reitstuff21oct13.pdf

8/14/2019 REITStuff21OCT13.pdf

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Equity Research October 21, 2013 Vol 11: No 5

Mario Saric, CA, CFA (416) 863-7824 Pammi Bir, CA, CFA (416) 863-7218 REITs and Real Estate Research

(Scotia Capital Inc . Canada) (Scotia Capital Inc. Canada)

[email protected] [email protected]

For Reg AC Certification and important disclosures see Appendix A of this report. Analysts employed by non-U.S. affiliates are not registered/qualified as researchanalysts with FINRA in the U.S.

The REIT StuffN E W S , V I E W S , A N D S T A T I S T I C S O F T H E C A N A D I A N

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 E C T O R

Investment ViewsPublic versus Private Market Cap Rates: Are REITs a Crystal Ball?

We often hear that equity capital markets (i.e., REIT implied cap rates) are quicker toreflect changing expectations for interest rates (discount rate) and asset cash flows,

serving as a crystal ball for future private market cap rate moves. With CBREs

quarterly Canadian Cap Rate Surveyout last week, this edition of The REIT Stufflooksat the historical relationship between REIT implied and private market cap rates in anattempt to gauge the reasonableness of the 13% REIT correction post-April 30.

Our REIT sector (equal-weighted) implied cap rate is +30 bp post-April 30 (10-yearGoC bond yield, GoC, +84 bp), prompting expectations for higher interest rates to push

private market cap rates along the same path. Based on CBRE data, average privatemarket cap rates were -2 bp and +10 bp QOQ in Q2/13 and Q3/13, respectively (i.e.,flattish post-March 30), with Class B cap rates up ~25 bp and Class A cap rates holding

steady. The chart at right shows the historical relationship between REIT implied caprates, private market cap rates (using CBRE data), and the GoC.

While certain caveats are worth highlighting (i.e., a shifting REIT asset mix over

time may skew results on the margin), we put forth two additional thoughts. First, thecorrelation between public and private cap rates is notably higher on a one- to two-quarter lagged basis (i.e., private cap rates move three to six months after implied cap

rates), implying we should have seen a bigger jump in private cap rates in Q3/13.Second, we note that the +84 bp spread between implied and private cap rates as atQ3/13 (+71 bp today) is above the historical +58 bp average. While there are likely

too few data points to confidently assess the predictive value of the spread (for futureREIT equity returns), we believe the combination of falling bond yields and above-

average spreads (despite arguably improved REIT portfolios over time) may have

investors increasingly accepting of the notion the sector is trading at a decentdiscount to NAV (a 5% discount on our numbers vs. a 5% average premium sinceQ2/05), supporting the view that the sector has modestly overcorrected. Weestimate 4% to 5% unit price upside should the current 425 bp implied cap rate

spread to GoC mean-revert to the average 410 bp spread (every 25 bp = ~7%).

We note that Canadian REITs are +5% (vs. TSX +3%) from a recent low on October 4,2013, moving with surging U.S. REITs (+6% vs. S&P +3%), and arguably implying

that some investors have taken notice as expectations for the tapering kick-off seem tobe pushed back by the day. While we acknowledge some harder-hit REITs mayrecover in the near term should bond yields continue to fall, we think prospects for

higher interest rates may limit material capital flow into the sector and hence, material

multiple expansion. Consequently, our investment strategy still favours REITs withsuperior organic growth potential and low leverage (effectively, REITs we think should

do relatively well as rates rise). Our unchanged top picks include Allied Properties,BAM, CREIT, Chartwell, and Northern Property.

Past Relationship Between Public & Private Suggests Slightly Excessive REIT Correction

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

5%

6%

7%

8%

9%

10%

Q2'05

Q3'05

Q4'05

Q1'06

Q2'06

Q3'06

Q4'06

Q1'07

Q2'07

Q3'07

Q4'07

Q1'08

Q2'08

Q3'08

Q4'08

Q1'09

Q2'09

Q3'09

Q4'09

Q1'10

Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Cap Rate 10-Yr GoC10-Yr Goc (RS)

Private MarketCap

(2-Quarter Lag) (LS)

REIT Sector Implied Cap

(LS) Today

R No Lag 1-Qtr 2-Qtr 3-Qtr

REIT Sector vs.

Private Market0.64 0.78 0.81 0.69

Q2/13 QOQ Q3/13 QOQ

Private Market -2 bp 10 bp

REIT Implied Cap* 4 bp 14 bp

10-Yr GoC* 4 bp 57 bp

*Q3QOQ=today vs. Q2average.

Source: CBRE Quarterly Cap Rate Survey; Scotiabank GBM estimates.REIT implied cap rates = equal-weighted quarterly-average; excludes hotels. Private market cap rates = CBRE cap rate datawith asset class weighting based on number of REITs in our universe of coverage over time; excludes hotels.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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The REIT Stuf f October 21, 2013

2

Recent REIT and Real Estate News

RioCan REIT (REI.un, SP, $28.00 target) completed the dissolution of it s Texas JVs and the build-out of its U.S.management platform. It also announced additional U.S. acquisitions totalling US$68.8M (6.6% cap rate), with itsU.S. portfolio now comprising 47 properties and 9.9M sq. ft. (~14% of NOI) split between Texas (54% of U.S.NOI) and the U.S. Northeast (48%).

The completion of the RPAI and Dunhill JV buyouts (net cost of US$77M million @ 6.5% cap rate) were previouslyannounced and are reflected in our estimates. Most of the US$68.8M (6.6% cap rate) of additional purchases relatedto a clean-up of the JVs, but are not yet reflected in our model (minimal impact). We continue to view U.S.management internalization as the right longer term move. At current levels, we view REI as reasonably valued.

10-Oct-13

BPY (not rated) announced an "any or all" tender offer for the ~50% of BPO it does not own, valuing the stake at~$5B. BPO shareholders can elect to receive 1 BPY LP unit or $19.34 in cash, subject to a max of 174M BPYunits and $1.7B cash (67%/33% split). Based on the max pro-ration, the offer equates to $6.38 of cash and 0.67

BPY units per BPO share; receipt of BPY units can be done on a tax-deferred basis.

InnVest REIT (INN.un, SP, $4.65 target) announced $252M of debt refinancing, leaving no major mortgagematurities through July/15; refinancings include $184M on 42 (mostly) Comfort Inns& $68M on the Sheraton Eau Claire in Calgary (10 year term at 5.33%). The weighted average interest rate falls100bp to 5.2%, while the total portfolio average mortgage debt term increases by 2 years to 4.5 years.

7-Oct-13 DBRS announced that it assigned Crombie REIT (CRR.un, SP, $15.25 target) a provisional issuer rating of BBB(low) with a stable trend. The rating was based on CRR's portfolio of stable grocery-anchored assets, long-termleases, strategic relationship with Empire/Sobeys, and improved geographic diversification pro-forma itsproposed ~$1B purchase of 68 Canada Safeway anchored properties from Sobeys.

Killam Properties (KMP, SP, $12.25 target) hosted a property tour in Halifax and Dartmouth, which included atour of the Irving Shipbuilding Yard, KMP's S2 development, several other existing KMP assets, and a Halifaxmarket overview presentation by CMHC.

3-Oct-13

Implications

7-Oct-13 Cominar REIT (CUF.un, SP, $22.75 target) announced a $250M offering of floating rate Series 5 seniorunsecured debentures. The debentures bear interest at 3-month CDOR+205 bp and are due October 9, 2015.Net proceeds were used to repay existing debt and for general trust purposes. The REIT also up-financed a$123M mortgage for $206M with a 10-year term and floating rate at GoC+205 bp (subjec to m in. 4.1% rate).

With potentially rising bond yields, our general preference remains for REITs to lock in longer duration, f ixed rate debt.However, the unsecured debt offering coupled with other recent Q3/13 financings have effectively termed out allamounts owed on its credit facilities and bridge loans ( $292M pro-forma Q2 activities) that were used to partially fundthe CANMARC and GE portfolio purchases. At current levels, we continue to view CUF as fairly valued.

Date News

10-Oct-13 Calloway REIT (CWT.un, SP, $29.00 target) announced a $100M offering of floating rate Series K seniorunsecured debentures. The notes bear interest at 3-month CDOR+138 bp for a two year term expiring October16, 2015. Net proceeds were used to repay exisiting indebtedness and for general trust purposes.

11-Oct-13 We are off restriction on CAP REIT (CAR.un, SP, $25.00 target) post completion of a 7.3M unit issuance (at$20.55/un) for gross proceeds of $149.5M (assuming full o/a exercised; $130M excluding o/a). Net proceedsfrom the offering will be used to partially repay the ~$231M CAR drawn on its Acquisition and Operating Facility.

From an NAV perspective, we estimate the offering translates into ~$0.30/un of dilution. We estimate debt/GBVdeclines ~260bp to ~48% and net-debt/EBITDA falls 0.5x to 9.5x (vs. apartment peer average of 8.4x). We think CARlooks attractive on an AFFO basis (15.3x 2014E AFFO & 5.8% implied cap vs. 15.8x / 6.4% for apartment peers), but alack of near-term visible catalysts (in our view) has us on the sidelines for now.

9-Oct-13 We estimate annual interest savings of ~$0.02/un starting in May 2014, which we plan to reflect as part of our 2015estimate roll-out later this m onth. We also believe the Sheraton Eau Claire refinancing provides support for ourNAVPU. Assuming a 60%-65% LTV equates to a value of ~$325k-$350k/suite, slightly ahead of the high-$200/suite inour NAVPU. While INN had telegraphed the refinancing, we view it as a slight positive nonetheless.

The financing effectively frees up full capacity on Calloway's credit lines. On a pro-f orma basis, balance sheet leverageremains reasonable with 2013E net debt/EBITDA at 7.8x and 51% D/GBV. On a P/AFFO basis, valuation looksreasonable at 13.9x 2014E AFFO (vs. 14.3x REIT sector average), though 6.6% implied cap rate (vs. 6.8%) andsizeable 13% NAV discount (vs. 6% discount) offer attractive entry points for longer term holders in our view.

30-Sep-13

While we f elt the CMHC presentation tone was negative (highlighted continued supply growth through 2014 may leadto higher market vacancy and limited rent growth), we believe KMP is well positioned to capture market share inHalifax/Dartmouth given its above-average portfolio quality and location. We believe KMP is capable of superior same-property NOI growth as shipbuilding-related job growth accelerates in 2015 and onwards.

We think offer upside may rely upon leasing at Brookfield Place NYC (BPNY). Based on our BPO NAVPS, we estimateevery 0.1Msf of leasing equates to ~$0.08/sh. Net-net, we see 3%-5% further upside to the offer should 0.5M-1Msf ofleasing take place, which we still believe is possible. Following BPO's share price jump, we downgraded BPO from

Focus Stock to Sector Perform, upping our target price $0.25 to $20.00.

Though we believe the rating was partially expected by investors, it nonetheless improves CRR's financial flexibility byopening the door to a new source of capital, particularly as it works to secure long-term financing to replace the~$560M of bridge loans used to partially fund the Safeway transaction. At current levels (14.2x 2014E AFFO/7.1%implied cap rate vs. 14.3x/6.8% for sector), we see a reasonable entry point for longer term investors.


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The REIT Stuf f October 21, 2013

3

REIT/REOC Statistic s

Name Ticker PriceMarketCap.

Rating*Risk

Ranking1-Yr Target

1-YrTotal

Return

AFFOCAGR

AFFOPayoutRatio

Scotia ValuationMultiple

NAVPrem /

(Disc) toNAV

ImpliedCapRate

ScotiaCap Rate

Debt /GBV++

Net Debt /EBITDA^^

EBITDAInterest

Coverage

18-Oct $M 2012A 2013E 2014E ( '12A-'14E) 2012A 2013E 2014E 2013E ('14E AFFO) 2013E 1 month 6 months 1 year YTD

Allied Properties REIT AP.un $34.40 $2,344 SO High $35.50 7.3% $1.48 $1.66 $1.94 14.6% 23.2x 20.8x 17.7x 83% 18.3x $31.00 11.0% 5.8% 6.3% 36% 6.0x 4.1x 6.7% 5.0% 12.2% 7.3%

Artis REIT AX.un $14.62 $1,837 SP High $16.75 22.0% $1.10 $1.20 $1.20 4.2% 13.3x 12.1x 12.2x 90% 14.00x $16.10 (9.2%) 6.9% 6.6% 51% 8.2x 2.8x 4.8% (8.9%) (2.7%) (1.3%)

Boardwalk REIT BEI.un $59.60 $2,853 SP Medium $65.25 12.9% $2.61 $2.88 $3.00 7.2% 22.9x 20.7x 19.9x 69% 21.8x $60.50 (1.5%) 5.4% 5.4% 39% 8.3x 3.1x 5.3% (6.2%) (3.9%) (5.4%)

Brookfield Office Properties (US$) BPO $19.04 $9,617 SP Medium $20.00 6.5% $0.75 $0.73 $0.61 -9.8% 25.2x 26.1x 31.1x 77% *** $19.75 (3.6%) 5.8% 5.8% 50% 8.6x 2.1x 12.6% 11.3% 22.0% 14.4%

Brookfield Canada Office Properties BOX.un $26.61 $2,481 SP Medium $29.50 15.5% $1.16 $1.31 $1.44 11.3% 22.9x 20.3x 18.5x 90% 20.50x $31.00 (14.2%) 5.9% 5.4% 41% 8.2x 2.4x 4.4% (2.9%) (5.0%) (6.1%)

Calloway REIT CWT.un $25.29 $3,363 SP Medium $29.00 20.9% $1.65 $1.73 $1.81 4.9% 15.4x 14.7x 13.9x 90% 16.0x $29.08 (13.0%) 6.6% 6.0% 51% 7.8x 2.9x 3.0% (10.0%) (6.4%) (8.6%)

CAP REIT CAR.un $21.87 $2,189 SP Medium $25.00 19.6% $1.29 $1.41 $1.43 5.2% 16.9x 15.5x 15.3x 81% 17.5x $25.00 (12.5%) 5.8% 5.4% 47% 9.8x 2.6x 7.5% (9.5%) (2.1%) (8.7%)

Chartwell REIT CSH.un $10.54 $1,813 SO High $11.25 11.9% $0.66 $0.73 $0.80 9.7% 15.9x 14.5x 13.2x 74% 14.0x $10.36 1.8% 7.2% 7.3% 58% 8.6x 2.3x 6.1% (4.6%) 9.9% 0.7%

Cominar REIT CUF.un $19.18 $2,406 SP Medium $22.75 26.1% $1.51 $1.52 $1.60 3.0% 12.7x 12.6x 12.0x 95% 14.3x $22.43 (14.5%) 7.0% 6.5% 51% 8.7x 2.7x 1.1% (15.4%) (12.6%) (10.2%)

CREIT REF.un $42.78 $2,926 SO Medium $48.00 16.1% $2.33 $2.50 $2.64 6.5% 18.4x 17.1x 16.2x 64% 18.3x $42.10 1.6% 6.2% 6.3% 49% 7.9x 3.7x 4.2% (4.6%) 6.6% 1.4%

Crombie REIT CRR.un $13.22 $1,608 SP High $15.25 22.1% $0.83 $0.90 $0.93 5.6% 15.8x 14.8x 14.2x 99% 16.25x $14.12 (6.3%) 7.1% 6.9% 53% 8.1x 2.4x 1.9% (9.1%) (6.0%) (5.9%)

Dundee REIT D.un $29.67 $3,209 SP High $35.50 28.8% $2.29 $2.36 $2.41 2.6% 13.0x 12.6x 12.3x 95% 14.8x $35.00 (15.2%) 7.0% 6.4% 48% 8.0x 2.8x (1.0%) (14.3%) (13.4%) (16.3%)

Dundee International REIT DI.un $9.34 $1,018 SP High $10.25 18.3% $0.70 $0.74 $0.78 6.1% 13.4x 12.7x 11.9x 109% 13.0x $9.13 2.3% 7.0% 7.1% 54% 8.7x 3.4x (0.5%) (10.4%) (8.2%) (9.1%)

First Capital R ealty FCR $17.70 $3,674 SP Medium $19.50 14.9% $0.89 $0.94 $1.00 5.9% 19.8x 18.8x 17.7x 89% 19.5x $17.82 (0.7%) 5.9% 5.9% 48% 9.5x 2.4x 5.4% (4.6%) 1.1% (2.6%)

H&R REIT HR.un $21.65 $5,642 SP Medium $24.00 17.2% $1.26 $1.48 $1.56 11.2% 17.2x 14.7x 13.9x 91% 15.5x $23.85 (9.2%) 6.6% 6.2% 52% 8.4x 2.4x 3.2% (4.4%) (4.5%) (6.0%)

InnVest REIT INN.un $4.07 $381 SP High $4.65 24.1% $0.38 $0.44 $0.53 18.4% 10.8x 9.3x 7.7x 92% 11.8x $4.80 (15.2%) 9.0% 8.4% 64% 8.0x 1.9x (2.8%) (11.0%) (9.9%) 5.8%

InterRent REIT IIP.un $5.65 $321 SP High $6.50 18.9% $0.25 $0.34 $0.39 26.1% 23.0x 16.6x 14.5x 54% 16.5x $6.00 (5.8%) 6.1% 5.9% 49% 9.7x 2.9x 3.6% (7.6%) 9.5% 10.6%

Killam Properties KMP $11.14 $604 SP High $12.25 15.4% $0.60 $0.62 $0.71 8.8% 18.6x 17.9x 15.7x 95% 17.3x $11.75 (5.2%) 6.4% 6.2% 52% 9.6x 2.3x 4.9% (6.3%) (9.4%) (7.3%)

Leisureworld LW $11.11 $396 SP High $12.75 22.9% $1.21 $1.04 $1.23 1.0% 9.2x 10.6x 9.0x 86% 10.25x $11.43 (2.8%) 8.8% 8.9% 49% 6.7x 2.2x 7.5% (9.3%) (2.4%) (6.1%)

Morguard REIT MRT.un $17.15 $1,093 SP Medium $18.00 10.6% $1.09 $1.22 $1.24 6.7% 15.7x 14.1x 13.8x 79% 14.5x $21.14 (18.9%) 6.9% 6.3% 44% 7.9x 2.7x 6.7% (1.7%) 2.6% (2.2%)Northern Property REIT NPR.un $28.09 $901 SO High $32.00 19.7% $2.04 $1.99 $2.14 2.4% 13.8x 14.1x 13.1x 78% 16.0x $27.75 1.2% 7.6% 7.7% 41% 5.9x 3.8x (0.9%) (8.7%) (2.6%) (5.4%)

NorthWest Healthcare Properties NWH.un $11.20 $517 SP High $12.00 14.3% $0.80 $0.79 $0.83 1.9% 14.0x 14.1x 13.5x 101% 14.50x $11.50 (2.6%) 6.9% 6.8% 52% 8.7x 2.4x 2.2% (10.1%) (7.5%) (5.4%)

RioCan REIT** REI.un $25.63 $7,755 SP Medium $28.00 14.7% $1.30 $1.41 $1.48 6.8% 19.8x 18.2x 17.3x 100% 19.0x $23.64 8.4% 5.8% 6.1% 44% 8.2x 3.1x 6.6% (6.5%) 0.1% (3.2%)

Royal Host RYL $1.05 $18 SU High $0.85 -19.0% ($0.07) ($0.02) $0.00 n.m. n.m. n.m. n.m. 0% NAVPS $0.85 23.5% 7.9% 9.0% 79% 11.3x 1.3x 12.9% 14.1% (25.5%) 2.9%

Average (equal weighted, excludes BPO and RYL) 17.9% 7.7% 16.6x 15.3x 14.3x 86% 16.1x -5.5% 6.7% 6.5% 49% 8.2x 2.8x

S&P/TSX REIT Total Return Index 2.3% (7.0%) (2.3%) (5.2%)

*Ratings: SO = Sector Outperform, SP = Sector Perform, SU = Sector Underperform ** Estimates exclude gains ***Scotia Expected Tender Offer Price MSCI U.S. REIT Total Return Index 1.7% (2.1%) 9.9% 9.0%

Source: Compa ny reports; Bloomberg; Scotiabank GBM estimates. ++ Q2/13 Disclosed Debt to IFRS Fair Value; includes convertible debentures ^^Q2/13 (Q2/13 Net Debt / NTM EBITDA) S&P/TSX Composite Total Return Index 1.9% 11.3% 8.7% 8.3%

P / AFFOTotal Return (as of October 18, 2013)

(not annualized)AFFO Per Unit

Historical REIT AFFO Multiple and Yield Spread to 10-Year Government of Canada

0

200

400

600

800

1000

1200

-

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

P/AFFO Mult ip le (LS) AFFO Yield Spread to GoC 10-Yr (RS)

Average = 12.5x

Average = 420 bp

Current 2014E =14.3x

Current Spread = 448 bp

Peak = 18.2x (Jan/07)

Trough = 7.8x (Jan/00)

Income trust taxation announced

EOP transactionPeak = 961 bp

Trough Spread = 129 bp

Source: Bloomberg; Scotiabank GBM estimates.

Relative Historical Return

278

170

583

384

60100140180220260300340380420460500

540580620660

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Bloomberg; Scotiabank GBM

S&P/TSXREIT TotalReturn Index

S&P/TSX CompositeTotal Return Index

S&P/TSX REITPrice Only Index

MSCI U.S. REITTotal Return Index


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Valuation and Key Risks to Target

Broo kfield Asset Management (BAM - N US$40.00)

Valuation Forward NAV

Key Risks to Target Materially higher interest rates, fundraising slowdown, decelerating U.S. economy, lack of credit

Pricing as at October 18, 2013.


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Appendix A: Important DisclosuresCompany Ticker Disclo sures (see legend below)*

Allied Properties REIT AP.UN G, I, T, UArtis REIT AX.UN G, I, T, UBoardwalk REIT BEI.UN P, T, VS96Brookfield Asset Management BAM G, I, S, UBrookfield Canada Office Properties BOX.UN G, I, T, U

Brookfield Office Properties BPO I, S, TCalloway REIT CWT.UN G, I, UCanadian Real Estate Inv. Trust REF.UN G, I, UCAP REIT CAR.UN G, I, S, T, UChartwell Retirement Residences CSH.UN I, TCominar REIT CUF.UN G, I, UCrombie REIT CRR.UN B25, G, I, UDundee International REIT DI.UN G, I, T, UDundee REIT D.UN G, I, S6, T, UFirst Capital Realty Inc. FCR G, I, UH&R REIT HR.UN G, I, T, UInnVest REIT INN.UN G, I, UInterRent Real Estate Investment Trust IIP.UN G, I, P, T, UKillam Properties Inc. KMP G, I, T, ULeisureworld Senior Care Corporation LW G, I, UMorguard REIT MRT.UN G, I, S, UNorthern Property REIT NPR.UN INorthWest Healthcare Properties REIT NWH.UN G, I, T, URioCan REIT REI.UN G, I, U

The following analysts certify that (1) the views expressed in this report in connection with securities or issuers they analyze accurately reflect their personal views and (2) no part of theircompensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by them in this report: Mario Saric, and Pammi Bir

This research report was prepared by employees of Scotia Capital Inc. and/or its affiliates who have the title of Analyst.All pricing of securities in reports is based on the closing price of the securities principal marketplace on the night before the publication date, unless otherwise explicitly stated.

All Equity Research Analysts report to the Head of Equity Research. The Head of Equity Research reports to the Managing Director, Head of Institutional Equity Sales, Trading and Research,who is not and does not report to the Head of the Investment Banking Department. Scotiabank, Global Banking and Markets has policies that are reasonably designed to prevent or control thesharing of material non-public information across internal information barriers, such as between Investment Banking and Research.

The compensation of the research analyst who prepared this report is based on several factors, including but not limited to, the overall profitability of Scotiabank, Global Banking and Marketsand the revenues generated from its various departments, including investment banking. Furthermore, the research analyst's compensation is charged as an expense to various Scotiabank,Global Banking and Markets departments, including investment banking. Research Analysts may not receive compensation from the companies they cover.

Non-U.S. analysts may not be associated persons of Scotia Capital (USA) Inc. and therefore may not be subject to NASD Rule 2711 restrictions on communications with subject company,public appearances and trading securities held by the analysts.


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For Scotiabank, Global Banking and Markets Research analyst standards and disclosure policies, please visit http://www.gbm.scotiabank.com/disclosures

Scotiabank, Global Banking and Markets Research, 40 King Street West, 33rd Floor, Toronto, Ontario, M5H 1H1.

* Legend

B25 Paul D. Sobey is a director of Crombie REIT and is a director of The Bank of Nova Scotia.

G Scotia Capital (USA) Inc. or its affiliates has managed or co-managed a public offering in the past 12 months.

I Scotia Capital (USA) Inc. or its affiliates has received compensation for investment banking services in the past 12 months.

P This issuer paid a portion of the travel-related expenses incurred by the Fundamental Research Analyst/Associate to visit material operations of this issuer.

S Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of this issuer.

S6 Dundee Real Estate Investment Trust is a Related Issuer of Scotia Capital Inc.

T The Fundamental Research Analyst/Associate has visited material operations of this issuer.

U Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advicefor a fee with respect to, this issuer.

VS96 Our Research Analyst visited the Calgary apartment portfolio, income-producing apartment buildings, on July 10, 2012. Partial payment was received from the issuer for thetravel-related expenses incurred by the Research Analyst to visit this site.
http://www.scotiacapital.com/disclosureshttp://www.scotiacapital.com/disclosures


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General DisclosuresThis report has been prepared by analysts who are employed by the Research Department of Scotiabank, Global Banking and Markets. Scotiabank, together with Global Banking and Markets, is amarketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, includingScotia Capital Inc.

All other trademarks are acknowledged as belonging to their respective owners and the display of such trademarks is for informational use only.

Scotiabank, Global Banking and MarketsResearch produces research reports under a single marketing identity referred to as Globally-branded research under U.S. rules. This research is produced on asingle global research platform with one set of rules which meet the most stringent standards set by regulators in the various jurisdictions in which the research reports are produced. In addition, the analysts whoproduce the research reports, regardless of location, are subject to one set of policies designed to meet the most stringent rules established by regulators in the various jurisdictions where the research reports

are produced.Scotia Capital Inc. or an affiliate thereof owns or controls an equity interest in TMX Group Limited and in excess of 1%of the issued and outstanding equity securities thereof. In addition, an affiliate of ScotiaCapital Inc. is a lender to TMX Group Limited under its credit facilities. As such, Scotia Capital Inc. may be considered to have an economic interest in TMX Group Limited.

This report is provided to you for informational purposes only. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts.

The securities mentioned in this report may neither be suitable for all investors nor eligible for sale in some jurisdictions where the report is distributed.

The information and opinions contained herein have been compiled or arrived at from sources believed reliable, however, Scotiabank, Global Banking and Marketsmakes no representation orwarranty, express or implied, as to their accuracy or completeness.

Scotiabank, Global Banking and Marketshas policies designed to make best efforts to ensure that the information contained in this report is current as of the date of this report, unless otherwise specified.Any prices that are stated in this report are for informational purposes only. Scotiabank, Global Banking and Marketsmakes no representation that any transaction may be or could have been effectedat those prices.

Any opinions expressed herein are those of the author(s) and are subject to change without notice and may differ or be contrary from the opinions expressed by other departments of Scotiabank,

Global Banking and Marketsor any of its affiliates.Neither Scotiabank, Global Banking and Marketsnor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.Equity research reports published by Scotiabank, Global Banking and Marketsare available electronically via: Bloomberg, Thomson Financial/First Call - Research Direct, Reuters, Capital IQ, andFactSet. Institutional clients with questions regarding distribution of equity research should contact us at 1-800-208-7666.

This report and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any mannerwhatsoever, nor may the information, opinions, and conclusions contained in it be referred to without the prior express consent of Scotiabank, Global Banking and Markets.

Additional DisclosuresCanada: This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia. DWM Securities Inc. is a subsidiary of The Bank of Nova Scotia and an affiliate of Scotia Capital Inc.Scotia Capital Inc. and DWM Securities Inc. are members of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. DWM Securities Inc. does notprovide investment banking services.

Chile: This report is distributed by Scotia Corredora de Bolsa Chile S.A., a subsidiary of The Bank of Nova Scotia.

Hong Kong: This report is distributed by The Bank of Nova Scotia Hong Kong Branch, which is authorized by the Securities and Future Commission to conduct Type 1, Type 4 and Type 6 regulatedactivities and regulated by the Hong Kong Monetary Authority.

Mexico: This report is distributed by Scotia Inverlat Casa de Bolsa S.A. de C.V., a subsidiary of the Bank of Nova Scotia.

Peru: This report is distributed by Scotia Sociedad Agente de Bolsa S.A., a subsidiary of The Bank of Nova Scotia.

Singapore: This report is distributed by The Bank of Nova Scotia Asia Limited, a subsidiary of The Bank of Nova Scotia. The Bank of Nova Scotia Asia Limited is authorised and regulated by theMonetary Authority of Singapore, and exempted under Section 99(1)(a),and (b), (c) and (d) of the Securities and Futures Act to conduct regulated activities.

United Kingdom and the rest of Europe: Except as otherwise specified herein, this report is distributed by Scotiabank Europe PLC, a subsidiary of the Bank of Nova Scotia. Scotiabank Europe PLC isauthorized and regulated by the Financial Services Authority (FSA). Scotiabank Europe PLC complies with all the FSA requirements concerning research and the associated disclosures and theseare indicated on the research where applicable.

United States: This report is distributed by Scotia Capital (USA) Inc., a subsidiary of Scotia Capital Inc., and a registered U.S. broker-dealer. All transactions by a U.S. investor of securities mentionedin this report must be effected through Scotia Capital (USA) Inc.

Non-U.S. investors wishing to effect a transaction in the securities discussed in this report should contact a Scotiabank, Global Banking and Markets entity in their local jurisdiction unless governinglaw permits otherwise.


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Definition of Scotiabank, Global Banking and Markets Equity Research Ratings & Risk Rankings

e have a four-tiered rating system, with ratings of Focus Stock, Sector Outperform, Sector Perform, and Sector Underperform. Each analyst assigns a rating that is relative to his or her coverage universe or anindex identified by the analyst that includes, but is not limited to, stocks covered by the analyst.

Our risk ranking system provides transparency as to the underlying financial and operational risk of each stock covered. Statistical and judgmental factors considered are: historical financial results, share pricevolatility, liquidity of the shares, credit ratings, analyst forecasts, consistency and predictability of earnings, EPS growth, dividends, cash flow from operations, and strength of balance sheet. The Director oResearch and the Supervisory Analyst jointly make the final determination of all risk rankings.

The rating assigned to each security covered in this report is based on the Scotiabank, Global Banking and Markets research analysts 12-month view on the security. Analysts may sometimes express toraders, salespeople and certain clients their shorter-term views on these securities that differ from their 12-month view due to several factors, including but not limited to the inherent volatility of the marketplace.

Ratings

Focus Stock (FS)The stock represents an analysts best idea(s); stocks in this category are expected to significantly outperform the average12-month total return of the analysts coverage universe or an index identified by the analyst that includes, but is not limitedo, stocks covered by the analyst.

Sector Outperform (SO)The stock is expected to outperform the average 12-month total return of the analysts coverage universe or an indexidentified by the analyst that includes, but is not limited to, stocks covered by the analyst.

Sector Perform (SP)The stock is expected to perform approximately in line with the average 12-month total return of the analysts coverageuniverse or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst.

Sector Underperform (SU)The stock is expected to underperform the average 12-month total return of the analysts coverage universe or an indexidentified by the analyst that includes, but is not limited to, stocks covered by the analyst.

Other RatingsTender Investors are guided to tender to the terms of the takeover offer.

Under Review The rating has been temporarily placed under review, until sufficient information has been received andassessed by the analyst.

Risk Rankings

LowLow financial and operational risk, high predictability of financial results,low stock volatility.

MediumModerate financial and operational risk, moderate predictability of financialresults, moderate stock volatility.

HighHigh financial and/or operational risk, low predictability of financial results,high stock volatility.

SpeculativeExceptionally high financial and/or operational risk, exceptionally low predictabilityof financial results, exceptionally high stock volatility. For risk-tolerant investorsonly.

Scotiabank, Global Banking and Markets Equity Research Ratings Distribution*

Distribution by Ratings and Equity and Equity-Related Financings*

Percentage of companies covered by Scotiabank, Global Banking and Markets Equity Research

within each rating category.

Percentage of companies within each rating category for which Scotiabank, Global Banking andMarkets has undertaken an underwriting liability or has provided advice for a fee within the last 12months.

Source: Scotiabank GBM.

For the purposes of the ratings distribution disclosure FINRA requires members who use a ratings system with terms different than buy, hold/neutral and sell, to equate their own ratings into

hese categories. Our Focus Stock, Sector Outperform, Sector Perform, and Sector Underperform ratings are based on the criteria above, but for this purpose could be equated to strong buy, buy,neutral and sell ratings, respectively.


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www.gbm.scotiabank.com

TMTrademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with Global Banking and Markets, is a marketing name for the global corporate and investment

banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc. Scotia Capital Inc. is a Member of the

Canadian Investor Protection Fund.

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