DALTON MANAGEMENT, INC

Spring 2015 Investment Update

Dalton Management, Inc.8417 SW Beaverton Hillsdale Hwy

Portland, Oregon 97225

Tel: 503.297.4665Fax: 503.297.5899

Dalton Realty510 Waverley Street

Palo Alto, California 94301

Tel: 650.321.1711Fax: 650.327.2383

www.daltonmngt.com

Investment Team:

Dale DensonPresident

denson@daltonmngt.com

Brad DensonChief Financial Officer

bdenson@daltonmngt.com

Jeffrey M. Denson Principal Broker

jeff@daltonmngt.com

Ross Crosby Broker / Investment Partner

530.672.2123

Portland State University’s Population Re-search Center said this week that the state’s population grew to 3,962,565 in 2014, a 1.1 percent increase from 2013.

The center said 74 percent of the increase is due to migration, while 26 percent is natu-ral increase—the number of births minus the number of deaths.

The numbers represent the population as of July 1 of each year.

Migration has increased as the economy im-proved, creating new employment opportu-nities in the state and leaving people in oth-er parts of the country better position to take advantage of them, said Risa Proehl, the cen-ter’s program manager.

“Even during the Great Recession, Oregon still saw net in-migration,” she said. “It’s been a trait for Oregon that as our economy improves, our net in-migration increases, so the situation isn’t new.”

More than half of the growth occurred in the Portland area, its share of the state’s overall population has remained relatively steady.

Portland itself grew by 9,390 in 2014, while the cities of Bend, Salem, Beaverton, Eu-gene and Corvallis each saw their population grow by more than 1,000.

The Population Research Center estimates are, among other things, used to determine how state revenue should be disbursed. And the population growth has many implications for the economy, including potential effects on the labor pool and the housing supply.

Migration into Oregon Increases as the Economy Improves

The Population Research Center (PRC) is an interdisciplinary public service, research, and training unit for population-related data and research for the State of Oregon. The mission of PRC is to provide population data, information, and research analysis for Oregon and its communities. Center staff engage in a variety of demographic activities, including the Oregon State Data Center, the Oregon Population Estimates Program, and a variety of commissioned population projects.

Taken from The Oregonian/Oregon Live article, “Oregon’s Population Rises as in-Migration Accelerates” by Elliot Njus, November 19, 2014.

Dalton Management

A Strong Apartment Market Taken from www.axiometrics.com February 19, 2015

Q: How long have you worked for Dalton?

A: I have worked for Dalton since June of 2006.

What is a typical workday for you?

A typical workday involves processing resident accounting, helping support our managers and staff, and making sure everyone in the office has the tools they need to get their work done efficiently.

Before working here, what was the most unusual or interesting job you’ve ever had?

My most unusual job was a part time job spraying men’s cologne in a department store. Not that it was unusual, but my background has been admin-istrative and accounting work, so it was fun and a different experience for me to work with the general public. However, my most interesting job was an Optometric Technician. It was fascinating to see

how many medical issues could be diagnosed with a comprehensive ocular screening.

What do you like to do outside of work?

Outside of work, I enjoy spending time with family and friends, and going to the coast for weekend trips.

What is one thing you couldn’t live with-out?

One thing I couldn’t live without is the love and support I get from my wonderful husband and family.

What’s your dream vacation spot?

My dream vacation would be to take a month and travel around Europe.

Employee Spotlight:Meet Heather Isaacson, Operations Manager

Heather Isaacson is the glue that holds Dalton Management together. We are very fortunate to have her leadership skills, positive attitude, and professionalism.

The national apartment market enjoyed its strongest January of the post-recession period last month, recording annual ef-fective rent growth of 4.9% and occupancy of 94.6%, according to Axiometrics apartment data. Occupancy remains steady across the board, California is still int the lead with the top four markets for annual effective rent growth. Portland, Oregon is ranked #8.

Annual Effective Rent Growth Occupancy Rate Revenue Growth

Rank MSA Jan-14 Jan-15 Jan-14 Jan-15 Jan-14 Jan-151 Oakland, CA 8.3% 14.3% 96.2% 96.6% 8.3% 14.8%2 San Francisco, CA 6.5% 12.5% 95.5% 96.3% 7.1% 13.3%3 Denver, CO 7.1% 11.7% 95.1% 95.6% 7.4% 12.3%4 San Jose, CA 8.8% 10.9% 95.9% 96.1% 8.8% 11.2%5 West Palm Beach, FL 3.8% 8.8% 95.5% 95.8% 4.8% 9.1%6 Sacramento, CA 5.0% 8.3% 95.2% 95.5% 6.6% 8.7%7 Atlanta GA 5.2% 8.0% 93.2% 93.8% 6.3% 8.7%8 Portland, OR 8.4% 7.5% 95.7% 95.9% 9.2% 7.8%9 Fort Lauderdale, FL 3.6% 7.1% 94.9% 95.4% 4.1% 7.6%10 Seattle, WA 5.8% 6.9% 95.2% 95.4% 5.8% 7.1%

National 2.9% 4.9% 94.2% 94.6% 3.0% 5.4%Rank is based on annual effective rent growth in January 2015 for Axiometrics Top 50 Markets. Axio tracks properties in more than 450 MSAs throughout the country. Source: Axiometrics, Inc.

Winter 2015 Investment Update

Dalton’s High Level of Excellence Part 2by Jeffrey M. Denson

Once the new hire paperwork is done, the first step is orientation to the property and training on Dalton’s policies and procedures as well as Yardi Voyager account-ing software. Dalton’s Training Manuals, developed by Rebecca Cook, Heather Isaacson, and Tiffa-ny Abrams, give an outline for five days of training:

• The first three days cover the primary policies and proce-dures. Since it is impossible for a person to digest 300 pages in three days, we focus on Mar-keting, Customer Service, and Tenant/Landlord Law. Typically there are only 3 new employees in a training class. This small-er class size provides a better learning environment.

• The next step is a two-day Yardi Voyager class. Since the class is most effective with live rent payments we wait until early in the month for the training. As a group, the managers enter rents together and learn this most important part of Yardi. The Yardi Training Manual is 75 pages, which is a lot, considering the material is all technical.

Property management has increas-ingly become more sophisticated. The stereotypical image of a part-time employee watching soap op-eras and being able to oversee even a small sized community in today’s environment is fantasy.

As we all know, training is nev-er complete. Our primary source of continuing education is at our monthly manager meetings. The

monthly meeting has three prima-ry functions: safety training, policy and procedure updates, and a moti-vational piece.

The safety training is organized by the safety committee who is over-seen by Rebecca Cook and Tom Hughes during the monthly com-mittee meeting. OHSA requires the regular meetings as well as the monthly training.

Though the policy and procedure topics can vary, Rebecca or a select-ed presenter covers area of focus in bookkeeping, sales, or legal updates.

To complete each meeting, the man-agers are publicly recognized for high occupancy. If an employee is 100% rented, they get a $100 Fred Meyer gift card, and if they are 95% rented they get a $50 gift card.

Besides the monthly meeting, Dal-ton managers attend regular train-ing events held by Multifamily NW:

• The Fair Housing Fair: A 3 hour training in Fair Housing.

• ACE Awards: A gala night in which Dalton employees are recognized for excellence.

• Maintenance Fair: Community managers receive training for basic maintenance.

• Spectrum: A tradeshow to meet our suppliers as well as top notch training in all areas of property management.

• As needed, we send managers to Multifamily NW classes in new tenant landlord laws, rental agreements and addendums, and leadership.

We put just as much effort into mo-tivation and recognition as we do in training and continuing education.

Each month, the community man-agers have the opportunity to achieve a significant financial bonus. The bonus is based on meeting the goals for rental income, total income (rent plus utility payments, lease break fees, pet rent), and NOI (Net Operating Income—profit before in-terest payment.) Since our invest-ments are based on meeting our cash flow goals, we want the managers to gauge their success on a monthly ba-sis. This way, the managers are aware of the expectations we have for the property and for them.

At the end of the year, Dalton has a Holiday Party. At this event, we rec-ognize those employees who have gone above and beyond during the year. For 2014 we had many winners and recognitions:

• 2014 Myrtle Willard and Arthur Dalton Professionalism Award – Tiffany Abrams, Investor Relations for the Portland Office.

• 2014 Distressed to Impress Property Award – Elizabeth Adams, community manager and BJ Turner, maintenance technician for New Heritage Apartments.

• 2014 Best NOI – JT Thompson, community manager of Pacific Apartments.

• 2014 Rookie of the Year – Elizabeth Adams, community manager of New Heritage Apartments.

• We also gave out tenure plaques for 1,3,5, and 10 years.

The community manager is the linchpin of a successful property. As was written about in our last newsletter, Dalton puts in a lot of team hours to choose and hire a new employee.

Last year, on the property management side of Dalton, we added three apart-ment complexes to our Oregon portfo-lio (100-unit New Heritage Apartments and 18-unit Fifth Ave Apartments in Albany, and 24-unit Crescent Gardens in Eugene.) In California, we added 14 new houses and duplexes to our proper-ty management portfolio.

2014 also marked the turning point for The Park at Fifth Street apartments in Corvallis, Oregon. When we bought the property at the end of 2013, we knew it needed significant work to turn it into a Dalton-worthy asset. We under-took a complete renovation of the apart-ment’s 84-unit interiors. Work includ-ed replacing lighting, plumbing, and electrical appliances, and new floor-ing. New stairs and rails were replaced on six of the eight buildings; and new roofs, siding, paint, fencing, and an overall rebranding of the property also took place. We still have a few finish-ing touches to do (mainly landscaping) and the final project of paving the park-ing lot. Aside from that, we are pleased to report that the capital improvements

are complete. The property is 100% oc-cupied and we are finally able to distrib-ute quarterly dividends to our investors.

Last year and this year, we took ad-vantage of excellent loan rates and re-financed three of our properties: Royal Oaks Apartments in January 2014, Ar-borpointe Apartments in October 2014, and Parkview Apartments last month.

2015 is already off to a busy start. We’ve added another 42-unit apartment com-plex in Salem to our Oregon property management portfolio. To assist with the extra work, we recently hired An-drea Swiski who will manage and su-pervise a small portfolio of properties in addition to training new community managers.

We are finishing up the purchase of a property in Kennewick, WA—The Vil-lage at Volland (name change underway to Sage Creek Apartments). And we have an exciting investment under con-tract—a 96-unit property in Richland, WA called the Richland Manor House. These additions will make four Dalton properties in the Tri-Cities area.

2015 also marks the 50th Anniversary of Dale Denson purchasing Dalton Re-alty from Arthur Dalton. We’ve come a long way in 50 years: with a syndication portfolio of 14 properties (1,460 units), an Oregon CTA (client owned prop-erties) portfolio of 17 properties (536 units), a California CTA portfolio of 31 properties (3 commercial, the rest small complexes and single family homes,) 157 investors, and 63 employees.

Year End Reviewby Tiffany Abrams

Last year was a busy year for Dalton Management in Portland and Dalton Realty in Palo Alto. 2015 is shaping up to be even busier.

The Park at Fifth Street (before above, after below)

Dale Denson & Arthur Dalton - circa 1967.

Above: Richland Manor House. Below: Village at Volland