lessthaniv

I have been doing a little reading on the concept of "super-slow" steaming. This concept seems to have positive implications for; greenhouse gas emissions; fuel consumption; and the current over-capacity of container ships. I was intrigued after reading that Maersk recently received an environmental award for their role in developing this concept. As most will be aware, in the summer, the U.S. passed the American Clean Energy and Security Act. This is the first bill related to climate change that has passed the Senate/House. A provision in the Act allows the U.S. to impose tariffs on goods produced by nations that don't commit to reducing greenhouse gases. (We can save the discussion on protectionism for another thread but for now I am interested in how this may motivate the shipping industry on the short term.) The concept of slow steaming has always existed but the concept of "super-slow" steaming is relatively new. Engines in container ships are built for speed by the manufacturers. At 24 knots a ship has roughly 90% engine load however maximum speeds require huge amounts of fuel and consequently CO2 emissions increase exponentially. This is not economically nor environmentally optimal. At 20 knots a ship is running about 60% engine load. Fuel consumption is less and the environmental footprint shrinks. From what I gather, speeds between 20-24 knots would be the norm. The concept of slow steaming refers to reducing engine speeds to between 18-20 knots. The engine load would range from 40% -60% respectfully. Engine manufacturers have previously shunned the concept of super-slow steaming. The manufacturers suggested that engine loads below 40% could actually be causing damage to the engine. That's where Maersk comes in. In 2007 they challenged this opinion but testing the concept of super slow steaming on 110 vessels in their fleet. Maersk was able to prove that one can actually take the engine load down to 10% if monitored and executed correctly. 10% engine load is roughly 14 knots. The result was a 43% reduction in fuel per vessel and 30% less CO2 emissions. The results of Maersk's study changed the opinions of engine manufacturers and the concept of super-slow steaming now seems doable. Maersk suggests that super-slow steaming will require 1-2 more ships to maintain the current weekly schedule. Capital costs will go up however they expect 30% savings on fuel (including increased #'s of ships) that offset some of those costs. Maersk gave an interesting statistic: 8 ships running at 20 knots will produce 136,000 mt of CO2. 10 ships running at 14 knots will produce 91,000 mt CO2. This is based on a round-trip route from Asia-Europe. If fuel costs rise the motivation to move towards super slow steaming will only increase. Having said all this, the over-capacity issue is not going away anytime soon but the concept of super-slow steaming may help to work off the excesses quicker. Main Sources: http://docs.google.com/gview?a=v&q=cache:eJe5avmrvMIJ:www.toef.dk/files/foredragsholder_slides/Havne2009/S%25C3%25B8ren%2520Andersen.pdf+super+slow+steaming+%2B+maersk&hl=en&gl=ca&pid=bl&srcid=ADGEESgAFVAtrqfg9Uc0P0MAATUIez9X__e5TJs59HQrWyvdESIpYQkDimboV2E_hq-6k4UGvNPKNW9z1rSu95e-Msu9LHa-hjd4tkBeEcEHa2NuiSiWC_kOCETCb9sMD4tt7SC2HbPS&sig=AFQjCNG_nEDCcRDp8ckna8PVW-2QpCIv0w http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10588463 <IV

Yesterday morning Bloomberg was reporting that HL might not get state aid: http://www.bloomberg.com/apps/news?pid=20601100&sid=aFAAlQ0LkwPk However Lloyd's List reports this morning that parliment in Hamberg unanimously approved the decision to provide aid yesterday. So, now we wait to hear on the Federal Government Decision. http://www.lloydslist.com/ll/news/hamburg-votes-in-favour-of-hapag-lloyd-aid/20017699119.htm;.5fa4e8cc80be35e2653c9f87d8b8be45bf6ba69a <IV

Upgrade this morning from Bank of America. Target moved from $6 to $14. Perhaps explains some the move this morning. :o http://www.streetinsider.com/Upgrades/Bank+of+America+Upgrades+Seaspan+%28SSW%29+to+Buy/4951093.html <IV

Hi O, Here are the Coles Notes … I have had several conversations with colleagues about Seaspan and the common question that I receive is exactly yours. What about the oversupply of container ships? There is no doubt the industry is currently faced with an oversupply of ships. The oversupply coupled with weakening foreign trade has caused the spot charter rates to fall to the floor. But ... while concerning ... this is not central to my thesis because Seaspan has built in growth for the next several years and those charters were established prior to the market malaise when charter rates were much more favorable. Currently, Seaspan has about $7B in contracted revenue. In fact, Seaspan was founded by CEO Gerry Wang in the 1999 Shipping crisis. He used the market conditions successfully to acquire ships on the cheap and then subsequently charter them out on long term charters. Today Seaspan has a total of 68 ships in their fleet. 40 of those ships are floating and generating charter revenue. The remaining 28 ships are currently being built with various finish dates scattered throughout the next couple of years. As those ships become deliverable, Seaspan's revenue (as noted above), EBITDA and distributable cash will all rise accordingly. (They are working with the ship builders and the liners to extend some of the delivery dates given the large overcapacity.) Today; EBITDA = $200M Distributable Cash = $140M Upon completion of the 68th ship; EBITDA = $500M Distributable Cash = $300M Seaspan has been quite conservative in that a long term charter is secured concurrently with agreeing to build a new ship. I would have to check the date to be sure but I believe (from memory) they haven't written a deal for a new ship since late 2007. This picture above would be concerning to Seaspan when assessing counterparty risk. However, ships sitting in the water are the liners problem, not Seaspan’s. It doesn’t matter to Seaspan if the liners are using the ship or not. Seaspan still gets paid if the ship is ready to be used. The only times when they don’t get paid are when the boat has mechanical issues or during off-hire periods. Having said that … Seaspan has a historical utilization rate of 99.1%. Last quarter utilization was 99.9%. Outstanding. A few more bullets: • Seaspan secured all there debt financing in 2007 prior to the credit crunch. Their revenue base is largely Chinese and has allowed them to work successfully with Chinese banks to finance many of the new builds. • Debt has been SWAP’d out give the company cost certainly. 6.1% • Seaspan’s leverage is less than the industry. Many lessors will go to 80%-90% leverage. Seaspan has an internal target that they have managed to maintain of 65%. This has required them to raise some equity capital though. • They have successfully raised $1.7B in capital since the IPO over 6 financings • That capital has been successfully invested to provide shareholders with cumulative dividends of $6.29/share which by the way is close to my ACB!! • Seaspan is the largest provider of container ships into China given their close relationship with COSCO/China Shipping. The Chinese government which backs COSCO/China Shipping has very low exposure to ship coming in/out of Chinese ports. Especially compared to other countries. They are expected to grow significantly over time to increase this which should benefit Seaspan. • Since their IPO they have gained the most market share of any of their competitors. • SSW has very motivated and dedicated sponsor that make me worry much less about the equity financing. See my previous posts about the Washington’s. • Right now roughly 70M shares exist. Upon conversion of the preferred’s the company will have about 100M shares. They have stated equity needs of $180M - $240M by 2011. If you take the high end together with today’s market price, that will constitute another 27M shares. So, upon completion of the new builds we are likely to see dilution take the share count to somewhere around 130M. Put that share count up against $500M EBITDA and $300M in distributable income. Then consider that SSW will no longer need to fund their newbuilds organically. So, the dividend will likely rise back. Prior to cutting the dividend the company distributed $1.90/share. They should exist this period with about $2.30/share in distributable income based on my back of the envelope numbers. • While you wait for this story to develop you get paid about 5% in current dividends.

New SEC Filing out today dated showing more buying right up to September 9th. Dennis picked up another 600K shares in September thusfar: Now owns 12.81% of the common and upon conversion of the preferred shares he will have substantially more. If you follow the dates, Dennis has bought stock every day the markets have been open since August 11th. The only days no transactions occurred where on Sat/Sun/Labour Day. Disclosure: Seaspan is my largest holding. <IV _______________________ Schedule A Purchase Transactions of Common Shares By Deep Water Holdings, LLC during the last 60 days Date Transaction Number of Shares Approximate Price per Share August 11, 2009 BUY 25,406 $ 6.31 August 12, 2009 BUY 43,053 $ 6.36 August 13, 2009 BUY 41,500 $ 6.40 August 14, 2009 BUY 63,100 $ 6.37 August 17, 2009 BUY 46,000 $ 6.20 August 18, 2009 BUY 64,100 $ 6.29 August 19, 2009 BUY 100,000 $ 6.29 August 20, 2009 BUY 78,600 $ 6.33 August 20, 2009 Acquisition under dividend reinvestment plan 110,071 $ 6.33 August 21, 2009 BUY 111,100 $ 6.45 August 24, 2009 BUY 125,000 $ 6.45 August 25, 2009 BUY 128,518 $ 6.53 August 26, 2009 BUY 81,990 $ 6.53 August 27, 2009 BUY 100,000 $ 6.70 August 28, 2009 BUY 73,200 $ 6.90 August 31, 2009 BUY 77,100 $ 6.73 September 1, 2009 BUY 119,500 $ 6.70 September 2, 2009 BUY 95,139 $ 6.70 September 3, 2009 BUY 83,300 $ 6.88 September 4, 2009 BUY 100,000 $ 6.98 September 8, 2009 BUY 100,000 $ 7.21 September 9, 2009 BUY 100,000 $ 7.27

Last but not least (at least for today). Seaspan sucessfully took delivery of their fortieth charter ship on Aug 31. Press release below: Gone now for a nice labour day long weekend, <IV _______________________________ Seaspan Takes Delivery of Fortieth Containership 2009-09-04 17:51 ET - News Release HONG KONG, CHINA -- (MARKET WIRE) -- 09/04/09 Seaspan Corporation (NYSE: SSW) announced today that it accepted delivery of the MOL Eminence from Hyundai Heavy Industries Co., Ltd. on August 31, 2009. The 5100 TEU containership is Seaspan's fifth newbuilding in 2009 and expands the Company's fleet to 40 vessels. The MOL Eminence is chartered to Mitsui O.S.K. Lines, Ltd. under a twelve-year, fixed-rate time charter that requires MOL to pay all fuel, cargo-operating and related costs. Gerry Wang, Chief Executive Officer of Seaspan, said, "The MOL Eminence represents the fifth vessel we have taken delivery of in 2009 and fortieth overall. We continue to execute our business model and have further expanded our sizeable contracted revenue stream derived from major liner companies primarily based in Asia. Upon delivery of our full fleet of 68 vessels, Seaspan's contracted revenue stream is expected to grow by about 218% to approximately $7 billion and its annual revenue is anticipated to rise about 145% to approximately $700 million."

Gaf63, I think you have got it correct. Here is the link to the 6-k: http://www.sec.gov/Archives/edgar/data/1332639/000119312509016540/d6k.htm Excerpt: In general, the holders of the Preferred Shares will be entitled to vote together with the holders of the Common Shares on an as-converted basis on any matter submitted for a vote of Common Shares. In addition, the holders of the Preferred Shares, voting as a separate class, will have the right to approve any future issuance of senior or parity stock (except that the Company may freely issue additional Preferred Shares up to an aggregate amount of $115 million), any redemption of the Company’s capital stock, any amendment of the Company’s articles of incorporation, bylaws or the Statement of Designation or any share exchange, reclassification, merger, consolidation, liquidation, dissolution, asset sale or other disposition of all or substantially all of the assets of the Company. In addition, subject to certain exceptions, the holders of the Preferred Shares have preemptive rights to prevent dilution and the right to elect up to two members of the Company’s board of directors. A copy of the Statement of Designation is filed as Exhibit 3.1 to this report. On an "as converted basis" a $160M would represent about 10.67M shares. Together with common shares recently purchased I believe Dennis has just exceeded the 20% threshold so it now makes sense that the 13D was filed. Thanks for helping think that through. My mind got stuck. <IV

That could be? I'm really not sure what the rules are here with 13G's and 13D's. I'll keep digging as I'm interested in learning. I can't recall if the preferred's have voting rights or not? I'll check. If they do, then you may have it correct. If they aren't voting then I would question this more as I would think only voting shares over 20% would matter. If anyone happens to be a corporate lawyer and can help pls do. <IV

I was doing some investigation tonight into the recent filings by Dennis Washington. I found it interesting that Dennis was filing a 13D form instead of 13G forms (which I'm more accustomed to seeing) when reporting his holdings. (from investopedia): To be able to file a 13G instead of a 13D, the party must own between 5% and 20% in the company. It must also be clearly understood that the party acquiring the stake in the company is only a passive investor, and does not intend to exert control. If these criteria are not met, and if the size in the stake exceeds 20%, a 13D must be filed. I wonder if Dennis is looking to take this private? <IV

Yet more buying through the end of August by Dennis. He is now at 11.8% ownership. http://www.sec.gov/Archives/edgar/data/1206860/000119312509184752/dsc13da.htm Schedule A Purchase Transactions of Common Shares By Deep Water Holdings, LLC during the last 60 days Date Transaction Number of Shares Approximate Price per Share August 11, 2009 BUY 25,406 $ 6.31 August 12, 2009 BUY 43,053 $ 6.36 August 13, 2009 BUY 41,500 $ 6.40 August 14, 2009 BUY 63,100 $ 6.37 August 17, 2009 BUY 46,000 $ 6.20 August 18, 2009 BUY 64,100 $ 6.29 August 19, 2009 BUY 100,000 $ 6.29 August 20, 2009 BUY 78,600 $ 6.33 August 20, 2009 Acquisition under dividend reinvestment plan 110,071 $ 6.33 August 21, 2009 BUY 111,000 $ 6.45 August 24, 2009 BUY 125,000 $ 6.45 August 25, 2009 BUY 128,518 $ 6.53 August 26, 2009 BUY 81,990 $ 6.53 August 27, 2009 BUY 100,000 $ 6.70 August 28, 2009 BUY 73,200 $ 6.90

This link should help. http://brk.visualhash.com/search/index.cgi?query_type=sender&query_string=lessthanIV

Hi Gary, Yes, the 220k that I was referring to were the August purchases only. The total shares bought since Dec/08 is roughly 3.5M. I was delighted to see conviction in the form of open market transactions from the Washington's who are also involved in the recent $200M financing. <IV

Dennis Washington continues his insider buying at Seaspan through DeepWater Holdings: http://www.sec.gov/Archives/edgar/data/1206860/000119312509178760/dsc13da.htm Roughly another 220,000 shares around the $6.30/share mark. He now owns about 10.4% of the shares which is up from his 5.2% ownership in Dec/2008. He has roughly doubled down to date. Disclosure: Long SSW <IV

http://www.deepcapture.com/introducing-john-hempton-the-plunderer-from-down-under/ <iv

Bill Gregson is taking over as CEO (President + COO of Forzani). Paul Rivett gets a board seat. Brick Group names Gregson CEO, Rivett trustee 2009-07-10 14:48 ET - News Release Mr. Ron Barbaro reports THE BRICK GROUP INCOME FUND APPOINTS NEW CHIEF EXECUTIVE OFFICER AND TRUSTEE Brick Group Income Fund has named Bill Gregson president and chief executive officer of Brick, effective immediately. Mr. Gregson, a chartered accountant by training, has a long and distinguished record of over 25 years in retail operations. Most recently he consulted for Reebok United States. Prior to that, Mr. Gregson was the president and chief operating officer of the Forzani Group, where he worked for over 10 years. He joined Forzani at a time when it was losing money and he helped lead a successful turnaround of the company into a highly profitable and substantially larger and dominant retailer. "Mr. Gregson is a seasoned executive with extensive operational experience in the retail industry. He has an outstanding track record of both protecting and creating value and the board of trustees unanimously determined that he is the ideal person to address the challenges and opportunities Brick faces in the current environment. The board and management are looking forward to working with Bill to continue to improve our existing liquidity, take us through the current difficult retail environment, and ultimately build an even stronger and more successful company," said Ron D. Barbaro, chairman of the board. "On behalf of the board of trustees, I would like to thank Kim Yost for his leadership and important contributions in a variety of roles over his many years with Brick, particularly since our initial public offering. Kim is a superb retailer and dedicated friend of Brick and we wish him all the best as he pursues his next challenge," said Mr. Barbaro. Brick also announces that Paul Rivett, chief operating officer of Hamblin Watsa Investment Counsel, and vice-president and chief legal officer of Fairfax Financial Holdings, a major unitholder of Brick, has joined Brick's board of trustees. We seek Safe Harbor.

Looks like Dennis Washington has taken advantage of the slide in SSW's stocks due to the recent dividend cut. http://www.sec.gov/Archives/edgar/data/1206860/000119312509113195/dsc13da.htm <IV

"Jumping the Shark"

The trading volume yesterday was 11M shares. Roughly 27X the normal volume of the last month. In the past, Seaspan has preached to shareholders about their internal desire to provide value through consistent, ever-increasing dividends. Yesterday, the direction of the company changed and I think the shareholder base (who were happy collecting income) was caught off guard. I suspect that much of the selling volume yesterday and today is associated with these types of investors beit retail or institutional. The business of SSW just improved. Retaining more of the distributable income makes the company stronger not weaker and it reduces the amount of dilution to the shareholder base in the future. I was on the buy again today. This can certainly trade cheaper ... who knows... but the margin of safety at $7 is adequate for me. Also, a good article was published on Lloyd's List discussing the situtation with CSAV. As mentioned in the article, CSAV only accounts for 3% of Seaspans forward charter revenue. So, some of the recent press surrounding CSAV is likely overblown. http://lloydslist.com/ll/news/seaspan-confident-csav-will-meet-charter-commitments/20017644457.htm;jsessionid=250BBEEFDD8A21D1F70202FF4137D8BF

I spent the day on the buy button. This situation is very similar to the H&R Reit situation. The company, through the dividend cut, has effectively reduce and deferred the potential dilution until late 2010. And, the dilution will now be much less. I think the income oriented investor sold off heavily today, but for the long term minded shareholder willing to invest for capital appreciation, I believe the payoff will be handsome. <IV

Yesterday, the catalyst I mentioned earlier on H&R was finalized. They have secured the financing of "The Bow" project. The market has recieved the news favorably taking the stock to a $9.85 high today. I still believe the intrinsic value is much higher. Current NAV by my math is around $18/share. The market is sitting around a 35% discount to NAV at the moment so I feel the stock could continue to around the $11-$12/share mark. Happy Friday for me!

Surprise, Surprise! Fairfax is looking brilliant again! Good news for H&R REIT and hence FFH. They have announced the completion of their financing for The Bow project. H&R will forego building the South Tower (Nice job by Neil Downey - RBC Analyst who picked up on this some time ago). They are also actively looking to sell 50% to a joint venture partner with the goal of using that capital to payoff the project debt. http://www.google.com/hostednews/canadianpress/article/ALeqM5jVs9RoXaCpFzL69_f4WC6No8axGw H&R REIT obtains $425 million financing for Calgary "Bow" highrise project 8 hours ago TORONTO — H&R Real Estate Investment Trust (TSX:HR.UN) said late Wednesday that it had obtained $425 million worth of financing for a massive skyscraper project that is to serve as headquarters for one of the country's energy giants. H&R is building the 58-storey Bow, a $1.5-billion downtown office tower that will be EnCana Corp.'s (TSX:ECA) new headquarters. In documents filed with securities regulators earlier this week, the trust said it was deferring construction on the southern part of the complex and expressed concerns about obtaining future financing. H&R released details of the new funding in a statement released late Wednesday, adding financing was being provided through a syndicate of Canadian financial institutions led by RBC Capital Markets and TD Securities. "We are very pleased to have reached this important milestone in the development of what will be the largest office tower in Canada west of Toronto, and a magnificent addition to H&R's North American portfolio," trust chief executive Tom Hofstedter said in the statement. "This major financing is a testament to the confidence that Canadian financial institutions have in H&R's ability to build a landmark office tower successfully." H&R did not offer any details on whether the construction on the south tower would still be delayed. To date, the trust says it has spent about $402 million on the Bow and expects to incur another $375 million over the next year. The north block development and 1,361 parking spaces underneath the north and south towers are pre-leased to EnCana for a period of approximately 25 years. Construction on the north block development started in the spring of 2007 and is expected to be delivered in stages, with the first phases scheduled for completion in the second half of 2011. The rest of the office space is expected to be finished in 2012. H&R units closed down 10 cents at $7.60 on the Toronto Stock Exchange on Wednesday. Late last year, Fairfax Financial (TSX:FFH) agreed to buy $200 million worth of debentures issued by the REIT in a move to help fund the construction. Fairfax agreed to subscribe to the offering, but with certain conditions attached. Chief among those is a cut in the REIT's monthly distribution to six cents from 12 cents as well as the securing of construction financing commitments of at least $400 million for development of the Bow. The Toronto-based investment firm will also be granted warrants to buy 28.6 million stapled units at $7 each for a total $200 million, exercisable for five years. Copyright © 2009 The Canadian Press. All rights reserved.

Eric, Bob Drummond wrote a fantastic article sometime ago for bloomberg called "Corporate Voting Charade". Read it. http://www.rgm.com/articles/FalseProxies.pdf <IV

653211, I starting picking up H&R below $5 in the November carnage. I have bought right up to the current $7 feeling value is closer to $15 -$18 long term. Also has a catalyst on April 9th that may give the stock price a quick push. (In what direction depends on the nature of the news, but I am betting that it's good news.) I like the sector long term. Leverage tied to longer term maturities at current rates + tangible assets like property should do well in an inflationary enviorment. Good tennants/ long term leases/ long term fixed rate debt/ 99% occupancy/< 5X Forward AFFO/ 65% discount to NAV ... its appears to be a very solid collection of properties and tennants ... and ... I think the funding of The Bow project is as good as done now. As I mentioned above - Apr 9th is the due date for firm committments on the remaining syndicated debt. <IV

Granitepost, Thanks for highlighting this article. I would love to read Mr. Downey’s full comments given his employment at RBC Capital Markets which is also a co-lead in the financing. I am wondering how he arrived at a NAV of $12/units, in particular. That seems to imply a very high cap rate which in turn leads me to believe that Downey feels we could be entering an early 90’s scenario? However, I tend to disagree with this. I don’t think this environment has the same characteristics as the early 90’s at all. In the late 80’s and early 90’s excessive development led to an oversupply situation where national office vacancies exceeded 17%. According to CB Richard Ellis, at the end of Q4/08 we are sitting around 7%. H&R on the other hand has a 99% occupancy rate. In fact when you analyze the main markets where H&R owns property (in Canada) and compare today’s vacancy rates to the 90’s here is what I find: Town: 1990 Now Calgary 17.7% 6.2% Ottawa 9.6% 5.1% Edmonton 13.9% 5.1% Vancouver 9.5% 6.1% Certainly, I would agree that vacancies could still rise further. However, I don’t see us getting to levels felt in the early 1990’s. In the early 90’s the inventory supply growth was about 6.6%. The current office supply pipeline growth is projected to be around 3.6% through 2011. As many analysts have pointed out, the debt financing situation is also much different. In the early 90’s cap rates were 7% vs. debt financings which were averaging 11% creating a negative leverage spread. In the tail end of the 90’s the cap rates rose to 8%-9%. This is in contrast to recent years where low debt financings have allowed for a positive spread. Also, Canadian chartered banks have very low exposure to commercial mortgages. A recent stat I read suggested a sum of $25B or roughly 2% of their total loan book. In fact, since the freezing of the commercial mortgage backed securities market in 2007, roughly $4.5B of new commercial loans has been absorbed by the Canadian chartered banks. With very minimal loan book exposure, they have the ability to grow their commercial loans much further. This is a very different situation than the U.S. I am getting a NAV that is closer to $17-$18/unit. Not $12. The larger cap Canadian REIT sector is trading around 8X-10X adjusted funds from operations, which in most cases suggests a 35% discount to NAV using a 7% cap rate assumption. Assuming H&R can produce $1.25 in AFFO (which if very realistic) a relative valuation would suggest a trading range of $10/unit - $12.50/unit. But, in better times the value tends to move towards NAV which I believe (using a 7% cap rate assumption) is closer to $18/unit. Right now the market is implying a cap rate of 11% which in my mind unjustly values their superior portfolio of properties, security of the long term tenants, and strong financial position. IE: Debt/Gross Book Value = 59%. They can go as high as 65%. Weighted average term to maturity on their debt is over 9 years with a weighted average interest rate of less than 6.5%. They have minimal mortgage maturities coming up; 5% in 2009, 4% in 2010, 6% in 2011. As far as their U.S properties go – they have no material maturities coming up until 2012. It’s my opinion that the current stock price reflects the markets perception of the risks involved in financing The Bow. The risks are real. But I think this deal get done with a fairly high degree of certainty (say 80%). If you analyze the LVR that H&R is giving to the banks its less than 30%! From the banks perspective, they will get; high fees (assumption given credit market conditions); a very low loan to value ratio (LVR); and, the security of knowing the building is pre-leased to EnCana for 25 years. In addition, the bank facility will likely be one of the last funding sources put into the project. The 2009-2010 financings needs amount to $700M-$800M. H&R can accommodate this as follows: $200M from Fairfax Deb, $200M from lower distributions, $200M asset dispositions, $150M from cash and current operating facilities. Therefore, the value proposition being presented to the banks is attractive: High fees, low LVR, and last facility drawn. I believe this is what FFH sees. By giving H&R a $200M unsecured debenture, they have allowed H&R to offer the banks a great deal. For their troubles, they 11.5% on that money but I suspect the real dollars will be made through the warrants. If exercised (which I think they will be) it will add an additional $200M in cash to H&R further protecting their investment positions. When this is all said and done, the distribution cut, necessary to self finance, will be reinstated and the dividend will increase materially. I understand that April 9th is the day when firm commitment letters are due for the syndicated debt. I believe this will be a catalyst to remove the black financing cloud currently overhead. With the financings worries put to bed, I am hopefully that H&R will close the gap between the current market quotation and the real business value. Disclosure: Very long H&R. ;D <IV

90% of the way to completion of "The Bow". I think the units remain cheap. Fairfax is sitting pretty with their 11.5% debentures and their 5yr/ $7 warrants. ____________________ H & R REIT earns $77.61-million in 2008 2009-03-03 19:17 EST - News Release Mr. Larry Froom reports H&R INCREASED DISTRIBUTABLE CASH 7% IN 2008; PROVIDES UPDATE ON THE BOW CONSTRUCTION FINANCING H & R Real Estate Investment Trust and H&R Finance Trust's combined distributable cash increased by 3 per cent in the three months ended Dec. 31, 2008, and by 7 per cent for the year as a whole, compared with the same periods in the previous year. As previously announced on Oct. 1, 2008, and reported in Stockwatch, H & R Real Estate Investment Trust completed an internal reorganization which resulted in, among other things, each issued and outstanding H & R Real Estate Investment Trust unit trading together with a unit of H&R Finance Trust as a stapled unit on the Toronto Stock Exchange. Accordingly, H & R Real Estate Investment Trust and H&R Finance Trust are providing their financial summary presented herein on a combined basis as in management's view, the value of H & R Real Estate Investment Trust and H&R Finance Trust unitholders' investment is based on the combined financial performance of H & R Real Estate Investment Trust and H&R Finance Trust, and the combined financial information would therefore be the most useful information to unitholders. Financial results H & R Real Estate Investment Trust and H&R Finance Trust management considers H & R Real Estate Investment Trust and H&R Finance Trust's distributable cash to be an indicative measure in evaluating H & R Real Estate Investment Trust and H&R Finance Trust's performance. The following table includes non-generally accepted accounting principle information that should not be construed as an alternative to net earnings or cash flows from operations and may not be comparable with similar measures presented by other issuers as there is no standardized meaning of distributable cash under generally accepted accounting principle. Financial information for the periods ending after Oct. 1, 2008, is presented herein on a combined and/or stapled basis. Financial information for the periods ended prior to Oct. 1, 2008, is presented for H & R Real Estate Investment Trust. Three months 12 months ended Dec. 31, ended Dec. 31, 2008 2007 2008 2007 Combined distributable cash (millions)(*) $ 55.8 $ 54.1 $221.7 $206.2 Combined distributable cash per stapled unit (basic) $ 0.38 $ 0.40 $ 1.57 $ 1.57 Combined cash distributions (millions) $ 52.7 $ 46.3 $204.1 $180.0 Combined cash distributions per stapled unit $ 0.36 $ 0.34 $ 1.44 $ 1.37 (*) Reconciliations of combined distributable cash to combined net earnings and to combined cash provided by operations are included in H & R Real Estate Investment Trust and H&R Finance Trust's combined management's discussion and analysis. Combined distributable cash per stapled unit (basic) decreased 5 per cent in the fourth quarter 2008 (unchanged for the year) due to dilution resulting from the securities offering completed in June, 2008, and to costs associated with H & R Real Estate Investment Trust and H&R Finance Trust's internal reorganization. Combined cash distributions increased 14 per cent in the fourth quarter, and rose 13 per cent (5 per cent per stapled unit) for the 2008 year. RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP Three months 12 months ended Dec. 31, ended Dec. 31, 2008 2007 2008 2007 Rentals from income properties (millions) $156.9 $149.7 $608.7 $580.7 Combined net earnings (millions)(loss)(*) $ 46.0 $ 48.7 $ 98.5 ($2.2) Combined net earnings per stapled unit (loss)(basic) $ 0.32 $ 0.38 $ 0.71 ($0.02) Combined cash provided by operations (millions)(*) $ 73.8 $ 63.4 $235.1 $196.6 (*) Reconciliations of combined distributable cash to combined net earnings and to combined cash provided by operations are included in H & R Real Estate Investment Trust and H&R Finance Trust's combined management's discussion and analysis. H & R Real Estate Investment Trust and H&R Finance Trust reported a 5-per-cent increase in rental income in both the fourth quarter and full year 2008, due primarily to property acquisitions. Combined net earnings decreased 6 per cent (down 13 per cent per stapled unit) in the fourth quarter and increased to $98.5-million in 2008 from a loss of $2.2-million in 2007. Combined cash provided by operations rose 16 per cent in the fourth quarter and 20 per cent for the year. As at year end 2008, H & R Real Estate Investment Trust and H&R Finance Trust reported financial ratios of 54.7 per cent for debt to gross book value (calculated in accordance with H & R Real Estate Investment Trust's declaration of trust) versus 58.8 per cent as at Dec. 31, 2007, and 51.4 per cent for non-recourse debt to total debt (49.5 per cent at year end 2007). H & R Real Estate Investment Trust and H&R Finance Trust's audited combined financial statements and the notes thereto, and management's discussion and analysis relating thereto for the year ended Dec. 31, 2008, are available on H & R Real Estate Investment Trust's website and have been concurrently filed on SEDAR, as well as H & R Real Estate Investment Trust's audited consolidated financial statements and the notes thereto, and H & R Real Estate Investment Trust and H&R Finance Trust Finance Trust's audited financial statements and the notes thereto (each for the fiscal period ended Dec. 31, 2008) and management's discussion and analysis relating thereto. The Bow construction financing H & R Real Estate Investment Trust is pleased to announce that it has signed an engagement letter with RBC Capital Markets and TD Securities, which will collectively act as co-lead arrangers and co-bookrunners for a $425-million construction facility for H & R Real Estate Investment Trust's development project "The Bow" in Calgary on a reasonable best-efforts basis. RBC and TD have received all necessary internal approvals to commit up to $250-million of the financing contingent upon securing commitments for the remainder of the financing and certain other conditions. The marketing process for receiving commitments for the remainder of the financing is currently under way. If H & R Real Estate Investment Trust is successful in signing definitive agreements for the financing, it will have satisfied all of the conditions of the private placement with Fairfax Financial Holdings Ltd., pursuant to which Fairfax has agreed to purchase, at par, $200-million of debentures. In combination with the moneys arising from reduced distributions and the Fairfax debentures, and on the assumption that the other strategic initiatives which have been undertaken by H & R Real Estate Investment Trust will be successful, H & R Real Estate Investment Trust believes that the financing (if completed) will allow it to successfully complete construction of The Bow. H & R Real Estate Investment Trust is currently building a two-million-square-foot office building in Calgary's downtown financial district. The real estate investment trust spent $49-million on the $1.5-billion project during the fourth quarter 2008, bringing H & R Real Estate Investment Trust's total investment to $402-million by year end. H & R Real Estate Investment Trust expects to spend approximately $375-million on the trophy project over the next 12 months. Further information regarding the budgeted costs to complete The Bow and actual costs incurred as at Dec. 31, 2008, as well as the estimated moneys required and projected sources of moneys for the 2009 to 2011 period, is available in H & R Real Estate Investment Trust and H&R Finance Trust's combined management's discussion and analysis, and H & R Real Estate Investment Trust's management's discussion and analysis. Monthly distribution declared H & R Real Estate Investment Trust and H&R Finance Trust also announced a combined monthly cash distribution of six cents per stapled unit (representing 72 cents on an annualized basis). Record date Distribution date March, 2009 March 17 March 31 April, 2009 April 16 April 30 May, 2009 May 14 May 29 We seek Safe Harbor.