Equity Real Estate Investment Through the Public Markets

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All Information Included in this Presentation is Based on Publicly-Traded Securities Only

• • •

• REITs are publicly traded companies that own and manage investment-grade commercial real estate

• Like Verizon in the telecommunications business or Merck in the pharmaceutical business, REITs are companies in the real estate business

• REITs are not mutual funds, closed-end funds or partnerships

• REITs provide a simple and inexpensive way to invest in commercial real estate without buying property directly

What is a REIT?

• Company must be in the real estate business – At least 75 percent of assets must be real property – At least 75 percent of revenue must come from real

estate • Stock must be widely held • At least 90 percent of taxable income must be distributed

annually to shareholders • Company receives a dividends paid deduction • Taxes are paid at the shareholder level

Requirements of the REIT Election

• Full-time professional management teams • Business plans designed to maximize shareholder value • SEC financial reporting and transparency • Stock values backed by real assets • Tax transparency • Traditional corporate governance and accountability

• Reminder – These comments pertain to publicly listed and

traded companies and not the public NON TRADED REITs.

What is a REIT?

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Pacific26%

Mountain6%

N.E. Central

12%

N.W. Central

3%

Southwest8%

Southeast14%

Northeast18%

Mideast13%

Diversification of REITs

Industry sector

Geographic region

Source: EII Realty Securities Portfolio 12/31/00 Source: FTSE NAREIT All REITs Index as of 10/31/12

Industry Trends

0

50

100

150

200

250

050000

100000150000200000250000300000350000400000450000

1971 1976 1981 1986 1991 1996 2001 2006 2011

Chart Title

Equity Mortgage Hybrid # Reits

As of October 2012; Total Market Cap: $584 Billion Back to Peak Current Number of REITs: Equity – 171 Mortgage – 33 Eliminated Hybrid REITs in 2010

• Data provided by Institutional Shareholder Services (ISS) show that real estate had one of the best average corporate governance rankings of any U.S. Industry as of April 1, 2009, as measured by ISS’ Corporate Governance Quotient (CGQ) database

Industry Group Average Index CGQ Utilities 69.9

Pharmaceuticals & Biotechnology 56.2 Semiconductors & Semiconductor 55.4 Real Estate 54.5 Automobiles & Components 52.4 Average 57.7

Transparency The U.S. REIT Industry in 2010

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Global RE Securities

Quick Note

Americas 138 Companies

$309 Billion (45%)

Asia Pacific 122 Companies

$270 Billion (40%)

EMEA 94 Companies $102 Billion

(15%)

FTSE EPRA/NAREIT Global Index 354 Companies

$681 Billion

Data as of May 31, 2010. Source: NAREIT®, FTSE®.

The FTSE EPRA/NAREIT Global Real Estate Index Series

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Macroeconomic and Commercial

Real Estate Fundamentals

Fundamentals still support the commercial real estate recovery, despite the weak macro news

• Economic growth is disappointing—extremely—but weakness is cyclical, not structural;

• Drags on GDP growth are set to fade, while sources of strength build;

• Momentum to pick up slowly through 2013, 2014;

• Commercial real estate markets are facing low new supply, considerable pent-up demand.

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0

100

200

300

400

6

7

8

9

10

11

2010 2011 2012

Unemployment Rate (left scale, percent)

Change in private payrolls(right scale, thousands)

Payroll growth continues to disappoint

Source: Bureau of Labor Statistics, Haver Analytics

Near-term Outlook

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7

8

9

10

11

2010 2011 2012

Unemployment Rate, 25-34 year olds (left scale, percent)

Unemployment of young adults has moved up

Source: Bureau of Labor Statistics, Haver Analytics

Near-term Outlook

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-20

0

20

40

60

80

100

120

2010 2011 2012

Change in office employment(left scale, thousands)

Office employment has slowed as well

Source: Bureau of Labor Statistics, Haver Analytics

Near-term Outlook

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-15

-10

-5

0

5

10

15

2009 2010 2011 2012

Growth of wages and salaries (3mo/3mo SAAR, percent, left scale)

August estimate based on labor market proxy

(Average Hourly Earnings x Index of Hours Worked)

Weak earnings and hours will hurt incomes

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Haver Analytics

Near-term Outlook

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When did the “New Normal” begin?

16 Source: Bureau of Labor Statistics, Haver Analytics.

Months since trough

Longer-term Outlook

The “Tug of War” on economic growth:

Drags

• Housing crisis/ mortgage mess/ deleveraging

• Fiscal drag, incl. state & local

• Uncertainty, lack of confidence… and Europe, US fiscal cliff

Sources of strength

• Productivity growth

• Monetary policy

• Growing pent-up demand

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• Wealth effect

Longer-term Outlook

Housing markets are starting to recover

18 Source: S&P/Case-Shiller, U.S. Census Bureau, Haver Analytics.

Longer-term Outlook

Productivity growth hasn’t flagged

19 Source: U.S. Census Bureau, Haver Analytics.

“Stagflation” was the original “New Normal”

Longer-term Outlook

Wealth effects: shifting from negative to positive

20 Source: Federal Reserve Board Flow of Funds Accounts, Bureau of Economic Analysis.

Longer-term Outlook

Monetary policy is supportive

21 Source: Federal Reserve Board.

Longer-term Outlook

Pent-up demand in housing starts and auto sales

22 Source: U.S. Census Bureau, Haver Analytics.

Longer-term Outlook

Construction at decades-low levels generates more pent-up demand

23 Source: U.S. Census Bureau, Haver Analytics.

Longer-term Outlook

Pent-up demand continues to drive multifamily sector, while new supply still falls short

• Market conditions in multifamily rental housing have tightened since the housing crisis began;

• Sustained low household formation has caused unprecedented pent-up demand;

• New supply falls far short of potential demand;

• Key factor limiting rent growth: wages.

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Focus on Multifamily

0

1

2

3

1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

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Household formation plunged during the Great Recession, remains less than half its trend pace

Percent change over year ago

Fitted Trend

Source: U.S. Census Bureau, Haver Analytics.

Focus on Multifamily

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21

22

23

24

25

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

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Millions have moved in with parents, other family, or nonfamily housemates

Shared households, percent of total

The number of shared households, defined as those with an extra adult, rose 2.9

million in 2008-2010.

Source: U.S. Census Bureau, Haver Analytics.

Focus on Multifamily

0

100

200

300

400

500

600

2000 2002 2004 2006 2008 2010 2012

Average, 2000-2007

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Multifamily housing construction since 2008 has totaled 700,000 below the prior trend pace

Thousands of units, seasonally-adjusted annual rate

Source: U.S. Census Bureau, Haver Analytics.

Focus on Multifamily

REIT acquisitions benefit from access to capital, market discipline

• The REIT business model influences property acquisitions in two ways: – Access to capital allows REITs to buy properties when they

are available at attractive prices—rather than being rationed by credit standards or driven by investment fund flows;

– Market discipline discourages REITs from over-paying at the market peak—in fact, REITs sold at the top of the 2000s boom.

• REIT acquisitions early in a price cycle add value

over the long haul… and REITs are the main buyers today.

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Focus on Acquisitions

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Commercial Property Prices

Source: Moody’s / RCA

Percent change over year ago

Focus on Acquisitions

Gross Acquisitions and Dispositions

30 Source: RCA

Focus on Acquisitions

Net Acquisitions Adjusted*

31 Source: RCA

* Adjusted to remove the Equity Office and Archstone transactions

Focus on Acquisitions

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011 2012*

Debt

Preferred shares

IPO

Secondary equity offerings

Billions of dollars

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REITs are raising record amounts of capital

*2012 offerings through July. Source: SNL Financial, NAREIT.

Focus on Acquisitions

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Pre-boom

2001-2003 $ Millions

Boom and market peak 2004-2007

$ Millions

Bust

2008-2009 $ Millions

Recovery

2010-Current $ Millions

Total $ Millions

REITs

15,400

(20,898)

(7,425)

27,313

14,390

Private

11,760 (81,483)

9,120

(22,957)

(22,360)

Inst'l/Eq

(13,101)

141,731

5,579

(2,439)

131,771

Cross-Border

736

38,140

2,533

1,054

42,464

Other

(14,795)

(77,490)

(9,808)

(2,971)

(166,264)

Net Acquisitions… buy low, sell high

Source: RCA

Focus on Acquisitions

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Investment Attributes of Listed REITs

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• REITs are liquid investments that allow retail and institutional investors to gain exposures to commercial real estate;

• REITs are professionally managed businesses with investments that are diversified both geographically and across commercial property types;

• REITs add value to a portfolio through:

− Performance. REITs have outperformed most other asset classes over both short and long investment horizons;

− Income. REITs pay high dividends with a possibility of capital gains; − Diversification. Commercial real estate has different economic drivers

than corporate equities or bonds, so REITs have low correlation with other asset classes.

• REITs are a low-cost, liquid investment that can improve performance of

small and large portfolios alike.

There are many benefits to investing in commercial real estate through REITs:

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“Fundamental Asset Classes Box”

• “Real estate is not an alternative to stocks and bonds—it is a fundamental asset class that should be included within every diversified portfolio. Equity, fixed income, cash, and real estate…are the basic asset classes that must be held within a diversified portfolio.”

– Mark J.P. Anson, Handbook of Alternative Assets

• “Basically, there are only four types of investment categories that you need to consider: Cash, Bonds, Common Stocks and Real Estate.” – Burton G. Malkiel (Princeton), The Random Walk Guide to Investing

• David Swensen, Yale University’s Chief Investment Officer (Unconventional Success, 2005) recommends a “basic formula” for individual investors with 20 percent invested specifically in REITs and the rest in equities, bonds and cash (TIPS).

Value Blend Growth Large ✓✓ ✓✓ ✓✓

Medium ✓✓ ✓✓ ✓✓ Small ✓✓ ✓✓ ✓✓

“Style Box”

Stocks ✓

Bonds ✓

Real Estate ✓

Cash ✓

Real Estate is a Fundamental Asset Class

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REITs in Retirement Portfolios

• Commercial real estate has been embraced as a core asset class by many institutional market segments – Defined benefit plans – Endowments and foundations – Defined contribution plans

• Commercial real estate can be accessed through REIT investments

• Publicly traded REITs offer a unique combination of investment attributes – Combine attributes of stock and bond returns – Provide inflation protection – Low correlation creates diversification

38 Note: Data as of September 30, 2012 1. Formerly Lehman Brothers U.S. Aggregate and Global Aggregate Bond Indexes Sources: NAREIT® analysis of data from IDC accessed through FactSet.

FTSE NAREIT U.S. Equity REITs TR

FTSE EPRA/NAREIT Developed TR

S&P 500 TR MSCI EAFE TR

Barclays Capital U.S. Aggregate

Bond1

Barclays Capital Global Aggregate

Bond1

1-Year 33.81 30.59 30.20 13.75 5.16 5.07

3-Year 20.73 12.92 13.20 2.12 6.19 5.04

5-Year 2.28 -2.20 1.05 -5.24 6.53 6.22

10-Year 11.49 11.77 8.01 8.20 5.32 6.45

15-Year 8.78 6.98 4.70 3.37 6.15 6.01

20-Year 11.20 10.11 8.50 5.54 6.34 6.24

25-Year 10.37 NA 8.61 4.39 7.47 NA

30-Year 12.37 NA 11.44 9.85 8.39 NA

35-Year 13.01 NA 11.28 9.58 8.13 NA

40-Year 11.98 NA 9.98 8.67 NA NA

Listed property companies have been the strongest performing asset for the last year, the last three years, the last decade and over the past 15, 20, 25, 30, 35 & 40 year periods

Competitive Long-term Performance Listed REITs and Property Companies

Standard & Poor’s 500 Index

FTSE NAREIT All Equity REIT Index

Price Return

Based on monthly price and total returns, January 1990 – August 2012 Sources: NAREIT® analysis of data from IDP accessed through FactSet.

Dividends Drive Investment Performance More than 60 percent of REIT total returns

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Diversification and Risk-Adjusted Performance of Domestic Equity Investments

Note: Based on monthly returns. Source: NAREIT® analysis of data from Interactive Data Pricing accessed through FactSet.

REITs Value Stocks

Growth Stocks

Broad Market Indexes

• Publicly traded commercial real estate contributes both strong risk- adjusted returns and diversification to a domestic equity portfolio

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REIT-Stock Correlations Decline as Investment Horizon Lengthens

Source: NAREIT® analysis of monthly returns data for January 1990 through September 2012 from Interactive Data accessed through FactSet.

• Declining REIT-stock correlation over increasing investment horizons indicates that asset returns increasingly differ as spillover (mispricing) effects are corrected

• Declining correlation as errors are corrected is a sign that underlying return drivers are fundamentally different—that is, REITs and non-REIT stocks represent different asset classes

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Listed Domestic Equity REIT Industry Broad Diversification by Property Type and Geography

Data as of September 30, 2012 Source: NAREIT®

Property Sector Percent

Regional Malls Residential Office Buildings Shopping Centers Diversified Industrial Facilities Free Standing (Retail) Mixed (Industrial/Office)

16 15 11 8 7 4 2 2

Core Property Types 65

Health Care Self-Storage Timber Infrastructure Lodging/Resorts

12 6 6 5 5

Total 100

66.5%70.9%

54.2%

61.6%

42.9%

74.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

FTSE NAREIT EquityREITs

S&P GSCICommodities

Ibbotson AssociatesTIPS

S&P 500 Stocks S&P GSCI Gold Blend

Listed REITs and Inflation Protection Coverage during six-month periods of high inflation

January 1978 – April 2012

Periods of relatively high inflation are defined as those during which inflation, on an annualized basis, averaged more than 3.18%, the median during the period January 1978 – April 2012. The Ibbotson Associates U.S. TIPS Total Return series is based on the Barclays Capital Real U.S. Treasury TIPS Total Return series, backfilled prior to 12/1997. S&P GSCI Gold series begins in January 1978. Source: NAREIT analysis of data from Interactive Pricing Data, accessed through FactSet.

• The bars represent the proportion of six-month periods of relatively high inflation during which the total returns of the asset equaled or exceeded the inflation rate.

• Total returns of equity REITs have provided an inflation hedge that equaled or exceeded the inflation rate in two-thirds of the periods of relatively high inflation.

• The “Blend” portfolio includes 54.7% TIPS, 21.1% commodities, 13.9% REITs, 6.8% stocks and 3.5% gold.

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• REITs add value to a portfolio through:

− Performance. REITs have outperformed most other asset classes over both short and long investment horizons;

− Income. REITs pay high dividends with a possibility of capital gains;

− Diversification. Commercial real estate has different economic drivers than corporate equities or bonds, so REITs have low correlation with other asset classes.

To recap the benefits to investing in REITs:

• Interest rates

• Home ownership

Common Questions About REIT Investing

Rising interest rates to not always result in declining REIT performance:

• Higher interest rates result from economic growth, higher inflation or both

• When economy is growing, the value of real estate will also rise

• Leases include bumps related to inflation – companies pass on costs of inflation to tenants

• Most companies carry mostly fix rate debt. REITs have taken advantage of 40-year low rates to improve their balance sheets

Interest Rates and REIT Performance

Historical data show rising rates have little or no effect on REIT prices:

• Over the past 30 years, data shows that when interest rates rose, the probability of REIT stocks rising versus falling was about 1 to 1

• REITs only slightly more sensitive to interest rates than the S&P 500

• REITs less sensitive than other financial stocks

Source: Banc of America Securities

Interest Rates and REIT Performance

• A house is a consumer good that may or may not be a good investment • A house is highly leveraged, like buying stock on margin • A house is undiversified, like owning a single stock • Current return (or dividend) is not cash, but imputed “rental value” that cannot

be reinvested and compounded • “User costs” recognize both cash and non-cash costs of homeownership

– Mortgage interest expense – Operating expenses – Depreciation and opportunity cost of homeowner’s equity – Property taxes – Mortgage insurance – Homeowners insurance

• Transactions costs are large and liquidity and pricing are uncertain

• Returns to housing are relatively uncorrelated with returns to commercial real estate

Home Ownership is No Substitute

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NAREIT is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and capital markets. Members are REITs and other businesses that own, operate and manage income-producing real estate, as well as those firms and individuals who advise, study and service those businesses. NAREIT is the exclusive registered trademark of the National Association of Real Estate Investment Trusts, Inc.®, 1875 I St., NW, Suite 600, Washington, DC 20006-5413. Follow us on REIT.com. Copyright© 2011 by the National Association of Real Estate Investment Trusts, Inc.® All rights reserved. This information is solely educational in nature and is not intended by NAREIT to serve as the primary basis for any investment decision. NAREIT is not acting as an investment adviser, investment fiduciary, broker, dealer or other market participant, and no offer or solicitation to buy or sell any security or real estate investment is being made. Investments and solicitations for investment must be made directly through an agent, employee or representative of a particular investment or fund and cannot be made through NAREIT. NAREIT does not allow any agent, employee or representative to personally solicit any investment or accept any monies to be invested in a particular security or real estate investment. All REIT data are derived from, and apply only to, publicly traded securities. While such data are believed to be reliable when prepared or provided, such data are subject to change or restatement. NAREIT does not warrant or guarantee such data for accuracy or completeness, and shall not be liable under any legal theory for such data or any errors or omissions therein. See http://reit.com/TermsofUse.aspx for important information regarding this data, the underlying assumptions and the limitations of NAREIT’s liability therefore, all of which are incorporated by reference herein. Performance results are provided only as a barometer or measure of past performance, and future values will fluctuate from those used in the underlying data. Any investment returns or performance data (past, hypothetical or otherwise) shown herein or in such data are not necessarily indicative of future returns or performance. Before an investment is made in any security, fund or investment, investors are strongly advised to request a copy of the prospectus or other disclosure or investment documentation and read it carefully. Such prospectus or other information contains important information about a security’s, fund’s or other investment’s objectives and strategies, risks and expenses. Investors should read all such information carefully before making an investment decision or investing any funds. Investors should consult with their investment fiduciary or other market professional before making any investment in any security, fund or other investment.

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