SECTION B
A N I N T R O D U C T I O N T O R E A L E S T A T E I N V E S T M E N T T R U S T S
Who should investin REITs?THE RIGHT CHOICE, B2
So, whats aREIT?COMMON SENSE, B3
REPORT ON REITSTax Advantages
Real Estate Investment, B7
COMMON SENSE Your portfolio is missing something!_ REIT all about it!Five common sense reasonsREITs offer diversification and a levelof stability, without sacrificing growthpotential. REITs provide exposure toreal estate real assets with tangiblevalue and reliable income streams in a highly liquid, marketable security.REITs are distinct. B2
THE RIGHT CHOICE
Which REIT is right for you?Hotels, nursing and retirement homes,office buildings, residential, retail orindustrial. B6
Tax advantages are significantAs a REIT distributes virtually all of itsdistributable income to unitholders, it isnot subject to tax itself; rather, the incomeis taxed in the hands of its unitholders.This flow-through structure is a keyadvantage for Trusts over other formsof real estate investment. B7
STABILITY
Mark Twain was right, sort of...Real estate is one of the oldest,most proven investment opportunities.However, in todays real estate, successfulinvestors realize a need for constantimprovement. B4
Who should invest in REITs?Income investors, investors seeking taxbenefits, growth investors, RRSP, RRIF,RESP, DPSP, leverage investors. B2
The asset mix decisionExperts agree, the single most importantfactor to building wealth for individualinvestors is the mix of assets that aremaintained over the long term. Properdiversification among different investmentswill optimize returns and reduce volatilityover time. B3
So, whats a REIT?A REIT (pronounced reet and shortfor Real Estate Investment Trust) is apublicly traded organization that investspredominantly in income-producing realestate assets. REIT units are an equityinvestment, providing investors withattractive yields. B3
Structured for stability The Declaration of Trust sets out a maxi-mum debt capacity for the REIT. Investorsbenefit from professional management ofthe portfolio and the underlying properties- often a hybrid of asset management. B4
REITs: Structured for stabilityBY REALpac, TORONTO
Real estate investment trusts must adhere tostringent leverage and financial reportingcriteria. These regulations lead to steady cashdistributions, conservative portfolio man-agement, and transparent communicationwith REIT investors. Of course, CanadianREITs are not solely structured for stability. . . first and foremost, REITs are struc-tured to succeed. For more information onthe stability of a REIT investment, see B4.
1801 Hollis St., Halifax, Nova Scotia
The Fairmont Empress, Victoria, British Columbia
BY REALpac, TORONTO
Your investment portfolio mayhave stocks, bonds and cashinvestments, but what aboutreal estate? For most people,real estate investing is limitedto home ownership, with littlethought of ever owning an officetower, a shopping mall or anindustrial warehouse. But thanksto real estate investment trusts(REITs pronounced reet),individuals can participate inthe ownership of commercialproperties and reap the benefitsof stability, growth and diver-sification that institutionalinvestors have enjoyed fordecades.
With investment choicesbecoming more complex, andfinancial markets more andmore volatile, the simple solutionfor all investors is to be welldiversified. REITs provideaccess to an asset class that canperform independent of yourother investments, which meansbetter balance for your portfolio.
In addition, Canadian REITsoffer unique benefits to theirunitholders that other equityinvestments do not. Typically,REITs provide investors withmonthly or quarterly cashdistributions at attractive yieldswith tax deferral benefits.REITs also offer capital gainspotential as the portfolio growsand individual properties benefitfrom synergies and professionalmanagement. With the criticalmass to diversify over a numberof real estate properties, a REITcan expose its investors to theentire real estate market,reducing the risks that comewith owning just one propertyin one location. Many REITsnow specialize by sector (retail,industrial, hotels, nursing homes,apartment buildings, etc.), whileothers provide general exposureto the real estate market as awhole.
For information on individualCanadian REITs, see the backcover of this brochure.
B2 CANADIAN REITS COMMON SENSE
Five common sense reasonsto add a REIT to yourinvestment portfolio:
1. REITs offer diversification and a level of stability, without sacrificing growth potential.
2. REITs provide exposure to real estate real assets with tangible value and reliable income streams in a highly liquid, marketable security.
3. REITs are distinct in their combination of relatively steady income, capital gains potential, tax benefits and professional, active management.
4. Typically, REITs provide more attractive yields than other income investments.
5. As a Trust, REITs are subject to more stringent regulations in areas such as leverage and financial reporting, providing investors with an added layer of security.
Income investorsREIT units offer attractive yields and arelatively steady income stream makingthem a suitable portfolio component formost income investors, though incomeinvestors should be aware that REITs arean equity investment with fluctuating unitprices.
Investors seeking tax benefitsREITs offer three major tax benefits:1) pre-tax income flows through toinvestors, 2) investors get favourable tax
treatment on the income, and 3) a com-ponent of the tax obligation is deferreduntil the units are sold.
Growth investorsWhile the first two priorities are stabilityand income distribution, Canadian REITshave proven to be solid growth investmentsby bringing financial strength, industryacumen and innovation to previouslyuntapped opportunities. With most REITs,investors have the option to re-invest
distributions through a distribution rein-vestment plan (DRP) to compound thegrowth potential of the investment.
RRSP, RRIF, RESP, DPSPREITs are 100% eligible as Canadiancontent for registered portfolios.
Leverage investorsInterest on investment loans is taxdeductible and distributions can be usedtoward loan repayment.
Who should invest in REITs?
Canadian REITs are a solid growth investment. Lundy Manor, Niagara Falls, Ontario
35-39 Front Street, Toronto, Ontario
CANADIAN REITS B3
The asset mix decisionCANADIAN REITS IN THE NEWS
Experts agree, the single most importantfactor to building wealth for individualinvestors is the mix of assets that aremaintained over the long term. Properdiversification among different invest-ments will optimize returns and reducevolatility over time.
Because real estate is a distinct assetclass with limited correlation to mostother investments, it is a key contributorto this optimum asset mix. However, mostindividual investors do not have the capitalor the management skills to achieve directownership of a shopping mall, hotel,retirement home, office building, apartmentcomplex or industrial property.
REITs expose investors to real estatein a highly liquid, marketable securitythat provides steady, tax-advantagedincome, plus the potential for capitalappreciation should the propertiesincrease in value.
What can a REIT do for you?The simple answer is that it can do justabout everything a mutual fund, individualstock or bond can do, but because realestate has limited correlation to mostother stocks and bonds, REITs provideone more layer of diversification contributing to effective wealth creationfor individual investors.
So, whats a REIT?A REIT (pronounced reet and shortfor Real Estate Investment Trust) is apublicly traded organization that investspredominantly in income-producing realestate assets. REIT units are an equityinvestment, providing investors withattractive yields, plus the potential forcapital appreciation.
The concept was introduced in theUnited States in 1960 to provide individualinvestors with the opportunity to participatein different sectors of the real estatemarket. Income earned by a REIT flowsthrough to its unitholders without beingtaxed at the REIT level, giving regularinvestors similar flow-through income tothat enjoyed by direct owners of com-mercial property.
Just like a mutual fund, REIT investorsbenefit from enhanced buying power,diversification, liquidity and professionalmanagement. REITs are required todistribute virtually all distributable incometo unitholders monthly or quarterly usually with a tax-deferred component.Assets of a REIT do not deplete in the sameway that, say, an oil and gas royalty trustmight; so, as long as there are income-producing buildings and properties,REITs are a viable investment structure.
WhichCanadianREIT isright foryou?REITs B6
Proper diversification among different investments will optimize returns.
Fairmont Chteau Laurier, Ottawa, Ontario
Empress Walk, Toronto, Ontario
800-806 Clark Boulevard, Brampton, Ontario
Conservative leverage the Declarationof Trust sets out a maximum debt capacity for the REIT.
Professional management investorsbenefit from professional managementof the portfolio and the underlyingproperties often a hybrid of asset management acumen and industry-specific operational expertise.
Regulatory requirements similar toany public company, REITs are requiredto comply with securities legislation andthe rules of the applicable stock exchangesincluding those of continuous disclosure,insider trading and the sale of units.
Board of Trustees in keeping withthe principles of good corporategovernance, the Board of Trustees(including independent or unrelatedTrustees), governs the operations ofthe REIT, approving key decisions suchas change in management, acquisitionsand dispositions, the assumption orgranting of mortgages and the grantingof options under an option plan.
Steady distributions REITs are required to distribute virtually alldistributable income to unitholders.Monthly or quarterly distributions areintended to be steady and increasing overtime as the REIT and its profitabilitygrow. Yields are typically more attractivethan on debt investments.
B4 CANADIAN REITS STABILITY
StabilityCONSERVATIVE LEVERAGEPROFESSIONAL MANAGEMENT REGULATORY REQUIREMENTS BOARD OF TRUSTEESSTEADY DISTRIBUTIONS
REITs: Structured for stability
Mark Twain was right,sort of...
The renowned author once advised, Buy land,theyre not making it anymore. Its true realestate is one of the oldest, most proven investmentopportunities. However, in todays real estatemarket, successful investors realize a need forconstant improvement . . . improvement of infra-structure, and in some cases, of products andservices in the underlying businesses they own.The best real estate investments are those thatbenefit from both the intrinsic increase in valueof the property or land and professionalmanagement seeking internal growth opportunitiesand greater cost efficiencies.
Buy land, theyre notmaking it anymore.
Mark Twain
Real estate is one of the oldest, most proven investment opportunities.
Trans Canada Pipelines Building, Calgary, Alberta
View of Toronto skyline from 33 Eastmount Avenue, Toronto, Ontario
CANADIAN REITS B5
A REIT has critical mass and hasthe potential to bring synergies toindividual properties, creating valuethat otherwise would not exist
A REIT has professional managersmandated to pursue steadily increasingdistributions and capital appreciationover the long term
In Canada, most management have ameaningful ownership stake in theirREIT
As a marketable security, a REITprovides liquidity far beyond directinvestment in real estate
Performance
Investing in REITs is an excellent way to diversify a portfolio and establish a steady income stream without sacrificinggrowth potential. Real estate offers competitive investment performance relative to stock and bond market indices.And, by investing in real estate through a REIT, you get the following additional growth drivers:
Orchard Park Shopping Centre, Kelowna, British Columbia
B6 CANADIAN REITS THE RIGHT CHOICE
Hotels Canadas popularity as both a vacation destination and global business
hub continues to grow each year, fueling the hospitality industry. Canadian REITs are
consolidating a fragmented hotel market where new supply is generally cost prohibitive.
Nursing and retirement homes The aging population has created a steadily
increasing demand for nursing and retirement facilities that will continue exponentially
over the next 40 years.
Office buildings Low vacancy rates and limited new supply are attractive charac-
teristics for ownership of Canadian office buildings. This sector also tends to have a high
quality of tenancy enhancing the stability of the income stream and limiting turnover
costs.
Residential Properties such as apartment buildings are an extremely stable investment
as tenant demand is high in both good times and bad. Growth in this sector is being driven
by the recent relaxation of rent controls in certain Canadian markets and a growing trend
among one-time homeowners choosing to rent for flexibility and location.
Retail Unenclosed supermarket-anchored retail properties, dominant enclosed shop-
ping centres, and new format retail centres are meeting consumer demand for both con-
venience and a retail entertainment experience. Canadian REITs in this sector have the
innovation and capital required to meet the demands of this ever-evolving industry.
Industrial - Industrial is the largest real estate asset class in Canada, offering a highly
stable tenant base and low costs in terms of maintenance, capital improvements and
tenant inducements.
Diversified - Investors can also choose a single REIT that diversifies in some or all of
the above categories.
Which Canadian REIT is right for you?
The Crowne Plaza, Ottawa, Ontario
Bridlewood Manor, Brockville, Ontario
2810 Matheson Boulevard East, Mississauga, Ontario
411 Duplex Avenue, Toronto, Ontario
Shoppers Mall, Brandon, Manitoba
201 Brownlow Avenue, Dartmouth, Nova Scotia
YEAR ONE $1.00 $0.40 $10.00 - $0.60 = $9.40
YEAR TWO $1.00 $0.40 $9.40 - $0.60 = $8.80
YEAR THREE $1.00 $0.40 $8.80 - $0.60 = $8.20
DISPOSITION $12.00 - $8.20 = $3.80 (capital gain)
CANADIAN REITS B7
As a REIT distributes virtuallyall of its distributable incometo unitholders, it is not subject totax itself; rather, the income istaxed in the hands of itsunitholders. This flow-throughstructure is a key advantage forREITs over other forms of realestate investment.
For the unitholder, distributionsare made up of a combination ofincome (taxed in the year it isreceived) and usually a return ofcapital (where tax is deferred untilthe year of disposition and at thelower capital gains tax rate.)
Over the three years, the investor receives income totaling $3.00 per unit, butpays income tax on just $1.20. The rest of the income is considered a returnof capital and is therefore applied to reduce the cost base of the investment.In doing so, the majority of the tax obligation is deferred until the units aresold and is taxed at the more favourable capital gains tax rate.
So, how do Iadd a REIT tomy investmentportfolio?Investing in a REIT is much likepurchasing a mutual fund or individualcommon stock. Daily unit prices arelisted in all major business media underTrust Units and you can purchaseREIT units from any broker/dealerlicensed to sell equities in Canada.Please speak with your financial advisorto determine an appropriate allocation and select the REIT thats right for you.
The tax advantages are significant
INVESTING
To learn more about Canadian REIT investing, to order your copy of
"The Canadian REIT Handbook", the definitive reference for investors,
financial institutions, real estate executives, and financial advisors, or for a list of
REALpac Member REITs, go to www.realpac.ca or contact us at (416) 642-2700.
Distribution per unit Income per unit Adjusted Cost Base per unit
For example: An investor purchases REIT units at $10.00 per unit in YEARONE, receives per unit distributions of $1.00 per year (60% of which is taxdeferred), and sells the units for $12.00 per unit in YEAR THREE.
Delta Fredericton, Fredericton, New Brunswick