Real Estate Investment Trusts Investing for Dividends and Diversification.

Real Estate Investment Trusts• • •

Investing for Dividendsand Diversification

All Information Included in this Presentation

is Based on Publicly-Traded Securities Only

• • •

National Association of

Real Estate Investment Trusts®

• What is a REIT?

• Why Invest in REITs?

• Common Questions about REIT Investing

• The Globalization of Real Estate Securities

• How to Invest in REITs

Summary

• 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

What is a REIT?

• Approximately $500 billion of commercial real estate properties owned

– 10-15 percent of investment-grade commercial real estate

– More than 29,000 properties nationwide– All major property sectors– All major geographic regions

• {$}298 billion equity market capitalization

• 142 publicly traded REITs in the FTSE NAREIT All REIT Index

• 127 companies trade on the NYSE

The REIT Industry in 2010

http://factset.com/apw/btag.html

http://factset.com/apw/etag.html#%7B234DCA57-1393-4FE7-8FBF-3514B48EC532%7D

0

100

200

300

400

500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Trend (18.5% Compound Annual Rate)

KIMCO Realty IPONovember 1991

Taubman Centers IPODecember 1992(First UpREIT)

Billions of dollars

Data as of March 31, 2010. Source: NAREIT®

Note: Equity Market Capitalization does not include operating partnership units

Equity Market Capitalization of Listed U.S. REITs

7.5% MORTGAGE REITsProvide debt capital for

housing and commercial real estate by investing in mortgages and mortgage- backed securities. Derive revenues primarily from

interest payments.

92.1% EQUITY REITsProvide equity capital for commercial real estate by owning real estate assets. Derive revenues primarily from rents.

0.4% HYBRID REITsCombine the investment

strategies of both equity and mortgage REITs


Types of REITs Today

Property Sector Percent

Residential 14

Office 13

Health Care 13

Regional Malls 12

Shopping Centers 10

Diversified 7

Self Storage 7

Lodging/Resorts 7

Specialty 7

Industrial 5

Mixed 3

Free Standing 2

Total 100


U.S. REITs Invest in All Property Types

• 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

TransparencyThe REIT Industry in 2010

• What is a REIT?





Summary

1. Long-term performance

2. Reliable and significant current income which grows over time

3. Capital preservation and protection from inflation

4. Diversification

Why Invest in REITs?

PerformanceREITs Outperform Leading U.S. BenchmarksCompound annual total returns in percent: March 1980 – March 2010

12.29

11.59

10.18

9.15

0 2 4 6 8 10 12 14

Dow Jones Industrials1

NASDAQ Composite1

S&P 500

1Price only returns

FTSE NAREIT Equity REITs

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Proposed Acquisition of Equity Office Properties

Trust, 11/20/06

Acquisition of Equity Office Properties Trust

Completed, 2/9/07

Millions of Dollars


LiquidityAverage Daily Trading Volume of Listed U.S. REITs

-50

-40

-30

-20

-10

0

10

20

30

40

50

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Income Price Average annual income return

7.3

Percent

Average annual total return: 12.1 percent Average annual income return: 7.3 percentage points or 60 percent of total return

DividendsU.S. REITs Deliver Reliable Current Income

Data for 20-year period ranging 1990-2009. Source: NAREIT®

0

100

200

300

400

500

600

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Indexed at December 1980 = 100

Consumer Price Index

NAREIT Equity Price Index

Data as of February 28, 2010. Source: NAREIT®, Bureau of Labor Statistics.

Capital PreservationREITs Provide Inflation Protection

1. Rates of return

2. Volatility of returns

3. Correlation of returns

When the return to an investment is high enough, the volatility is low enough and/or the returns are sufficiently uncorrelated, the investment earns a place in the portfolio.

DiversificationThree Factors Determine Portfolio Allocations

Source: Small Stocks—represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Government Bonds—20-year U.S. Government Bond; REITs—National Association of Real Estate Investment Trusts® (NAREIT) Equity REIT Index.

REITs Large Stocks Small Stocks Bonds

1972–2007 13.0 11.2 14.3 8.7

1988–2007 12.3 11.8 13.5 9.3

1998–2007 10.5 5.9 10.6 7.3

2003–2007 18.2 12.8 17.2 5.7

Compound annual rate in percent

DiversificationRates of Return

Source: REITs—NAREIT Equity Index; Large Stocks—Standard & Poor’s 500®;Small Stocks—Ibbotson U.S. Small Stock Series; Bonds—20-year U.S. Government Bond.

1972–2007 17.4 17.0 22.5 11.5

1988–2007 17.4 16.6 19.9 10.1

1998–2007 20.4 17.3 22.2 8.8

2003–2007 22.3 9.8 25.1 4.1

REITs Large Stocks Small Stocks Bonds

Annualized standard deviation of quarterly returns in percent

DiversificationVolatility of Returns

Source: Large Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Small Stocks—represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Government Bonds—20-year U.S. Government Bond; REITs—FTSE NAREIT Equity REIT Index.

Co

rrel

atio

n

0.08

0.55

0.55

–0.4

–0.2

0.0

0.2

0.4

0.6

0.8

1.0

Begin 1972End 1976

19761980

19801984

19881992

19921996

20002004

20032007

• vs. Small stocks• vs. Large stocks

• vs. Bonds

19841988

19962000

60-month rolling periods

DiversificationREIT Returns are Uncorrelated with Other Assets

Source: Small Stocks—represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Government Bonds—20-year U.S. Government Bond; International Stocks—Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE®) Index; Treasury Bills—30-day U.S. Treasury Bill; REITs—FTSE NAREIT Equity REIT Index.

Ave

rag

e A

nn

ual

Ret

urn

%

Risk (Annual Standard Deviation) %

Treasury bills

4

20

255 10 15 20

16

12

8

• Portfolios with REITs• Portfolios without REITs

0

Small stocks

InternationalstocksLarge stocks

Bonds

REITs

Stocks, bonds, bills, and REITs 1972-2007

DiversificationEfficient Frontier with and without REITs

Return 10.6%Risk 10.7%Sharpe Ratio 0.42

Stocks and Bonds


With 10% REITs


With 20% REITs

Source: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Bonds—20-year U.S. Government Bond; Treasury Bills—30-day U.S. Treasury Bill; REITs—FTSE NAREIT Equity REIT Index.

Stock and bond investors 1972–2007

T-Bills10%

Bonds

40%

Stocks50%

T-Bills10%

Bonds35%

Stocks45%

REITs10%

T-Bills10%

Bonds30%

Stocks40%

REITs20%

DiversificationDiversify to Reduce Risk and Increase Return

A: Variation in returns across funds attributed to asset allocation

C: A fund’s total return attributed to asset allocation

100%

90%

40%

0 50 100

C

B

A

Percent (%)

B: Variation in a fund’s returns over time attributed to asset allocation

DiversificationHow Important is Asset Allocation?

• What is a REIT?





Summary

• 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

• What is a REIT?





Summary

• Investment opportunity universe doubles

• Increased adoption of REIT type structure

• Compelling dividend yield

• Diversification benefits - low correlation to other asset classes and among the regions in which the fund invests

• Valuations attractive with wide variances to private market real estate

Source: INGClarion

Why Invest in Global Real Estate Securities?

Americas138 Companies

$305 Billion(42%)

Asia Pacific122 Companies

$298 Billion(41%)

EMEA

93 Companies$123 Billion

(17%)

FTSE EPRA/NAREIT Global Index353 Companies

$726 Billion

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

The FTSE EPRA/NAREIT Global Real Estate Index Series

• Base date of 12/31/99 of 1,000 index points• Designed to reflect performance of companies in North

American, European and Asian real estate markets• Free float market capitalization weights• All annual reports must be in English• Specific guidelines for each geographic series• Free float market cap and liquidity standards• Structured to represent general trends in all eligible real

estate stocks worldwide• Quarterly reviews and rebalancing by separate index

committees

FTSE EPRA/NAREIT Global Rules

• Many countries have adopted a REIT-type structure:

Belgium REITs – growing universe

German REITs – (G REITs) – Effective 1/1/2007

Canadian REITs – legislated 1993, growing universe

Dutch FBI - Fiscal Beleggings Instelling (Netherlands)

Hong Kong REITs – legislated 2005

J-REIT - Japanese Real Estate Investment Trust

LPT - Listed Property Trusts (Australia and New Zealand)

SIIC – Sociétés d'investissements Immobiliers Cotées (France)

SIIQ – Società di investimento immobiliare quotate (Italy)

S-REIT – Singapore Real Estate Investment Trust

United Kingdom – Effective 1/1/2007, 9 companies already elected

Globalization of Real Estate Securities

• Australia

• Belgium

• Bulgaria

• Canada

• France

• Germany

• Hong Kong

• Israel

• Italy

• Japan

• Korea

• Malaysia

• Mexico

• Netherlands

• New Zealand

• Singapore

• South Korea

• Taiwan

• Thailand

• Turkey

• United Kingdom

REIT Legislation in Place:

REIT Legislation Under Discussion:•Finland

•India

•Pakistan

•Spain

Countries with REIT Legislation

• What is a REIT?





Summary

REIT stocks can be bought and sold in a number of ways:

• Most stocks trade on major stock exchanges

• Dividend reinvestment programs (DRIPs)

• REIT and real estate security open-end mutual funds

• Closed-end funds (CEFs)

• Exchange traded funds (ETFs)

How to Invest in REITs

• InvestInREITs.com

– Source for information on REIT investing– Direct links to NAREIT member web sites– Performance information and stock tickers– List of REIT mutual funds– List of REITs with DRIPs

• Wall Street analyst coverage

• Independent research coverage

• Corporate investor relations

Information on REIT Investing

NAREIT® does not intend this presentation to be a solicitation related to any particular company, nor does it intend to provide investment, legal or tax advice. Investors should consult with their own investment, legal or tax advisers regarding the appropriateness of investing in any of the securities or investment strategies discussed in this presentation. Nothing herein should be construed to be an endorsement by NAREIT of any specific company or products or as an offer to sell or a solicitation to buy any security or other financial instrument or to participate in any trading strategy. NAREIT expressly disclaims any liability for the accuracy, timeliness or completeness of data in this presentation. Unless otherwise indicated, all data are derived from, and apply only to, publicly traded securities. Any investment returns or performance data (past, hypothetical, or otherwise) are not necessarily indicative of future returns or performance.

Disclaimer

Real Estate Investment Trusts Investing for Dividends and Diversification.

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