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Valuation of REITs Worldwide with an Emphasis on the Valuation of New Zealand and Australian Property Trusts Randy Kirk 1/30/2011

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Page 1: Analysis A-REITs and NZ-REITs

Valuation of REITs Worldwide with an Emphasis on the Valuation of New Zealand and Australian Property Trusts

Randy Kirk

1/30/2011

Page 2: Analysis A-REITs and NZ-REITs

Executive Summary:

The purpose of this report is to compare net asset value and calculated property values of Real Estate Investment Trust securities with share market valuations as of January, 2011, with an emphasis on property trusts in New Zealand and Australia.

Approximately 168 REITs are included in this report, 46 in the United States, 53 in Australia, 7 in New Zealand, 16 in Singapore and Hong Kong, 11 in the UK, and 16 in Canada, which represent the bulk of investable REITs worldwide (excluding mortgage REITs, excluding Japanese REITs and excluding REITs under $100M market capitalization) at January 2011).

New Zealand and Australian REITs appear relatively undervalued on a national basis. 38 out of 56 or 71% of NZ and A-REITs are selling below stated NAV at January 2011. The reason for this undervalued status include disillusionment on the part of NZ and Australian investors due to share price declines in 2008 and early 2009, driven by write downs of property values during the Global Financial Crisis.

12 A-REITs and 2 NZ REITs -- Kiwi Property Trust (NAP.NZ) and Argosy Property Trust (AMO.NZ) -- are recommended for further research for as potential buys. Westfield Property Trust (WDC.AX) and Thakral (THG.AX) appear the most promising A-REITs for investment, based on discounts to NAV and calculated property values, as well as leverage levels and yield levels.

On national level, NZ and A-REITs have relatively promising investment characteristics in comparison with US, Canadian and UK REITs, due to high spreads between the 10 year NZ and Australian governmental bonds and REIT yields, relatively high implied capitalization rates in NZ and Australia, a lack of recovery in A-REIT and NZ-REIT share prices (despite similar declines during the GFC) from late 2008, and a lack of institutional l ownership of REITs in NZ and Australia (which could change in the future).

Low levels of indebtedness are important for REITs in 2011. REITs with over 45% debt to total assets will likely have to sell assets and/or raise equity in the next year to pay down debt according to the rating agency Moody’s, which will reduce returns for shareholders.

Notably, Singaporean REITs appear very strong, with yields between 6% and over 10% in comparison to the Singaporean 10 year governmental bond yield of 2.62%. Singapore was the 2nd fastest growing economy in 2010 after Qatar, which supports real estate values, and S-REITs are relatively underleveraged. (debt to total assets averages around 20% for the S-REIT sector). 6 S-REITs are recommended for further research, including Fraser’s Commercial Trust (A48U.SI) and AIMS AMP Capital REIT (BU5U.SI).

Page 3: Analysis A-REITs and NZ-REITs

Table of ContentsIntroduction:..........................................................................................................................................4

5 Year Historical Performance of the National REIT Sectors:.................................................................5

Figure 1: 5 Year Historical Performance of the National REIT Sectors:..............................................5

REIT Industry Overview:........................................................................................................................5

Figure 2: Property Investment by Type for US REITs.........................................................................6

Figure 3: US REIT Dividend Yield Compared to US Share Yield Figure 4: Relative 30 Year Performance of REITs vs. Other Asset Classes 7

Figure 5: 10 Year Treasury Note Yield 1962-2008..............................................................................8

NZ and A-REIT Recommendation Overview:..........................................................................................8

New Zealand and Australian REITs Listed by Ascending Market Capitalization to Net Asset Value:.....9

Figure 6: NZ and A-REITs listed by Ascending Market Cap divided by NAV.....................................10

Estimates of Current Capitalization Rates Utilized by the Recommended A-REITs and NZ-REITs to Calculate NAV:.....................................................................................................................................11

Figure 7: Implied and Utilized Capitalization Rates for NZ and A-REITs...........................................11

Valuation Analysis of NZ and A-REITs Based on a Range of Capitalization Rates:................................13

How much appreciation will a 100 bps reduction in capitalization rates provide to NZ and A-REITs? 15

Analysis of NZ and A-REITs Discount to NAV:......................................................................................15

Summary of Recommendations: C and US REITs:................................................................................19

Canadian, UK and US REITs Listed by Ascending Enterprise Value to Property Value:........................19

Figure 16: C, UK and US-REITs listed by Ascending Enterprise Value divided by Property Value.....20

Summary of Recommendations: S-REITs:............................................................................................20

Singaporean REITs Listed by Ascending Enterprise Value to Property Value:......................................21

Figure 17: Singapore and Hong Kong REITs listed by Ascending Enterprise Value divided by Property Value.................................................................................................................................21

Valuation Analysis of S-REITs Based on a Range of Capitalization Rates:............................................22

Risks to REIT Valuations:......................................................................................................................22

Conclusion:..........................................................................................................................................23

Appendix:............................................................................................................................................25

Factors Driving REIT Valuation:............................................................................................................25

Green Street Advisor’s Valuation Overview:....................................................................................25

Macro Factors:.................................................................................................................................25

Page 4: Analysis A-REITs and NZ-REITs

REIT Specific Factors:.......................................................................................................................26

Observed Average Premium to Asset Value:...................................................................................27

REIT Data, New Zealand and Australia:................................................................................................28

Canadian REITs:...................................................................................................................................32

Introduction:

This report analyses Real Estate Investment Trust securities worldwide by comparing estimated property values with share market valuations, with a particular emphasis on property trusts in New Zealand and Australia. The most interesting securities for further research for potential investment are expected to be trading at the deepest discounts to estimated property value, all other factors equal.

The question that serves as a background to this report is: how are property values and “intrinsic value” for REITs calculated? According to Green Street Advisors, one of the world’s leading REIT research houses:

REIT valuation can be best assessed by analysing separately the two key components of value: 1. The net value of the in-place assets. 2. The present value of future investment opportunities.1

Green Street Advisors further elaborates, concerning factor 1 above:

Operating Real Estate (is) usually the most important part of an NAV analysis. A 12-month look-forward estimate of NOI is calculated, the magnitude of an appropriate cap-ex reserve is determined, and an appropriate cap rate is applied to economic NOI (NOI less cap-ex).2

This report will focus mainly part 1 of Green Street Advisor’s statement regarding REIT valuation described above – that is, on existing properties, and not on future potential income from new investments. Net Operating Income excluding maintenance capital expenditures is calculated for REITs based on rolling 12 month historical results. The calculated NOI is divided by a range of capitalization rates, with a particular capitalization rate used primarily by geographical location (7.00% for Australia and New Zealand, 6.00% for the US, Canada, the UK, Singapore and Hong Kong). In addition to valuation based on NOI and capitalization rates, REITs are also valued by reported net asset value (NAV) as required under IAS GAAP.

It should be noted that, ideally, REIT valuation would also include part 2 of Green Streets’ methodology – an analysis of future investment income. The results in this report are therefore expected to be more conservative than if future opportunities are analysed (that is, assuming the REIT does not subtract value in its investment in future properties).

1 Green Street Advisors “NAV Based Valuation Model.” https://www.greenstreetadvisors.com/about/page/research/#!/v/n Accessed 23/1/112 Green Street Advisors “Methodology: Section 2: NAV https://www.greenstreetadvisors.com/about/page/research_navmodel_2_1/ Accessed 23/1/11

Page 5: Analysis A-REITs and NZ-REITs

168 REITs are included in this report, 46 in the United States, 53 in Australia, 7 in New Zealand, 16 in Singapore and Hong Kong, 11 in the UK, and 16 in Canada. The United States is the world’s largest REIT market in terms of overall market capitalization and in terms of number of firms -- approximately 150 REITs are listed in the US -- although several other countries have substantial REIT sectors, including Australia, Canada, Great Britain, New Zealand, Japan and Singapore. Several other countries have passed legislation authorizing the adoption of the REIT legal structure for property firms, including Mexico, Germany, Russia, Czech Republic and Mexico, although to date (January 2011) do not have substantial numbers of REITs trading on their respective stock exchanges.

5 Year Historical Performance of the National REIT Sectors:

A chart of 5 year performance of the major national REIT sections is presented below. It should be noted that New Zealand, Singapore, and the UK REIT industries do not have associated REIT equity indexes, so these sectors are represented by the largest REIT in each country (Kiwi Income Property Trust as representative for New Zealand (KIP.NZ), Capital Mall Trust as representative for Singapore (C38U.SI), and Land Securities for Great Britain (LAND.L).

Figure 1: 5 Year Historical Performance of the National REIT Sectors:

Notes to Notes for Figure 1: ^AXPJ is S&P/ASX 200 REIT index (Australia), XRE.TO is the iShares S&P/TSX Capped REIT Index (Canada), ^DJR is the US Dow Jones REIT index, LAND.L is Land Securities (Great Britain), KIP.NZ is Kiwi Income Property Trust (New Zealand) and C38U.SI is Capital Mall Trust (Singapore). Note that Land Securities (UK) has not recovered from its lows from the 2008 financial crisis, but is still selling above NAV at January 2011 due to a relatively high valuation pre-crisis and lower NOI post-crisis.

Page 6: Analysis A-REITs and NZ-REITs

REIT Industry Overview:

A brief overview of the international REIT industry is presented in this section, in order to provide background to the findings in the report. The United States was the first country in the world to pass legislation authorizing a Real Estate Investment Trust legal structure, when President Eisenhower passed the Real Estate Investment Trust Act in 1960. Canada adopted REIT legislation in the late 1970’s and Australia and New Zealand passed REITs in the form of property trusts in the late 1970’s. The UK is a relative latecomer into the REIT universe, as Great Britain authorized REITs in 2007, and now lists about 20 REITs on the LSE. Currently approximately 300 REITs are in existence worldwide across all sectors – from office to industrial to mortgage to diversified (mortgage and property) according to a search on Bloomberg at January 2011, and about half of worldwide REITs are located in the United States.

Figure 2: Property Investment by Type for US REITs

Source NAREIT

Note that many of these REITs are well under $100M in market capitalization and therefore are likely to not be of interest to most investors, in so far as larger REITs have advantages in accessing capital and gain from have a more diversified portfolio, which supports a consistent dividend yield.

According to Brad Case, VP of Industry Information at US National Association of Real Estate Investment Trusts (NAREIT), REITs have advantages in terms of accessing capital through the public stock and bond markets, compared to privately held real estate investment funds. This access to public markets supports reasonable costs of capital, and allows REITs to invest in larger real estate projects.3 REITs are also at pressure to put funds to work in real estate assets, which ensures that investors have access to yield. REITs offer higher dividend yields than most stocks, which appeal to many classes of investors, including institutional investors and other investors reliant on income. A comparison of average REIT yields in the US compared to average stock yields is presented in Figure

3 Brad Case, NAREIT http://www.youtube.com/watch?v=8G5won3mlSg Accessed 21/1/11

Page 7: Analysis A-REITs and NZ-REITs

3. REITs have yielded anywhere from 6% to 2% higher, on average than shares (note that the yield differential has narrowed over time in the US – perhaps due to increasing acceptance by institutional investors of US REITs and lower numbers of investments that offer attractive yields).

REITs have outperformed most asset classes on a 30 year basis to 2009 – even with the financial crisis in late 2008 which reduced REIT share prices. As shown in Figure 2, over a 30 year period ending December 31, 2009, REITs have averaged an annual average total return of 11.77%, compared to 11.23% for the US S&P 500 and 8.78% for the Barclay Capital’s Aggregate Bond Index.

Figure 3: US REIT Dividend Yield Compared to US Share Yield Figure 4: Relative 30 Year Performance of REITs vs. Other Asset Classes

Source: NAREIT

The reasons for the higher return of REITs versus other asset classes is likely in part due to declining average interest rates in the US. As shown in Figure 5, the yield on the 10 year US treasury has steadily declined since 1980 (with a few minor reversals), from a high of 16% in 1980 to approximately 3.5% in 2011. The decline in interest rates has been driven by several factors: declines in inflation in the US from very high levels in the late 1970’s, continued federal funds easing by the US Federal Reserve, particularly in 2000 and 2008 in order to stimulate the economy, among other factors.

The decline in overall interest rates has resulted in a reduction capitalization rates for property in the US since 1980, raising property prices. The lower yield has driven investors to value alternative sources of yield more highly, such as REITs. As noted by the “bond king” Bill Gross of the world’s largest bond fund PIMCO, the 30 year decline in interest rates may be over in the United States from 2010 onward, due to extremely low levels of interest rates (which have almost nowhere to go but up) and higher governmental debt levels which require higher interest rates to attract investors.4

4 Bill Gross http://www.businessweek.com/news/2010-03-25/pimco-s-gross-says-bonds-may-have-seen-their-best-days.html Accessed 1/23/11

Page 8: Analysis A-REITs and NZ-REITs

Figure 5: 10 Year US Treasury Note Yield 1962-2008

Source: Data Compiled from Bloomberg on US 10 year Treasury yields

The upshot is that REITs will likely not see the extent of declines in interest rates going forward in the United States from 2011 onward, and therefore investors should not expect to see dramatically increased returns stemming from lower capitalization rates. However, this does not mean that other countries, such as Australia and New Zealand -- which have currently the highest governmental interest rates in the developed world –will not see declining interest rates over the next several years which would support A-REIT and NZREIT share prices.

Page 9: Analysis A-REITs and NZ-REITs

NZ and A-REIT Recommendation Overview:

NZ and A-REITs are recommended for further research based on 4 main criteria: o Share market undervaluation compared to NAV o Share market undervaluation compared to calculated property value o Leverage ratioso Dividend yield

Calculated property value is based on calculated Net Operating Income (historical rolling 12 months) divided by a constant capitalization rate of 7.00%. (Note that an analysis of property values of the recommended NZ and A-REITs based on a range of property values is presented in the a following section)

12 A-REITs are recommended for further research in Figure 5, and 2 NZ-REITs are recommended.

Westfield Property Trust and Thrakal are the most interesting of the other recommended A-REITs, in terms of the combination of share market undervaluation compared to NAV and calculated property value, leverage ratio and dividend yield. Both A-REITs appear to have higher quality properties.

2 of the deepest discounted recommended A-REITs, Challenger Wine Trust and GEO Property Group, are very small and therefore may not warrant an overall high capitalization rate. Further, GEP Property Group is a special situation in which the REIT is liquidating in 2011. Appreciation potential is therefore limited.

Kiwi Property Trust and AMP NZ Office Property Trust are recommended for further research from New Zealand. Kiwi Property Trust and AMP NZ Office Property Trust has the strongest, highest quality portfolio of the NZ-REITs with moderate leverage levels and acceptable dividend yields.

New Zealand and Australian REITs Listed by Ascending Market Capitalization to Net Asset Value:

Figure 6 lists the New Zealand (NZ-REITs) and Australian (A-REITs) property trusts by ascending discount to market capitalization. According to the value investor Benjamin Graham, the deeper the discount to NAV, the more potential for upside share price appreciation for share investors. However, many of the A-REITs have declined to such a deep discount due to high indebtedness, likely requiring them to sell significant amounts of assets and/or issue significant equity to survive in 2011 and beyond.

Importance of Indebtedness Levels -- Indebtedness levels are assessed to be critical in the assessment of the A-REIT and NZ-REITs. Note that under 45% net debt to total assets is ideal,

Page 10: Analysis A-REITs and NZ-REITs

according to Moody’s Research Services for 2011.5 As mentioned, firms with higher net indebtedness will likely have to reduce leverage in 2011 and beyond (by selling assets or shares). A major reason for the A-REIT and NZ-REIT share declines in late 2008 and 2009 – declines in share prices averaged approximately 45% peak to trough – was lower revaluations of property prices, which was then run through the income statement, resulting in large losses, which flowed through to equity, resulting in violations of debt to assets banking covenants. A-REITs and NZ-REITs were then forced to sell assets and shares in order to maintain compliance with their banking covenants. A financial crisis of the magnitude of the Global Financial Crisis of late 2008 is not expected in the intermediate future, but investors should be wary of the potential of high debt levels to reduce returns for NZ and A-REIT investors.

It should be noted that several NZ and A-REITs have cancelled dividends in 2009 and 2010 to pay down debt, reducing their attractiveness to income-focused investors.

5 Merrie Frankel, VP, REIT Research, Moody’s Investor’s Research Services: http://www.youtube.com/watch?v=-_3BLX2KkWg Accessed 1/24/11

Page 11: Analysis A-REITs and NZ-REITs

Figure 6: NZ and A-REITs listed by Ascending Market Cap divided by NAV (First Listed Indicate Deeper Discount)( Colours indicate property sector: Office Retail Industrial Residential Diversified Other)(Dollar Values in $A or $NZ, depending on the main listing ASX or NZSX)

Property Trust Ticker Price Current Market

Capitalization

Gross Yield

Market Cap/NA

V

EV/Prop Value @7%

Debt/Total Assets

Recommendation

Challenger Wine Trust

CWT.AX 0.23 41,001,410 5.0% 0.52 0.26 27% Further Research

GEO Property Group

GPM.AX 0.19 81,103,900 13.2% 0.54 0.29 28% Further Research

Thakral THG.AX 0.535 312,785,075 0.0% 0.54 0.87 48.80% Further Research

Aspen Group APZ.AX 0.48 133,912,320 18.7% 0.68 0.78 30% Further Research

Carindale Property

CDP.AX 4.122 288,540,000 6.7% 0.74 1.03 11.7% Further Research

Mirvac Property Trust

MGR.AX 1.235 4,223,700,000 6.5% 0.74 1.07 26.80% Further Research

ING Office Fund IOF.AX 0.55 1,500,950,000 7.1% 0.74 1.15 15.40% Further Research

Kiwi Property Trust

KIP.NZ 1.01 972,581,998 8.7% 0.83 0.89 50% Further Research

DEXUS Property Group

DXS.AX 0.805 3,843,472,500 6.3% 0.85 0.92 30% Further Research

Australand ALZ.AX 2.93 1,690,141,200 3.4% 0.85 1.39 27.10% Further Research

AMP NZ Office Property Trust

AMO.NZ 0.79 768,243,220 8.9% 0.86 0.79 23% Further Research

National Property Trust

NAP.NZ 0.51 84,481,426 8.8% 0.87 0.57 22% Further Research

CFS Retail Property Trust

CFX.AX 1.785 4,843,085,205 7.0% 0.88 1.19 29.50% Further Research

ALE Property Group

LEP.AX 1.92 294,456,655 12.5% 0.90 0.82 52% Further Research

Westfield Property Trust

WDC.AX 9.62 11,063,000,000 6.7% 0.92 0.88 42.70% Further Research

Page 12: Analysis A-REITs and NZ-REITs

Bunnings Warehouse

BWP.AX 1.77 744,719,390 6.8% 0.94 0.84 18.80% Further Research

Notes:Only undervalued NZ and A-REITs on an NAV basis are presented in Figure 6. Property value is compared with enterprise value (market capitalization plus debt, minus cash and equivalents). Property value is calculated by 12 month historical NOI divided by a capitalization rate of 7.00%. NOI is defined as property revenue minus direct operating expenses minus maintenance capital expenditures (interest expense on debt and federal taxes are not included in NOI).

Estimates of Current Capitalization Rates Utilized by the Recommended A-REITs and NZ-REITs to Calculate NAV:

Figure 16 presents the capitalization rate utilized by the recommended NZ and A-REITs for the respective companies’ calculation of NAV. This is to say, the capitalization rates are this report’s estimate of company internally used capitalization rates. In addition, the implied capitalization rate at the market price of the shares is presented. This table serves as a complement to the preceding section, to see the existing capitalization rates utilized in Australia and New Zealand. Note that the calculated capitalization rates are dependent on the author’s calculation of NOI, which is historical and may not estimate sustainable NOI accurately, so some error may be present in the capitalization rates in Figure 16.

Figure 7: Implied and Utilized Capitalization Rates for NZ and A-REITs

Property Trust Ticker Price (1/11)

Implied Cap Rate at Current Price

Approx Cap Rate used for NAV

Challenger Wine Trust CWT.AX 0.23 26.43% 19.48%

GEO Property Group GPM.AX 0.19 24.50% 17.33%

Thakral THG.AX 0.535 8.02% 6.23%

Aspen Group APZ.AX 0.48 8.92% 7.54%

Centro Retail Trust CER.AX 0.24 6.64% 5.89%

Carindale Property CDP.AX 4.122 6.78% 5.23%

Mirvac Property Trust MGR.AX 1.235 6.57% 5.22%

ING Office Fund IOF.AX 0.55 6.08% 5.03%

Kiwi Property Trust KIP.NZ 1.01 7.85% 5.00%

DEXUS Property Group DXS.AX 0.805 7.62% 6.84%

Australand ALZ.AX 2.93 5.04% 4.59%

Page 13: Analysis A-REITs and NZ-REITs

AMP NZ Office Property Trust AMO.NZ 0.79 8.85% 7.73%

National Property Trust NAP.NZ 0.51 12.19% 6.69%

CFS Retail Property Trust CFX.AX 1.785 5.88% 5.40%

ALE Property Group LEP.AX 1.92 8.52% 8.12%

Westfield Property Trust WDC.AX 9.62 7.98% 7.51%

ING Industrial Fund IIF.AX 0.53 7.04% 6.77%

Bunnings Warehouse BWP.AX 1.77 8.36% 7.97%

Average: 9.63%

Average ex CWT & GPM: 7.65%

Average: 7.70%

Average ex CWT & GPM: 6.36%

As shown in Figure 7, the calculated internal capitalization rates are on the low side for a relatively high interest rate country such as Australia and New Zealand on average. One can tentatively say that utilized interest rates in Australia and New Zealand will likely remain constant going forward in the intermediate term, with a few exceptions. Gains in terms of share market appreciation will come from investors awarding A-REITs and NZ-REITs a higher valuation, and not from lower capitalization rates awarded by the REITs themselves to their own properties, on average.

Page 14: Analysis A-REITs and NZ-REITs

Valuation Analysis of NZ and A-REITs Based on a Range of Capitalization Rates:

This section will present an analysis of the recommended NZ and A-REITs based on a range of capitalization rates. The results are intended to shed light on the potential share appreciation and depreciation of the recommended NZ and A-REITs under different capitalization rates, and therefore different scenarios interest rate and competitive conditions for the purchase of commercial real estate.

A consistent net operating income is assumed, calculated from historical 12-month NOI, and capitalization rates, from a low of 5% up to a high of 13% are utilized to calculate potential property values, which is then compared with the current enterprise value of the NZ and A-REITs. In reality, NOI would likely change under different economic and competitive conditions. The higher the grade of property, the more resistance, as a general rule, the property income is to difficult economic conditions. Using a consistent NOI is therefore a limitation in the analysis presented in this section.

Note that a 5% capitalization rate results a relatively high valuation (although 5% capitalization rates are not unknown in the US and Japan, for the highest grade property, as interest rates in these countries are very low and investor demand for the highest grade properties is high). On the other hand, a 13% capitalization rate is a extremely pessimistic valuation metric, which could potentially arise if there is runaway inflation in NZ and Australia which results in very high interest rates. It should be noted that this scenario is unlikely, but the 13% capitalization rate is utilized to show potential losses in the most extreme case.

Valuations across capitalization rates for recommended A-REITs is presented in Figure 7.

Page 15: Analysis A-REITs and NZ-REITs

13% 12% 11% 10% 9% 8% 7% 6%

-60%

-40%

-20%

0%

20%

40%

60%

8: Share Price Appreciation of Different A-REITs Only

Thakral

Aspen Group

DEXUS Property Group

Westfield Property Trust

Bunnings Warehouse

Capitalization Rate

Shar

e Pr

ice A

ppre

ciatio

n

0% Share Appreciation represents an implied cap-italization rate at the cur-rent share market price

Source: Compiled data from Annual Reports and Bloomberg

As shown in figure 8, two A-REITs, Challenger Wine Trust and GEO Property Group, are significantly more undervalued on an NOI basis than the rest of the recommended A-REITs. This is partially due unusual situations – GEO Property Group is liquidating in 2011, meaning that investors likely have abandoned this REIT (although there is potentially a short term gain in buying GEO, but capitalization rates will not have the chance to move significantly in less than one year so gains may be limited). Challenger Wine Trust looks interesting, although is relatively small at approximately $A40M in market capitalization, which potentially has resulted in the Trust being dropped from many funds due to its small size. Note also that wine properties are unlikely to command a high capitalization rate – Challenger Wine Trust itself utilizes a 19.5% capitalization rate to value its properties (implied and company utilized capitalization rates are explored in the next section).

Figure 9 provides more detail on the other recommended A-REITs. Note that Thakal and Westfield Property Trust appear to be the same line in the chart above, due to very similar appreciation percentages based on cap rate. Aspen Group appears to be the most undervalued, however Aspen runs holiday parks in Australia which may not warrant a high capitalization rate. Bunnings Warehouse, which operates warehouses in Australia, appears attractive based on the fact that it holds industrial property – however note that several competitors are in line to and is therefore likely to demand a relatively high capitalization rate, and is currently undervalued on a NOI and NAV basis. Westfield, the largest retail REIT in Australia and Thakal, a major operator of hotels, also appear attractive based on their relative undervaluation and relatively attractive underlying properties.

Valuations at different capitalization rates for recommended NZ-REITs is presented in Figures 9:

Page 16: Analysis A-REITs and NZ-REITs

13% 12% 11% 10% 9% 8% 7% 6%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

9: Share Price Appreciation Based on Cap Rate, NZ-REITs

Argosy Property Trust

National Property Trust

Goodman Property Trust

Kiwi Property Trust

AMP NZ Office Property Trust

Capitalization Rate

Shar

e Ap

prec

iatio

n

0% Share Appreciation represents an implied capitalization rate at the current share market price

Source: Compiled data from Annual Reports and Bloomberg

National Property Trust appears the most undervalued in this analysis, followed by Argosy Property Trust. Kiwi Property Trust is the largest NZ-REIT by market capitalization, and holds many of New Zealand’s most prestigious office buildings, and therefore would likely command a higher capitalization rate than National Property Trust and Argosy Property Trust. The extent of the discount is an area for future analysis.

How much appreciation will a 100 bps reduction in capitalization rates provide to NZ and A-REITs?

From the analysis presented above, an estimated 10-20% share price appreciation is expected from a reduction of 100 bps of market implied capitalization rates for NZ and A-REITs.

This result is perhaps a slightly lower appreciation than may have been expected from the recent home price appreciation in the 2000’s, when it was not unusual for certain countries and metropolitan areas to see annual real estate appreciation in excess of 20% per annum. However note, that the price appreciation is not inclusive of gains in NOI, in that NZ and A-REITs on average had mid-single digit NOI appreciation before the Global Financial Crisis.

A reduction of capitalization rates could be driven by more intense competition for commercial real estate, and/or by lower overall interest rates in in Australia and New Zealand. Note that the possibility of lower interest rates in Australia and New Zealand is not analysed in this report.

Page 17: Analysis A-REITs and NZ-REITs

Note that lower capitalization rates in Australia and New Zealand could be driven by additional sources of financing for commercial real estate -- the introduction on a large scale of commercial mortgage backed securities, private equity commercial real estate funding, preferred REIT financing, as examples. Note that the possibility of additional funding is more likely in Australia than New Zealand, due to the relative size of the financial markets in Australia versus NZ, but is not fully analysed in this report.

Analysis of NZ and A-REITs Discount to NAV:

There are High Overall Numbers of NZ and A-REITs Selling Below NAV: Overall, many of the smaller A-REITs in particular show deep discounts to NAV, which is unprecedented in the REIT universe (note that other countries will be analysed in future sections). The range of discounts to NAV at January 2011 is presented in Figure 10:

0 2 4 6 8 10 12 -

2.00

4.00

6.00

8.00

10.00

12.00

10: NZ and A-REITs Discount to NAV at 1/11 (ordered by Market Cap/NAV - 38 total)

# of NZ and AREITs

Disc

ount

to N

AV

Source: Author’s compiled dataThe total number of NZ and A-REITs analysed was 53, so well more than half (approximately 38 or 71%) were selling below NAV at January 2011. This number represents the highest percentage of any country or region surveyed. The reason for this relative low valuation may include disillusionment on the part of NZ and Australian investors towards their property trust sector, due to poor performance during the Great Financial Crisis. The number one result on Google at January 2011 for a search for the term “Australian Property Trusts” yielded an article on an Australian blog title: “Australian Listed Property Trusts (A-REITs): As Safe as Houses?”6 which was a cynically written article concerning the dismal performance of the major Australian property trusts in 2008 and 2009. This distaste for A-REITs and NZREITs continued through 2010, as the sector did not appreciate significantly in 2010 (unlike other REIT sectors by country, which had strong performance in 2010, despite equally weak performance during the GFR and only moderately improving fundamentals in 2010).

6 Tim Hewson, Australian Listed Property Trusts (A-REITs): As Safe as Houses? http://www.bhatt.id.au/blog/australian-listed-property-trusts-safe-as-houses/ accessed 22/1/11

Page 18: Analysis A-REITs and NZ-REITs

With improving fundamentals and the non-materialization of a new financial crisis going forward, it is likely that the investing public of Australia and New Zealand will re-embrace their REIT sectors, as has already occurred in other countries. One could say that bad memories of share declines are remedied by share price appreciation and strong yields.

More indebted NZ and A-REITs show a higher discount to NAV: This result is shown in Figure 11. This has been discussed above – note that the most indebted REITs are in danger of significant equity dilution going forward.

0 2 4 6 8 10 120.00%

200.00%400.00%600.00%800.00%

1000.00%1200.00%

11: Debt to Total Assets of Same NZ and A-REITs (ordered by Market Cap/NAV)

# of NZ and AREITs

Debt

/To

tal A

sset

s

Source: Author’s compiled data

Chart 8 shows a fairly distinct trend towards higher indebtedness leading to a higher discount to NAV.

Yields of Discounted NZ and A-REITs Overall are High Compared to the Government 10-Year Yield: The current trailing 12 month yields of the same discounted NZ and A-REITs are shown in Figure 9. The yields range from zero for securities that have cancelled their dividend to high teens, with an average for securities that pay a dividend of 8.31%. This compares with the NZ government 10 year bond of 5.58% -- a spread of 2.77% over the NZ 10 year, and the Australian government 10 year bond of 5.75% -- a spread of 2.60%. This is significantly higher than most REIT countries, such as the United States and the UK, (but note, not Singapore) as the US and the UK have average REIT yields around the same yield as the government 10 year.

Page 19: Analysis A-REITs and NZ-REITs

0 2 4 6 8 10 120.00%

200.00%

400.00%

600.00%

800.00%

1000.00%

1200.00%

12: Gross Yield of Same NZ and A-REITs (ordered by Market Cap/NAV)

# of NZ and AREITs

Gros

s Yie

ld10 Year Gov Yield 5.6%

Source: Author’s compiled data

Many of the Discounted NZ and A-REITs are relatively small: This result is shown in Figure 13. The market capitalization of the discounted NZ and A-REITs average approximately $992M, however, 19 out of 38 REITs are trading at below $100M in market capitalization.

0 2 4 6 8 10 12 -

2

4

6

8

10

12

13: Market Capitalization of Same NZ and A-REITs (ordered by NAV/Market Cap)

# of NZ and AREITs

Mar

ket C

apita

lizati

on

Source: Author’s compiled data

Many of the Discounted NZ and A-REITs issued high levels of shares in 2009 to pay down debt: The average increase in shares outstanding from 2006 to 2010 was 72%, which is a major dilution for existing shareholders. As noted, the risk of further dilution is high if the REIT holds a relatively high level of debt, and/or if there is a new financial crisis in the intermediate term. Dilution is a major driver of poor share returns in late 2008 and 2009. This is represented in Figure 14:

Page 20: Analysis A-REITs and NZ-REITs

0 2 4 6 8 10 120%

200%

400%

600%

800%

1000%

1200%

14: Percentage Increase Shares Outstanding in 2009 and 2010 of Same NZ and A-REITs

# of NZ and AREITs

Perc

enta

ge In

crea

se

Average in-crease – 72%

Source: Author’s compiled data

Most NZ and A-REITs have had negative average annual dividend growth through 2010: As a final observation, most of the NZ and A-REITs selling at a discount have reduced dividends per share since 2006, mainly through reduced dividends in 2009 and 2010. This is consistent with the financial crisis and the issuance of equity.

0 2 4 6 8 10 120%

200%

400%

600%

800%

1000%

1200%

15: Average Annual Dividend Growth of Same NZ and A-REITs

# of NZ and AREIT

Annu

al D

ivid

end

Grw

th (0

6-10

)

Source: Author’s compiled data

Summary of Recommendations: C, UK and US REITs:

Overall, REITs from the US and Canada do not appear as attractive as REITs as from NZ and Australia, in so far that yields appear lower as share prices have appreciated strongly in Canada and the US in 2010. UK REITs do not look attractive at all on average, with low yields and prices that are not undervalued on a property value basis.

6 REITs from the US are recommended, and 2 REITs from Canada are recommended for further research.

Page 21: Analysis A-REITs and NZ-REITs

The UK REIT sector at January 2011 looked unattractive from a valuation standpoint, in so far that no UK REITs above a £100M market capitalization were selling below enterprise value. Further yields for UK REITs were relatively low, at below a 5% yield, on average.

It should be noted that REITs in Canada are yielding from 1-3% higher effective rates than in the US, even as the Canadian and US 10 year government bond yields are very similar (at 3.33% and 3.40%, respectively). However, due to the relatively lower number of C-REITs (only about 20 listed in Canada) there are not as many C-REITs that are selling below their owned property value.

In the US, Sunstone Hotel Properties, Liberty Property Trust, Sovran Self Storage and Piedmont Office Properties Trust appear relatively strong buys – with relatively low leverage and higher than average dividend yields. More research is needed on these REITs’ assets, however.

In Canada, Extendicare and Dundee appear relatively strong candidates for further research, based on level of yield, relative undervaluation and leverage levels.

Canadian, UK and US REITs Listed by Ascending Enterprise Value to Property Value:

This section presents C, UK and US-REITs by ascending enterprise value (market capitalization plus debt minus cash and equivalents). US REITs are not required by US GAAP to present net asset value – US REITs actually depreciation property over a period from 30 to 60 years, instead of marking property to fair value as in IAS GAAP - therefore this section will take historical NOI at a capitalization rate of 6% and compare this with enterprise value. The most undervalued securities will be those trading at the steepest discount to calculated property value. Figure 16 presents the table of , UK C and US REITs ranked in this manner (note that at January 2011 no UK REITs were trading below property value so no UK REITs are included in the table below):

Figure 16: C, UK and US-REITs listed by Ascending Enterprise Value divided by Property Value (First Listed Indicate Deeper Discount)( Notes: Colours indicate property sector: Office Retail Industrial Residential Diversified Other)(Dollar Values in $US or $C, depending on the main listing US exchanges or TSX)

Property Trust Ticker Price (1/11)

Market Capitalization

(1/11)

Gross Yield

Enterprise Value/Prop Value @ 6%

Dent/Total

Assets

Recommendatio

n

Extendicare EXE-UN.TO

9.94 823,827,200 7.67% 0.4256.0%

Further Research

Sunstone Hotel Investors

SHO 9.28 914,172,800 0.00% 0.5543.0%

Further Research

Hosipitality HPT 23.22 2,866,276,800 7.75% 0.55 36.7% Further

Page 22: Analysis A-REITs and NZ-REITs

Properties Trust Research

Liberty Property Trust

LRY 32.23 3,678,732,200 5.90% 0.7945.1%

Further Research

DCT Industrial Trust DCT 5.25 1,138,357,500 5.33% 0.7943.9%

Further Research

Piedmont Office Reality Trust

PDM 20.01 3,454,926,600 6.30% 0.8434.5%

Further Research

Sovran Self Storage SSS 36.83 1,018,349,500 4.89% 0.8641.6%

Further Research

Dundee D-UN.TO

30.94 1,406,841,800 7.11% 0.9149.1%

Further Research

C, UK and US-REITs are valued primarily by calculated property values, as this NAV is not required to be presented by US GAAP. (the number of REITs from the US at approx. 150 is far higher than the combined total of C and UK REITs at approximately 40).Property value is compared with enterprise value (market capitalization plus debt, minus cash and equivalents). Property value is calculated by 12 month historical NOI divided by a capitalization rate of 6%. NOI is defined as property revenue minus direct operating expenses minus maintenance capital expenditures (interest expense on debt and federal taxes are not included in NOI).

Summary of Recommendations: S-REITs:

Overall, Singapore may be the most attractive REIT sector, in so far that the yield spread between the 10 year Singaporean governmental bond (at 2.62% at January 2011) is significantly lower than many REITs with yields ranging in the 6% to over 10% range for S-REITs. This is the highest of in the countries surveyed.

6 S-REITs are recommended for further research for a potential buy. Nearly all of the undervalued REITs in Singapore look interesting in terms of yield, low indebtedness and capacity for expansion.

Singapore was the 2nd fastest growing economy in the world in 1H 10 (behind Qatar). The rising economy should support real estate values. Singaporean GDP is slated to grow 4-6% in 2011.

REITs with the bulk of their assets in other countries besides Singapore -- Indonesia, Japan or Malaysia appear to be selling at a deeper discount. These REITs include Lippo MapleTree Retail Trust and FIrst REIT, which hold the majority of their assets in Indonesia. The higher discount may be justified, as these economies and real estate sectors are not as attractive as Singapore. Note also, the 10 year governmental bond of Indonesia is currently at 9.20%.

AIMS AMP Capital REIT has all of its assets located in Singapore and therefore appears to be an attractive REIT. Whether or not the S-REIT has a sustainable yield (currently at 22%) is an area for further research.

Page 23: Analysis A-REITs and NZ-REITs

Singaporean REITs Listed by Ascending Enterprise Value to Property Value:

Figure 17: Singapore and Hong Kong REITs listed by Ascending Enterprise Value divided by Property Value (First Listed Indicate Deeper Discount)( Notes: Colours indicate property sector: Office Retail Industrial Residential Diversified Other)(Dollar Values in $US or $C, depending on the main listing Singaporean exchange or Hong Kong Exchange)

Property Trust Ticker Current Price

Current Market

Capitalization

Gross Yield

Market

Cap/NAV

Enterprise Value/Prop Value @ 6%

Recommendation

Lippo MapleTree Retail Trust

D5IU.SI 0.55 594,938,850 9.09% 0.66 0.50 Further Research

MapleTree Logistics Trust

M44U.SI 0.95 1,947,500,000 7.58% 1.17 0.69 Further Research

First REIT AW9U.SI 0.76 209,360,518 10.13%

0.78 0.67 Further Research

AIMS AMP Capital REIT

BU5U.SI 0.23 337,317,857 22.26%

0.74 0.85 Further Research

Frasers Commercial Trust

A48U.SI 0.17 525,300,000 5.88% 0.63 0.85 Further Research

Cambridge Industrial Trust

J91U.SI 0.54 540,270,000 9.26% 0.90 0.91 Further Research

Source: Company annual reports and Bloomberg

Valuation Analysis of S-REITs Based on a Range of Capitalization Rates:

As Singapore appears to be a potentially attractive REIT sector, an analysis of share price appreciation/ depreciation based on different capitalization rates is presented in Figure 18:

Page 24: Analysis A-REITs and NZ-REITs

12%11%10% 9% 8% 7% 6% 5% 4%

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

18:Share Appreciation Based on Different Cap Rates, SREITs

Lippo MapleTree Retail TrustMapleTree Logistics TrustFirst REITAIMS AMP Capital REITFrasers Commercial TrustCambridge Industrial TrustFortune REITCapitalization Rate

Shar

e Ap

prec

iatio

n0% share appreciation represents the current cap rate valuation by the share market

Lippo Maple Tree Retail Trust appears the most undervalued in this analysis, but note that all of the assets of Lippo Maple Tree are located in Indonesia. Indonesia’s 10 year governmental bond yield at January 2011 was 9.20% (therefore the REIT’s yield of 9.09% is not actually below the governmental bond rate in Indonesia) and the country’s commercial real estate markets are likely not as attractive as Singapore’s real estate markets.

First REIT also has the majority of its assets in Indonesia.

Risks to REIT Valuations:

Risks to the Valuations of REITs provided in this report, based on both NAV and property value based on NOI, include the following. Note that this report does not analyse these risks in detail.

A financial crisis (such as the GFR in 2008 and 2009) which disrupts property markets.

An economic downturn of less severity than a full financial crisis, but which results in distressed commercial real estate markets.

Related to the first two risks listed, sluggish employment growth, driven by economic conditions.

Higher interest rates, driven by rate raises by countries’ respective Central Banking Institutions, in order to cool down overheated economies, or for other reasons.

Page 25: Analysis A-REITs and NZ-REITs

Overbuilding of commercial real estate beyond demand levels in the REIT’s markets.

On sector by sector basis o Higher office vacancy as people telecommute more often, or downturns in financial

services (which tend to use more office space than other industry)o Sluggish mall retail growth as people utilize the internet more often for purchasing,

and/or aging baby boomers reduce spending for retiremento Lack of industrial growth as more industry is shifted to lower wage countries (as this

trend continues to Bangladesh, Pakistan, etc)

Conclusion:

In an initial screening of valuation of 168 REITs across NZ, Australia, the US, the UK, Canada and Singapore, this report has identified 12 A-REITs, 2 NZ-REITs, 6 S-REITS, 6 US-REITs and 2 C-REITs for further research. From a national level, REITs appear most attractive in Singapore, New Zealand and Australia, due to relatively high numbers of REITs selling below NAV levels, relatively high spreads between the countries’ respective risk free rates and REIT average yields, as well as relative numbers of securities selling at a discount to NAV. The spread between national risk free rates and REIT yields could narrow as the national REIT sectors mature, leading to appreciation in NZ, Australian and Singaporean REIT prices. However, further research should be cognizant of risks involved in the valuation of REITs based on NAV and property values.

Future research can include more research on individual REITs, including the quality of the properties, the quality of management (their proven ability to generate increasing returns from expansion), forecasts of net operating income, and the competition from other property firms. On a national level, additional research could be conducted on institutional ownership of REITs in NZ, Australia and Singapore, and existing and potential for additional sources of commercial real estate financing in these countries. Such analysis would strengthen the recommendations of investment in the REIT sectors of New Zealand, Singaporean, Canadian, Australian, British and American REIT sectors.

o

Page 26: Analysis A-REITs and NZ-REITs

Appendix:

Factors Driving REIT Valuation:

REIT prices are driven by net asset value, with the primary component of net asset value comprised of property prices. Property prices are determined, at least according to most leading REIT research houses, as a function of net operating income and a capitalization rate. Green Street Advisors has represented the valuation of REITs graphically in the following chart:

Green Street Advisor’s Valuation Overview:

Source: Green Street Advisors

The level of net operating income and the capitalization rate – which drive the mark to market value of assets and liabilities in Figure 5 are driven by both macro factors, as well as sector-specific factors, such as the quality of the properties owned by the REIT, the quality of the management team and the level of indebtedness. These factors are discussed briefly below.

Macro Factors:

Page 27: Analysis A-REITs and NZ-REITs

Direction of Interest rates – as discussed, a steadily declining interest rate as measured by the governmental bond yield will support REIT prices.

Spread between the Government Bond and the REIT Yield – The higher the difference in yield between REITs and the risk free rate, the more attractive REITs are to investors, as investors are rewarded for taking higher risk. In the US, the spread has traditionally been narrow, as shown in the figure below – in international markets, possibly this could be evidence that future REIT yield premiums to the risk free rate will disappear (as REIT prices appreciate).

Level of Institutional Ownership – institutions tend to be more steady holders (do not sell as easily during small downturns) of investments, and also tend to control higher amounts of capital than individual investors. In countries which institutions hold significant numbers of REITs, REIT prices will likely be stronger (note that institutional ownership is a debated topic, in terms of the support for REIT prices, so this final macro factor is debateable in terms of its impact).

GDP Growth – Faster growing economies offer more opportunity for REITs and support property prices

Demographic Factors – properties located nearer high income, high population growth centres will be valued higher than properties in low income, declining population areas.

Availability of Financing – The introduction of new financing vehicles, such as commercial mortgage backed securities (CMBS),convertible debt, preferred stock, private placements with life insurance or pension funds, and private equity financing has supported REIT growth, particularly in the US.

Industry-Wide Vacancy Rates – Certain sectors will have higher vacancy rates during certain time periods – overall higher industry vacancy rates will lower valuation.

REIT Specific Factors:

Indebtedness – Many REITs globally were forced to issue equity and/or sell asset to reduce leverage in the financial crisis of 2008-09. As the CEO of Vornado Reality Mike Fascitelli has stated, “Balance sheets don’t matter until they matter, and then they matter a lot.” 7 Going forward, Moody’s has recommended that REITs keep total debt to total assets below 45% -- REITs that have higher levels of this will be negatively impacted.

7 Interview with Mile Fascitelli at NAREIT: accessible from http://www.youtube.com/user/NAREIT1#p/u/16/lKWXy36EWd4 accessed 1/24/11

Page 28: Analysis A-REITs and NZ-REITs

Quality of Assets – “Prime grade” real estate will trade at a premium compared to lower grade real estate, as prime properties will have less turnover, can command higher rents, and generally represent lower risk. Annual same property growth, location, general reputation are indicators of asset quality.

Quality of Management – REITs with management teams that have a proven ability to increase shareholder value will trade at a premium.

Size – all other factors equal, larger REITs are more attractive than smaller REITs, due to their ability to command an investment grade rating (the number one factor towards Moody’s and S&P granting an investment grade rating is the size of the firm), and to attract capital.

Diversification – REITs with properties in several geographical locations will be more attractive than single property or location REITs (although certain REITs can buck this trend, if they stress that they know one location very well or have a very high quality location).

Vacancy Rates – Properties with high vacancy rates will earn lower income and therefore lower valuation -- indications of potential higher vacancy rates are low weighted average lease periods, low numbers of retained tenants and lower than average occupancy rates.

Property Sector(Mall, Industrial, etc) –According to Green Street Advisors, Industrial REITs are the most attractive REITs to investors, due to perceived steadiness of income and growth prospects. The relative sectors are presented below:

Observed Average Premium to Asset Value:

Source: Green Street Advisors

Page 29: Analysis A-REITs and NZ-REITs

REIT Data, New Zealand and Australia:REIT Sector: Office Retail Industrial Residential Diversified Other

SNZ Property Trust TickerCurrent Price

Current Market Capitalization

Gross Yield

Market Cap/NAV

Enterprise Value/Prop Value @7%

Debt/Total Assets

Office/Retail/Industrial/Residential Mix

Asset Split by Country Notes

NZArgosy Property Trust ARG.NZ 0.74 399,199,160 12.69%

1.01 0.76 84.0% 29%/35%/36%/0% NZ

Also known as ING Property Trust

National Property Trust NAP.NZ 0.51 84,481,426 8.82%

0.87 0.57 22% 32.8%/55.2%/12%/0% NZ

Goodman Property Trust GMT.NZ 0.95 856,761,878 8.95%

1.14 0.95 37% 39.7%/0%/60.3%/0% NZ

NZ Rural Property Trust (not traded) na

- 15% All farm income NZ

Kiwi Property Trust KIP.NZ 1.01 972,581,998 8.74% 0.83 0.89 50% 37%/60%/0%/0% NZ Largest Property trust in NZ

AMP NZ Office Property Trust AMO.NZ 0.79 768,243,220 8.93%

0.86 0.79 23% 90%+/-10%/0%/0% NZ

Most office buildings are CBT, prestige assets

DNZ Property Fund (PIE) DNZ.NZ 1.17 290,959,786 4.27%

0.97 1.24 43.90% 40%/35%/20% NZ

IPO Aug 10, Office is only 89% leased

AUSCentro Properties Group CNP.AX 0.165

160,447,650 na 0.92 98.30% 0%/90%+/0%/0%

50.3% US/ 38.1% AUS Losses have driven equity to negative, Odd security, appears to have substantial NOI, but claims current NTA is negative

$A GPT Group GPT.AX 2.94 5,468,400,000 1.53%

4.26 1.05 23% 77%/23%/0%/0% AUS

Increased (issued) outstanding shares by 106% in 2009

Mirvac Property Trust

MGR.AX 1.235 4,223,700,000

6.48% 0.74

1.07 26.80% 56%/31%/13%/? AUS Interesting business model with a home builder included,

Page 30: Analysis A-REITs and NZ-REITs

but residential less than 10% of income

Stockland SGP.AX 3.6 8,568,000,000 6.06%

1.00 1.49 18.00% 29%/18%/18%/35% AUS

Australand ALZ.AX 2.93 1,690,141,200 3.41%

0.85 1.39 27.10% see notes AUS

Over 80% of income from investment property

Westfield Property Trust WDC.AX 9.62 11,063,000,000 6.65%

0.92 0.88 42.70% 100% shopping centres

49% AUS/33% US/14% UK/ 4% NZ

Largest shopping centre REIT in the world, AUS based

Multiplex Acumen Property MPF.AX 0.053 - 0.00% NA NA

Centro Retail Trust CER.AX 0.24 548,735,760 0.00% 0.73 1.05 100% retail AUS performing much stronger than US

Ardent Leisure Group AAD.AX 1.02 308,165,460 10.54%

1.11 0.76 32.09%

40% Theme Parks/15% bowling/15% health AUS

All divisions rebounding in 2010, bowling weakest in 2009

Abacus Property Group ABP.AX 2.32

3,502,504,000 3.34%

3.74 2.82 27% 45%/33%/22%/0%

96% AUS, 4% NZ

Forced to issue shares in 2009 to avoid default

Agricultural Land Trust AGJ.AX 0.19

16,931,867 10.63%

0.58 0.82 67% 100% agricultural AUS

Astro Japan Property AJA.AX 0.33 167,710,013 2.12%

0.46 1.08 76.90% 44%/48%/0%/8% 100% in Japan

ALE Property Group LEP.AX 1.92 294,456,655 12.50%

0.90 0.82 52% 100% pubs AUS

Largest holder of pubs in AUS, has performed relatively strongly compared to other AREITs

APN Property Group AEZ.AX 0.025 3,494,057 50.00%

0.13 0.83 73% 38% Europe/38% retail REIT funds 38% EU, AUS

Relatively small Areit, invests mainly in other REIT funds

Aspen Group APZ.AX 0.48 133,912,320 18.74% 0.68 0.78 30% Holiday parks AUS

Owns 25 holiday parks around Australia

Australian Education Trust AEU.AX 0.88 118,777,120 0.76%

0.65 0.70 51% Mainly appears to own preshools

Owns 340 preschools and educational facilities - suspended dividend for 1 year from 2009

Becton Property Group BEC.AX 0.052

10,650,668 0.00%

0.03 #VALUE! 69.20%

Construction/Develop/Fund Management AUS

4 Segment business, tangible book value is at almost negative levels

Bunnings Warehouse BWP.AX 1.77 744,719,390 6.82% 0.94 0.84 18.80% 100% Bunning Warehouses AUS

Shares have outperformed AREIT index, likely due to steady nature of warehouses

Carindale Property CDP.AX 4.122 288,540,000 6.74% 0.74 1.03 11.7% Sole Asset: 50% Carindale Shopping Cntr AUS Partially owned by Westfield's

Page 31: Analysis A-REITs and NZ-REITs

CFS Retail Property Trust CFX.AX 1.785

4,843,085,205 7.00%

0.88 1.19 29.50% 100% retail AUS

One of AUS's largest retail REITs, Performance in retail sector in AUS has been relatively strong

Challenger Limited CGF.AX 4.69 2,552,784,175 3.09%

1.85 NA 84% Mainly life insurance AUS

Oddly classified as an AREIT by the ASX, as is a life insurer

Challenger Wine Trust CWT.AX 0.23

41,001,410 4.99%

0.52 0.26 27% All vinyards AUS

Listed in 1999 by Challenger, is for vinyard properties

Charter Hall Group CHC.AX 2.41 2,801,384,000 1.63%

3.63 4.39 38.50% 50%/37.3%/12.7%/0%

AUS/US 16.8%/NZ 1.8%

Has several funds, appears to have consolidated many of them into Charter Hall in late 2010

Charter Hall Office REIT CQO.AX 2.85

13,885,200,000 0.65%

6.72 3.65 33.50% Office

64% AUS/36% US Was named Macquarie Office Trust in 2006

Charter Hall Retail REIT CQR.AX 2.96

4,455,440,130 1.79%

4.00 2.56 38.3% Mainly Shopping Centres

53% AUS/32% US/8% EU/7% NZ Was named Macquarie Countrywide Trust in 2009

Cheviot Bridge

(Financial Info only given to shareholders) - NA NA NA

Cromwell Corporation Ltd CMW.AX 0.76

534,344,550 11.84%

1.00 1.28 57.80% Office: 87% AUS Mainly CBD office in Australia

CVC Property CJT.AX 0.01 3,259,098 0.00%

0.40 1.05 52% 4 Properties, Warehouses AUS

Was previously named Taragon Property Fund, owns 4 properties

Compass Hotel Group CXH.AX 0.02

2,474,600 0.00% NA 0.31 71% 100% Hotels AUS

Appears in breach of bank covenants - no information since 2008 on website

DEXUS Property Group DXS.AX 0.805

3,843,472,500 6.34%

0.85 0.92 30% Approx 56% office/43% industrial

One of Australia's largest property trusts- owns many of Sydney's CBD office buildings

EDT Retail Trust EDT.AX 0.07 329,020,361 0.00%

0.60 1.36 65.60% Shopping Centres

Was named Macquarie DDR Trust until 2009 - has most of retail assets in the US, has not performed strongly vs AUS retail only

Galileo Japan Trust GJT.AX 0.03 12,166,757 0.00%

0.08 NA 83.70% 34% office/43% retail & leisure Japan Similar to AstroJapan Property

GEO Property Group GPM.AX 0.19 81,103,900 13.16%

0.54 0.29 28% Residential Property Developer AUS

Listed residential property developer, plus 3 income generating properties -- is liquidating in 2010-11

Goodman Group GMG.AX 0.655 4,172,187,163 5.19%

1.39 0.87 29.40% Industrial Property

52.6% AUS/21.4% UK/12.7% EU

Was named Macquarie Goodman Group in 2006, is the largest industrial property group in Australia

Page 32: Analysis A-REITs and NZ-REITs

Growthpoint Properties GOZ.AX 1.96

3,762,662,808 7.14%

0.97 0.76 53.80% 18%/0%/81% industrial/1% carpark

Mainly South Africa Duel listing on ASX and JSE (South Africa) Restructured the group in 2009, makes comparisons difficult

ING Real Estate Entertainment IEF.AX 0.1

17,574,900 0.00%

0.20 NA 73.4% Mainly entertainment of hotels AUS

Debt levels still over covenant at end 2010 of 70%

ING Real Estate Health Care IHF.AX 0.955

62,154,265 8.01%

0.97 NA 53% Hospitals and health care facilities AUS

Australia's only healthcare only listed REIT

ING Industrial Fund IIF.AX 0.53 1,373,919,000 3.03%

0.93 0.99 47.90% Logistics, Manufacturing Ctrs 56% AUS/33% CAN/11% EU

ING Office Fund IOF.AX 0.55 1,500,950,000 7.09%

0.74 1.15 15.40% Offices 54% AUS/26% EU/20% US

Living and Leisure Australia LLA.AX 0.03

81,788,582 0.00%

1.00 NA 50% Aquariums and ski slopes AUS

Offers ski slopes, aquariums and tree walks through a third party provider, is almost bankrupt

Macarthur Cook Properties Fund MPS.AX 0.11

21,285,899 0.00%

0.32 NA 36% 26.5% Retail/39.5% office/11% indust AUS

Invests in 3 property funds in AUS

Mirvac Industrial Trust MIX.AX 0.029

10,511,282 0.00%

0.21 NA 84.30% US industrial property US

A managed fund offered by Mirvac - appears close to bankruptcy

Prime Retirement and Aged Fund PIN.AX - NA

- NA 60% AUS Retirement Communities AUS

Undergoing financial difficulty currently

Redcape Property Fund RPF.AX 0.08

13,003,408 0.00%

0.17 NA 77.10% AUS pubs AUS

2nd pub only REIT in AUS, was previously named Hedley Leisure & Gaming

Rabinov Property Trust RBV.AX 0.55

28,712,317 17.27%

0.57 NA 78.50% 70% office/28% retail/2% industrial AUS

Used to be ANZ's property trust, must be getting close to violating debt covenant

RCL Group RLG.AX 0.075 13,208,100 0.00%

0.12 NA 68.71% Residential Property Developer AUS

Was named Babcock and Borwn Residential Land Partners in 2007

Real Estate Capital Partners RCU.AX 0.07

21,157,975 42.57%

0.23 NA 71.60% Office/Retail/Some industrial US

Was Named Mariner Property Income Trust in 2008

RNY Property Trust RNY.AX 0.11 28,975,528 0.00%

0.26 NA 70% Mainly Office/Some industrial US Mainly NY Tri-State Area

Thakral THG.AX 0.535 312,785,075 0.00% 0.54 0.87 48.80% 70% Hotels

95% AUS/5% International Mainly a hotel REIT, but with 30% retail/commercial exposure

Tishman Speyer Office Fund TSO.AX 0.44 148,913,998 0.00%

0.37 0.71 74.40% Office Properties US Office REIT, based in the US

Trafalgar Corporate TGP.AX 1.15 98,154,700 0.00%

0.75 NA 49.90% Office Properties AUS

Office REIT, based in Australia, has 7 properties

Page 33: Analysis A-REITs and NZ-REITs

Trinity Funds Management TCQ.AX 0.11

25,487,169 0.00%

0.56 NA 63.40% Office, commerical and industial AUS

Very difficult year in 2008-2009

Valad Property Group VPG.AX 1.03

2,356,313,414 0.00%

7.92 NA 46% Office and Industrial EU/AU

Most assets in Nordic EU for Valad Corp, interestingly

Page 34: Analysis A-REITs and NZ-REITs

REIT Data, Canada:

$C

Canada Company Ticker Price Market Cap YieldEV/Prop

ValueDebt/Assets Type Region Notes

Allied PropertiesAP-UN.TO 21.68

911,210,400 6.09% 1.88 48%

Office Property Canada Owns offices in several cities in Canada

Artis REITAX-UN.TO 13.66

1,027,232,000 8.57% 1.23

51% office/35% retail/14% industrial Western Canada mainly Alberta

BTB REITBTB-UN.TO 0.91

30,657,900 10.26% 0.72 81%

Retail and Office Mainly Quebec Selling below NAV but likely will have to delever by issuing equity

Boardwalk Real Estate Investment

BEI-UN.TO 43.37

2,279,527,200 5.30% 1.04 Apartment Mainly Alberta Canada's largest apartment REIT, 5th largest REIT overall

Calloway REITCWT.-UN.TO 23.99

2,748,534,300 6.46% 1.07 54% Retail Mainly Alberta 3rd largest REIT in Canada

Canadian Apartment Properties

CAR-UN.TO 17.95

1,200,496,000 6.02% 0.97 62.75% Residential Canada

Canadian REITREF-UN.TO 32.41

2,159,802,400 4.32% 1.24 51.80%

Office and Apartment Canada

Chartwell Seniors Housing

CSH-UN.TO 8.4

1,077,216,000 6.43% 1.02

Nursing Homes Canada, about 12-15% in the US

CominarCUF-UN.TO 21.77

1,355,400,200 6.61% 1.01 Apartments Mainly Quebec

CrombieCRR-UN.TO 12.71

839,241,300 6.92% 0.80 54.50% Retail

Mainly Altantic Canada

Has been paying out slightly higher than 100% of AFFO -- can't continue, but selling below NAV

Dundee D-UN.TO 30.94 1,406,841,800 7.11% 0.91 Office Mainly Alberta and Ontario

ExtendicareEXE-UN.TO 9.94

823,827,200 7.67% 0.42 65.3% Healthcare about 75% of assets in US, 25% in Canada

InnvestINN-UN.TO 7.02

625,131,000 7.12% 0.90 Hotels Canada Canada's Largest Hotel REIT

Morguard REITMRT-UN.TO 14.88

846,523,200 6.05% 0.89

PrimarusPMZ-UN.TO 19.9

1,367,926,000 6.13% 0.91 53%

RioCan REIT REI- 23 6.00% 1.11 57% Retail Canada's Largest REIT

Page 35: Analysis A-REITs and NZ-REITs

UN.TO 5,807,500,000

REITs Data, Singapore:

Singapore Property Trust TickerCurrent Price

Current Market Capitalization

Gross Yield

Enterprise Value/Prop Value @ 6%

Debt/Total Assets

Cambridge Industrial Trust J91U.SI 0.54 540,270,000 9.26% 0.91 Industrial Trust

Starhill Global Real Estate Trust P4OU.SI 0.64 1,243,534,770 8.88% 1.06 Singapore, Malasya, China, Australia

CapitaCommercial Trust C61U.SI 1.49 4,206,730,410 4.72% 1.14 Mainly Office

MapleTree Logistics Trust M44U.SI 0.95 1,947,500,000 7.58% 0.69 Industrial Trust

Parkway Life C2PU.SI 1.73 1,046,200,200 7.51% 1.43 Asia's largest healthcare REIT

Capital Mall Trust C38U.SI 1.94 6,169,200,000 5.67% 1.37 Mall REIT - Properties are all in Singapore

First REIT AW9U.SI 0.76 209,360,518 10.13% 0.67 Healthcare -84% of assets are in Indonesia

AIMS AMP Capital REIT BU5U.SI 0.23 337,317,857 22.26% 0.85

Interesting -- stock price has fallen from 1.30 to .20 -- increase in shares issued?

Frasers Commercial Trust A48U.SI 0.17 525,300,000 5.88% 0.85 Office - Singapore, Australia and Japan

Lippo MapleTree Retail Trust D5IU.SI 0.55 594,938,850 9.09% 0.50 Retail -- mainly grocery centered shopping in Inodnesia

Ascendas Real Estate Investment Trust A17U.SI 2.19

4,102,089,000 5.48% 1.12 34% Industrial - 100% Singapore

CapitaRetail China AU8U.SI 1.25 780,962,500 6.51% 1.03 33% 100% Mainland China -- mainly Beijing and Shanghai

HK Fortune REIT 0778.HK 4.1 6,833,050,746 5.99% 0.95 Malls in Hong Kong

Page 36: Analysis A-REITs and NZ-REITs

REIT Data, UK:

UK Property Trust TickerCurrent Price (£)

Current Market Capitalization

Gross Yield

Enterprise Value/Prop Value @ 6%

Debt/Total Assets

Big Yellow Self Storage BYG.L 3.36 438,480,000 2.38% 1.36 Storage Space Large self storage REIT in the UK

British Land BLND.L 5.27 4,634,580,828 4.93% 1.49

Approx 60% office and 40% Retail

Derwent London DLN.L 15.8 1,598,656,593 1.76% 1.25 57% Office Mainly prime London office space

Great Portland Estates GPOR.L 3.647 1,132,007,841 3.29% 2.64 Retail and Office

Focus on London, buying properties and renovating them

Hammerson HMSO.L 4.36 3,073,800,000 5.53% 1.30 Office, Retail Has about 20% of assets in France

HighCroft Investments HCFT.L 5.1 26,352,924 0.00% 0.36

Land Securities LAND.L 7 5,294,800,000 4.00% 1.18

Approx 58% office and 42% retail

Largest commercial Property Company in the UK

Capital Shopping Centers CSCG.L 3.769 2,344,318,000 2.65% 1.23 53% Shopping Centers

Bid for by Simon Property Group (US based), Simon has withdrawn bid

A&J Mucklow Group MKLW.L 2.92 175,462,800 6.15% 1.01

Manufacturing facilities, Warehouses Smaller Industrial REIT in the UK

SEGRO SGRO.L 3.008 2,212,684,800 3.13% 1.08 83%

Light Industrial, Office and Warehouses Owns industrial in UK and Europe

Shaftsbury SHB.L 4.52 1,031,916,000 2.21% 1.96 Shopping Centers Appears Overvalued

Page 37: Analysis A-REITs and NZ-REITs

REIT Data, United States:

SUS Property Trust TickerCurrent Price

Current Market Capitalization

Gross Yield

Enterprise Value/Prop Value @ 6%

Debt/Total Assets

USA Simon Property Group SPG 99.66 28,477,645,680 2.71% 1.09 50.70%

All retail, split into regional & outlet malls

One of the largest US mall REITs, stock price has recovered to 2008 levels

Retail General Growth Properties GGP 15.48 14,740,000,000 1.23% 1.43 84.60% Shopping Centres

Issued approx + 30% equity in 2009 to lower debt, debt ratios still high

Kimco Reality Corporation KIM 18.04 7,323,338,000 3.66% 1.55 45.4% Shopping Centres A large retail REIT

Macerich MAC 47.37 3,847,675,620 5.49% 1.05 53.9% Shopping Centres

Based in Santa Moncia, California

SL Green Reality SLG 67.51 5,283,332,600 0.59% 1.09 44.30%

High End Offices & Shopping Centers

Based in NY, Manhatten and the surrounding area

Federal Reality FRT 77.93 4,773,873,502 3.44% 1.14 41.60%

High End Shopping Centres

Locates near higher income areas, 43 years of increased div per share (longest in US reit history)

Reality Income Corp O 34.2 3,542,350,739 5.00% 1.38 43.50% Single Tenent Retail

Single Tenent Properties, for retail chains such as Taco Bell, Burger King

Taubman Centers TCO 50.78 2,703,490,588 3.27% 1.43 103.2% Shopping Malls

Founded in Michigan, hit hard by the recession

Equity One EQY 18.18 1,524,520,260 4.84% 0.89 44.50%

Grocery-anchored shopping centers

Florida based, moderate quality shopping center REIT

Regency Centers REG 42.24 3,445,176,852 4.38% 1.07 47.50%

Grocery-anchored shopping centers

Grocery-archored shopping center REIT

Hosipitality Properties Trust HPT 23.22 2,866,276,800 7.75% 0.55 Hotels

CBL & Associates Properties CBL 17.46 4.58% 0.67

Page 38: Analysis A-REITs and NZ-REITs

2,410,876,800

Kite Reality Income Trust KRG 5.47 346,469,800 5.48% 2.04

Cedar Shopping Centers CDR 6.36 421,095,600 4.25% 0.66

Developers Diversified Reality - #DIV/0! 0.00

Residential Post Properties PPS 36.2 1,759,178,060 2.21% 1.16 46.40%

Equity Residential REIT EQR 51.2 14,560,000,000 3.57% 1.33

Apartment Investmnet & Mgmt AIV 25.66 2,954,749,000 1.17% 0.90

Avalonbay Communities AVB 111.68 9,524,070,400 3.20% 1.76

UDR Inc UDR 23.12 4,211,076,800 3.20% 1.35

Camden Property Trust CPT 53.7 3,688,116,000 3.35% 1.09

Essex Property Trust ESS 115.3 3,612,349,000 3.58% 1.39

BRE Properties BRE 43.18 2,767,406,200 3.47% 1.31

Senior Housing Properties SNH 22.02 2,807,109,600 6.72% 0.88

Mid America Apartment Communities MAA 62.12 2,123,261,600 3.96% 1.18

Home Properties, Inc HME 54.63 2,055,726,900 4.25% 1.04

American Campus Communities ACC 31.92 2,130,979,200 4.23% 1.45

Equity Lifestyle Properties ELS 55.84 1,721,547,200 2.15% 0.93

Colonial Property Trust CLP 18.2 1,413,776,000 3.30% 1.14

Page 39: Analysis A-REITs and NZ-REITs

Sun Communities SUI 33.49 656,404,000 7.52% 0.96

Hudson Pacific Properties HPP - #DIV/0!

* Liberty Property Trust LRY 32.23 3,678,732,200 5.90% 0.79 45.10% Office REIT for moderately high quality properties

Office Government Properties Trust GOV 26.92 1,089,452,400 6.09% 1.60 10.90% Office REIT for government properties, state and federal

Boston Properties BXP 89.21 12,397,139,375 2.24% 1.17

One of the largest US office REITs, based in Boston but with offices around the US

* Parkway Properties PRY 18.29 400,916,800 1.64% 0.60

* Piedmont Office Reality Trust PDM 20.01 3,454,926,600 6.30% 0.84

* Mack-Cali Reality CLI 33.12 2,634,033,600 0.00% 0.67

Corporate Office Properties Trust OFC 35.53 2,111,192,600 4.53% 1.11

Kilroy Reality Corp KRC 37.9 1,984,065,000 3.69% 1.15

Industrial Prologis PLD 14.36 8,171,270,800 3.90% 1.39

AMB Property Corp AMB 32.5 5,472,350,000 3.45% 1.61

Extra Space Storage EXR 17.67 1,547,008,500 2.26% 1.15

First Industrial Reality FR 9.54 608,365,800 0.00% 0.76

Trading below net asset value at 6% NOI but has very high debt -- likely will issue shares

DCT Industrial Trust DCT 5.25 1,138,357,500 5.33% 0.79 High Debt

Page 40: Analysis A-REITs and NZ-REITs

East Group Properties EGP 41 1,106,180,000 5.07% 0.97 Initially Promising

Sovran Self Storage SSS 36.83 1,018,349,500 4.89% 0.86 Initially Promising

U-Store-It Trust YSI 9.33 894,560,400 1.50% 0.92

-49

Hotel Host Hotels and Resorts HST 18.24 12,146,745,600 0.22% 1.32

LaSalle Properties LHO 28.25 2,063,945,000 0.85% 1.05

Diamondrock Hospitality Corp DRH 11.95 1,847,111,500 0.00% 1.55

Sunstone Hotel Investors SHO 9.28 914,172,800 0.00% 0.55

High Debt -- will likely need to raise additional equity capital

Pebblebrook Hotel Trust PEB 20.74 827,318,600 0.00% 1.27

New issue -- NOI taken by multiplying last q's NOI by 4

Strategic Hotels and Resorts BEE 5.7 862,410,000 0.00% 1.16 High Debt

FelCor Lodging Trust FCH 7.84 760,872,000 0.00% 0.91 High Debt