IGW REIT VALUE INCREASES, RIVALS PUBLIC REIT YIELDS

Tuesday, March 1, 2011

Greetings Member-Partners!

IGW REIT is UP again! I am pleased to report that, for the sixth consecutive quarter, the value of the traditional Class A, AA and AAA IGW REIT units has risen. The new value now stands at $1.055. This is up from last December's unit value of $1.035 and represents a quarterly increase of 1.93%.

It also represents a year-over-year increase of 5.28% from March of 2010 when the unit value of the IGW REIT stood at $1.002.

Meanwhile, distributions are now at the increased level of 7.50 cents per unit per annum.

As stated in the recent State of the Units report, we enjoyed a very positive quarter, something that is reflected in the increase in unit value and the higher distribution rate which became effective last month. This is a direct result of the efforts of the people at LEAGUE to add value to the REIT portfolio. We're also happy to see Canadian real estate markets returning to the values held prior to the economic crisis of 2008-2009. Like you, we're hopeful that this positive trend will continue to develop.

My partner Adam Gant and I deeply appreciate the outstanding work of everyone involved. This is one more affirmation of our shared values and a demonstration of what like-minded people can accomplish together.

How LEAGUE's private IGW REIT compares to its public counterparts
Last fall, Exempt Analyst Inc. (EA) produced this report comparing the LEAGUE's private IGW REIT favourably with such major public REITs as RioCan REIT and Calloway REIT. In this report, EA gave IGW REIT's Class AAA and Income Priority Units institutional grade ratings of STA-2 and BBB respectively. These are the highest possible ratings for an investment entity of our size.

This comparison gave us much food for thought. We asked ourselves, "In a David vs. Goliath comparison, how would the distribution yield of LEAGUE's private IGW REIT stack up against the publicly-listed competition?"

We took this question to theglobeandmail.com and compared the distribution yield of our private IGW REIT and the publicly-listed Partners REIT, (which we also manage and which IGW REIT holds a 41.5% stake), against 15 public Canadian REITs holding similar properties.

The table below ranks the results from highest yield to lowest, and is calculated as percentage per unit as of today's value. (Note that two LEAGUE-managed REITs are in the top six).

Yield Data Analysis
So how does the IGW REIT's distribution compare with that of other Canadian retail REITs?

Obviously, when you compare the assets of the IGW REIT ($230 million) to those of the RioCan REIT ($8.4 billion) and the respective unit prices at the time this data was collected – $1.055 (ours) vs. $24.260 (theirs), you'll see the comparison is not exactly "apples to apples". But, all else being equal, when you look at yield – the annual distribution as a percentage of unit price – you will see a much different story.

The yield for the RioCan REIT is 5.80%, compared with the IGW REIT's 7.10%. Thus, if $10,000 were invested in both REITs, the IGW REIT annual yield would be greater by $130 – $710 compared to $580.

Yield vs. Volatility
Another important factor when comparing investments is the price volatility that publicly traded units are subjected to external market forces, specially over the long term. LEAGUE's IGW REIT, being private, is afforded greater protection from such volatility.

The Bloomberg Canadian REIT Index below shows the price fluctuations that occurred in the last three years across the entire public REIT sector.

By contrast, the following table illustrates the actual returns earned to date (March, 2011) based on $100,000 invested in LEAGUE's traditional (Class A, AA, AAA) IGW REIT units in 2005, 2007, and 2009.

** Dip due to 2008 financial turmoil

Even during the worst days of the global economic crisis the performance of the IGW REIT surpassed the TSX Stock Index and the Bloomberg REIT Index, which experienced 29.2% and 52.8% reductions in value respectively (see charts attached). In contrast, the IGW REIT experienced only a 12.6% reduction – and only over a period of three quarters before it began steadily increasing in value again.

In the end, long-term real estate (as opposed to stock) investors may prefer the distribution yield from LEAGUE's private IGW REIT, over the uncertainty that comes with the volatility of publicly traded REITS. The IGW REIT is structured to be a long-term hold, so its limited liquidity and reduced volatility is more attractive to like-minded, long-term investors.

What's more, the distributions from the REIT are remarkably tax efficient because we distribute a large proportion of them as return-of-capital – and this means that at tax time you get to keep more of what you earned.

We hope this comparison report has been of value to you, and invite your questions and comments at any time.

We always stand ready to help.