Hunton & Williams LLP S. Gregory Cope March 25, 2009 S. Gregory Cope March 25, 2009 ABA Hot Topics Call “A Post-Stimulus Bill (ARRA 2009), TARP, ESSA and Post-Election Update on Regulatory and Tax Initiatives Impacting Real Estate” ABA Hot Topics Call “A Post-Stimulus Bill (ARRA 2009), TARP, ESSA and Post-Election Update on Regulatory and Tax Initiatives Impacting Real Estate”

2 Hunton & Williams LLP ESSA / TARP / CPP R EGULATORY D EVELOPMENTS $700 billion authorized with a substantial portion remaining to be used. Treasury can purchase up to $250 billion of senior preferred shares in qualifying U.S. financial institutions. Treasury recently indicated that TARP funds also will be used to purchase illiquid mortgage- related assets in other programs.

3 Hunton & Williams LLP Conservatorship of Fannie Mae & Freddie Mac R EGULATORY D EVELOPMENTS Treasury can purchase up to $200 billion of senior preferred stock of Fannie Mae & Freddie Mac. Only purchased about $50 billion to date. Agency RMBS portfolios can reach $900 billion, but must decline 10% each year until the portfolio reaches $250 billion.

4 Hunton & Williams LLP Federal Reserve Actions R EGULATORY D EVELOPMENTS In 2009, the Federal Reserve may purchase up to:   $200 billion in direct debt obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks;   $1.25 trillion in RMBS issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae; and   $300 billion of longer-term Treasury securities over the next six months.

5 Hunton & Williams LLP Financial Stability Plan R EGULATORY D EVELOPMENTS Homeowner Affordability and Stability Plan   Refi existing Fannie Mae and Freddie Mac mortgages   $75 billion Homeowner Stability Initiative – mortgage modification Financial Stability Trust   Provide bridge financing to financial institutions

6 Hunton & Williams LLP Financial Stability Plan R EGULATORY D EVELOPMENTS Term Asset-Backed Securities Loan Facility   Borrowers pledge eligible assets for these loans (e.g., ABS backed by auto loans and leases, credit card receivables, student loans, SBA small business loans and CMBS)   $4.7 billion loaned to investors under this program during the initial subscription period, $2.8 billion backed by credit card ABS & $7.9 billion backed by auto loans (cont’d)

7 Hunton & Williams LLP Financial Stability Plan R EGULATORY D EVELOPMENTS   $5.2 billion of new issuances of ABS backed by auto loans and $3.0 billion of new issuances of ABS backed by credit card receivables during the initial subscription period (cont’d)

8 Hunton & Williams LLP Financial Stability Plan R EGULATORY D EVELOPMENTS Public-Private Investment Fund to purchase mortgages & mortgage-related assets from financial institutions   Use $75 - $100 billion in TARP capital and capital from private investors   Hope to generate up to $500 billion in purchasing power to acquire legacy loans and securities, but may increase up to $1 trillion depending on the program’s success (cont’d)

9 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S REITs can distribute common stock declared on or after January 1, 2008 with respect to a taxable year ending on or before December 31, 2009 as a qualifying dividend for purposes of the 90% distribution requirement so long as it meets certain conditions, including a cash limitation requirement that at least 10% of the distribution is paid in cash. IRS Revenue Procedure (the “Revenue Procedure”)

10 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S Past private letter rulings have permitted REITs to distribute common stock as a qualifying dividend for purposes of the 90% distribution requirement so long as at least 20% of the aggregate distribution is paid in cash. The Revenue Procedure permits stock dividends without seeking a private letter ruling. IRS Revenue Procedure (the “Revenue Procedure”) (cont’d)

11 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S REITs are using to conserve cash, especially when required to make special distributions due to excess income attributable to gains on asset sales and disposition activities. Some REITs are permitting stockholders to elect the amount of cash or stock to be received, subject to certain limitations. Practical Considerations

12 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S Not all REITs are utilizing and some that are issuing less than 90% stock. Used for some 2008 annual distributions. Expect it to be used for 2009 quarterly and annual distributions. Practical Considerations (cont’d)

13 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S Equivalent to a stock split or a rights offering. Shareholders must pay tax on 100% of the dividends, even though they may not receive cash in the distribution sufficient to pay the taxes. Forcing additional investment when an investor may need cash, although stock received typically publicly traded and liquid. Investor Backlash

14 Hunton & Williams LLP S TOCK D IVIDENDS B Y REIT S Same state law & exchange requirements. SEC recently clarified that if a company declares a dividend payable in either cash or stock at the election of the recipients, the declaration of the distribution does not need to be registered under the Securities Act. Corporate Considerations