Understanding the trends Global REIT Activity

26 July 2012 Strictly private and confidential

Agenda
1. Overview of Global REIT activity 2. How can Deloitte further serve SEC?

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Global REIT Sector: Snapshot

The industry is comprised of legal entities that are categorized as real estate investment trusts (REITs). To qualify as an REIT, a company or trust must distribute at least 90.0% of taxable income to shareholders annually in the form of dividends. REITs use the pooled capital of many investors to directly invest in income-producing property. Income is mainly generated from rent, interest and capital gains. There are three types of REIT funds: equity, mortgage and hybrid. The REIT sector largely comprises of following:
1. Equity REITs other commercial properties

Definition

Percentage
54.2% 23.1% 15.2% 6.1% 1.4%

92.5% of sector is composed of Equity REITs

2. Equity REITs retail properties 3. Equity REITs residential properties 4. Mortgage REITs 5. Hybrid REITs

Market Cap.

$608 Billion (2006)

$661 Billion (2008)

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Advantages of Investment in REITS

Most Liquid
Global Listed Real Estate

Most Diversified

Regional Listed Real Estate

Unlisted Open-End Fund

Unlisted Close-End Fund

Least Liquid

Direct Real Estate

Least Diversified

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

U.S. Continues to Lead Global REIT Market

Regional Breakdown by Market Capitalization

Middle East & Africa 2%

Number of REITs

Europe 16%

Americas 47%
Asia Pacific 35%

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Global REIT Sector: Subsector Breakdown

There are three main types of products within the Real Estate Investment Trusts industry, including equity REITs, mortgage REITs and hybrid REITs. All three segments are either publicly traded or privately held, with the largest REITs traded on major public exchanges, similar to stocks and other investment securities.

Market Segmentation
Specialty Property Home & 6.7% commercial Financing 7.5% Self-storage Property 8.2% Lodging, resort & diversified Property 10.5%

Retail Property 21.4%

Industrial & office Property 18.3%

Healthcare Property 13.3%

Residential Property 14.1%

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Global REIT Sector: Geographical Breakdown

Countries with existing REIT-type structures

Countries considering REIT-type structures

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Major REITs By Region

U.S. Europe

35

Asia Pacific

30

Market Cap. in $US Billions 7

25

20

15

10

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Major REIT Markets Have Similar Regulations

US Introduction Legal Form Minimum Share Capital Shareholder Requirements 1960 Any legal US Entity No At least 100 shareholders Five or fewer individuals or foundations not to hold over 50.0 percent of the shares. Australia 1985 Unit Trust US$ 0.99 (A$ 1) No Japan 2000 Corporation US$ 1.2 million (JPY 100.0 million) At least 50 shareholders or exclusively by qualified institutional investors. No shareholder owns more than 50.0 percent equity, directly or indirectly. No J-REITs are merely an assetholding vehicle. Investments primarily in Qualified Assets The J-REIT must not hold 50.0 percent or more equity of another corporation.

Listing Mandatory Asset Level Requirements

No At least 75.0 percent of the assets must be real estate, government securities or cash. Cannot own over 10.0 percent of another corporations stock. No more than 5.0 percent of its assets can be represented by securities of any one issuer. Taxable REIT subsidiaries cannot hold over 25.0 percent of its assets. No At least 90.0 per cent of its taxable ordinary income Tax-exempt to the extent distributed Built-in gains are taxable Exempt if the asset is held for ten years

No Investments in land must be for purpose of deriving rent. A property trust may invest in a single real property.

Leverage Restrictions Profit Distribution Tax treatment Transition to REIT

No 100.0 percent of trusts income Not taxable for trustee N.A.

No Greater than 90.0 percent of profits Tax-exempt to the extent distributed N.A.

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UK Has More Stringent Rules Than US

US Introduction Legal Form Minimum Share Capital 1960 Any legal US Entity No UK 2007 Listed closed-ended company No

Shareholder Requirements

At least 100 shareholders Five or fewer individuals or foundations not to hold over 50.0 percent of the shares.

More than five shareholders cannot control but there are exceptions

Listing Mandatory Asset Level Requirements

No At least 75.0 percent of the assets must be real estate, government securities or cash. Cannot own over 10.0 percent of another corporations stock. No more than 5.0 percent of its assets can be represented by securities of any one issuer. Taxable REIT subsidiaries cannot hold over 25.0 percent of its assets.

Yes At least 75.0 percent of a REITs net profits must be derived from the property rental business. At least 75.0 percent of a REITs assets must be used in the property rental business.

Leverage Restrictions Profit Distribution Tax treatment

No At least 90.0 per cent of its taxable ordinary income Tax-exempt to the extent distributed

Yes At least 90.0 percent of property income Property income and capital gains are exempt

Transition to REIT

Built-in gains are taxable Exempt if the asset is held for ten years

Conversion charge of 2.0 percent of the gross market value of the property rental business assets.
Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Changes in REIT Rules: Developed Markets

France

Japan

Removed mandatory requirement to be listed on the French Stock Exchange. (Jan 2010)

In response to the global financial crisis, developed markets introduced REIT-friendly amendments to increase liquidity.

Changed dividend distribution requirement from a taxable income basis to an accounting profit basis. (Apr 2009)

US

Australia

Allowed distribution of REIT dividends either in cash or in stock, provided at least 10.0 percent of the dividend is made in cash. (Dec 2009)

Extended the definition of managed investment trust (MIT) for withholding tax purposes. (May 2010)

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Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Global REIT Sector Trading Volume Trends

$4.0 billion
-Average daily US dollar trading volume, April 2011

$2.0 billion
- Average daily US dollar trading volume, April 2006

Capital Offering (2011):

- REITs have raised over $24.6 billion in initial debt and equity capital offerings

$449 million
-Average daily US dollar trading volume, April 2001

- $16.8 billion was raised in secondary equity common and preferred share offerings - $6.7 billion was raised in unsecured debt offerings - $1.1 billion was raised in IPOs

Completed IPOs in 2011:

- American Assets Trust, Inc. (NYSE: AAT) - Summit Hotel Properties, Inc. (NYSE: INN) - STAG Industrial, Inc. (NYSE: STIR)

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REIT Adoption Status: Emerging Markets

Indonesia

Philippines
The Philippine REIT Act (REIT Act) became law in December 2009. The market is waiting for clarity on the regulatory framework, and no REITs have been launched yet.

Real Estate Investment Funds (REIF) were introduced in December2007. While REITs have been formed in Indonesia, most are listed in Singapore, to take advantage of more favorable tax benefits.

China
In December 2008, China formally supported the launch of Chinese REITs. Chinese pilot REIT schemes are expected be launched in 2011, with only domestic investors likely allowed to participate.

Thailand

India

The Thailand Securities and Exchange Commission (SEC) issued draft regulations in 2010, and is close to approving the regulatory framework. 12

Draft regulations introduced in 2007; however no consensus has been reached yet. Tax and other implications are yet to be settled by the Securities and Exchange Board of India (SEBI).
Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

REIT Regulations More Restrictive in Emerging Markets

Foreign Investment

Tax Regulations

Transparency

Developed Markets

Very Few Restrictions

Example U.S. has no restrictions on foreign ownership in REITs

Well Established
Example Tax regulations in the U.S. are comparatively clear

High
Example U.S. REITs have high standards of financial reporting and information disclosure

Emerging Markets

High Restrictions
Example China restricts foreign direct ownership of property

Unclear
Example Tax implications for REITs have yet to be finalized in China and India

High
Example China has yet to fully adopt international accounting standards

Example: Once a REIT regime is established in China, cross-border investors will likely take a cautious approach to investing in Chinese REITs due to strict controls on foreign investments in real estate, a less favorable tax environment, and lack of transparency in property markets

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Major REITs Have Multi-National Presence

Name of REIT
Simon Property Group Westfield Group Public Storage Vornado Realty Trust Equity Residential General Growth Properties HCP, Inc. Unibail-Rodamco SE Boston Properties Inc. Annaly Capital Management Host Hostels & Resorts Inc.

Headquarters
Indianapolis, Indiana Australia Glendale, California New York City Chicago, Illinois Chicago, Illinois Long Beach, California Paris, France Boston, Massachusetts New York City Bethesda, Maryland

Market Cap. ($ billions)

29.2 22.5 18.0 15.8 14.6 13.5 13.3 12.9 12.7 12.5 12.1

Geographic Presence
North America, Europe, Asia Australia, U.S., U.K., New Zealand U.S. and Europe U.S. and India U.S. and Canada U.S. and Brazil U.S. and Canada Europe U.S. and Canada U.S. and Canada Canada, Mexico, Chile, U.K., Europe

Avalonbay Communities Inc.

Ventas Inc. Land Securities Group Plc. Stockland Corp. Ltd. ProLogis British Land Co. Plc. Kinco Realty Corp. Macerich RioCan REIT

Alexandria, Virginia
Louisville, Kentucky London, U.K. Sydney, Australia Denver, Colorado London, U.K. New York Santa Monica, California Toronto

9.6
7.6 8.4 8.2 8.1 7.3 7.2 6.2 5.9

U.S. and Canada

U.S. and Canada U.K. Australia, U.K., New Zealand North America, Europe and Japan U.K. and Europe U.S. and Canada U.S. and Canada U.S. and Canada

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Best Practices for Global Expansion

Determine desired strategy for expansion local JV partners, acquisitions of existing assets or companies, or development 1) Determine desired strategy for expansion local JV partners, acquisitions of existing assets or companies, or development Gain an understanding of the types of entities available for use, including tax treatment and general tax rates Determine appropriate financing and capital structures, including applicable withholding rates and compliance with thin cap rules Plan for operating constraints, including trapped cash, employee arrangements, VAT and other local country requirements Consider exit strategies and related tax implications Create a top 10 list of items not to do without contacting the U.S. tax department and socialize it with global finance, treasury, legal and accounting departments

2)

3)

4)

5) 6)

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Selected Recent Cross-Border REIT Deals

RioCan, Canada
Date: Jan 2011 Details
RioCan entered into a 50:50 JV with U.S.-based Tanger Outlet Centers to develop 10-15 outlets in Canada
50:50 JV

Tanger Outlet Centers, U.S.

Deal Size: $1,010.0M

AMB Property Corp., U.S.

Date: Feb 2011 Details

Acquired

ProLogis, U.S.
Deal Size: $8.7B

By joining forces, this merger created a company positioned to be the leading global provider of logistics real estate -- a Blue Chip REIT

Chartwell Senior Housing, Canada Brookfield Asset Management, Canada

Date: Feb 2010 Details

Acquired

Acquired

Health Care REIT, U.S.

Deal Size: $930.0M

General Growth Properties, U.S.

Deal Size: $2,625.0M

Date: May 2012 Details

Chartwell teams up with U.S.-based Health Care REIT to buy more than 8,000 Canadian seniors housing suites

Brookfield acquired a 27.0 percent stake in GGP

Acquired

Date: Jan 2011 Details

Deal Size: $1,711.2M

Starhill REIT, Malaysia

Date: May 2012 Details

Three Marriott Hotels, Australia

Deal Size: $411.0M

Brookfield recently agreed to purchase an additional 11.8 percent stake in GGP from Fairholme Funds

Following the completion of the acquisitions, Starhill REIT will have the largest portfolio of overseas property investments of any Malaysian REIT,
Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

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Potential Challenges in Developing & Implementing REIT Regulations

Problems with high real estate transaction cost Governments reluctance on tax exemption/reductions for corporations Issues with title security and registration Lack of transparency and corporate governance Lack of valuation standards Lack of an asset rating system Limited liquidity to support REIT transactions on local exchanges

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Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Agenda
1. Overview of Global REIT activity 2. How can Deloitte further serve SEC?

18

Copyright 2012 Deloitte & Touche, Ghana. All rights reserved.

Deloitte is the worlds lead professional services organization; providing financial, audit, risk, tax, and consulting advisory services

Consulting Financial Services

Audit

Business Tax Enterprise Risk Services Process Services

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Highly dynamic and new market structure requires a new business model for competitive market players...
Vision, Mission and Strategic Targets ECOWAS Directives and Regulations Legislations, Laws, Regulations Current Processes and Applications Changing Market Conditions and New Markets Global Applications

REQUIREMENTS

Identify New Business Processes

2
20

The Organization of the Newly Structured Market Departmanet

New Application Software

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