Real Estate Investment Trusts

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Real Estate Investment Trusts The REIT
Experience in the U.S. Lessons and
Opportunities
Steven A. Wechsler President Chief Executive
Officer
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All Information Included in this Presentation is
Based on Publicly-Traded Securities Only
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Summary

• U.S. REIT Industry Overview
• Benefits to Investing in REITs
• Industry Developments

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Evolution of U.S. REITs

• 1960 REITs created by Congress
• small investors can secure advantages normally
  available only to those with large resources.
  (Committee Report, 1960)
• 1969-1974 Initial REIT boom fueled by mortgage
  REITs
• 1986 Tax Reform Act of 1986
• REITs were permitted to be internally advised and
  managed
• 1991 Kimco Realty Corporation concludes the
  first successful equity REIT IPO in many
  years
• 1992 Taubman Centers, Inc. concludes the first
  IPO of an UPREIT

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Evolution of U.S. REITs

• 1993 Omnibus Reconciliation Act of 1993
• Five or fewer rule makes it easier for pension
  plans to invest in REITs
• October 1997 U.S. Treasury Department amends
  tax treaty to allow most non-U.S.
  shareholders to pay only 15 percent in
  taxes on REIT ordinary dividends
• 1999 REIT Modernization Act of 1999
• REITs were permitted to form Taxable REIT
  Subsidiaries (TRS) that can perform services to
  REIT tenants and others
• 2001 Standard Poors opens its indexes to
  REITs

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The REIT Industry in 2006

• Over 475 billion of commercial real estate owned
• 15-20 percent of investment-grade commercial real
  estate
• More than 24,000 properties nationwide
• All major property sectors
• All major geographic regions
• 374 billion equity market capitalization
• 191 publicly traded REITs in the FTSE NAREIT
  Index
• 164 companies trade on the NYSE

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Types of REITs Today
91 EQUITY REITs Provide equity capital for
commercial real estate by owning real estate
assets. Derive revenues primarily from rents.
7 MORTGAGE REITs Provide debt capital for
housing and commercial real estate by investing
in mortgages and mortgage- backed securities.
Derive revenues primarily from interest
payments.
2 HYBRID REITs Combine the investment
strategies of both equity and mortgage REITs
Data as of June 30, 2006
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REITs Invest in All Property Types
Data as of June 30, 2006
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Equity Market Capitalization of U.S. REITs
Billions of dollars
Trend (27 Compound Annual Rate)
KIMCO Realty IPO November 1991
Note Does not include operating partnership
units.
Taubman Centers IPO December 1992 (First UPREIT)
Data as of June 30, 2006 Source NAREIT
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REITs in Leading U.S. Benchmarks

• SP Indexes
• SP 500
• 11 REITs
• 1.1 percent of Index
• SP Mid Cap 400
• 12 REITs
• 3.9 percent of Index
• SP Small Cap 600
• 14 REITs
• 4.0 percent of Index
• Russell 2000 Index
• 96 REIT s
• 6.9 percent of Index
• Wilshire 4500 Index
• 176 REITs
• 6.7 percent of Index

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Benefits to Investing in U.S. REITs

• Diversification
• Dividends
• Liquidity
• Performance
• Transparency

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Real Estate Stocks Accepted as a Core Asset

• Burton Malkiel Author of Random Walk Down Wall
  Street
• Theyre a better inflation hedge than utility
  stocks, which also pay high dividends.
• William F. Sharpe Nobel Laureate in Economics
  and Author of Investments
• Asset classes other than stocks and bonds
  that are often used consist of money market
  securities, foreign stocks, foreign bonds,
  venture capital and real estate.
• David Swensen Author of Unconventional Success
  A Fundamental Approach to Personal Investment
• For individual investors, publicly traded
  real estate securities generally provide
  reasonably low-cost exposure to relatively high
  quality pools of real estate assets

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DiversificationDiversify to Reduce Risk and
Increase Return
Stock and bond investors 19722005
Stocks and Bonds
With 10 REITs
With 20 REITs
REITs
T-Bills
REITs
10
10
T-Bills
20
10
Stocks
Stocks
T-Bills
Stocks
40
Bonds
45
10
50
40
Bonds
35
Bonds
30
Return 10.7 Risk 11.0 Sharpe Ratio
0.42
Return 11.0 Risk 10.7 Sharpe Ratio 0.46
Return 11.4 Risk 10.6 Sharpe Ratio 0.50
Source StocksStandard Poors 500, which is
an unmanaged group of securities and considered
to be representative of the stock market in
general Bonds20-year U.S. Government Bond
Treasury Bills30-day U.S. Treasury Bill
REITsFTSE NAREIT Equity REIT Index.
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DiversificationEfficient Frontier with and
without REITs
Stocks, bonds, bills, and REITs 19722005
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Small Stocks
16
Multi-Asset Portfolios with REITs
14
REITs
International Stocks
12
Large Stocks
Average Annual Return
10
Bonds
8
T-Bills
6
4
2
4
6
8
10
12
14
16
18
20
22
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Risk (Annual Standard Deviation)
Source Small Stocksrepresented by the fifth
capitalization quintile of stocks on the NYSE for
19261981 and the performance of the Dimensional
Fund Advisors, Inc. (DFA) U.S. Micro Cap
Portfolio thereafter Large StocksStandard
Poors 500, which is an unmanaged group of
securities and considered to be representative of
the stock market in general Government
Bonds20-year U.S. Government Bond International
StocksMorgan Stanley Capital International
Europe, Australasia, and Far East (EAFE) Index
Treasury Bills30-day U.S. Treasury Bill
REITsFTSE NAREIT Equity REIT Index.
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DividendsU.S. REITs Deliver Reliable Current
Income
Average annual returns 13.5 percent Average
annual Income 7.9 percentage points or 59
percent of total return
Percent
Average annual income return 7.9
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DividendsU.S. REITs Produce High Yields
Before-tax yields as of June 30, 2006
Percent
Corporate Bonds
10-Year Treasury
SP 500
3 Month T-Bills
REITs
TIPs
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PerformanceAverage Daily Trading Volume of
Listed U.S. REITs
Millions of Dollars
Data as of June 30, 2006
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PerformanceU.S. REITs Outperform Leading U.S.
Benchmarks
5-Year annual compound total returns in percent,
as of December 31, 2005
1
1
1Price only returns
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PerformanceCumulative Performance 30 Years
1,000 in REITs in June 1976 equals 45,746 in
June 2006 1,000 in SP 500 in June 1976 equals
32,824 in June 2006
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PerformanceREITs Outperform Leading U.S.
Benchmarks
Compound annual total returns in percent June
1976 June 2006
Dow Jones Industrials1
NASDAQ Composite1
SP 500
FTSE NAREIT US All REIT Index
1Price only returns
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TransparencyThe U.S. REIT Industry in 2006

• REITs are required to make regular financial
  disclosures to the investment community
• REITs are required to distribute at least 90
  percent of taxable income to shareholders

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TransparencyThe U.S. REIT Industry in 2006

• 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 20, 2006, as
  measured by ISS Corporate Governance Quotient
  (CGQ) database

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TransparencyInternational Financial Reporting
Standards

• NAREIT Activities in the International Standards
  Setting Arena
• Attending public meetings of the International
  Accounting Standards Board (IASB)
• Participating in the U.S.s Financial Accounting
  Standards Boards convergence process
• Discussing views with the European Public Real
  Estate Association (EPRA), British Property
  Federation (BPF), Property Council of Australia
  (PCA), Asian Public Real Estate Association
  (APREA), Real Property Association of Canada
  (RealPAC)
• Commenting on IASB standards proposal
• Developing a financial statement model for the
  real estate industry

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The FTSE EPRA/NAREIT Global Real Estate Index
Data as of June 30, 2006
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FTSE EPRA/NAREIT Global Rules

• 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

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Globalization of Real Estate Securities

• Many countries have adopted a REIT-type
  structure
• Belgium REITs growing universe
• 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)
• S-REIT Singapore Real Estate Investment Trust
• Under discussion
• United Kingdom and Germany draft legislation
  under way

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FTSE NAREIT Index Components
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REIT Investment Products

• REIT Exchange Traded Funds (ETFs)
• iShares Cohen Steers Realty Majors Index Fund
• iShares Dow Jones U.S. Real Estate Index Fund
• streetTRACKS Wilshire REIT Index Fund
• Vanguard REIT VIPERS
• REIT Index Funds
• Vanguard REIT Index Fund Investor Shares
• REIT Mutual Funds
• Approximately 75 open-ended funds
• 21 closed-end funds
• Global REIT Mutual Funds

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REITs in 401(k) Plans
Plans Offering a Real Estate Option for
Participant Contributions
Percent
Proportion of plan year experience
Source Profit Sharing/401(k) Council of America
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REIT MA Activity
Transaction Value of REIT MA Activity
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Benefits to Investing in U.S. REITs

• Diversification
• Dividends
• Liquidity
• Performance
• Transparency

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Disclaimer

• 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. All values are
  unaudited and subject to revision. Any investment
  returns or performance data (past, hypothetical,
  or otherwise) are not necessarily indicative of
  future returns or performance.