, reflecting tough fundamentals for the sector. In 2006, the ratio is expected to improve to 1.80 times as the firm records income from its condo-hotel development project in Kelowna, B.C.
TABLE 42: INTEREST COVERAGE
REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H&R REIT IPC REIT Morguard REIT O&Y REIT (3) Primaris REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) Lodging CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average 2000 1.66 2.30 -2.73 2.69 -1.64 2.59 -2.39 --2.24 -3.07 2.12 2.34 2.34 2000 3.97 -3.98 2.43 3.46 2.90 2001 1.79 2.36 -3.24 2.89 -1.62 2.50 -2.26 2.59 -2.23 2.23 3.01 2.27 2.42 2.41 2001 3.74 -2.87 2.40 3.00 2.71 2002 1.87 2.40 -3.73 3.01 -2.07 2.29 2.02 2.03 2.87 -2.48 2.10 2.78 2.55 2.48 2.57 2002 3.79 3.58 2.45 2.27 3.02 2.75 2003 1.95 2.38 2.22 3.36 2.92 2.07 2.27 2.13 2.07 2.01 2.77 3.63 2.46 2.03 2.73 2.60 2.47 2.43 2003 2.92 2.95 1.36 1.84 2.27 2.37 2004 2.05 2.07 2.64 4.05 3.13 1.98 2.59 2.27 2.00 2.15 2.97 3.11 -1.83 2.44 2.72 2.53 2.47 2004 3.36 2.99 1.79 1.81 2.49 2.51 2005E 1.98 2.11 2.57 4.49 3.20 2.01 2.58 2.17 1.87 1.95 -2.81 -1.77 2.84 2.89 2.52 2.42 2005E 3.23 2.50 1.59 1.59 2.23 2.37 2006E 1.99 2.01 2.43 4.22 3.11 2.01 2.44 2.16 2.14 1.90 -2.82 -1.77 2.69 2.92 2.47 2.39 2006E 3.55 2.56 1.84 1.80 2.44 2.45
Notes: 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes highest and lowest figures. 6) Interest does not inculde capitalized interest
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Rental Income Interest Coverage The rental income interest coverage ratio has declined marginally over the previous three years; an increase in the ratio for 2006 is expected as a reflection of healthy margins and sameproperty operating income growth This calculation is a ratio of rental income divided by total interest expense. Our rental income figure is prior to depreciation, general and administrative expenses and other charges. As such, the ratio is a measure of the companys ability to produce sufficient income from its property portfolio to cover interest expense. The higher the rental income interest coverage ratio, the stronger the ability to service debt. Income from other sources including management fees, investment income, mezzanine interest and asset sales are less predictable and have not been included in this calculation. To determine the impact of these other sources of income, please refer to the interest coverage schedule. Our purpose in using this ratio is to monitor the ability of rental income to cover debt obligations. In the past, this ratio has been able to illustrate the negative impact of carrying less productive properties, development sites and acquisitions acquired at going-in yields below respective financing costs. This is explained by the fact that negative investment spread is funded by the portfolios rental income and acts to reduce the coverage ratio. One deficiency of this model is the inability to net out the impact of tenant leasing inducements that increase rental income above market rental rates at the time of leasing. Since this has become a condition of the market and will vary in magnitude subject by property sector and fundamentals, we do not believe that it overly distorts the reliability of a trend. The rental income interest coverage ratio has declined marginally for REITs to 2.31 times, down from 2.48 times over the previous three years. Nonetheless, it remains high on a historical basis as the ratio stood at 1.05:1 in 1989. For 2006, we are forecasting an increase in the ratio as a reflection of healthy margins and same-property operating income growth. Factors responsible for maintaining this healthy coverage ratio include the following: Positive investment leverage and accretive spreads realized on acquisitions; Lower average cost of debt; Comparatively lower debt leverage in this cycle; and Limited amount of non-income property assets. In reviewing the modest decline for the REIT sector in 2005, we would suggest that it reflects weaker operating margins across the board. It may also indicate that higher acquisition prices have reduced the accretive spread over financing costs and an erosion of profitability on a same-property basis. Looking forward to 2006, we believe that the ratio will rebound as fundamentals continue to improve across most property sectors. Of course, this assumes that operating margins are flat to slightly improved as energy costs stabilize.
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Selected company highlights include the following:
Boardwalks ratio has trended upward over the past six years, which reflects lower debt leverage following its conversion into a real estate investment trust in 2004. CAP REITs ratio continues a downward trend since 2003, reflecting weakness in rental income on a same property basis as apartment vacancy in the Greater Toronto Area, which represents more than half of their portfolio has weakened. Chartwells rental income coverage ratio is expected to strengthen in 2005 and 2006, reflecting same-property income growth and accretion on newly acquired assets from its development partners. Cominar REITs coverage ratio has consistently remained above the REIT average over the period. We are forecasting a slight decline in the ratio in 2005 and 2006 reflecting increased development activity rather than growth through acquisitions. CREITs ratio remains above the industry average and relatively stable over the forecast period. This speaks to the high quality of the underlying portfolio and conservative debt leverage. Dundees coverage ratio is expected to remain stable for the forecast period, but slightly below the 2004 ratio. This reflects higher debt leverage and modest same-property operating weakness. First Capital Realtys ratio continues to strengthen as managements acquisition and de-leveraging strategy has worked. IPC US REITs ratio is expected to decline in 2005 as the result of interim portfolio vacancy and a higher proportion of income from investments. H&Rs rental interest coverage is expected to remain stable over the 2004 to 2006 period, underscoring limited lease rollover. Morguard REITs ratio is forecast to be stable in 2005 over the previous year and trend upward in 2006. This pattern reflects the releasing of major anchor tenant vacancies in two shopping centres. Retirement REITs ratio is expected to continue its downward trend into 2006 as the firm struggles to improve operations via its capital investment program. RioCan REIT has repeatedly had a ratio above the peer group average, reflecting the stability of its retail portfolio and higher achieved contractual rents and rents on re-leasing activity. Summit REITs coverage ratio continues to trend higher over the forecast period as the portfolio exhibits positive same-property results.
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TABLE 43: RENTAL INCOME INTEREST COVERAGE

REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) IPC US Income REIT H & R REIT Morguard REIT O&Y REIT (3) Primaris REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) 2000 2.01 2.46 -2.78 2.73 -1.23 2.14 2.38 --2.45 2.68 2.22 2.31 2.38 2001 2.02 2.49 -3.11 2.92 -1.23 2.33 2.21 2.28 -2.58 2.36 2.62 2.38 2.38 2.42 2002 2.10 2.53 -3.48 2.99 -1.48 2.08 2.26 1.99 2.54 -2.61 2.48 2.51 2.58 2.43 2.47 2003 2.30 2.51 2.36 3.34 2.85 2.16 1.72 2.16 2.06 1.84 2.53 3.88 2.63 2.23 2.47 2.61 2.48 2.48 2004 2.36 2.13 2.25 3.47 3.02 2.26 2.13 2.05 2.27 1.88 3.01 3.06 -2.17 2.54 2.59 2.48 2.48 2005E 2.30 2.05 2.34 3.21 2.88 2.14 2.18 1.70 2.24 1.89 -2.60 -2.16 2.69 2.74 2.37 2.31 2006E 2.28 1.98 2.38 3.16 2.87 2.16 2.28 2.04 2.24 1.93 -2.70 -2.15 2.58 2.83 2.40 2.38
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes highest and lowest figures. 6) 2004 - 2006E rental income adjusted for straight-line rents.
Relative Interest Expense Relative interest expense has been low compared with the interest expense level in 1997 due to lower debt leverage, active mortgage debt refinancing and convertible debenture financing Interest expense relative to rental income bottomed in 2002 at 40.7%, and subsequently has trended higher. For 2005, relative interest expense is expected to reach 43.5%. Effectively this ratio indicates that for every $1.00 of rental income generated by the REIT, $0.435 is directed towards interest expense. By comparison, traditional real estate companies directed approximately $0.55 towards interest expense in 1997. The lower interest expense ratio reflects the following factors: 1. The REIT industry operates with lower debt leverage, although it is rising. 2. Management teams have actively refinanced mortgage debt at lower interest rates. 3. REITs have been acquiring assets at lower yields and tighter spreads. 4. The growing popularity of convertible debenture financing results in higher debt levels and as a by-product higher relative interest expense. 5. Rental income productivity has waned for selected REITs over the past couple of years.
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Selected company highlights include the following:
Boardwalks ratio has declined reflecting its conversion from a C-corp to a REIT that employs lower debt leverage. Despite macro-level weakness in apartment fundamentals across the country, Boardwalks relative interest expense has remained consistent since 2003. This is indicative of the companys stabilized portfolio revenue growth, which has been enhanced by geographical diversity and accretive acquisitions, particularly as it expanded into the province of Quebec. It also speaks to the relative health of the rental apartment business in Alberta, its core market. CAP REITs ratio has trended upward since bottoming in 2002. The ratio is expected to exceed 50% in 2006 as still weak fundamentals erode same property operating income and acquisitions are unable to fully compensate. Cominars ratio is forecast to trend higher in 2005 as the result of the issuance of convertible debentures in late 2004, which resulted in excess liquidity on their balance sheet. Nonetheless, the REITs ratio has consistently been below the group average reflecting conservative financial leverage. CREITs ratio has remained below the average for the group indicative of a financial conservative management team. First Capitals ratio is forecast to be 41% in 2006, at half of the level posted in 2000, when the new management team took the helm. Management has been successful in de-leveraging the balance sheet over the period. IPCs ratio is forecast to rise to 58.8% in 2005, this reflects lower rental income due to tenant vacancies and a greater proportion of investment income not captured in this ratio. For 2006, we anticipate the firm will utilize its balance sheet liquidity to acquire assets, which will result in the ratio declining to normalized levels. Morguard REITs ratio had risen steadily from 2000 to 2003 and appears to have stabilized at 53%. RioCans relative interest expense has remained constant over the period. It has consistently been below the average for the peer group, reflecting conservative leverage and stable portfolio rental income stream. Summits ratio has trended downward, reflecting enhanced portfolio quality and growing income stream.
In 2000, the lodging sectors ratio was significantly below that of the commercial REITs. This trend reversed in 2003, the year in which SARS devastated the Canadian lodging sector. For the forecast period, the ratio for the lodging sector is anticipated to mirror that of the commercial REITs. Looking forward, we would expect this ratio to decline below that of the commercial REITs as the recovery in the lodging sector gains momentum.
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TABLE 44: RELATIVE TOTAL INTEREST EXPENSE

Commercial REITs Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty(2) H & R REIT IPC REIT Morguard REIT O&Y REIT (3) Primaris REIT RESREIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (5) Lodging REITs CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average 2000 53.0 40.6 -36.0 36.6 -81.0 46.8 -42.0 --40.8 -39.5 45.0 46.1 42.3 2000 22.2 -20.3 37.3 26.6 36.4 2001 49.5 40.1 -32.1 34.3 -81.2 42.9 -45.3 43.9 -38.7 42.4 39.3 42.0 44.3 41.0 2001 22.9 -28.2 37.9 29.7 37.0 2002 47.5 38.6 -28.7 33.8 -67.5 44.2 48.1 50.3 39.4 -38.3 40.3 39.8 38.8 42.7 40.7 2002 22.5 29.4 35.6 43.8 32.8 37.8 2003 43.4 39.8 42.4 29.9 35.1 46.2 58.1 48.6 46.2 54.4 40.0 25.8 38.0 44.8 40.5 38.3 42.0 40.9 2003 34.5 36.8 62.3 54.7 47.1 44.5 2004 42.4 46.9 44.5 28.8 36.7 44.3 47.0 48.0 46.9 53.1 33.0 32.7 -46.1 40.2 38.6 41.9 41.6 2004 31.5 36.8 55.2 54.5 44.5 43.2 2005E 43.4 48.6 42.6 31.2 33.4 46.8 50.0 48.3 58.8 53.0 -38.4 -46.3 37.8 36.6 43.9 43.5 2005E 31.1 39.4 56.4 50.4 44.3 44.1 2006E 43.8 50.5 42.0 31.6 33.6 46.3 41.2 48.0 49.0 50.6 -37.1 -46.5 39.2 35.4 42.5 42.6 2006E 28.2 38.5 49.3 53.0 42.3 42.4
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Adjusted average excludes First Capital Realty. 6) Total interest incudes convertible debt interest and capitalized interest, as a percentage of gross operating income 7) 2004 - 2006E rental income adjusted for straight-line rents.
Investment Returns Net Income Due to the significant level of annual depreciation, we believe that FFO return is a more representative measure of managements success We believe that return on equity is an important measurement of managements performance as it factors in the impact of debt leverage, rental portfolio productivity and acquisition and development activity. Our equity return models include average yearly equity compared against both net income and FFO. Due to the significant level of annual depreciation, we believe that FFO return is a more representative measure of managements success. We caution that these returns should be compared over a period of several years in order to identify higher-risk operating strategies that generate near-term performance.
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A review of our schedule of net income return on equity indicates a decline in the average from 10.3% in 2000 to 6.1% in 2005. Importantly, however, we should point out that this reflects a change in the accounting policy related to depreciation of tangible and intangible real estate assets. In 2004, CICA instituted an accounting change whereby real estate companies are required to straight-line the depreciation of buildings over their estimated useful life. Previously, real estate companies had adopted a sinking fund method of depreciating building assets, which effectively resulted in lower depreciation expense recorded in the early years. The CICA also instituted other accounting changes that have resulted in increasing depreciation expense recorded by real estate companies for intangible assets. These accounting changes make it difficult to compare pre versus post 2004 returns on net income.
TABLE 45: NET INCOME RETURN ON EQUITY
REITS Boardwalk REIT (1) CAP REIT Chartwell REIT (5) Cominar REIT CREIT Dundee REIT (5) First Capital Realty (2) H&R REIT IPC REIT Morguard REIT O&Y REIT (3) Primaris REIT (5) RES REIT (4) Retirement REIT RioCan REIT Summit REIT Average Adjusted Average Hotel REITS CHIP REIT Innvest REIT Legacy Hotel REIT Royal Host REIT Hotel REIT Average REIT Industry Average 2000 9.0% 9.8% -11.0% 11.4% -11.1% -10.3% --7.9% -11.2% 10.7% 10.3% 10.3% 2000 6.7% -10.6% 1.3% 6.2% 9.3% 2001 -4.4% 10.1% -11.2% 9.6% -17.1% 10.9% -9.5% 10.7% --2.4% 7.7% 13.4% 10.0% 8.6% 7.8% 2001 4.6% -7.8% 1.6% 4.7% 7.8% 2002 3.9% 10.7% -12.0% 10.8% -10.6% 11.2% 5.0% 5.7% 10.8% -9.5% 6.7% 13.4% 11.0% 9.3% 9.2% 2002 9.1% 4.5% 5.3% 0.1% 4.8% 8.3% 2003 2.5% 10.7% -4.9% 10.9% 10.9% 10.1% 9.5% 11.4% 8.2% 4.1% 10.1% 10.4% 9.6% 5.5% 12.5% 9.2% 8.2% 8.1% 2003 2.5% 1.0% nm nm 1.8% 7.5% 2004 1.4% 2.5% -2.2% 9.8% 8.1% 1.6% 4.8% 9.1% 9.4% 6.4% 10.2% 7.8% 9.6% 0.7% 10.1% 6.9% 6.0% 6.1% 2004 6.4% 6.0% nm nm 6.2% 6.0% 2005E 1.3% 1.3% -1.5% 9.5% 9.1% 2.2% 4.6% 8.3% 18.8% 2.8% -5.7% -nm 8.1% 7.5% 6.0% 6.1% 2005E 7.8% 4.4% nm nm 6.1% 6.0% 2006E 0.9% 0.0% -0.1% 9.0% 8.9% 3.8% 4.4% 8.4% 4.4% 1.6% -5.4% -nm 9.0% 8.4% 4.9% 5.0% 2006E 10.9% 5.6% nm 5.4% 7.3% 5.4%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) O&Y REIT was acquired in October 2005 and remains included for historical purposes. 4) Residential Equities REIT merged with CAP REIT in June 2004 and remains included for historical purposes. 5) Chartwell, Dundee and Primaris Net Income data are annualized for 2003 6) 2004 - 2006E net income includes straight-line rental income, prior periods exclude it.
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Investment Returns Funds from Operation (FFO) On the basis of FFO, the average year-overyear returns have been stable. In general, lodging REITs have more operating leverage to an economic recovery than commercial REITs When measured on the basis of FFO, the average year-over-year returns have been relatively stable. Note that in 2004, the CICA instituted an accounting change whereby real estate companies recognize rental income on a straight-line basis over the term of the lease. Generally, the effect of this accounting change is to increase rental income as commercial leases generally have rent escalation clauses over the term of the lease. The magnitude of the impact of this accounting change is more meaningful for office REITs with longer-term lease contracts. Conversely, hotels, residential apartments and seniors housing are typically not impacted by this accounting change. As a result, the FFO returns for the 2004 to 2006 period are effectively higher as it includes straight-line rental income. Note that under the definition of FFO, straight-line rental income is adjusted at the adjusted FFO (AFFO) level. If we were to adjust our forecast FFO returns, the result would be relatively stable return performance. A notable trend in the period from 2001 to 2005, is that the FFO returns for the lodging REITs were at or below that of commercial REITs. Yet for the 2000 and 2006 years, the sector outperformed or is expected to outperform the commercial REITs. This reflects the fact that the lodging REITs have more operating leverage to an economic recovery than commercial REITs. Company specific highlights include the following: Boardwalks FFO return on equity has consistently outperformed the group average and its closest peer CAP REIT. We should note that prior to its conversion in 2004, Boardwalk employed higher debt leverage, which drove higher returns. CAP REITs FFO return on equity is trending downward since peaking in 2003. This reflects the weaker operating performance of its apartment portfolio. Chartwells FFO return on equity is below the group average from the 2004 to 2006 period. We believe that this reflects growing pains as the firm has grown its portfolio very rapidly and the acquisitions have yet to reach stabilization. Cominar has consistently delivered in line or above-average FFO returns on equity. CREIT has an excellent track record of producing FFO returns at par or above the peer group. H&Rs higher returns on FFO reflect the dual benefit of higher leverage and impact of straight-line rental income for the 2004 to 2006 period. IPC US REIT has consistently achieved above-average FFO returns on equity, illustrative of an entrepreneur management team that has undertaken strategic property investments and utilization of higher debt. Morguards FFO return on equity had trended downward from 2000 to 2003 period as the result of weaker same-property performance. From the 2004 to 2006 period, we anticipate the improved property performance to translate into higher FFO returns. Raymond James Equity Research - Canada
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Retirement REITs return bottomed at 8.8% in 2004 and is forecast to recover over the next two years to levels similar to the 2001/02 period. Summit REITs FFO return on equity has registered below the peer group since 2000. CHIP REIT has consistently delivered superior FFO return on equity relative to the lodging sector. Given its lower debt leverage, these results are admirable. In part, we believe it reflects the benefit of internalized management. InnVest REITs FFO return is expected to gain momentum over the forecast period. This is due to accretive acquisitions and an overall recovery in the lodging sector in Ontario and Quebec where the bulk of the REITs portfolio is located. Legacy REITs FFO return on equity remains on an upward trend; however, its below the peer group. We believe that the REITs returns will rebound into the double-digit range as the lodging sector recovers. Royal Hosts 2006 return reflects the anticipated growth in FFO due to its condo-hotel project in Kelowna and favourable cost-cutting measures.
TABLE 46: FFO RETURN ON EQUITY
2000 Boardwalk REIT (1) CAP REIT Chartwell REIT Cominar REIT CREIT Dundee REIT First Capital Realty (2) H & R REIT IPC US Income REIT (a) IPC US Income REIT (b) Morguard REIT Primaris Retail REIT Retirement REIT RioCan REIT Summit REIT Average Adjusted Average (3) Lodging CHIP REIT Innvest REIT Legacy REIT Royal Host REIT Average REIT Industry Average 20.2% 12.1% -13.5% 12.9% --12.7% --11.5% --14.0% 13.1% 13.8% 13.8% 2000 13.9% -14.7% 13.6% 14.1% 13.9% 2001 19.8% 12.5% -13.8% 11.6% -38.6% 12.9% --10.8% -11.7% 14.7% 12.7% 15.9% 13.4% 2001 14.1% -12.6% 13.1% 13.3% 14.6% 2002 21.5% 13.3% -14.5% 13.5% -38.3% 13.3% 15.3% 11.6% 10.6% -11.3% 15.3% 13.9% 16.0% 14.0% 2002 17.3% 7.8% 9.7% 12.2% 11.8% 13.9% 2003 23.0% 13.5% 6.2% 13.7% 13.9% 17.5% 25.9% 13.7% 18.0% 14.6% 10.2% 12.0% 9.9% 15.2% 13.0% 14.7% 13.9% 2003 14.8% 13.3% 2.1% 9.0% 9.8% 12.2% 2004 22.8% 11.9% 11.5% 15.5% 15.8% 21.1% 15.1% 16.0% 17.4% 14.8% 11.5% 14.5% 8.8% 15.9% 14.1% 15.1% 15.1% 2004 17.7% 15.4% 6.9% 10.9% 12.7% 13.9% 2005E 22.8% 10.4% 12.0% 15.8% 16.4% 23.3% 13.7% 17.4% 15.1% 12.6% 16.4% 14.6% 9.6% 15.7% 15.4% 15.4% 15.5% 2005 E 21.2% 18.2% 7.1% 17.0% 15.9% 15.6% 2006E 23.4% 10.3% 12.8% 16.6% 17.4% 25.7% 13.5% 18.6% 24.2% 21.4% 16.5% 15.3% 11.1% 15.9% 15.9% 17.2% 17.5% 2006 E 22.3% 20.3% 9.6% 20.7% 18.2% 17.7%
Notes 1) Boardwalk converted into a REIT on May 3, 2004. Data prior to 2004 for Boardwalk Equities Inc. 2) First Capital is not a real estate investment trust. 3) Adjusted average excludes First Capital Realty 4) IPC US Income REIT (a) used FFO as reported; (b) excluding Non-controlling Interest 5) 2004 - 2006E FFO includes straight-line rental income, prior periods exclude it.
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REITs Overviews
117
118
Boardwalk REIT
Boardwalk REIT
(BEI.UN-T, $21.66)
Stock Rating: MARKET PERFORM 3 6-12 Month Target Price: $22.00 Target Total Return: 7.4%
Financial Summary 2004A FFO P/FFO AFFO P/AFFO $1.43 15.1x $1.18 18.4x
2005E $1.43 15.1x $1.18 18.4x
2006E $1.46 14.8x $1.19 18.2x $5.84 3.7x $21.35 101.5% $1.26 5.8% 53.2 35.5 $1,152 31-Dec
HIGHLIGHTS Boardwalk completed a portfolio acquisition of 1,325 suites concentrated in

the provinces of Alberta, British Columbia and Quebec for $115 million ($87,000/door) at an aggregate going-in cap rate of 6.68%. The purchase was financed through a $120 million unsecured debenture bearing an attractive rate of 5.20%. This acquisition is expected to generate $7.7 million in NOI and contribute $1.7 million or $0.03 in FFO on an annualized basis.
Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Dividend (2006E) Dividend Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: Sam and Van Kolias (36%)
Overall portfolio vacancy rate in the third quarter was down significantly to 4.54%, down 94 basis points. There are positive forward-looking indications, including higher absorption levels and reduced tenant incentives. For the nine-month period, on the same-property basis, rental revenue growth of 1.1% was offset by a 5.0% increase in operating expenses, resulting in a modest decline in NOI of 0.9%. Expenses in Alberta increased largely due to the higher property taxes, which the company is appealing. Outside of the province of Alberta, un-hedged energy costs resulted in higher operating expenses. Managements FFO guidance for the year indicated flat to modest growth as the result of: (1) increased expenses including the executive search, wages and salaries, and turnover costs; (2) excess financing costs carrying incurred from the non-deployed proceeds from the debenture offering, and (3) higher energy costs, which has not been hedged. The firm is forecasting acquisitions within the historical range of 1,000 to 2,000 units and same-property NOI growth flat to +1%. The valuation remains compelling as the firm is trading close to our net asset value estimate. The current trading price implies a price per door of $81,000 versus recent transactions in the $60,000 to $120,000 per door range.
All figures in C$ unless otherwise noted.

Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27,2006.
Company Description: Boardwalk REIT is Canadas largest owner/ operator of multi-family rental communities. Boardwalk REIT currently owns and operates in excess of 260 properties with over 33,000 rental units totalling approximately 28 million net rentable square feet. The Trusts portfolio is concentrated in the provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.
STRENGTHS Boardwalk owns Canadas largest portfolio of rental apartment units
exceeding 33,000 units, which are geographically concentrated in the province of Alberta. The economic outlook for the province of Alberta is the strongest across the country, driven by record prices for oil and gas. In recent years, the diversification into new markets, including Montreal and Vancouver, has enhanced revenue growth.
Boardwalk has an experienced management team with a strong track record of achieving profitability and creating shareholder value. The
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Boardwalk REIT principals have a significant equity position and are committed to the REIT.
The company has consistently invested in upgrading the portfolio, which has reduced its annual expenditures on a per suite basis compared to its competitors. Boardwalk is able to achieve higher operating margins due to synergies from the scale and concentration of its operations in selected cities. In 2006, there will be as many as 255,000 new immigrants coming to Canada, particularly to Alberta, British Columbia and Ontario where job growth is strong.
CHALLENGES The companys portfolio has been experiencing flat to negative NOI growth due to
higher operating expenses, chiefly energy costs. Excluding the province of Alberta, in which the firms energy costs are hedged (provincial rebate program), Boardwalk oil and gas prices are largely un-hedged.
The rental apartment sector is facing competition from a shift of renters towards home ownership. While housing starts and re-sale activity is expected to slow down in 2006, there is still a pipeline of deliveries. Given tough fundamentals, the ability to raise rental rates is limited over the nearterm. The average mortgage term at the end of the third quarter was 3.2 years, which is low by industry standards. Despite an approximate 100 basis point spread on a mark-to-market basis, the firm may incur refinancing charge if it elects to extend its maturity schedule.
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Boardwalk REIT
BOARDWALK REIT EARNINGS FORECAST
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Gross Property Income Operating Margin Amortization Other Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Inco Interest Income Other
1QA 73,586 (28,964) $44,622 60.6% (18,537) (929) $25,156 (20,234) $4,922 45.3% $4,922 $4,922 (6,860) (1,938) 15.4% (245) 88 (2,095) 64 (2,031) $0.32 53,127 53,127
2005E 2QA 3QA 74,608 75,205 (27,077) (24,541) $47,531 $50,664 63.7% 67.4% (18,802) (934) $27,795 (20,898) $6,897 44.0% $6,897 $6,897 (7,160) 739 476 15.1% 126 744 1,346 1,583 2,929 $0.32 53,150 53,150 (18,826) (864) $30,974 (20,715) $10,259 40.9% $10,259 $10,259 (7,098) 3,161 13.0% (251) (28) 2,882 47 2,929 $0.32 53,202 53,152
4Q 75,393 (28,272) $47,121 62.5% (18,826) (868) $27,426 (20,715) $6,711 44.0% $6,711 $6,711 (6,126) 586 13.0% (252) (28) 305 305 $0.32 53,252 53,202
2005E Year 298,792 (108,854) $189,938 63.6% (74,991) (3,595) $111,352 (82,562) $28,790 43.5% $28,790 $28,790 (27,244) 739 2,285 14.3% (622) 776 2,439
1Q 75,661 (30,264) $45,397 60.0% (18,879) (903) $25,614 (20,794) $4,820 45.8% $4,820 $4,820 (5,902) ($1,081) 13.0% (156) 195 (1,043) (1,043) $0.32 53,302 53,252
2006E 2Q 3Q 76,197 76,732 (28,955) (26,089) $47,242 $50,643 62.0% 66.0% (18,985) (908) $27,349 (20,951) $6,398 44.3% $6,398 $6,398 (6,141) $256 13.0% (157) 196 295 295 $0.32 53,352 53,302 (19,092) (912) $30,639 (21,109) $9,531 41.7% $9,531 $9,531 (6,584) $2,947 13.0% (158) 197 2,986 2,986 $0.32 53,402 53,352
4Q 77,268 (30,135) $47,133 61.0% (19,198) (917) $27,019 (21,188) $5,831 45.0% $5,831 $5,831 (6,127) ($296) 13.0% (159) 198 (257) (257) $0.32 53,452 53,402
2006E Year 305,858 (115,443) $190,415 62.3% (75,741) (3,640) $111,034 (83,388) $27,647 43.8% $27,647 $27,647 (24,754) $2,893 13.0% (630) 786 3,048
Property held for development and resale Cost of sales
General and Administrative Expenses Other Income before other items Total G&A Expenses as a % of Gross Property Income Taxes - Current Income Taxes - Future After Tax Income Property gains/losses Other Other (discontd ops) NET INCOME Distributions to unitholders Outstanding Shares (Weighted Average) Fully Diluted EPS Per diluted unit Funds From Operations (FFO) Net income Depreciation Future income taxes Gains/Losses on asset disposition Other FFO Per diluted unit FFO Payout Ratio Adjusted Funds from Operations (AFFO) R&M capital expenditures No. of suites owned Maintenance cost per suite (Annualized) AFFO Per basic unit Per diluted unit AFFO Payout Ratio
1,694 4,133 $1.26 53,252 53,202
3,048 $1.26 53,452 53,402
($0.04)
$0.06
$0.06
$0.01
$0.08
($0.02)
$0.01
$0.06
($0.00)
$0.06
(2,031) 18,537 (88) 19 16,437 $0.31 101.8%
2,929 18,802 (744) (1,583) (739) 18,665 $0.35 89.7%
2,929 18,826 28 (47) 21,736 $0.41 77.0%
305 18,826 28 19,159 $0.36 87.5%
4,133 74,991 (776) (1,630) (720) 75,998 $1.43 88.2%
(1,043) 18,879 (195) 17,642 $0.33 95.1%
295 18,985 (196) 19,084 $0.36 88.0%
2,986 19,092 (197) 21,881 $0.41 76.8%
(257) 19,198 (198) 18,743 $0.35 89.7%
3,048 75,741 (786) 78,003 $1.46 86.3%
$3,348 33,484 $400 $13,089 $0.25 $0.25 127.9%
$3,330 33,298 $400 $15,336 $0.29 $0.29 109.2%
$3,330 33,298 $400 $18,406 $0.35 $0.35 91.0%
$3,330 33,298 $400 $15,830 $0.30 $0.30 105.9%
$13,338 33,298 $400 $62,660 $1.18 $1.18 107.0%
$3,439 33,548 $410 $14,203 $0.27 $0.27 118.1%
$3,464 33,798 $410 $15,620 $0.29 $0.29 107.5%
$3,490 34,048 $410 $18,391 $0.34 $0.34 91.4%
$3,516 34,298 $410 $15,228 $0.28 $0.29 110.5%
$13,908 34,298 $410 $64,095 $1.19 $1.19 105.9%
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Boardwalk REIT
NET ASSET VALUE
($000) Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Common Shares Appraised Value Per Share Pre-tax 6.50% 184,240 2,834,454 1,807,143 1,027,311 310,906 1,338,217 53,202 $25.15 6.75% 184,240 2,729,474 1,807,143 922,331 310,906 1,233,237 53,202 $23.18 7.0% 184,240 2,631,993 1,807,143 824,850 310,906 1,135,756 53,202 $21.35 7.25% 184,240 2,541,235 1,807,143 734,092 310,906 1,044,998 53,202 $19.64 7.50% 184,240 2,456,527 1,807,143 649,384 310,906 960,290 53,202 $18.05
Notes 1) Rental operating income is based on our 2005E. Rental income deducts 3% of general and administrative expe
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OPERATING SUMMARY
31-Dec 2000 2002 1,708,490 1,307,177 301,745 1,803,380 1,387,067 308,502 176,220 99,752 70,278 $1.38 57,600 $1.13 na 8.0% 16.5% 11.5% 9.5% 23.5% 20.9% 180,027 103,738 75,536 $1.43 62,822 $1.18 71.6% 2.2% 4.0% 7.5% 3.6% 9.1% 4.4% 189,938 107,376 75,998 $1.43 62,660 $1.18 n.a 5.5% 3.5% 0.6% 0.0% -0.3% 0.0% 5.6% 6.1% 2.2% 1,809,139 1,443,845 355,516 0.3% 4.1% 15.2% 1,898,792 1,547,136 310,906 5.0% 7.2% -12.5% 163,139 85,616 63,052 $1.26 46,622 $0.93 na 19.9% 24.6% 8.8% 9.6% 8.2% 9.1% 14.7% 17.9% 4.1% 2003 2004 2005E 1,443,834 1,032,551 301,349 121,599 57,422 59,527 $1.20 25,432 $0.51 na 3.8% -1.1% 8.4% 7.1% n.m n.m 136,091 68,724 57,941 $1.15 43,085 $0.86 na 11.9% 19.7% -2.7% -4.2% n.m n.m 3.3% 2.3% 5.4% 1,489,291 1,108,406 289,984 3.1% 7.3% -3.8% Growth % 31-Dec Growth 2001 % Growth % Growth % Growth % Growth %
($000)
Capital Structure Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per Diluted Share Adjusted FFO (AFFO) (3) Per Diluted Share Tax deferral rate
Financial Structure 2.82 3.64 0.70 3.22 4.10 0.71 3.58 4.54 0.72 3.62 4.74 0.71 4.06 4.06 0.64 4.98 4.98 0.63
Debt to Equity (4) Ratio 1 Ratio 2 Debt to Gross Book Value
Maturing Debt (2 yrs) As % of Total Debt Bank loans and floating rate debt As % of Total Debt Average Debt Cost Average Debt Term (years) 0.0% 6.27% na 37,425 53.0% 1.66 1.65 200 0.5% 8.62 2.01 8.14 2.02 8.01 2.10 1.79 1.79 0.0% 1.87 1.87 0.0% 1.95 1.96 0.0% 7.87 2.30 67,367 49.5% 77,523 47.5% 76,468 43.4% 0.0% 6.15% na 0.0% 5.87% na
Year 2006 168,315 Year 2007 243,234 11% 16% 2,723 0.0% 0.2% 5.68% 5.49% na 3.6 76,289 42.4% 2.05 2.05 0.0% 8.02 2.36
0.0% 5.38% 3.6 82,562 43.5% 1.98 1.98 0.0% 8.15 2.30
Total Interest As % of Rental Income Interest Coverage Expensed Total Interest Capitalized Interest As % of Total Interest
Rental Income Leverage (5) Rental Income Coverage (6)
Investment Returns 9.0% 20.2% -4.4% 19.8% 3.9% 21.5% 2.5% 23.0% 1.4% 22.8% 1.3% 22.8%
Income Return on Equity FFO Return on Equity
Property Portfolio 1,325,715 6,692 1,332,407 99.5% 0.5% 100.0% 1,381,541 6,630 1,388,171 99.5% 0.5% 100.0% 1,604,277 7,038 1,611,315 99.6% 0.4% 100.0% 1,713,171 7,493 1,720,664 99.6% 0.4% 100.0% 1,733,026 7,906 1,740,932 99.5% 0.5% 100.0% 1,807,143 1,807,143 100.0% 0.0% 100.0%
Income Producing Properties Held for development or sale
Notes: 1) Boardwalk coverted into a real estate investment trust (REIT) on May 3, 2004. 2) 2000 is for seven-month year end. Select numbers and ratios have been annualized. 3) Adjusted FFO after capital expenditures for property upgrades. 4) Ratio 1 includes deferred taxes as equity. Ratio 2 includes deferred taxes as debt. 5) Rental income leverage divides total debt divided by rental income. 6) Rental income coverage divides rental income by total incurred interest. 7) The average cost of debt is mortgage debt.
Boardwalk REIT
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Boardwalk REIT
ANNUAL OPERATING RESULTS
Year Ended December 31 ($000; 31-Dec YE) Rental Revenue Operating Expenses & Property Taxes Rental Income Operating Margin Depreciation Property sales Cost of Sales Sales Income Sales Margin Income before interest expense Interest expense As a % of Rental Income Gross Operating Income Interest & Other Income General & Administrative Expense As a % of Rental Income Income before gains Investment & Property Gains Other Expenses (Revenues) Income before taxes Current taxes Deferred taxes Total Taxes Tax Rate Net Income Net Income Per Share Per diluted unit (share) Funds From Operations Net Income From Operations Depreciation Deferred Income Tax (Recovery) Other Funds From Operations Per diluted unit (share) AFFO Per diluted unit (share) Distribution to Shareholders Per unit Outstanding Shares (000s) Weighted average - diluted 2000 110,771 39,838 70,933 64.0% 27,811 43,122 36,311 24,258 12,053 33.2% 55,175 37,425 52.8% 17,750 0 17,750 8,924 12.6% 8,826 0 0 8,826 1,913 (8,652) (6,739) -76.4% 15,565 $0.31 15,565 27,811 (8,652) -34,724 $0.70 $25,432 $0.51 $0.00 49,258 49,662 31-Dec 2001 205,281 69,190 136,091 66.3% 53,584 82,507 21,988 13,939 8,049 36.6% 90,556 67,367 49.5% 23,189 0 23,189 15,586 11.5% 7,603 0 (29,837) (22,234) 3,246 (12,678) (9,432) N/M (12,802) ($0.25) (12,802) 53,584 (12,678) 29,837 57,941 $1.15 $43,085 $0.86 $0.00 49,404 50,302 2002 2003 270,992 94,772 176,220 65.0% 53,993 122,227 0 0 0 0 122,227 76,630 43.5% 45,597 0 45,597 23,290 13.2% 22,307 0 751 23,058 3,546 11,761 15,307 66.4% 7,751 $0.15 7,751 50,766 11,761 -70,278 $1.38 $57,600 $1.13 $0.20 50,380 50,891 Converted Into REIT 2004 282,510 102,483 180,027 63.7% 75,577 104,450 0 0 0 0 104,450 76,289 42.4% 28,161 0 28,161 23,460 13.0% 4,701 0 4,701 1,620 (1,698) (78) 1.7% 4,779 $0.09 4,779 72,439 (1,698) -75,520 $1.42 62,822 $1.18 $0.90 53,103 53,014
241,896 78,757 163,139 67.4% 46,748 116,391 7,498 6,531 967 12.9% 117,358 77,523 47.5% 39,835 692 40,527 19,931 12.2% 20,596 0 0 20,596 3,600 5,420 9,020 43.8% 11,576 $0.23 11,576 46,748 5,420 (692) 63,052 $1.26 $46,622 $0.93 $0.20 49,717 49,870
Notes 1) Seven months ended December 31, 2000 2) Converted into a REIT in May 2004. 3) AFFO deducts $400 per owned suite and capitalized G&A costs.
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DEBT-TO-EQUITY
Boardwalk Equities Inc 2000 0 1,032,551 1,032,551 253,561 47,788 64,864 366,213 1,398,764 2.82 3.64 3.22 4.10 3.58 4.54 3.62 4.74 100.0 1,452,145 100.0 1,671,898 100.0 1,770,334 100.0 1,799,361 4.06 4.06 18.1 3.4 4.6 26.2 258,202 26,782 58,755 343,739 17.8 1.8 4.0 23.7 266,516 35,229 62,976 364,721 15.9 2.1 3.8 21.8 275,509 32,993 74,765 383,267 15.6 1.9 4.2 21.6 293,503 62,013 0 355,516 16.3 3.4 0.0 19.8 295,300 15,606 0 310,906 100.0 1,858,042 4.98 4.98 0 0 74.1 1,108,406 73.8 1,108,406 0 0 76.3 1,307,177 76.3 1,307,177 0 0 78.2 1,387,067 78.2 1,387,067 0 2,723 78.4 1,441,122 78.4 1,443,845 0 0 80.1 1,547,136 80.2 1,547,136 % 2001 % 2002 Year Ended December 31 % 2003 % 2004 % 3Q05 % 0 83.3 83.3 15.9 0.8 0 16.7 100.0 Boardwalk REIT
($000)
Debt Bank loan and Floating Rate Debt Mortgage debt and debentures Total Debt
Equity Common Equity Retained Earnings Deferred Taxes Total Equity
Total Capitalization
Debt-to-Equity Ratio 1 Ratio 2
Asset Leverage 1,443,834 3.94 4.79 1,489,291 4.33 5.23 1,708,490 4.68 5.66 1,803,380 4.71 5.85 1,809,139 5.09 5.09 1,898,792 6.11 6.11
Total Assets Ratio 1 Ratio 2
Debt-to-Gross Book Value
Total Assets Accumulated Depreciation Market Value Adjustment
Ratio
1,443,834 40,613 1,484,447 0.70
1,489,291 73,279 1,562,570 0.71
1,708,490 95,200 1,803,690 0.72
1,803,380 142,054 1,945,434 0.71
1,809,139 187,564 271,150 2,267,853 0.64
1,898,792 235,121 321,296 2,455,209 0.63
Notes
1) Boardwalk coverted into a real estate investment trust (REIT) on May 3, 2004. 2) 2000 is for seven-month year end. Select numbers and ratios have been annualized. 3) Ratio 1 includes deferred taxes as equity. Ratio 2 includes deferred taxes as debt.
4) 2004 and 3Q05market value adjustment reflects a mark-up to fair value post REIT conversion.
Boardwalk REIT
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Boardwalk REIT
INTEREST COVERAGE
Boardwalk Equities Inc ($000) 2000 Pre-tax Profit Depreciation Interest Sales Gains & Other Pre-tax Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 8,826 27,811 37,425 (12,053) 62,009 1.66 200 37,625 1.65 2001 (22,234) 53,584 67,367 21,788 120,505 1.79 0 67,367 1.79 2002 20,596 46,748 77,523 0 144,867 1.87 0 77,523 1.87 2003 22,307 50,766 76,630 0 149,703 1.95 0 76,468 1.96 2004 4,779 75,577 76,289 0 156,645 2.05 0 76,289 2.05 2005E 2,285 78,586 82,562 0 163,433 1.98 0 82,562 1.98 2006E 2,893 79,381 83,388 0 165,661 1.99 0 83,388 1.99 Boardwalk REIT
Notes: 1) 2000 figures for the seven-month period ended December 31, 2000.

($000) 2000 Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Expensed Rental Income/Interest Expensed 1,032,551 70,933 14.56 37,625 1.89 Boardwalk Equities Inc 2001 1,108,406 136,091 8.14 67,367 2.02 2002 1,307,177 163,139 8.01 77,523 2.10 2003 1,387,067 176,220 7.87 76,630 2.30 Boardwalk REIT 2004 2005E 2006E 1,547,136 190,415 8.13 83,388 2.28
1,443,845 1,547,136 180,027 8.02 76,289 2.36 189,938 8.15 82,562 2.30
Notes: 1) Year-end seven months Dec 2000 2) Debt/Rental Income ratio for 2004 is based on annualized income. 3) Total debt for 2004 inlcudes Bank indebtedness; Debt for 2005 includes Debentures payable
RETURN ON EQUITY
($000) 2000 Average Common Equity Net Income Funds From Operation Net Income Return on Equity FFO Return on Equity 293,593 15,565 34,724 9.0% 20.2% Boardwalk Equities 2001 293,179 (12,802) 57,941 -4.4% 19.8% 2002 293,365 11,576 63,052 3.9% 21.5% 2003 305,124 7,751 70,278 2.5% 23.0% Baordwalk REIT 2004 332,009 4,795 75,536 1.4% 22.8% 2005E 333,211 4,401 75,998 1.3% 22.8% 2006E 310,906 3,048 78,003 1.0% 25.1%
Notes: 1) 2000 period for the seven months ended December 31, 2000. 2) Returns for Dec 2000 are annualized 3) Property sales gains are included in income and cash flow.
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CAP REIT
CAP REIT
(CAR.UN-T, $16.01)
Financial Summary 2004A FFO P/FFO AFFO P/AFFO $1.20 13.3x $1.04 15.4x 2005E $1.16 13.8x $0.89 18.0x 2006E $1.15 13.9x $0.95 16.9x $10.71 1.5x $15.80 1.3% $1.08 6.7% 55.9 55.0 $895 31-Dec
HIGHLIGHTS CAP REIT continued to realize synergies from integration of RESREIT
portfolio acquired in July 2004. We estimate that the firm has realized $1 million in operational savings.
Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End
Management executed on a strategic asset swap, whereby it sold a portfolio of 797 suites of smaller, low-rises in Toronto for $70 million and purchased a portfolio of 1,837 suites in Quebec and B.C. for $138 million. The net effect of this transaction is to be NOI neutral, while diversifying its asset base. The firm will recognize a gain of approximately $10 million in 4Q05 and cash proceeds of $40 million, which will be paid to debt repayment. In August, the firm completed an equity issuance, raising $60 million. This offering is expected to be dilutive in the near term until the proceeds are fully invested.
All figures in C$ unless otherwise noted. Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27, 2006.
STRENGTHS Compelling valuation as the firm is trading at our net asset value estimate. On
a per door basis, the REIT is trading at $88,500 per door versus market transactions in the $80,000 to $120,000 per door in the Greater Toronto area.
Company Description: Canadian Apartment Properties REIT (CAP REIT) is an investment trust owning interests in 24,328 multi-unit residential rental properties, including apartments in townhouses. These properties are located in major urban centers across Canada such as Toronto, Montreal, Ottawa,Calgary and Halifax. CAP REIT is one of the oldest trusts in Canada, having completed it's Initial Public Offering in May 1997, and is Canada's second largest apartment landlord.
The recent equity issuance firmed up the balance sheet and provides the REIT with significant funds to acquire assets, fund their distribution and complete necessary capital expenditures. Operating margin remains healthy due to managements proactive energy hedging program. Occupancy rates have bounced back and are on an improving trend. The company has locked in its long-term debt at very attractive rates with longer term to maturity, which virtually eliminates refinancing risk.
CHALLENGES The acquisition market remains tight as the company strives to diversify its
portfolio outside of Ontario.
Apartment occupancy and rental rates are weak across the country due to continued substitution towards single-family and condo housing. Increased competition from investor-owned condos which is new competing product with enhanced amenities. This is of particular concern in CAP REITs core market in Toronto, where more than half of the portfolio is located.
Cost of refurbishing apartment units remains high. The trust is forecast to spend $40 million in total capex, or $1,600 per door. Same-property operating income continues a negative trend as rental rates remain under pressure and operating costs escalate. Raymond James Equity Research - Canada
127
CAP REIT
CAP REIT EARNINGS FORECAST
(in $000s; Dec-31 YE) 1QA 65,282 (25,584) (9,773) $29,925 45.8% (12,845) (294) (30) (1,216) (70) (95) $15,375 (16,336) ($961) 54.6% 37 ($924) (2,006) ($2,930) 5.0% ($2,930) ($0.06) ($13,864) $0.27 2005E 2QA 65,047 (19,916) (9,704) $35,427 55.0% (13,143) (262) (1,083) (69) (65) $20,805 (16,387) $4,418 46.3% 16 $4,434 (2,144) $2,290 5.0% $2,290 $0.04 ($13,966) $0.27 3QA 64,453 (19,215) (9,451) $35,787 55.5% (13,239) (387) (35) (1,225) 38 $20,939 (16,329) $4,610 45.6% -48.5% 22 315 $4,947 (1,470) $3,477 5.0% $3,477 $0.06 ($14,742) $0.27 ($12,048) $3,470 13,652 1,148 77 (2) $18,345 $0.337 80.2% ($2,655) ($7) $0 $15,683 $0.29 $2,655 23,601 $450 55,863 54,491 4QE 67,904 (23,766) (9,507) $34,631 51.0% (13,771) (387) (1,225) $19,248 (16,903) $2,345 48.8% 22 $2,367 (1,470) $897 5.0% 10,000 $10,897 $0.19 ($15,083) $0.27 2005E Year 262,686 (88,481) (38,435) $135,770 51.7% (52,998) (1,330) (65) (4,749) (139) (160) 38 $76,367 (65,955) $10,412 48.6% 97 $10,509 (7,090) $3,419 5.2% 10,700 $14,119 $0.24 ($57,655) $1.08 1QE 63,746 (24,861) (8,924) $29,961 47.0% (13,532) (343) (1,240) $14,845 (16,220) ($1,376) 54.1% 22 ($1,354) (1,470) ($2,824) 4.9% ($2,824) ($0.05) ($15,083) $0.27 2006E 2QE 3QE 66,408 69,084 (20,587) (21,416) (9,297) (9,672) $36,525 $37,996 55.0% 55.0% (13,878) (350) (1,256) $21,041 (16,513) $4,528 45.2% 22 $4,550 (1,470) $3,080 4.0% $3,080 $0.06 ($15,083) $0.27 (14,223) (350) (1,272) $22,152 (16,805) $5,346 44.2% 22 $5,368 (1,470) $3,898 3.9% $3,898 $0.07 ($15,083) $0.27 4QE 69,429 (24,995) (9,720) $34,715 50.0% (14,223) (357) (1,287) $18,847 (16,805) $2,042 48.4% 22 $2,064 (1,470) $594 4.2% $594 $0.01 ($15,083) $0.27 2006E Year 268,668 (91,858) (37,613) $139,196 51.8% (55,856) (1,400) (5,055) $76,885 (66,343) $10,541 47.7% 88 $10,629 (5,880) $4,749 4.2% $4,749 $0.09 ($60,332) $1.08
Rental Revenue Operating Expenses Realty Taxes Gross Property Income Operating Margin (including Management Fees) Depreciation Amortization of Deferred Financing Amortization of Leasehold Improvements Amortization of Intangibles Amortization of tenant relationships Amortization of above/below leases Amortization included with Discontinued Ops Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income Other interest income (Expense) Other Income (Expense) Total Operating Income Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property Inco Property gains (losses) Other - amortization of deferred financing NET INCOME Per Unit Distributions to Unitholders Per diluted unit Calculation of Funds From Operation (FFO) Net Income Adjust for property gains (losses) Depreciation Depreciation (discontinued operations) Amortization of Intangible Value of tenant relationships Value of above and below market leases Funds From Operation Per diluted unit FFO Payout Ratio Capital expenditures Straightline Rent Adjustment Other non-recurring items Adjusted Funds from Operation (AFFO) Per diluted unit Capital expenditures No of suites Cost per suite (annualized) Outstanding Units Weighted Average Units - diluted
($2,930) 12,845 1,311 70 95 $11,391 $0.22 121.7% ($2,593) ($20) $0 $8,778 $0.17 $2,593 23,045 $450 51,642 51,340
$2,290 13,143 1,083 69 65 $16,650 $0.32 83.9% ($2,602) ($20) $0 $14,028 $0.27 $2,602 23,125 $450 51,763 51,759
$10,897 (10,000) 13,771 1,148 77 $15,893 $0.28 96.9% ($2,791) ($7) $0 $13,095 $0.23 $2,791 24,812 $450 55,863 57,041
$13,727 (10,700) 53,411 4,690 293 158 $61,579 $1.16 93.2% ($10,641) ($54) $0 $50,884 $0.89 $10,641 24,812 $450 55,863 57,041
($2,824) 13,532 1,148 77 $11,934 $0.21 129.1% ($2,717) $0 $0 $9,217 $0.16 $2,717 24,151 $450 55,863 57,041
$3,080 13,878 1,148 77 $18,183 $0.32 84.7% ($2,814) $0 $0 $15,369 $0.27 $2,814 25,011 $450 55,863 57,041
$3,898 14,223 1,148 77 $19,347 $0.34 79.6% ($2,910) $0 $0 $16,436 $0.29 $2,910 25,871 $450 55,863 57,041
$594 14,223 1,148 77 $16,042 $0.28 96.0% ($2,910) $0 $0 $13,132 $0.23 $2,910 25,871 $450 55,863 57,041
$4,749 $0 $55,856 $0 $4,592 $308 $0 $65,506 $1.15 94.0% ($11,352) $0 $0 $54,154 $0.95 $11,352 25,871 $450 55,863 57,041
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CAP REIT
NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Incremental Value Common Equity Total Pre-tax Value Outstanding Common Shares 6.00% 6.25% 6.50% 6.75% 7.00%
141,880 2,364,667
141,880 2,270,080
141,880 2,182,769
141,880 2,101,926
141,880 2,026,857
1,899,005 465,662 598,763 1,064,425 55,863
1,899,005 371,075 598,763 969,838 55,863
1,899,005 283,764 598,763 882,527 55,863
1,899,005 202,921 598,763 801,684 55,863
1,899,005 127,852 598,763 726,615 55,863
Pre-tax Net Asset Value

$19.05
$17.36
$15.80
$14.35
$13.01
129
OPERATING SUMMARY
2000 Growth % 2001 2002 2003 2004 2005E Growth % Growth % Growth % Growth % Growth %
130
528,299 309,269 204,108 42,236 25,089 22,057 $1.13 18,520 $0.95 85.8% 34.9% 36.6% 42.3% 6.6% 103.8% 97.4% 53,256 31,907 28,584 $1.19 24,654 $1.02 75.0% 26.1% 27.2% 29.6% 5.3% 33.1% 7.8% 63,275 38,268 34,446 $1.24 29,756 $1.06 70.9% 18.8% 19.9% 20.5% 4.2% 20.7% 4.1% 70,844 42,651 36,026 $1.25 30,640 $1.07 65.0% 12.0% 11.5% 4.6% 1.1% 3.0% 0.2% 108,680 57,759 50,334 $1.20 42,370 $1.01 92.5% 53.4% 35.4% 39.7% -4.2% 38.3% -5.1% 135,770 69,815 61,579 $1.16 50,884 $0.89 92.5% 24.9% 20.9% 22.3% -3.5% 20.1% -12.0% 26.1% 25.9% 27.0% 621,300 351,263 253,222 17.6% 13.6% 24.1% 783,214 498,304 263,700 26.1% 41.9% 4.1% 839,261 545,491 270,179 7.2% 9.5% 2.5% 1,862,455 1,233,899 575,700 121.9% 126.2% 113.1% 1,999,140 1,315,021 598,763 7.3% 6.6% 4.0% 1.45 0.57 69,905 . 0.0% 6.11% 7.2 24,417 38.6% 2.29 2.29 --7.88 2.53 7.70 2.51 2.38 2.35 --28,193 39.8% 88,643 7.2% 5.42% 7.4 50,921 46.9% 2.07 2.07 --11.35 2.07 73,265 16,954 1.3% 5.31% 8.1 65,955 48.6% 2.11 2.11 --9.69 2.05 1.39 0.55 1.72 0.62 1.87 0.63 1.99 0.64 2.17 0.62 12,807 4.1% 6.3% 7.8 17,147 40.6% 2.30 2.30 --7.32 2.46 6.60 2.49 2.38 2.38 --21,349 40.1% Year 2006 5% 0.0% 6.35% 8.0 Year 2007 6% 40,527 7.4% 6.04% 7.2 9.8% 12.1% 10.1% 12.5% 10.7% 13.3% 10.7% 13.5% 2.5% 11.9% 2.4% 10.4% 522,289 --522,289 100.0% --100.0% 593,340 --593,340 100.0% --100.0% 769,941 821,814 1,822,421 1,899,005 100.0% 769,941 100.0% --100.0% 821,814 100.0% --100.0% 1,822,421 100.0% --100.0% 1,899,005 100.0%
($000)
CAP REIT
Capital Structure
Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing Funds from operation (FFO) Per Unit Adjusted FFO (AFFO) Per Unit Tax Deferral Rate
Financial Structure Debt to Equity Debt to Gross Book Value
Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (years)
Rental Income Leverage (2) Rental Income Coverage
(1)
Investment Returns
Property Portfolio
Income Producing Properties Under Development Held for Development
Notes 1) Rental income leverage divides total debt divided by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period. 4) On July 1, 2004, CAP REIT merged with Residential Equities REIT.
CAP REIT
ANNUAL OPERATING RESULTS
($000; 31-Dec YE) Revenue Operating Expenses Gross Operating Income Operating Margin Amortization Depreciation Income before interest Interest Expense As a % of Operating Income Income after interest Interest & Other Income Operating Income General and Administrative Expenses As a % of Revenues Advisory Fees As a % of Revenues Income before gains Property Gains & Other Net Income Net Income Per Unit Per diluted unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Distributions to Unitholders Per unit Tax Deferral No of suites (owned) at year-end 2000 78,026 35,790 42,236 54.1% 287 4,457 37,492 17,147 40.6% 20,345 40 20,385 2,785 3.6% 17,600 0 17,600 2001 99,109 45,853 53,256 53.7% 355 5,520 47,381 21,349 40.1% 26,032 136 26,168 3,104 3.1% 23,064 0 23,064 2002 116,049 52,774 63,275 54.5% 500 6,874 55,901 25,007 39.5% 30,894 209 31,103 3,530 3.0% 27,573 0 27,572 2003 132,162 61,318 70,844 53.6% 660 9,444 60,740 28,193 39.8% 32,547 -1,852 30,695 4,113 3.1% 26,582 2,110 28,691 2004 207,675 98,995 108,680 52.3% 5280 38,761 64,639 50,921 46.9% 13,718 572 14,290 5,596 2.7% 8,694 1,528 10,222
$1.05 22,057 $1.13 92.6% 18,520 $0.95 110.3% $20,431 $1.05 86% 8,209
$1.05 28,584 $1.18 88.7% 24,654 $1.02 102.8% $25,356 $1.05 77% 9,257
$1.06 34,446 $1.23 85.4% 29,756 $1.06 98.9% $29,423 $1.06 71% 11,588
$1.07 36,026 $1.25 85.4% 30,640 $1.07 100.4% $30,771 $1.07 65% 12,351
$1.08 50,334 $1.20 89.7% 42,370 $1.01 106.6% $45,168 $1.08 93% 23,045
Outstanding Units (in 000s) 23,210 27,218 27,218 28,937 51,121 Weighted average units (diluted) 19,540 24,122 27,960 28,744 41,899 Notes: On July 1, 2004, CAP REIT merged with Residential Equities REIT. AFFO for 2000-2004 calculated at $450 per owned suite based on average of beginning and end number of suites owned.
131
132
CAP REIT
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05
($000)
Debt Mortgage Debt Current/Floating Rate Debt Total Debt 296,462 12,807 309,269 204,108 513,377 100.0 604,485 100.0 762,004 100.0 815,670 100.0 1,809,599 100.0 39.8 253,222 41.9 263,700 34.6 270,179 33.1 575,700 31.8 57.7 2.5 60.2 351,263 0 351,263 58.1 0.0 58.1 453,291 45,013 498,304 59.5 5.9 65.4 504,964 40,527 545,491 61.9 5.0 66.9 1,145,256 88,643 1,233,899 63.3 4.9 68.2 1,298,067 16,954 1,315,021 598,763 1,913,784
Total Unitholders Equity
Debt-to-Equity Ratio 1.45 2.59 528,299 9,972 538,271 0.57 0.55 0.62 0.63 621,300 15,391 636,691 783,214 22,440 805,654 839,261 31,591 870,852 2.45 2.97 3.11 1.39 1.72 1.87 1.99 3.24 1,862,455 69,657 1,932,112 0.64
2.17 3.34 1,999,140 105,477 2,104,617 0.62
Asset-to-Equity Ratio
Total Assets Accumulated Depreciation Gross Book Value
Debt-to-Asset Gross Book Value
CAP REIT
INTEREST COVERAGE
($000) Net Income Depreciation Interest Pre-tax Cash Flow Interest Coverage 2000 17,600 4,744 17,147 39,491 2.30 2001 23,064 5,875 21,349 50,289 2.36 2002 27,575 7,374 25,007 59,958 2.40 2003 28,692 10,104 28,193 66,991 2.38 2004 10,222 44,041 50,921 105,186 2.07 2005E 14,119 59,403 65,955 139,479 2.11 2006E 4,749 62,311 66,343 133,404 2.01

($000) Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2000 309,269 42,236 7.32 17,147 2.46 2001 351,263 53,256 6.60 21,349 2.49 2002 498,304 63,275 7.88 25,007 2.53 2003 545,491 70,844 7.70 28,193 2.51 2004 1,233,899 108,680 11.35 50,921 2.13 2005E 1,315,021 135,770 9.69 66,132 2.05 2006E 1,315,021 139,196 9.45 70,343 1.98
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from operation (FFO) Net Income Return on Equity 2000 182,435 17,887 22,057 9.8% 2001 228,665 23,064 28,584 10.1% 2002 258,461 27,572 34,446 10.7% 2003 266,940 28,692 36,026 10.7% 2004 422,940 10,624 50,334 2.5% 2005E 587,232 14,119 61,579 2.4% 2006E 598,763 $4,749 $65,506 0.8%
FFO Return on Equity

12.1%
12.5%
13.3%
13.5%
11.9%
10.5%
10.9%
133
Chartwell Seniors Housing REIT

(CSH.UN-T, $15.57)
HIGHLIGHTS Since its IPO in late 2003, Chartwell has tripled the size of its property
portfolio from $276 million to $900 million at quarter end. During the year, the firm completed two major portfolio acquisitions the acquisition of C-PAC, a portfolio of 1,069 suites in B.C., and a 1,043 suite portfolio in the U.S. states of Denver and Texas on a joint-venture basis with ING Australia.
Book Value Per Unit Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders:
Completed two equity offerings totalling $245 million to fund acquisition activity that were over-subscribed. Increased the annualized distribution to unitholders. Bulked up its senior management team through a number of strategic hires. The firm now has the staff in place to manage its growth. Same property operating income increased 1% for the third quarter and 1.9% for the nine-month period.
Goodman & Co (10.8%)/Dynamic Mutual Fund (6.4%), CI Mutual Fund (7.4%). Management owns approx. 10.8% of total units outstanding via special voting units.
All figures in C$ unless otherwise noted. Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27.2006
STRENGTHS A well-capitalized balance sheet that provides future acquisition potential.
The REITs debt-to-gross book value was 48.6% at quarter-end. Based on a 55% debt level, the trust has approximately $350 million of acquisition capacity.
Opportunity to acquire seniors housing portfolios remain with still attractive spreads. As well, the firm may diversify towards the stable long-term care market that has higher yielding properties. The firms new joint-venture partnership with ING reduces its cost of capital and provides the firm with opportunity to seek larger portfolios in Canada and the U.S. The firm has a steady development pipeline via its strategic relationship with Spectrum, which currently has approximately 4,500 suites under development. The REIT has the ability to buy these assets at market value with attractive spreads. The trust has expanded rapidly outside of the competitive Ontario market, which accounted for 82% of the original portfolio, while it now accounts for just 49%. The largest increases came from B.C., which rose to 15% of the portfolio and from Quebec, which grew from 254% of the portfolio suites. The recent quarter also marked the REITs foray into the U.S. marketplace, which now accounts for 6% of the total suites and further enhances geographical diversification.
Company Description: Chartwell Seniors Housing REIT is an investment trust, which owns interests in long-term care, assisted living, retirement home and independent living, and seniors housing facilities located throughout Canada.
134
A relatively new portfolio of properties that is well-leased and well-managed. Management has adopted a prudent approach to funding capital expenditures.
CHALLENGES Payout ratio remains in excess of 100% on an FFO basis. This stems largely
from accounting rules related to the recognition of income from Spectrum over the period of development.
General and administrative expense has continued to rise, representing more than 16% of operating income. Near-term dilution from equity offerings has constrained FFO.
135

CHARTWELL SENIORS HOUSING REIT EARNINGS FORECAST
($000s, except per unit amounts; 31-Dec YE) 1QA 41,439 (29,494) 11,945 28.8% (4,289) (6,480) $1,176 (5,684) ($4,508) 47.6% 2QA 46,188 -31,790 $14,398 31.2% 30.1% (4,620) (6,383) $3,395 (5,781) ($2,386) 40.2% 2005E 3QA 57,633 -40,184 $17,449 30.3% (5,579) (7,313) $4,557 (7,368) ($2,811) 42.2% -43.0% 2,030 1,638 532 $1,389 (2,525) ($1,136) 16.0% 4Q 70,341 -49,591 $20,751 29.5% (6,468) (7,386) $6,896 (8,694) ($1,798) 41.9% Year 215,601 (151,059) $64,543 29.9% (20,956) (27,562) $16,024 (27,527) ($11,503) 42.6% 1Q 73,528 -52,205 $21,323 29.0% (6,719) (7,460) $7,144 (9,198) ($2,054) 43.1% 2Q 77,695 -53,609 $24,085 31.0% (7,051) (7,535) $9,500 (9,741) ($241) 40.4% 2006E 3Q 84,361 -59,053 $25,308 30.0% (7,582) (7,535) $10,192 (10,640) ($448) 42.0% 4Q 91,861 -64,303 $27,558 30.0% (8,180) (7,610) $11,769 (11,684) $84 42.4% Year 327,446 (229,170) $98,275 30.0% (29,532) (30,139) $38,604 (41,263) ($2,659) 42.0%
Operating revenues Direct operating expenses Gross Property Income Operating Margin Depreciation Amortization, buildings Amortization and other Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
Mezzanine interest income Management fees Development and other fees Total Operating Income Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property Income
1,791 1,648 100 ($969) (1,999) ($2,968) 16.7%
1,964 2,355 360 $2,293 (2,451) ($158) 17.0%
2,253 2,359 204 $3,018 (2,698) $320 13.0%
8,038 8,000 1,196 $5,731 (9,673) ($3,942) 15.0%
2,253 2,000 500 $2,699 (3,676) ($977) 17.2% 5.0% -
2,253 2,000 500 $4,512 (3,885) $627 16.1% 5.0% -
2,253 2,000 500 $4,305 (4,218) $87 16.7% 5.0% -
2,253 2,000 500 $4,837 (4,593) $244 16.7% 5.0% -
8,500 8,000 2,000 $15,841 (16,372) ($531) 16.7% 5.0% -
Property gains (losses) Write down of assets Non-controlling interest Foreign exchange Future income tax expense NET INCOME Per Diluted Unit Outstanding Units Weighted Average Units (Fully Diluted) Distributions to unitholders Per Unit Funds From Operations (FFO) Net Income Depreciation Amortization of mgmt contracts Amortization, other Non-controlling interest Other FFO Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Funds from operation Capital expenditures Straightline rent adjustment Other items AFFO Per diluted unit AFFO Payout Ratio
(817) 448 (3,337) ($0.09) 44,317 38,974 ($10,250) $0.256
103 (11) (66) ($0.00) 44,506 44,415 ($11,772) $0.266
271 (1,434) (2,299) ($0.05) 48,910 50,101 ($9,535) $0.2663
320 $0.01 49,541 54,766 ($20,696) $0.2663
103 (817) 708 (1,434) (5,382) ($0.11) 49,541 47,064 ($52,253) $1.05
(977) ($0.02) 49,741 54,766 ($13,403) $0.266
627 $0.01 49,941 54,766 ($13,403) $0.266
87 $0.00 50,141 54,766 ($13,403) $0.266
244 $0.00 50,341 54,766 ($13,403) $0.266
(531) ($0.01) 50,341 54,766 ($53,613) $1.07
(3337) 4289 6480 (10) (448) 817 7,791 $0.21 121.9%
(66) 4620 6383 0 11 0 10,948 $0.246 108.0%
(2299) 5579 7313 (20) (271) 0 10,302 $0.206 129.5%
320 6468 7386 0 0 0 14,175 $0.26 102.9%
(5382) 20956 27562 (30) (708) 817 43,216 $0.92 114.5%
(977) 6719 7460 0 0 0 13,202 $0.24 110.5%
627 7051 7535 0 0 0 15,213 $0.28 95.8%
87 7582 7535 0 0 0 15,203 $0.28 95.9%
244 8180 7610 0 0 0 16,034 $0.29 90.9%
(531) 29532 30139 0 0 0 59,140 $1.08 98.6%
$7,791 ($1,095) $0 $0 $6,696 $0.17 128.1%
$10,948 ($786) $0 $0 $10,162 $0.23 108.0%
$10,302 ($1,378) $0 0 $8,924 $0.18 129.5%
$14,175 ($1,055) $0 $0 $13,120 $0.24 102.9%
$43,216 ($4,314) $0 $0 $38,902 $0.82 114.9%
$13,202 ($1,103) $0 $0 $12,099 $0.22 110.5%
$15,213 ($1,165) $0 $0 $14,047 $0.26 95.8%
$15,203 ($1,265) $0 $0 $13,938 $0.25 95.9%
$16,034 ($1,378) $0 $0 $14,656 $0.27 90.9%
$59,140 ($4,912) $0 $0 $54,229 $1.00 98.6%
Notes: 1) FFO and AFFO does not adjust for cash receipts in excess of reported under GAAP accounting.
136

NET ASSET VALUE
NAV based on segmentation Retirement LTC U.S. portfolio Management fees (excl. development and other) Capitalized Value Book cost of income properties Appraisal Increment Common Equity Total Pre-Tax Value Oustanding Common Shares Pre-tax Book Value Blended Cap Rate
NOI $61,064 $7,916 $10,720 $8,000
Cap 8.00% 9.00% 7.25% 6
Capitalized $763,300 $87,956 $147,862 $48,000 $1,047,118 898,042 $149,076 $460,502 $609,578 48,910 $12.46 7.98%
137

OPERATING SUMMARY
($000) Nov. 14 to Dec. 31 2003 2004 Growth 2005E Growth
Capital Structure Assets Debt Equity Minority Interest Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per Diluted Unit Adjusted FFO (AFFO) Per Diluted Unit Deferral Tax Rate Financial Structure Debt to Equity Ratio Debt to Gross Book Value Maturing Debt 2006 As % of Total Debt Maturing Debt 2007 As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years) Total Interest As % of Operating Income Interest Coverage Capitalized Interest As % of Total Interest Rental Income Leverage Rental Income coverage Investment Returns Income Return on Equity FFO Return on Equity Property Portfolio Income Producing Properties Under Development Held for Development 0.64 0.37 $33,342 5.7% $25,449 4.3% $0 0.0% 5.68% 6.0 1,236 42.4% 2.22 --8.99 2.36 1.60 0.55 1.28 0.50 419,207 157,091 243,724 0 740,252 416,038 259,295 40,279 76.6% 1,151,914 164.8% 590,036 6.4% 460,502 NA 55,977 55.6% 41.8% 77.6% 39.0%
23,304 22,068 15,216 $0.55 14,672 $0.53 100.0%
37,972 21,071 28,847 $0.90 24,112 $0.76 85.0%
62.9% -4.5% 89.6% 64.2% 64.3% 42.3%
64,543 37,016 43,216 $0.92 38,902 $0.82 n.a
70.0% 75.7% 49.8% 1.8% 61.3% 8.2%
$41,518 10.0% 5.23% 5.0 16,901 44.5% 2.64 --10.96 2.25
$11,550 2.0% 5.19% 5.7 27,527 42.6% 2.57 --9.14 2.34
-4.9% 6.2%
-2.2% 11.5%
-1.5% 12.0%
276,027 --276,027
588,812 --588,812
100.0% --100.0%
898,042 --898,042
100.0% --100.0%
Notes 1) Rental income leverage divides total debt by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period. 3) Data for Operating Income, FFO, AFFO in 2003 were annualized 4) AFFO does not adjust for cash receipts in excess of reported under GAAP accounting.
138

ANNUAL OPERATING RESULTS)
($000; 31-Dec YE) Revenue Retirement and LTC Homes Mezzanine Interest Income Management Fees Other income Operating Expenses Operating Income Operating Margin Depreciation Interest Expense As a % of Total Income General & Administrative Expense As a % of Total Income Other items As a % of Total Income Net Income Net Income Per Unit Per Diluted Unit Funds from Operation (FFO) Per Diluted Unit Adjusted Funds From Operation (AFFO) Per Diluted Unit Distribution To Unitholders Distribution To Unitholders Per Unit FFO Payout Ratio AFFO Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Diluted - Weighted average units
2003 8,083 478 494 165 9,220 5,170 4,050 43.9% 3,006 1,236 30.5% 1,415 34.9% 103 2.5% -1,504 ($0.05) $1,902 $0.07 $1,834 $0.07 $3,726 $0.133 196% 203% 100.0% 27,476 27,621
2004 123,140 4,635 9,415 590 137,780 85,168 52,612 38.2% 33,186 16,901 32.1% 6,851 13.0% (1,121) -2.1% -5,447 ($0.17) $28,847 $0.90 $24,112 $0.76 $32,596 $1.025 113% 135% 85.0% 31,913 31,894
139

DEBT-TO-EQUITY
($000) Debt Bank loans Long-term debt Total Debt Unitholders Equity Minority Interest Total Capitalization Debt-to-Equity Ratio Asset-to-Equity Ratio Total Assets Plus Accumulated Depreciation Gross Book Value Debt-to-Gross Book Value
2003
2004
3Q05
0 157,091 157,091 243,724 0 400,815
0.0 39.2 39.2 60.8 0.0 100.0
41,518 374,520 416,038 259,295 40,279 715,612
5.8 52.3 58.1 36.2 5.6 100.0
11,550 578,486 590,036 460,502 55,977 1,106,515
1.0 52.3 53.3 41.6 5.1 100.0
0.64 1.72 419,207 980 420,187 0.37
1.60 2.85 740,252 13,072 753,324 0.55
1.28 2.50 1,151,914 27,537 1,179,451 0.50
140

INTEREST COVERAGE
($000) Net Income Depreciation and Amortization Interest Cash Flow Interest Coverage Capitalized Interest Total Interest Coverage 2003 -1,504 3,006 1,236 2,738 2.22 0 2.22 2004 -5,447 33,186 16,901 44,640 2.64 0 2.64 2005E -5,382 48,518 27,527 70,664 2.57 0 2.57 2006E -531 59,671 41,263 100,403 2.43 0 2.43

($000) Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2003 157,091 2,913 8.99 1,236 2.36 2004 416,038 37,972 10.96 16,901 2.25 2005E 590,036 64,543 9.14 27,527 2.34 2006E 590,036 $98,275 6.00 41,263 2.38
Notes: 1) Rental Operating Income for 2003 was annualized
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation (FFO) Net Income Return on Equity FFO Return on Equity
2003 243,724 -1,504 1,902 -4.9% 6.2%
2004 251,510 -5,447 28,847 -2.2% 11.5%
2005E 359,899 -5,382 43,216 -1.5% 12.0%
2006E 460,502 -531 59,140 -0.1% 12.8%
141
Cominar REIT
Cominar REIT
(CUF.UN-T, $19.49)
Financial Summary 2004A FFO $1.54 P/FFO 12.6x AFFO $1.18 P/AFFO 16.5x
Stock Rating: STRONG BUY 1 6-12 Month Target Price: $20.25 Target Total Return: 10.1%
2005E $1.48 13.2x $1.27 15.3x
2006E $1.51 12.9x $1.34 14.5x $9.81 2.0 x $16.40 18.8% $1.20 6.2% 32.7 25.6 $637 31-Dec
HIGHLIGHTS Appointed Michel Dallaire as President and CEO of the REIT. Jules Dallaire
continues to serve as Chair on the Board of Trustees and remains active in the strategic and operational functions of the REIT.
Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: AM TOTAL Investments (20.88%)
Focused on development work rather than acquisitions, which provides higher returns. The REIT currently has 11 projects under development, projects representing $50.4 million in investments. The going-in targeted capitalization rate for acquisitions ranges from 9% to 10%, with a floor of 8.5%. Management remains steadfast in its long-term strategy to not stretch for acquisitions. Completed an acquisition in Quebec City and planned to renovate and expand the building at a cost of $1.7 million. Cominar also acquired land in Quebec City to build an industrial and mixed-use building.
All figures in C$ unless otherwise noted. Note: Earnings and FFO on a fully diluted basis. Source: Bloomberg Inc Figures updated as of January 27, 2006
STRENGTHS Portfolio concentration in the province of Quebec has provided management

with an advantage of expertise in their core markets of Quebec City and Montreal.
Company Description: Cominar REIT is an unincorporated closed-end investment trust created in 1998. Cominar is one of the largest commercial property owners and managers in the province of Quebec. The REIT's real estate portfolio includes 125 high quality office, retail, and industrial and mixeduse buildings in the Montreal and Quebec City regions, consisting of 14 office, 27 retail and 84 industrial and mixed-use buildings, totaling approximately 9.5 million square feet.
The management team has a vested interest in the trust, which consequently operates as a lean business with a lower relative percentage of overhead costs. The REIT has had the ability to add value to commercial properties by acquiring assets at higher yields and generating higher returns through the redevelopment and leasing of the properties. Continues to achieve one of the lowest payout ratios in the industry. A diversified commercial portfolio with the right combination of stability and growth. The firm has consistently achieved inflation-type same-property income growth. The firm has a long track record of enhancing shareholder value, which is evident in the comparative industry analysis.
CHALLENGES The trust undertakes new development and redevelopment without significant
pre-leasing in place, which introduces risk.
The balance sheet remains under-levered at this time. The acquisition market is tight and the ability to add $50 million in properties remains challenging. Given its portfolio concentration in the province of Quebec, the REITs property portfolio is sensitive to business and economic cycles in the province.
142
COMINAR RETI EARNINGS FORECAST
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Property Management Fees Gross Property Income Operating Margin (including Managemen Op Margin accounting for straightline (3,661) (1,366) $11,765 (3,656) (1,680) $6,429 31.8% 32.5% 29 $6,458 (466) $8,322 2.6% 2.4% $8,322 (497) $8,199 2.6% 2.6% $8,199 (1,863) $30,356 2.5% 2.5% 253 $30,609 (510) $5,566 3.0% 2.9% $5,566 (567) $7,109 3.0% 2.9% $7,109 65 $6,077 79 $8,276 75 $8,696 256 $32,219 65 $7,676 65 $8,617 (598) $8,019 3.0% 2.9% $8,019 (3,634) (1,575) $8,197 28.2% 28.7% (3,711) (1,551) $8,621 27.5% 28.0% (14,630) (6,357) $31,963 28.6% 29.1% (3,940) (1,551) $6,012 31.7% (4,125) (1,551) $7,611 29.5% (4,159) (1,551) $8,552 28.2% (3,648) (1,388) $13,406 (3,748) (1,391) $13,895 (3,785) (1,456) $13,883 (14,842) (5,600) $52,950 (3,880) (1,920) $11,503 (3,959) (1,980) $13,288 (3,977) (2,020) $14,262 (3,977) (2,080) $14,518 (4,147) (1,551) $8,820 27.7% (15,793) (8,000) $53,570 (16,371) (6,204) $30,995 29.2%
1QA 30,473 (13,381) (300) $16,792 55.1% 55.6% 3QA 29,812 (10,479) (299) $19,034 63.5% 64.3% 4Q 30,117 (10,692) (301) $19,124 64.5% 63.9% 1Q 30,898 (13,595) $17,303 56.0% 56.5% 3Q 31,654 (11,395) $20,258 64.0% 64.4% 4Q 31,654 (11,079) $20,575 65.0% 65.4%
2005E 2QA 30,654 (11,850) (362) $18,442 60.2% 60.6%
2005E Year 121,056 (46,402) (1,262) $73,392 60.6% 61.1% 2006E 2Q 31,519 (12,292) $19,227 61.0% 61.4%
2006E Year 125,725 (48,362) $77,363 61.0% 61.9%
Depreciation Depreciation of deferred expenses and o Gross Property Income before Interest Ex
Interest Expense Interest on Convertible Debentures Gross Operating Income after Interest Ex Interest Expense as a % of Gross Proper
Interest Income Other Income Total Operating Income
(3,629) (1,551) $8,715 27.2% 27.7% -29.0% 73 $8,788
65 $8,885 (607) $8,278 3.0% $8,278
260 $31,255 (2,282) $28,973 3.0% $28,973
Trust Expenses Income before other items Trust Expenses as a % of Gross Property
Property gains Other NET INCOME Per Diluted Unit 32,554 32,388 38,648 ($9,727) $0.300 ($9,811) $0.300 ($9,815) $0.300 ($9,843) $0.300 ($39,196) $1.200 32,597 32,576 38,841 32,708 32,653 38,290 32,808 32,758 38,390 32,808 32,594 38,390 32,908 32,858 38,598
(413) $6,045 2.5% 2.4% $6,045 $0.184
(487) $7,789 2.6% 2.6% 253 $8,042 $0.24
Outstanding Units Weighted Average Units Diluted
33,008 32,958 38,698 ($7,331) $0.300 ($6,769) $0.300
36,185 34,597 39,536 ($6,769) $0.300
36,285 36,235 41,174 ($6,769) $0.300
34,597 34,162 39,501 ($41,516) $1.200
Distributions to Unitholders Per Unit

$6,045 3,661 1,366 $30 0 $36 $11,138 $0.34 1,575 $12,713 $0.33 ($353) -1,749 ($250) 10,361 $0.27 111.9% ($320) -1,028 ($250) 12,784 $0.33 91.1% $8,042 3,661 1,352 $0 0 -248 $0 $12,807 $0.39 $1,575 $14,382 $0.37 ($337) -1,543 ($250) 12,846 $0.34 89.4% $8,322 3,748 1,355 $0 0 0 $0 $13,425 $0.41 1,551 $14,976 $0.39 $8,199 3,785 1,355 $0 0 0 $0 $13,339 $0.41 1,551 $14,890 $0.39 ($337) -1,543 ($250) 12,760 $0.33 90.3% $30,608 $14,855 $5,428 $30 $0 ($248) $36 $50,709 $1.56 $6,252 $56,961 $1.48 ($1,347) -5,863 ($1,000) 48,751 $1.27 94.9% $5,566 3,880 1,920 $20 0 $75 $11,462 $0.35 $1,575 $13,037 $0.338 ($337) -1,250 ($300) 9,575 $0.29 103.0%
Calculation of Funds From Operations Net income Depreciation of Properties Amortization of Deferred and Other Amortization of above market leases Leasing costs Gain on sale of asset Compensation Costs FFO Per Share Convertible Interest Diluted FFO Per Diluted Unit
$7,109 3,959 1,980 $110 0 $75 $13,233 $0.40 $1,575 $14,808 $0.383 ($337) -1,250 ($300) 11,346 $0.34 87.1%
$8,019 3,977 2,020 $40 0 $75 $14,131 $0.41 $1,575 $15,706 $0.397 ($337) -1,250 ($300) 12,244 $0.35 84.8%
$8,278 3,977 2,080 $130 0 $75 $14,539 $0.40 $1,575 $16,114 $0.391 ($337) -1,250 ($300) 12,652 $0.35 85.9%
$28,973 $15,793 $8,000 $300 $0 $300 $53,366 $1.56 $6,300 $59,666 $1.51 ($1,348) -5,000 ($1,200) 45,818 $1.34 89.6%
Straightline rent Leasing costs Capex costs AFFO Per Unit AFFO Payout Ratio
Cominar REIT
143
Cominar REIT
NET ASSET VALUE
($000) Rental Income
(1)
8.50% 74,788 879,859
8.75% 74,788 854,720
9.00% 74,788 830,978
9.25% 74,788 808,519
9.50% 74,788 787,242
Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Units Appraised Value Per Unit
639,192 240,667 320,903 561,570 32,708
639,192 215,528 320,903 536,431 32,708
639,192 191,786 320,903 512,689 32,708
639,192 169,327 320,903 490,230 32,708
639,192 148,050 320,903 468,953 32,708
$17.17
$16.40
$15.67
$14.99
$14.34
Notes 1) Rental operating income has been annualized. 2) Book cost excludes properties classified as under development.
144
OPERATING SUMMARY
($000)
Portfolio Growth 351,053 188,175 157,000 31,943 20,443 19,871 $1.27 13,882 $0.89 62.8% 14.5% 16.6% na na na na 40,438 27,453 27,526 $1.32 21,537 $1.04 60.0% 26.6% 34.3% 38.5% 3.9% 55.1% 16.4% 50,674 36,111 35,553 $1.38 29,564 $1.15 51.3% 25.3% 31.5% 29.2% 4.1% 37.3% 10.6% 58,085 40,696 38,945 $1.44 32,391 $1.19 50.2% 14.6% 12.7% 9.5% 4.4% 9.6% 4.1% 66,794 47,564 49,609 $1.54 37,946 $1.18 46.5% 15.0% 16.9% 27.4% 7.2% 17.1% -1.1% 72,045 49,590 50,709 $1.48 48,751 $1.27 n.a 7.9% 4.3% 2.2% -4.1% 28.5% 7.2% 19.3% 18.9% 15.4% 455,444 208,226 240,849 29.7% 10.7% 53.4% 512,992 257,323 248,247 12.6% 23.6% 3.1% 602,882 270,715 319,597 17.5% 5.2% 28.7% 705,654 362,247 321,468 17.0% 33.8% 0.6% 714,714 374,467 320,903 1.3% 3.4% -0.2%
Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing Funds from Operations (FFO) Per Unit Adjusted FFO (AFFO) Per Unit Tax Deferral Rate
Financial Structure Debt to Equity Debt to Gross Book Value 1.20 0.54 Year 2006 9.0% 30,640 16.3% 7.3% 33,332 13.0% 6.6% 0% 0.0% 6.3% 33,813 Year 2007 12.6% 5,483 2.6% 6.8% 47,293 0% 0.0% 6.3% 5.43 19,230 28.8% 3.36 3.27 491 2.8% 4.66 3.34 4.05 3.40 1,172 6.1% 3.93 3.47 0.86 0.45 1.04 0.49 0.85 0.44 1.13 0.49
1.17 0.50
Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Weighted average term to maturity 11,500 36.0% 2.73 2.73 0.0% 5.89 2.78 5.15 3.11 5.08 3.48 3.24 3.06 723 5.6% 3.73 3.54 715 4.9% 12,985 32.1% 14,563 28.7% 17,389 29.9%
0% 19,949 5.3% 6.2% 4.69 22,455 31.2% 4.49 2.93 1,468 6.5% 5.20 3.21
(1)
Investment Returns 11.0% 13.5% 11.2% 13.8% 12.0% 14.5% 10.9% 13.7% 9.8% 15.5% 9.5% 15.8%

336,360 1,408 -337,768 99.6% 0.4% -100.0% 405,987 21,675 -427,662 94.9% 5.1% -100.0% 485,695 2,798 -488,493 99.4% 0.6% -100.0% 518,770 21,486 -540,256 96.0% 4.0% -100.0%
Property Portfolio 640,889 20,967 -661,856 96.8% 3.2% -100.0% 639,192 31,242 -670,434 95.3% 4.7% -100.0%
Notes 1) Rental income leverage divides total debt divided by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) Balance sheet data for 2005 is for 3Q05. Other data are for 2005E
Cominar REIT
145
Cominar REIT

($000; 31-Dec YE) Rental Revenue Operating Expenses & Property Taxes Rental Operating Income Operating Margin Depreciation Amortization Income before interest Interest Expense As a % of Rental Income 2000 54,465 22,522 31,943 58.6% 2,238 1,506 28,199 11,114 34.8% 17,085 25 17,110 983 3.1% 16,127 16,127 $1.03 $19,871 $1.27 83.2% $13,882 $0.89 119.1% 16,534 $1.06 62.8% 16,975 15,593 2001 66,978 26,540 40,438 60.4% 2,828 2,339 35,271 12,262 30.3% 23,009 521 23,530 1,171 2.9% 22,359 0 22,359 $1.08 $27,526 $1.32 82.7% $21,537 $1.04 105.8% 22,777 $1.08 60.0% 25,424 20,786 2002 81,925 31,251 50,674 61.9% 3,506 3,505 43,663 13,848 27.3% 29,815 845 30,660 1,228 2.4% 29,432 0 29,432 $1.14 $35,553 $1.38 80.6% $29,564 $1.15 96.9% 28,657 $1.11 51.3% 26,121 25,799 2003 96,577 38,492 58,085 60.1% 4,240 4,636 49,209 16,898 29.1% 32,311 223 32,534 1,512 2.6% 31,022 0 31,022 $1.14 $38,945 $1.44 80.6% $32,391 $1.19 96.9% 31,402 $1.15 50.2% 31,668 27,148 31,535 $0.98 $49,609 $1.54 76.0% $37,946 $1.18 99.4% 37,706 $1.18 46.5% 32,284 32,144 2004 111,012 42,858 68,154 61.4% 12,472 5,257 50,425 18,058 26.5% 32,367 1,054 33,421 1,886 2.8% 31,535
Interest & Other Income
General & Administrative Expense As a % of Rental Income Income before gains Investment & Property Gains (losses) Interest on Installment Receipts Net Income Net Income Per Diluted Unit Fund from Operations (FFO) Per Diluted Unit FFO Payout Ratio Adjusted FFO (AFFO) Per Diluted Unit AFFO Payout Ratio Distribution to Unitholders Per Unit Tax Deferral Outstanding Units (000s) Weighted average units (diluted)
Note: 1) 2004 FFO excluding straightline rental income is $48.8 million or $1.45 per diluted unit.
146
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt Long Term Debt Debt Convertible Debentures Bank loans and current portio Total Debt 157,535 30,640 188,175 157,000 345,175 100.0 449,075 100.0 505,570 100.0 590,312 100.0 45.5 240,849 53.6 248,247 49.1 319,597 54.1 321,468 683,715 8.9 54.5 5,483 208,226 1.2 46.4 33,332 257,323 6.6 50.9 0 270,715 0.0 45.9 45.6 202,743 45.1 223,991 44.3 270,715 45.9 262,247 100,000 0 362,247 38.4 0.0 38 47.0 85.4
256,063 98,455 19,949 374,467 320,903 695,370
36.8 2.9 40 46.1 85.8
Debt-to-Equity Ratio 1.20 2.24 351,053 5,420 356,473 0.54 0.45 0.49 455,444 8,248 463,692 512,992 11,754 524,746 602,882 15,994 618,876 0.44 1.89 2.07 1.89 0.86 1.04 0.85
1.13 2.20 705,654 28,522 734,176 0.49
1.17 2.23 714,714 39,641 754,355 0.50
Debt-to-Assets
Cominar REIT
147
Cominar REIT
INTEREST COVERAGE
($000) Net Income Depreciation Amortization Interest Expense Interest on Convertible Debentures Pre-tax Cash Flow Interest Coverage Capitalized interest Total interest Total Interest Coverage Note: 1) Assume capitalized interests for 2006 is the same as 2005 2000 16,127 2,238 1,506 11,500 2001 22,359 2,828 2,339 12,262 2002 30,753 3,506 3,505 13,848 2003 31,022 4,240 4,636 16,898 2004 31,535 12,472 5,257 16,130 1,928 65,394 4.05 1172 19,230 3.40 2005E 30,609 14,842 5,600 14,630 6,357 65,681 4.49 1468 22,455 2.93 2006E 28,973 15,793 8,000 16,371 6,204 69,137 4.22 1468 24,043 2.88
31,371 2.73 0 11,500 2.73
39,788 3.24 723 12,985 3.06
51,612 3.73 715 14,563 3.54
56,796 3.36 491 17,389 3.27

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest 2000 2001 2002 2003 2004 2005E 374,467 72,045 5.20 22,455 3.21 2006E 374,467 76,015 4.93 24,043 3.16
188,175 208,226 257,323 270,715 262,247 31,943 5.89 11,500 2.78 40,438 5.15 12,985 3.11 50,674 5.08 14,563 3.48 58,085 4.66 17,389 3.34 66,794 3.93 19,230 3.47
Notes: 1) Rental operating income adjusted for straight-line rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations (FFO) Net Income Return on Equity FFO Return on Equity
2000 146,880 16,127 19,871 11.0% 13.5%
2001 199,275 22,359 27,526 11.2% 13.8%
2002 244,548 29,432 35,553 12.0% 14.5%
2003 283,922 31,022 38,945 10.9% 13.7%
2004 320,533 31,535 49,609 9.8% 15.5%
2005E 321,186 30,609 50,709 9.5% 15.8%
2006E 320,903 28,973 53,366 9.0% 16.6%
148
CREIT
CREIT
(REF.UN-T, $23.20)
Financial Summary 2004A FFO P/FFO AFFO P/AFFO $1.67 13.9 x $1.34 17.3 x 2005E $1.74 13.3 x $1.44 16.1 x 2006E $1.77 13.1 x $1.52 15.3 x $10.61 2.2 x $19.55 18.7% $1.28 5.5% 56.9 56.6 $1,320 31-Dec
HIGHLIGHTS Developed an active pipeline for property acquisitions, notwithstanding the

extremely competitive environment for new investments.
Book Value Per Share Price/Book Value Estimated NAV Premium to NAV Annual Distribution Dividend Yield Units Outstanding (mln) Unit Float (mln) Market Cap (mln) Fiscal Year End
Some markets (particularly Toronto) continue to experience depressed rental rates and management anticipates the declining trend in office rents on new and renewing leasing activity to continue through 2006. However, the level of activity is good and expected to reflect higher occupancy levels over the next several quarters. Acquired an industrial building located in Calgary, Alberta, from Hopewell Development Corporation (HDC) and provided mezzanine financing to HDC on a number of projects, which will translate into acquisition opportunities in 2006 and 2007. In the advanced stages of negotiating the acquisition of a 50% interest in a portfolio of five, new-format well anchored retail properties located in Alberta (4) and Saskatchewan (1). Expected to close the sale of a property in Edmonton, Alberta in early 2006.
All figures in C$ unless otherwise noted. Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27, 2006
Company Description: CREIT is a closed-end real estate investment trust that commenced operations on April 1, 1984, making it one of the oldest REITs. CREIT owns more than 130 properties in three asset classes across Canada. The portfolio contains more than 15 million square feet of leasable space. CREIT's properties are generally situated in prime locations (usually near major metropolitan centres), attract solid tenants, maintain high occupancy rates and deliver a reliable stream of rental income.
STRENGTHS Conservative management team focussed on improving existing operations
and a disciplined acquisition strategy. Over the past five years, the firm has enhanced its property portfolio.
Diversified portfolio of office, industrial and retail properties across Canadas core urban markets. This has provided steady, predictable growth in FFO, which has rewarded investors with growing distributions. Continues to experience positive momentum in office leasing activity in most of the office markets in which it operates. The firm has attractive growth prospects as the recovery in the office market picks up steam. Mortgage maturities over the next 12-month period may allow the firm to capture interest cost savings, while extending the average portfolio mortgage term. Management has a long-track record of producing value for shareholders.
CHALLENGES Significant level of leases maturing over the next two years may pose a
challenge to management and result in occupancy erosion.
Office portfolio, which is largely concentrated in the Greater Toronto Area, will likely continue to face higher leasing costs with flat to lower rental rates. Potential downside for retail leasing would adversely impact FFO. Sourcing accretive acquisitions of high calibre assets is difficult.
149
CREIT
CREIT EARNINGS FORECAST
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150
CREIT
NET ASSET VALUE
(1)
7.50% 140,652 1,875,360
7.75% 140,652 1,814,865
8.00% 140,652 1,758,150
8.25% 140,652
8.50% 140,652
8.75% 140,652
Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Units Net Asset Value Per Unit
1,704,873 1,654,729 1,607,451
1,306,449 568,911 603,642 1,172,553 56,882
1,306,449 508,416 603,642 1,112,058 56,882
1,306,449 451,701 603,642 1,055,343 56,882
1,306,449 1,306,449 1,306,449 398,424 348,280 301,002 603,642 1,002,066 56,882 603,642 951,922 56,882 603,642 904,644 56,882
$20.61
$19.55
$18.55
$17.62
$16.74
$15.90
Notes 1) Rental operating income has been annualized 2) Rental income adjusted for straight-line rental income.
151
OPERATING SUMMARY
2000 2001 2002 2003 2004 2005E Growth % Growth % Growth % Growth % Growth % Growth %
CREIT
152
731,260 366,205 348,205 72,797 46,234 44,767 $1.34 36,232 $1.09 55.1% 6.0% 3.2% na na na na 80,173 52,750 46,178 $1.22 40,818 $1.08 61.5% 10.1% 14.1% 3.2% -8.7% 12.7% -0.3% 98,271 65,417 64,929 $1.43 58,723 $1.29 48.5% 22.6% 24.0% 40.6% 16.6% 43.9% 19.3% 113,855 73,947 74,634 $1.45 58,968 $1.15 46.0% 15.9% 13.0% 14.9% 1.5% 0.4% -11.3% 130,933 87,598 92,177 $1.66 73,968 $1.34 52% 15.0% 18.5% 23.5% 14.5% 25.4% 17.1% 143,950 95,902 99,041 $1.74 81,852 $1.44 50% 9.9% 9.5% 7.4% 4.8% 10.7% 7.2% 0.1% 1.7% 0.1% 868,166 400,244 448,261 18.7% 9.3% 28.7% 1,192,862 650,227 513,361 37.4% 62.5% 14.5% 1,292,566 694,878 562,005 8.4% 6.9% 9.5% 1,468,705 815,554 604,843 13.6% 17.4% 7.6% 1,487,669 839,466 603,642 1.3% 2.9% -0.2% 1.05 0.49 Year 2006 52,603 14.4% 7.33% 4.30 26,644 36.6% 2.69 2.68 81 0.3% 5.03 2.73 4.99 2.92 6.62 2.96 2.89 2.89 60 0.2% 3.01 2.98 361 1.1% 27,483 34.3% 33,215 33.8% 39,908 35.1% 2.92 2.82 1,448 3.6% 6.10 2.85 117,013 18.0% 6.81% 4.20 117,124 16.9% 6.32% 5.01 95,305 Year 2007 11.4% 21,662 5.4% 6.92% 4.10 77,041 9.2% 99,474 12.2% 6.16% 5.58 43,335 33.1% 3.13 3.09 580 1.3% 6.23 3.02 65,225 7.8% 6.05% 5.26 48,048 33.4% 3.20 3.20 0 0.0% 6.06 2.88 0.89 0.45 1.27 0.53 1.24 0.52 1.35 0.53 1.39 0.53 11.4% 12.9% 9.6% 11.6% 10.8% 13.5% 10.9% 13.9% 8.1% 15.8% 9.1% 16.4% 691,570 --691,570 100.0% --100.0% 806,922 --806,922 100.0% --100.0% 1,114,559 18,363 -1,132,922 98.4% 1.6% -100.0% 1,172,910 38,157 -1,211,067 96.8% 3.2% -100.0% 1,338,005 1,338,005 100.0% 0.0% -100.0% 1,306,449 1,306,449 100.0% 0.0% -100.0%
Capital Structure ($000)
Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing Funds from Operations (FFO) Per Unit Adjusted FFO Per Unit Tax Deferral Rate
Financial Structure
Debt to Equity Debt to Gross Book Value
(1)
Investment Returns
Income Return on Equity FFO return on Equity
Property Portfolio
Notes 1) Rental income leverage divides total debt divided by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period.
CREIT
($000) Rental Revenue Operating Expenses & Property Taxes Rental Income Operating Margin Depreciation Amortization Income before interest Interest Expense As a % of Rental Income Gross Operating Income Interest & Other Income 2000 113,010 40,213 72,797 64.4% 5,734 4,011 63,052 26,563 36.5 36,489 1,453 37,942 2,920 4.0 35,022 4,595 39,617 $1.19 39,001 $1.17 44,767 $1.34 87.1% 36,232 $1.09 107.6% 55.1% 33,361 33,358 2001 128,228 48,055 80,173 62.5% 6,521 4,943 68,709 27,423 34.2 41,286 1,614 42,900 2,457 3.1 40,443 -2,383 38,060 $1.01 44,012 $1.17 46,178 $1.22 95.3% 40,818 $1.08 107.8% 61.5% 42,545 37,698 2002 160,750 62,479 98,271 61.1% 8,171 5,535 84,565 32,854 33.4 51,711 2,220 53,931 1,573 1.6 52,358 -711 51,647 $1.14 54,154 $1.20 64,929 $1.43 83.4% 58,723 $1.29 92.2% 48.5% 47,923 45,457 2003 187,051 73,196 113,855 60.9% 9,895 5,669 98,291 38,460 33.8 59,831 2,611 62,442 1,702 1.5 60,740 -2,294 58,446 $1.14 63,023 $1.23 74,634 $1.45 84.4% 58,968 $1.15 106.9% 46.0% 52,176 51,439 2004 218,898 83,944 134,954 61.7% 34,439 9,282 91,233 42,755 31.7 48,478 1,843 50,321 2,019 1.5 48,302 -851 47,451 $0.86 68,261 $1.25 92,177 $1.67 74.1% 73,968 $1.34 92.3% 52.0% 56,155 55,079
General & Administrative Expense As a % of Rental Income Income before gains Investment & Property Gains & Other Net Income Net Income Per diluted unit Distributions to Unitholders Per Unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Weighted average (diluted)
Note: 1) 2004 FFO excluding straightline rental income is $88.2 million or $1.60 per unit.
153
CREIT
154
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 % 52,603 313,602 366,205 348,205 661,807 100.0 826,843 100.0 1,046,575 100.0 1,139,759 100.0 52.6 448,261 54.2 513,361 49.1 562,005 49.3 604,843 1,320,923 -47.4 47.4 21,662 378,582 400,244 -45.8 45.8 117,013 533,214 650,227 -50.9 50.9 117,124 577,754 694,878 -50.7 50.7 99,474 716,080 815,554 -54.2 54.2 45.8 100.0 65,225 774,241 839,466 603,642 1,377,883 -56.2 56.2 43.8 100.0 1.05 2.10 731,260 19,263 750,523 0.49 0.45 0.53 868,166 24,845 893,011 1,192,862 32,421 1,225,283 1,292,566 41,506 1,334,072 0.52 1.94 2.32 2.30 0.89 1.27 1.24 1.35 2.43 1,468,705 75,704 1,544,409 0.53 1.39 2.46 1,487,669 99,419 1,587,088 0.53
DEBT-TO-EQUITY
($000)
Debt Bank loans and floating rate debt Mortgage Rate and debenture Debt Total Debt
Debt-to-Equity Ratio
Note: 1) 2004 and 3Q05 accumulated depreciation excludes intangibles.
CREIT
INTEREST COVERAGE
($000) Net Income Depreciation Amortization Interest Pre-Interest Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 2000 39,617 5,734 4,011 26,563 75,925 2.86 81 26,644 2.85 2001 38,060 6,521 4,943 27,423 76,947 2.81 60 27,483 2.80 2002 51,647 8,171 5,535 32,854 98,207 2.99 361 33,215 2.96 2003 58,446 9,895 5,669 38,460 112,470 2.92 1,448 39,908 2.82 2004 47,451 34,439 9,282 42,755 133,927 3.13 580 43,335 3.09 2005E 54,791 34,392 16,392 48,048 153,624 3.20 48,048 3.20 2006E 53,798 36,195 18,061 51,111 159,164 3.11 51,111 3.11

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2000 366,205 72,797 5.03 26,644 2.73 2001 400,244 80,173 4.99 27,483 2.92 2002 650,227 98,271 6.62 33,215 2.96 2003 694,878 113,855 6.10 39,908 2.85 2004 815,554 130,933 6.23 43,335 3.02 2005E 839,466 138,537 6.06 48,048 2.88 2006E 839,466 146,467 5.73 51,111 2.87
Notes: 1) Rental income 2004 - adjusted for straight-line rental income. 2) Rental income not adjust for non-recurring items, i.e. lease termination income and other.
RETURN ON EQUITY
2000 348,103 39,617 44,767 11.4% 12.9%
2001 398,233 38,060 46,178 9.6% 11.6%
2002 480,811 51,647 64,929 10.7% 13.5%
2003 537,683 58,446 74,634 10.9% 13.9%
2004 583,424 47,451 92,177 8.1% 15.8%
2005E 604,243 54,791 99,041 9.1% 16.4%
2006E 603,642 $53,798 105,116 8.9% 17.4%
155
Dundee REIT
Dundee REIT
(D.UN-T, $27.15)
Financial Summary 2004 FFO P/FFO AFFO P/AFFO $2.47 11.0x $1.70 15.9x 2005E $2.40 11.3x $1.89 14.3x 2006E $2.45 11.1x $1.95 13.9x $11.00 2.5 x $20.01 26.3% $2.20 8.1% 28.1 26.6 $763 31-Dec
HIGHLIGHTS Focus on mid-sized urban and suburban office, industrial and flex properties.
Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: Dundee Bancorp (32.5%)
Managements strategic focus on acquiring individual property assets versus portfolios. To this end, management has completed more than $300 million of acquisitions for the year to date. With an average going-in capitalization rate of 8%, these acquisitions will increase annualized operating income by $2.4 million. Management indicated that it views the Montreal market as providing good value for long-term leases in new buildings; acquisition opportunities exist in Ottawa and Toronto; it is difficult to find acquisition opportunities in Western Canada. The firm continues to divest its retail properties with the sale of Simcoe Town Centre, in which the firm will realize a loss of $3.8 million. The firm has increased its mezzanine loan program, including an $11 million investment in a development project of industrial-flex properties adjacent to existing properties in Mississauga. Issued $100 mln convertible unsecured debentures in April 2005 at an attractive 5.7% rate and completed $65 million equity offering in December, 2005.
Company Description: Dundee REIT is an unincorporated, open-ended real estate investment trust with a focus on owning, acquiring, leasing and managing midsized urban and suburban office and industrial properties in Canada. Its diversified portfolio consists of approximately 15.6 million square feet of gross leasable area, located primarily in our target markets of Toronto, Ottawa, Montral, Calgary and Edmonton. The REIT's portfolio is well diversified by asset type, geographic location and tenant mix.
STRENGTHS A diversified portfolio of revenue properties located in core urban markets
mitigates the risks of property ownership in the event of regional economic weakness or declining property values. Management continues to divest its retail portfolio and its non-core industrial and office assets. The result is a higher quality property portfolio and more productive income properties. Existing higher interest rates on mortgage debt presents an opportunity to realize savings on debt refinancing. The sponsorship of its major shareholder, Dundee Bancorp, which reinvests its monthly distributions. Effectively, reducing the cash payout ratio for the trust.
CHALLENGES AFFO payout ratio remains above 100%. High levels of lease expiries in the short term may present an operating
challenge. The firm is likely to experience pressure on occupancy and rental rates over the near-term. Portfolio churn is likely to result in higher administrative expenses, tenant inducement costs and capital expenditures. Average term to maturity of mortgage debt should be extended to reduce interest rate risk and take advantage of current low interest rates.
156
DUNDEE REIT - EARNINGS FORECAST

(in $000s; 31-Dec YE) Rental Revenue Operating Expenses Gross Property Income Operating Margin (including Management Fees) 1QA 50,793 (23,725) $27,068 53.3% 52.3% (6,689) (3,778) $16,601 (11,735) $4,866 43.4% 2005E 2QA 53,378 (23,777) $29,601 55.8% 54.7% (6,884) (4,524) $18,193 (13,284) $4,909 44.9% 3QA 58,030 (25,565) $32,465 55.9% 55.2% (8,053) (5,765) $18,647 (14,449) $4,198 44.5% -44.3% 411 $4,609 (1,362) $3,247 4.2% (44) (259) 2,944 (3) 269 (987) 2,223 $0.07 25,542 31,713 $14,023 $0.55 $7,518 4Q 60,740 (29,155) $31,585 52.0% 51.3% (8,437) (4,219) $18,929 (15,204) $3,725 48.1% 2005E Year 222,941 (102,222) $120,719 54.1% 53.4% (30,063) (18,286) $72,370 (54,672) $17,698 45.3% 1Q 62,194 (29,231) $32,963 53.0% 52.2% (8,627) (4,313) $20,022 (15,736) $4,287 47.7% 2006E 2Q 62,828 (27,959) $34,870 55.5% 54.8% (8,693) (4,347) $21,830 (15,788) $6,042 45.3%
Dundee REIT
2006E Year 254,057 (116,888) $137,168 54.0% 53.3% (35,106) (17,553) $84,510 (63,566) $20,944 46.3%
3Q 63,942 (28,454) $35,488 55.5% 54.8% (8,826) (4,413) $22,249 (15,943) $6,305 44.9%
4Q 65,092 (31,244) $33,848 52.0% 51.3% (8,959) (4,479) $20,409 (16,099) $4,310 47.6%
Depreciation and Amortization Amortization of Deferred Leasing and Intangibles Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
Interest Income Other
718 $5,584 (1,161) $4,423 4.0% (47) (192) 4,184 186 673 (1,362) 3,681 $0.13 24,953 27,925 $13,699 $0.55 $8,392
619 $5,528 (1,245) $4,283 4.7% (41) (183) 4,059 52 652 (1,343) 3,420 $0.11 25,184 31,480 $13,851 $0.55 $7,656
411 $4,136 (1,355) $2,781 4.3% (44) (259) 2,478 (3,800) (987) (2,309) ($0.07) 28,142 31,713 $15,478 $0.55 $8,807
2,159 $19,857 (5,123) $14,734 4.2% (176) (893) 13,665 (3,800) 235 1,594 (4,679) 7,015 $0.23 28,142 30,708 $57,051 $2.20 $32,373
411 $4,698 (1,309) $3,389 4.0% (25) 3,364 (1,245) 2,119 $0.07 28,342 31,713 $15,560 $0.55 $8,854
411 $6,453 (1,569) $4,884 4.5% (25) 4,859 (1,245) 3,614 $0.11 28,542 31,713 $15,698 $0.55 $8,932
411 $6,716 (1,597) $5,120 4.5% (25) 5,095 (1,245) 3,850 $0.121 28,742 31,713 $15,779 $0.55 $8,978
417 $4,727 (1,354) $3,373 4.0% (25) 3,348 (1,245) 2,103 $0.066 28,942 31,713 $15,918 $0.55 $9,057
1,650 $22,594 (5,829) $16,765 4.2% (100) 16,665 (4,980) 11,685 $0.37 28,942 31,713 $62,955 $2.20 $35,822
General & Administrative Expenses Income before other items G&A Expenses as a % of Gross Property Income Income Taxes - Current Income Taxes - Deferred After Tax Income Property gains (losses) Discontinued operations Other - specify Non-Controlling Interest Other - write-downs NET INCOME Per Diluted Unit Outstanding Units Weighted avg diluted units Distributions to Unitholders Per Unit Distributions to Unitholders (paid in cash) Calculation of FFO Net Income Depreciation of Rental Properties Depreciation of Discontinued Rental Properties Amortization of Deferred Leasing and Intangibles Amortization of Deferred Leasing for Discontinuied Imputed Amortiozation of Leasing Costs (rent supp Gain on disposal of rental Properties Provision for Impairment - Write-downs Dilution Gain Non-Controlling Interest Expense Future Income Tax Expense FFO Convertible debenture interest Diluted FFO Per Diluted Unit FFO Payout Ratio FFO Payout Ratio (distributions paid in cash) AFFO Calculation Straightline Rent Capital expenditures Leasing costs AFFO Per Diluted Unit AFFO Payout Ratio AFFO Payout Ratio (distributions paid in cash)
3,681 6,689 3,778 (5) 487 (242) (673) 1,451 192 15,358 1,219 16,577 $0.60 82.6% 50.6%
3,420 6,884 4,524 204 22 (652) 1,367 183 15,952 2,644 18,596 $0.60 74.5% 41.2%
2,223 8,053 5,765 (4) 168 (269) 986 259 17,181 2,586 19,767 $0.63 70.9% 38.0%
(2,309) 8,437 4,219 168 3,800 987 259 15,560 2,586 18,147 $0.57 85.3% 48.5%
7,015 30,063 18,286 (9) 1,027 3,580 (1,594) 4,791 893 64,051 9,035 73,087 $2.40 78.1% 44.3%
2,119 8,627 4,313 168 987 16,214 2,586 18,801 $0.59 82.8% 47.1%
3,614 8,693 4,347 168 987 17,809 2,586 20,395 $0.63 77.0% 43.8%
3,850 8,826 4,413 168 987 18,244 2,586 20,830 $0.64 75.8% 43.1%
2,103 8,959 4,479 168 987 16,697 2,586 19,283 $0.59 82.5% 47.0%
11,685 35,106 17,553 672 3,948 68,964 10,345 79,309 $2.45 79.4% 45.2%
($1,070) $0 ($2,624) 12,883 $0.46 119.0% 65.1%
($874) ($50) ($2,713) 14,959 $0.48 115.7% 51.2%
($904) ($772) ($2,366) 15,725 $0.50 110.7% 47.8%
($904) $0 ($2,568) 14,675 $0.46 119.6% 60.0%
($3,752) ($822) ($10,271) 58,242 $1.89 116.2% 55.6%
($904) ($250) ($2,875) 14,772 $0.46 105.3% 59.9%
($904) ($250) ($2,875) 16,366 $0.51 95.9% 54.6%
($904) ($250) ($2,875) 16,801 $0.52 93.9% 53.4%
($904) ($250) ($2,875) 15,254 $0.47 104.4% 59.4%
($3,616) ($1,000) ($11,500) 63,193 $1.95 99.6% 56.7%
157
Dundee REIT
NET ASSET VALUE
(1)
8.00% 116,967 1,462,083
8.25% 116,967 1,417,776
8.50% 116,967 1,376,077
8.75% 116,967 1,336,761
9.00% 116,967 1,299,628
Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity (2) Total Pre-tax Value Outstanding Units NAV Per Unit Pre-tax
1,282,168 179,915 456,562 636,477 25,542
1,282,168 135,608 456,562 592,170 25,542
1,282,168 93,909 456,562 550,471 25,542
1,282,168 54,593 456,562 511,155 25,542
1,282,168 17,460 456,562 474,022 25,542
$24.92
$23.18
$21.55
$20.01
$18.56
Note: 1) Common equity includes non-controlling interest.

158
Dundee REIT
OPERATING SUMMARY
($000) Capital Structure Assets Debt Equity Minority interest Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per diluted unit Adjusted FFFO (AFFO) Per diluted unit Deferral Tax Rate Financial Structure Debt to Equity Ratio Debt to Gross Book Value Maturing Debt 2006 As % of Total Debt Maturing Debt 2007 As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years) Total Interest As % of Operating Income Interest Coverage Expensed Capitalized Interest As % of Total Interest Rental Income Leverage Rental Income Coverage Investment Returns Net Income Return on Equity FFO Return on Equity Property Portfolio Income Producing Properties Under Development Held for Development 915,050 --915,050 1,057,231 --1,057,231 100% --100% 1,275,573 6,595 -1,282,168 99.5% 0.5% -100.00% 10.1% 17.5% 1.6% 21.1% 2.2% 23.3% 2.40 0.56 66,641 7.1% 51,052 5.5% 32,849 5.7% 6.9% 4.3 18,858 46.2% 2.07 0% 7.10 2.16 2.18 0.55 3.03 0.62 997,177 579,168 241,081 144,874 40,786 21,928 21,149 $1.22 $12,843 $0.71 58% 1,199,792 693,155 318,545 148,256 97,609 54,342 59,140 $2.47 $41,663 $1.70 48% 20% 20% 32% 2% 19.7% 23.9% 40% 1.2% 62% 20% 1,440,634 936,236 309,113 147,449 116,967 62,207 73,087 $2.40 $58,242 $1.89 55% 20.1% 35.1% -3.0% -0.5% 19.8% 14.5% 23.6% -2.9% 39.8% 11.1% 2003 2004 Growth % 2005E Growth %
26,989 3.9% 6.62 5.4 43,267 44.3% 1.98 0% 7.10 2.26
42,137 4.5% 6.17 8.0 54,759 46.8% 2.01 87 0.2% 8.00 2.14
Notes 1) 2005E data are based on 3Q05 and annualized. 2) 2003 is a partial year; the company converted to REIT on July 1, 2003. 3) FFO per diluted unit for 2003 and 2004 are restated numbers. 4) Rental Income, FFO and AFFO data for 2003 are annualized. 5) Rental income adjusts for straightline rents.
159
Dundee REIT
ANNUAL RESULTS
($000; 31-Dec YE) Rental Revenue Operating Expenses Operating Income Operating Margin Other Income Income Before Expenses Depreciation Amortization Income before interest Interest Expense As a % of Total Income Gross Operating Income 2003 78,162 37,376 40,786 52.2% 674 41,460 4,854 3,095 33,511 18,858 46.2% 14,653 2004 187,180 85,307 101,873 54.4% 2,232 104,105 25,546 12,562 65,997 43,267 42.5% 22,730
General & Administrative Expense As a % of Total Income Pre-tax Income Current Taxes Deferred Taxes Net Income Net Income Per Unit Per diluted unit Funds from Operations (FFO) Per diluted unit FFO Payout ratio FFO Payout ratio (distributions paid in cash) Adjusted FFO (AFFO) Per diluted unit AFFO Payout ratio AFFO Payout ratio (distributions paid in cash) Distributions to unitholders Distributions paid in cash Per Unit Tax Deferral Rate Outstanding Units (in 000s) Weighted average units (diluted) Notes: 1) Dundee converted into a REIT on July 1, 2003.
2,109 5.2% 12,544 50 32 12,462 $0.70 21,149 $1.22 129% 92% 12,843 $0.71 212% 151% 27,212 19,382 $1.10 57.6% 19,305 18,213
5,201 5.1% 17,529 113 (2013) 19,429 $0.18 59,140 $2.47 90% 60% 41,663 $1.70 128% 85% 53,420 35,600 $2.20 48.4% 24,744 27,695
160
Dundee REIT
DEBT-TO-EQUITY
($000) Debt Mortgage Debt Convertible Debentures Bank loan and Floating Rate Debt Total Debt Minority Interest Unitholders Equity Total Capitalization Debt-to-Equity Ratio Asset-to-Equity Ratio Total Assets Plus Accumulated Depreciation Gross Book Value Debt-to-Gross Book Value 546,319 0 32,849 579,168 144,874 241,081 965,123 57% 0% 3% 60% 15% 25% 591,736 74,430 26,989 693,155 148,256 318,545 51% 6% 2% 60% 13% 27% 722,775 171,324 42,137 936,236 147,449 309,113 52% 12% 3% 67% 11% 22% 100% 2003 % 2004 % 3Q05 %
100% 1,159,956
100% 1,392,798
2.40 4.14 997,177 39,360 1,036,537 0.56
2.18 3.77 1,199,792 60,463 1,260,255 0.55
3.03 4.66 1,440,634 79,431 1,520,065 0.62
Notes: 1) Equity does not include Convertible Debentures

161
Dundee REIT
INTEREST COVERAGE
($000) Net Income Depreciation and Amortization Interest Expense Pre tax Cash Flow Interest Coverage Capitalized interest Total Interest Total interest coverage Notes: 1) Interest includes convertible debentures. 2003 12,173 7,949 18,858 38,980 2.07 0 18,858 2.07 2004 4,353 38,108 43,267 85,728 1.98 0 43,267 1.98 2005E 7,015 48,349 54,672 110,036 2.01 87 54,759 2.01 2006E 11,685 52,658 63,566 127,909 2.01 0
63,566
2.01

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest 2003 579,168 81,572 7.10 18,858 2.16 2004 693,155 97,609 7.10 43,267 2.26 2005E 936,236 116,967 8.00 54,759 2.14 2006E 936,236 133,552 7.01 63,566 2.10
Notes: 1) Total interest includes convertible debenture interest and capitalized interest 2) Rental operating income for 2003 was annualized 3) Rental income coverage adjusts for straight-line rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations (FFO) Net Income Return on Equity FFO Return on Equity 2003 241,081 24,346 42,298 10.1% 17.5% 2004 279,813 4,353 59,140 1.6% 21.1% 2005E 313,829 7,015 73,087 2.2% 23.3% 2006E 309,113 11,685 79,309 3.8% 25.7%
Notes: 1) 2003E is annualized 2) Average common equity excludes non-controlling interest.

162
First Capital Realty

(FCR-T, $22.97)
Financial Summary 2004A FFO/PS $1.42 Price/FFO 16.2x Adjusted FFO $1.23 Price/AFFO 18.7x Book Value Per Share Price/Book Value Estimated NAV Premium to NAV Annual Dividend Dividend Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: 2005E $1.46 15.7x $1.30 17.7x 2006E $1.51 15.2x $1.36 16.9x $11.97 1.9x $20.07 14.4% $1.20 5.2% 71.3 23.1 $1,638 31-Dec
HIGHLIGHTS Invested a total of $380 million in the acquisition of income producing

properties and land parcels over the course of the year.
Completed a $100 million senior unsecured debentures maturing on September 30, 2007, rated BBB (low) by DBRS at an attractive 5.5% rate. Issued five million common shares in 3Q to redeem $99.9 million aggregate principal amount of its outstanding convertible unsecured debentures. In total, issued 18.2 million common shares through a bought deal equity offering, the payment of interest and redemption of the convertible debentures with shares, the exercise of warrants and options and dividends reinvested in common shares. The firm has six properties under development representing 480,000 sq.ft. of GLA; 9 existing sites under development comprising 78,650 sq.ft. and the potential for an additional 2.2 million square feet of GLA. This development pipeline adds incremental returns to shareholders.
Gazit-Globe (1982) Ltd.(53.8%), Alony-Hetz Properties & Investments Ltd. (14.6%)

All figures in C$ unless otherwise noted. Note: Earnings and FFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27, 2006
Company Description: First Capital Realty is Canadas leading owner, developer and operator of supermarket anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas. The Company currently owns interests in 125 properties, including 3 under development, with 15.4 million square feet of gross leasable area. In addition, the Company owns 13 million shares of Equity One (approximately 17.7%), one of the largest shopping centre REITs in the southern U.S., that trades on the New York Stock Exchange under the ticker symbol EQY. Including its investment in Equity One, the Company has interests in 316 properties totalling approximately 35 million square feet of gross leasable area.
STRENGTHS A committed, experienced management team with expertise in the
acquisition, development and leasing of neighbourhood shopping centres.
The principals are long-term investors with significant amount of personal capital invested in the company. The geographically diversified portfolio with a strategic focus on urban, grocery anchored, and everyday convenience shopping centres provides income continuity. Track record of reducing debt leverage, increasing the liquidity of its stock, increasing dividends to shareholders, and augmenting FFO via acquisitions and development. The shares provide attractive dividend and current yield to shareholders, on par with REITs.
CHALLENGES While improving, the stock continues to be relatively illiquid compared to

REITs.
Relative to retail-focused REITs, the company maintains higher debt leverage. The raising of additional equity has a dilutive impact on FFO growth until capital can be redeployed at accretive spreads.
163
The firms cost of capital remains higher than its peers, which provides a narrower acquisition spread. Potential for consolidation amongst banks, grocery chains, and other retailers may pose a risk.
164
FIRST CAPITAL EARNINGS FORECAST

2005E 2006E 1Q 75,963 (30,005) 45,957 60.5% 59.3% 2Q 77,853 (29,584) 48,269 62.0% 60.9% (12,365) (648) (13,014) $35,255 (18,447) $16,808 (18,865) $17,290 (19,282) $18,170 (12,631) (661) (13,292) $36,154 (12,896) (681) (13,578) $37,452 (49,992) (2,620) (52,612) $142,091 (74,652) $67,439 38.3% 240 (1,375) (1,135) $17,035 (4,203) $11,951 8.5% $11,951 (1,388) (5,554) (6,942) 4,628 4,555 4,555 8,607 $0.12 4,555 4,555 9,183 $0.13 (1,434) (5,737) (7,171) 4,781 4,555 4,555 9,336 $0.13 (4,338) $12,697 8.5% $12,697 (1,524) (6,095) (7,618) 5,079 4,555 4,555 9,634 $0.14 959 (5,500) (4,541) $62,898 3Q 79,753 (30,306) 49,447 62.0% 60.9% 4Q 83,656 (32,626) 51,030 61.0% 59.9% Year 317,224 (122,521) 194,703 61.4% 60.2% (12,100) (629) (12,728) $33,229 (18,058) $15,171 1QA 60,266 (23,482) 36,784 61.0% 59.7% 2QA 63,403 (23,769) 39,634 62.5% 61.2% (11,761) (497) (12,258) $27,376 (17,379) $9,997 (17,383) $13,764 -41.7% 957 (3,292) (2,335) $11,429 240 (1,375) (1,135) $14,036 (3,906) $10,130 8.5% $10,130 (1,216) (4,862) (6,078) 4,052 $11,570 (4,103) $11,570 8.5% 240 (1,375) (1,135) $15,673 (3,565) $7,864 8.5% $7,864 (1,101) (4,102) (5,203) 2,661 5,902 5,902 10,061 $0.10 (1,248) (4,990) (6,238) 4,159 (4,857) (13,086) (17,943) 9,154 $10,397 (3,811) $10,397 8.5% (150) (150) $14,208 2,771 (11,013) (8,242) $40,533 240 (1,375) (1,135) $16,154 (17,834) $14,358 (67,741) $48,775 41.1% (11,529) (695) (12,224) $31,147 (11,947) (695) (12,642) $32,191 (45,612) (2,495) (48,107) $116,515 3QA 70,235 (26,864) 43,371 61.8% 60.5% 4Q 74,722 (29,889) 44,833 60.0% 58.8% Year 268,626 (104,004) 164,622 61.3% 60.0% (10,375) (608) (10,983) $25,801 (15,145) $10,656 2005E 2006E
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Gross Property Income % Operating Margin
Amortization and depreciation Other amortization and depreciation Subtotal Gross Property Income before Interest Expense
Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income 795 (5,579) (4,784) $5,872 (2,975) $2,897 8.5% $2,897 (1,224) (717) (1,941) 956 4,554 841 5,395 6,351 $0.10 5,101 6,479 $0.10 5,101 5,902 177 6,079 8,740 $0.14 21,459 1,018 22,477 31,631 $0.45 (1,284) (3,277) (4,561) 1,378 1,019 (1,992) (973) $9,024
Interest Income Debenture interest expense Subtotal
General & Administrative Expenses Income before taxes and extraordinary items
Property Gains (Losses) Income After Property Gains
(3,311) $5,713 8.5% 226 $5,939
(13,662) $26,871 8.3% $27,097
(16,550) $46,348 8.5% $46,348 (5,562) (22,247) (27,809) 18,539 18,221 18,221 36,761 $0.52
Income Taxes - Current Income Taxes - Deferred Subtotal After Tax Income
Other - equity income from EQY REIT Other - gain (loss) on marketable securities Other - gain on redemption of debentures Other Subtotal NET INCOME Per Diluted Share

6,401 10,375 717 (4,554) 6,407 19,346 $0.35 (5,101) 6,912 23,102 $0.36 (5,902) 6,910 24,393 $0.37 6,479 11,761 3,277 (226) 7,754 11,529 4,102 9,075 11,647 4,990 (5,902) 6,910 26,720 $0.38 29,709 45,312 13,086 (226) (21,459) 27,139 93,561 $1.46 7,621 11,800 4,862 (4,555) 6,840 26,568 $0.36 $1,520 $832 16,994 $0.31 13,511 63,545 54,730 $1,622 $843 20,637 $0.32 14,420 63,707 64,328 $1,730 $855 21,808 $0.33 15,377 69,852 65,356 $1,739 $867 24,114 $0.34 15,456 70,599 71,124 $6,611 $3,397 83,553 $1.30 15,456 70,599 63,884 $1,779 $880 23,910 $0.32 15,813 70,599 74,760
Funds from Operations (FFO) Adjusted Net income Depreciation Deferred Income Taxes Property Gain/Losses Deferred Finance Costs included in FFO Equity income from Equity One Gain on marketable securities Dividend income from Equity One Proportionate share of FFO from Equity One Other - non-cash compensation expense Funds from Operations (FFO) Per Diluted Share
8,197 12,065 5,554 (4,555) 6,840 28,101 $0.38
8,350 12,331 5,737 (4,555) 6,840 28,702 $0.38
8,648 12,596 6,095 (4,555) 6,840 29,624 $0.40
32,817 48,792 22,247 (18,221) 27,361 112,996 $1.51
Adjusted FFO (AFFO) Capex and leasing Straight-line rental revenue AFFO Per Diluted Unit
$1,819 $892 25,390 $0.34 16,171 70,599 74,760
$1,859 $905 25,938 $0.35 16,528 70,599 74,760
$1,900 $918 26,807 $0.36 16,885 70,599 74,760
$7,357 $3,594 102,045 $1.36 16,885 70,599 74,760
Square Footage Owned
Outstanding Shares Weighed Average Shares (Diluted)
165

NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Gain on Equity One Shares Common Equity Total Pre-tax Value Outstanding Common Shares 7.25% 7.50% 7.75% 8.0% 8.25% 8.5%
177,080 2,442,483
177,080 2,361,067
177,080 2,284,903
177,080 2,213,500
177,080 2,146,424
177,080 2,083,294
1,878,803 563,680 159,114 836,464 1,559,258 69,852
1,878,803 482,264 159,114 836,464 1,477,842 69,852
1,878,803 406,100 159,114 836,464 1,401,678 69,852
1,878,803 334,697 159,114 836,464 1,330,275 69,852
1,878,803 267,621 159,114 836,464 1,263,199 69,852
1,878,803 204,491 159,114 836,464 1,200,069 69,852
Pre-tax Book Value

Source: RJ Research estimates and analaysis
$22.32
$21.16
$20.07
$19.04
$18.08
$17.18
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OPERATING SUMMARY
($000) Capital Structure Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing (1) Funds From Operation (FFO) Per Diluted Share Adjusted FFO (AFFO) Per Diluted Share Financial Structure Debt to Equity (3) Ratio Debt to Gross Book Value Ratio Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years) Total Interest As % of Rental Income Interest Coverage (1) Expensed Total Interest Capitalized Interest As % of Total Interest Rental Income Leverage (4) Rental Income Coverage (1,5) Investment Returns Income Return on Equity (1) FFO Return on Equity (1) Property Portfolio Income Producing Properties Under Development Investment in Equity One 964,481 35,497 999,978 96.5% 3.5% 100.0% 661,476 39,005 190,774 891,255 74.2% 4.4% 21.4% 100.0% 875,617 51,555 208,972 1,136,144 77.1% 4.5% 18.4% 100.0% 1,201,330 62,845 211,412 1,475,587 81.4% 4.3% 14.3% 100.0% 1,489,250 74,957 203,988 1,768,195 84.2% 4.2% 11.5% 100.0% 1,878,803 116,812 211,752 2,207,367 85.1% 5.3% 9.6% 100.0% nm nm 17.1% 38.6% 10.6% 38.3% 9.5% 25.9% 4.8% 15.1% 4.6% 13.7% 1,137,516 992,868 96,778 92,908 20,742 (6,865) -$0.45 nm nm 2.2% 10.0% -30.0% 6.1% -17.9% -122.0% ---988,539 857,331 99,858 90,996 19,214 37,905 $1.31 35,205 $1.07 -13.1% -13.7% 3.2% -2.1% -7.4% nm nm nm nm 1,189,704 1,014,922 136,426 78,317 27,273 45,241 $1.37 41,979 $1.15 20.3% 18.4% 36.6% -13.9% 41.9% 19.4% 4.6% 19.2% 8.1% 1,538,689 1,144,092 327,437 95,857 43,691 60,053 $1.38 55,742 $1.22 29.3% 12.7% 140.0% 22.4% 60.2% 32.7% 0.7% 32.8% 5.9% 1,892,050 1,264,666 531,265 129,259 71,351 64,665 $1.42 55,918 $1.23 23.0% 10.5% 62.2% 34.8% 63.3% 7.7% 2.9% 0.3% 0.6% 2,389,404 1,431,505 836,464 161,225 90,843 93,561 $1.46 83,553 $1.30 26.3% 13.2% 57.4% 24.7% 27.3% 44.7% 3.1% 49.4% 6.2% 2000 Growth % 2001 Growth % 2002 Growth % 2003 Growth % 2004 Growth % 2005E Growth %
10.26 1.18 2006 97,831 9.9% 7.8% na 75,287 81.0% 1.64 1.58 3,121 4.1% 10.69 1.58
8.59 1.18 2007 84,853 9.9% 7.4% na 73,919 81.2% 1.62 1.57 2,137 2.9% 9.42 1.23
7.44 1.20 124,538 8.7% 146,624 14.4% 7.3% na 52,840 67.5% 2.07 2.00 1,796 3.4% 12.96 2.00
3.49 1.38
2.38 1.55
1.71 1.73
44,227 3.1%
107,673 9.4% 6.9% 8.0 55,647 58.1% 2.27 2.12 3,481 6.3% 11.94 2.12
122,688 9.7% 6.8% 7.2 62,407 48.3% 2.59 2.41 4,499 7.2% 9.78 2.41
194,473 13.6% 6.3% 6.4 74,045 45.9% 2.58 2.45 3,663 4.9% 8.88 2.45
Notes: 1) Net of interest on debenture equity component. 2) Rental income leverage divides total debt divided by rental income. 3) Rental income coverage divides rental income by total incurred interest. 4) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period. 5) Select 2002 ratios were effected by the sale of U.S. operations. 6) 2001 FFO excludes recovery of $8.5 million in previous management fee or $0.26 per share.
167

($000; 31-Dec YE) Rental Revenue Operating Expenses Gross Rental Income Operating Margin Interest 2000 147,893 54,985 92,908 62.8% 39,931 52,977 12,339 40,638 -7,436 (50,125) (2,051) 4,108 1,181 1.3 (7,340) 8,683 52.3 (16,023) 1,845 (2,697) (852) 5.3% 2001 140,680 49,684 90,996 64.7% 42,021 48,975 13,096 35,879 4,080 6,207 16,608 62,774 6,981 0 0.0 55,793 8,008 55.0 47,785 3,562 12,728 16,290 34.1% 2002 125,635 47,318 78,317 62.3% 33,454 44,863 9,931 34,932 21,606 2,016 3,881 62,435 6,833 0 0.0 55,602 7,172 51.9 48,430 5,274 13,522 18,796 38.8% 2003 154,656 58,799 95,857 62.0% 43,324 52,533 12,574 39,959 19,095 2,990 17,636 79,680 8,575 0 0.0 71,105 0 45.2 71,105 4,917 22,162 27,079 38.1% 2004 215,022 82,204 132,818 61.8% 53,649 79,169 37,312 41,857 18,225 6,480 4,149 70,711 11,636 0 0.0 59,075 0 40.4 59,075 4,806 16,982 21,788 36.9%
Depreciation Net Operating Income Equity Income Interest & Other Income Gains or Extraordinary Items
Administration & General Advisory Fees As a % of Rental Income
Interest on Debentures Total Interest As a % of Rental Income Income before taxes Current Taxes Deferred Taxes Total Taxes Tax Rate
Net Income (15,171) 31,495 29,634 44,026 37,287 Less: Interest on Convertible debenture and accretion (14,221) (14,675) (17,159) (21,877) (16,558) Adjusted Net Income (29,392) 16,820 12,475 22,149 20,729 Per diluted share -$1.93 $1.04 $0.74 $0.86 $0.45 Funds From Operation (FFO) (6,865) 37,905 45,241 60,053 64,665 Per diluted share ($0.45) $1.31 $1.37 $1.38 $1.42 FFO Payout Ratio nm 40.2% 41.3% 50.8% 84.7% Adjusted FFO (AFFO) nm 35,205 41,979 55,742 55,918 Per diluted share nm $1.07 $1.15 $1.22 $1.23 AFFO Payout Ratio nm 43.2% 44.5% 54.7% 97.9% Dividends to Shareholders $14,182 $15,223 $18,698 $30,507 $54,771 Per share $0.93 $0.99 $1.09 $1.14 $1.17 Outstanding Shares (000s)) 15,376 15,377 19,142 35,110 51,660 Weighted avg shares - diluted 34,345 33,035 36,426 45,653 65,355 Notes: 1) 2004 FFO restated to reflect retroactive adoption of CICA accounting for convertible debentures and the adoption of the REALPAC definition of FFO. 2) 2000 FFO does not add back $50.1 million ($1.49 per diluted unit) in fees paid to the previous management team. 3) Prior to 2004, adjusted FFO calculated based on $0.45 per square foot owned. 4) 2002 FFO before recovery of $8.5 mln or $0.26 of management incentive and other fees 5) Comparable 2004 FFO excluding straightline rental income was $86.7 million or $1.38 per share.
168
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt Mortgages Bank loans and floating rate debt Debentures Convertible Debentures Total Debt 500,487 97,831 38,166 356,384 992,868 45.9% 9.0% 3.5% 32.7% 91.1% 375,503 84,853 37,866 359,109 857,331 39.2% 8.9% 4.0% 37.5% 89.6% 440,459 146,624 15,237 412,602 1,014,922 38.3% 12.7% 1.3% 35.8% 88.2% 678,628 107,673 0 357,791 1,144,092 46.1% 7.3% 0.0% 24.3% 77.7% 880,277 122,688 0 261,701 1,264,666
49.0% 6.8% 0.0% 14.6% 70.4%
1,137,032 194,473 100,000 0 1,431,505
50.1% 8.6% 4.4% 0.0% 63.1%
Equity Common Equity Retained Earnings Currency Adjustment Other Total Equity 154,498 (70,921) 11,201 2,000 96,778 1,089,646 100.0% 957,189 100.0% 1,151,348 100.0% 1,471,529 100.0% 14.2% -6.5% 1.0% 0.2% 8.9% 154,499 (69,324) 12,683 2,000 99,858 16.1% -7.2% 1.3% 0.2% 10.4% 200,183 (85,757) 11,697 10,303 136,426 17.4% -7.4% 1.0% 0.9% 11.8% 422,916 (94,115) (8,253) 6,889 327,437 28.7% -6.4% -0.6% 0.5% 22.3%
673,660 (130,321) (13,347) 1,273 531,265 1,795,931
37.5% -7.3% -0.7% 0.1% 29.6% 100.0%
1,006,531 (177,950) (14,685) 22,568 836,464 2,267,969
44.4% -7.8% -0.6% 1.0% 36.9% 100.0%
Debt-to-Equity Ratio 10.26 11.75 1,137,516 33,654 1,171,170 1.18 988,539 25,390 1,013,929 1.18 1,189,704 33,169 1,222,873 1.20 9.90 8.72 8.59 7.44
3.49 4.70 1,538,689 36,767 1,575,456 1.38
2.38 3.56 1,892,050 65,566 1,957,616 1.55
1.71 2.86 2,389,404 91,343 2,480,747 1.73
Asset Leverage
Total Assets Accumulated Deprecation Gross Book Value Ratio
Notes 1) Convertible debentures are included as debt
169

INTEREST COVERAGE
($000) Pre-Tax Income Depreciation Interest Pre-tax Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 2000 34,102 12,339 72,166 118,607 1.64 3,121 75,287 1.58 2001 31,177 13,096 71,782 116,055 1.62 2,137 73,919 1.57 2002 44,549 9,931 51,044 105,524 2.07 1,796 52,840 2.00 2003 53,469 12,574 52,166 118,209 2.27 3,481 55,647 2.12 2004 54,926 37,312 57,908 150,146 2.59 4,499 62,407 2.41 2005E 63,053 48,107 70,382 181,542 2.58 3,663 74,045 2.45 2006E 63,054 52,612 80,152 195,818 2.44 3,500 83,652 2.34
(1) Pre-tax cashflow pre extraordinary items (2) Debenture equity component interest (pre-tax) (3) $14.2 million, $16.3 million, $18.7 million of interest was paid in equity in 2002, 2003, 2004, respectively.

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expensed 2000 992,868 92,908 10.7 75,287 1.23 2001 857,331 90,996 9.4 73,919 1.23 2002 1,014,922 78,317 13.0 52,840 1.48 2003 1,144,092 95,857 11.9 55,647 1.72 2004 1,264,666 129,259 9.8 62,407 2.07 2005E 1,431,505 161,225 8.9 74,045 2.18 2006E 1,431,505 191,109 7.5 83,652 2.28
Note 1) Includes interest on convertible debenture equity component 2) Rental operating income adjusts for straight-line rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation (FFO) Net Income Return on Equity FFO Return on Equity 2000 96,778 (29,392) (6,865) nm nm 2001 98,318 16,820 37,905 17.1% 38.6% 2002 118,142 12,475 45,241 10.6% 38.3% 2003 231,932 22,149 60,053 9.5% 25.9% 2004 429,351 20,729 64,665 4.8% 15.1% 2005E 683,865 31,631 93,561 4.6% 13.7% 2006E 836,464 36,761 112,996 4.4% 13.5%
Notes 1) Net income deducts interest on debenture equity component 2) The calculation of FFO from 2004 to 2006E is not comparable to 2000-2003 period.
170
H&R REIT
H&R REIT
(HR.UN-T, $22.45)
Financial Summary 2004 FFO P/FFO AFFO P/AFFO $1.72 13.1x $1.43 15.7x 2005E $1.72 13.1x $1.37 16.4x 2006E $1.74 12.9x $1.41 15.9x $9.52 2.4 x $17.46 34.6% $1.33 5.9% 110.6 110.0 $2,483 31-Dec
Stock Rating: OUTPERFORM 2 6-12 Month Target Price: $23.50 Target Total Return: 10.6%
HIGHLIGHTS Management continued to execute on acquisitions during the year, acquiring
more than $500 million of income properties at an estimated blended cap rate of 7.25%.
Book Value Per Share Price to Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End
FFO is expected to remain relatively stable for the year as new acquisitions will offset same-property operating weakness. Continued to expand presence in the U.S. marketplace. Although management indicated that it was being squeezed out of the U.S. marketplace due to low cap rates.
STRENGTHS Relatively attractive valuation amongst the senior REITs on a price-to-FFO

basis.
Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 31, 2006.
Portfolio remains well-leased at 99%, with minimal lease rollovers in the foreseeable future. The average age of the portfolio remains youthful at approximately 12 years. Minimal capital expenditures are required. Management remains on course with its strategy to acquire well-leased, good quality properties with solid tenant covenants. Effectively making a spread over the cost of debt. More than half of mortgage debt is non-recourse, which insulates the REIT in case of tenant bankruptcies and limits financial risk. Management has a solid track record of growing the portfolio and its distributions to unitholders.
Company Description: H&R REIT is a TSX-listed, open-ended real estate investment trust commenced operations on December 23, 1996. The REIT owns a North American portfolio of 34 office, 106 industrial and 88 retail properties comprising 35 million square feet, with a net book value of $3.7 billion.
CHALLENGES Acquisition opportunities are becoming scarcer. Tenant inducement and capital expenditure costs continue to escalate. Rent roll-downs on recent expiries have impacted same-property operating
results.
With minimal lease expiries, the ability to capitalize on improving fundamentals is limited. Mezzanine loan program has winded down, impacting income and FFO. 2004 mezzanine interest contributed approximately $0.09 per unit to bottom line FFO. In 2005, the contribution is expected to be $0.02 per unit.
171
172
1QA 117,816 (38,427) $79,389 67.4% 3QA 124,802 (39,409) $85,393 68.4% 1Q 134,764 (43,798) $90,965 67.5% 3Q 139,576 (44,106) $95,470 68.4% 4Q 139,576 (44,664) $94,912 68.0% 4Q 131,113 (41,956) $89,157 68.0% 2005E 2QA 118,495 (36,985) $81,510 68.8% 2006E 2Q 138,118 (44,198) $93,920 68.0% 2005E Year 492,226 (156,777) $335,449 68.1% 2006 Year 552,033 (176,766) $375,267 68.0%
H&R REIT EARNINGS FORECAST
H&R REIT
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Gross Property Income Operating Margin
Adjusted NOI Adjusted NOI Margin $84,410 65.8%

(19,479) (5,980) $65,506 (40,921) $24,585 27.0% 209 $24,794 (2,183) $22,611 2.4% (1,620) $20,991 (2,254) $23,864 2.4% (1,620) $22,244 209 $26,118 (41,866) $25,909 27.6% (42,229) $26,754 28.0% 209 $26,963 (2,291) $24,672 2.4% (1,620) $23,052 (20,090) (6,054) $67,775 (20,356) (6,130) $68,984
$73,382 65.6% $87,265 66.4% $88,715 66.8%

(16,009) (4,503) $58,877 (35,944) $22,933 28.9% 733 $23,666 (1,760) $21,906 2.2% (1,573) 30 $20,363 (1,516) (157) $20,520 2,177 (1,620) (576) $22,288 (1,620) 576 $21,487 2,177 (6,329) (127) $84,658 (2,171) $22,193 2.7% (2,017) $22,307 2.5% (2,229) $22,531 2.5% (8,177) $88,937 2.4% 755 $24,364 209 $24,760 1,928 $97,114 (36,239) $23,609 29.0% (39,885) $24,551 27.5% (149,977) $95,186 44.7% (16,780) (4,882) $59,848 (17,558) (5,833) $62,002 (18,815) (5,906) $64,436 (69,162) (21,124) $245,163
$75,473 67.1%
$79,038 66.7%
$82,702 66.3%
$310,595 66.5%
$88,057 66.3%
(20,356) (6,207) $68,349 (42,146) $26,203 27.6% 209 $26,411 (2,278) $24,134 2.4% (1,620) $22,514
$348,447 66.3%
(80,282) (24,371) $270,614 (167,162) $103,452 44.5% 835 $104,287 (9,006) $95,280 2.4% (6,480) $88,800
Depreciation Amortization of financing costs Gross Property Income before Interest Expense
Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
(37,909) $24,093 28.2% -44.7% 231 $24,324
Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property Income
Property gains Non-Controlling Interest Expense Other gains NET INCOME
Per diluted unit

($29,963) $0.326 94,834 97,933 95,219 102,629 95,718 103,084 104,020 108,149 ($31,260) $0.326 ($33,745) $0.326 ($33,902) $0.326 ($128,870) $1.30 104,020 102,949
$0.21
$0.20
$0.22
$0.20
$0.82
$0.19
$0 $0.326 104,647 111,309
$0.20
$0 $0.326 105,274 111,936
$0.20
$0 $0.326 105,901 112,563
$0.20
($135,653) $0.326 106,528 113,190
$0.79
($135,653) $1.30 105,587 112,250

$20,363 $16,009 $887 $2,931 $0 $1,573 $32 $41,795 $0.430 $0.427 76.4% $20,520 $16,780 $841 $3,260 $0 $1,516 $157 $43,074 $0.423 $0.420 77.7% $22,288 $17,558 $1,123 $3,844 ($2,177) $1,615 $574 $44,825 $0.470 $0.435 75.0% $21,487 $18,815 $1,123 $3,844 $0 $1,615 $0 $46,883 $0.466 $0.434 75.2% $84,658 69,162 3,974 13,879 ($2,177) $6,329 $763 $176,587 $1.787 $1.715 76.0% $20,991 19,479 1,123 3,844 $0 $1,620 $0 $47,057 $0.457 $0.423 77.1% $22,244 20,090 1,123 3,844 $0 $1,620 $0 $48,921 $0.472 $0.437 74.6% $23,052 20,356 1,123 3,844 $0 $1,620 $0 $49,995 $0.479 $0.444 73.4% $41,795 ($6,007) $0 ($1,050) ($1,573) $0 $33,165 $0.34 $0.34 96.3% $43,074 ($6,037) $0 ($1,050) ($1,516) $0 $34,471 $0.34 $0.34 97.1% $44,825 ($6,355) $0 ($1,050) ($1,615) $0 $35,805 $0.38 $0.35 93.9% $46,883 ($6,455) $0 ($1,050) ($1,615) $0 $37,763 $0.38 $0.35 93.4% $176,587 ($24,854) $0 ($4,200) ($6,329) $0 $141,204 $1.43 $1.37 95.1% $47,057 ($6,555) $0 ($1,059) ($1,620) $0 $37,823 $0.37 $0.34 96.0% $48,921 ($6,655) $0 ($1,059) ($1,620) $0 $39,588 $0.38 $0.35 92.2% $49,995 ($6,755) $0 ($1,059) ($1,620) $0 $40,561 $0.39 $0.36 90.5%
Distributions to unitholders Per basic unit
Outstanding Units Weighted Average Units (Fully Diluted)
Calculation of Funds From Operations Net Income Depreciation of Income Properties Amortization of deferred leasing expenses Amortization of Intangible costs Loss (gain) on sale of income properties Non-Controlling interest Loss (income) from discontinued operations FFO Per basic unit Per diluted unit FFO Payout Ratio
$22,514 20,356 1,123 3,844 $0 $1,620 $0 $49,457 $0.471 $0.437 74.6%
$88,800 80,282 4,492 15,376 $0 $6,480 $0 $195,430 $1.879 $1.741 74.9%
Calculation of Adjusted FFO FFO from above Straightline rental income Leasing costs Non-recoverable capital expenditures Non-controlling interest Other items AFFO Per basic unit Per diluted unit AFFO Payout Ratio
$49,457 ($6,855) $0 ($1,059) ($1,620) $0 $39,923 $0.38 $0.35 92.5%
$195,430 ($26,820) $0 ($4,235) ($6,480) $0 $157,895 $1.52 $1.41 92.7%
H&R REIT
NET ASSET VALUE

($000) Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Minority interest Total Pre-tax Value Outstanding Units Net Asset Value Per Unit 7.00% 316,152 4,516,457 7.25% 316,152 4,360,717 7.50% 316,152 4,215,360 7.75% 316,152 4,079,381 8.00% 316,152 3,951,900
3,480,176 1,036,281 1,053,401 (117,338) 1,972,344 95,718
3,480,176 880,541 1,053,401 (117,338) 1,816,604 95,718
3,480,176 735,184 1,053,401 (117,338) 1,671,247 95,718
3,480,176 599,205 1,053,401 (117,338) 1,535,268 95,718
3,480,176 471,724 1,053,401 (117,338) 1,407,787 95,718
$20.61
$18.98
$17.46
$16.04
$14.71
Notes 1) Rental operating income has been annualized at the 3Q05 and adjusted for straightline rental income.
173
OPERATING SUMMARY
174
($000)
H&R REIT
Portfolio Growth 1,099,811 562,527 510,847 -84,894 45,202 62,298 $1.34 58,569 $1.26 51.4% 23.3% 20.5% na na na na 126,537 72,313 81,592 $1.39 70,836 $1.21 64.0% 49.1% 60.0% 31.0% 3.7% 20.9% -4.0% 179,113 99,862 101,560 $1.43 99,176 $1.40 53.2% 41.5% 38.1% 24.5% 2.9% 40.0% 15.7% 208,083 106,966 109,218 $1.45 104,833 $1.39 51.8% 16.2% 7.1% 7.5% 1.5% 5.7% -0.5% 254,444 132,266 155,181 $1.72 128,999 $1.43 65.4% 22.3% 23.7% 42.1% 18.7% 23.1% 2.8% 310,595 160,617 176,587 $1.72 141,204 $1.37 na 22.1% 21.4% 13.8% -0.4% 9.5% -4.3% 16.8% 23.9% 9.5% -1,534,856 744,864 754,737 -39.6% 32.4% 47.7% -2,050,894 1,240,504 767,648 -33.6% 66.5% 1.7% -2,681,787 1,671,275 968,165 -30.8% 34.7% 26.1% -3,300,913 2,142,706 1,096,597 119,452 23.1% 28.2% 13.3% -3,668,327 2,438,970 1,170,739 117,338 11.1% 13.8% 6.8% -1.8%
Assets Debt Equity Minority Interest Rental Income Pre-Financing After Financing Fund from Operations (FFO) Per Unit Adjusted FFO Per Unit Tax Deferral Rate
Financial Structure 1.10 0.50 Year 2006 98,185 17.5% 8.2% 8..7 39,692 46.8% 2.59 --6.63 2.14 5.89 2.33 6.93 2.26 2.52 --2.29 --54,224 42.9% 79,251 44.2% 101,117 48.6% 2.13 --8.03 2.06 1,280 0.1% 7.8% 12.8 56,281 3.4% 7.0% 11.9 90,538 Year 2007 3.7% 2,253 0.3% 7.7% 12.3 119,355 4.9% 89538 4.2% 6.9% 12 122,178 48.0% 2.27 --7.74 2.08 126347 5.2% 6.7% 11.5 149,977 48.3% 2.17 --7.27 2.07 0.99 0.48 1.62 0.59 1.73 0.61 1.95 0.63 2.08 0.63

11.1% 12.7% 10.9% 12.9% 11.2% 13.3% 11.4% 13.7% 8.6% 15.0% 8.3% 17.4% 891,215 1,388,782 1,922,200 2,510,780 891,215 100% --100% 1,388,782 100% --100% 1,922,200 100% --100% 2,510,780 100% --100% 3,145,045 --3,145,045 100% --100% 3,480,176 21,628 -3,501,804
Total Interest As % of Rental Income Interest Coverage Expensed Capitalized Interest As % of Total Interest
(1)
Investment Returns
Property Portfolio 99% 1% -100%
H&R REIT
($000; 31-Dec YE) Rental Revenue Operating Expenses & Property Taxes Rental Income Operating Margin Depreciation Amortization Income before interest Interest Expense As a % of Rental Income Gross Operating Income Interest & Other Income 2000 135,775 50,881 84,894 62.5% 6,818 1,676 76,400 39,692 46.8 36,708 21,244 57,952 3,494 4.1 54,458 654 55,112 $1.17 $51,647 -$1.11 62,298 $1.34 82.9% 58,569 $1.26 88.2% 51.4% 49,092 46,652 2001 199,205 72,668 126,537 63.5% 10,906 2,787 112,844 54,224 42.9 58,620 13,114 71,734 3,835 3.0 67,899 795 68,694 $1.17 $67,770 -$1.16 81,592 $1.39 83.1% 70,836 $1.21 95.7% 64.0% 69,771 58,606 2002 288,511 109,398 179,113 62.1% 15,395 4,062 159,656 79,251 44.2 80,405 6,584 86,989 4,372 2.4 82,617 1,405 84,022 $1.19 $84,318 -$1.20 101,560 $1.43 83.0% 99,176 $1.40 85.0% 53.2% 70,910 70,810 2003 321,644 113,561 208,083 64.7% 19,585 4,214 184,284 101,117 48.6 83,167 7,864 91,031 4,843 2.3 86,188 4,365 90,553 $1.20 $92,499 -$1.24 109,218 $1.45 84.7% 104,833 $1.39 88.2% 51.8% 86,198 75,232 2004 404,713 127,863 276,850 68.4% 57,094 8,918 210,838 122,178 44.1 88,660 8,104 96,764 5,796 2.1 90,968 (2,187) 88,781 $0.99 $111,251 $1,447 $1.25 155,181 $1.72 72.6% 128,999 $1.43 87.4% 65.4% 96,306 90,075
General & Administrative Expense As a % of Rental Income Income before gains Property Gains & Other Net Income Net Income Per Unit Per diluted unit Distributions to unitholders Distributions to Non-controlling unitholders Per Unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Weighted average (diluted)
Notes: 1) 2004 FFO excluding straight-line rental income is $132.8 million or $1.47 per unit.
175
H&R REIT
DEBT-TO-EQUITY
($000) Debt Fixed Rate Debt Floating Rate Debt Total Debt Total Unitholders Equity Total Capitalization Debt-to-Equity Ratio Asset-to-Equity Ratio Total Assets Add Depreciation Less Instalment Receipt Gross Book Value Debt-to-Gross Book Value 2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
464,342 98,185 562,527 510,847 1,073,374
43.3 9.1 52.4 47.6
742,611 2,253 744,864 754,737
49.5 1,239,224 0.2 1,280 49.7 1,240,504 50.3 767,648
61.7 1,614,994 0.1 56,281 61.8 1,671,275 38.2 968,165
61.2 2,053,168 2.1 89,538 63 2,142,706 36.7 1,096,597 100 3,119,851
65.8 2,312,623 2.9 126,347 69 2,438,970 31.3 1,170,739 100 3,492,371
66.2 3.6 70 30.2 100
100.0 1,499,601
100.0 2,008,152
100.0 2,639,440
1.10 2.15 1,099,811 18,124 0 1,117,935 0.50
0.99 2.03 1,534,856 28,300 0 1,563,156 0.48
1.62 2.67 2,050,894 42,690 0 2,093,584 0.59
1.73 2.77 2,681,787 61,014 0 2,742,801 0.61
1.95 3.01 3,300,913 119,297 0 3,420,210 0.63
2.08 3.13 3,668,327 180,852 0 3,849,179 0.63
Notes: 1) Total Equity for 2004 and 2005 includes Minority Interest
176
H&R REIT
INTEREST COVERAGE
($000) Net Income Depreciation Amortization Interest Pretax Cashflow Interest Coverage 2000 54,458 6,818 1,676 39,692 102,644 2.59 2001 67,899 10,906 2,787 54,224 135,816 2.50 2002 82,617 15,395 4,062 79,251 181,325 2.29 2003 90,553 19,585 4,214 101,117 215,469 2.13 2004 88,781 57,094 8,918 122,178 276,971 2.27 2005E 84,658 69,162 21,124 149,977 324,921 2.17 2006E 88,800 80,282 24,371 167,162 360,616 2.16

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2000 562,527 84,894 6.63 39,692 2.14 2001 744,864 126,537 5.89 54,224 2.33 2002 1,240,504 179,113 6.93 79,251 2.26 2003 1,671,275 208,083 8.03 101,117 2.06 2004 2,142,706 254,444 7.74 122,178 2.08 2005E 2,438,970 $310,595 7.27 149,977 2.07 2006E 2,438,970 $348,447 6.50 167,162 2.08
Note: 1) Rental operating income adjusted 2004 -2006E for straight-line rents.
RETURN ON EQUITY
2000 488,735 54,458 62,298 11.1% 12.7%
2001 632,792 68,694 81,592 10.9% 12.9%
2002 761,193 85,521 101,560 11.2% 13.3%
2003 796,300 90,553 109,218 11.4% 13.7%
2004 1,032,381 88,781 155,181 8.6% 15.0%
2005E 1,015,273 84,658 176,587 8.3% 17.4%
2006E 1,053,401 88,800 195,430 8.4% 18.6%
177
IPC U.S. REIT
IPC U.S. REIT

(IUR.UN-T, C$9.92; IUR.U, US$)
Financial Summary 2004 2005E 2006E FFO $1.01 $0.77 $1.26 P/FFO 9.8x 12.9x 7.9x AFFO $0.57 $0.53 $0.72 P/AFFO 17.4x 18.7x 13.8x Book Value Per Share $5.80 Price/Book Value 1.7x Estimated NAV $9.39 Premium (Discount) to NAV 5.6% Annual Distribution $0.80 Distribution Yield 8.1% Shares Outstanding (mln) 42.5 Share Float (mln) 42.0 Market Cap (mln) $422 Fiscal Year End 31-Dec Major Shareholders: Paul Reichmann (13.6%), Guardian Capital (11.4%)
All figures in US$ unless otherwise noted. Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27, 2006.
HIGHLIGHTS Increased its annualized distributions twice in the past year. In the first quarter, the company acquired an 89% interest in United Plaza, a
621.000 sq.ft. building in Philadelphia for $97.6 million. The REIT assumed a $70 million mortgage with a 10-year term at 5.18%.
The REIT also acquired the Bank of America Plaza in Las Vegas for $71 million, which was funded by a $50 million mortgage with a 10-year term at 5.02% interest rate. The REIT also acquired a $10 million mezzanine loan in the Houston Galleria Office Towers with a two year term and three one-year renewals bearing a 7.5% plus 30 day LIBOR. In 2Q, a tenant occupying 235,000 sq.ft. in the Wanamaker building filed for bankruptcy. The REIT received $4.2 million, which represented 20 months of base rental revenues. However, we expect the firm to take 12-18 months to fully lease this vacant space, which will provide a negative drag on FFO. Completed a public offering of US$60 million principal amount of 5.75% convertible unsecured subordinated debentures due September 30, 2012. Aggregate proceeds of the offering were US$57.75 million. In early October, the company announced the sale of Bank of America Centre for a price of US$1.05 billion. IPCs share of the proceeds from the sale will be more than $85 million and will realize a gain of $36 million and a 54% IRR on its preferred equity investment. Hurricane Katrina affected the Energy Centre in New Orleans. The firm is expected to incur a charge of $1 million related to insurance deductible. Looking forward, we anticipate that the well-leased building will experience occupancy and rental rate pressure. In September, the trust announced the acquisition of two Class A properties in Houston and Memphis. The property in Houston is leased to several high quality tenants with current occupancy of 83%. The other property in Memphis is currently 97% leased. The total purchase price for the two is $129 million with a total debt financing of $89 million by two separate 10-year bank loans. Refinanced $148 million of debt scheduled to mature in 2008, realizing interest savings of 200 basis points or $2.7 million annually. The firm incurred a $16.2 million loan defeasance cost or $0.35 per unit, which is not added back in the calculation of FFO. This refinancing extends the mortgage debt maturity profile for the next several years and locks in very attractive interest rates.
IPC signed an agreement to sell five retail complexes totalling 780,000 sq ft for $94 million and realize a pre-tax profit of $13 million.
Company Description: IPC US REIT is the only real estate investment trust in Canada that invests exclusively in U.S. commercial real estate. The REIT beneficially owns an 86.4% interest in IPC (US), Inc. (IPC US) which has ownership interests in a portfolio of 34 office buildings comprising a total of 10.5 million square feet of rentable space.
178
IPC U.S. REIT
STRENGTHS Innovative and experienced management team with a growth strategy to

acquire high-quality properties with credit-worthy tenants in core and secondary U.S. cities.
Minimal mortgage debt maturities in the near term reduce financing risk. History of creating value for shareholders as evident by its investment in The Bank of America Tower in San Francisco and the sale of the retail portfolio. Significant balance sheet capacity to execute on acquisitions and investments in real property. Portfolio has internal growth opportunities in terms of strengthening its occupancy and rental rates. This provides the REIT with an advantage over its peers.
CHALLENGES
Relatively small base of commercial properties amplifies risk to selected secondary markets and major anchor tenants. Costs to attract tenants including tenant inducement and leasing costs remain high. Selected properties in Philadelphia and New Orleans will continue to face pressure in terms of occupancy and rental rates. Capitalizing on a highly competitive acquisition market is challenging.
179
IPC U.S. REIT

IPC U.S. REIT EARNINGS FORECAST
(in US$000s; 31-Dec YE) 2005E Rental Revenue Operating Expenses Management Fees Gross Property Income Operating Margin 1QA 36,947 (16,299) $20,648 58.0% 50.8% (5,918) (350) $14,380 (11,190) 0 $3,190 54.2% 57.7% 1,221 $4,411 (1,125) (816) $3,286 5.2% (1,600) 590 2,276 $0.06 42,077 39,760 ($7,085) $0.180 2QA 41,744 (17,497) $24,247 58.1% 54.1% (8,138) $16,109 (12,668) 0 $3,441 52.2% 54.7% 3,295 2,273 $9,009 (2,196) (877) $6,813 5.4% (16,216) (1,703) 5,837 (5,269) ($0.13) 42,126 42,043 ($7,787) $0.185 3QA 40,716 (18,900) $21,816 53.6% 48.9% (8,430) $13,386 (12,727) 0 $659 58.3% 62.0% -54.8% 2,054 $2,713 (2,021) (2,021) $692 9.3% (485) (1,346) 1,987 848 $0.02 42,518 47,530 ($7,840) $0.196 4Q 42,942 (19,453) $22,889 54.7% 48.8% (8,680) $14,210 (13,185) 0 $1,025 57.6% Year 162,349 (72,149) $89,600 55.2% 50.6% (31,166) (350) $58,085 (49,770) $8,315 55.5% 1Q 44,278 (20,368) $23,910 54.0% 2Q 45,138 (20,312) $24,826 55.0% 2006E 3Q 45,183 (20,332) $24,851 55.0% 4Q 45,228 (20,805) $24,423 54.0% Year 179,827 (81,817) $98,010 54.5%
Depreciation Amortization and other Gross Property Income before Interest Expense Interest Expense Convertible Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
(8,592) $15,318 (11,466) 0 $3,853 16.1%
(8,592) $16,234 (11,466) 0 $4,768 19.2%
(8,592) $16,259 (11,466) 0 $4,793 19.3%
(8,592) $15,831 (11,466) 0 $4,366 17.9%
(34,367) $63,643 (45,863) $17,780 46.8%
Interest Income and other Investment and fee income Total Operating Income Total Trust Expenses Advisory Expenses General & Administative Expenses Income before other items Total Trust Expenses as a % of Gross Property Inco Property gains (losses) and other one-time items Non-controlling interest Future income tax expense NET INCOME Per Unit Information Per Diluted Unit Outstanding Units Weighted Average Units (Fully Diluted) Distributions to Unitholders Per Unit FFO Calculation Net Income Depreciation and Amortization Amortization of Acquired Leasing Costs Amortization of tenant relationships Amortization of above and below market rents Deferred Unit Plan Future Income Taxes Other - non controlling interest expense Property Gains and other FFO (w/o controlling interest) Convertible Interest Expense FFO - adjusted for debs Per Unit - Diluted FFO Payout Ratio FFO as reported with minority interest Per diluted Unit AFFO Calculation FFO from above Other items - specify Capital expenditures Tenant inducement costs Straightline rent AFFO Per Unit - Diluted AFFO Payout Ratio
2,054 $3,079 (2,120) 220 $958 9.3% 47,000 (1,376) 46,583 $0.98 42,518 47,530 ($8,755) $0.196
3,295 7,602 $19,212 (7,462) (3,494) $11,749 8.3% 30,299 (6,025) 8,414 44,438 $1.01 42,518 44,216 ($31,362) $0.76
1,100 970 $5,923 (1,913) (816) $4,010 8.0% (1,712) 2,298 $0.05 42,518 44,216 ($3,834) $0.200
1,100 970 $6,839 (2,048) (877) $4,790 8.3% (1,806) 2,985 $0.07 42,518 44,216 $3,834 $0.200
1,100 970 $6,863 (2,112) (2,112) $4,751 8.5% (1,801) 2,950 $0.07 42,518 44,216 $0 $0.200
1,100 970 $6,436 (2,137) 311 $4,299 8.8% (1,747) 2,552 $0.06 42,518 44,216 $0 $0.200
4,400 3,881 $26,061 (8,210) (3,494) $17,850 8.4% (7,066) 10,784 $0.24 42,518 44,216 ($34,014) $0.80
2,276 5,918 351 (590) 414 8,369 600 8,969 $0.203 88.8% $10,569 $0.25
(5,269) 8,028 (5,837) 1,011 (2,067) 600 (1,467) -$0.03 -583.3% $236 $0.02
848 8,104 (1,987) 1,710 8,675 1,461 10,136 $0.196 100.0% $10,021 $0.22
46,583 8,680 (45,000) 10,262 1,401 11,664 $0.225 86.9% $13,040 $0.28
44,438 31,166 351 (8,414) (41,865) 25,675 4,063 29,738 $0.59 127.8% $35,763 $0.77
2,298 8,592 500 11,390 1,401 12,791 $0.25 80.9% $14,503 $0.31
2,985 8,592 500 12,076 1,401 13,478 $0.26 76.8% $15,284 $0.32
2,950 8,592 500 12,042 1,401 13,443 $0.26 77.0% $15,244 $0.32
2,552 8,592 500 11,644 1,401 13,045 $0.25 79.3% $14,792 $0.31
10,784 34,367 2,000 47,151 5,606 52,757 $1.02 78.5% $59,823 $1.26
8,969 (57) ($1,378) -1251 6,283 $0.14 112.8%
(1,467) 12,921 (545) ($2,367) -1072 7,470 $0.16 104.2%
10,136 (454) ($2,814) -1290 5,578 $0.11 140.5%
11,664 (670) ($1,420) -1290 8,284 $0.16 105.7%
29,738 12,921 (1,726) (7,979) (4,903) 27,615 $0.53 113.6%
12,791 (670) ($2,045) -1125 8,951 $0.17 42.8%
13,478 (670) ($2,045) -1125 9,638 $0.19 -39.8%
13,443 (670) ($2,045) -1125 9,603 $0.19 0.0%
13,045 (670) ($2,045) -1125 9,205 $0.18 0.0%
52,757 (2,680) (8,179) -4500 37,398 $0.72 91.0%
180
IPC U.S. REIT

NET ASSET VALUE
($000) Gross Operating Rental Income (1) Non-controlling interests Capitalized Property Value Capitalized Property Value of non-controlling interest Less Book Cost of Rental Properties Book value of non-controlling interest Appraisal Increment Common Equity Total Pre-tax Value Less Minority Interest at book Total Pre-tax Value Outstanding Units Net Asset Value 7.00% 7.25% 7.50% 7.75% 8.00%
84,697 10,472 1,209,964 149,595
84,697 10,472 1,168,241 144,437
84,697 10,472 1,129,300 139,622
84,697 10,472 1,092,871 135,118
84,697 10,472 1,058,719 130,896
1,004,536 58,448 296,576 302,207 598,783 68,011 530,772 42,518 $12.48
1,004,536 58,448 249,694 302,207 551,901 68,011 483,890 42,518 $11.38
1,004,536 58,448 205,938 302,207 508,145 68,011 440,134 42,518 $10.35
1,004,536 58,448 165,005 302,207 467,212 68,011 399,201 42,518 $9.39
1,004,536 58,448 126,631 302,207 428,838 68,011 360,827 42,518 $8.49
(1) Rental income is the run rate as at 3Q05 and adjusted for minority interest.
181
IPC U.S. REIT

OPERATING SUMMARY
($000) Capital Structure Assets Debt Equity Minority Interest Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) (2) Per diluted Unit Funds from Operation (FFO) (3) Per diluted Unit Adjusted FFO (AFFO) (4) Per diluted Unit Deferral Tax Rate Financial Structure Debt to Equity Ratio Debt to Gross Book Value Maturing Debt (2 years) As % of Total Debt Bank and floating rate debt As % of Total Debt Average Debt Cost Average Debt Term (in years) Total Interest As % of Operating Income Interest Coverage Expensed Capitalized Interest As % of Total Interest Rental Income Leverage Rental Income Coverage Investment Returns Income Return on Equity FFO Return on Equity Property Portfolio Income Producing Properties Investments in real estate Under development 342,080 --342,080 484,235 --484,235 100.0% --100.0% 828,295 111,663 -939,958 88.1% 11.9% -100.0% 987,436 120,390 -1,107,826 89.1% 10.9% -100.0% 5.0% 15.3% 8.2% 18.0% 9.4% 17.4% 18.8% 15.1% 2.49 0.60 2006 7,309 2.3% 7.1% na 19,578 48.1% 2.02 --7.82 2.08 2.65 0.63 0.0% 38,912 7.6% 6.7% na 27,332 46.2% 2.07 --8.71 2.16 2007 2.99 0.64 0.0% 90,860 13.4% 6.5% 6.7 39,674 48.7% 2.00 --8.32 2.05 3.43 0.66 529,878 318,274 127,897 47,553 40,715 21,137 $14,878 $0.89 $19,622 $1.17 $9,273 $0.55 79.8% 803,105 515,081 194,533 34,796 59,143 31,811 $23,497 $0.90 $28,965 $1.10 $14,105 $0.54 80.6% 51.6% 61.8% 52.1% -26.8% 45.3% 50.5% 57.9% 0.7% 47.6% -5.8% 52.1% -3.0% 1,029,342 678,396 226,767 58,448 81,521 41,847 $31,152 $0.89 $36,642 $1.01 $17,388 $0.43 76.0% 28.2% 31.7% 16.6% 68.0% 37.8% 31.5% 32.6% -0.6% 26.5% -8.5% 23.3% -19.8% 1,236,984 847,007 246,870 68,011 84,697 49,770 $29,738 $0.59 $35,763 $0.77 $27,615 $0.53 na 20.2% 24.9% 8.9% 16.4% 3.9% 18.9% -4.5% -33.5% -2.4% -23.8% 58.8% 23.8% 2002 2003 Growth % 2004 Growth % 2005E Growth %
3,000 0.4% 6.9% 8.0 49,770 58.8% 1.87 --10.00 1.70
Notes 1) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period. 2) FFO calculation excludes non-controlling interest and deferred unit costs. 3) FFO as reported. 4) AFFO deducts straight-line rental income, capex and leasing cost from reported FFO 5) 2002 AFFO deducts $1.5 mln of pre-REIT commitments for leasing and capex. 6) Rental Income Leverage divides total debt by rental income 7) Rental income coverage divides rental income by total interest 8) Interest coverage does not adjust for interest only mortgage payments.
182
IPC U.S. REIT

($000; 31-Dec YE) Rental Revenue Operating Expenses Operating Income Operating Margin Other Income Income Before Expenses Depreciation Amortization Income before interest Interest Expense As a % of Total Income Gross Operating Income 2002 66,731 26,016 40,715 61.0% 283 40,998 3,711 817 36,470 19,578 48.1% 16,892 2003 102,247 43,104 59,143 57.8% 474 59,617 5,987 694 52,936 27,332 46.2% 25,604 2004 139,528 55,000 84,528 60.6% 84,528 9,848 1,000 73,680 39,674 46.9% 34,006
General & Administrative Expense As a % of Total Income Pre-tax Income Non-controlling interest Deferred Taxes Net Income Per diluted Unit Funds from Operation (FFO) (2) Per diluted Unit Funds from Operation (FFO) as reported Per diluted Unit Adjusted FFO (AFFO) Per diluted Unit Distribution to unitholders Per Unit Tax Deferral Rate Outstanding Units (in 000s) Weighted average units (diluted)
1,446 3.6% 15,446 4,744 4,252 6,450 $0.39 $14,878 $0.89 $19,622 $1.17 $9,273 $0.55 10,926 $0.63 79.8% 16,656 16,736
3,034 5.1% 22,570 5,115 4,184 13,271 $0.50 $23,497 $0.90 $28,965 $1.10 $14,105 $0.54 18,656 $0.68 80.6% 32,392 26,238
5,004 5.9% 29,002 4,274 4,930 19,798 $0.31 $31,152 $0.89 $36,642 $1.01 $17,388 $0.43 25,592 $0.71 76.0% 37,990 40,323
Notes: 1) The REIT completed its IPO on December 20, 2001. 2) FFO calculation excludes non-controlling interest and deferred unit costs. 3) AFFO deducts straight-line rental income, capex and leasing cost from FFO excluding non-controlling interest and deferred unit costs. 4) 2002 AFFO deducts $1.5 mln of pre-REIT commitments for leasing and capex. 5) 2004 FFO excluding straight-line rental income is $33.6 million or $0.93 per diluted unit, including minority interest. 6) 2004 FFO excluding straight-line rental income is $28.1 million or $0.80 per diluted unit, excluding minority interest.
183
IPC U.S. REIT

DEBT-TO-EQUITY
($000) Debt Mortgage Debt Bank loans and Floating Rate Debt Convertible debentures Total Debt Minority Interest Unitholders Equity Total Capitalization Debt-to-Equity Ratio Total Assets Plus Accumulated Depreciation Gross Book Value Debt-to-Gross Book Value 310,965 7,309 0 318,274 47,553 127,897 446,171 69.7 1.6 0.0 71.3 10.7 28.7 100.0 476,169 38,912 0 515,081 34,796 194,533 709,614 67.1 5.5 0.0 72.6 4.9 27.4 100.0 547,536 90,860 40,000 678,396 58,448 226,767 905,163 60.5 10.0 4.4 74.9 6.5 25.1 100.0 748,159 3,000 95,848 847,007 68,011 246,870 1,093,877 68.4 0.3 8.8 77.4 6.2 22.6 100.0 2002 % 2003 % 2004 % 3Q05 %
2.49 529,878 3,251 533,129 0.60
2.65 803,105 9,503 812,608 0.63
2.99 1,029,342 29,266 1,058,608 0.64
3.43 1,236,984 51,006 1,287,990 0.66
Notes: 1) Minority interest is not classified as debt or equity. 2) Convertible debentures treated as debt.
184
IPC U.S. REIT

INTEREST COVERAGE
($000) Pre-Tax Income Depreciation and Amortization Interest Cash Flow Interest Coverage Capitalized Interest Total Interest Coverage 2002 15,446 4,528 19,578 39,552 2.02 0 2.02 2003 22,570 6,681 27,332 56,583 2.07 0 2.07 2004 29,002 10,848 39,674 79,524 2.00 0 2.00 2005E 11,749 31,516 49,770 93,035 1.87 0 1.87 2006E 17,850 34,367 45,863 98,080 2.14 0 2.14
1) Pre-tax income prior to minority interest expense. 2) Interest includes convertible debentures. 3) Interest coverage does not adjust for interest-only mortgage payments.

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest 2002 318,274 40,715 7.82 19,578 2.08 2003 515,081 59,143 8.71 27,332 2.16 2004 678,396 81,521 8.32 39,674 2.05 2005E 847,007 84,697 10.00 49,770 1.70 2006E 847,007 $93,510 9.06 45,863 2.04
1) Interest includes convertible debentures. 2) Rental operating income adjusts for straightline rents in 2004 -2006E.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation (FFO) Net Income Return on Equity FFO Return on Equity 2002 127,897 6,450 19,622 5.0% 15.3% 2003 161,215 13,271 28,965 8.2% 18.0% 2004 210,650 19,798 36,642 9.4% 17.4% 2005E 236,819 44,438 35,763 18.8% 15.1% 2006E 246,870 10,784 59,823 4.4% 24.2%
1) FFO as reported, which includes minority interest. 2) 2005 net income includes property gain of $30 million.
185
Morguard REIT
Morguard REIT
(MRT.UN-T, $11.45)
Stock Rating: UNDERPERFORM 4 6-12 Month Target Price: $11.25 Target Total Return: 6.1%
Financial Summary 2004 FFO P/FFO AFFO P/AFFO $1.08 10.6x $0.67 17.1x 2005E $1.04 11.0x $0.73 15.7x 2006E $1.03 11.1x $0.81 14.1x $8.31 1.4 x $10.73 6.7% $0.90 7.9% 44.8 22.4 $513 31-Dec
HIGHLIGHTS Announced on September 30, 2005 the resignation of Bill Kennedy. Mr. K Rai
Sahi became the new CEO effective October 21, 2005.
The company has a handful of redevelopment projects that could provide incremental FFO growth in 2007. During the third quarter of 2005, Mr. K. (Rai) Sahi purchased $1.1 million principal amount of the Trusts 8.5% convertible unsecured subordinated debentures, solidifying his commitment to the REIT. The company announced the redemption of the mortgage bonds including Series 1997-1 First Mortgage Bonds, Series 1997-2 Second Mortgage Bonds and Series 1998-1 First Mortgage Bonds. We anticipate the REIT to realize interest expense savings on the refinancing of these bonds. The firm has virtually completed its asset disposition program to divest of noncore, unproductive commercial assets.
Book Value Per Share Price/Book Value Estimated NAV Premium to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders:
Morguard Corporation and affiliates (49.3%)

STRENGTHS The REIT owns a number of high quality regional shopping centres including
the St. Laurent Shopping Centre in Ottawa.
Company Description: The Morguard Real Estate Investment Trust (REIT) was created following an initial public offering in 1997. Morguard REIT's portfolio consists of 10.2 million square feet with an aggregate book value of $1.2 billion. Approximately 60% of the REIT's portfolion (measured by operating income) is retail, 25% of the portfolio is office and the balance is industrial.
Management is focussed on disposing of underperforming industrial and office assets located primarily in Western Canada. Recent acquisitions provide higher going-in yields and occupancy rates. Same-property operating income increased 1.4% for the third quarter and 2.5% for the nine-month period to date. The trusts retail portfolio continues to provide solid same-property operating income growth. Operating income from the office and industrial portfolios were impacted by increased vacancy levels from that of the prior year.
CHALLENGES Debt-to-gross book value ratio including convertible debentures as debt is at

the high-end of the REIT universe.
Portfolio of regional mall retail and suburban office assets requires significant dollar expenditures to attract and retain tenants. The overall occupancy rate has trended lower to 94% in the third quarter, down from 96% in the previous quarter primarily due to the departure of WalMart at a mall in Saskatoon, vacancy at two of its Ottawa office properties, and the loss of a principal industrial tenant in Quebec. In the near-term, we continue to see the firm dealing with operational issues the most significant being the departure of two major anchor tenants at two malls. AFFO payout ratio is above 100%.
186
MOGUARD REIT EARNINGS FORECAST
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Property Management Fees Gross Property Income Operating Margin
1QA 49,069 (19,310) (1,544) $28,215 57.5% 55.2% (5,937) (1,370) (470) $20,438 (14,090) $6,348 49.9% 92 1,496 $7,936 (83) $5,292 (950) $4,342 3.5% (1,176) $3,794 4.3% (1,254) $4,238 4.5% (4,269) $22,222 3.9% (881) $7,055 3.1% (1,262) $7,031 4.6% 75 2,881 $8,293 $4,970 167 4,294 $26,491 75 $5,491 75 $5,953 (1,277) $4,676 4.5% (14,233) $5,337 51.9% (14,150) $5,375 51.4% (14,292) $4,970 52.3% (56,765) $22,030 51.4% (14,253) $5,416 51.2% (14,200) $5,878 50.0% (14,150) $5,375 51.4% (5,917) (1,463) (494) $19,570 (5,917) (1,482) (579) $19,525 (5,917) (1,556) (608) $19,262 (23,688) (5,871) (2,151) $78,795 (5,917) (1,634) (638) $19,669 (5,917) (1,716) (670) $20,079 (5,917) (2,037) (24) $19,525 (5,917) (2,139) (25) $20,793 (14,098) $6,695 48.8%
2005E 2QA 47,690 (18,698) (1,548) $27,444 57.5% 55.1% 3QA 48,454 (19,425) (1,526) $27,503 56.8% 54.6% 4Q 47,969 (19,044) (1,583) $27,343 57.0% 54.9% 2005E Year 193,182 (76,477) (6,201) $110,505 57.2% 54.9% 1Q 48,449 (18,992) (1,599) $27,858 57.5% 55.4% 3Q 48,454 (19,425) (1,526) $27,503 56.8% 54.6% 4Q 48,939 (18,450) (1,615) $28,874 59.0% 56.9% (23,668) (7,525) (1,358) $80,065 (56,701) $23,365 50.3% 2006E Year 194,775 (75,804) (6,355) $112,617 57.8% 55.7%
2006E 2Q 48,934 (18,937) (1,615) $28,382 58.0% 55.9%
Depreciation & Amortization Amortization of leasing, intangibles, above/below market Other amortization Gross Property Income before Interest Expense
Interest Expense - Mortgage & Debenture Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
Interest Income Other income (expense) Total Operating Income
(83) $5,292 (950) $4,342 4.5%
75 $6,770 (1,299) $5,471 4.5%
225 (83) $23,507 (4,780) $18,727 4.5%
Property gains Income from Discontinued operations NET INCOME Per diluted unit ($9,984) $0.225 44,621 44,618 44,734 44,676 44,835 44,809 44,935 44,909 ($9,928) $0.225 ($9,924) $0.225 ($10,110) $0.225 ($39,946) $0.900 44,935 44,753
$7,055 $0.16
$7,031 $0.16
1,225 $5,567 $0.12
$3,794 $0.08
1,225 $23,447 $0.52
$4,238 $0.09 ($10,133) $0.225 45,035 44,985
$4,676 $0.10 ($10,155) $0.225 45,135 45,085
$4,342 $0.10 ($10,178) $0.225 45,235 45,234
$5,471 $0.12 ($10,200) $0.225 45,335 45,285
$18,727 $0.42 ($40,667) $0.900 45,335 45,147
Distributions to Unitholders Per Unit
Outstanding Units Weighted Average Units (fully diluted)

$7,055 -1274 5,937 1136 253 0 $13,107 $0.29 $3,278 $16,385 $0.28 60.9% $7,031 -$2,840 5,937 1191 252 0 $11,571 $0.26 $3,284 $14,855 $0.25 66.8% $4,342 $0 5,917 1229 253 1225 $12,966 $0.26 $3,220 $16,186 $0.27 61.3% $3,794 $0 5,897 1290 253 0 $11,235 $0.25 $3,220 $14,455 $0.24 69.9% $22,222 -$4,114 23,688 4846 1011 1225 $48,879 $1.07 $13,002 $61,881 $1.04 64.6% $4,238 $0 5,917 1355 253 0 $11,763 $0.26 $3,220 $14,983 $0.25 67.6% ($743) -2508 -944 $12,190 $0.21 81.9% ($741) -2719 -288 $11,107 $0.19 89.4% ($666) -1538 -699 $13,283 $0.22 74.7% ($666) -1600 -500 $8,469 $0.14 119.4% ($2,816) -8365 -2431 $45,049 $0.73 88.7% ($666) -2125 -500 $11,692 $0.20 86.7%
Funds From Operations Calculation Net Income from Continuing Ops. Gain on Sale of Properties Amortization - Buildings Amortization - Leasing Costs Amortization - Intangibles Provision for Write-downs FFO Per unit Interest on convertible debentures Diluted FFO Per diluted unit FFO payout ratio
$4,676 $0 5,917 1423 253 0 $12,269 $0.27 $3,220 $15,489 $0.26 65.6%
$4,342 $0 5,917 1229 253 0 $11,741 $0.26 $3,220 $14,961 $0.25 68.0%
$5,471 $0 5,917 1290 253 0 $12,931 $0.29 $3,220 $16,151 $0.27 63.2%
$18,727 $0 23,668 5297 1012 0 $48,704 $1.08 $12,880 $61,584 $1.03 66.0%
Morguard REIT
AFFO Calculation Straightline rents Leasing costs Capital expenditures AFFO Per diluted unit Payout Ratio
($666) -2125 -500 $12,198 $0.20 83.3%
($666) -2125 -500 $11,670 $0.19 87.2%
($666) -2125 -500 $12,860 $0.21 79.3%
($2,664) -8500 -2000 $48,420 $0.81 84.0%
187
Morguard REIT
NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Common Shares 7.50% 8.0% 8.25% 8.5% 8.75% 9.0%
107,689 1,435,848
107,689 1,346,107
107,689 1,305,316
107,689 1,266,925
107,689 1,230,727
107,689 1,196,540
1,158,165 277,683 372,301 649,984 44,835
1,158,165 187,942 372,301 560,243 44,835
1,158,165 147,151 372,301 519,452 44,835
1,158,165 108,760 372,301 481,061 44,835
1,158,165 72,562 372,301 444,863 44,835
1,158,165 38,375 372,301 410,676 44,835
Pre-tax Book Value
$14.50
$12.50
$11.59
$10.73
$9.92
$9.16
(1) Estimated for the current year including recent acquisitions.

188
OPERATING SUMMARY
Portfolio Growth ($000) 1,003,444 574,524 400,617 74,424 43,173 40,938 $1.00 34,540 $0.84 67.0% 40.3% 27.9% na na na na 85,901 46,968 44,268 $1.10 36,524 $0.68 67.5% 15.4% 8.8% 8.1% 10.2% 5.7% -19.5% 89,272 44,336 43,626 $0.98 29,559 $0.55 79.8% 3.9% -5.6% -1.5% -10.9% -19.1% -18.3% 104,828 47,766 47,767 $1.01 39,826 $0.67 88.4% 17.4% 7.7% 9.5% 3.1% 34.7% 21.1% 107,935 50,577 52,206 $1.08 39,973 $0.67 80% 3.0% 5.9% 9.3% 6.9% 0.4% -0.1% 107,689 50,587 61,881 $1.04 $45,049 $0.73 n.a -0.2% 0.0% 18.5% -3.6% 12.7% 9.0% 19.8% 31.5% 5.6% 1,008,033 561,469 418,163 0.5% -2.3% 4.4% 1,172,318 734,084 404,315 16.3% 30.7% -3.3% 1,279,187 860,809 531,113 9.1% 17.3% 31.4% 1,251,468 833,907 380,698 -2.2% -3.1% -28.3% 1,253,960 832,289 372,301 0.2% -0.2% -2.2%
Assets Debt Equity Rental Income Growth Rate Pre-Financing After Financing Funds from Operations (FFO) Per Unit Adjusted FFO Per Unit Tax Deferral Rate
Financial Structure 1.43 0.57 Year 2006 80,862 14.1% 7.0% 7.0 31,251 42.0% 2.39 2.26 1,601 5.1% 7.72 2.38 6.54 2.21 8.22 1.99 2.26 2.15 1,979 5.1% 2.03 1.94 2,027 4.5% 38,933 45.3% 44,936 50.3% 57,062 54.4% 2.01 2.00 320 0.6% 8.21 1.84 64,793 8.8% 7.0% 5.7 75,945 8.8% 6.9% 5.3 73,872 Year 2007 8.9% 75,097 13.4% 6.7% 5.1 177,753 21.4% 31,544 3.8% 6.7% 5.9 57,358 53.1% 2.15 2.14 295 0.5% 7.73 1.88 43,695 5.2% 6.6% 4.8 57,102 53.0% 1.95 1.94 337 0.6% 7.73 1.89 1.34 0.56 1.82 0.63 1.62 0.67 2.19 0.67 2.24 0.66
Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average debt term (years)
(1)
Property Portfolio 957,228 14,788 972,016 2% 100% 98% 930,675 40,505 971,180 96% 4% 100% 1,113,975 9,572 1,123,547 99% 1% 100% 1,175,291 10,111 1,185,402 99% 1% 100% 1,163,757 19,044 1,182,801 98% 2% 100% 1,154,831 17,767 1,172,598 98% 2% 100%
Morguard REIT
189
Morguard REIT
($000) Rental Revenue Operating Expenses & Property Taxes Rental Operating Income Operating Margin Depreciation Amortization Income before interest Interest Expense (as reported) As a % of Rental Income Gross Operating Income Interest & Other Income 2000 131,294 56,870 74,424 56.7% 5,295 1,834 67,295 29,372 39.5% 37,923 177 38,100 4,109 5.5% 33,991 2,989 36,980 278 36,702 $0.93 35,468 $0.90 40,938 $1.00 34,540 $0.84 102.7% 67.0% 39,436 39,413 2001 153,113 67,212 85,901 56.1% 6,453 2,986 76,462 35,245 41.0% 41,217 (1,495) 39,722 2,437 2.8% 37,285 3,165 40,450 1,709 38,741 $0.88 39,833 $0.90 44,268 $1.10 36,524 $0.68 109.1% 67.5% 44,261 44,031 2002 159,739 70,467 89,272 55.9% 7,202 4,613 77,457 33,974 38.1% 43,483 583 44,066 2,647 3.0% 41,419 (306) (8,935) 32,178 8,935 23,243 $0.73 39,886 $0.90 43,626 $0.98 29,559 $0.55 134.9% 79.8% 44,331 44,334 2003 184,847 80,019 104,828 56.7% 8,899 4,015 91,914 44,464 42.4% 47,450 202 47,652 3,076 2.9% 44,576 (16,000) 2,783 31,359 12,278 19,081 $0.43 39,943 $0.90 47,767 $1.01 83.6% 39,826 $0.67 100.3% 88.4% 44,409 59,395 2004 189,582 78,243 111,339 58.7% 24,752 5,613 80,974 44,821 40.3% 36,153 3,020 39,173 3,981 3.6% 35,192 6,998 (600) 41,590 12,242 29,348 $0.66 40,055 $0.90 52,206 $1.08 76.7% 39,973 $0.67 100.2% 79.6% 44,616 59,648
General & Administrative Expense As a % of Rental Income Income before gains Investment & Property Gains (losses) Other items Net Income (as reported) Less: Interest and accretion on convertible debentures Adjusted Net Income Per diluted unit Distributions to unitholders Per Unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Weighted average (diluted)
Notes: 1) FFO and AFFO data adjust for interest on Convertible Debentures 2) AFFO deducts actual leasing costs incurred. No adjustment made for capital expenditures prior to 2002. 3) 2004 FFO excluding straightline-rental income is $48.8 million or $1.01 per unit.
190
DEBT-TO-EQUITY
2000 80,862 471,911 21,751 574,524 400,617 975,141 100.0 979,632 100.0 1,138,399 100.0 1,391,922 100.0 1,214,605 41.1 418,163 42.7 404,315 35.5 531,113 38.2 380,698 58.9 561,469 57.3 734,084 64.5 860,809 61.8 833,907 68.7 31.3 100.0 8.3 48.4 2.2 75,097 462,912 23,460 7.7 47.3 2.4 64,793 522,291 147,000 5.7 45.9 12.9 75,945 637,864 147,000 5.5 45.8 10.6 31,544 658,314 144,049 2.6 54.2 11.9 % 2001 % 2002 % 2003 % 2004 % 3Q05 43,695 645,671 142,923 832,289 372,301 1,204,590 % 3.6 53.6 11.9 69.1 30.9 100.0
($000)
Debt Bank loan and floating rate debt Mortgage Debt Convertible Debentures
Total Debt
Unitholders Equity
Debt-to-Equity Ratio 1.43 2.50 1,003,444 11,450 1,014,894 0.57 0.56 0.63 0.67 1,008,033 17,393 1,025,426 1,172,318 22,022 1,194,340 1,279,187 30,473 1,309,660 2.41 2.90 2.41 1.34 1.82 1.62
2.19 3.29 1,251,468 52,674 1,304,142 0.67
2.24 3.37 1,253,960 70,425 1,324,385 0.66
Total Assets Accumulated Depreciation & Amortization Gross Book Value
Debt-to-Gross Book Value Assets
Notes: 1) Total debt includes convertible debentures.
Morguard REIT
191
Morguard REIT
INTEREST COVERAGE
($000) Income before Gains and Taxes Depreciation and Amortization Interest Expense Pre-tax Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 2000 33,991 7,129 29,650 70,770 2.39 1,601 31,251 2.26 2001 37,285 9,439 36,954 83,678 2.26 1,979 38,933 2.15 2002 32,484 11,815 42,909 87,208 2.03 2,027 44,936 1.94 2003 44,576 12,914 56,742 114,232 2.01 320 57,062 2.00 2004 35,192 30,365 57,063 122,620 2.15 295 57,358 2.14 2005E 22,222 31,710 56,765 110,697 1.95 337 57,102 1.94 2006E 18,727 32,551 56,701 107,978 1.90 337 57,038 1.89
Notes: 1) Interest Expense includes interest on Convertible Debentures 2) Capitalized interest for 2005E is annualized based on data in 3Q05

($000) Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2000 574,524 74,424 7.72 31,251 2.38 2001 561,469 85,901 6.54 38,933 2.21 2002 734,084 89,272 8.22 44,936 1.99 2003 860,809 104,828 8.21 57,062 1.84 2004 833,907 107,935 7.73 57,358 1.88 2005E 832,289 107,689 7.73 57,102 1.89 2006E 832,289 109,953 7.57 57,038 1.93
Notes: 1) Debt includes Convertible Debentures 2) Total Interest includes interest on Convertible Debentures and Capitalized interest
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations (FFO) Net Income Return on Equity FFO Return on Equity 2000 354,958 36,702 40,938 10.3% 11.5% 2001 409,390 38,741 44,268 9.5% 10.8% 2002 411,239 23,243 43,626 5.7% 10.6% 2003 467,714 19,081 47,767 4.1% 10.2% 2004 455,906 29,348 52,206 6.4% 11.5% 2005E 376,500 10,445 61,881 2.8% 16.4% 2006E 372,301 5,847 61,584 1.6% 16.5%
Notes: 1) Net income adjusted for interest on convertible debenture equity component. 2) FFO data exclude distributions to convertible debenture unitholders
192
Primaris Retail REIT

(PMZ.UN-T, $17.09)
Financial Summary 2004A FFO P/FFO AFFO P/AFFO $1.34 12.8x $1.08 15.8x 2005E $1.35 12.7x $1.17 14.6x 2006E $1.48 11.5x $1.32 12.9x $10.20 1.7 x $13.31 22.1% $1.14 6.7% 44.4 44.4 $759 31-Dec
HIGHLIGHTS Completed a portfolio acquisition of five properties for $268 million at mid-
year, effectively doubling the size of the portfolio. The firm also acquired Eglinton Square at a cost of $44 million in August and the Lambton Mall in October for a combined investment of $150 million.
The firm has committed $55 million to re-development activities including $8.5 million at Northland Village in Lethbridge; $28 million at Stone Ridge Mall in Guelph; and $20 million at Orchid Park in Kelowna. These development activities will be completed by the end of 2006 and expect to achieve high-single digit returns on investment. Completed two equity offerings to fund acquisition activity. Increased the annualized distribution to unitholders by 5.5%
Note: FFO and AFFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27, 2006.
STRENGTHS A well-capitalized balance sheet that provides future acquisition potential. Opportunities to buy enclosed regional malls in primary and secondary
markets remain attractive.
Company Description: Primaris (former Borealis) REIT was formed through an IPO during July 2003. The REIT had income-property assets of approximately $940 million at the period ended September 30, 2005 compared with $684 million at December 31, 2004, assets including ownership in nine enclossed regional shopping centres, comprising 6.1 million sq. ft. located in British Columbia, Alberta, Saskatchewan, and Ontario.
Solid same-property income growth of 5.6% for the nine-month period reflects good growth in rental rates upon releasing. Sales productivity of the regional shopping portfolio continues to outpace the ICSC Canadian shopping centre average. Re-development activity will enhance the portfolio and provide high single digit returns. Acquisitions have enhanced geographical diversity of income stream as 27% from Ontario, 19% from B.C. and Saskatchewan, 14% from each of Quebec and Alberta, and 2% from Manitoba. Lease maturities remain very manageable. Payout ratio provides more than adequate financial cushion. Relationship with Oxford instrumental to leasing and asset management success.
CHALLENGES: Near-term dilution from equity offerings mutes per unit FFO growth. New power centre developments in Primaris markets may result in further
re-positioning and expenditures on its shopping centres to remain competitive.
Regional malls remain costly to lease and maintain. Relatively compact size of the portfolio leaves the REIT vulnerable to bankruptcies or consolidation of tenants.
193

PRIMARIS RETAIL REIT EARNINGS FORECAST
($000s; 31-Dec YE) 1QA 18,718 11,675 201 (8,179) (295) (5,722) 16,398 53.6% 52.9% $1,032 (5,605) (360) $10,433 (6,044) $4,389 36.9% -35.9% 1,353 $5,742 (914) $4,828 5.5% 4,828 $9,656 Per Unit Information Per Basic Unit Per Diluted Unit Outstanding Units Weighted Average Units (Fully Diluted) Distributions to Unitholders Per Unit Funds From Operations (FFO) Net Income Depreciation Amortization of leasing costs Accretion on convertible debentures Above and below market leases Other FFO Per basic unit Interest on convertible debentures Diluted FFO Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Funds from operation Capital expenditures and leasing costs Straightline rent adjustment Other items AFFO Per basic unit Interest on convertible debentures Diluted AFFO Per diluted unit AFFO Payout Ratio $0.14 $0.14 34,067 37,837 ($9,195) $0.27 2005E 2QA 19,366 10,740 221 (7,706) (294) (5,119) $17,208 56.7% 56.2% $995 (5,697) (355) $11,156 (5,866) $5,290 34.1% -33.4% 1,764 $7,054 (1,070) $5,984 5.5% 5,984 $11,968 $0.17 3QA 25,639 12,556 345 (9,100) (294) (7,052) $22,094 57.3% 56.8% $1,218 (9,670) (421) $12,003 (7,532) $4,471 34.1% -33.3% -34.9% 1,539 $6,010 (1,148) $4,862 5.5% 4,862 $9,724 $0.12 4Q 32,473 12,556 345 (12,158) (294) (7,940) $24,981 55.1% 54.6% 2005E Year 96,196 47,527 1,112 (37,143) (1,177) (25,833) $80,681 55.7% 55.1% 1Q 33,603 12,556 345 (12,463) (294) (8,836) $24,911 53.6% 53.1% 2006E 2Q 33,939 12,556 345 (12,089) (294) (7,963) $26,494 56.6% 56.1% 3Q 34,108 12,556 345 (11,199) (294) (8,697) $26,819 57.1% 56.6% 4Q 35,984 12,556 345 (13,106) (294) (8,799) $26,686 54.6% 54.1% 2006E Year 137,634 50,224 1,380 (48,857) (1,176) (34,294) $104,910 55.4% 55.0%
Base rent Recoveries from tenants Percentage rent Operating Expenses Ground rent Property Taxes Management Fees Net operating income (NOI) Operating Margin Adjusted NOI margin (excl. straightline rents) Reported Seasonal Revenue Depreciation Amortization and other Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Incom
(10,154) (478) $14,350 (8,312) $6,038 33.3% -32.6% 1,739 $7,777 (1,374) $6,403 5.5% 6,403 $12,806 $0.15
(31,126) (1,614) $47,942 (27,754) $20,188 34.4% -33.6% 6,395 $26,583 (4,506) $22,077 5.6% 22,077 $44,154 $0.57
(10,591) (542) $13,778 (9,065) $4,713 36.4% -35.7% 1,500 $6,213 (1,370) $4,843 5.5% 4,843 $9,686 $0.11
(10,591) (616) $15,288 (9,085) $6,202 34.3% -33.7% 1,500 $7,702 (1,457) $6,245 5.5% 6,245 $12,490 $0.14
(10,591) (699) $15,530 (9,106) $6,424 34.0% -33.3% 1,500 $7,924 (1,475) $6,448 5.5% 6,448 $12,897 $0.14
(10,591) (793) $15,302 (9,106) $6,196 34.1% -33.5% 2,000 $8,196 (1,468) $6,728 5.5% 6,728 $13,457 $0.15
(42,363) (2,650) $59,898 (36,363) $23,535 34.7% -34.0% 6,500 $30,035 (5,770) $24,265 5.5% 24,265 $48,530 $0.55
Interest Income, parking revenue Other Income Total Operating Income Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property In Property gains (losses) Non-controlling interest Future income tax expense NET INCOME
35,443 37,998 ($9,347) $0.27
44,391 43,835 43,655 ($12,076) $0.285
44,391 46,388 46,563 ($18,656) $0.285
44,391 41,514 43,964 ($49,274) $1.11
44,391 45,389 46,563 ($12,703) $0.285
44,451 45,389 46,623 ($12,703) $0.285
44,511 45,389 46,683 ($12,703) $0.285
44,571 45,389 46,743 ($12,703) $0.285
44,571 45,389 47,839 ($50,811) $1.14
$4,828 $5,605 $197 $86 -$15 $0 $10,701 $0.32 $896 $11,597 $0.307 88.1%
$5,984 $5,697 $197 -$32 -$19 $0 $11,827 $0.35 $714 $12,541 $0.33 81.8%
$4,862 $9,670 $273 $5 -$101 $0 $14,709 $0.355 $495 $15,204 $0.347 82.2%
$6,403 $10,154 $273 $0 -$101 $0 $16,729 $0.38 $449 $17,178 $0.37 77.0%
$22,077 $31,126 $940 $59 -$236 $0 $53,966 $1.40 $2,554 $56,520 $1.35 82.0%
$4,843 $10,591 $273 -$101 $15,606 $0.35 $449 $16,055 $0.345 82.7%
$6,245 $10,591 $273 -$101 $17,008 $0.38 $449 $17,457 $0.374 76.1%
$6,448 $10,591 $273 -$101 $17,211 $0.39 $449 $17,660 $0.378 75.3%
$6,728 $10,591 $273 -$101 $17,491 $0.39 $449 $17,940 $0.384 74.3%
$24,265 $42,363 $1,092 -$404 $0 $67,316 $1.52 $1,796 $69,113 $1.48 77.0%
$10,701 -$1,140 -$427 $0 $9,135 $0.28 $896 $10,031 $0.27 95.5%
$11,827 -$1,309 -$369 $0 $10,149 $0.31 $714 $10,863 $0.29 86.7%
$14,709 -$1,525 -$504 $0 $12,680 $0.34 $495 $13,175 $0.30 84.9%
$16,729 -$1,678 -$504 $0 $14,547 $0.36 $449 $14,996 $0.32 79.0%
$53,966 -$5,651 -$1,804 $0 $46,511 $1.30 $2,554 $49,065 $1.17 85.4%
$15,606 -$1,794 -$504 $5 $13,312 $0.34 $449 $13,762 $0.30 82.9%
$17,008 -$1,794 -$504 $6 $14,716 $0.37 $449 $15,165 $0.33 76.1%
$17,211 -$1,794 -$504 $7 $14,920 $0.38 $449 $15,369 $0.34 75.2%
$17,491 -$1,794 -$504 $8 $15,201 $0.39 $449 $15,650 $0.34 74.0%
$67,316 -$7,177 -$2,016 $9 $58,132 $1.48 $1,796 $59,929 $1.32 76.9%
194

NET ASSET VALUE
($000) Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value (2) Outstanding Units Appraised Value Per Unit Pre-tax 7.50% 97,628 1,301,710 7.75% 97,628 1,259,719 8.00% 97,628 1,220,353 8.25% 97,628 1,183,372 8.50% 97,628 1,148,567
1,090,647 211,063 453,044 664,107 44,391
1,090,647 169,072 453,044 622,116 44,391
1,090,647 129,706 453,044 582,750 44,391
1,090,647 92,725 453,044 545,769 44,391
1,090,647 57,920 453,044 510,964 44,391
$14.96
$14.01
$13.13
$12.29
$11.51
Notes 1) Rental operating income is based on 2005E operating income and deducts straightline rental income.
195

OPERATING SUMMARY
($000) Portfolio Growth Assets Debt Equity Operating Income Growth Rate Pre-Financing After Financing Funds from Operations (FFO) Per Unit Adjusted FFO (AFFO) Per Unit Deferral Tax Rate Financial Structure Debt to Equity Ratio Debt to Gross Book Value Maturing Debt 2006 As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average debt term (in years) Total Interest As % of Operating Income Interest Coverage Expensed Total interest coverage Capitalized Interest As % of Total Interest Rental Income Leverage Rental Income Coverage Investment Returns Income Return on Equity FFO Return on Equity Property Portfolio Income Producing Properties Under Development Held for Development 488,906 488,906 684,096 684,096 100% 100% 937,647 937,647 100% 100% 10.4% 12.0% 7.8% 14.5% 5.7% 14.6% 1.13 0.52 1.28 0.53 1.18 0.50 10,448 2.0% 2,517 0.5% 5.60% 6.8 30,308 38.4% 2.81 2.81 0.0% 6.76 2.60 504,838 262,709 232,846 41,116 30,514 13,946 $0.56 13,361 $0.56 74.4% 755,224 413,241 322,716 56,658 38,123 40,306 $1.34 32,606 $1.08 65.6% 49.6% 1,016,928 57.3% 533,099 38.6% 453,044 37.8% 24.9% 44.5% 19.2% 22.0% -3.6% $78,877 $48,570 56,520 $1.35 49,065 $1.17 na 34.7% 29.0% 40.4% 39.2% 27.4% 40.2% 1.0% 50.5% 8.3% 2003 2004 % 2005E %
80,825 Maturing Debt 2007 15% 18,502 7.0% 0.0% 5.61% 5.80% 5.0 6.2 5,301 25.8% 3.63 3.63 5.88 3.88 18,535 32.7% 3.11 3.10 63 0.3% 7.29 3.06
Notes 1) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted on an annualized basis. The balance of the data is for the most recent interim period. 2) Rental income leverage divides total debt by rental income 3) Rental income coverage divides rental income by total interests 4) Operating Income, FFO and AFFO data for 2003 are annualized
196

($000; 31-Dec YE) Rental Revenue Operating Expenses Operating Income Operating Margin Other Income Income Before Expenses Depreciation Amortization Income before interest Interest Expense As a % of Total Income Gross Operating Income 2003 36,230 (15,672) 20,558 56.7% 40 20,598 1,867 159 18,572 5,301 25.8% 13,271 2004 104,268 (46,023) 58,245 55.9% 2,666 60,911 16,546 829 43,536 18,409 31.6% 25,127
General & Administrative Expense As a % of Total Income Net Income Per diluted unit Distributions to unitholders Distribution Per Unit Funds from Operations (FFO) Per Unit (diluted) Payout Ratio Adjusted FFO (AFFO) Per Unit (diluted) Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Weighted average units (diluted)
1,202 5.8% 12,069 $0.49 $11,670 $0.47 $13,946 $0.56 83.7% $13,361 $0.56 87.3% 74.4% 24,922 24,794
3,377 5.8% 21,750 $0.78 $30,143 $1.05 $40,306 $1.34 78.1% $32,606 $1.08 97.6% 65.6% 33,753 30,066
197

DEBT-TO-EQUITY
($000) Debt Mortgage Debt Bank loan and floating rate debt Convertible debentures Total Debt Unitholders Equity Total Capitalization Debt-to-Equity Ratio Asset-to-Equity Ratio Total Assets Plus Accumulated Depreciation Gross Book Value Debt-to-Gross Book Value
2003
2004
3Q05
244,207 18,502 0 262,709 232,846 495,555
49.3% 3.7% 0.0% 53.0% 47.0% 100%
364,854 0 48,387 413,241 322,716 735,957
49.6% 0.0% 6.6% 56.2% 43.8% 100%
504,561 2,517 26,021 533,099 453,044 986,143
51.2% 0.3% 2.6% 54.1% 45.9% 100%
1.13 2.17 504,838 1,867 506,705 0.52
1.28 2.34 755,224 18,413 773,637 0.53
1.18 2.24 1,016,928 39,385 1,056,313 0.50
198

INTEREST COVERAGE
($000) Net Income Depreciation and Amortization Interest Expense Pre tax Cash Flow Interest coverage Capitalized interests Total Interest Total Interest coverage 2003 12,069 1,867 5,301 19,237 3.63 0 5,301 3.63 2004 21,750 17,375 18,535 57,660 3.11 63 18,598 3.10 2005E 22,077 32,740 30,308 85,125 2.81 0 30,308 2.81 2006E 24,265 45,013 38,159 107,437 2.82 0 38,159 2.82
Notes: 1) Interest Expense includes interest on Convertible Debentures

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest 2003 262,709 44,665 5.88 11,517 3.88 2004 413,241 56,658 7.29 18,535 3.06 2005E 533,099 78,877 6.76 30,308 2.60 2006E 533,099 102,894 5.18 38,159 2.70
Note: 1) Rental Operating Income for 2003 was annualized based on the 168 actual operating days. 2) Rental income adjusted for straight-line rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations (FFO) Net Income Return on Equity FFO Return on Equity 2003 232,846 24,138 27,892 10.4% 12.0% 2004 277,781 21,750 40,306 7.8% 14.5% 2005E 387,880 22,077 56,520 5.7% 14.6% 2006E 453,044 24,265 69,113 5.4% 15.3%
Notes: 1) Net Income and FFO data for 2003 are annualized
199
Retirement Residences REIT

(RRR.UN-T, $9.94)
Stock Rating: OUTPERFORM 2 6-12 Month Target Price: $10.50 Target Total Return: %
HIGHLIGHTS George Kuhl resigned as Vice-Chairman and a Trustee of Retirement REIT in

October 2005.
In July 2005, the U.S. federal government announced final regulations and rates for Medicare funding. Management estimates that the new funding formula will result in a decline in its revenue of approximately $1.0 million. Placed four Ontario properties up for sale - two Canadian Retirement Operations and two Canadian Long Term Care Operations. The selected disposition of assets is not expected to yield gains. Currently, the $20 million development program includes the redevelopment of three new long-term care homes in Ontario to be brought into operations during 2006 and 2007. Terminated the exclusive development agreement with CPD and is looking for joint venture relationships to explore development opportunities. Confirmed on January 12, 2006 that it has received an unsolicited approach from a third party proposing an acquisition transaction. Retirement REIT has formed a Special Committee of its Board of Trustees to deal with this matter.
Major Shareholders: Barry Reichmann(5.8%), George Kuhl (4.7%), Guardian (5.5%)

Company Description: Retirement Residences Real Estate Investment Trust is an unincorporated closed-end real estate investment trust created pursuant to a Declaration of Trust on December 28, 2000 and began operations on April 11, 2001. Retirement REIT is the largest provider of accommodation and care for seniors in Canada. The REIT owns 216 retirement and long term care facilities, including 33 facilities in select United States markets, and provides management services to 10 homes for other parties, with an aggregate resident capacity in excess of 25,000.
STRENGTHS New senior management focused on improving operating efficiencies, repairing

property deficiencies and undertaking selected acquisitions and dispositions.
Operating performance appears to have stabilized for the long-term care segment.
CHALLENGES Portfolio heavily concentrated in the Greater Toronto Area (GTA) that has
experienced higher vacancy rates as a result of over-supply in the long-term care market.
Debt supported by existing operating income virtually maximized. The firm has approximately $100 million of debt capacity. Operating costs continue to accelerate labour, energy, insurance, property taxes; while achievable rents are flat to declining. Occupancy at older long-term care centres and retirement homes remain under pressure. The portfolio requires a material amount of capital expenditures to enhance occupancy. Negative impact of Ontario funding changes effective on April 1, 2005. While the REIT expects to offset this cut by reducing costs by a similar amount, it remains to be seen.
200

RETIREMENT RESIDENCES REIT - EARNINGS FORECAST
($000s, except per unit amounts) 31-Dec YE Revenues Direct operating expenses Net Operating Income Operating Margin Depreciation and amortization 1QA 258,313 (202,674) 55,639 21.5% (21,714) 33,925 (26,103) 7,822 46.9% 7,822 (10,624) ($2,802) 19.1% (130) (144) (3,076) ($1,696) (4,772) ($0.05) 91,708 91,716 91,659 2QA 267,129 (206,242) $60,887 22.8% (23,225) $37,662 (27,658) $10,004 45.4% (98) $9,906 (10,114) ($208) 16.6% (721) (169) (1,098) ($1,603) (2,701) ($0.03) 91,900 108,449 91,973 2005E 3QA 268,837 (205,866) $62,971 22.4% (23,351) $39,620 (28,552) $11,068 45.3% $11,068 (10,820) $248 16.7% (13,501) (568) (72) (13,893) ($1,405) (15,298) ($0.17) 92,131 109,653 92,020 2006E 4Q 272,764 (212,090) $60,674 22.2% (23,517) $37,158 (28,859) $8,299 47.6% (285) (50) $7,964 (11,528) ($3,564) 19.0% Year 1,067,043 (826,872) $240,171 22.5% (91,807) $148,365 (111,172) $37,193 46.3% (285) (148) $36,760 (43,086) ($6,326) 17.9% (13,501) (1,892) (513) (22,232) ($6,109) (28,341) ($0.31) 92,331 104,918 91,918 1Q 273,279 (213,704) $59,575 21.8% (23,559) $36,016 (28,822) $7,194 48.4% $7,194 (10,931) ($3,737) 18.3% (3,737) ($1,405) (5,142) ($0.06) 92,531 110,053 91,659 2Q 272,698 (209,978) $62,721 23.0% (23,544) $39,177 (28,677) $10,500 45.7% $10,500 (10,908) ($408) 17.4% (408) ($1,405) (1,813) ($0.02) 92,731 110,253 91,659 3Q 274,713 (211,529) $63,184 23.0% (23,655) $39,529 (28,538) $10,991 45.2% $10,991 (10,989) $2 17.4% 2 ($1,405) (1,403) ($0.02) 92,931 110,453 91,659 4Q 276,880 (215,967) $60,914 22.0% (23,774) $37,140 (28,594) $8,546 46.9% $8,546 (11,075) ($2,529) 18.2% (2,529) ($1,405) (3,934) ($0.04) 93,131 110,653 91,659 Year 1,097,570 (851,177) $246,393 22.4% (94,532) $151,861 (114,630) $37,231 46.5% $37,231 (43,903) ($6,671) 17.8% (6,671) ($5,620) (12,291) ($0.13) 93,131 110,353 91,659
Interest expense Interest Expense as a % of NOI Other Income (Expense) Special charges
Trust, G & A expenses Income before other items Total Trust Expenses as a % of NOI Gain on sale of land (loss) Future income taxes Other Current income taxes Net Income Non-controlling interest expense Net Income Available to Unitholders Per Diluted Unit Outstanding Units Weighted Average Units (Diluted) Wgt. Avg. Net Income (Diluted)
(473) (128) (4,165) ($1,405) (5,570) ($0.06) 92,331 109,853 92,020
Funds From Operations Calculation Net Income Depreciation & Amortization Future Income Tax Expense (Benefit) Write-downs Share of Equity Income of Classic Care NonCI Share of FFO in excess of NI Imputed Interest Cost Charges FFO Per Basic Unit Convertible Debenture Interest Per Diluted Unit Payout Ratio
Non-Controlling Interest Expense FFO Available to Unitholders Per Diluted Unit Capex AFFO Per Diluted Unit
-4,772 20,500 130 -1,696 14,162 $0.15 5,162 $0.17 122.3% 1,696 15,858 $0.19 5802 8,360 $0.12 230.2% $10,056 $0.14
-2,701 22,700 721 -1,603 19,117 $0.21 7,193 $0.21 101.0% 1,603 20,720 $0.22 7851 11,266 $0.15 171.1% $12,869 $0.16
-15,298 22,651 568 13,501 -1,900 19,522 $0.21 6,163 $0.21 100.7% -1,900 17,622 $0.19 10750 8,772 $0.12 220.3% $6,872 $0.11
-5,570 22,817 473 -1,405 335 16,649 $0.18 6,163 $0.18 113.5% 1,405 18,054 $0.20 8400 8,249 $0.12 234.8% $9,654 $0.13
-28,341 88,668 1,892 13,501 0 -6,604 0 335 69,450 $0.76 24,681 $0.77 108.6% 6,109 75,559 $0.81 32803 36,647 $0.50 210.7% $42,756 $0.55
-5,142 23,559 473 -1,405 17,485 $0.19 6,163 $0.19 109.7% 1,405 18,890 $0.20 8200 9,285 $0.13 209.0% $10,690 $0.14
-1,813 23,544 473 -1,405 20,799 $0.22 6,163 $0.22 96.4% 1,405 22,204 $0.23 8200 12,599 $0.15 154.4% $14,004 $0.16
-1,403 23,655 473 -1,405 21,320 $0.23 6,163 $0.22 94.7% 1,405 22,725 $0.23 8200 13,120 $0.16 148.6% $14,525 $0.17
-3,934 23,774 473 -1,405 18,908 $0.20 6,163 $0.20 104.0% 1,405 20,313 $0.21 8200 10,708 $0.14 182.4% $12,113 $0.15
-12,291 94,532 1,892 0 0 -5,620 0 0 78,512 $0.85 24,652 $0.83 101.1% 5,620 84,132 $0.88 32800 45,712 $0.57 170.4% $51,332 $0.61
AFFO for common unitholders Per Diluted Unit
201

NET ASSET VALUE
Implied
Retirement LTC Capitalized Value Book Cost Appraisal Increment Add/Deduct: Capital improvements at 2% of revenues Common Equity Deduct: Minority Interest at 20% mark-up to book value Total Pre Tax Value Outstanding Common Shares Pre-tax net asset value Implied Combined Yield Book Value
NOI $131,639 $118,240
Cap Rate 9.00% 10.00%
Market Value $1,462,659 $1,182,400 $2,645,059

$2,459,420 $185,639
($21,507) $755,362 $919,494 $85,756 $833,739 92,131 $9.05 9.4%
$8.20
202

OPERATING SUMMARY
($000) 2001 Capital Structure Assets Debt Equity Minority Interest Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per Diluted Unit Adjusted FFO Per Diluted Unit Deferral Tax Rate Financial Structure Debt to Equity Ratio Debt to Gross Book Value Maturing Debt 2006 As % of Total Debt Maturing Debt 2007 As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Term (in years) Total Interest As % of Operating Income Interest Coverage Expensed Capitalized Interest As % of Total Interest Rental Income Leverage Rental Income Coverage Investment Returns Income Return on Equity FFO Return on Equity Property Portfolio Income Producing Properties Under Development Held for Development 797,346 12,757 -810,103 1,987,871 56,552 -2,044,423 2,438,995 --2,438,995 100% --100% 2,408,749 --2,408,749 100% --100% 2,459,420 --2,459,420 100% --100% 7.7% 11.7% 6.7% 11.3% 5.5% 9.9% 0.7% 8.8% NM 9.6% 1.42 0.56 15,524 3.0% 7.1% n.a 25,263 42.4% 2.23 --8.81 2.36 1.64 0.57 292,014 21.7% 6.7% n.a 64,445 40.3% 2.10 --8.44 2.48 2.57 0.68 277,930 14.3% 6.2% n.a 94,322 44.8% 2.03 --9.25 2.23 1.98 0.56 289,267 17.7% 6.0% 4.0 107,854 46.1% 1.83 --6.98 2.17 2.37 0.58 244,100 13.7% 137,900 7.7% 248,900 13.9% 6.1% 4.0 111,172 46.3% 1.77 --7.44 2.16 934,250 525,405 370,784 2,342,124 1,348,767 824,029 2,796,312 1,948,665 759,637 76,798 19.4 44.5 -7.8 NM 2,774,131 1,635,169 826,676 75,156 -0.8 -16.1 8.8 -2.1 2,870,083 1,786,443 755,362 71,463 3.5 9.3 -8.6 -4.9 2002 2002 2003 Growth % 2004 Growth % 2005E Growth %
59,634 34,371 30,975 $0.87 26,513 $0.74 70.1%
159,840 95,395 70,768 $1.04 49,133 $0.72 73.3%
101.0% 108.2% 71.4% -9.7% 39.0% -26.8%
210,578 116,256 78,200 $1.00 57,941 $0.65 75.0%
31.7 21.9 10.5 -4.1 17.9 -10.8
234,147 126,293 70,100 $0.79 36,714 $0.41 90.0%
11.2 8.6 -10.4 -20.8 -36.6 -35.7
240,171 128,999 75,559 $0.77 36,647 $0.50 90.0%
2.6 2.1 7.8 -2.4 -0.2 19.8
Notes 1) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period. 2) Rental income leverage divides total debt by rental income 3) Rental income coverage divides rental income by total interest incurred 4) FFO and AFFO data for 2001 are annualized
203

ANNUAL RESULTS
($000; 31-Dec YE) Retirement Home Revenue Operating Expenses Operating Income Operating Margin Nursing REIT Income Other Income Total Other Income Income Before Expenses Depreciation Amortization Income before interest Interest Expense As a % of Total Income Gross Operating Income Interest Income 2001 154,147 (94,513) 59,634 38.7% 6,484 6,484 66,118 (11,071) 0 55,047 (25,263) 38.2% 29,784 974 30,758 (10,676) 16.1% 20,082 367 20,449 20,449 $0.57 $30,975 $0.87 87.4% $26,513 $0.74 102.1% $27,061 $0.76 70.1% 38,756 35,779 2002 643,863 (484,023) 159,840 24.8% 159,840 (28,924) 0 130,916 (60,040) 37.6% 70,876 70,876 (28,877) 18.1% 41,999 81 42,080 4,405 37,675 $0.60 $70,768 $1.04 101.0% $49,133 $0.72 145.5% $71,481 $1.12 73.3% 77,385 67,892 2003 931,793 (721,215) 210,578 22.6% 210,578 (41,412) 0 169,166 (81,428) 38.7% 87,738 87,738 (31,751) 15.1% 55,987 440 377 (10,739) (2,326) 43,739 12,894 30,845 $0.40 $78,200 $1.00 114.3% $57,941 $0.65 154.3% $89,403 $1.15 75.0% 78,113 89,733 2004 1,021,664 (787,517) 234,147 22.9% 234,147 (84,683) 0 149,464 (107,854) 46.1% 41,610 41,610 (36,306) 15.5% 5,304 (6,366) 11,896 (5,592) 5,242 0 5,242 $0.06 $70,100 $0.79 108.8% $36,714 $0.41 207.8% $76,292 $1.10 90.0% 91,627 88,470
General & Administrative Expense As a % of Total Income Trust Expenses As a % of Total Income Income before gains Property Gains (losses) Non-controlling interest expense Income Tax Other items Net Income Less: Interest on convertible debentures Adjusted Net Income Per Diluted Unit Funds from Operation (FFO) Per Diluted Unit FFO Payout Ratio Adjusted FFO (AFFO) Per Diluted Unit AFFO Payout Ratio Distribution To Unitholders Distribution Per Unit Tax Deferral Rate Outstanding Units (in 000s) Diluted - Weighted average units
Notes: 1) 2001 represents a nine-month year. 2) AFFO adjusted to reflect actual capital expenditures incurred.
204
DEBT-TO-EQUITY
2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt 503,881 21,524 0 525,405 370,784 896,189 100.0 41.4 824,029 2,172,796 37.9 0.0 100.0 759,637 76,798 2,785,100 27.3 2.8 100.0 826,676 75,156 2,537,001 56.2 2.4 0.0 58.6 989,470 292,014 67,283 1,348,767 45.5 13.4 3.1 62.1 1,640,175 77,267 231,223 1,948,665 58.9 2.8 8.3 70.0 1,377,084 28,898 229,187 1,635,169 54.3 1.1 9.0 64.5 32.6 3.0 100.0 1,417,271 15,100 354,072 1,786,443 755,362 71,463 2,613,268 54.2 0.6 13.5 68.4 28.9 2.7 100.0
Long Term Rate Debt Bank loans or current debt Convertible debentures - debt component Total Debt
Total Unitholders Equity Minority Interest Total Capitalization
Debt-to-Equity Ratio 1.42 2.52 934,250 7,988 942,238 0.56 0.57 2,342,124 35,143 2,377,267 2,796,312 74,370 2,870,682 0.68 2.84 3.68 1.64 2.57
1.98 3.36 2,774,131 153,841 2,927,972 0.56
2.37 3.80 2,870,083 214,691 3,084,774 0.58
Total Assets Plus Accumulated Depreciation Gross Book Value
205

INTEREST COVERAGE
($000) Pre Tax Income Depreciation and Amortization Interest Cash Flow Interest Coverage 2001 20,082 11,071 25,263 56,416 2.23 2002 41,999 28,924 64,445 135,368 2.10 2003 55,987 41,412 94,322 191,721 2.03 2004 5,304 84,683 107,854 197,841 1.83 2005E (6,326) 91,807 111,172 196,652 1.77 2006E (6,671) 94,532 114,630 202,490 1.77
Note: 1) Interest includes convertible debentures interest.

($000) Average Common Equity Net Income Funds from Operation (FFO) Net Income Return on Equity FFO Return on Equity Note: 1) 2001 is annaualized 2001 352,546 20,449 30,975 7.7% 11.7% 2002 628,757 42,080 70,768 6.7% 11.3% 2003 791,833 43,739 78,200 5.5% 9.9% 2004 793,157 5,242 70,100 0.7% 8.8% 2005E 791,019 -28,341 75,559 NM 9.6% 2006E 755,362 -12,291 84,132 NM 11.1%
RETURN ON EQUITY
($000) Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2001 525,405 59,634 8.81 25,263 2.36 2002 1,348,767 159,840 8.44 64,445 2.48 2003 1,948,665 210,578 9.25 94,322 2.23 2004 1,635,169 234,147 6.98 107,854 2.17 2005E 1,786,443 240,171 7.44 111,172 2.16 2006E 1,786,443 246,393 7.25 114,630 2.15
Notes: 1) Total interest includes convertible debentures.

206
RioCan REIT
RioCan REIT
(REI.UN-T, $23.05)
Financial Summary FFO P/FFO AFFO P/AFFO 2004 $1.39 16.5x $1.25 18.5x 2005E $1.30 17.7x $1.16 19.8x 2006E $1.36 17.0x $1.24 18.5x $8.63 2.7 x $15.00 53.7% $1.29 5.6% 195.1 195.1 $4,497 31-Dec
HIGHLIGHTS Entered into purchase and development agreement with Quebec developer to
acquire 4 shopping centres for an investment of $224 million at an estimated 7.35% cap rate. These centres will produce incremental FFO of $5.7 million or $0.03 per unit.
Book Value Per Share Price/Book Value Estimated NAV Premium to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End
Refinanced $339 million of debt, realizing attractive new rates which are approximately 230 bps lower translating into annualized interest savings of $7.8 million or $0.04 per unit that will augment FFO in 2006. Sold portfolio of non-core enclosed regional malls in secondary markets to Retrocom REIT for$182 million at an estimated 8% cap rate, reducing NOI by $14.5 million annually and FFO by $5.5 million or $0.03 per unit. RioCan to earn property and asset management fees. Late September, completed to RRVLP program with TICREFF and OMERS to invest $200 million. Management indicated that it is working on a second RRVLP fund with lower hurdle rates. RioCan has a 15% equity interest and provides the property and asset management services.
Company Description: RioCan is Canada's largest real estate investment trust specializing in the ownership of shopping centers. It has ownership interests in a portfolio of 201 retail properties, including 14 under development. As at September 30, 2005, the REIT derives 63.6% of its rental revenue from Ontario, 16.4% from Quebec, 8.9% from Alberta and 6.5% from British Columbia.
STRENGTHS Significant balance sheet capacity to acquire assets or real estate companies
with $700 million of capacity.
Development pipeline with nearly 1 million square feet of development under way with the prospect of adding 500,000 sq.ft. per annum. In 2006, management projects adding 665,000 sq.ft., which will contribute $21.5 million to NOI at an average cap rate of 9.5%. This implies annualized FFO after financing of approximately $9 million or $0.05 annualized for 2007E. As Canadas 15th largest shopping centre owner, RioCan has significant clout amongst retailers. Approximately 40% of the portfolio is unenclosed, relatively new large format power centres. Lease maturities remain minimal over the near term. Entrepreneurial management team invents new methods to add value to unitholders including strategic asset sales and joint ventures with institutional money managers. Management fee income diversifies income stream and augments relatively stable operating income from rental properties.
207
RioCan REIT
CHALLENGES Acquisition growth highly competitive marketplace. Opportunity to acquire

new power centres or super-regional malls limited.
Same-property operating income growth relatively stagnant as higher achieved rents eaten up by higher operating costs. Development opportunities take time before it translates into bottom-line FFO growth. Retail industry in Canada is highly concentrated with a real threat of consolidation amongst department stores, grocery chains and banks. Management fee income is lumpy revenue source. Generally, this income stream is non-recurring (i.e., asset dispositions) and warrants a lower valuation multiple. The challenge will be to smooth this income stream going-forward.
208
RIOCAN REIT - EARNINGS FORECAST

2005E 2006E 4Q 163,417 (53,928) $109,489 67.0% (21,509) (5,016) (4,039) $78,925 (40,648) $38,277 37.0% 37.6% 3,153 5,000 $46,430 (5,982) (6,022) Year 616,489 (202,440) $414,049 67.2% (81,090) (18,675) (15,039) $299,245 3QA 133,996 (42,619) $91,377 68.8% (19,678) (3,930) (3,323) $64,446 (38,258) $29,225 37.0% 41.1% 3,153 5,000 $37,378 (5,188) (5,580) 3,153 5,000 $42,814 3,153 5,000 $47,477 $34,661 37.0% 38.8% $39,324 37.0% 37.2% (37,576) 2,522 $30,583 37.0% 40.6% 3,153 5,300 $39,036 (5,165) 10,071 25,287 $160,740 (145,499) 10,088 $125,382 39.1% 39.9% (38,860) (39,991) (20,657) (4,127) (3,489) $65,637 (80,540) (15,159) (15,522) $260,793 (19,026) (4,333) (3,489) $67,484 (19,728) (4,549) (3,664) $73,522 (20,827) (4,777) (3,847) $79,315 4Q 141,005 (47,096) $93,910 66.6% Year 558,470 (186,457) $372,014 66.6% 1Q 145,125 (50,794) $94,331 65.0% 2006E 2Q 3Q 150,316 157,631 (48,853) (48,866) $101,463 $108,765 67.5% 69.0%
(in $000s; 31-Dec YE)
Rental Revenue Operating Expenses Management Fees Gross Property Income Operating Margin (20,486) (3,074) (4,082) $67,920 (35,771) 2,363 $34,512 37.0% 38.5% 2,254 2,843 $39,609 (5,282) 581 $34,908 5.5% 5.7% 9,770 (20,486) $24,192 $0.12 ($60,636) $0.3150 193,012 194,084 194,170 195,472 195,138 196,286 195,438 196,586 194,440 196,586 $33,871 5.5% 5.6% $33,871 $0.17 ($61,419) $0.3225 195,738 196,886 $32,190 5.5% 5.6% $32,190 $0.16 ($61,513) $0.3225 1,511 7,371 $38,661 (35,489) 2,478 $29,779 37.0% 39.7% (19,719) (4,028) (4,628) $62,790
1QA 148,015 (52,453) $95,562 64.6%
2005E 2QA 135,454 (44,289) $91,165 67.3%
Depreciation of buildings Amortization of intangible leasing costs Amortization of leasing costs Gross Property Income before Interest Expense
Interest Expense Capitalized interest Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
(157,758) $141,487 38.1% 38.6% 12,612 20,000 $174,099 (22,773)
Interest Income Fee Income Other income (expense) Total Operating Income
(36,663) 2,725 $30,508 37.0% 40.7% -38.8% 3,153 9,773 $43,434
Total Trust Expenses Capitalized G&A Income before other items Total Trust Expenses as a % of Gross Property Income
Property gains (losses) Discontinued operations Other NET INCOME Per Diluted Unit Distributions to Unitholders Per Unit
(4,957) 487 $34,191 5.4% 5.5% 2,015 (2,606) (63) $33,537 $0.17 ($60,987) $0.3150
(4,977) 514 $38,971 5.5% 5.5% 2,891 (1,720) $40,142 $0.20 ($62,330) $0.3200
(20,381) 1,582 $141,941 5.5% 5.6% 14,676 (4,326) (20,549) $131,742 $0.67 ($247,424) $1.2725
$37,234 5.5% 5.6% $37,234 $0.19 ($61,608) $0.3225 196,038 197,186
$41,495 5.5% 5.6% $41,495 $0.21 ($61,702) $0.3225 196,338 197,486
$40,408 5.5% 5.6% $40,408 $0.20 ($61,797) $0.3225 196,638 197,786
$151,327 5.5% 5.6% $151,327 $0.77 ($253,083) $1.29 196,188 197,336
Outstanding Units Weighted Average Units - diluted

$24,192 $20,896 4,324 $3,074 $0 $0 ($410) $0 $52,076 $0.27 116.2% $33,537 $19,719 4,628 4,028 $4,984 $0 $0 $5,562 $72,458 $0.37 84.1% $40,142 19,678 3,323 3,930 $0 $0 $0 $1,901 $68,974 $0.35 90.3% $33,871 $21,070 3,489 4,127 $0 $0 $0 $0 $62,557 $0.32 100.5% 131,742 81,363 15,764 15,159 4,984 (410) 7,463 $256,065 $1.30 96.3% $32,190 $19,406 3,489 $4,333 $0 $0 $0 $0 $59,418 $0.30 106.0% $52,076 ($2,554) ($4,070) ($800) $44,652 $0.23 135.5% $72,458 ($1,814) ($4,643) ($1,200) $64,801 $0.33 94.1% $68,974 ($1,276) ($4,288) ($1,200) $62,210 $0.32 100.1% $62,557 ($1,276) ($2,952) ($1,200) $57,129 $0.29 110.1% $256,065 ($6,920) ($15,953) ($4,400) $228,792 $1.16 107.8% $59,418 ($1,276) ($3,104) ($1,200) $53,838 $0.27 117.0%
Calculation of Funds From Operations (FFO) Net Earnings Amortization of Tangible Capital Assets Amortization of Tangible Leasing Costs Amortization of Intangible Leasing Costs Provision for dimunition in valuation of income properties Loss (gain) from income properties held for sale Other Discontinued Operations Funds From Operations Per diluted unit FFO Payout Ratio
$37,234 $20,123 3,664 $4,549 $0 $0 $0 $0 $65,570 $0.33 96.2%
$41,495 $21,244 3,847 $4,777 $0 $0 $0 $0 $71,362 $0.36 88.5%
$40,408 $21,939 4,039 $5,016 $0 $0 $0 $0 $71,403 $0.36 88.6%
$151,327 $82,712 15,039 $18,675 $0 $0 $0 $0 $267,753 $1.36 94.3%
Calculation of Adjusted Funds From Operations (AFFO) FFO (from above) Straightline Rent Leasing costs Capital expenditures AFFO Per diluted unit Adj. FFO Payout Ratio
$65,570 ($1,276) ($3,104) ($1,200) $59,990 $0.30 105.1%
$71,362 ($1,276) ($3,104) ($1,200) $65,782 $0.33 96.0%
$71,403 ($1,276) ($3,104) ($1,200) $65,822 $0.33 96.1%
$267,753 ($5,104) ($12,417) ($4,800) $245,431 $1.24 102.9%
RioCan REIT
209
RioCan REIT
NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Fee income Common Equity Total Pre-tax Value Outstanding Common Units 6.50% 7.00% 7.25% 7.50% 7.75% 8.0%
365,094 5,616,825
365,094 5,215,623
365,094 5,035,774
365,094 4,867,915
365,094 4,710,885
365,094 4,563,670
3,751,099 1,865,726 126,435 1,684,470 3,676,631 195,138
3,751,099 1,464,524 126,435 1,684,470 3,275,429 195,138
3,751,099 1,284,675 126,435 1,684,470 3,095,580 195,138
3,751,099 1,116,816 126,435 1,684,470 2,927,721 195,138
3,751,099 959,786 126,435 1,684,470 2,770,691 195,138
3,751,099 812,571 126,435 1,684,470 2,623,476 195,138
Pre-tax NAV Notes: 1) Rental income annualized for the year. 2) Assumes fee income at 5 times multiple.
$18.84
$16.79
$15.86
$15.00
$14.20
$13.44
210
OPERATING SUMMARY
($000) Portfolio Growth 2,414,514 1,158,482 1,160,517 195,722 122,597 151,679 $1.16 136,941 $1.04 55.1% 35.0% 36.2% na na na na 226,759 140,368 173,832 $1.21 159,807 $1.11 30.9% 15.9% 14.5% 14.6% 4.7% 16.7% 6.6% 292,099 182,268 196,550 $1.27 180,664 $1.17 38.5% 28.8% 29.9% 13.1% 4.9% 13.1% 4.9% 340,226 202,447 222,515 $1.32 208,061 $1.24 47.9% 16.5% 11.1% 13.2% 4.0% 15.2% 6.6% 362,463 216,630 251,616 $1.39 225,518 $1.25 46.0% 6.5% 7.0% 13.1% 5.6% 8.4% 0.4% 365,093 226,957 256,065 1.30 228,792 $1.16 na 0.7% 4.8% 1.8% -6.5% 1.5% -6.8% 11.7% 9.9% 15.0% 2,707,627 1,326,724 1,212,451 12.1% 14.5% 4.5% 3,294,095 1,746,067 1,348,320 21.7% 31.6% 11.2% 3,790,591 2,059,124 1,580,740 15.1% 3,952,278 17.9% 2,214,392 17.2% 1,585,168 4.3% 4,227,733 7.5% 2,387,470 0.3% 1,684,470 7.0% 7.8% 6.3%
Financial Structure 1.00 0.47 Year2006 16,219 1.4% 7.3% 6.2 77,380 39.5% 3.07 2.91 4,255 5.5% 5.92 2.68 5.85 2.62 6.15 2.51 3.01 2.92 2,800 3.1% 2.78 2.62 6,513 5.6% 89,191 39.3% 116,344 39.8% 137,779 40.5% 2.73 2.54 9,216 6.7% 6.05 2.47 0.0% 7.0% 5.7 0.0% 7.1% 6.0 78,532 Year 2007 3.3% 66,336 5.0% 7.0% 5.5 193,653 8.1% 0.0% 7.0% 5.8 145,833 40.2% 2.44 2.30 8,474 5.8% 5.98 2.54 0.0% 6.9% 5.6 138,136 37.8% 2.84 2.78 2,725 2.0% 6.42 2.69 1.09 0.48 1.29 0.52 1.30 0.53 1.40 0.54 1.42 0.54
Rental Income Leverage Rental Income Coverage (2)
(1)

1,990,940 37,328 -2,028,268 98.2% 1.8% -100.0% 2,405,053 45,064 -2,450,117 98.2% 1.8% -100.0% 3,076,796 90,520 -3,167,316 97.1% 2.9% -100.0% 3,399,516 103,593 3,503,109
Property Portfolio 97.0% 3,699,491 3.0% 130,592 -100.0% 3,830,083 96.6% 3,751,099 3.4% 181,738 -100.0% 3,932,837 95.4% 4.6% -100.0%
RioCan REIT
Notes 1) Rental income leverage divides total debt by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period.
211
RioCan REIT
ANNUAL RESULTS
($000; 31-Dec YE) Rental Revenue Operating Expenses & Property Taxes Gross Operating Income Operating Margin Depreciation Amortization Income before interest Interest Expense As a % of Rental Income Gross Operating Income Interest & Other Income 2000 301,394 105,672 195,722 64.9% 13,343 4,896 177,483 73,125 37.4 104,358 35,442 139,800 6,360 3.2 133,440 (11,626) 121,814 $0.93 141,137 $1.07 151,679 $1.16 93% 136,941 $1.04 103% 55.1% 141,773 131,150 2001 343,825 117,066 226,759 66.0% 16,890 6,078 203,791 86,391 38.1 117,400 42,722 160,122 9,258 4.1 150,864 1,100 9,704 159,468 $1.11 154,618 $1.08 173,832 $1.21 89% 159,807 $1.11 97% 30.9% 146,669 143,588 2002 437,041 144,942 292,099 66.8% 23,336 7,334 261,429 109,831 37.6 151,598 26,635 178,233 11,261 3.9 166,972 2,550 7,786 172,208 $1.11 171,115 $1.11 196,550 $1.27 87% 180,664 $1.17 95% 38.5% 158,573 154,813 2003 507,848 167,622 340,226 67.0% 29,859 6,301 304,066 128,563 37.8 175,503 23,101 198,604 12,764 3.8 185,840 1,843 (1,581) 182,416 $1.07 193,011 $1.14 222,515 $1.32 87% 208,061 $1.24 93% 47.9% 178,050 167,195 2004 549,147 179,082 370,065 67.4% 76,515 15,664 277,886 137,359 37.1 140,527 24,911 165,438 15,015 4.1 150,423 (3,740) 5,269 159,432 $0.87 222,044 $1.21 251,616 $1.39 88% 225,518 $1.25 98% 46.0% 180,978 180,570
General & Administrative Expense As a % of Rental Income Income before gains Non-controlling Interest Investment & Property Gains Net Income Per diluted unit Distribution to Unitholders Per Unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted Funds from Operations (AFFO) Per diluted unit AFFO Payout Ratio Tax Deferral Rate Outstanding Units Weighted average (diluted)
Notes: 1) AFFO deducts deferred leasing costs. 2) 2004 FFO excluding straightline rental income is $244.0 million or $1.35 per unit.
212
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt Fixed Rate Debt Debentures Total Debt 858,482 300,000 1,158,482 1,160,517 2,318,999 100.0 2,539,174 100.0 3,094,539 100.0 3,639,864 100.0 3,799,560 50.0 1,212,451 47.7 1,348,472 43.6 1,580,740 43.4 1,585,168 37.0 1,026,723 12.9 300,000 50.0 1,326,723 40.4 1,407,374 11.8 338,693 52.3 1,746,067 45.5 1,720,431 10.9 338,693 56.4 2,059,124 47.3 1,765,699 9.3 448,693 56.6 2,214,392
46.5 1,717,470 11.8 670,000 58.3 2,387,470 41.7 1,684,470 100 4,071,940
42.2 16.5 58.6 41.4 100
Debt-to-Equity Ratio 1.00 2.08 2,707,627 60,873 2,768,500 0.48 0.52 0.53 3,294,095 87,470 3,381,565 3,790,591 88,402 3,878,993 2.23 2.44 2.40 1.09 1.29 1.30
1.40 2.49 3,952,278 162,999 4,115,277 0.54
1.42 2.51 4,227,733 211,862 4,439,595 0.54
Total Assets 2,414,514 Accumulated Depreciation 42,493 Gross Book Value 2,457,007 0.47
RioCan REIT
213
RioCan REIT
INTEREST COVERAGE
($000) Net Income before gains Depreciation Amortization Interest Pre-Interest Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 2000 133,440 13,343 4,896 73,125 224,804 3.07 4,255 77,380 2.91 2001 150,864 16,890 6,078 86,391 260,223 3.01 2,800 89,191 2.92 2002 164,422 23,336 7,334 109,831 304,923 2.78 6,513 116,344 2.62 2003 185,840 29,859 6,301 128,563 350,563 2.73 9,216 137,779 2.54 2004 150,423 31,750 15,664 137,359 335,196 2.44 8,474 145,833 2.30 2005E 137,615 80,540 30,681 135,411 384,247 2.84 2,725 138,136 2.78 2006E 151,327 81,090 33,714 157,758 423,889 2.69 2,725 160,483 2.64
Note: 1) Net Income for 2003, 2004, 2005 does not include Gains. 2) Capitalized interest for 2005E used data for 3Q05. 3) Capitalized interest for 2006E used 2005 data

($000) Debt Rental Operating Income Debt/Rental Income Ratio Total Interest Rental Income/Interest Expense 2000 1,158,482 195,722 5.92 73,125 2.68 2001 1,326,723 226,759 5.85 86,391 2.62 2002 1,796,863 292,099 6.15 116,344 2.51 2003 2,059,124 340,226 6.05 137,779 2.47 2004 2,214,392 362,463 5.98 145,833 2.54 2005E 2,387,470 365,093 6.42 138,136 2.69 2006E 2,387,470 408,945 5.77 160,483 2.58
Note: 1) Debt for 2006E assumed constant. 2) Rental income adjusted for straightline rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations (FFO) Net Income Return on Equity FFO Return on Equity 2000 1,085,030 121,814 151,679 11.2% 14.0% 2001 1,186,484 159,468 173,832 13.4% 14.7% 2002 1,280,461 172,208 196,550 13.4% 15.3% 2003 1,464,606 182,416 222,515 12.5% 15.2% 2004 1,582,954 159,432 251,616 10.1% 15.9% 2005E 1,634,819 131,742 256,065 8.1% 15.7% 2006E 1,684,470 151,327 267,753 9.0% 15.9%
Notes: 1) Equity data for 2006E the same as 2005E 2) Net income does not adjust for non-recurring gains and losses.
214
Summit REIT
Summit REIT
(SMU.UN-T, $25.43)
Financial Summary FFO P/FFO AFFO P/AFFO 2004A $1.81 14.0x $1.36 18.7x 2005E $1.82 14.0x $1.56 16.3x 2006E $1.88 13.5x $1.62 15.7x $12.81 2.0 x $19.97 27.3% $1.55 6.1% 67.1 66.7 $1,706 31-Dec
HIGHLIGHTS Increased its distribution to unitholders by $0.02. First time in many years as
FFO has caught up with acquisition activity.
Despite tough acquisition market, Summit has managed to grow its property portfolio via acquisition and development activity. Nearly completed its U.S. divestiture program.
Book Value Per Share Price/Book Value Estimated NAV Premium to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End
STRENGTHS Occupancy rates remain sound for the portfolio and for the industrial sector. Solid same-property operating performance on a consistent basis. Average leasing cost continues to decline indicative of economies of scale. The REIT has managed its lease expiries exceptionally well with solid tenant
retention rates.
Development activity to provide incremental FFO growth at attractive returns.
Company Description: Through a series of acquisitions of light industrial properties Summit has grown to become the largest light industrial landlord in Canada with a dominant presence in most major markets across the country. As at September 30, 2005, Summits property portfolio totaled 31.9 million square feet of gross leaseable area (GLA) with a net book value of approximately $1.9 billion. The net book value of Summits income properties has grown from just over $59 million in 1995 to approximately $1.8 billion at September 30, 2005.
CHALLENGES Industrial market is highly competitive in terms of acquisition cap rates

approaching replacement cost.
Greater Toronto, which remains the REITs largest market continues to see new development activity, dominated by aggressive U.S. investors with longterm investment horizon and lower return expectations. Industrial rental rates remain flat to up modestly. Some markets with new supply will see flat to slightly lower rents. Deferred capital expenditures. Dilution of quality of portfolio with recent higher-yielding multi-tenant industrial property acquisitions.
215
Summit REIT
SUMMIT REIT - EARNINGS FORECAST
(in $000s; 31-Dec YE) 1QA 70,000 (24,657) $45,343 64.8% 64.1% (10,493) (368) (2,713) $31,769 (16,350) $15,419 36.1% 649 1,239 $17,307 (370) $16,937 2.4% 1,192 (1,368) $16,761 $0.27 ($23,900) $0.3825 2005E 2QA 3QA 68,860 70,221 (23,936) (24,972) $44,924 $45,249 65.2% 65.0% 64.7% 63.9% (10,576) (377) (2,516) $31,455 (16,012) $15,443 35.6% 1,042 $16,485 (400) $16,085 2.4% 2,607 (2,827) (3,109) $12,756 $0.21 ($23,132) $0.3859 (10,395) (378) (2,447) $32,029 (15,608) $16,421 34.5% -35.4% 1,143 $17,564 (570) $16,994 2.4% (2,385) $14,609 $0.23 ($26,002) $0.3876 4Q 71,482 (24,661) $46,821 65.5% 65.0% (10,592) (397) (2,547) $33,285 (16,109) $17,176 34.4% 978 $18,154 (1,124) $17,030 2.4% $17,030 $0.26 ($26,002) $0.3876 2005E Year 280,563 (98,226) $182,337 65.0% 64.3% (42,056) (1,520) (10,223) $128,538 (64,079) $64,459 35.1% 3,812 1,239 $69,510 (2,464) $67,046 1.4% 1,414 (4,195) (3,109) $61,156 $0.97 ($99,036) $1.5300 1Q 73,073 (25,576) $47,498 65.0% 64.5% (10,811) (417) (2,597) $33,673 (16,440) $17,233 34.6% 978 $18,210 (1,140) $17,070 2.4% 2006E 2Q 3Q 75,201 77,244 (26,320) (27,035) $48,880 $50,209 65.0% 65.0% 64.5% 64.5% (11,114) (438) (2,647) $34,682 (16,803) $17,879 34.4% 978 $18,857 (1,173) $17,684 2.4% (11,385) (459) (2,697) $35,668 (17,125) $18,543 34.1% 978 $19,520 (1,205) $18,315 2.4% 4Q 79,710 (27,500) $52,210 65.5% 65.1% (11,717) (482) (2,747) $37,264 (17,524) $19,739 33.6% 978 $20,717 (1,253) $19,464 2.4% 2006E Year 305,228 (106,431) $198,796 65.1% 64.4% (45,026) (1,796) (10,688) $141,286 (67,892) $73,394 34.2% 3,911 $77,305 (4,771) $72,534 2.4% -
Rental Revenue Operating Expenses Gross Property Income Operating Margin
Amortization Amortization of deferred financing costs Amortization of deferred leasing costs Gross Property Income before Interest Expense Interest Expense Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income Interest Income Other Income Total Operating Income Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property Income Property gains Realized foreign exchange loss Write Down Other - imputed interest expense NET INCOME Per diluted unit Distributions to Unitholders Per Unit FFO Calculation Net Income Amortization Amortization of deferred leasing costs Property gains Realized foreign exchange loss Amortization of intangibles Other FFO Per Unit Convertible Debenture Interest Diluted FFO Per Unit FFO Payout Ratio Adjusted FFO Straight-line rent Capex Leasing Costs AFFO Per Unit Diluted AFFO Per diluted unit AFFO Payout Ratio Outstanding Units Weighted Average Units - diluted
$17,070 $0.26 ($26,073) $0.3875
$17,684 $0.27 ($26,150) $0.3875
$18,315 $0.27 ($26,228) $0.3875
$19,464 $0.29 ($26,305) $0.3875
$72,534 $1.09 ($104,755) $1.5500
$16,761 10,493 2,713 (1,192) 1,368 $30,143 $0.49 $1,563 $31,706 $0.48 75.4%
$12,756 10,576 2,516 (2,607) 2,827 3,109 $29,177 $0.470 $1,563 $30,740 $0.46 75.3%
$14,609 10,395 2,066 2,385 $29,455 $0.472 $1,563 $31,018 $0.46 83.8%
$17,030 10,592 2,547 $30,169 $0.455 $1,563 $31,731 $0.42 81.9%
$61,156 42,056 10,223 (1,414) 4,195 $0 3,109 $119,325 $1.89 $6,250 $125,575 $1.82 78.9%
$17,070 10,811 2,597 $30,478 $0.458 $1,563 $32,041 $0.45 81.4%
$17,684 11,114 2,647 $31,445 $0.471 $1,563 $33,007 $0.46 79.2%
$18,315 11,385 2,697 $32,397 $0.484 $1,563 $33,960 $0.47 77.2%
$19,464 11,717 2,747 $33,928 $0.506 $1,563 $35,490 $0.49 74.1%
$72,534 45,026 10,688 $128,248 $1.92 $6,250 $134,498 $1.88 77.9%
(1,192) (531) (1,887) $26,533 $0.43 $28,096 $0.42 85.1% 62,048 66,677
($1,047) (1,621) (2,681) $23,828 $0.38 $25,391 $0.38 91.1% 62,227 66,742
($1,000) (1,748) -3344 $23,363 $0.37 $24,926 $0.37 104.3% 67,084 67,060
($1,000) (1,100) -2500 $25,569 $0.39 $27,131 $0.38 95.8% 67,084 70,948
(4,239) (5,000) (10,412) 99,293 $1.57 105,543 $1.56 93.8% 67,084 67,857
($1,000) -1100 -2500 $25,878 $0.39 $27,441 $0.39 95.0% 67,284 71,148
($1,000) -1100 -2500 $26,845 $0.40 $28,407 $0.40 92.1% 67,484 71,348
($1,000) -1100 -2500 $27,797 $0.42 $29,360 $0.41 89.3% 67,684 71,548
($1,000) -1100 -2500 $29,328 $0.44 $30,890 $0.43 85.2% 67,884 71,748
-4000 -4400 -10000 $109,848 $1.64 $116,098 $1.62 90.2% 67,084 71,448
216
Summit REIT
NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Common Shares 7.50% 8.0% 8.25% 8.5% 8.75%
183,284 2,443,786
183,284 2,291,049
183,284 2,221,623
183,284 2,156,281
183,284 2,094,673
1,810,852 632,934 859,757 1,492,691 67,084
1,810,852 480,197 859,757 1,339,954 67,084
1,810,852 410,771 859,757 1,270,528 67,084
1,810,852 345,429 859,757 1,205,186 67,084
1,810,852 283,821 859,757 1,143,578 67,084
Pre-tax Book Value
$22.25
$19.97
$18.94
$17.97
$17.05
Notes: (1) Based on the current run-rate for the acqusitions completed at 3Q05. Gross operating income deducts straightline rental income.
217
OPERATING SUMMARY
218
($000) Capital Structure 845,255 493,408 331,205 85,891 47,386 43,871 $1.62 34,275 $1.28 82.2% 52.6% 35.7% na na na na 88,410 51,656 48,488 $1.63 38,818 $1.31 64.9% 2.9% 9.0% 10.5% 0.3% 13.3% 2.8% 128,774 80,152 75,638 $1.69 59,841 $1.34 62.8% 45.7% 55.2% 56.0% 3.8% 54.2% 2.1% 149,562 92,316 90,041 $1.73 72,535 $1.39 73.2% 16.1% 15.2% 19.0% 2.3% 21.2% 3.9% 162,188 99,510 105,398 $1.81 82,860 $1.36 85.6% 8.4% 7.8% 17.1% 4.6% 14.2% -2.2% 178,098 112,995 125,575 $1.82 105,543 $1.56 n.a 9.8% 13.6% 19.1% 0.7% 27.4% 14.5% -8.5% -8.1% 18.6% 1,066,904 609,215 429,785 26.2% 23.5% 29.8% 1,502,839 802,845 659,178 40.9% 31.8% 53.4% 1,621,109 852,263 723,235 7.9% 1,931,290 6.2% 1,091,773 9.7% 770518 19.1% 1,962,807 28.1% 1,029,240 6.5% 859757 1.6% -5.7% 11.6%
Summit REIT
Financial Structure 1.49 0.57 2.55 Year 2006 47,131 9.6% 7.5% 4.3 38,618 45.0% 2.12 2.11 113 0.3% 5.74 2.22 6.89 2.38 6.23 2.58 2.27 2.25 402 1.1% 2.55 2.50 843 1.7% 37,154 42.0% 49,957 38.8% 57,246 38.3% 2.60 2.56 971 1.7% 5.70 2.61 67,316 8.4% 6.9% 4.8 170,285 20.0% 6.7% 4.4 118,592 11.5% Year 2007 116,237 11.3% 23,698 3.9% 7.0% 5.0 1.42 0.56 2.48 1.22 0.52 2.28 1.18 0.51 2.24 1.42 0.54 2.51 1.20 0.50 2.28
Debt to Equity Debt to Gross Book Value Assets to Equity
50,000 4.6% 6.24% 5.1 62,678 38.6% 2.72 2.66 1,468 2.3% 6.73 2.59
65,871 6.4% 6.14% 4.8 65,103 36.6% 2.89 2.84 1,023 1.6% 5.78 2.74

10.7% 13.1% 10.0% 12.7% 11.0% 13.9% 9.2% 13.0% 6.9% 14.1% 7.5% 15.4% 816,578 --816,578 100.0% --100.0% 1,033,884 --1,033,884 100.0% --100.0% 1,461,013 --1,461,013 100.0% --100.0% 1,555,319 --1,555,319 100.0% 1,807,273 -24,277 -100.0% 1,831,550 98.7% 1,810,852 1.3% 26,801
Rental Income Leverage(1) Rental Income Coverage(2)
Investment Returns
Property Portfolio 98.5% 1.5%
100% 1,837,653 100% Notes 1) Rental income leverage divides total debt divided by rental income. 2) Rental income coverage divides rental income by total incurred interest. 3) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period.
Summit REIT
ANNUAL RESULTS
($000) Rental Revenue Operating Expenses & Property Taxes Rental Income Operating Margin Depreciation Amortization Income before interest Interest Expense (including conv. Debs.) As a % of Rental Income Gross Operating Income Interest & Other Income 2000 142,063 56,172 85,891 60.5% 6,742 3,063 76,086 38,505 44.8 37,581 500 38,081 3,606 2.5 0 0.0 1,211 33,264 2,501 35,765 0 35,765 $1.33 39,808 $1.53 43,871 $1.62 90.7% 34,275 $1.28 116.1% 82.2% 25,864 25,979 2001 144,271 55,861 88,410 61.3% 6,944 3,446 78,020 36,752 41.6 41,268 (487) 40,781 4,500 3.1 0 0.0 0 36,281 3,516 39,797 0 39,797 $1.31 44,338 $1.53 48,488 $1.63 91.4% 38,818 $1.31 114.2% 64.9% 34,238 28,842 2002 206,340 77,566 128,774 62.4% 10,177 4,690 113,907 49,114 38.1 64,793 111 64,904 4,289 2.1 0 0.0 0 60,615 (1,883) 58,732 0 58,732 $1.33 66,828 $1.53 75,638 $1.69 88.4% 59,841 $1.34 111.7% 62.8% 51,643 43,792 2003 235,588 86,026 149,562 63.5% 12,379 5,838 131,345 56,275 37.6 75,070 320 75,390 3,464 1.5 0 0.0 0 71,926 (8,190) 63,736 0 63,736 $1.23 79,950 $1.53 90,041 $1.73 88.8% 72,535 $1.39 110.2% 73.2% 56,826 52,048 2004 257,926 90,551 167,375 64.9% 38,251 9,208 119,916 61,210 36.6 58,706 3,049 61,755 3,816 1.5 0 0.0 0 57,939 (6,323) 51,616 0 51,616 $0.90 99,036 $1.53 105,398 $1.81 94.0% 82,860 $1.36 119.5% 85.6% 61,972 60,772
General & Administrative Expense As a % of Rental Income Advisory Fees As a % of Rental Income Other Expenses Income before gains Property Gains & Other Pre Tax Income Income Taxes Net Income Per diluted unit Distributions to unitholders Per Unit Funds from Operations (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Tax Deferral Rate Outstanding Units (in 000s) Weighted average (diluted)
Notes: 1) Net income and distribulable income are net of interest on convertible debentures 2) FFO and AFFO data start from year 2003 3) Interest on Convertible Debentures started to run through Income Statement in 2004 4) 2004 FFO excluding straight-line rental income is $100.2 million or $1.73 per unit.
219
220
Summit REIT
DEBT-TO-EQUITY
($000) Debt Mortgage Debt Convertible Debentures Unsecured debentures Bank Loan and Floating Rate Debt Total Debt Total Unitholders Equity Total Capitalization Debt-to-Equity Ratio Total Assets Asset-to-Equity Ratio Gross Book Value Debt-to-Gross Book Value 418,921 27,356 0 47,131 493,408 331,205 824,613 558,161 27,356 0 23,698 609,215 429,785 1,039,000 735,529 0 0 67,316 802,845 659,178 1,462,023 681,978 0 0 170,285 852,263 723,235 1,575,498 826,773 100,000 115,000 50,000 1,091,773 770,518 1,862,291 748,459 100,000 115,000 65,781 1,029,240 859,757 1,888,997 2000 2001 2002 2003 2004 3Q05
1.49 845,255 2.55 862,131 0.57
1.42 1,066,904 2.48 1,090,254 0.56
1.22 1,502,839 2.28 1,534,337 0.52
1.18 1,621,109 2.24 1,659,528 0.51
1.42 1,931,290 2.51 2,005,969 0.54
1.20 1,962,807 2.28 2,063,605 0.50
Notes: 1) Equity does not include Convertible Debentures 2) 1998 convertible debentures were repaid in March and September 2002 3) In March 2004 the firm issued $100 mln convertible debentures with coupon of 6.25% and conversion price of $21.50.
Summit REIT
INTEREST COVERAGE
($000) Income before gains and taxes Depreciation Interest Pre-tax Cash Flow Interest Coverage Capitalized interest Total interest Total interest coverage 2000 33,264 9,805 38,505 81,574 2.12 113 38,618 2.11 2001 36,281 10,390 36,752 83,423 2.27 402 37,154 2.25 2002 61,107 14,867 49,114 125,088 2.55 843 49,957 2.50 2003 71,926 18,217 56,275 146,418 2.60 971 57,246 2.56 2004 57,939 47,459 61,210 166,608 2.72 1,468 62,678 2.66 2005E 67,046 53,799 64,079 184,924 2.89 1,023 65,103 2.84 2006E 72,534 57,510 67,892 197,936 2.92 1,023 68,916 2.87
Notes: 1) The capitalized interest for 2005E and 2006E used 3Q05 data; 2) Interest Expense includes interest expense on Convertible Debentures

($000) Total Debt Rental Operating Income Debt/Rental Income Ratio Total Interest (1) Rental Income/Interest 2000 493,408 85,891 5.74 38,618 2.22 2001 609,215 88,410 6.89 37,154 2.38 2002 802,845 128,774 6.23 49,957 2.58 2003 852,263 149,562 5.70 57,246 2.61 2004 1,091,773 162,188 6.73 62,678 2.59 2005E 1,029,240 178,098 5.78 65,103 2.74 2006E 1,029,240 194,796 5.28 68,916 2.83
Note 1) Interest includes convertible debenture interest and capitalized interest 2) Rental operating income adjusted for straightline rents.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operations Net Income Return on Equity FFO Return on Equity 2000 335,175 35,765 43,871 10.7% 13.1% 2001 380,495 38,223 48,488 10.0% 12.7% 2002 544,482 59,716 75,638 11.0% 13.9% 2003 691,207 63,736 90,041 9.2% 13.0% 2004 746,877 51,616 105,398 6.9% 14.1% 2005E 815,138 61,156 125,575 7.5% 15.4% 2006E 859,757 72,534 134,498 8.4% 15.6%
Notes: 1) Common equity for 2005E and 2006 employed latest 3Q05
221
222
Lodging REITs
Lodging REITs
223
CHIP REIT
Chip REIT
(HOT.UN-T, $11.90)
Financial Summary EBITDA (000s) EV/EBITDA FFO Price/FFO Adjusted FFO Price/AFFO 2004A $58 12.7x $1.02 11.7x $0.79 15.1x 2005E $67 11.0x $1.10 10.8x $0.94 12.7x 2006E $71 10.4x $1.20 9.9x $1.15 10.3x $737 $237 $6.31 1.9x $9.25 128.6% $0.90 7.6% 42.0 25.7 $500 31-Dec
HIGHLIGHTS The firm has resolved two of the nine collective bargaining agreements. The
company faces cost headwinds including rising energy and labour expenses that are above inflation levels.
Capital expenditures for 2005 are within the range of $11 to $12 million. Management guided for slightly higher capex of $13 million in 2006.
Enterprise Value (in mlns) Debt (in mlns) Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders:
STRENGTHS Conservative management team led by experienced hoteliers that have

enhanced the quality of the portfolio.
Portfolio concentration in the province of Alberta has helped to offset the macro weakness in the lodging sector. Debt ratios, which include convertible debentures as debt, are conservative. The REIT has ample acquisition capacity to growth underlying FFO. The firm has invested significant capital in the portfolio over the past several years.
Belkin Enterprises Ltd. (33.4%), Bissett Investment Mgmt (7.9%), Guardian Capital LP (7.1%)
All figures in C$ unless otherwise noted. Note: Earnings and FFO on a fully diluted basis. Source: Bloomberg. Figures updated January 27.2006
CHALLENGES The volume of hotel transactions remains low with limited offerings. Very
competitive pricing environment in Eastern Canada and Ontario, particularly among city centre hotels.
Company Description: Based in Vancouver, British Columbia, CHIP REIT is an integrated hotel real estate investment trust formed on April 28, 1997. The REIT is focused on mid-market and upscale full-service hotels and provides investors with stable, tax-advantaged income as well as growth potential through acquisitions, repositioning and franchising. CHIP REIT currently owns or manages 33 hotels with approximately 7,660 rooms.
Given the portfolio concentration in Alberta, the company is not as levered as its lodging peers to a rebound in the sector. The firms balance sheet remains under-levered, with a debt to gross book value ratio of 35% (includes debentures).
224
CHIP REIT - EARNINGS FORECAST
(in $000s; 31-Dec YE)
Room Revenue F&B and Other Cost of sales Selling, general and administration Taxes, insurance and rent Gross Property Income EBITDA Margin (5,512) $2,051 (5,469) ($3,418) 72.3% 371 (258) ($3,305) ($3,305) 0.0% (12) ($3,317) ($0.08) ($8,936) $0.225 39,798 39,704 39,899 39,901 42,021 50,635 42,021 50,635 (4,200) (12) $4,955 $0.12 ($8,963) $0.225 342 (12) $13,337 $0.33 ($9,226) $0.225 (342) (12) $5,415 $0.13 ($9,455) $0.225 (4,200) (48) $20,390 $0.50 ($36,580) $0.900 42,021 45,219 $9,167 0.0% $13,007 0.0% $5,769 0.0% $24,638 0.0% ($1,505) 0.0% ($1,505) ($0.04) ($9,455) $0.225 42,021 40,870 110 $9,167 $5,769 526 (258) $24,638 ($1,505) (5,363) $9,057 27.4% (5,002) $5,769 30.7% (5,002) ($1,505) 55.3% (20,836) $24,370 31.1% (5,002) $10,089 24.2% $10,089 $10,089 0.0% $10,089 $0.25 ($9,455) $0.225 42,021 40,870 (5,121) $14,420 (5,546) $17,964 (5,546) $10,771 (21,725) $45,206 (5,546) $3,497 (5,546) $15,091 (5,546) $19,440 (5,002) $14,438 20.0% $14,438 $14,438 0.0% $14,438 $0.35 ($9,455) $0.225 42,021 40,870
1QA 34,624 25,957 (28,171) (20,397) (4,450) 7,563 21.8% 1Q 36,701 28,477 (31,035) (20,864) (4,237) 9,043 13.0% (5,546) $10,794 (5,002) $5,792 30.6% $5,792 $5,792 0.0% $5,792 $0.14 ($9,455) $0.225 42,021 40,870
2005E 2QA 47,044 31,759 (33,383) (21,385) (4,494) 19,541 24.8% 3QA 53,936 28,289 (33,507) (20,642) (4,566) 23,510 28.6% 4Q 39,237 34,921 (33,842) (19,179) (4,820) 16,317 20.5% 2005E Year 174,841 120,926 (128,903) (81,603) (18,330) 66,931 38.3% 3Q 56,093 28,818 (34,370) (20,036) (5,519) 24,986 29.0% 4Q 39,237 35,026 (33,890) (19,206) (4,827) 16,340 21.0%
2006E 2Q 49,396 33,712 (36,049) (21,020) (5,402) 20,637 24.0%
2006E Year 181,428 126,032 (135,343) (81,126) (19,985) 71,006 39.1% (22,184) $48,822 (20,008) $28,814 28.2% $28,814 $28,814 0.0% $28,814 $0.71 ($37,819) $0.900 42,021 40,870
Depreciation & Amortization Other Gross Property Income before Interest Expense
(5,002) $12,962 21.3% -31.3% 45 $13,007
Property gains (losses) Income taxes NET INCOME Per Unit Distributions to unitholders Per Unit
Outstanding Units Weighted Average Units (Diluted)

($3,317) 5,512 330 343 $2,868 $0.07 $2,011 $4,879 $0.10 311.6% $4,955 5,121 312 4,200 81 $14,669 $0.37 $2,020 $16,689 $0.33 61.1% $13,337 5,546 9 (342) 322 0 $18,872 $0.00 $1,873 $20,745 $0.41 48.9% $5,415 5,546 9 81 $11,051 $0.00 $1,873 $12,924 $0.26 85.6% $20,390 21,725 660 3,858 322 505 $47,460 $0.00 $7,777 $55,237 $1.10 77.1% $4,879 ($2,423) $2,456 $0.06 363.8% $16,689 ($3,152) $13,537 $0.34 66.3% $20,745 ($3,289) $17,456 $0.34 65.3% $12,924 ($2,966) $9,958 $0.20 114.4% $55,237 ($11,831) $43,406 $0.94 95.5%
Calculation of FFO Net income Depreciation and amortization Amortization of deferred costs Gains and losses Inputed interest expense Other items FFO Per unit Interest on convertible debentures Diluted FFO Per unit Payout Ratio (in $)
($1,505) 5,546 9 81 $4,131 $0.10 $1,873 $6,004 $0.12 228.9%
$10,089 5,546 9 81 $15,726 $0.38 $2,020 $17,746 $0.36 60.1%
$14,438 5,546 9 81 $20,074 $0.49 $1,873 $21,947 $0.44 47.1%
$5,792 5,546 9 81 $11,428 $0.28 $2,020 $13,448 $0.27 82.7%
28,814 22,184 36 324 $51,358 $1.26 $7,786 $59,144 $1.20 73.6%
Calculation of Adjusted FFO Diluted FFO from above Capex at 4% reserve Diluted AFFO Per unit Payout Ratio
$6,004 ($2,607) $3,397 $0.08 270.7%
$17,746 ($3,324) $14,421 $0.35 63.8%
$21,947 ($3,396) $18,551 $0.45 49.6%
$13,448 ($2,971) $10,478 $0.26 87.8%
$59,144 ($12,298) $46,846 $1.15 78.5%
225
CHIP REIT
NET ASSET VALUE
($000) Gross Operating Rental Income (1) Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Common Shares 8.50% 8.75% 9.00% 9.25% 9.50%
55,100 648,240
55,100 629,718
55,100 612,226
55,100 595,680
55,100 58,000
489,413 158,827 265,028 423,855 42,021
489,413 140,305 265,028 405,333 42,021
489,413 122,813 265,028 387,841 42,021
489,413 106,267 265,028 371,295 42,021
489,413 (431,413) 265,028 (166,385) 42,021
Pre-tax Book Value
$10.09
$9.65
$9.23
$8.84
($3.96)
(1) Estimated for the current year including recent acquisitions.

226
OPERATING SUMMARY
Capital Structure 572,894 204,390 336,521 72,627 56,526 48,530 $1.23 38,126 $0.96 68.0% 1.4% 4.2% 3.7% -3.4% na na 71,343 54,988 45,485 $1.15 35,027 $0.89 82.0% -1.8% -2.7% -6.3% -6.2% -8.1% -7.3% 81,963 63,508 52,277 $1.18 40,928 $0.91 59.5% 14.9% 15.5% 14.9% 2.6% 16.8% 2.2% 55,056 36,072 42,080 $0.93 31,232 $0.69 70.0% -32.8% -43.2% -19.5% -21.2% -23.7% -24.4% 58,859 40,296 46,537 $1.02 35,545 $0.79 56.5% 6.9% 11.7% 10.6% 9.7% 13.8% 14.9% 66,931 46,095 55,237 $1.10 43,406 $0.94 n.a 13.7% 14.4% 18.7% 7.8% 22.1% 19.3% -5.4% -5.7% -6.7% 539,255 201,932 306,990 -5.9% -1.2% -8.8% 574,841 242,674 299,028 6.6% 20.2% -2.6% 527,640 230,757 270,150 -8.2% -4.9% -9.7% 569,077 286,273 254,869 7.9% 24.1% -5.7% 544,068 244,268 265,028 -4.4% -14.7% 4.0%
Assets Debt Equity Operating Income Growth Rate Pre-Financing After Financing Funds From Operation Per Diluted Unit Adjusted FFO (AFFO) Per Diluted Unit Tax Deferral Rate
Financial Structure
Debt to Equity Ratio Debt-to-Gross Book Value 0.61 0.32 Year 2006 nil nil 7.70% na 16,101 22.2% 3.97 --3.74 --3.79 --16,355 22.9% 18,455 22.5% 18,984 34.5% 2.92 --nil nil 7.70% na nil nil 7.68% na 82 nm 7.66% na nil -2007 nil -0.66 0.32 0.81 0.35 0.85 0.36
1.12 0.40
0.92 0.35
Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years)
11 nm 7.72% na 18,563 31.5% 3.36 ---
7,003 2.9% 6.97% na 20,836 31.1% 3.23 ---
Total Interest As % of Gross Income Interest Coverage Expensed Capitalized Interest As % of Total Interest
Investment Returns 6.7% 13.9% 13.9% 4.6% 14.1% 14.1% 9.1% 16.0% 17.3% 2.5% 12.9% 14.8% 6.4% 12.9% 17.7% 7.8% 12.9% 21.2%
Income Return on Equity DI Return on Equity FFO Return on Equity
Property Portfolio 470,593 462,788 494,300 478,181 464,228 489,413

470,593 100.0% --100.0% 462,788 100.0% --100.0% 494,300 100.0% --100.0% 478,181 100.0% --100.0%
464,228
100.0% --100.0%
489,413
100.0% --100.0%
Notes 1) 2005E operating income growth rates, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period.
CHIP REIT
227
CHIP REIT
ANNUAL RESULTS
($000; 31-Dec YE) Revenue Room Food, Beverage an Other Less Operating Expenses Gross Operating Income Operating Margin Depreciation & Amortization 2000 154,064 106,036 187,473 72,627 27.9% 24,381 48,246 16,274 22.4 31,972 3,638 35,610 12,134 16.7 23,476 3,001 3,025 23,452 2001 152,757 108,695 190,109 71,343 27.3% 24,125 47,218 16,355 22.9 30,863 2,249 33,112 12,345 17.3 20,767 (6,159) (331) 14,939 2002 168,164 115,563 201,764 81,963 28.9% 19,869 62,094 16,085 19.6 46,009 1,173 47,182 15,305 18.7 31,877 (181) (409) 32,105 4,586 27,519 2003 158,517 112,674 216,135 55,056 20.3% 19,278 35,778 14,329 26.0 21,449 831 22,280 0 0.0 22,280 (9,578) (163) 12,539 4,675 7,081 2004 162,656 112,147 215,944 58,859 21.4% 22,453 36,406 13,888 23.6 22,518 903 23,421 0 0.0 23,421 0 (744) 22,677 4,979 16,891
Interest Expense As a % of Gross Operating Income Income after interest expense Interest & Other Income
Trust Expenses As a % of Gross Operating Income Income before gains Property Gains & Other Income Taxes Net Income Less: Interest and accretion on convertible debentures Adjusted Net income Net Income Per Unit Per diluted unit Funds from Operation (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Distributions paid to unitholders Per Unit Tax Deferral Units Outstanding (in 000s) Weighted Average - diluted
$0.59 48,530 $1.23 97.8% 38,126 $0.96 124.5% 47,475 $1.20 68% 39,527 40,000
$0.38 45,485 $1.15 97.8% 35,027 $0.89 127.0% 44,470 $1.12 82% 38,618 39,557
$0.70 52,277 $1.18 67.3% 40,928 $0.91 85.9% 35,170 $0.90 60% 38,631 39,593
$0.18 42,080 $0.93 84.5% 31,232 $0.69 113.8% 35,549 $0.90 70% 39,033 45,428
$0.43 46,537 $1.02 76.7% 35,545 $0.79 100.5% 35,705 $0.90 57% 39,672 39,727
228
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt Long-term Debt Convertible debentures Bank and floating rate debt Total Debt 204,390 -0 204,390 336,521 540,911 100.0 508,922 100.0 486,998 109.1 445,400 112.5 62.2 306,990 60.3 299,028 61.4 270,150 60.7 254,869 427,231 37.8 -0.0 37.8 201,932 -0 201,932 39.7 -0.0 40 187,970 54,704 0 242,674 35.4 12.3 0.0 47.7 172,372 55,507 2,878 230,757 38.7 12.5 0.6 51.8 119,341 113,911 53,021 286,273 40.3 25.6 12.4 78.3 59.7 138.0
125,405 92,389 26,474 244,268 265,028 416,907
41.3 20.7 6.4 68.4 63.6 132.0
Debt to Equity Ratio 0.61 1.70 572,894 75,938 648,832 0.32 0.32 0.35 539,255 101,496 640,751 574,841 109,890 684,731 1.76 1.92 1.95 527,640 112,023 639,663 0.36 0.66 0.81 0.85
1.12 2.23 569,077 141,064 710,141 0.40
0.92 2.05 544,068 150,749 694,817 0.35
Assets Accumulated Depreciation Gross Book Value of Assets
Debt-to-Asset Gross Book Value
Notes: 1) Debt includes convertible debentures.
CHIP REIT
229
CHIP REIT
INTEREST COVERAGE
($000) Pre-tax Profit Depreciation and Amortization Interest Pre-tax Cash Flow Interest Coverage NotesL 1) Interest includes convertible debentures. 2000 23,476 24,381 16,101 63,958 3.97 2001 20,767 24,125 16,355 61,247 3.74 2002 31,696 19,869 18,455 70,020 3.79 2003 22,280 14,100 18,984 55,364 2.92 2004 23,421 20,368 18,563 62,352 3.36 2005E 24,638 21,725 20,836 67,199 3.23 2006E 28,814 22,184 20,008 71,006 3.55
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation Net Income Return on Equity FFO Return on Equity
2000 348,953 23,452 48,530 6.7% 13.9%
2001 321,756 14,939 45,485 4.6% 14.1%
2002 303,009 27,519 52,277 9.1% 17.3%
2003 284,589 7,081 42,080 2.5% 14.8%
2004 262,510 16,891 46,537 6.4% 17.7%
2005E 259,949 20,390 55,237 7.8% 21.2%
2006E 265,028 28,814 59,144 10.9% 22.3%
230
InnVest REIT
InnVest REIT
(INN.UN-T, $12.67)
Financial Summary 2004A EBITDA (in mlns) EV/EBITDA FFO Price/FFO AFFO Price/AFFO $90 12.9x $1.11 0.0x $0.85 14.9x 2005E $86 13.5x $1.18 nm $0.96 13.2x 2006E $93 12.5x $1.28 0.0x $1.05 12.1x $1,159 $552 $7.78 1.6x $9.25 137% $1.13 8.9% 47.9 47.9 $607 31-Dec
HIGHLIGHTS RevPAR improved 4% in the quarter, led by a 5.7% advance in the average
Enterprise Value (in mlns) Net Debt (in mlns) Book Value Per Share Price/Book Value Net Asset Value (NAV) Price/NAV Annual Distribution DistributionYield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: Goodman & Co (8.0%)
daily rate, partially offset by 1.1 bps decline in the average occupancy rate. For the nine-month period, RevPAR decreased 1% as a 6.3% advance in room rate was offset by a 4.4 bps decline in occupancy rate. Looking forward, the firm expects 2005E and 2006E RevPAR performance to match industry expectations. Firm moving toward acquiring full service assets or mid-scale with food and beverage. Management indicated that there was increasing amount of product available to buy; targeting acquisition cap rates in the 9% to 10% range. During the third quarter, the firm integrated seven hotels purchased in June for $85.3 million and the Holiday Inn Express acquired for $10 million in August. The company finalized the sale of three non-core assets for price approximating book value in 3Q05. In 1Q05, the company issued $57.5 million of convertible debentures and $45.3 million of trust units of $45.3 million. Investment of $8.3 million in the retrofit of hotels was funded from restricted cash reserves, including the completion of the 40-room expansion of the Comfort Inn in New Brunswick and the brand conversion of two Torontobased Quality Hotels. The firm expects to realize double-digit revenue growth from these activities.
Company Description: InnVest Real Estate Investment Trust completed its IPO in July 2002 and now owns the largest hotel portfolio in Canada including 114 internationally branded, limited service or mid-scale full service hotels located in every province of Canada (the "hotel portfolio"). The REIT also has a 50% interest in Choice Hotels Canada, the largest franchisor of hotels in Canada and the hotel portfolio includes 98 hotels flagged with Choice brands (Comfort Inn, Quality Inn, Quality Hotel and Quality Suites), 13 under the Travelodge banner and the remaining two flagged with Best Western, and Holiday Inn Express brands.
STRENGTHS A seasoned hotel management team has weathered a tough industry cycle

very well. Management has demonstrated its ability to provide incremental growth via acquisitions. Major property renovations undertaken over the past year should result in solid revenue growth going-forward. The firm is well-levered to a recovery in the lodging sector given its portfolio concentration in Ontario and Quebec. The harmonious Choice branded hotels is beneficial. Compelling valuation on an EV/EBITDA basis, trading at the low end of historical range.
CHALLENGES External management results in higher management fees paid, effectively

increasing the cost of capital. Exit of initial stakeholder. Debt ratio should be lowered.
231
INNVEST REIT - EARNINGS FORECAST
232
1QA 59,964 (38,446) (7,275) (2,024) $12,219 20.4% 1Q 65,960 (41,906) (8,634) (2,243) $13,177 20.0% (10,550) (200) $2,427 (7,283) (2,960) ($7,816) 55.3% 360 ($7,456) (395) ($7,851) 3.0% 600 $9,570 (899) $8,671 3.0% (7,283) (2,960) $8,970 24.3% (7,283) (2,960) $22,712 16.7% 1,200 $23,912 (1,530) $22,382 3.5% (10,550) (200) $19,213 (10,550) (200) $32,955 (10,550) (200) $8,849 (7,283) (2,960) ($1,394) 37.2% 840 ($554) (735) ($1,289) 3.8% 2Q 85,429 (43,926) (8,634) (2,905) $29,964 35.1% 4Q 77,627 (46,754) (8,634) (2,639) $19,599 25.2% (9,499) (349) $2,371 (6,343) (2,911) ($6,883) 51.9% 428 120 ($6,335) (934) ($7,269) 7.6% ($1.4) (960) $7,759 3.5% ($3.7) (923) $20,427 2.2% ($5.2) (1,033) ($2,608) 5.6% ($2.1) (3,850) $18,309 3.9% ($3.1) 645 (12) $8,719 836 50 ($1,575) 3,100 215 $22,159 ($6,519) (2,956) $8,086 23.5% (7,283) (2,960) ($2,461) 39.7% (27,428) (11,787) $18,844 39.4% (10,134) $17,561 (10,446) (559) $30,345 (10,550) $7,782 (40,629) (908) $58,059 2QA 79,101 (41,440) (7,296) (2,670) $27,695 35.0% 2005E 3QA 106,340 (52,937) (8,465) (3,588) $41,350 38.9% 4Q 75,366 (45,837) (8,634) (2,562) $18,332 24.3% Year 320,771 (178,660) (31,670) (10,844) $99,596 31.0% 2006E 3Q 109,530 (53,466) (8,634) (3,724) $43,706 39.9% Year 338,547 (186,053) (34,537) (11,511) $106,446 31.4% (42,202) (800) $63,444 (29,132) (11,840) $22,472 38.5% 3,000 $25,472 (3,559) $21,913 3.3% ($7,283) (2,960) $20,102 17.6% -35.7% 1,191 57 $21,350 (218) ($8,069) ($0.14) ($12,888) $0.281 47,871 59,119 45,815 59,119 45,815 59,119 (218) $8,453 $0.14 ($12,888) $0.281 45,815 59,119 (218) $22,164 $0.37 ($12,888) $0.281 45,815 59,119 (218) ($1,507) ($0.03) ($12,888) $0.281 45,815 59,119 (872) $21,041 $0.36 ($51,551) $1.125 47,871 59,119 1,142 (262) (441) (315) (1,471) ($8,616) ($0.12) ($12,918) $0.281 45,997 45,977 47,273 57,526 47,871 59,119 (1,107) (145) (346) 80 $6,241 $0.11 ($13,064) $0.281 1,444 (118) (218) 199 (211) $21,523 $0.36 ($13,422) $0.281 (218) ($2,826) ($0.05) ($13,466) $0.281 1,479 (525) (1,223) (36) (1,682) $16,322 $0.28 ($52,870) $1.125 (8,616) 9,499 (1,142) 90 1,471 1,302 3,173 4,475 $0.08 361.8% 6,241 9,599 1,107 76 0 17,023 3,212 20,235 $0.35 80.0% 21,523 10,446 (1,444) 91 211 30,827 2,960 33,787 $0.57 49.2% (2,826) 10,550 91 7,815 2,960 10,775 $0.18 154.3% 16,322 40,629 (1,479) 500 0 55,972 10,972 66,944 $1.18 95.1% (8,069) 10,550 100 2,581 2,960 5,541 $0.09 300.1% 8,453 10,550 100 19,104 2,960 22,064 $0.37 75.4% 22,164 10,550 100 32,815 2,960 35,775 $0.61 46.5% (1,507) 10,550 100 9,143 2,960 12,103 $0.20 137.4% 21,041 42,202 400 0 63,643 11,840 75,483 $1.28 88.1% (2,439) 2,036 $0.04 795.2% (3,213) 17,022 $0.30 95.1% (4,275) 29,512 $0.50 56.4% (3,015) 7,760 $0.13 214.3% (12,942) 54,002 $0.96 117.0% (2,638) 2,903 $0.05 572.9% (3,417) 18,647 $0.32 89.2% (4,381) 31,394 $0.53 53.0% (3,105) 8,998 $0.15 184.8% (13,542) 61,941 $1.05 107.4%
InnVest REIT
(in $000s; 31-Dec YE)
Room Revenue Operating Expenses Property taxes, rent & insurance Management Fees Gross Property Income Operating Margin
Depreciation Amortization and other Gross Property Income before Interest Expense
Interest Expense Interest on convertible debentures and accretion Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income
Franchise income Other income (loss) Total Operating Income
Future taxes Current tax Capital tax Discontinue operations Other gain (losses) NET INCOME Per Diluted Unit Distributions paid ($) Distribution per unit ($)
Outstanding Units - weighted avg diluted
Calculation of FFO Net income Depreciation of bldgs Future taxes Non-cash compensation Other FFO Convertible debenture interest Reported FFO FFO per diluted share FFO payout ratio
Calculation of Adjusted FFO Capex AFFO AFFO per diluted share AFFO payout ratio
InnVest REIT
NET ASSET VALUE
($000) Operating Income Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Common Equity Total Pre-tax Value Outstanding Units Net Asset Value Per Unit
9.00% 106,446 1,182,734
9.25% 106,446 1,150,768
9.50% 106,446 1,120,484
9.75% 106,446 1,091,754
10.00% 106,446 1,064,460
1,049,924 132,810 372,620 505,430 47,871
1,049,924 100,844 372,620 473,464 47,871
1,049,924 70,560 372,620 443,180 47,871
1,049,924 41,830 372,620 414,450 47,871
1,049,924 14,536 372,620 387,156 47,871
$10.56
$9.89
$9.26
$8.66
$8.09
233
InnVest REIT
OPERATING SUMMARY
Growth % Growth % Growth % Growth %
2002 Capital Structure (000s) Assets Debt Equity Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per diluted unit Adjusted FFO (AFFO) Per diluted unit Tax Deferral Rate Financial Structure Debt to Equity Ratio Debt-to-Gross Book Value Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years) Total Interest As % of Gross Income Interest Coverage Expensed Capitalized Interest As % of Total Interest Investment Returns Income Return on Equity DI Return on Equity FFOReturn on Equity Property Portfolio Income Producing Properties Under Development Held for Development 850,314 --850,314 4.5% 7.8% 7.8%
2003
2004
2005E
932,912 394,462 385,033 44,529 31,416 $30,206 $0.54 $25,837 $0.54 36.8%
----------
904,148 386,394 343,210 80,210 50,673 $48,345 $0.92 $39,376 $0.92 52.5%
-3.1% -2.0% -10.9% 108.5% 61.3% 60.1% 70.4% 52.4% 70.4%
904,148 493,664 362,938 92,843 58,691 $54,394 $0.85 $43,222 $0.85 46.0%
0.0% 27.8% 5.7% 24.2% 15.8% 12.5% -7.6% 9.8% -7.6%
904,148 555,594 372,620 99,596 60,381 $66,944 $1.18 $54,002 $0.96 n.a
0.0% 12.5% 2.7% 7.3% 2.9% 23.1% 39.2% 24.9% 13.1%
1.02 0.42 Year 2006 8,976 2.3% 7.60% na 13,113 29.4% 3.58 --8,615 2.2%
1.13 0.41 2007 7,043 1.8% 7.40% na 29,537 36.8% 2.95 --9,193 2.4%
1.36 0.50
1.49 0.56
7,042 1.4% 7.20% na 34,152 36.8% 2.99 ---
0.0% 6.20% 6.2 39,215 39.4% 2.50 ---
1.0% 13.3% 13.3%
6.0% 15.4% 15.4%
4.4% 18.2% 18.2%
100.0% --100.0%
828,491 --828,491
100.0% --100.0%
935,473 --935,473
100.0% --100.0%
1,049,924 --1,049,924
100.0% --100.0%
Notes 1) 2005E operating income growth rates, coverage ratios and investment returns are forecasted. The balance of the data is for t he most recent interim period. 2) 2002 is a partial year
234
InnVest REIT
ANNUAL RESULTS
($000; 31-Dec YE) Hotel Revenues Operating Expenses Gross Operating Income Operating Margin Depreciation & Amortization 2002 109,230 64,701 44,529 40.8% 13,669 30,860 9,943 22.3 20,917 520 21,437 1,254 2.8 20,183 0 548 (752) (204) $20,387 3,170 $17,217 $0.42 $25,263 $0.59 79.2% $30,206 $0.63 66.2% $25,837 $0.54 77.4% $20,000 $0.49 36.8% 41,075 48,060 2003 224,216 144,006 80,210 35.8% 32,265 47,945 22,224 27.7 25,721 2,854 28,575 3,249 4.1 25,326 859 (1,619) (13,708) (14,468) $10,858 7,313 $3,545 $0.26 $39,455 $0.97 117.3% $48,345 $1.13 95.7% $39,376 $0.92 117.5% $46,280 $1.125 52.5% 41,248 41,144 2004 279,297 186,452 92,843 33.2% 36,938 55,905 24,204 26.1 31,701 3,173 34,874 3,827 4.1 31,047 (533) (1,856) 2,576 187 $31,234 9,948 $21,286 $0.46 $44,267 $0.99 113.3% $54,394 $1.11 92.2% $43,222 $0.85 116.1% $50,164 $1.125 46.0% 45,815 54,979
Interest Expense As a % of Gross Operating Income Income after interest expense Interest & Other Income
G&A Expense As a % of Gross Operating Income Income before gains Property Gains & Other Income Taxes- Current -Deferred Total Net Income Less: Interest on convertible debentures Adjusted net income Per diluted unit Distributable Income Per diluted unit DI Payout Ratio Funds from Operation (FFO) Per diluted unit FFO Payout Ratio Adjusted FFO (AFFO) Per diluted unit AFFO Payout Ratio Distribution to Unitholders Per Unit Tax Deferral Units Outstanding (in 000s) Weighted Average - diluted
235
InnVest REIT
DEBT-TO-EQUITY
($000) Debt Long term debt Convertible debentures Bank loans and floating rate debt Total Debt Total Unitholders Equity Total Capitalization Debt to Equity Ratio Asset-to-Equity Ratio Assets Accumulated Depreciation Gross Book Value of Assets Debt-to-Asset Gross Book Value Debt includes convertible debentures
2002
2003
2004
3Q05
310,486 75,000 8,976 394,462 385,033 779,495
39.8 9.6 1.2 50.6 49.4 100.0
303,883 75,468 7,043 386,394 343,210 729,604
41.7 10.3 1.0 53.0 47.0 100.0
353,101 133,521 7,042 493,664 362,938 856,602
41.2 15.6 0.8 57.6 42.4 100.0
429,723 125,871 0 555,594 372,620 928,214
46.3 13.6 0.0 59.9 40.1 100.0
1.02 2.42 932,912 12,465 945,377 0.42
1.13 2.63 904,148 41,951 946,099 0.41
1.36 2.49 904,148 75,704 979,852 0.50
1.49 2.43 904,148 92,419 996,567 0.56
236
InnVest REIT
INTEREST COVERAGE
($000) Pre-tax Profit Depreciation and Amortization Interest Pre-tax Cash Flow Interest Coverage 2002 20,183 13,669 13,113 46,965 3.58 2003 25,326 32,265 29,537 87,128 2.95 2004 31,047 36,938 34,152 102,137 2.99 2005E 18,309 40,629 39,215 98,153 2.50 2006E 21,913 42,202 40,972 105,087 2.56
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation Net Income Return on Equity FFO Return on Equity 2002 385,033 17,217 30,206 4.5% 7.8% 2003 364,122 3,545 48,345 1.0% 13.3% 2004 353,074 21,286 54,394 6.0% 15.4% 2005E 367,779 16,322 66,944 4.4% 18.2% 2006E 372,620 21,041 75,483 5.6% 20.3%
Net income accounts for interest on convertible debentures

237
Legacy Hotels REIT
Legacy Hotels REIT

(LGY.UN-T, $8.07)
Financial Summary 2004A 2005E 2006E EBITDA (in mlns) EV/EBITDA FFO Price/FFO AFFO Price/AFFO $152 12.2x $0.53 0.0x $0.20 40.2x $152 12.2x $0.50 nm $0.14 nm $167 11.1x $0.67 0.0x $0.32 25.3x $1,861
HIGHLIGHTS For the nine-month period, the REIT achieved RevPAR of 1.3%. EBITDA
for the nine-month period was $114.6 million, down 3% from $118.4 million for the same period last year.
Enterprise Value (in mlns)
Net Debt (in mlns) $1,022 Book Value Per Share $7.93 Price/Book Value 1.0x Net Asset Value (NAV) $7.93 Price/NAV 102% Annual Distribution $0.32 DistributionYield 4.0% Shares Outstanding (mln) 104.0 Share Float (mln) 79.0 Market Cap (mln) $839 Fiscal Year End 31-Dec Major Shareholders: Fairmont Hotels & Resorts Inc (24.5%)
Transient leisure and tour revenues showed modest growth driven by volume increases. Strong domestic and international demand offset continued weakness in U.S. travel volumes to Canada during the third quarter of 2005. Overall business travel has been flat throughout the year and Canadian lodging industry recovery has been slow. This led to delayed recovery of earnings. The firm has successfully resolved a number of their expiring labour contracts with minimal disruption. Property taxes decreased reflecting adjustments following a number of successful property tax appeals during the year. According to PKF, the overall Canadian lodging industry has realized yearover-year growth of almost 5%. However, larger city-centre markets such as downtown Toronto and Vancouver showed much softer growth and downtown Montreal continues to experience a year-over-year decline. Approximately 40% of Legacys room inventory is located in these three downtown city-centre markets.
Company Description: Legacy is Canada's premier hotel real estate investment trust and owns 24 luxury and firstclass hotels and resorts with more than 10,700 guestrooms located in Canada and in the United States. The Trusts hotel portfolio operates under the Fairmont and Delta brand names and includes such landmark properties as Fairmont Le Chteau Frontenac, The Fairmont Royal York, The Fairmont Empress and The Fairmont Olympic Hotels, Seattle. The management companies of Fairmont Hotels & Resorts Inc. operate all of Legacy's properties.
STRENGTHS As an owner-operator, Legacy is highly leveraged to a recovery of lodging
fundamentals. Accordingly, the REIT should experience a significant lift in revenues and EBITDA as the lodging industry returns to normalized operating conditions.
The ownership and management relationship with Fairmont Hotels & Resorts Inc. (24% ownership in Legacy REIT) provides advantages in the form of capital availability, management depth, operating efficiency and a source of acquisition growth. Legacy has an exceptionally high quality hotel portfolio located across Canadas major urban centres. The REITs Fairmont and Delta branded hotels have received industry recognition for providing high quality of service. In the lodging industry, brand recognition and customer loyalty are important revenue-generators, particularly in attracting high margin international and U.S. travellers. Compelling valuation on a net asset value basis.
238
Legacy Hotels REIT
CHALLENGES Luxury, full-service hotels are more susceptible to earnings declines during
periods of economic weakness as clients move down the hotel chain scale.
The trust has significant exposure to group convention and tour business. While this usually provides the REIT with a solid earnings base, it is difficult to replace this income stream on short notice. Higher debt leverage and cost of capital.
239
LEGACY HOTELS REIT EARNINGS FORECAST

1QE 86,328 64,746 151,074 (135,967) (3,021) (138,988) 12,086 8.0% (19,000) ($6,914) (20,691) ($27,605) 171.2% ($27,605) (3,863) ($31,468) 32.0% 0.0% 0.0% 500 4,800 (21,752) 3,098 (18,654) ($0.18) ($28,595) $0.32 $0.16 -$9,054 19,000 (1,100) (1,498) $7,348 $0.07 $1,498 $8,846 0.09 113.3% $7,348 (8,656) -$1,309 -$0.01 -636.2% (150) 1,000 (30,618) 4,348 (26,270) ($0.25) ($7,149) $0.08 $16,594 (3,863) $12,731 6.9% 0.0% 0.0% (150) 1,000 13,581 (1,929) 11,653 $0.11 ($7,149) $0.08 (20,691) $16,594 36.8% (20,691) $29,444 29.9% $29,444 (3,863) $25,582 5.6% 0.0% 0.0% (150) 1,000 26,432 (3,753) 22,678 $0.22 ($7,149) $0.080 (19,000) $37,285 (19,000) $50,135 56,285 25.9% 69,135 30.7% 30,225 15.1% (19,000) $11,225 (20,691) ($9,466) 68.5% ($9,466) (3,863) ($13,329) 12.8% 0.0% 0.0% (150) 1,000 (12,479) 1,772 (10,707) ($0.10) ($7,149) $0.080 (4,614) (161,210) (5,260) (156,306) (3,785) (169,832) (156,597) (151,046) (166,047) (609,656) (16,680) (626,337) 167,731 21.1% (76,000) $91,731 (82,765) $8,966 49.3% $8,966 (15,450) ($6,484) 9.2% 0.0% 0.0% (600) 4,000 (3,084) 438 (2,646) ($0.03) ($28,595) $0.32 $0.29 -$26,270 19,000 (1,000) (4,348) -$12,618 -$0.12 $4,348 -$8,270 -0.08 -66.0% -$12,618 (6,798) -$19,416 -$0.19 -42.9% $11,653 19,000 (1,000) 1,929 $31,581 $0.30 -$1,929 $29,653 0.28 26.4% $31,581 (9,787) $21,794 $0.21 38.2% $22,678 19,000 (1,000) 3,753 $44,432 $0.43 -$3,753 $40,678 0.39 18.7% $44,432 (10,145) $34,287 $0.33 24.3% -$10,707 19,000 (1,000) (1,772) $5,521 $0.05 $1,772 $7,293 0.07 150.8% $5,521 (9,003) -$3,482 -$0.03 -239.1% -$2,646 76,000 (4,000) (438) $68,916 $0.66 $438 $69,354 0.67 48.3% $68,916 (35,733) $33,183 $0.32 100.4% 217,495 225,442 4QE 108,139 91,918 200,057 794,068 2006E 2QE 3QE 131,815 150,294 85,680 75,147 2006E Year 476,577 317,491
(in $000s; 31-Dec YE)
240
1QA 83,000 51,600 9,400 144,000 (120,700) (15,100) (4,300) (140,100) (3,639) (160,415) 31,948 16.6% (19,000) $12,948 (20,600) ($7,652) 64.5% ($7,652) (4,200) ($11,852) 13.1% 0.0% 0.0% 200 1,100 (10,552) 1,498 (9,054) ($0.09) ($7,149) $0.08 (15,000) ($27,052) 10.2% 0.0% 0.0% (82,600) ($12,052) 56.4% (76,000) $70,548 146,548 19.1% 3,900 2.7% (18,900) ($15,000) (20,400) ($35,400) 523.1% ($35,400) $22,200 (3,600) $18,600 5.8% 0.0% 0.0% 200 1,200 20,000 (2,800) 17,200 $0.19 ($7,149) $0.080 (3,200) ($38,600) 82.1% 0.0% 0.0% 200 1,800 (36,600) 5,200 (31,400) ($0.30) ($7,149) $0.08 (800) 4,600 $0.04 ($7,149) $0.08 (100) 700 5,400 (4,000) $4,800 8.2% 0.0% 0.0% $8,800 ($12,052) (20,700) $8,800 42.7% (20,900) $22,200 33.6% -54.1% (19,000) $29,500 (19,100) $43,100 48,500 23.3% 62,200 28.1% (137,300) (15,600) (6,600) (159,500) (136,900) (15,500) (7,000) (159,400) (156,775) 2005E 2QA 126,700 70,100 11,200 208,000 3QA 144,400 65,500 11,700 221,600 4QE 103,980 88,383 192,362 2005E Year 458,080 275,583 32,300 765,962 1.6% (551,675) (46,200) (21,539) (619,415) -$31,400 18,900 (1,800) (5,200) -$19,500 -$0.19 $5,200 -$14,300 -0.14 -42.7% -$19,500 (6,100) -$25,600 -$0.25 -32.5% $4,600 19,000 (700) 800 $23,700 $0.23 -$800 $22,900 0.22 35.1% 396.4% $23,700 (8,800) $14,900 $0.14 55.9% $17,200 19,100 (1,200) 2,800 $37,900 $0.36 -$2,800 $35,100 0.34 22.0% 59.3% $37,900 (9,972) $27,928 $0.27 29.8% -$18,654 76,000 (4,800) (3,098) $49,448 $0.48 $3,098 $52,546 0.50 67.3% -54% $49,448 (34,468) $14,979 $0.14 222.3% -190.9% 89,360 104,060 89,360 104,060 89,360 104,060 89,360 104,060 89,360 104,070 89,360 104,060 89,360 104,060 89,360 104,060 89,360 104,060 89,360 104,070
Room, Food and Beverage Revenue Food & Beverage Revenue Other Revenues Total Revenues
Operating Expenses Property taxes, rent and insurance Hotel Management Fees Total Operating Expenses
Legacy Hotels REIT
Gross Property Income Operating Margin (including Management Fees)
Depreciation Goodwill amortization Gross Property Income before Interest Expense
Other income (expense) - restructuring Other income (expense) Total Operating Income
Total Trust Expenses Advisory Expenses General & Administative Expenses Income before other items Total Trust Expenses as a % of Gross Property Income Advisory Expenses as a % of Gross Property Income General and Administrative as a % of Gross Property Income
Income taxes - current Income taxes - future Income after taxes
Non controlling interest NET INCOME Per Unit - diluted Distributions to Unitholders Per Unit
Funds From Operations Net Income Depreciation Income taxes - future Debenture Distributions Non-controlling interest FFO Per Unit Less: Minority interest FFO (Diluted) Per diluted unit Payout Ratio
Adjusted FFO Capex reserve Adjusted FFO Per diluted unit Payout Ratio Cumulative Payout Ratio
Outstanding Units Weighted Average Units - diluted
Legacy Hotels REIT

NET ASSET VALUE
Fairmont Hotels Estimated Operating Income (~75%) a Capitalization rate of 7.5% Delta Hotels Estimated Operating Income (~25%) b Capitalization rate of 8.5% c Less: Book Cost a+b-c Appraisal Surplus Add: Common Equity Total Value No. of shares outstanding (000s) Pre-tax value per unit No. of units outstanding Pre-tax value per unit
Note: Operating income deducts capex of 4.5%.
Based on 2006E $120,138 $1,601,834
LTM 106363 $1,418,175
$40,046 $471,128 $1,734,500 $338,462 $616,500 $954,962 89,360 $10.69 104,060 $9.18
35454 $417,110 $1,734,500 $100,785 $618,100 $718,885 89,360 $8.04 104,060 $6.91
241
OPERATING SUMMARY
242
($000)
Capital Structure 1,143,387 447,952 626,514 144,404 115,040 87,288 $1.40 67,219 $0.95 43.7% 15.6% 17.4% na na na na 161,011 115,671 86,116 $1.06 61,844 $0.75 57.1% 11.5% 0.5% -1.3% -24.2% -8.0% -20.7% 169,331 108,998 79,523 $0.91 53,618 $0.61 54.2% 5.2% -5.8% -7.7% -14.2% -13.3% -18.2% 134,840 50,861 18,192 $0.17 -11,308 -$0.11 50.0% -20.4% -53.3% -77.1% -81.3% -121.1% -117.7% 152,195 68,151 54,802 $0.53 20,873 $0.20 50.0% 12.9% 34.0% 201.2% 211.8% nm nm 146,548 63,948 52,546 $0.50 14,979 $0.14 45.0% 7.3% -1.0% 11.3% 1,541,861 681,825 751,877 34.9% 52.2% 20.0% 1,909,244 890,839 886,895 23.8% 30.7% 18.0% 1,994,689 1,036,316 817,131 4.5% 16.3% -7.9% 1,934,900 1,036,316 817,131 -3.0% 16.3% -7.9% 1,904,300 1,024,400 723,700 -1.6% -1.1% -11.4% -3.7% -6.2% -4.1% -4.7% -28.2% -28.2%
Legacy Hotels REIT
Assets Debt Equity Operating Income Growth Rate Pre-Financing After Financing Funds from Opertion (FFO) Per diluted unit Adjusted FFO (AFFO) Per diluted unit Tax Deferral Rate
Financial Structure
0.71 0.37 Year 2006 108,500 10.6% 100,000 11.2% 7.20% 5.5 60,333 35.6% 2.45 --83,979 62.3% 1.36 --0.0% 7.30% 6.1 115,407 25.8% 6.50% 3.9 29,364 20.3% 3.98 --2.87 --45,340 28.2% 0.42 16,300 Year 2007 nm 0.0% 7.30% 6.3 0.44 0.48
0.91
1.00
1.27
1.36 0.48
1.42 0.46
Debt to Equity Ratio Debt to Gross Book Value Ratio Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years)
0.0% 7.40% 5.6 84,044 55.2% 1.79 ---
0.0% 7.30% 4.8 82,600 56.4% 1.59 ---

10.6% 14.7% 7.8% 12.6% 5.3% 9.7% nm 2.1% nm 6.9% nm 7.1% 1,091,549 --1,091,549 100.0% --100.0% 1,432,257 --1,432,257 100.0% --100.0% 1,850,127 --1,850,127 100.0% --100.0% 1,745,667 --1,745,667 100.0% --100.0% 1,780,400 --1,780,400 100.0% --100.0% 1,734,500 --1,734,500
Total Interest As % of Gross Income Interest Coverage Expensed Capitalized Interest As % of Total Interest
Investment Returns
Property Portfolio 100.0% 100.0%
Notes 1) Pre hotel management fees.
Legacy Hotels REIT

ANNUAL RESULTS
($000) Hotel Revenue Operating Expenses and Property Taxes Gross Operating Income Operating Margin Depreciation Income before interest Interest Expense As a % of Operating Income Gross Operating Income Interest & Other Income 2000 501,731 357,327 144,404 28.8% 24,353 120,051 29,364 20.3 90,687 1,410 92,097 22,726 15.7 4,553 3.2 64,818 0 1,754 63,064 129 62,935 $62,935 $0.93 $67,348 $1.08 92.3% $87,288 $1.40 71.2% $67,219 $0.95 92.4% $62,134 $0.98 43.7% 67,497 71,060 2001 606,789 445,778 161,011 26.5% 31,905 129,106 45,340 28.2 83,766 0 83,766 20,777 12.9 6,264 3.9 56,725 0 4,039 52,686 (1,046) 53,732 $53,732 $0.65 $63,892 $0.77 92.1% $86,116 $1.06 68.3% $61,844 $0.75 95.2% $58,850 $0.87 57.1% 82,200 82,400 2002 647,629 478,298 169,331 26.1% 36,108 133,223 48,599 28.7 84,624 0 84,624 23,306 13.8 7,152 4.2 54,166 0 2,812 51,354 (3,751) 55,105 11,734 $43,371 $0.50 $50,867 $0.57 105.7% $79,523 $0.91 67.6% $53,618 $0.61 100.3% $53,777 $0.74 54.2% 87,218 87,293 2003 663,942 529,102 134,840 20.3% 45,158 89,682 71,020 52.7 18,662 0 18,662 20,258 15.0 8,238 6.1 (9,834) 0 5,357 (15,191) (6,803) (8,388) 12,959 -$21,347 ($0.21) -$2,087 -$0.02 -792.2% $18,192 $0.17 90.9% -$11,308 -$0.11 -146.2% $16,533 $0.19 50.0% 104,060 104,073 2004 753,975 601,780 152,195 20.2% 74,570 77,625 71,100 46.7 6,525 0 6,525 9,254 6.1 0.0 (2,729) 0 5,593 (8,322) (6,109) (2,213) 12,944 -$15,157 $0.15 $29,627 $0.28 72.4% $54,802 $0.53 39.1% $20,873 $0.20 102.7% $21,446 $0.24 50.0% 104,060 104,070
Hotel Management Fees As % of Operating Income Advisory Fees As a % of Operating Income Income before gains Investment & Property Gains Other Expenses Income before taxes Income Taxes (recovery) Net Income Less: Interest and accretion on convertible debentures Adjusted net income Per diluted unit Distributable Income Per diluted unit Payout Ratio Funds from operation (FFO) Per diluted unit Payout Ratio Adjusted FFO (AFFO) Per diluted unit Payout Ratio Distributions to Unitholders Per Unit Tax Deferral Rate Outstanding Units (in 000s) Weighted Avg Units - diluted Notes: 1) AFFO adjusts for capex based on 4% of total revenues. 2) Distributable income includes capex adjustment.
243
244
Legacy Hotels REIT
DEBT-TO-EQUITY
2000 % 2001 % 2002 % 2003 % 2004 % 3Q05 %
($000)
Debt Mortgages and debentures Bank loans and floating debt Total Debt 332,545 115,407 447,952 626,514 959,059 100.0 1,427,297 101.0 1,777,734 101.0 1,853,447 101.0 65.3 745,472 52.2 886,895 49.9 817,131 44.1 764,700 1,788,500 34.7 12.0 46.7 681,825 0 681,825 47.8 0.0 47.8 890,839 0 890,839 50.1 0.0 50.1 1,036,316 0 1,036,316 55.9 0.0 55.9 1,023,800 15,100 1,038,900
57.2 0.8 58.1 42.8 101.0
1,008,400 16,000 1,024,400 723,700 1,732,100
58.2 0.9 59.1 41.8 101.0
Debt-to-Equity Ratio 0.71 1.81 1,137,011 75,938 1,212,949 0.37 1,541,861 88,949 1,630,810 0.42 1,909,244 125,034 2,034,278 0.44 2.07 2.15 2.44 1,994,689 170,192 2,164,881 0.48 0.91 1.00 1.27
1.36 2.53 1,934,900 242,600 2,177,500 0.48
1.42 2.63 1,904,300 299,600 2,203,900 0.46
Total Assets Accumulated Depreciation Gross Book Value Debt-to-Gross Book Value
Legacy Hotels REIT

INTEREST COVERAGE
($000) Pre-tax Profit Amortization Interest Pre-tax Cash Flow Interest Coverage Interest includes convertible debentures 2000 63,064 24,353 29,364 116,781 3.98 2001 52,686 31,905 45,340 129,931 2.87 2002 51,354 36,108 60,333 147,795 2.45 2003 (15,191) 45,158 83,979 113,946 1.36 2004 (8,322) 74,570 84,044 150,292 1.79 2005E (27,052) 76,000 82,600 131,548 1.59 2006E (6,484) 76,000 82,765 152,281 1.84
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from operation Net Income Return on Equity FFO Return on Equity
2000 594,744 62,935 87,288 10.6% 14.7%
2001 685,993 53,732 86,116 7.8% 12.6%
2002 819,386 43,371 79,523 5.3% 9.7%
2003 852,013 -21,347 18,192 n.m. 2.1%
2004 790,916 -15,157 54,802 n.m. 6.9%
2005E 744,200 -18,654 52,546 n.m. 7.1%
2006E 723,700 -2,646 69,354 n.m. 9.6%
245
Royal Host REIT
Royal Host REIT

(RYL.UN-T, $6.10)
Financial Summary 2004A EBITDA (mln) EV/EBITDA FFO Price/FFO Adjusted FFO Price/AFFO $37 10.9x $0.42 14.5x $0.28 22.1x 2005E $39 10.4x $0.59 10.3x $0.48 12.6x 2006E $42 9.6x $0.65 9.4x $0.52 11.7x $405 $237 $3.66 1.7x $5.00 122.0% $0.42 6.9% 27.5 22.1 $168 31-Dec
HIGHLIGHTS Revenue improved in all areas of the REITs business, driven primarily by an
improved ADR, a focus on adding to food and beverage base, delivering on third party, management services and continued strong franchise fees.
Enterprise Value (in mlns) Debt (in mlns) Book Value Per Share Price/Book Value Estimated NAV Premium (Discount) to NAV Annual Distribution Distribution Yield Shares Outstanding (mln) Share Float (mln) Market Cap (mln) Fiscal Year End Major Shareholders: Geosam Investments (20.5%)
Issued $60 million unsecured convertible debentures with 10-year maturity and 6.0% interest rate. Proceeds were used to retire outstanding current mortgage debt and pay penalties on the early retirement of debt. Redeemed the partnership units through the issuance of RYL.UN units and cash. Sold their 50% interest in the Travelodge North York hotel in February 2005.
STRENGTHS Management focussed on hotel operations rather than pursing time-share and
other initiatives.
Cost cutting program should result in improved operating margins and lower overhead. New management team and Board of Directors focused on surfacing value for shareholders. The success of the condo-hotel project in Kelowna will positively impact 2006E financial results. Potential to capitalize on excess land for future development.
Company Description: The Royal Host REIT is an open-ended mutual fund trust for the purpose of investing in hotel properties. Formed in August 1997 with the acquisition of 18 properties, it is one of only four hotel REITs in Canada. Royal Host REIT owns 39 hotels, manages 77 properties and franchises 117 locations for over 15,500 guestrooms in the mid-market hotel segment. Royal Host owns the master franchise rights for the Travelodge brand in Canada.
CHALLENGES RevPAR performance has been in-line, but ADR growth remains allusive. Capital expenditures remain high relative to revenue. Execution on the sale of smaller, non-core assets has proven difficult.
246
ROYAL HOST REIT EARNINGS FORECAST

(in $000s; 31-Dec YE) 1QA Hospitality Revenue Operating Expenses & Franchise Expense Gross Property Income Operating Margin Depreciation Other Gross Property Income before Interest Expense Interest Expense Interest on convertible debentures Gross Operating Income after Interest Expense Interest Expense as a % of Gross Property Income Other income Future income tax Total Operating Income Total Trust Expenses Income before other items Total Trust Expenses as a % of Gross Property Income Other - gains/losses Other - Discontinued ops, net of tax Other - FX Current income tax NET INCOME Per Unit Distributions to Unitholders Per Unit
"&$
2005E 2QA
"&(('
3QA (26,393) $14,845 36.0%
4Q
"$#%$
!"' #
(23,765) $6,310 21.0%

""%"
(26,280) $11,718 30.8%

"!(
(28,904) $6,561 18.5%

"&(
2005E Year 144,776 (105,342) $39,434 27.2% (14,152) (768) $24,514 (12,729) (7,158) $4,627 32.3% 53 (2,996) $1,683 (2,041) ($358) 5.2% (980) (242) (114) (106) ($1,800) ($0.03) ($10,292) $0.39
1Q
!( "
2006E 2Q
"'%((
3Q (27,739) $15,603 36.0%
4Q
"&!&$
#""#"
(24,499) $6,710 21.5%

"&(
(26,548) $12,152 31.4%

"&(
(30,006) $7,269 19.5%

"&(
2006E Year 150,526 (108,792) $41,733 27.7% (15,160) $26,573 (12,087) (10,020) $4,467 29.0% 3,600 (200) $7,867 (2,110) $5,756 5.1% -
"&(
"&(
(260) $2,687
""!( $(
(508) $8,001
"!# %$'
$11,055
"(! %$
$2,771
"%' !"$
$2,920
"%' !$$
$8,362
""& !$$
$11,813
"% !$$
$3,479
!(&$ !$$
($642) 52.8% 345 ($297) (544) ($841) 8.6% (390) (109) (87) (54) ($1,481) ($0.07) ($2,506) $0.09
$3,103 27.6% 11 $3,114 (638) $2,476 5.4% (214) 104 (52) $2,314 $0.07 ($2,447) $0.09
$6,358 20.8% -44.2% (1,676) $4,682 (433) $4,249 2.9% (590) 81 (131) $3,609 $0.10 ($2,480) $0.100
($2,602) 46.8% 53 (1,676) ($4,226) (426) ($4,652) 6.5% -
($2,653) 45.7% 900 (50) ($1,803) (503) ($2,307) 7.5% -
$2,819 25.0% 900 (50) $3,669 (547) $3,122 4.5% -
$6,302 19.3% 900 (50) $7,152 (624) $6,528 4.0% -
($2,001) 40.9% 900 (50) ($1,151) (436) ($1,588) 6.0% -

247
($4,652) ($0.13) ($2,859) $0.105
(75) ($2,382) ($0.10) ($1,466) $0.11
(75) $3,047 $0.03 $1,466 $0.11
(75) $6,453 $0.12 $0 $0.11
(75) ($1,663) ($0.10) ($11,436) $0.11
(300) $5,456 ($0.05) ($11,436) $0.42
Calculation of FFO Net income Debenture interest Loss or gain Amortization of capital assets Future income tax Property write-down Total FFO Per Share Diluted FFO Per diluted share Payout Ratio Diluted share count for FFO
Capex Adjusted Diluted FFO AFFO per diluted share Payout Ratio Outstanding Units Weighted Average Units - diluted
-1,481 0 499 3,363 -345 -140 1,896 $0.02 $3,486 $0.05 562.5%
2,314 0 0 3,209 -11 0 5,512 $0.23 $7,170 $0.19 39.1%
3,609 -81 3,790 1,627 590 9,535 $0.35 $11,140 $0.29 28.6%
-4,652 0 0 3,790 1,676 0 814 $0.02 $3,119 $0.07 439.4%
-210 0 418 14,152 2,947 450 17,757 $0.62 $24,915 $0.59 62.1%
-2,382 0 0 3,790 50 1,458 $0.03 $3,963 $0.08 342.3%
3,047 0 0 3,790 50 6,887 $0.14 $9,392 $0.20 72.5%
6,453 0 0 3,790 50 10,293 $0.22 $12,798 $0.27 48.5%
-1,663 0 0 3,790 50 2,177 $0.05 $4,682 $0.10 229.2%
5,456 0 0 15,160 200 0 20,816 $0.44 $30,836 $0.65 95.9%
Royal Host REIT
39,542
$1,203 $2,283 $0.06 155.9% 24,844 24,493
39,016
$1,520 $5,650 $0.14 62.1% 27,469 25,894
39,026
$1,650 $9,490 $0.24 41.1% 27,479 33,073
45,589
$1,419 $1,700 $0.04 281.6% 27,229 39,886
45,589
$5,791 $19,124 $0.48 79.7% 27,229 39,886
47,535
$1,248 $2,715 $0.06 183.8% 27,229 41,832
47,535
$1,548 $7,844 $0.17 63.6% 27,229 41,832
47,535
$1,734 $11,064 $0.23 45.1% 27,229 41,832
47,535
$1,491 $3,191 $0.07 156.4% 27,229 41,832
47,535
$6,021 $24,815 $0.52 80.5% 27,229 24,425
Royal Host REIT

NET ASSET VALUE
($000) Operating Income Capitalized Property Value Less Book Cost of Rental Properties Appraisal Increment Development at book value Common Equity Total Pre-tax Value Outstanding Units Appraised Value Per Unit 10.00% 33,643 336,429 10.25% 33,643 328,224 10.50% 33,643 320,409 10.75% 33,643 312,958 11.00% 33,643 305,845
314,538 21,891 31,510 100,683 154,084 27,479
314,538 13,686 31,510 100,683 145,879 27,479
314,538 5,871 31,510 100,683 138,064 27,479
314,538 (1,580) 31,510 100,683 130,613 27,479
314,538 (8,693) 31,510 100,683 123,500 27,479
$5.61
$5.31
$5.02
$4.75
$4.49
Notes 1) Operating income is projected for 2005 less capex reserve of 4% of total revenues. 2) Common equity excludes convertible debentures
248
OPERATING SUMMARY
($000)
Capital Structure 363,615 180,853 155,776 44,735 28,063 22,468 $0.88 16,833 $0.66 68.0% 11.9% 6.6% 3.8% -13.8% na na 42,253 26,231 20,620 $0.73 15,114 $0.53 68.0% -5.5% -6.5% -8.2% -17.2% -10.2% -19.0% 40,430 22,710 18,202 $0.74 12,725 $0.52 60.0% -4.3% -13.4% -11.7% 2.2% -15.8% -2.5% 34,889 15,807 11,709 $0.50 6,047 $0.26 57.5% -13.7% -30.4% -35.7% -33.4% -52.5% -50.8% 36,698 16,715 12,448 $0.42 6,746 $0.28 0.0% 5.2% 5.7% 6.3% -15.2% 11.6% 7.8% 39,434 19,547 17,757 $0.59 19,124 $0.48 n.a -1.9% 2.8% -10.6% 358,036 224,306 158,488 -1.5% 24.0% 1.7% 369,020 203,240 138,761 3.1% -9.4% -12.4% 369,515 223,165 120,866 0.1% 9.8% -12.9% 388,881 231,979 108,356 5.2% 3.9% -10.4% 394,693 246,621 100,683 1.5% 6.3% -7.1% 7.5% 16.9% 42.6% 41.4% 183.5% 75.0%
Assets Debt Equity Operating Income Growth Rate Pre-Financing After Financing Funds from Operation (FFO) Per Diluted Unit Adjusted FFO Per Diluted Unit Tax Deferral Rate
Financial Structure
Debt to Equity Ratio Debt-to-GBV Maturing Debt (2 yrs) As % of Total Debt Variable Rate Debt As % of Total Debt Average Debt Cost Average Debt Term (in years) 1.16 0.45 Year 2006 21,733 8.8% 50,000 22.3% 8.65% na 16,022 37.9% 2.40 2.40 0 0.0% 2.27 2.27 0 0.0% 17,720 43.8% 19,082 54.7% 1.84 1.84 0 0.0% 0.0% 8.84% na 0.0% 8.70% na 21,054 8.5% 51,802 28.6% 9.10% na 16,672 37.3% 2.43 2.42 66 0.4% 1.42 0.54 Year 2007 1.46 0.46 1.85 0.49
2.14 0.48
2.45 0.50
0.0% 8.50% na 19,983 54.5% 1.81 1.81 0 0.0%
0.0% 8.40% 4.0 19,887 50.4% 1.59 1.59 0 0.0%
Investment Returns 1.3% 13.6% 1.6% 13.1% 0.1% 12.2% nm 9.0% nm 10.9% nm 17.0%

305,858 1,475 307,333 99.5% 0.5% -100.0% 296,513 9,008 305,521 97.1% 2.9% -100.0% 327,818 340 328,158 99.9% 0.1% -100.0% 338,336 2,068 340,404 99.4% 0.6% -100.0%
Property Portfolio 320,246 17,437 3,010 340,693 94.0% 5.1% 0.9% 100.0% 314,538 31,510 3,029 349,077 90.1% 9.0% 0.9% 100.0%
Income Producing Properties Under Development Held for Sale and Discontinued
Royal Host REIT
Notes 1) 2005E operating income growth rates, rental leverage, coverage ratios and investment returns are forecasted. The balance of the data is for the most recent interim period.
249
Royal Host REIT

ANNUAL RESULTS
($000; 31-Dec YE) Hotel Revenues Operating Expenses Gross Property Income Operating Margin Depreciation Amortization of financing costs Income before interest 2000 140,879 (96,144) 44,735 31.8% (21,932) 0 22,803 2001 137,647 (95,394) 42,253 30.7% (18,877) 0 23,376 2002 136,916 (96,486) 40,430 29.5% (18,340) 0 22,090 2003 141,544 (106,655) 34,889 24.6% (17,779) 0 17,110 2004 142,555 (105,857) 36,698 25.7% (15,973) 0 20,725
Interest Expense (incldg convertible debentures) As a % of Gross Property Income
(14,912) 33.3% 7,891 112 0 8,003 (1,751) 6,252 0 620 6,872 4,785 2,087 $0.10 27,534 $1.08 81.7% 22,468 $0.88 100.1% 16,833 $0.66 133.6% $22,482 $0.96 68.0%
(14,262) 33.8% 9,114 362 0 9,476 (1,687) 7,789 0 (735) 7,054 4,596 2,458 $0.11 26,202 $0.93 91.1% 20,620 $0.73 115.8% 15,114 $0.53 158.0% $23,876 $0.92 68.0% 27,266 28,323
(12,787) 31.6% 9,303 490 0 9,793 (1,692) 8,101 (766) 25 7,360 7,202 158 $0.01 25,404 $1.04 78.3% 18,202 $0.74 109.2% 12,725 $0.52 nm $19,880 $0.72 60.0% 27,749 24,454
(13,622) 39.0% 3,488 29 0 3,517 (2,125) 1,392 (214) (1,159) 19 6,973 (6,954) ($0.29) 18,683 $0.48 63.3% 11,709 $0.50 100.9% 6,047 $0.26 nm $11,819 $0.48 57.5% 24,744 23,628
(13,825) 37.7% 6,900 0 0 6,900 (3,600) 3,301 (1,074) (670) 1,557 6,914 (5,357) ($0.22) 19,362 $0.48 61.0% 12,448 $0.42 95.0% 6,746 $0.28 175.2% $11,820 $0.48 0.0% 24,744 24,441
Interest Income Other Income Total Operating Income Total Trust Expenses Income before gains Other - gains/losses Income taxes Net Income Less: Interest on debentures and distributions on partnership units Adjusted Net Income Net Income Per unit diluted Distributable Income Per Diluted Unit DI Payout Ratio Funds from Operation (FFO) Per Diluted Unit FFO Payout Ratio Adjusted FFO (AFFO) Per Diluted Unit AFFO Payout Ratio Distributions to Unitholders Per Unit Tax Deferral Rate
Outstanding Units (in 000s) 23,417 Weighted average - diluted 25,545 Note: 1) AFFO based on 4% reserve on total revenues, rather than actual expenditures.
250
DEBT-TO-EQUITY
2000 % 2003 % 2004 % % 2001 % 2002 3Q05
($000)
Debt Bank loans and other debt Convertible Debentures Fixed Rate Total Debt 51,802 22,000 107,051 180,853 155,776 336,629 100.0% 382,794 100.0% 342,001 100.0% 344,031 102.2% 46.3% 158,488 41.4% 138,761 40.6% 120,866 35.9% 108,356 340,335 15.4% 6.5% 31.8% 53.7% 50,000 22,000 152,306 224,306 13.1% 5.7% 39.8% 58.6% 0 62,000 141,240 203,240 0.0% 18.1% 41.3% 59.4% 0 62,000 161,165 223,165 0.0% 18.4% 47.9% 66.3% 0 75,000 156,979 231,979
0.0% 22.0% 46.1% 68.2% 31.8% 100.0%
0 75,000 171,621 246,621 100,683 347,304
0 21 49 71 29 100
Total Unitholders Equity and Redeemable Partnership
Debt-to-Equity Ratio 1.16 2.33 363,615 42,590 406,205 0.45 0.54 0.46 358,036 56,006 414,042 369,020 70,338 439,358 2.26 2.66 3.06 369,515 83,906 453,421 0.49 1.42 1.46 1.85
2.14 3.59 388,881 91,650 480,531 0.48
2.45 3.92 394,693 97,835 492,528 0.50
Total Assets Add Depreciation Gross Book Value
Debt includes convertible debentures.
Royal Host REIT
251
Royal Host REIT

INTEREST COVERAGE
($000) Income before Gains and Taxes Depreciation Interest Pre-tax Cash Flow Interest Coverage Capitalized Interest Total Interest Total Interest Coverage 2000 6,252 21,932 16,672 44,856 2.43 66 16,738 2.42 2001 7,789 18,877 16,022 42,688 2.40 0 16,022 2.40 2002 8,101 18,340 17,720 44,161 2.27 0 17,720 2.27 2003 1,392 17,779 19,082 38,253 1.84 0 19,082 1.84 2004 3,301 15,973 19,983 39,257 1.81 0 19,983 1.81 2005E (358) 14,920 19,887 34,449 1.59 0 19,887 1.59 2006E 5,756 15,160 22,107 43,023 1.80 0 22,107 1.80
Interest coverage ratios includes interest on convertible debentures.
RETURN ON EQUITY
($000) Average Common Equity Net Income Funds from Operation (FFO) Net Income Return on Equity FFO Return on Equity 2000 164,979 2,087 22,468 1.3% 13.6% 2001 157,132 2,458 20,620 1.6% 13.1% 2002 148,625 158 18,202 0.1% 12.2% 2003 129,814 (6,954) 11,709 nm 9.0% 2004 114,611 (5,357) 12,448 nm 10.9% 2005E 104,520 (1,800) 17,757 nm 17.0% 2006E 100,683 5,456 20,816 5.4% 20.7%
Notes: 1) Equity does not include convertible debentures. 2) Net income and FFO are net of convertible debenture interest
252
Appendix
253
254
APPENDIX I: U.S. REIT YIELDS BY PROPERTY TYPE
Source: National Association of Real Estate Investment Trusts
APPENDIX II: U.S. P/FFO MULTIPLES BY ASSET CLASS

Company REITs Residential Retail Industrial Office Health Care Self Storage Hotel Diversified/Other All SNL REIT index MRQ 18.6 15.7 16 16.1 13.8 18.7 12.7 17.6 16 P/FFO (x) LTM 18.5 15.2 18.6 18.1 14.3 26 18.3 18.5 16.5 P/EPS (x) LTM 44.1 7.6 Est. 17.5 14.6 17.9 17.7 13.5 20.6 14.1 17.3 16 Recurring EBITDA/ Interest Exp (x) 2.3 3.0 2.7 2.7 3.3 3.0 2.8 3.2 2.8 Recurring EBITDA/ Interest Exp (x) 2.3 9.6 Dividend Yield (%) 4.68 4.9 4.22 5.41 6.56 4.36 4.75 5.51 4.97 Dividend Yield (%) 0.31 0.30
Company REOCs SNL All REOC (hotel & non-hotel) Home-builders

Source: SNL Financial
MRQ 40 6.1
Est. 35.7 6.8
APPENDIX III: U.S. REAL ESTATE CAPITAL MARKET TRANSACTIONS (ALL FIGURES IN US$)
Source: National Association of Real Estate Investment Trusts
255
APPENDIX IV: U.S. CAP RATES BY ASSET CLASS, 2Q98-4Q05
Source: Real Estate Corp. (www.rerc.com)
APPENDIX V: U.S. SPREAD, PRIME MORTGAGES VS. 10 YEAR TREASURIES
Source: Barrons, John B. Levy & Co. survey
APPENDIX VI: CMBS MARKET (ALL FIGURES IN US$)
Source: Barrons, John B. Levy & Co. survey
256
,03257$17 ',6&/2685(6
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FRPSDQ\VSHFLILF GLVFORVXUHV
Legend: 1. 2. 3. 4. 5. 6. 7. Within the last 12 months, Raymond James Ltd. or its affiliates has undertaken an underwriting liability or has provided advice for a fee with respect to the securities of the subject company. The Analyst and/or Associate or a member of his/their household has a long position in the securities of this stock. Raymond James Ltd. makes a market in the securities of the subject company. Raymond James Ltd. and/or affiliated companies own 1% or more of the equity securities of the subject company. <Person Name> who is an officer and director of Raymond James Ltd. or its affiliates serves as a director of the subject company. Within the last 12 months, the subject company has paid for all or a material portion of the travel costs associated with a site visit by the Analyst and/or Associate. None of the above disclosures apply to this company.
Symbol
BEI.UN CAR.UN CSH.UN HOT.UN CUF.UN REF.UN D.UN FCR HR.UN INN.UN IUR.U LGY.UN MRT.UN PMZ.UN RRR.UN REI.UN RYL.UN SMU.UN
Company
Boardwalk REIT Cdn Apartment Properties (CAP) REIT Chartwell REIT CHIP REIT Cominar REIT CREIT Dundee REIT First Capital Realty Inc. H&R REIT Innvest REIT IPC US REIT Legacy Hotel REIT Morguard REIT Primaris Retail REIT Retirement REIT RioCan REIT Royal Host REIT Summit REIT
Exchange
T T T T T T T T T T T T T T T T T T
Disclosures
7 1 1 7 7 7 7 7 7 7 1, 2 7 3 1 7 7 7 2
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2006 CDN Real Estate Industry 020806 REV2

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2006 Canadian Real Estate Industry: Building Growth

Gail Mifsud (416) 777-7084 Li Zhang (416) 777-7042

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Equity Research Canada

2006 Canadian Real Estate Industry: Building Growth

PLEASE SEE END OF REPORT FOR IMPORTANT DISCLOSURES

Raymond James Equity Research - Canada

Table of Contents (contd)

Raymond James Equity Research - Canada

Figures and Tables

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List of Figures and Tables (contd)

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List Figures and Tables (contd)

(Images for cover page from bigstockphoto.com and morguefile.com)

Raymond James Equity Research - Canada

Industry Perspective and Outlook

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Raymond James Equity Research - Canada

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6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

5.2% 3.4% 1.8% 2.0% 3.0% 3.1%

Source: Statistics Canada, Bloomberg Consensus Estimates

Raymond James Equity Research - Canada

4.2% 3.1% 3.4%

Source: FOMC, U.S. Department of Commerce, Bloomberg Consensus Estimates

Raymond James Equity Research - Canada

TABLE 1: PROVINCIAL GDP GROWTH RATES

All items excluding energy All items

Source: Statistics Canada

Raymond James Equity Research - Canada

Commercial Mortgage Rate

Raymond James Equity Research - Canada

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Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

REAL ESTATE OUTLOOK

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

Raymond James Equity Research - Canada

REAL ESTATE EQUITY MARKET PERFORMANCE

Source: Bloomberg Inc. and RJ Research estimates and analysis

Raymond James Equity Research - Canada

FIGURE 5: RANKED RETURNS FOR REITS IN 2005 (IN %)

Note: First Capital Realty is not a REIT

Raymond James Equity Research - Canada

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Raymond James Equity Research - Canada

Top Picks for 2006 CREIT (REF.UN)

Raymond James Equity Research - Canada

TABLE 3A: RAYMOND JAMES REAL ESTATE INVESTMENT OVERVIEW

Stock Symbol Yield 2004A 2006E 2004A 2006E

Price Rep. 2/6/06 Curr.

Market Cap. (mln)

2005E Ind. Dist.