MODULE 12

Public, Private, & Investment Performance w Are Equity REIT’s Stock or Real Estate ?

w How Do Historical Returns of Indirect Vehicles for Real Estate Investment, Public and Private, Stack up Against One Another?

w Do REIT’s Perform Like Small- Cap Stocks?

w Will Future Performance of REIT’s Differ From the Past?

Comparing Ownership of Real Estate Alternatives

Direct vs. Indirect Ownership of Real Estate Characteristics of OwnershipDirectIndirect w Interest w Liability w Transfer Rights w Control Characteristics of Ownership w Liquidity w Performance Measure w Term Investor Scale w Economics of Scale w Agent Relations

Private vs. Public Ownership Characteristics of Ownership Interest Liability Transfer Rights Control Characteristics of Investment Vehicle Liquidity Term Agent Relations Source of Appreciation

Other Issues of Public Entities w Liquidity and Value w Management and Investment Decisions w Operating Entity vs. Assets

Information: Public vs. Private Ownership of Real Estate Type of Information Private MarketPublic Market Value Periodic Appraisals Public Trading Performance w Individual Property Proprietary Public Domain w Compensation Analysis Consultant ServicesPublic Analysts Asset Profiles InvestmentAnnual Report, 10K Prospectus Transactions w Acquisitions Proprietary“News” Release w Debt Proprietary“News” Release Capital Raising w Equity Proprietary “News” Release w Debt Proprietary “News” Release Insider Trades NA Market Tracking Services Financial Audits “Standard Practice”“Required Annual Report”

REIT Pricing Models w NAV w Dividend-Multiple DCF w Pure DCF w REIT Scoring Model with Add- ons

CAP Rates and Interest Rates: How Should they Relate?

REIT Yields and Market Interest Rates: What’s the Relationship?

Net Asset Values: Easily Accessible? w Appraisal Accuracy w Costs

Multiple Comparisons Method w FFO x Multiple for FFO w FAD x Multiple for FAD

Multiple Comparisons “Adjustments” w High Expected Growth Rates w Low Level of Capital Expenditures w Solid Market Fundamentals w Focus/Expertise in Property Type or Locale w Low Debt, High EBITDA Coverage Ratios w High Debt Quality w Low Dividend Pay-out (% of FFO or FAD) w Quality Management w Long, Stable History

Implicit Capitalization Rate Method w Calculate REIT’s Implicit CAP Rate Equity Market Capitalization 600 plus Outstanding Debt 300 less Construction in Progress 100 less Non-Real Estate Assets 100 Implied Real Estate Value 700 Aggregate Annualized Property Level NOI 55 Implied CAP Rate 7.9%

Asset Valuation Method NOI 55 Market Cap Rates9.0% Value of Property (Asset Value) 611 Third Party Property Management Fees & Other Income 5 Management Fee Multiple 5x Value of Management Fee and Other Income 25 Development in Progress 50 Expected Initial Return 10.0% Expected Initial $ 5 Market CAP Rate 9.0% Value of Development Under Construction 56

Current REIT Valuations Property Value611 Third Party Management Fees and Other Income 25 New Development Value 56 Gross Company Value692 Debt Outstanding (300) Net Company Value392 Shares Outstanding 10 Value Per Share $39.20

Other Factors to Consider in Valuation w Management w Asset quality w Capital Structure w Board of Directors

Track Record: Strong Returns and Portfolio Growth w Scale w Returns

Composition of REIT Total Returns w Dividend Yield8% w Average “Same Store” NOI Increase 3-5% w Investment of Retained Earnings 1% w Acquisitions/Development ? w Efficiency Gains ? w Restructuring Gains ? Total Return 12-14%

DCF Model: Issues and Problems w Accurate Inclusion of Risk/Rewards w Valuation Effects of Level and Current Development Options w Proper Inclusion of Debt w Structural Features of Corporation

Scoring Models w Use DCF and/or NAV to Aid Analysis w Use Key Qualitative/Quantitative Variables

Green Street Advisors Model w A Two Step Model 1. Corporate NAV 2. Adjust for Special Circumstances of REIT

REIT Value Vis-à-Vis NAV w Liquidity w Value-Added Option Potential w Efficient Operations w Diversification w Franchise Value

Green Street Advisors, Inc. Example of Scoring Model (Page 9, and Appendix A) Variable Selection w Franchise Value w Inside Ownership w Focus w Potential Conflicts w Overhead Expenses w Balance Sheet w Activity

DEBT...A Four Letter Word? Scenario with 35% Debt EBITDA $ 60 Debt $263 (35%) Cost of Debt Service 8.0% Equity $487 (65%) Cost of Equity 12.0% Total Capitalization 750 (100%) Weighted Cost of Capital 10.6% Coverage Ratio 2.9:1 Scenario with 45% Debt $ 60 $338 (45%) 8.0% $412 (55%) 12.0% 750 (100%) 10.2% 2.2:1

How Do REIT’s Grow? w Internal - Revenue - Costs w External - Acquisition - Merger w Financial Engineering - Capitalization Factor - Leverage