Real estate

Oxford Properties Group (Oxford) manages our real estate investments and is one of North America’s largest commercial real estate investment and real estate management firms. Oxford oversees and manages approximately $16 billion of real estate for itself and on behalf of its co-owners and investment partners. Oxford’s rate of return in each of the past three years has significantly exceeded the benchmark.

Oxford continues to build a global platform for real estate investment, providing superior risk-adjusted returns and secure, sustainable and growing cash flows for the Fund. Oxford’s strategy focuses on the ownership and active management of significant assets, diversified by property type, geographic market and risk-reward profile. Real estate investments of this nature generate reliable cash flows, facilitating our ability to meet current benefit obligations. Furthermore, actively managed real estate generally appreciates in capital value over time in step with inflation, which offsets the inflation exposure of our pension liabilities.

Real estate generated net investment income of $1,239 million; including operating income of $372 million after interest expense, a 21.9 per cent increase over 2006 net investment income of $1,016 million, which included operating income of $350 million after interest expense. The real estate portfolio is partially funded by $3,457 million in mortgages, debentures, commercial paper and other debt, which resulted in an interest expense of $157 million in 2007. Based on total investment income of $1,245 million before investment management expenses, the return for the real estate portfolio was 22.9 per cent in 2007, compared with a 2007 benchmark return of 7.8 per cent and a 26.2 per cent return in 2006. This is the third straight year of real estate returns in excess of 20 per cent and in each year returns have been well in excess of the benchmark. The increase in income over the prior year is primarily a result of strong rental income, gains on the sales of properties and favourable market value appreciation in the year. In 2007, the continued growth in the real estate market valuations again exceeded expectations.

Oxford’s total real estate assets were valued at $10,904 million at December 31, 2007, an increase of $2,363 million from 2006. Our asset mix exposure to real estate increased to 12.5 per cent at December 31, 2007 compared with 10.3 per cent in 2006 due to net acquisitions during the year and favourable market valuation increases. As a result, we have reached our long-term asset mix goal of 12.5 per cent for real estate.

Visit the Oxford Properties web site at http://www.oxfordproperties.com/