Cadim(formerly CDP Capital - Real Estate Advisory) is involved in merchant banking and real estate investment management in Canada, the United States, Europe and Asia. Its investments include opportunistic products that are usually held for less than three years. Cadim also manages a large subordinated debt portfolio, in addition to offering advisory and structured finance services. As at December 31, 2005, it had $29.0 billion of total assets under management. Cadim is a division of the Caisse de dépôt et placement du Québec.
Ivanhoe Cambridgemanages, develops and invests in shopping centres in urban areas of Canada, the United States and Europe. The Company owns about 70 shopping centres outright or in partnership, for total leasable area of more than four million square metres. As at December 31, 2005, Ivanhoe Cambridge had $11.4 billion of total assets under management. The Caisse has a 93.7% stake in Ivanhoe Cambridge. The other shareholders are four Canadian pen- sion funds.
SITQdevelops, invests in and manages office buildings and business parks owned outright or in partnership. SITQ’s portfolio consists of more than 100 properties in large urban centres in Canada, the United States, France, Great Britain and Germany, for more than 2.7 million square metres of leasable area. As at December 31, 2005, it had $19.2 billion of assets under management. The Caisse owns 92.4% of SITQ. The other shareholders are five Canadian financial institutions and pension funds.
Canada
AXIMA Services(formerly Alizé) specializes in technical management of office buildings. Its operations take in more than 2.3 million square metres in Québec.
Bentall Capitalis a real estate asset manager that special- izes in office buildings in Canada and on the U.S. West Coast. Its assets under management or administration total $12.3 billion.
Maestrois a real estate asset manager that specializes in residences for seniors and students. It has $0.6 billion of assets under management.
MCAPmanages real estate debt assets in four main sectors: residential, commercial and construction mortgages as well as equipment leasing. It has $11.8 billion of assets under management or administration.
Presimamanages an international portfolio of listed real estate securities. It has $0.6 billion of assets under management.
United States
CWCapitalmanages real estate debt assets in all sectors of the industry. It has $9.1 billion of assets under management or administration (excluding the CRIIMI MAE portfolio, to be recorded in fiscal 2006).
The Praedium Groupis a real estate asset manager that specializes in mid-sized unproductive and undervalued assets. It has $3.0 billion of assets under management.
Brazil
Brazilian Capital, Brazilian Mortgages and Brazilian Securitiesspecialize in management of real estate funds and assets, real estate financing and loan securitization, respectively. They have close to $55 million of assets under management.
Figure 55 shows the positioning for several regions of the world within the global real estate cycle at the end of 2005. The real estate cycle consists of four phases: recovery, expansion, oversupply and recession.
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Investment operations
and analysis of returns
(cont.)Regional distribution within the global commercial real estate cycle (at the end of 2005)
figure 55
LONG-TERM OCCUPANCY RATE 1• Office (U.S. suburbs)
• Commercial (Japan)
2• Office (U.S. downtown) • Office (downtown, Eastern Canada) • Office (Canada, suburbs) • Industrial (U.S.)
• Office (euro-zone – excluding Germany)
3• Office (United Kingdom) • Residential (U.S.) • Office (Central Europe)
4• Office (Japan) Residential (Japan) 5• Hotel (U.S.) • Office (downtown, Western Canada) 6• Commercial (Central Europe) 7• Commercial (Canada) 8• Commercial (Europe) • Office (China) 9• Commercial (U.S.) • Residential (Shanghai-China) • Industrial (Canada) • Residential (Canada) 10• Office (Germany) • Commercial (Germany) Phase 1 Recovery Phase 2 Expansion Phase 3 Oversupply Phase 4 Recession Phase 1
• Declining vacancy rates • Rental rate growth,
below inflation rates • No new building activity
Phase 2
• Strong rental rate growth in tighter markets • Rising rental rates justify
building activity • Decline in vacancy rates
Phase 3
• Increase in rental rates, although at slower pace
• Increase in vacancy rates • New building activity, increase in
development and redevelopment projects
Phase 4
• Decline in rental rates • Increase in vacancy rates • Building activity, increased
competition 2 3 1 4 7 9 10 6 5 8 New buildings
Overall return and specialized portfolio analysis
The Real Estate group added $3.5 billion to depositors’ net assets in 2005, with an overall return of 26.4%, versus 22.7% in 2004. The group’s management generated 565 b.p. (5.65%) of value added in relation to the benchmark index. As at December 31, 2005, depositors’ net assets in the two portfolios managed by the group totalled $17.2 billion - with $6.4 billion in the Real Estate Debt portfolio and $10.8 billion in the Real Estate portfolio - in comparison with $12.1 billion in 2004. As a result of various acquisitions, the Real Estate Debt portfolio grew considerably in 2005, ending the year with $2.1 billion more than in 2004.
Depositors’ total assets amounted to $24.3 billion as at December 31, 2005, versus $21.6 billion a year earlier. Lastly, total assets under management, including assets under management or assets under administration amounted to $59.6 billion versus $48.1 billion in 2004. Table 56 gives the breakdown of the total assets under management by the Real Estate group according to portfolio.
The Real Estate group’s transaction volume in 2005 was $12.9 billion, with $4.2 billion of acquisitions and invest- ments, $0.9 billion of construction, renovation and leasehold improvements, $2.9 billion of dispositions and $4.9 billion of real estate financing transactions.
Specialized Real Estate Debt portfolio Total assets under management
As at December 31, 2005, the total assets under manage- ment in the Real Estate Debt portfolio amounted to $6.9 billion, up $1.7 billion from the previous year. Real estate financing was provided in 2005 to a wide range of clients for various types of property. The amount of the loans ranged from $0.1 million to $310 million, and the transactions totalled $4.9 billion. Figures 57 and 58 show the portfolio’s sector and geographic breakdown at year-end.
Retail Hotels Residential Business parks Office 39.6% 26.2% 16.3% 6.4% 11.5%
Sector breakdown of the specialized Real Estate Debt portfolio
figure 57
(percentage of fair value as at December 31, 2005)
Breakdown of total assets under management – Real Estate group
table 56 Assets under Total assets under management
(fair value as at December 31, 2005 – Depositors’ Depositors’ management
in billions of dollars) net total or under
assets assets administration %
Real Estate Debt portfolio 6.4 6.9 – 6.91 11.6
SITQ 5.7 13.5 19.2 32.2
Ivanhoe Cambridge 7.8 3.6 11.4 19.1
Cadim 3.9 18.2 22.1 1 37.1
Real Estate portfolio 10.8 17.4 35.3 52.7 88.4
17.2 24.3 35.3 59.6 100.0
1The assets in the Real Estate Debt portfolio are managed by subsidiaries and affiliates of which Cadim owns 50% or more. As at December 31, 2005,
Analysis of return
The Real Estate Debt portfolio returned 10.9% in 2005, or 443 b.p. (4.43%) more than the return on its index. Over five years, the portfolio returned 10.6% and outperformed the index by 320 b.p. (3.20%).
This fine performance is partially attributable to the increase in the subordinated debt held by the portfolio, especially as a result of resecuritization of the assets of Allied Capital Corporation. The decrease in mortgage rate spreads also contributed to the portfolio’s strong return.
Return on Real Estate Debt
table 59
(for periods ended December 31, 2005)
Return Index1 Spread Information
% % b.p. ratio
1 year 10.9 6.5 443 n.a. 3 years 10.8 6.8 403 4.0 5 years 10.6 7.4 320 3.5
1Before October 2005, the index was SC Universe Bond. Since October 1,
2005, the index has consisted of 90% SC Universe Bond and 10% the Lehman Brothers CMBS B hedged.
Specialized Real Estate portfolio Total assets under management
As at December 31, 2005, depositors’ total assets amounted to $17.4 billion, and assets under management or adminis- tration totalled $35.3 billion, bringing the total assets under management in the Real Estate portfolio to $52.7 billion. Table 60 gives the portfolio’s top 10 investments.
In the retail sector, Ivanhoe Cambridge’s transactions totalled $2.3 billion in 2005, with $0.4 billion of sales, $1.3 billion of acquisitions and $0.6 billion of construction, renovation and leasehold improvements.
In the office and business park sector, $0.2 billion of sales, $0.7 billion of acquisitions and $0.3 billion of construction, renovation and leasehold improvements brought SITQ’s transactions to $1.2 billion.
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Investment operations
and analysis of returns
(cont.)United States Ontario
Other Canadian provinces
Europe Québec 35.4% 29.8% 19.6% 14.4% Geographic breakdown of the specialized Real Estate Debt portfolio
figure 58
(percentage of fair value as at December 31, 2005)
0.8%
Top 10 Real Estate portfolio investments
table 60
(as at December 31, 2005)
1515 Broadway, New York, NY SITQ
Bayshore Shopping Centre, Ottawa, Ontario Ivanhoe Cambridge
CityPoint, London, England SITQ
International Banking Centre, Frankfurt, Germany SITQ
Lastly, in opportunistic products and residential buildings, Cadim’s transactions totalled $4.5 billion, with $2.3 billion of sales and $2.2 billion of investments and acquisitions. Figures 61 and 62 give the sector and geographic break- downs at year-end.
Analysis of return
The Real Estate portfolio posted an outstanding 38.6% return in 2005, outperforming by 762 b.p. (7.62%) the Aon Index - Real Estate, which posted 31.0%. The value added in relation to the return threshold is 2,962 b.p. (29.62%). The return over longer periods gives a better idea of the performance of the Real Estate portfolio, which has consis- tently surpassed the benchmark index. In fact, the 10-year average return, at 17.7%, outperformed the index by 380 b.p. (3.80%).
Once again, the portfolio’s return reflects investor enthusiasm for real estate products at the expense of other investment vehicles. The portfolio’s excellent performance is due to generally lower capitalization rates for real estate assets, to exceptional increases in value realized by the Lone Star distressed debt funds, in which Cadim has a large stake, and to higher occupancy rates for Canadian and U.S. properties.
Return on Real Estate
table 63
(for periods ended December 31, 2005)
Return Index1 Spread Information
% % b.p. ratio
1 year 38.6 31.0 762 n.a. 3 years 27.5 20.0 747 n.a. 5 years 20.6 15.5 503 n.a.
1Aon – Real Estate
(percentage of fair value as at December 31, 2005)
Offices and business parks Diversified funds and equities
Residential and hotels
Other real estate assets
Mortgages Retail 39.8% 32.3% 14.0% 7.3% 1.9% 4.7%
Sector breakdown of the specialized Real Estate portfolio
figure 61
United States Québec
Europe
Asia and others Canada ex Québec 35.6% 23.3% 17.7% 8.0% 15.4%
Geographic breakdown of the specialized Real Estate portfolio
figure 62
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