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A Value Menu for McDonalds
Pershing Square Capital Management
DISCLAIMER
Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding McDonald's Corporation ("McDonald's") are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company and its advisors that could lead them to disagree with the approach Pershing is advocating. The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing manages funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause Pershing to change its position regarding the Company and possibly reduce, dispose of, or change the form of its investment in the Company. Pershing recognizes that the Company has a stock market capitalization of approximately $42bn, and that, accordingly it could be more difficult to exert influence over its Board than has been the case with smaller companies.
1
Table of Contents
I. II. III. IV. V.
Overview of McDonald's Pershings View of McDonald's Pershings Proposal to McDonald's: McOpCo IPO Company Response to Pershing Developing a Response to the Company Appendix A. Pershings Proposal: Assumptions B. PF McDonald's Financial Analysis C. McOpCo Financial Analysis
3 11 23 39 43 58 59 66 74
I. Overview of McDonald's
I.
Overview of McDonalds
Pershings Involvement with McDonalds
On September 22nd, Pershing Square Capital Management (Pershing) presented a proposal for increasing shareholder value (the Proposal) to McDonalds management Pershing commends McDonalds management for its strong operational execution over the past two years Pershing appreciates the willingness and openness of McDonalds management to discuss the Proposal Management has taken our Proposal seriously our Proposal was presented to McDonalds Board of Directors Pershing had a follow-up meeting with McDonalds management on October 31 when the Company communicated its response to our Proposal Pershing is pleased to have the opportunity to share the details of our Proposal with the broader investment community
I.
Review of McDonalds
Worlds largest foodservice franchisor and retailer $42 billion equity market value $55 billion in estimated system wide sales 32,000 system wide restaurants, globally Serves 50 million customers daily in 119 countries Everyday 1 out of 14 Americans eats at a McDonalds One of the worlds most recognized brands Consistently named in the top 10 global brands along with Coke and Disney One of the largest retail property owners in the world Estimated owned and controlled real estate market value of $46 billion (1) Estimated 18,000 restaurants where McDonalds owns land and/or building Significant free cash flow business
________________________________________________ (1) Based on Pershings assumptions. See
page 64 in the appendix.

5
I.
Historical Financial Performance
Following declines in same-store sales and profitability in 2001 and 2002, Management has improved operations through product innovation, capital discipline and strong execution. As a result, the Companys profitability has increased.
McDonalds Historical Revenue and EBITDA Performance

($ in millions)
$20,000
(1)
$19,065 $17,141 $14,243 $14,870 $15,406
30.0%
Revenue / EBITDA
$15,000
28.5% EBITDA Margin
$10,000
27.0%
$5,000 $4,144 $0 $4,041 $3,997 $4,512 $5,183
25.5%
24.0%
Same-store Sales Growth
2000
2001
2002
2003
2004
0.6%
(1.3%)
EBITDA
(2.1%)
Revenue
6
2.4%
EBITDA Margin
6.9%
________________________________________________ (1) EBITDA is adjusted for certain non-recurring
and non-cash items.
I.
Historical Financial Performance (Contd)
As a result of the Companys improved capital allocation, pre-tax unlevered free cash flow has increased from a five-year low of $2.0 billion in 2002 to $3.5 billion in 2004.
Historical Pre-Tax Unlevered Free Cash Flow(1) Performance
($ in millions)
$4,000 $3,483 $3,205 26%
$3,000 EBITDA CapEx
22% Margin (%)
$2,000
$2,199
$2,134
$1,994
18.7%
18.3%
18%
$1,000
15.4%
14.4% 12.9%
14%
$0 2000A 2000 2001A 2001 EBITDA CapEx 2002A 2002 2003A 2003 Margin % 2004A 2004
10%
_______________________________________________ (1)
Denotes Adjusted EBITDA CapEx. Adjusted EBITDA is adjusted for certain non-recurring and non-cash expenses.
7
I.
Stock Price Performance
Although McDonald's stock has rebounded from its 2003 lows, it has been range bound in the low $30s for the past five years and is significantly off of its high of $48 per share reached in 1999.
McDonalds Stock Price Performance

($ per share)
$50.00
High of $48.32 11/12/99
$40.00
$30.00
$20.00
$10.00 11/12/99
07/12/00
03/12/01
11/10/01
07/11/02
03/11/03
11/09/03
07/09/04
03/09/05
11/07/05
I.
5-Year Indexed Stock Performance
Over the past five years, McDonalds has only slightly outperformed the S&P 500 while its QSR peer group has vastly outperformed the index.
McDonald's 2.4% S&P 500 (9.6%) QSR Index 177.3%
5-Year Indexed Stock Performance

350 300 250 200 150 100 50 0 11/10/00
5 Year Indexed Performance
QSR
MCD S&P
06/01/01
12/21/01
07/12/02
01/31/03
08/22/03 QSR Comp

(1)
03/12/04 S&P 500
10/01/04
04/22/05
11/11/05
McDonald's
________________________________________________ (1) Includes YUM and WEN.
I.
McDonalds versus its Peers
Despite McDonalds strong real estate assets, number one QSR market position and leading brand, McDonalds trades at a discount to its peers. We believe this discount is due to a fundamental misconception about McDonalds business.
EV / 06E EBITDA
10.0x 9.5x 9.0x 8.5x 8.0x 7.5x 30-Day Average Trailing
(1)
9.3x 8.7x 8.9x
W EN
YUM
P / 06E EPS
2 5 .0 x 2 0 .4 x 2 0 .0 x 1 5 .6 x 1 5 .0 x 1 0 .0 x 5 .0 x 0 .0 x 3 0 -D a y A v e ra g e T ra ilin g
(1 )
1 6 .7 x
W EN
YUM
Long-Term EPS Growth

________________________________________________ (1)
9%
12%
12%
McDonalds stock price is based on a 30-day average trailing price as of 11/11/05.

10
II. Pershings View of McDonald's
II.
Pershings View of McDonald's
McDonalds: How the System Works
Landlord, Franchisor, Restaurant Operator

Franchisor: Franchises brand and collects fee Operator: Operates 9,000 McDonalds restaurants Landlord: Buys and develops real estate and leases to its franchisees Real Estate and Franchise estimated pre-tax ROI of 17.5%(1):
Cost of Land Cost of Building Total Cost Est. Average Unit Sales Rent as a % of Sales Franchise Income as % of sales Rental Income Franchise Income Total Income Unlevered Pre Tax ROIC
________________________________________________
Franchisees
Franchise Fee: 4% of restaurant sales Rent: greater of a minimum rent or a percentage of restaurant sales (current avg. ~9% of sales) Franchisee bears all maintenance capital costs
$650k 650k $1,300k $1,750k 9.0% 4.0% $158 70 $228 17.5%
(1)
Illustrative return based on Pershings assumptions for the cost of land and building and approximate average unit sales in 2004. 12
II.
A Landlord, Franchisor and Restaurant Operator
Real Estate and Franchise Business
McOpCo
Landlord
McDonalds controls substantially all of its systemwide real estate Estimated 11,700 restaurants where McDonalds owns both the land and buildings and 7,000 restaurants where McDonalds owns only the buildings (1) Estimated $1.3 billion of income generated from subleases Estimated real estate value: $46 billion or ~94% of current Enterprise Value (2)
________________________________________________
Franchisor
Approximately 32,000 restaurants where McDonalds receives 4% of unit sales
Restaurant Operator
Approximately 9,000 Companyoperated restaurants
Reported financials have overstated margins due to a lack of transfer pricing Currently not charged a franchise fee Currently not charged a market rent
(1) (2)
Assumes that McDonalds owns the land and buildings of 37% of its system wide units and owns the buildings of 22% of its system wide units. Valuation based on Pershing estimates. See page 64 for more detail on real estate valuation. 13
II.
Characteristics of Cash Flow Streams
Real Estate and Franchise Business
McOpCo
Landlord
Maintenance Capital Requirements: Risk Profile Minimal Triple net leases Very Stable / Minimal Risk Generates the greater of a minimum rent or a % of sales (current average ~ 9%) 70%90% Margins Some real estate development expenses Minimal: 5.75%-6.5% Real estate holding companies typical asset beta: ~.40 Hard asset collateral Low
Franchisor
High
Restaurants
Significant maintenance capex Medium Risk High operating leverage Sensitivity to food costs 7%10% Margins (1) High food, paper and labor costs Rent Franchise fee Medium: 8%-9% Mature QSR typical asset beta: ~.80-.90
Limited remodel subsidies as well as corporate capex Stable / Low Risk Low operating leverage Diverse and global customer base 30%50% Margins
Typical EBITDA Margin: Typical average cost of capital:(2)
________________________________________________
Low: 6.5%-7.5% Choice Hotels, Coke and Pepsi typical asset beta: ~.50-.60 Highly leveragable
(1) (2)
Typical margins are illustrative restaurant EBITDA margins and assume the payment of a market rent and franchisee fee, similar to a franchisee. Typical betas are Pershing approximations based on selected companies Barra predictive betas. Average cost of capital estimates are illustrative estimates based on average asset betas. 14
II.
Adjusting for Market Rent and Franchise Fees
In 2004, McDonalds company-operated restaurants appeared to contribute 46% of total EBITDA. However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of total EBITDA, with the higher multiple Real Estate and Franchise businesses contributing 78% of total EBITDA.
2004 Total EBITDA As Reported
2004 Total EBITDA Adjusted for Market Rent and Franchise Fees
46% 54%
McOpCo
22%
McOpCo
55%
78%
Real Estate and Franchise
2004 EBITDA $2.4bn 2.8bn $5.2bn % 46% 54% 100%

McOpCo Real Estate and Franchise Total
McOpCo Real Estate and Franchise Total
2004 EBITDA $1.1bn 4.0bn $5.2bn
% 22% 78% 100%
________________________________________________
Note: The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonalds management has indicated this is a conservative assumption regarding the Real Estate and Franchise business. Analysis excludes $441 mm of non-recurring other net operating expenses. . 15
II.
Adjusting for Market Rent and Franchise Fees (Contd)
Once adjusted for market rent and franchise fees, McOpCo would be contributing only 14% of total EBITDA-Maintenance Capex, with the Real Estate and Franchise business contributing 86% of total EBITDA-Maintenance Capex ,based on FY 2005E projections.
2005E Total EBITDA Capex As Reported
Real Estate and Franchise McOpCo
2005E Total EBITDA Capex Adjusted for Market Rent and Franchise Fees
14%
53%
47% 86%
'05 EBITDAMaint. Capex $1.9bn 2.2bn $4.1bn '05 EBITDAMaint. Capex $0.6bn 3.5bn $4.1bn
McOpCo PF McDonald's Total
% 47% 53% 100%
McOpCo PF McDonald's Total
% 14% 86% 100%
________________________________________________
The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonalds management has indicated this is a conservative assumption regarding the real estate and franchise business. In addition, we note that 2005E maintenance capex includes certain one-time capital expenditures related to systemwide remodeling program. Please see appendix for full reconciliation .
16
II.
Reconciling McDonalds 2004A P&L
Set forth below is a table which reconciles McOpCos, the Real Estate and Franchise businesses and stand-alone McDonalds FY 2004A income statements, assuming McOpCo pays a market rent and franchise fee. The analysis demonstrates that the Real Estate and Franchise business contributed approximately 78% of total EBITDA.
(U.S. $ in millions) 2004 Income Statement Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA % of Total EBITDA
________________________________________________
McOpCo P&L $14,224
Real Estate and Franchise P&L 3,336 1,280 1,505 569 $6,690 347 583 $930 576 427 1,485 3,272 774 $4,046 78%
Inter-Company Eliminations
2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
(1,280) (569) ($1,849) (583) (697) (569) ($1,849) -
$14,224 4,853 3,726 2,164 427 583 697 569 $13,019 495 710 427 $1,137 22%
$0
The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonalds management has indicated this is a conservative assumption regarding the real estate and franchise business. Note: Analysis excludes $441 mm of non-recurring other net operating expenses. 17
II.
Historical EBITDA by Business Type: As Currently Reported
Assuming 75% of G&A is allocated to the Real Estate and Franchise business, an allocation that McDonalds management indicates is conservative, we indicate below the EBITDA for McOpCo and the Real Estate and Franchise businesses, as depicted in the reported financials. We note that McOpCo has historically appeared to contribute approximately ~45% of consolidated EBITDA.
McDonalds Consolidated EBITDA
($ in millions)
$6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0
$5,183 $4,144 $1,995 $4,041 $1,893 $3,997 $1,841 $4,512 $2,072 $2,403
McOpCo
~45%
$2,780
$2,149 2000
$2,148 2001
$2,156 2002
$2,440
~55%
2003 2004
________________________________________________
Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Management has indicated this is a conservative assumption regarding the Real Estate and Franchise business.
18
II.
Historical EBITDA by Business Type: Adjusted for a Market Rent and Franchise Fee
Despite an economic recession in 2001-2003, significant dips in McDonalds system wide samestore sales growth and declines in McDonalds stock prices, the Real Estate and Franchise business has grown every year over the last five years.
McDonalds Consolidated EBITDA ($ in millions)
$6.000 $5.000 $4.000 $3.000 $2.000 $1.000 $0.000 Real Estate and Franchise McOpCo
$5,183 $4,041 $900 $3,997 $828 $4,512 $944 $1,137
$4,144 $1,006
$3,138
$3,142
$3,169
$3,568
$4,046
Real Estate and Franchise ~80%
2000
Samestore sales McOpCo Growth 0.6% (1.1%)
2001
2002
2003
2004
(1.3%) (10.6%) 0.1%
(2.1%) (7.9%) 0.9%
2.4% 14.0% 12.6%
6.9% 20.4% 13.4%
RE/Franchise Growth (0.5)%

________________________________________________
Notes: Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales. 19
II.
Real Estate and Franchise Business: Stable and Growing
McDonalds Consolidated EBITDA

($ in billions)
Based on Pershing Assumptions

$6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0
Based on Reported Financials
$0.5 $1.5 1990
$0.5 $1.6 1991

2.3%
$0.6 $1.8 1992

18.1%
$0.6 $1.9 1993

(2.2%)
$0.7 $2.1
$0.7 $2.5
$0.8
$0.8
$1.0
$1.0
$1.0
$0.9
$0.8
$0.9
$1.1
McOpCo
$2.6
$2.7
$2.9
$3.2
$3.1
$3.1
$3.2
$3.6
$4.0
1994
17.0%
1995
14.1%
1996
3.6%
1997
6.3%
1998
18.0%
1999
5.1%
2000
(1.1%)
2001
(10.6%)
2002
(7.9%)
2003
14.0%
2004
20.4%
McOpCo EBITDA Growth Real Estate & Franchise EBITDA Growth: Change in Year-End Stock Price: (15.6%)
4.9%
11.7%
8.5%
10.4%
15.3%
4.0%
4.3%
10.1%
7.4%
(0.5%)
0.1%
0.9%
12.6%
13.4%
30.5%
28.3%
16.9%
2.6%
54.3%
0.6%
5.2%
60.9%
5.0%
(15.7%)
(22.1%)
(39.3%)
54.4%
29.1%
________________________________________________
II.
Historical Perspectives on McOpCo
McDonalds did not historically operate restaurants The Company initially entered the business of operating restaurants only as a defensive measure
Limited number of restaurants The idea emerged that we should operate a base of ten or so stores as a company. This would give us a firm base of income in the event the McDonald brothers claimed default on our contract (1) --Ray Kroc / Founder
Expansion of McOpCo units first occurred in the late 1960s

Veteran franchisees were approaching retirement and needed liquidity McDonalds stock was provided as a tax-free exchange for the restaurants Some of our operators had tremendous wealth but no money. And we were using McDonalds stock that was trading at 25 times earnings to buy restaurants for seven times earnings (2) --Fred Turner / Former President and CEO
Turner realized in the mid 70s that owning too many McOpCo units was not in the best interest of the Company
________________________________________________
(1) (2)
From Grinding It Out: The Making of McDonalds, p. 108. From McDonalds: Behind the Golden Arches, pgs. 288 - 291.
21
II.
Superior Franchisee Economics
Running a McDonalds is a 363-day-a-year business and an owner/operator, with his personal interests and incentives, can inherently do a better job than a chain manager. (1)
--Fred Turner / Former President and CEO
Illustrative Characteristics of Company Operated versus Franchisee Operated Restaurants (2)
Company Operated
Structure Taxes Leverage Levered Returns General manager
________________________________________________
Franchisee Operated
C-Corporation Corporate level tax 10% - 30% Low teens Salaried employee/ corporate manager
22
LLC / Partnership No corporate level tax 75% - 90% 40% and higher Owner / Entrepreneur
(1) (2)
From McDonalds: Behind the Golden Arches, pgs. 288 - 291. Illustrative leverage and equity return figures. Not based on company data.
III. Pershings Proposal to McDonald's: McOpCo IPO
Pershings Proposal: McOpCo IPO
Step 1: IPO of 65% McOpCo IPO 65% of McOpCo IPO generates estimated $3.27bn of after tax proceeds Assumes a 7x EV/FY06E EBITDA multiple Assumes $1.35 bn of Net Debt allocated to McOpCo
Step 2: Issue Debt and Pursue Leveraged Self Tender Issue $14.7bn of financing secured against PF McDonalds real estate Debt financing and IPO proceeds used to Refinance all of the existing $5 bn of net debt at Pro Forma McDonalds Repurchase 316mm shares at $40 per share Pay $300mm in fees and transaction costs
24
Pershings Proposal: McOpCo IPO (contd)
Pro Forma
IPO 65%
McOpCo
At the time of IPO, McOpCo signs market lease and franchise agreements with Pro Forma McDonalds (PF McDonalds)
PropCo
FranCo
Resulting Pro Forma McDonalds is a world-class real estate and franchise business McOpCo financials deconsolidated from PF McDonalds Leverage is placed only on PropCo FranCo is unlevered, maximizing its credit rating
25
McOpCo IPO: A Transformational Transaction
An IPO of McOpCo would have several positive strategic and financial implications for both Pro Forma McDonalds as well as McOpCo.
Significant value creation for shareholders

PF McDonalds would trade at an approximate 37%52% premium over where it trades today, in the range of approximately $4550 per share (1)
Creates investor transparency

Deconsolidation provides investors with transparent insight into PF McDonalds profitability (60% EBITDA margins), attractive FCF profile (35% levered FCF margins) and world-class real estate/franchise assets Separation of McOpCo highlights the significant value of rental income and franchise fees currently eliminated in consolidation
Enhances management focus and incentives at both entities

Enhances ability to attract and retain top McOpCo management Allows PF McDonalds management team to focus on new product innovation, improved marketing efforts, stronger real estate development programs and higher quality franchisee performance monitoring / training
________________________________________________ (1)
Based on recent stock price of $33 per share.

26
A Transformational Transaction (Cont'd)
Improves operating and financial metrics at every level Significantly improves PF McDonalds EBITDA and free cash flow margins Enhances return on capital and overall capital allocation for the PF McDonalds Improves ability of PF McDonalds to pay significant ongoing dividends
Typical Standalone
$ in millions
Pro Forma FY 2006E
Mature QSR
FY 2006E
Revenue EBITDA EBITDA Margin EBITDA-Capex EBITDA-Capex Margin EBITDA-Maintenance Capex EBITDA - Maint. Capex Margin FCF FCF Margin
________________________________________________
$20,816 5,594 26.9% 4,335 20.8% 4,651 22.3% 3,059 14.7%

27
$7,393 4,464 60.4% 3,739 50.6% 4,025 54.4% 2,440 33.0%
15% - 20%
7.5% - 12.5% 10% - 15%
(1)
5% - 10%
We note that CapEx projections are net of proceeds obtained from store closures. (1) Typical QSR margin based on Wall Street estimates for YUM! Brands and Wendys.
An IPO of McOpCo would have several positive strategic and financial implications for both Pro Forma McDonalds as well as McOpCo.
Will likely lead to improved operating margins at McOpCo

Separation from PF McDonalds will make margin improvement an imperative
Improves capital structure while maintaining investment grade credit rating Low-cost secured debt to replace current debt or issued incrementally on current structure Cheap CMBS structured financing issued at PropCo could judiciously utilize strong real estate collateral CMBS financing is non-recourse to McDonalds (parent) FranCo remains unlevered and is at least a AA credit PF McDonalds, the holding company, remains investment grade Improves alignment with franchisees
(1)
Allows for share buybacks of higher return business

Separation of McOpCo allows for share buybacks to be targeted predominantly at PF McDonalds, the stronger free cash flow business
________________________________________________ (1)
Will be discussed at length later in the presentation.

28
An IPO of McOpCo would have several positive strategic and financial implications for both McDonalds as well as McOpCo.
Allows for a voice in McOpCo through governance

Given its 35% stake in McOpCo post spin-off, PF McDonalds will be able to elect several Board seats to the new entity Governance affords visibility in McOpCo operations, which will help in: managing the McDonalds brand extending new products through the franchisee system remaining in touch with unit-level economics and issues
Supported by highly similar, successful precedent transactions

Coca Cola Company carved-out its owned bottling operations in 1986 in what is widely viewed as one of the most successful restructurings of all time PepsiCo followed suit in a similar transaction in 1999, with unanimous support from the Wall Street research analyst community
Allows for an accelerated McOpCo refranchising program Increases overall size of PF McDonalds investor base
Strong potential to attract both dividend / income-focused investors and real estate-focused investors
29
Publicly Traded Comparable Companies
PF McDonalds operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical mature QSR.
Pro Forma Typical Mature (1) QSR
~15% - 20% ~7.5 % - 12.5% ~10% - 12%
Typical Real Estate C-Corp

~70% - 80% ~65% - 75% NA
High Branded Intangible Property Choice Hotels

66% 61% 16% 23% 18% 11% 31% 27% 9%
2005E Operating Metrics: EBITDA Margins EBITDA CapEx Margins EPS Growth Trading Multiples Adjusted Enterprise Value CY 2006E EBITDA CY 2006E EBITDA CapEx Price / CY 2006E EPS CY 2006E FCF
(3) (2)
60% 50% 9%
/ ~8.5x - 9.5x ~12x - 15x ~13x - 16x ~17x - 20x 15.1x 16.0x 12.3x 15.5x 12.6x 14.2x
~15x - 19x ~16x - 20x
NA ~20x - 25x
24.3x 24.0x
20.1x 20.8x
18.8x 18.9x
Leverage Multiples Net Debt / EBITDA Total Debt / Enterprise Value

________________________________________________
~0.5x - 1.8x ~7.5% - 20%
~5x - 10x ~35% - 60%
1.7x 11%
0.0x 4%
NM 4%
Stock prices as of 11/11/05. Projections based on Wall Street estimates. (1) Typical mature QSR based on YUM! Brands and Wendys. (2) Adjusted for unconsolidated assets. (3) FCF denotes Net Income plus D&A less CapEx.
30
REITs: Typical Trading Multiples
We believe REITs trade in the range of 13x-17x EV/06E EBITDA, depending on the type of real estate and the businesses the properties support.
EV / '06E Company Health Care Industrial Multifamily Office Regional Mall Self Storage Strip Center Triple Net Lease REIT Industry Total / Wtd. Avg. EBITDA 14.7x 16.3x 17.0x 15.2x 16.3x 17.5x 15.5x 13.1x 15.7x
Div. Yield 6.3% 4.2% 4.8% 4.7% 3.8% 3.8% 4.5% 6.4% 4.8%
P / '06E FFO 12.6x 13.9x 16.6x 13.8x 14.2x 16.7x 14.4x 12.8x 14.4x
P / '06E AFFO 13.3x 17.2x 19.4x 19.6x 16.9x 18.3x 16.5x 13.4x 16.8x
________________________________________________ Based on Wall Street research estimates at the time of Pershings initial Proposal to the Company.
31
Significant Value Creation for Shareholders
$ in millions
Based on relevant publicly traded comparable companies, including several real estate holding CCorporations, Pro Forma McDonalds would trade in the range of 12.5x 13.5x EV/CY 06E EBITDA. We believe PF McDonalds would trade at a 37%52% premium over where it trades today.
Low 12.5x $55,799

(1)
High 13.5x $60,263 14,650 2,493 $48,106 957.3 $50 52.3%

22.2x
EV/'06E EBITDA Multiple Range Enterprise Value Less: Net Debt (12/31/05E) Equity Value Ending Shares Outstanding (12/31/05E) (3) Price Per Share Premium to recent price (4)
Implied P/FY 2006 EPS Multiple
14,650 2,097 $43,247 957.3 $45 36.9%

19.9x
Plus: Remaining Stake in McOpCo (2)
Implied P/FY 2006 FCF Multiple (5)

Implied FCF / Dividend Yield
19.8x
5.1%
21.9x
4.6%
________________________________________________ (1) Assumes $1.35 bn of net debt allocated (2) (3) (4) (5)
to McOpCo and $5.0 bn of net debt allocated to PF McDonalds. In addition, assumes $9.7 bn of incremental leverage placed on PF McDonalds. Represents 35% of the market equity value of McOpCo. Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately 316 mm shares at an average price of $40. Assumes a recent stock price of $33. P / FY 06E FCF multiple adjusted for Pro Forma McDonalds 35% stake in McOpCo.
32
McOpCo Valuation Summary and Potential IPO Proceeds
McOpCo would likely be valued at $6.0 billion to $7.1 billion of equity market value or 6.5x7.5x EV/06E EBITDA.
McOpCo Financial Summary

$ in millions McOpCo Financial Summary Company operated revenues Segment EBITDA, pre G&A EBITDA Margin, pre G&A Assumed G&A for McOpCo Assumed G&A as a Percentage of Total G&A EBITDA post G&A EBITDA Margins Net Income EPS FY 2006E $15,429 1,690 11.0% 560 25.0% $1,130 7.3% $308 $0.24
$ in millions
McOpCo Valuation Summary

Low 6.5x $7,343 1,350 $5,993 1,274 $4.70 $3,042 High 7.5x $8,472 1,350 $7,122 1,274 $5.59 $3,497 EV/'06E EBITDA Multiple Range McOpCo Enterprise Value Net Debt (12/31/05) Equity Value of McOpCo Ending Shares Outstanding Price per share Estimated After-Tax IPO Proceeds (1) See appendix for after-tax IPO proceeds schedule
________________________________________________ (1)
See appendix for McOpCo IPO after-tax proceeds schedule.

33
Pro Forma McDonalds: Valuation Summary
The valuation of PF McDonalds suggests a valuation range of $45$50 per share. Based on the midpoint of the valuation analysis, PF McDonalds could be worth $47.50 per share, a 44% premium over where it trades today.
PF McDonald's Summary Financials

$ in millions Financial Summary Franchise Revenue Real Estate Revenue Total Revenue Franchise EBITDA, Pre G&A Real Estate EBITDA, Pre G&A Less: Allocated G&A Assumed G&A as a Percentage of Total G&A Total EBITDA EBITDA Margins Net Income EPS FY 2006E $2,275 5,118 $7,393 $2,275 3,869 1,680 75.0% $4,464 60.4% 2,141
$2.27
$ in millions
PF McDonald's Valuation
Low 12.5x $55,799
(1) (2)
High 13.5x $60,263 14,650 2,493 $48,106 957.3 $50 52.3%

22.2x
EV/'06E EBITDA Multiple Range Enterprise Value Less: Net Debt (12/31/05E) Equity Value Ending Shares Outstanding (12/31/05E) Price Per Share Premium to recent price (4)
Implied P/FY 2006 EPS Multiple
(3)
14,650 2,097 $43,247 957.3 $45 36.9%

19.9x
Plus: Remaining Stake in McOpCo
Implied P/FY 2006 FCF Multiple

Implied FCF / Dividend Yield
(5)
19.8x
5.1%
21.9x
4.6%
Memo:Share Buyback: Incremental Debt Issued Less Transaction Fees and Expenses (6) Approximate Cash Received From IPO, after Tax Total Funds Available for Repurchase # of shares repurchased (mm) Average price of stock purchased
$9,685 ($300) $3,270 $12,654 316 $40
________________________________________________ (1)
(2) (3)
(4) (5) (6)
Assumes $1.35 billion of net debt allocated to McOpCo and $5.0 billion of net debt allocated to PF McDonalds. In addition, assumes $9.7 billion of incremental leverage placed on PF McDonalds. Represents 35% of the market equity value of McOpCo. Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately shares 316 million shares at an average price of $40. Assumes a recent stock price of $33. P / FY 06E FCF multiple adjusted for Pro Forma McDonalds 35% stake in McOpCo. Fees and expenses associated with the IPO and financing transactions. 34
Capitalization and Credit Profile of Pro Forma McDonalds
Set forth below are the sources and uses of proceeds associated with a $14.7 bn issuance of secured collateralized financing (net of cash on hand), or an incremental $9.7 of net debt, based on expected net debt as of FY 2005E. We have assumed a 5% fixed rate for this collateralized financing. After this transaction, Pro Forma McDonalds would be leveraged approximately 3.5x Total Debt/EBITDA or at a 25% Debt to Enterprise Value ratio. Proceeds from this issuance would be used to repay existing debt, buyback shares and pay financing fees and expenses.
$ in millions
Sources
New CMBS Financing (net of cash) Percentage Loan to Value Total $14,650 44% $14,650
PF McDonald's Capital Structure

Total Net Debt at Stand-alone McDonalds Less: Net Debt Allocated to McOpCo Net Debt at PF McDonalds Incremental Debt Issued through CMBS Total Net Debt Total Debt / EBITDA Net Debt / EBITDA Assumed Corporate Credit
Total Debt / Total Capitalization
FY2005E $6,315 (1,350) $4,965 9,685 $14,650 3.5x 3.4x Investment Grade
24.5%
Uses
Repay Existing Net Debt at PF McDonald's Buyback Shares Fees and Expenses Total $4,965 9,535 150 $14,650
35

Total Debt / 05E EBITDA
12.0x 9.0x 6.0x 3.0x 0.0x 3.5x
(1)
Comparing PF McDonalds Credit Stats with Comparable Real Estate Holding C-Corporations
11.3x 8.1x 6.1x
10.2x
Brookfield Properties
British Land
Land Securities
Forest City Enterprises
Pro Forma
Debt / Enterprise Value
100% 75% 50% 25% 0% Brookfield Properties British Land Land Securities Forest City Enterprises 25% 48% 56% 35% 59%
Pro Forma
EBITDA/Interest: Rating:
________________________________________________ (1) (2)
5.8x (2)
2.3x BBB
36
1.5x BBB
2.5x NR
NA BB+
Based on Wall Street research estimates. Pro Forma McDonalds EV assumes a valuation multiple of 13x EV/FY06 EBITDA. Assumes an average 5% fixed rate on PF McDonalds debt.
Credit Ratings of Large Public REITs
A review of large REITs indicates that these businesses support investment grade ratings with a debt to enterprise value of 36% on average, as compared to Pro Forma McDonalds which would have a debt to enterprise value of 25%.
Company Name Simon Property Group Inc. Equity Office Properties Trust Vornado Realty Trust Equity Residential Prologis Archstone-Smith Trust Boston Properties Inc. Kimco Realty Corp. AvalonBay Communities Inc.
Total Debt/ Enterprise Value 47.2% 50.9% 37.4% 38.4% 31.5% 33.5% 36.0% 25.2% 27.3%
Moody's Rating Baa2 Baa3 Baa3 Baa1 Baa1 Baa1 NR Baa1 Baa1
Moody's Outlook Stable Stable Stable Stable Stable Stable NR Stable Stable
S&P Rating BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ ABBB+
S&P Outlook Stable Stable Stable Stable Stable Stable Stable Stable Stable
Median Total Debt/EV Average Total Debt/EV PF McDonald's Total Debt/EV
36% 36% 25%
________________________________________________
Notes: Stock prices as of 11/11/2005. PF McDonalds EV assumes a valuation multiple of 13x EV/FY06 EBITDA. Total Debt includes Preferred.
37
Pro Forma McDonalds Has A Superior Credit Profile to a Typical REIT
Despite being a C-Corp and lacking the tax advantages of a REIT, PF McDonalds has several superior credit characteristics REITs are required to pay 90% of earnings through dividends, whereas Pro Forma McDonalds has much more credit flexibility PF McDonalds has significant brand value to support its cash flows and overall credit
38
IV. Company Response to Pershing
Company Response to Pershing
McDonalds asked its Advisors to help review the Proposal Goal was to review the proposal to assess 4 critical areas:
Advisors reported back with judgments on (1) Valuation (2) Credit Impact McDonalds Management reviewed the Proposal to assess (3) Friction Costs (4) Governance / Alignment Issues
40
Management Concerns: Friction Costs, Credit Impact and Governance Issues
Friction Costs
Some friction costs associated with the CMBS financing structure, but not a gating issue
Credit Impact
Incremental $9bn of leverage as proposed may put pressure on credit rating
Alignment Issues
Separation of McOpCo from PF McDonalds may cause alignment issues in the system
Potential property tax revaluations Legal costs Large transaction for CMBS market Mostly driven by CMBS financing
Rating agency consolidation of McOpCo Lease commitments viewed as leverage
McDonalds management stated that, assuming adequate value creation, none of these issues would prevent a restructuring
41
Valuation: Judgments Made by Advisors
Advisors were assigned to review the Proposal In general, Advisors agreed with Pershing on: McOpCo valuation Relative allocation of EBITDA between McOpCo and PF McDonalds However, their judgment was that PF McDonalds would not enjoy significant multiple expansion
PF McDonalds would trade like a restaurant stock
42
V. Developing a Response to the Company
V.
Developing a Response to the Company
Pershings Response Regarding Friction Costs and Credit Impact
Friction Costs Friction costs immaterial in the context of value creation Friction costs and transaction delays were driven by CMBS financing Similar transaction could be effected with corporate debt
Credit Impact Stability of PF McDonalds cash flow stream and robust asset base should allow it to incur additional debt without a material adverse change in rating YUMs credit rating is BBB-
44
V.
Franchisee Alignment: Skin in the Game
Franchisor/Franchisee Conflict
Top Line (percent of sales) vs. Bottom Line
Some believe this conflict is mitigated by owning and operating units However, many of the most successful franchisors operate few, if any, units
Historical McDonalds Subway Dunkin Donuts Tim Hortons
McDonalds current skin in the game is overstated due to lack of transfer pricing
We believe McOpCo represents ~10% of McDonalds total value
PF McDonalds role as landlord, franchisor, 35% shareholder and board member, leaves them with ample skin in the game
45
V.
Franchisee Alignment: Benefits to Franchisees of an independent McOpCo

McOpCo IPO would shift some power to the franchise baseA good thing
Franchisees know whats best operationally Franchisees have been the source of most product innovations (i.e. Big Mac, Egg McMuffin, Filet-o-Fish, Apple Pie) Driving force behind current process innovations (call centers at drivethru) IPO would sharpen focus on being best in class franchisor
Level the playing field: McOpCo should compete on the same basis as franchisees
Pay market rent and franchise fees Be focused on bottom-line profitability Be run by equity compensated management
Opportunity for Franchisees to expand unit count

Heavy demand among operators to acquire/manage additional units McOpCo should refranchise units better managed by franchisees
46
V.
What It Boils Down To: Valuation of PF McDonalds
Although there are some differences in opinion regarding friction costs, leverage and potential alignment issues, the key disparity between Pershing and the Companys views was regarding the Valuation of Pro Forma McDonalds
47
V.
PF McDonalds FY2005E EBITDA pre-G&A Contribution
Pro Forma McDonalds is Not a Restaurant Company
Brand Royalty 37%
63% Real Estate

48
V.
Comparable Companies
PF McDonalds operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical QSR.
Assumes PF McDonalds price of ~$47.50
2005E Operating Metrics: EBITDA Margins EBITDA CapEx Margins EPS Growth Trading Multiples Adjusted Enterprise Value (2) / CY 2006E EBITDA CY 2006E EBITDA CapEx Price / CY 2006E EPS CY 2006E FCF
(3)
Pro Forma

~70% - 80% ~65% - 75% NA
High Branded Intangible Property Choice Hotels

66% 61% 16% 23% 18% 11% 31% 27% 9%
Typical Mature QSR

~15% - 20% ~7.5 % - 12.5% ~10% - 12%
60% 50% 9%
13.0x 15.5x
~13x - 16x ~17x - 20x
15.1x 16.0x
12.3x 15.5x
12.6x 14.2x
~8.5x - 9.5x ~12x - 15x
21.1x 20.9x
NA ~20x - 25x
24.3x 24.0x
20.1x 20.8x
18.8x 18.9x
~15x - 19x ~16x - 20x
Leverage Multiples Net Debt / EBITDA Total Debt / Enterprise Value

________________________________________________
3.4x 24%
~5x - 10x ~35% - 60%
1.7x 11%
0.0x 4%
NM 4%
~0.5x - 1.8x ~7.5% - 20%
Stock prices as of 11/11/05. Projections based on Wall Street estimates. (1) Typical mature QSR based on YUM! Brands and Wendys. (2) Adjusted for unconsolidated assets. (3) FCF denotes Net Income plus D&A less CapEx.
49
V.
Significant Free Cash Flow Yield / Dividend Yield Assuming No Incremental Debt
At McDonalds current price of approximately $33 per share, we estimate Pro Forma McDonalds dividend / FCF yield would be approximately 6.7%. (1)
McDonald's Stock Price McOpCo Share Price (7x EV / EBITDA Multiple) Implied Pro Forma McDonald's Share Price Yield on Pro Forma McDonald's
Memo: Pro Forma McDonald's Free Cash Flow 2006E EBITDA Less: Maintenance Capital Expenditures Less: Growth Capital Expenditures Plus / Less: Decreases / (Increases) in Working Capital Less: Interest (1) Less: Cash Taxes Free Cash Flow PFMcDonald's Shares Out (assuming no self-tender) Free Cash Flow per Share
________________________________________________ (1)
$33.00 $5.15 27.85 6.7%
$37.00 $5.15 31.85 5.9%
$41.00 $5.15 35.85 5.2%
$45.00 $5.15 39.85 4.7%
$49.00 $5.15 43.85 4.3%
$53.00 $5.15 47.85 3.9%
$57.00 $5.15 51.85 3.6%
$4,464.0 (438.6) (285.9) 6.2 (250.0) (1,112.7) $2,383.0 1,273.7 $1.87
Assuming PF McDonalds pays out 100% of its FCF as dividends. (2) Assumes no incremental leverage and an average cost of debt of 5% on the existing $5 bn of net debt at Pro Forma McDonalds.
50
V.
Pro Forma McDonalds: Stable and Growing
Pershing believes the best way to think about Pro Forma McDonalds is as a growing annuity.
Real Estate and Franchise EBITDA ($ in billions) Based on Pershing Assumptions
$4.0
Based on Reported Financials
$3.0
$2.0
$1.0
$1.5
$0.0
$1.6
$1.8
$1.9
$2.1
$2.5
$2.6
$2.7
$2.9
$3.2
$3.1
$3.1
$3.2
$3.6
$4.0
1990
Real Estate & Franchise EBITDA Growth:
________________________________________________
1991
4.9%
1992
11.7%
1993
8.5%
1994
10.4%
1995
15.3%
1996
4.0%
1997
4.3%
1998
10.1%
1999
7.4%
2000
(0.5%)
2001
0.1%
2002
0.9%
2003
12.6%
2004
13.4%
V.
Which Would You Rather Own: Pro Forma McDonalds or a Large Retail REIT?
McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Scenario 1: No Sharebuyback No Incremental Leverage Pre-Tax Yield (2) After-Tax Investor Yield (3) Estimated LT Dividend Growth
$33.15 5.15 $28.00 6.7% 5.7%
$35.15 5.15 $30.00 5.9% 5.0%
$40.15 5.15 $35.00 5.2% 4.4% 3% - 4%
$45.15 5.15 $40.00 4.7% 4.0%
$50.15 5.15 $45.00 4.3% 3.6%
$55.15 5.15 $50.00 3.9% 3.3%
$60.15 5.15 $55.00 3.6% 3.1%
Typical Large Retail REIT (1) 4.0% 2.6% 3%- 6%
Scenario 2 Proposed Sharebuyback
PF McDonald's Stock Price Pre-Tax Yield

(4)
$28.00 8.5% 7.2%
$30.00 7.9% 6.7%
$35.00 6.7% 5.7% 3% - 4%
$40.00 5.8% 4.9%
$45.00 5.1% 4.3%
$50.00 4.6% 3.9%
$55.00 4.1% 3.5%
After-Tax Investor Yield (4) Estimated LT Dividend Growth

________________________________________________
Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo. (1) Retail / REIT dividend yield based on Simon Property Group. Illustrative LT Dividend growth based on Pershings estimates. (2) Assumes full payout of free cash flows for PF McDonalds. (3) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the REIT dividend. (4) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.
52
V.
Which Would You Rather Own: Pro Forma McDonalds or 10-Year U.S. Treasury?
McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Scenario 1: No Sharebuyback No Incremental Leverage Pre-Tax Yield
(1)
$33.15 5.15 $28.00 6.7% 5.7%
$35.15 5.15 $30.00 5.9% 5.0%
$40.15 5.15 $35.00 5.2% 4.4% 3% - 4%
$45.15 5.15 $40.00 4.7% 4.0%
$50.15 5.15 $45.00 4.3% 3.6%
$55.15 5.15 $50.00 3.9% 3.3%
$60.15 5.15 $55.00 3.6% 3.1% 3% - 4%
10 Year Treasury 4.6% 3.0% 0%

(3)
$28.00 8.5% 7.2%
$30.00 7.9% 6.7%
$35.00 6.7% 5.7% 3% - 4%
$40.00 5.8% 4.9%
$45.00 5.1% 4.3%
$50.00 4.6% 3.9%
$55.00 4.1% 3.5% 3% - 4%

________________________________________________
Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo. (1) Assumes full payout of free cash flows for PF McDonalds. (2) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the 10-Year Treasury dividend. (3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.
53
V.
Which Would You Rather Own: Pro Forma McDonalds or a Treasury Inflation Protected Security (TIPS)?
McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Scenario 1: No Sharebuyback No Incremental Leverage Pre-Tax Yield (1) After-Tax Investor Yield (2) Estimated LT Dividend Growth
$33.15 5.15 $28.00 6.7% 5.7%
$35.15 5.15 $30.00 5.9% 5.0%
$40.15 5.15 $35.00 5.2% 4.4% 3% - 4%
$45.15 5.15 $40.00 4.7% 4.0%
$50.15 5.15 $45.00 4.3% 3.6%
$55.15 5.15 $50.00 3.9% 3.3%
$60.15 5.15 $55.00 3.6% 3.1%
10 Year TIPS 2.1% 3.0% 2.5%

(3)
$28.00 8.5% 7.2%
$30.00 7.9% 6.7%
$35.00 6.7% 5.7% 3% - 4%
$40.00 5.8% 4.9%
$45.00 5.1% 4.3%
$50.00 4.6% 3.9%
$55.00 4.1% 3.5%

________________________________________________
Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo. (1) Assumes full payout of free cash flows for PF McDonalds. (2) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the TIPS dividend. (3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.
54
V.
Valuation of McDonalds as a Growing Annuity
Based on a review of the cost of capital of Real Estate holding corporations and Intangible Property / Franchise businesses like Coca Cola and Choice Hotels, we believe that Pro Forma McDonalds levered FCF could have a discount rate in the area 7.25% - 7.75%. As such, we believe PF McDonalds would have a FCF Yield of 4.25% - 5.25%. This implies a midpoint equity valuation range of $48 per share.
Estimated Discount Rate Implied Perpetuity Growth Rate Implied FCF Yield Implied FCF Multiple FY'06E Free Cash Flow per Share (1) (Note: FCF Assumes Proposal Scenario)
Low 7.75% 2.50% 5.25% 19.0x $2.17
High 7.25% 3.00% 4.25% 23.5x $2.17
Midpoint of PF McDonalds Equity Value per Share(2): $48
________________________________________________ (1) (2)
Assumes no dividend paid in FCF calculation. Includes the value of PF McDonalds 35% equity stake in McOpCo (approx. $2 per share). Assumes a 7x EV / FY 06E EBITDA McOpCo valuation multiple.
55
V.
Conclusions
McDonalds is significantly undervalued today Over 80% of its cash flows comes from real estate income and franchise income Proposal creates value for several reasons Increases shareholder value Improves management focus Increases transparency Improves capital allocation Improves franchise alignment There are multiple ways to unlock value Pershings Initial Proposal Variations on Pershings Initial Proposal
56
V.
Next Steps
Engage constituents regarding proposal Shareholders Franchisees Broad investment community Incorporate your feedback Consider revised proposal
57
V.
Q&A
58
Appendix
A. Pershings Proposal: Assumptions
McOpCo IPO: General Assumptions
Pershing has assumed the following structural and tax assumptions with respect to an IPO spin-off of McOpCo.
65% of McOpCo shares are IPOed in the transaction 35% stake retained by PF McDonalds allows for McOpCos business to be deconsolidated McOpCo is assumed to be essentially a debt free subsidiary Immediately prior to the IPO, $1.35bn of McDonalds consolidated FY 05E net debt is allocated to McOpCo $1.5 billion of total debt allocated $150mm of cash and cash equivalents allocated The remaining $5bn of FY 05E net debt is allocated to PF McDonalds $5.15bn of total debt $150mm of cash and cash equivalents McOpCos tax basis is assumed to be approximately $1.65 billion Tax basis is equal to $3 billion of initial assumed basis (based on an assessment of net equipment and other property at McDonalds) less $1.35 billion of allocated net debt To the extent that the IPO distribution exceeds PF McDonalds tax basis in McOpCo, then the tax cost for the IPO would be the amount by which the IPO distribution exceeds McDonald's basis multiplied by McDonalds corporate and state/local tax rate
61
McOpCo IPO: Structural And Tax Observations
Step 1: McOpCo dividends a $4.2bn Note to McDonalds (parent)
Step 2: IPO of McOpCo and Tax Costs

Equity Markets
IPO of McOpCo Shares
Step 3: Leveraged Self-Tender at Pro Forma McDonalds
Pro Forma
PF McDonalds performs a leveraged self-tender $4.2 bn cash received
$4.2bn Note
McOpCo
McDonalds retains 35% stake
McOpCo
McOpCo repays $4.2 bn Note to McDonalds
PropCo
Issues CMBS financing, or $9.7bn of incremental debt
FranCo
No debt at FranCo
McOpCo declares and pays a dividend to McDonalds (parent) in the form of a Note in an amount equal to the anticipated proceeds from an initial public offering of McOpCo For illustrative purposes, we assume the Note is for $4.2bn, or 65% of the equity market value of McOpCo (assumed to be $6.5bn)
McOpCo undertakes the IPO and uses the proceeds to repay the dividend note. The tax cost for the IPO would be the amount by which the IPO distribution exceeded McDonald's basis in the McOpCo stock multiplied by McDonalds corporate and state/local tax rate Assuming a $4.2bn of IPO distribution, the tax cost would be approximately $1bn Tax cost equals $4.2 billion of distribution less $1.65 billion of basis multiplied by the tax rate of 38% As such, after tax proceeds of the McOpCo IPO will be approximately $3.2 billion
62
PF McDonalds is organized as a real estate business (PropCo) and a franchise business (FranCo) PropCo issues secured financing with proceeds used for Repaying existing debt at PF McDonalds Buying back shares PF McDonalds performs a self tender using proceeds from: New CMBS financings After tax proceeds of IPO
McOpCo IPO Proceeds
McOpCo IPO After Tax Proceeds

Set forth herein is a schedule of the after-tax proceeds from the McOpCo IPO.
Low Taxes payable McOpCo Equity Market Value IPO Percentage Distribution to PF McDonald's $5,993 65% $3,895 $7,122 65% $4,630 $6,558 65% $4,262 High Average
Book Basis of McOpCo Net Debt Allocated to McOpCo Adjusted Basis in McOpCo
3,000 (1,350) 1,650
3,000 (1,350) 1,650
3,000 (1,350) 1,650
Taxable Gain Tax Rate Taxes payable
$2,245 38% $853
$2,980 38% $1,132
$2,612 38% $993
After Tax Proceeds Distribution Taxes Payable After Tax Distributions

63
$3,895 (853) $3,042
$4,630 (1,132) $3,497
$4,262 (993) $3,270
Collateralized Financing
Assuming PF McDonalds owns the land and building of 37% of its system wide units and owns the buildings of 22% of its system wide units, then a preliminary valuation of McDonalds real estate suggests a value of $33 billion.
Avg. Annual Rev. Per Unit Est. Market Rent % Est. Market Rent $ Est. # of Units Est. Rent Income Cap Rate Total Real Estate Value
$ in million
Property Value Owns Land and Building Owns Building (Leases Land)
1.75 1.75
9.0% 4.5%
0.16 0.08
11,709 6,962
1,844.2 548.3 Estimated Property Value
7.0% 8.0%
$26,346 $6,854 $33,200
$ in million
Est. Rent Spread Per Avg unit
Est. # of Units
Est. Rent Income, Net
Cap Rate
Total Real Estate Value
Leasehold Value Leaseholds
0.10
12,975
1,322.8 Estimated Leasehold Value
10.0%
$13,228 $13,228 $46,428
Total Real Estate Collateral Value
64
PF McDonalds: Cost of Capital
We estimated the asset betas of several Real Estate holding C-Corporations and several high branded intellectual property businesses.
High Branded Intangible Property Business Betas (Dollar values in millions)
Adjusted Equity Beta 0.49 0.46 0.86 0.60 0.49 Cost of Equity 7.3% 7.2% 9.3% 7.9% 7.3% Equity Value $101,776.1 99,498.9 2,285.7 $67,853.6 99,498.9 Total Debt $4,200.0 4,607.0 296.7 $3,034.6 4,200.0 Preferred Stock 41.0 $13.7 Marginal Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Beta 0.48 0.45 0.79 0.57 0.48 Total Debt & Preferred / TEV 4.2% 4.7% 11.7% 6.8% 4.7%
Company Coca Cola Co. Pepsico Inc. Choice Hotels Mean Median
Real Estate Business Betas (Dollar values in millions)

Adjusted Equity Beta 0.62 0.80 0.66 0.55 0.66 0.64 Cost of Equity 8.0% 9.0% 8.2% 7.7% 8.2% 8.1% Equity Value $8,913.9 6,805.9 3,863.9 12,279.2 $7,965.7 7,859.9 Total Debt $11,391.1 6,208.0 5,566.0 6,484.2 $7,412.3 6,346.1 Preferred Stock 1,477.0 $369.3 Marginal Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Beta 0.34 0.45 0.35 0.42 0.39 0.38 Total Debt & Preferred / TEV 56.8% 60.5% 59.3% 34.6% 52.8% 58.0%
Company British Land Brookfield Properties Forest City Enterprises Land Securities Mean Median
Note: Market information as of 11/10/05. Utilized treasury stock method. Sources: Barra, company reports, Factset, and Wall Street Equity research.
65
PF McDonalds: Cost of Capital (Contd)
Based on a blended asset beta calculation we determined a range of values for the WACC of PF McDonalds.
Blended Asset Beta Calculation
Asset Beta Average Real Estate Unlevered Asset Beta
Main Target Assumptions PreTax Cost of Debt Risk-Free Rate Equity Risk Premium Tax Rate WACC Calculation Unlevered Asset Beta Releverd Beta Levered Cost of Equity Equity Weight AfterTax Cost of Debt Target Debt & Pref. / TEV Implied Debt / Equity WACC
% Contribution from Real Estate 60.0%

6.0% 4.6% 5.0% 38.0%
Asset Beta Average High Branded Intellectual Property Unlevered Asset Beta 0.57
% Contribution from High Branded Intellectual Property 40.0%
Blended Average Unlevered Asset Beta 0.45
0.38
WACC Sensitivity Analysis Levered Beta 0.55 6.1% 6.5% 6.9% 7.3%
Equity Risk Premium
0.46 0.56 7.4% 75.0% 3.7% 25.0% 33.3% 6.5% Debt / TEV
4.0% 5.0% 6.0% 7.0%
0.45 5.8% 6.1% 6.4% 6.8%
0.50 5.9% 6.3% 6.7% 7.0%
0.60 6.2% 6.7% 7.1% 7.6%
0.65 6.4% 6.8% 7.3% 7.8%
15.0% 20.0% 25.0% 30.0% 35.0%
0.45 6.4% 6.2% 6.1% 5.9% 5.8%
0.50 6.6% 6.4% 6.3% 6.1% 5.9%
Levered Beta 0.55 6.8% 6.6% 6.5% 6.3% 6.1%
0.60 7.0% 6.8% 6.7% 6.5% 6.3%
0.65 7.3% 7.0% 6.8% 6.6% 6.4%
Note: Market information as of 11/10/05. Utilized treasury stock method. Sources: Barra, company reports, Factset, and Wall Street Equity research.
66
B. PF McDonald's Financial Analysis
Pro Forma McDonalds: Model Key Drivers
Set forth herein are the assumptions for the Pro Forma McDonalds business.
Net Unit Growth Approximates 1.5% - 2.0% of total franchise system unit growth annually or 1.0% - 1.5% of systemwide unit growth Revenue drivers: Average systemwide same-store sales CAGR of ~2.5% annually Rental revenue from franchisees of 9.0% of franchise & affiliated system sales Rental revenue from McOpCo of 9.0% of McOpCo sales Franchise revenue from franchisees of 4.0% of franchise & affiliated system sales Franchise revenue from McOpCo of 4.0% of McOpCo sales Cost drivers: Franchise rental expense based on a historical % of rental revenue from franchisees McOpCo rental expense based on a historical % of rental revenue from McOpCo D&A calculated assuming a 20-year useful life for existing net depreciable PP&E of approximately $12.5 billion (excluding land), and a 20-year useful life for depreciable PP&E purchased in the future 75% of SG&A allocated to Pro Forma McDonalds Net CapEx drivers: All CapEx is net of proceeds received from store closures $1.3 million of CapEx for each new unit where Pro Forma McDonalds owns the land and the building in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter $650K million of CapEx for each new unit where Pro Forma McDonalds owns the building but not the land in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter Run-rate maintenance CapEx of approximately $320 million, implying approximately $10K per system wide unit, growing at 2% Allocation of 75% of consolidated McDonalds corporate CapEx Consolidated corporate CapEx held constant at 0.7% of sales Other Incremental total debt of $9.7 billion, resulting in total debt of approximately $14.8 billion (net debt of $14.65bn) Free cash used to buy back shares and pay dividends $150 mm minimum cash balance Tax rate of 32% Minimal working capital requirements 25% Debt to Cap ratio increasing to 30% in 2008 Assumes an illustrative 30% dividend payout ratio to match current consolidated McDonalds
68
2004 McDonalds P&L As Reported McDonalds
Set forth below is table which reconciles McOpCos, the Real Estate and Franchise businesses and stand-alone McDonalds FY 2004 income statements, as they are currently reported. The analysis demonstrates how McOpCo is paying neither a market rent nor a franchise fee.
(U.S. $ in millions) 2004 Income Statement Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Franchise Fees From Franchise and Affiliate Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Occupancy and Other Expenses (excl. D&A) Company Operated D&A Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA % of Total EBITDA
________________________________________________
McOpCo P&L $14,224
Real Estate and Franchise P&L 3,336 1,505 $4,841 347 $347 576 427 1,485 2,006 774 $2,780 54%
2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 4,853 3,726 2,747 427 $11,753 495 1,976 427 $2,403 46%
The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. To the extent that there should be more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at the Real Estate and Franchise business than what is shown here. Note: Analysis excludes $441 mm of non-recurring other net operating expenses. 69
2005E P&L Reconciliation
Set forth below is a table which reconciles McOpCos, Pro Forma McDonalds and standalone McDonalds FY 2005E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses.
(U.S. $ in millions) 2005 Projected Income Statement Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA % of Total EBITDA Maintenance Capex EBITDA - Maintenance Capex % of Total EBITDA - Maintenance Capex
________________________________________________ (1)
McOpCo P&L $15,042
Pro Forma McDonald's P&L 3,578 1,354 1,590 602 $7,124 214 616 $830 600 499 1,631 3,564 712 $4,277 80% 749 3,528 86%
2005 Consolidated Sum of Parts $15,042 3,578 1,590 $20,211 5,132 3,926 2,400 789 616 $12,863 600 499 2,174 4,075 1,288 $5,362 100% 1,250 4,113 100%
$15,042 3,578 1,590 $20,211 5,132 3,926 2,400 789 616 $12,863 600 499 2,174 4,075 1,288 $5,362 100% 1,250 4,113 100%
(1,354) (602) ($1,956) (616) (737) (602) ($1,956) -
$15,042 5,132 3,926 2,400 576 616 737 602 $13,989 544 510 576 $1,086 20% 501 585 14%
$0
Assumes total PF McDonalds D&A of approximately $712 million, which is composed of $499 million (or 70%) of franchise PP&E and $214 million (or 30%) of D&A associated with company-operated units. 70
2006E P&L Reconciliation
Set forth below is a table which reconciles McOpCos, Pro Forma McDonalds and standalone McDonalds FY 2006E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses.
(U.S. $ in millions)
(U.S. $ in millions)
Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA from Operations % of Total EBITDA Maintenance Capex EBITDA - Maintenance Capex % of Total EBITDA - Maintenance Capex
________________________________________________ (1) Assumes total PF McDonalds D&A
2006 Projected Income Statement

$15,429 3,730 1,658 $20,816 5,264 4,012 2,458 808 632 $13,174 617 516 2,240 4,269 1,324 $5,594 100% 943 4,651 100%
McOpCo P&L
$15,429 $15,429 5,264 4,012 2,458 587 632 756 617 $14,327 560 542 587 $1,130 20% 504 626 13%
Pro Forma McDonald's P&L

3,730 1,389 1,658 617 $7,393 221 632 $853 617 516 1,680 3,727 737 $4,464 80% 439 4,025 87%
(1,389) (617) ($2,006) (632) (756) (617) ($2,006) $0
2006 Consolidated Sum of Parts

$15,429 3,730 1,658 $20,816 5,264 4,012 2,458 808 632 $13,174 617 516 2,240 4,269 1,324 $5,594 100% 943 4,651 100%
of approximately $737 million, which is composed of $516 million (or 70%) of franchise PP&E and $221 million (or 30%) of D&A associated with
71
company-operated units.
2006E Net Capital Expenditures Reconciliation
Set forth herein is a table which demonstrates net capital expenditures by category for McOpCo, PF McDonalds and the standalone (consolidated) McDonalds. Note: Our Free Cash Flows are derived using Net Capital Expenditures, net of proceeds received from closures. We note that the Company typically generates $300 - $400mm of proceeds annually from closings.
2006E Net Capital Expenditures (U.S. $ in millions) Consolidated McDonald's New Restaurants, Net Existing Restaurants Corporate/Other Net Capital Expenditures $316 787 156 $1,259 McOpCo $30 465 39 $534 Pro Forma McDonald's $286 322 117 $724
72
PF McDonalds: Summary Income Statement
Below are the summary projections for Pro Forma McDonalds based on the assumptions detailed on page 68.
($ in millions, except per share data) 2002A Income Statement Data Revenue % Growth EBITDA % Margin EBITDA - CapEx % Margin D&A EBIT % Margin Net Interest Expense Equity Income from OpCo Net Income EPS Average Shares Outstanding 35.0% $5,401.0 2003A $6,008.5 11.2% $3,568.2 59.4% 2004A $6,690.0 11.3% $4,046.0 60.5% 4,046.0 60.5% 774.0 $3,272.0 48.9% 2005E $7,124.1 6.5% $4,276.7 60.0% 3,312.7 46.5% 712.3 $3,564.4 50.0% 2006E $7,393.1 3.8% $4,464.0 60.4% 3,739.5 50.6% 736.9 $3,727.0 50.4% (736.6) 107.9 $2,141.4 $2.27 945.4 2007E $7,676.7 3.8% $4,653.4 60.6% 3,909.2 50.9% 768.5 $3,884.9 50.6% (801.5) 121.9 $2,218.6 $2.47 897.8 2008E $7,969.9 3.8% $4,849.3 60.8% 4,085.0 51.3% 794.5 $4,054.8 50.9% (889.7) 137.5 $2,289.8 $2.72 842.8 2009E $8,276.2 3.8% $5,054.9 61.1% 4,258.5 51.5% 821.5 $4,233.4 51.2% (932.5) 151.7 $2,396.3 $2.97 806.4 2010E $8,596.2 3.9% $5,270.8 61.3% 4,440.1 51.7% 849.6 $4,421.2 51.4% (971.8) 162.4 $2,507.9 $3.24 773.3 2011E $8,930.9 3.9% $5,497.5 61.6% 4,630.1 51.8% 878.8 $4,618.6 51.7% (1,012.7) 171.9 $2,623.9 $3.54 741.8 4.1% 9.3% 2006 - 2011 CAGR 3.9%
$3,168.7 58.7%
4.3% 4.4%
$2,492.7 46.2%
$2,827.4 47.1%
4.4%
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PF McDonalds: Summary Cash Flow and Balance Sheet
Below are the summary cash flow projections for Pro Forma McDonalds based on the assumptions detailed on page 68.
($ in millions, except per share data) 2002A Cash Flow Data EBITDA less: Cash Taxes less: Cash Interest Expense less: Dividends less: Change in Working Capital less: Growth CapEx less: Maintenance CapEx plus: After-tax Dividends from McOpCo Free Cash Flow (post dividends) Free Cash Flow (pre dividends) FCF per Share (pre dividends) Illustrative Stock Price at 20x LTM FCF 20 Balance Sheet Data Cash Revolver Long-Term Debt Total Debt / Capitalization Total Debt / EBITDA Net Debt / EBITDA 150.0 0.0 $14,800.0 24.5% 3.5x 3.4x 150.0 0.0 14,800.0 26.8% 3.3x 3.3x 150.0 0.0 17,393.4 30.0% 3.7x 3.7x 150.0 0.0 18,331.6 30.0% 3.8x 3.7x 150.0 0.0 19,104.0 30.0% 3.8x 3.7x 150.0 0.0 19,904.5 30.0% 3.8x 3.7x 150.0 0.0 20,740.4 30.0% 3.8x 3.7x 2003A 2004A 2005E 2006E $4,464.0 (956.9) (736.6) (653.2) 6.2 (285.9) (438.6) 0.0 $1,398.9 2,052.1 $2.17 $43.41 2007E $4,653.4 (986.7) (801.5) (676.8) 6.5 (291.6) (452.6) 0.0 $1,450.8 2,127.6 $2.37 $47.40 2008E $4,849.3 (1,012.8) (889.7) (698.5) 6.7 (297.4) (466.9) 0.0 $1,490.7 2,189.2 $2.60 $51.95 2009E $5,054.9 (1,056.3) (932.5) (731.0) 7.0 (314.7) (481.7) 0.0 $1,545.7 2,276.7 $2.82 $56.47 2010E $5,270.8 (1,103.8) (971.8) (765.0) 7.2 (333.5) (497.2) 0.0 $1,606.7 2,371.7 $3.07 $61.34 2011E $5,497.5 (1,153.9) (1,012.7) (800.4) 7.5 (354.0) (513.4) 0.0 $1,670.6 2,471.0 $3.33 $66.63 2006 - 2011 CAGR
8.9%
74
C. McOpCo Financial Analysis
McOpCo: Model Key Drivers
Set forth herein are the assumptions for the McOpCo business.
Net Unit Growth 90 net new owned restaurants in 2005 Net unit growth thereafter only in the franchised system. Assumes 200 new gross units and 200 closed units annually. Revenue drivers: Average same-store sales growthof 2.5% -2.7% annually on a total company basis Average unit sales of $1.6mm on a global basis in FY 2005 Cost drivers: Food and paper costs held constant at 34.1% of sales, based on historicals Payroll and employee costs of 26.1% in 2005, stepping down to 25.5% percent by 2011 Occupancy and other costs (excluding D&A) held constant at 20.5% of sales D&A calculated as 110% of capex in 2006 trailing to approximately 107% of CapEx by 2015 4.0% of sales paid to Pro Forma McDonalds as a franchise fee 25% of consolidated SG&A allocated to McOpCo CapEx drivers: Average maintenance CapEx per unit of approximately $50k in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter Allocation of 25% of consolidated McDonalds corporate CapEx Consolidated corporate CapEx held constant at 0.7% of sales Other No dividends Total Debt of $1.5 billion allocated (Net Debt of $1.35bn) Free cash used to pay down debt and then buy back shares $150 mm minimum cash balance Tax rate of 32% Minimal working capital requirements
76
McOpCo Summary Income Statement
Set forth below are the summary projections for McOpCo based on the assumptions detailed on page 76.
(U.S. $ in millions) 2004A Income Statement Data Revenue % Growth EBITDA % Margin EBITDA - CapEx % Margin D&A EBIT % Margin Net Interest Expense Net Income EPS Average Shares Outstanding $14,223.8 11.2% $1,136.7 8.0% 1,136.7 8.0% 427.0 $709.7 5.0% 2005E $15,042.4 5.8% $1,085.7 7.2% 562.5 3.7% 575.5 $510.2 3.4% 2006E $15,428.9 2.6% $1,129.6 7.3% 595.6 3.9% 587.4 $542.2 3.5% (90.9) $306.9 $0.24 1,273.7 2007E $15,838.3 2.7% $1,173.3 7.4% 628.1 4.0% 599.6 $573.6 3.6% (68.5) $343.5 $0.27 1,273.7 2008E $16,259.2 2.7% $1,218.5 7.5% 662.0 4.1% 609.3 $609.2 3.7% (43.9) $384.4 $0.30 1,273.7 2009E $16,692.0 2.7% $1,265.4 7.6% 697.3 4.2% 622.0 $643.3 3.9% (17.0) $425.9 $0.33 1,273.7 2010E $17,136.9 2.7% $1,313.9 7.7% 734.0 4.3% 635.0 $678.9 4.0% 0.2 $461.8 $0.37 1,248.1 2011E $17,594.4 2.7% $1,364.2 7.8% 772.2 4.4% 645.2 $718.9 4.1% 3.4 $491.2 $0.41 1,191.9 9.9% 11.3% 2006 - 2011 CAGR 2.7%
3.8% 5.3%
5.8%
77
McOpCo Summary Cash Flow and Balance Sheet
Set forth below are the summary cash flow projections for McOpCo based on the assumptions detailed on page 76.
2006 - 2011 CAGR
2004A Cash Flow Data EBITDA less: Cash Taxes less: Cash Interest Expense less: Dividends less: Change in Working Capital less: Growth CapEx less: Maintenance CapEx Free Cash Flow (after dividends) Free Cash Flow per share (before dividends) Balance Sheet Data Cash Revolver Long-Term Debt Total Debt / EBITDA Net Debt / EBITDA
2005E
2006E $1,129.6 (145.1) (88.7) 0.0 6.2 (30.0) (504.0) $367.9 $0.29
2007E $1,173.3 (163.9) (61.5) 0.0 6.5 (30.6) (514.5) $409.3 $0.32
2008E $1,218.5 (184.9) (31.4) 0.0 6.7 (31.2) (525.3) $452.5 $0.36
2009E $1,265.4 (203.9) (6.1) 0.0 7.0 (31.8) (536.2) $494.3 $0.39
2010E $1,313.9 (218.3) 3.4 0.0 7.2 (32.5) (547.4) $526.3 $0.44
2011E $1,364.2 (231.1) 3.4 0.0 7.5 (33.1) (558.8) $552.0 $0.49
8.5% 11.1%
150.0 0.0 1,500.0 1.4x 1.2x
150.0 0.0 1,132.1 1.0x 0.9x
150.0 0.0 722.8 0.6x 0.5x
150.0 0.0 270.3 0.2x 0.1x
150.0 0.0 0.0 0.0x -0.1x
150.0 0.0 0.0 0.0x -0.1x
150.0 0.0 0.0 0.0x -0.1x
78
Final Revised Proposal.ppt
A Plan to Win / Win

January 18, 2006
Pershing Square Capital Management

Confidential
DISCLAIMER
Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding McDonald's Corporation ("McDonald's or the Company) are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company and its advisors that could lead them to disagree with Pershings conclusions or the approach Pershing is advocating. The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing manages funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause Pershing to change its position regarding the Company and possibly reduce, dispose of, or change the form of its investment in the Company. Pershing recognizes that the Company has a stock market capitalization in excess of $40bn, and that, accordingly, it could be more difficult to exert influence over its Board than has been the case with smaller companies.
2
A Revised Proposal for Creating Value at McDonalds
Agenda
Background of our involvement What are our objectives? Brief review of our Initial Proposal Our Revised Proposal Benefits of our Revised Proposal Company Franchisees Shareholders Q&A
3
Pershings Involvement with McDonalds
September 22, 2005: Pershing Square Capital Management (Pershing) presented a proposal for increasing shareholder value (Initial Proposal) to McDonalds management October 31, 2005: McDonalds management communicated its response to our Initial Proposal
Management believed that our Initial Proposal (1) would result in potential frictional costs; (2) could have an unfavorable credit impact; and (3) could create system issues McDonalds believed, based on its advisors valuation, that there was not enough value creation to outweigh frictional costs and other concerns
November 15, 2005: Pershing presented the Initial Proposal to the investment community
Since November 15, we have had numerous discussions with shareholders and franchisees from around the world
Today we would like to share our Revised Proposal for Creating Significant Value at McDonalds which incorporates feedback from McDonalds management, franchisees and other shareholders
4
What Are Our Objectives?
In developing our Revised Proposal, our objectives are to:
Improve McOpCos operating performance Strengthen the McDonalds System Unlock significant shareholder value
We believe our Revised Proposal will:
Achieve these objectives Address all of the Companys concerns regarding our first proposal Increase McDonalds share price to $46-$50 per share (before considering any operational benefits) Minimize execution risk and management distraction
5
Objective 1: Improve McOpCos Operating Performance
Confidential
Objective 1: Improve McOpCos Operating Performance
McOpCo, as a wholly owned subsidiary, is not achieving its full business and financial potential McOpCo does not pay a market rent or a franchise fee, unlike a typical franchisee Adjusting for a market rent and a franchise fee, McOpCo has lower average unit margins than those of an average U.S. franchisee Corporate subsidies in the form of uncharged rent and uncharged franchisee fees have led to McOpCo being run inefficiently over time Uneconomical capital allocation decisions Suboptimal pricing policy
7
Objective 1: Improve McOpCos Operating Performance (contd)
McOpCos Estimated Average Unit EBITDA margins versus U.S. Franchisees Estimated Average Unit EBITDA margins(1)
Estimated 4-Wall EBITDA Margins
16% Estimated 4-Wall EBITDA Margin %
14.8% 12.7%
(1)
(2)
12%
8.8%
8%
(1)
4%
0%
Avg. U.S. McOpCo

________________________________________________
Avg. Intl. McOpCo
Avg. U.S. Franchise
Adjusted for a Market Rent and Franchise Fee
Note: See page 57 of the Appendix for Pershings detailed assumptions. 1) Analysis is based on Pershings estimates using 2004 financial data. McDonalds does not provide average unit data for McOpCo or McDonalds franchisees in its public financials. Assumes a market rent of 9% of sales and a franchise fee of 4% of sales. 2) Based on $260k of average EBITDA per franchised store and average revenues per franchised store of approximately $1,760k.
8
McOpCo managers do not have appropriate compensation incentives
No direct equity compensation in McOpCos business No market-based performance measurement system Farm Team mentality whereby the best McOpCo managers are promoted to corporate McDonalds If they dont join corporate McDonalds, they sometimes leave to become a franchisee Top restaurant operators need more incentive to stay at McOpCo
9
Earn the Right to Own
McOpCos restaurant portfolio needs to be optimized in order to improve margins and capital allocation
Refranchise select units in mature markets Because of their developed franchise systems, mature markets do not need the same capital or resources as emerging markets e.g., U.S., Canada and U.K.
McOpCo
Redeploy capital and resources in emerging markets
Capital and freed-up resources from refranchising should be redeployed in fast growing / high return emerging QSR markets Regions where franchise laws are still in infancy and McDonalds franchise base is not yet sufficient to drive growth e.g., China and Russia
McOpCo increases focus on emerging markets growth

10
McOpCo should increase its focus on profitable emerging markets growth
Objective 2: Strengthen the McDonalds System
Confidential
Objective 2: Strengthen the McDonalds System
Pershing spoke with franchisees from around the world. Heres what they told us:
(1) Inherent conflict between McDonalds and the Franchisees: McDonalds Top-line focus versus Franchisees Bottom-line focus
McDonalds makes the bulk of its profits from the franchisees top line However, top line same-store sales growth does not always translate into improving franchisees bottom line Stock market often rewards McDonalds for higher same store sales growth even though the franchisees are sometimes pressured to sacrifice margin for discount pricing
(2) McOpCo, with its subsidized economics, magnifies this conflict
McOpCo does not compete on equal footing because it does not pay a market rent or franchisee fee Suboptimal pricing or capital allocation decisions do not impact McOpCos financials as dramatically as those of franchisees Perception among franchisees is that McOpCo is not held to the same degree of accountability
12
Strengthening the McDonalds System: What Franchisees Had to Say
(3) Capital allocation criteria / decision-making process varies between McOpCo and the franchisee community
Low ROIC investments are occasionally forced upon franchisees McOpCo regional managers often make capital investment decisions they will not have to live with, given their status as salaried employees with limited tenure in any one position Made for You program is an example of a historical capital investment decision that may have been amended or prevented by an arm's-length McOpCo Hundreds of millions of dollars of capital invested in a kitchen system that is widely considered inefficient For many franchisees, it has led to decreased profitability, increased wait times and increased staffing requirements Testing at McOpCo did not reveal the true economic impact of the program Made for You problems could have been prevented if the system had the appropriate checks and balances
13
Strengthening the McDonalds System: What Franchisees Had to Say (contd)
(4) McOpCo undercuts on pricing
McOpCos subsidized economics reduce the impact of lower margin product pricing decisions As such, approximately 27% (1) of the McDonalds system currently does not price optimally Reduces the profitability of the entire system Underpricing at McOpCo pressures franchisees to sacrifice penny profits for traffic and sales volume
(5) McDonalds should retain control of McOpCo
Franchisees generally agreed that control of McOpCo should remain with McDonalds Keeps the franchisee vote democratic and dispersed
________________________________________________
(1):
Based on approximately 8,119 McOpCo restaurants out of 30,516 systemwide McDonalds restaurants, as of 2004.
14
Strengthening the McDonalds System: What Franchisees Had to Say (contd)
(6) Strong interest in owning new units / McOpCo refranchising program
Franchisees have a strong interest in buying McOpCo restaurants Given McDonalds exclusivity requirements for franchisees, the only opportunity for franchisees to materially increase their wealth is to own more McDonalds units A refranchising program would create an attractive incentive system Would allow the top quartile performing operators to be rewarded with an opportunity to increase units McOpCos current portfolio of restaurants needs to be rationalized through refranchising, in order to Increase McOpCos profitability Improve systemwide same-store sales growth Satisfy considerable franchisee demand
15
Objective 3: Unlock Shareholder Value
Confidential
Objective 3: Unlock Shareholder Value at McDonalds
Brand McDonalds Collects a royalty of 13% of systemwide sales Real Estate

McDonalds controls substantially all of its systemwide real estate Earns 9% of systemwide unit sales as rent For real estate it does not own, it pays a rent expense and generates income through subleases
McOpCo Restaurant Operations

Over 8,000 McDonalds company operated restaurants
Franchise
Approximately 32,000 restaurants where McDonalds receives 4% of unit sales
17
Objective 3: Unlock Shareholder Value at McDonalds (contd)
There are very few businesses in the world with all the attractive business characteristics of
Brand McDonalds
Brand McDonalds Collects a royalty of 13% of systemwide sales Real Estate Franchise
World-leading brand ~ 60% EBITDA Margins (1) Low maintenance capital requirements ~ 55% EBITDA maintenance capex margins (1) Low operating leverage / high earnings stability High ROIC Low cost of capital Valuable fixed asset base 50 year track record Global and diverse customer base
18
________________________________________________
(1) .
Based on Pershings estimates. Assumes McOpCo pays a market rent and franchise fee.
Financial statements are not transparent
The first step to unlocking shareholder value is to introduce transparent segment financials.
McOpCo does not pay an arm's-length rent or franchise fee to Brand McDonalds As such, reported financials do not make apparent that approximately 80% of McDonalds EBITDA is derived from the higher multiple Brand McDonalds Issuing transparent segment financials for McOpCo and Brand McDonalds would demonstrate True profitability of Brand McDonalds True operating margins and capital requirements at McOpCo
19
In 2004, McDonalds company-operated restaurants appeared to contribute 46% of total EBITDA. However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of total EBITDA, with Brand McDonalds contributing 78% of total EBITDA.
2004 Total EBITDA As Reported 2004 Total EBITDA Adjusted for Market Rent and Franchise Fees
46% 54%
McOpCo
22%
McOpCo
55%
78%
Brand McDonald's
2004 EBITDA $2.4bn 2.8bn $5.2bn % 46% 54% 100%
Brand McDonald's
McOpCo Brand McDonald's Total
2004 EBITDA $1.1bn 4.1bn $5.2bn
% 22% 78% 100%
________________________________________________
Note: The analysis assumes that 75% of the total G&A is allocated to Brand McDonalds business and 25% is allocated to McOpCo. McDonalds management has indicated this is a conservative assumption regarding Brand McDonalds. Analysis excludes $441 mm of non-recurring other net operating expenses. . 20
Objective 3: Unlock Shareholder Value at McDonalds (contd) McDonalds is fundamentally Not a restaurant company
McDonalds FY 2005E EBITDA Maintenance CapEx, Adjusted for a Market Rent and Franchise Fee(1)
McOpCo
14%
86%
Brand McDonald's
Why is it valued as such?

_________________________________________ (1) FY05E EBITDA- Maintenance CapEx contribution is based on Pershings estimates. CapEx is net of proceeds from restaurant closings. We note that the Company does not provide EBITDA and Maintenance CapEx allocation by segment.
21
Lack of transparency had created an undervaluation by the market

McDonalds currently trades at roughly 8.9x EV/2006E EBITDA(1), despite over 85% of its pre-tax unlevered cash flows being generated by Brand McDonalds (2) We believe Brand McDonalds, valued independently, is worth 12.5x 13.5x EV/06E EBITDA High branded intellectual property/franchise businesses such as Choice Hotels, PepsiCo and Coca-Cola trade in the range of 12x 19x EV/06E EBITDA Real Estate C-Corporations and REITs typically trade in the range of 13x-16x EV/06E EBITDA Only when Pershings ideas regarding transparency became public did Wall Street analysts begin deriving sum-of-the parts valuations in the mid $40s per share Recent UBS sum of the parts valuation: $46 per share (3) Recent Goldman Sachs sum of the parts valuation: $44 per share (4)
_________________________________________ (1) Based on McDonalds recent stock price of $34 per share. (2) Pre-tax unlevered cash flows calculated as FY05E EBITDA- Maintenance CapEx. We note that FY05E EBITDA- Maintenance CapEx contribution is based on Pershings estimates. CapEx is net of proceeds from restaurant closings. The Company does not provide EBITDA and Maintenance CapEx allocation by segment. (3) UBS research report dated 11/10/2005. (4) Goldman Sachs research report dated 11/18/2005. McDonalds sum-of-the-parts valuation of $44 is before estimated frictional costs.
22
Review of our Initial Proposal
Confidential
Review of Our Initial Proposal
Our Initial Proposal called for Step 1: McOpCo to be organized as an independent entity
Signs arm's-length rent and franchise agreements with McDonalds
Step 2:
IPO of 65% of McOpCo

McOpCo is deconsolidated and transparent financials are released to investors
Step 3:
Issue $14.7bn of financing secured against real estate

Implies approximately $9.7bn of incremental debt
Step 4:
Use Debt financing and IPO proceeds to

Refinance all of the existing net debt (approximately $5bn ) at Brand McDonalds (1) Repurchase shares and pay transaction fees and expenses
Our Initial Proposal is available on the internet at http://www.valueinvestingcongress.com/Final-Pres.pdf
24
________________________________________________ (1) Assumes $6.35bn of net debt on
12/31/05 at consolidated McDonalds of which $1.35 bn of net debt is allocated to McOpCo and $5.0 bn of net debt allocated to Brand McDonalds.
Mischaracterizations of Our Initial Proposal
There have been several mischaracterizations of our Initial Proposal which we believe need to be cleared up.
Our Initial Proposal did NOT:
Provide for the sale of any real estate by McDonalds Put franchisees in danger of having a new landlord Involve the creation of a REIT Require a real estate financing to create significant value Hinge on a leveraged share buyback as its primary method of value creation
Our Initial Proposal did:
Assume significant value would be unlocked once McOpCo was IPOed and investors had access to transparent financials for Brand McDonalds, demonstrating that it is fundamentally NOT a restaurant company
25
Concerns Regarding Initial Proposal
Frictional Costs
Frictional costs associated with the CMBS financing and taxes due to the 65% McOpCo IPO Concerns regarding a potential new landlord (rent hikes)
Credit Impact
$9.7bn of incremental leverage may put pressure on credit rating
Alignment Issues
Brand risk due to a loss of McOpCo control
Management
Franchisees
Concerns regarding any potential increase in borrowing costs
McOpCo will compete for new units Fear of preferential treatment of McOpCo
Shareholders
Management distraction Execution risk
26
Our Revised Proposal
Confidential
Step 1: Issue Transparent Segment Financials

McOpCo signs arms-length lease and franchise agreements with McDonalds Corporation McDonalds Corporation requires McOpCo to pay a market rent and franchise fee McDonalds Corporation issues transparent segment financials for arm's-length McOpCo and Brand McDonalds
Step 2: IPO 20% of McOpCo

McOpCo creates a separate Board of Directors At least one Board member appointed from the franchisee community IPO 20% of McOpCo 20% IPO will generate no tax costs given existing tax basis McDonalds retains full control of McOpCo Minimal execution risk Frictional costs of roughly 5 cents per share (1) (versus management estimates of $4-$5 per share for the Initial Proposal)
________________________________________________ (1) Assumes IPO transaction fees and expenses
of 5% of IPO proceeds.
Continued
28
(contd)
Step 3: Commence McOpCo Refranchising Program

McOpCo commences refranchising 1,000 units in mature markets (U.S., Canada and U.K.) over the next two to three years Proceeds from refranchising can be redeployed in fast growing, high return emerging markets (China and Russia)
Step 4: Dividend Increase and Share buybacks

McDonalds increases its dividend payout to 90% of after-tax free cash flow from roughly 35% of free cash flow currently (1) Implies a dividend of $1.93 per share in FY 2006E versus 0.67 per share in 2005 At a recent price of $34 per share, implies a new dividend yield of 5.7%, versus current yield of ~ 2% McDonalds Corporation initiates incremental share buybacks using existing cash on hand and IPO proceeds
________________________________________________ (1) Assumes $843mm of dividends paid
in FY2005E. FY2005E dividend payout ratio based on 9/30/2005 Last Twelve Months after-tax free cash flows, calculated as operating cash flows less cash flows from investing activities.
29
Revised Proposal requires no incremental debt to be issued over total debt position as of 9/30/05
Addressing Concerns Regarding the Initial Proposal Credit Impact

No incremental debt Transparency improves credit profile
Frictional Costs
No CMBS financing
Alignment Issues
Maintain control of McOpCo Retain flexibility
Management
Minimal transaction costs No taxes No transfer of property No rent hikes
Franchisees
No increase in borrowing cost for operators
Preserves highly democratic franchisee system McOpCo will be a net seller of units in mature markets
Shareholders
Minimal management distraction Minimal execution risk
30
Improving McOpCos Operating Performance
Current Issue
McOpCo is not reaching its full business and financial potential
Benefits of the Revised Proposal

IPO of McOpCo would make margin improvement a key focus No more corporate subsidies to buttress operating margins McOpCo management can run its business based on the most appropriate operating strategy Publicly traded arms-length McOpCo would force improved capital allocation decisions and optimal pricing policy Refranchising and redeploying capital/resources would better position McDonalds in the most attractive growth markets Investors will respond well to margin and capital allocation improvement as well as the emerging markets growth story
Managerial focus and incentives
McOpCos management can be compensated based on the market performance of its business McOpCo managerial focus will improve as a result of having greater accountability, increased responsibility, a better performance measuring yardstick via the public markets and more direct incentives
31
Strategic Benefits to the McDonalds System
Pershing believes that a publicly traded arm's-length McOpCo, which remains controlled by McDonalds, would strengthen the McDonalds System. McOpCo makes optimal pricing, capital allocation and refranchising decisions Arm's-length McOpCos decision-making criteria on product pricing and capital allocation will be substantially similar to that of the franchisee community McOpCo, no longer subsidized by Corporate McDonalds, will review its restaurant portfolio more closely for refranchising rationalization / opportunities Refranchising program would create an incentive system whereby the best operators would be rewarded with an opportunity to own new units Poor performing operators will be motivated to improve performance to earn the right to own more restaurants Franchisees would recognize that the new McOpCo competes on equal footing McOpCo, required to pay arm's-length rent and franchise fees, would face the same economic consequences as franchisees, thus creating a better aligned system Improves fairness and accountability throughout the system
32
Strategic Benefits to the McDonalds System (contd)
Would increase McDonalds credibility in the system and allow it to better understand the true impact of new product introductions
Testing products at arm's-length McOpCo would provide McDonalds with A better understanding of the true economic impact of its new products on the typical owner/operators bottom line More credibility when communicating impact of new products to franchisees Franchisee participation on the McOpCo Board will temper any perception that McOpCo receives preferential treatment from McDonalds 80% ownership of McOpCo would preserve McDonalds skin in the game Bottom-lined focused McOpCo would be influential in endorsing new products
33
Addressing Potential Franchisee Questions
Question: Would a publicly traded McOpCo be an aggressive competitor to franchisees,
given its need to grow its business for the benefit of its new shareholders? Answer: No, quite the opposite. We believe a more likely scenario is the following: McOpCo, no longer supported by corporate subsidies, will price more optimally Refranchising program will remove McOpCo as a competitor in many key markets McOpCos most attractive growth plan is to focus on emerging markets where the franchise base is still in its infancy, such as China and Russia
Question: Under your Revised Proposal, is there any risk that McDonalds real estate will
be sold or that franchisees will experience unexpected rent hikes? Answer: No. We have never endorsed the sale of real estate or the creation of a REIT. We dont believe its the right operational move We are confident management is not inclined to sell the real estate
34
Addressing Potential Franchisee Questions
Question: How will this change a franchisees day-to-day interaction with McDonalds
Corporation? Answer: There will be no changes. A franchisees day-to-day interaction with McDonalds will not be affected by the creation of a publicly traded McOpCo. However, the franchisee community may find a strong ally in a publicly traded McOpCo McOpCos management will be able to push back on lower margin / low return new products introduced by Corporate McDonalds McOpCo will improve the check and balance mechanisms in the system Testing at McOpCo on new products will be a better benchmark for how a product will perform throughout the system Many McOpCo stores in the U.S., Canada and U.K. will be up for refranchising Franchisee representation on McOpCos Board will improve McOpCos credibility and communication with the system
35
Addressing Potential Company Questions
Question: Would a publicly traded McOpCo hinder the current Farm Team system or
inhibit McDonalds ability to recruit top McOpCo managers to work at Corporate? Answer: No. We believe the creation of a publicly traded McOpCo will actually improve the talent pool at both Brand McDonalds and McOpCo. Offering direct equity compensation in McOpCo will Attract best-in-class operators Improve retention Arms-length, publicly traded McOpCo is better training ground than the current wholly owned McOpCo Better real world business discipline for managers, once corporate subsidies are removed Teaches restaurant operators how to run a public business With 80% ownership, Brand McDonalds will still be able to leverage its deep relationship with McOpCo for recruiting purposes
36
Unlocking Shareholder Value
A publicly traded McOpCo would increase financial transparency and would allow investors to appropriately value McDonalds on a sum-of-the-parts basis.
Current Issue Transparent financials
Benefits of the Revised Proposal

Separate arms-length McOpCo financials would be made available to investors Transparent segment financials would be made available at McDonalds, demonstrating the operating cash flows generated by Brand McDonalds
Dividends and Equity Options Valuation
Ability to increase dividends Reduce option dilution at McDonalds through the use of McOpCo currency McOpCo IPO would allow Wall Street analysts and the broad investment community to value McDonalds on a sum-of-the parts basis Investors would focus more on the value of Brand McDonalds
37
Revised Proposal: Allows Investors to Value on a Sum-of-the-Parts Basis
Brand McDonalds operating metrics and business characteristics (100% royalty-based revenues, low cost of capital and high earnings stability) are much closer to high branded intellectual property businesses such as PepsiCo, Coca-Cola or Choice Hotels or a typical Real Estate C-Corporation than they are to a typical QSR. We believe Brand McDonalds could be worth 12.5x 13.5x EV/2006E EBITDA.
Based on an approximate $48 sum-of-the-parts value for McDonalds
2005E Operating Metrics: EBITDA Margins EBITDA CapEx Margins Long-term EPS Growth
(2)
Brand

~70% - 80% ~65% - 75% NA
Choice Hotels
66% 61% 16% 23% 18% 11% 31% 27% 9%
Typical Mature QSR

(1)
60% 50% 9%
~15% - 20% ~7.5 % - 12.5% ~10% - 12%
Business Characteristics: Maint. Capital Requirements Earnings Stability Average Cost of Capital Fixed Asset Value Trading Multiples Adjusted Enterprise Value (3) / CY 2006E EBITDA CY 2006E EBITDA CapEx
________________________________________________
Low
High
Low High Low High
Low High Low Low
Low High Low Low
Low High Low Low
Medium Medium Medium Low
Low
High
13.0x 15.5x
~13x - 16x ~17x - 20x
19.1x 20.3x
12.2x 15.4x
12.0x 13.6x
~8.5x - 9.5x ~12x - 15x
Stock prices as of 1/13/2006. Projections based on Wall Street research estimates. Analysis assumes a 7x EV/EBITDA valuation multiple for McOpCo. (1) Typical mature QSR business characteristics based on YUM! Brands and Wendys. (2) Brand McDonalds long-term EPS growth rate is based on the Companys current dividend payout ratio and assumes excess free cash flow after dividends is used for share buybacks. 38 (3) Adjusted for unconsolidated assets.
Revised Proposal: Allows Investors to Value on a Sum-of-the-Parts Basis
We believe a minority IPO of McOpCo would force a market revaluation of McDonalds.

($ in millions)
As Reported
Segment 2006E EBITDA
Adjusting for a Market Rent and Franchise Fee

2006E EV/'06E EBITDA EBITDA Multiple Enterprise Value
IPO of 20% of McOpCo and Transparency Drives Revaluation

EV/'06E EBITDA Multiple Low High Enterprise Value Low High
McOpCo Brand McDonald's

Total
$2,503 3,090 $5,594
$1,130 4,464
5,594
7.0x 9.3x
8.9x
$7,908 41,675
$49,582
7.0x 12.5x
7.0x 13.5x
$7,908 55,799
$63,707
$7,908 60,263
$68,171
Recent Stock Price
$34.00
Implied Share Price Premium to Unaffected Price

(1)
$46 45%
$50 57%
Implied multiple, based on a $34 stock price
________________________________________________ Note: Assumes $1.25bn of proceeds from IPO and $1.75bn of existing cash on hand used to repurchase shares. Capital structure assumptions are detailed on page 56 of the Appendix. Analysis is pro forma for a McOpCo spin-off and McDonalds share buyback on 12/31/05. (1) Based on 10/31 closing price of $31.60. 39
McDonalds Sum-of-the-Parts Analysis at Various Multiples
Assuming McOpCo pays a market rent and franchisee fee, we have modeled McOpCo FY 06E EBITDA of $1.1 billion and Brand McDonalds FY 06E EBITDA of $4.5 billion. Based on these assumptions, we believe McDonalds stock price would trade in the range of approximately $46 $50 per share, as a result of a 20% IPO of McOpCo.
________________________________________________
Assuming Transparent Segment Financials

McDonald's Equity Value per Share
Brand McDonald's EV/2006E EBITDA 12.0x McOpCo EV / '06E EBITDA Multiple 6.0x $42.97 6.5x 7.0x 7.5x 43.45 43.93 44.40 12.5x $44.86 45.33 45.81 46.28 13.0x $46.74 47.21 47.69 48.17 13.5x $48.62 49.10 49.57 50.05 13.5x $48.62 49.10 49.57 50.05
Note: Assumes 75% of consolidated G&A is allocated to Brand McDonalds, with the rest allocated to McOpCo. Assumes McDonalds FY 05E Net Debt of $8.1bn, Minority Interest in McOpCo of $1.3bn, and FY05E Diluted Shares Outstanding of 1,186mm, all pro forma for Pershings Revised Proposal.
40
McDonalds Free Cash Flow Yield Analysis
Pershing believes that McDonalds, pro forma for the McOpCo 20% IPO, would have a 2006E Free Cash Flow yield of 4.3 % - 4.7% at stock price in the range of $46 - $50 per share. We note our Free Cash Flow calculation is based upon our estimates of 2006E After-Tax Levered Operating Cash Flow less Growth and Maintenance Capital Expenditures. (1)
McDonald's 2006E FCF/Dividend Yield at Varous Stock Prices Current Stock Price
2006E FCF Yield $34 6.3% $46 4.7%
Projected
$47 4.6% $48 4.5% $49 4.4% $50 4.3%
________________________________________________
(1) FCF Yield is based on Attributable Free Cash Flow before dividend payments. See Appendix page 54 for a calculation of FY 2006E Attributable Free Cash Flow.
41
Minimal Execution Risk
A minority IPO of McOpCo would have minimal execution risk and negligible frictional costs McOpCo
Simple transaction Many successful value creating precedent transactions Minimal management distraction Frictional costs of roughly 5 cents per share Preserves current structures control of McOpCo
McDonalds would maintain the flexibility to repurchase minority McOpCo stake
if desired improvements were not obtained Minority buyouts are simple and common transactions with minimal transaction costs
42
Further Upside to Our Valuation
Pershings valuation is based on the business as it exists today, assuming no further operational improvements.
Pershing believes that creating a publicly traded arm's-length McOpCo will substantially improve both top-line and bottom-line performance of McDonalds We believe that McOpCo has EBITDA margins of roughly 7.3% (post corporate allocation) (1) Based on comparable restaurant businesses, we believe McOpCo is capable of achieving at least 10% EBITDA margins However, Pershing has assumed no incremental operational improvements as part of its valuation
We also see potential G&A improvement as an additional opportunity
Standalone McDonalds LTM 9/30/05 G&A per systemwide unit of $68k versus YUM! Brands LTM 9/30/05 G&A per systemwide unit of approximately $35k
We have not included an IPO / potential spin-off of Chipotle as part of our analysis
IPO and potential spin-off of Chipotle will create additional value for investors
________________________________________________
(1)
McOpCo EBITDA margins are after adjusting for a market rent and franchise fee and allocating 25% of McDonalds consolidated G&A to McOpCo.
43
Further Upside to Our Valuation (contd)
We believe our Proposal can potentially increase McDonalds share price to $50 per share. In addition, we believe McDonalds strong management team, running a world-leading brand, can create significant additional value based only on incremental operating improvements.(1)
McDonalds Potential Stock Price
$61 $56 $52

Upside
$60
$50
$50
$40
Pershing Proposal
Recent: $34
$30
Pershing Proposal:
McOpCo 20% IPO and Market Revaluation of McDonalds
_______________________________________________
McOpCo improves EBITDA margins to 10% (approx. 275bps improvement)

44
Improve G&A to $50k per systemwide unit (~$500mm of G&A savings)(2)
Improve G&A to YUM! levels of $35k per systemwide unit (~$1bn of G&A savings)(2)
(1) (2)
See Appendix page 55 for more detail regarding our assumptions on operating improvements. Total savings denotes consolidated G&A, of which 75% is allocated to Brand McDonalds and 25% is allocated to McOpCo.
A Plan to Win / Win
Addresses concerns of all stakeholders Creates financial transparency for investors

Will lead to substantial value creation for McDonalds shareholders
Simple transaction Minimal execution risk, management distraction and frictional costs
Positions McOpCo to make optimal capital allocation and business execution decisions Improves the Systems checks and balances Allows McDonalds maximum control and flexibility regarding future strategic alternatives
Significant upside, given strong Management team

45
Q&A
Confidential
Appendix
Confidential
Appendix
2004 McDonalds P&L As Reported
Set forth below is a table which reconciles McOpCos, Brand McDonalds and stand-alone McDonalds FY 2004 income statements, as they are currently reported. The analysis demonstrates how McOpCo is paying neither a market rent nor a franchise fee.
2004 Income Statement Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Franchise Fees From Franchise and Affiliate Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Occupancy and Other Expenses (excl. D&A) Company Operated D&A Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA % of Total EBITDA
________________________________________________
McOpCo P&L $14,224
Brand McDonald's P&L 3,336 1,505 $4,841 347 $347 576 427 1,485 2,006 774 $2,780 54%
2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 4,853 3,726 2,747 427 $11,753 495 1,976 427 $2,403 46%
The analysis assumes that 75% of the total G&A is allocated to the Brand McDonalds and 25% is allocated to McOpCo. To the extent that there should be more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at Brand McDonalds than what is shown here. Note: Analysis excludes $441 mm of non-recurring other net operating expenses. 48
Appendix
Reconciling McDonalds 2004A P&L
Set forth below is a table which reconciles McOpCos, Brand McDonalds and stand-alone McDonalds FY 2004A income statements, assuming McOpCo pays a market rent and franchise fee. The analysis demonstrates that the Brand McDonalds contributed approximately 78% of total EBITDA.
2004 Income Statement Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA % of Total EBITDA
________________________________________________
McOpCo P&L $14,224
Brand McDonald's P&L 3,336 1,280 1,505 569 $6,690 347 583 $930 576 427 1,485 3,272 774 $4,046 78%
2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
$14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100%
(1,280) (569) ($1,849) (583) (697) (569) ($1,849) -
$14,224 4,853 3,726 2,164 427 583 697 569 $13,019 495 710 427 $1,137 22%
$0
The analysis assumes that 75% of the total G&A is allocated to Brand McDonalds and 25% is allocated to McOpCo. McDonalds management has indicated that this is a conservative assumption regarding the real estate and franchise business. Note: Analysis excludes $441 mm of non-recurring other net operating expenses.
49
Appendix
Revised Proposal: Preliminary Transaction Assumptions

IPO assumptions 20% IPO of McOpCo generates $1.25bn of cash proceeds after expenses (on 12/31/2005) Assumes a 7x EV/06E EBITDA multiple for McOpCo No taxes paid given McOpCos basis which is assumed to be approx. $1.65bn Tax basis is equal to $3 billion of initial assumed basis (based on an assessment of net equipment and other property at McDonalds) less $1.35 billion of net debt Share repurchases Approximately 7% of the share base repurchased using ~ $1.75bn of expected cash on hand at the end of the year (after paying dividends) ~ $1.25bn of IPO proceeds, net of fees Capital structure post share repurchases Per management guidance, assumes McDonalds issues a $3bn term loan to repatriate foreign earnings No incremental debt issued at McDonalds over total debt at 9/30/2005 ($8.1bn), excluding a $3bn term loan required to repatriate earnings Assumes FY05E Net Debt at consolidated McDonalds of $8.1bn FY05E Total Debt of $11.1bn, which includes $3bn of debt required for the repatriation of foreign earnings FY05E cash balance of $3bn, based on proceeds received from repatriation Increase dividend payout Increase dividend payout ratio to 90%
50
For modeling purposes, we have assumed a 20% IPO of McOpCo and the proposed share repurchases occurred on 12/31/2005. In addition to our IPO assumptions, set forth herein are assumptions regarding share repurchases, capital structure and dividend policy.
Appendix
McOpCo IPO: Mechanics
Step 1: McOpCo dividends a $1.3bn Note to McDonalds (parent)
Step 2: IPO of McOpCo
Step 3: Share Repurchases using Cash on Hand and IPO Proceeds

Equity Markets
Pays $3.0 billion Repurchases shares
Equity Markets
IPO of McOpCo Shares
$1.3bn Note
McOpCo
McDonalds retains 80% stake
McOpCo
$1.3 bn cash received
McOpCo repays $1.3 bn Note to McDonalds
McDonalds performs a self-tender post the IPO
McOpCo declares and pays a dividend to McDonalds (parent) in the form of a Note in an amount equal to the anticipated proceeds from an initial public offering of McOpCo For illustrative purposes, we assume the Note is for $1.3bn, or 20% of the equity market value of McOpCo (assumed to be $6.6bn)
McOpCo undertakes the IPO and uses the proceeds to repay the dividend note. Any tax cost for the IPO would be the amount by which the IPO distribution exceeded McDonald's basis in the McOpCo stock multiplied by McDonalds corporate and state/local tax rate Assuming a $1.3bn of IPO distribution, there would be no tax cost associated with the IPO Assume a $1.65 billion of tax basis
No incremental leverage issued PF McDonalds repurchases approximately 7% of the fully diluted share base using Excess cash on hand After tax proceeds of IPO
51
Appendix
McOpCo IPO: Proceeds
Given the estimated tax basis in McOpCo, we believe that no taxes would need to paid in an IPO of McOpCo.
McOpCo IPO After Tax Proceeds

Low Taxes payable McOpCo Equity Market Value IPO Percentage Distribution to PF McDonald's Estimated Book Basis of McOpCo Net Debt Allocated to McOpCo Adjusted Basis in McOpCo $5,993 20% $1,199 3,000 (1,350) 1,650 $7,122 20% $1,424 3,000 (1,350) 1,650 $6,558 20% $1,312 3,000 (1,350) 1,650 High Average
Taxable Gain Tax Rate Taxes payable
$0 38% $0
$0 38% $0
$0 38% $0
After Tax Proceeds Distribution Taxes Payable After Tax Distributions Estimated IPO fees Net Proceeds
52
$1,199 0 $1,199 (60) $1,139
$1,424 0 $1,424 (71) $1,353
$1,312 0 $1,312 (66) $1,246
Appendix
McDonalds Cash and Debt Schedules:
No Incremental Debt Issued Post 9/30/2005

$ in millions
Set forth herein are the schedules for (1) FY 2005E funds available for proposed share buybacks; (2) 05E Total Debt Balances; and (3) 05E Cash Balances. We have assumed that no incremental debt would be issued at McOpCo as of 9/30/2005 on top of the estimated $3 billion required to repatriate earnings from foreign territories.
Pre-IPO Cash Available to Fund Share Buybacks: Beginning Cash Balances 1/1/2005 Plus: FY'05E Free Cash Flow Before Dividends and Debt Pay Down Less: FY'05E Debt Reduction Less: FY'05E Dividends Equals: FY 2005E Cash on Books Available for Share Buybacks FY 2005E Total Debt Balance: Beginning Total Debt Balances 1/1/2005 Less: FY'05E Debt Reduction Estimated New Term Loan to Fund Repatriation Total Debt FY 2005E Post IPO FY 2005E Cash Balance: Beginning Cash Balances 1/1/2005 Plus: FY'05E Free Cash Flow Before Dividends and Debt Paydown Less: FY'05E Debt Reduction Less: FY'05E Dividends Plus: Estimated IPO Proceeds, net of fees Less: Share buybacks Plus: Proceeds from Repatriation FY 2005E Ending Cash Balance FY 2005E Net Debt
53
$1,380 2,351 (1,155) (843) $1,733 $9,220 (1,155) 3,000 $11,065 $1,380 2,351 (1,155) (843) 1,246 ($2,979) 3,000 $3,000 $8,065
Appendix
McDonalds 2006E Free Cash Flow

Assuming a 20% IPO of McOpCo
Set forth herein is a schedule for 2006E Free Cash Flow based on our estimates. Attributable free cash flow per share deducts the minority interest free cash flow pertaining to the 20% stake of McOpCos no longer owned by McDonalds. FY2006E shares outstanding is pro forma for the proposed share buyback.
2006E Cash Flow Data EBITDA less: Cash Taxes
($ in mm except per share data)
$5,594 (1,186) (563) (316) (943) 12 (74) $2,525 1,176 $2.15 2,272 $1.93
less: Cash Interest Expense less: Growth CapEx (Net of Proceeds from Closings) less: Maintenance CapEx less: Change in Working Capital less: Minority Interest Free Cash Flow Attributable Free Cash Flow Before Financing Activities FY 2006E Average Shares Outstanding (mm) Attributable Free Cash Flow per Share Dividends Paid at 90% of Attributable FCF Dividend Paid per Share
54
Appendix
Assumptions: Upside Operating Improvements

Pr Forma 2006E Transaction / Assumptions
McOpCo EBITDA Improvement 275bps FY 2006E Financial Data: McOpCo Revenue McOpCo EBITDA Current EBITDA Margin New Margins New McOpCo EBITDA $15,429 $1,130 7.3% 10.1% 1,554
Set forth herein is a table which details our assumptions regarding potential operating improvements.
Estimated EV/'06E EBITDA Multiple

7.0x 13.5x
Pro Forma Enterprise Value

$10,878 60,263 $71,141 8,065 1,906 $61,171 1,186 $52
Segment
EBITDA
$1,554 4,464 6,018
Less: FY'05E Net Debt Less: Minority Interest (Market Value) Equals: Market Value of Equity PF FY'05E Diluted Shares Outstanding (mm) Estimated Share Price
G & A Savings: Improving to $50k per unit Unit Level Assumption: ~50k per unit G&A Allocation Assumptions: McOpCo 25.0% 75.0% $125 $375
$1,679 4,839 6,518
7.0x 13.5x
$11,753 65,326 $77,078 8,065 2,081 $66,933 1,186 $56
Brand McDonald's
Savings ($ in mm) McOpCo
Brand McDonald's
G & A Savings: Improving to YUM! Levels Unit Level Assumption: ~35k per unit G&A Allocation Assumptions: McOpCo 25.0% 75.0% $250 $750
$1,804 5,214 7,018
7.0x 13.5x
$12,628 70,388 $83,016 8,065 2,256 $72,696 1,186 $61
Brand McDonald's
Savings ($ in mm) McOpCo
Brand McDonald's
55
Appendix
Valuation Assumptions
Set forth herein is a table which details our sum-of-the-parts valuation.

($ in millions)
Adjusting for a Market Rent and Franchise Fee

2006E EV/'06E EBITDA EBITDA Multiple Enterprise Value
IPO of 20% of McOpCo and Transparency Drives Revaluation

EV/'06E EBITDA Multiple Low High Enterprise Value Low High
Segment
McOpCo Brand McDonald's

Total Less: FY'05E Net Debt Less: Minority Interest (Market Value) Equals: Market Value of Equity PF FY05E Diluted Shares Outstanding
$1,130 4,464
5,594
7.0x 9.3x
8.9x
$7,908 41,730
$49,638 6,332 $43,306 1,274
7.0x 12.5x
7.0x 13.5x
$7,908 55,799
$63,707 8,065 1,312 $54,331 1,186
$7,908 60,263
$68,171 8,065 1,312 $58,794 1,186
Recent Stock Price
Recent Stock Price
$34.00
Implied Share Price Premium to Unaffected Price

(1)
$46 45%
$50 57%
________________________________________________ Note: Assumes $1.25bn of proceeds from IPO and $1.75bn of existing cash on hand used to repurchase shares. Analysis is pro forma for a McOpCo spin-off and McDonalds share buyback, as proposed, occurring on 12/31/05. (1) Based on 10/31 closing price of $31.60. 56
Appendix
Average Unit Level EBITDA Margins
Set forth herein is a table which details our assumptions regarding average unit level 4-Wall EBITDA margins for McOpCo and U.S. Franchisees.
($ in thousands) Avg. Unit Sales Operating Income Before Rent Expense Less: Market Rent & Franchisee Fee Operating Income after Rent and Franchise Fee Plus: Estimated D&A 4-Wall EBITDA (w/ Mkt. Fees)
Avg. US McOpCo Unit

$1,912 $433 249 $185 57 $242 100.0% 22.7% 13.0% 9.7% 3.0% 12.7%
Avg. Intl. McOpCo Unit

$1,494 $281 194 $87 45 $132 100.0% 18.8% 13.0% 5.8% 3.0% 8.8%
Avg. US Franchisee Unit

$1,762 100.0%
$260
(1)
14.8%
________________________________________________
Note: McOpCo estimates based on FY 2004 financial data and assumes 2,002 U.S. McOpCo units and 6,117 International McOpCo units. (1) As presented by Ralph Alvarez, President of McDonalds North America, at McDonalds Analyst Meeting at Oak Brook, IL on 9/21/05. .
57
III. Case Studies
McDonalds 7 Year Stock Price Performance:

January 1999 to present
$50 $45 $40 $35 $30 $25 $20 $15 $10 1/19/99
$48
11/12/1999
10/1/99
6/12/00
2/22/01
11/4/01
7/17/02
3/29/03
12/9/03
8/20/04
5/2/05
1/13/06
58
Dont Judge a Book By Its Cover

November 9, 2006
Pershing Square Capital Management, L.P.
Disclaimer
The analysis and conclusions of Pershing Square Capital Management, L.P. ("Pershing") regarding Borders Group, Inc. (Borders or the Company) are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company that could lead the Company to disagree with Pershings conclusions. The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing advises funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause such funds to change their positions regarding the Company and possibly increase, reduce, dispose of, or change the form of their investment in the Company.
Borders Group
2nd largest U.S. book retailer
Ticker: BGP Recent price: $21
13% of U.S. retail book market (versus Barnes and Noble at 17% and Amazon at 10%)
2006E Rev of $4.1bn and EBITDA of $235mm Year-end Enterprise Value of $1.6bn and Equity Value of $1.1bn (1)
Note: BGP fiscal year ends on January 31. Presentation based on a Calendar year.
EV / 06 EBITDA: 6.9x EV / 06 EBITDA Maint. Capex: 8.8x P / 06 EPS: 27.2x
Forward estimates based on Pershing estimates. (1) Based on managements guidance for Net Debt and shares outstanding at year end 2006. Assumes a $21 current stock price for BGP throughout this presentation. 2
What is Borders?
Superstores
Large format (25,000 sq ft) Large selection 476 units Most profitable segment Positive sales trends
% LTM Rev. % LTM EBITDA % LTM ROA
Mall Stores
Waldenbooks Small format, mall-based Limited selection 600 units Negative sales trends and declining profitability
17% 5% -1%
3
International
U.K. and Australia 90 units / mix of large / small format stores Declining profitability
68% 92% 10%
15% 3% -2%
Five Year Stock Price Performance

Borders was trading at approximately $27.50 per share in February 2005 but has since traded down primarily due to weakening margins and same store sales trends
$ 28.50
$27.47
$ 26.50 $ 24.50
$ 22.50
$ 20.50
Recent price: $21
$ 18.50
$ 16.50
$ 14.50
$ 12.50 1 /5/01 1
5/5/02
1 /5/02 1
5/5/03
1 /5/03 1
5/5/04
1 /5/04 1
5/5/05
1 /5/05 1
5/5/06
1 /5/06 1
Borders Historical Financial Performance

In 2005, Borders consolidated Adjusted EBITDA margins fell to 7.4% from the previous four-year average of approximately 8.6%
Adjusted EBITDA and Margins

$350 $300 $250 $200 $150 $100 $50 $0 $294 $308
($ in millions)
$333 $318 $300
10.0% 9.0%
8.6%
8.8% 8.4% 8.5% 7.4% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0%
2001
2002
2003
5
2004
2005
Traditional Sentiment on Borders

Unattractive industry
Amazon risk Consumer interest in books is declining Difficult SSS comparisons with Harry Potter
Second place operator behind Barnes and Noble

More exposure to declining Music category Worse execution (lower working capital turns and sales / sq.ft.) Low margin, legacy mall stores
Limited free cash flow due to large, recent cap ex initiatives

Consolidating distribution centers Significant store remodel program
6
Why Do We Like Borders?
Why Do We Like Borders? 1. The book superstore industry is misunderstood

Amazon risk is largely exaggerated for superstores Book superstores are valuable franchises Minimal inventory risk because inventory is returnable at cost Maintenance capital is significantly less than depreciation because long-lived leasehold improvements are depreciated over initial lease term

2. Borders is a mix of high-quality businesses and several low-ROI, money-losing businesses which are in the process of being rationalized
Value of core Superstores business is obscured by declining profitability in the Mall Stores and International Stores In addition, within the Superstores segment, value is being masked by a declining category as well as several recent management initiatives
Rapid decline of Music sales (music was 22% of sales in 2001, now roughly 11%) Recent initiatives, including (1) Remodel program, (2) Rewards program, and (3) Distribution center consolidation, have reduced reported Superstores profitability
9
Why Do We Like Borders? (contd)

Superstores are healthy, growing and improving Stable EBITDA margins (9.5% - 10+%) with high ROIC Expected annual square footage growth of ~6% Remodeling program will reduce Music category exposure Opportunity to increase working capital turns Mall and International segments are low ROIC businesses that can be monetized with minimal disruption Estimated ~$200mm of Net Working Capital on an estimated ~$15mm of EBITDA contribution Potentially worth more dead than alive New Management is focused on rationalizing business
10

3. Extensive share repurchase program and newly hired CEO should help drive value creation
~$500mm of share repurchases in the past 2.5 years Common shares outstanding reduced by ~ 20% Company is repurchasing ~14% of market cap in the second half of 2006 New CEO George Jones joined in July
11
1. Misunderstood Industry
Amazon Risk?
Superstores have increased share in tandem with Amazon by focusing on selection and quality of experience
Losers have been Independents, Mall stores, Mass Merchants and Book Clubs with limited selection
U.S. Consumer Book Industry 1993
Superstores 5% Other (book clubs,
mass merchants)
U.S. Consumer Book Industry 2005
Independents 19% Malls 10% Internet 0%
Superstores 27% Other (book clubs,

mass merchants)
66%
48%
Independents 12%
Internet 12% Malls 1%

13
Source: Borders Group management presentation.
Books Superstores Are Valuable Franchises

Book Superstores are attractive anchor tenants
Favorable customer demographic book buyers are well-educated, high-income customers Superstores are Mini Malls with books as the anchor
High-quality customer experience

Borders ranked #2 in Overall Quality for Retailers in 2006 Harris Poll Not just a book store: caf, community events, meeting place Customer spends an average of one hour in the store
Opportunity to sell more than books

Barnes and Noble is the second-largest retailer of coffee in U.S. Borders achieving success with Seattles Best and Paperchase
14
Gross Margin Stability at Superstores

Best sellers are ubiquitous and extremely price competitive, yet they represent less than 5% of typical superstore sales Nearly all (~97%) book inventory is returnable to the publishers at cost Increases gross profit margin stability Book inventory is non-perishable and generally has limited fad risk
15
Industry Maint. Capex is less than Depreciation

Reported earnings for Book Retailers understates true cash flow
Borders Group ($ in mm) D&A Maintenance Capex Difference Net Income 2006E $130 50 80 $43 $123 27.2x 9.4x
Book retailers depreciate store assets over initial lease term ~ typically 10-15 years Maintenance capital requirements are lower than depreciation expense Fixed assets (book shelves) last longer than lease terms Maintenance costs typically limited to paint and carpeting
16
Maintenance FCF (after-tax) Price to Earnings Price to Maint FCF (after-tax)

Maintenance FCF = NI + D&A Maintenance Capex
Based on Pershing estimates. Assumes a $21 stock price for BGP.
Superstores Mall Stores International
2. High-Quality Businesses Obscured by Money-Losing Businesses
Healthy Superstores Obscured by Bad Businesses

Superstores profitability and stability have been obscured by the Mall and International businesses, which are currently being rationalized
12.0%
Adjusted EBITDA Margins
10.0%
Superstores
8.0%
6.0%
International
4.0%
Mall Stores
2.0% 0.0% 2001
Note: EBITDA Adjusted for non-cash asset impairment associated with store closures.
2002
2003
18
2004
2005
Within Superstores, there is Opportunity

Superstores performance has also been masked by declining music sales and certain one-time costs in 2006
Company has initiated a Store Remodel Program Reduce exposure to declining Music sales Increase high-margin Paperchase and Coffee sales Newly launched Rewards program and several one-time expenses have created noise in reported 2006 financials, obscuring results Expenses for consolidating distribution centers, launching rewards program and remodeling store base Superstores EBITDA could increase by 40+% by 2008 as result of improved product mix, unit growth and elimination of these one-time expenses
19
Borders Superstores
Superstores: Mini Mall with several Tenants
Books Caf Paperchase Music DVD
Anchor tenant. Stable business Seattles Best. Mini-Starbucks. High margin + growing Specialty paper like Kates Paperie. High margin + growing
Deteriorating rapidly
Growth slowing
21
Superstores: Operating Data

Typical store has 25,000 sq. ft Up to 200,000 titles of books, music, movies plus a Cafe Attractive unit growth 476 superstores Current plan is to grow 30 units / year (~6% annually) Unit economics: $2.4mm of invested capital ($1.2mm of fixed assets, $1.2mm of NWC) Average unit sales of $5.7mm Avg. 4-Wall EBITDA Maint. Capex contribution of ~$700k ~29% stabilized unlevered ROI $700
Based on Pershing estimates.
22
$2,400
= 29%
Superstores Historical Financials

Over the last five years, the Superstores segment has generated steady Adj. EBITDA margins between 9.6% - 10.3%
($ in millions) Operating Data: Units Growth
Reported SSS Financial Data Sales Growth Adj. EBITDA Margin Growth 2001 363 2002 404 11.3% -1.2% 2003 445 10.1% 1.2% 2004 462 3.8% 0.6% 2005 473 2.4% 1.1%
2.0%
2,234
2,319 3.8% 239 10.3% 8.5%
2,470 6.5% 242 9.8% 1.2%
2,589 4.8% 262 10.1% 8.6%
2,710 4.7% 261 9.6% -0.6%
220 9.8%
EBITDA adjusted for non-cash asset impairment associated with store closures.
23
Music Category Exposure Has Hurt

Excluding Music sales, Superstores same store sales (SSS) trends have averaged 1.5% more than average reported comparable sales, based on our estimates
2001 Reported Superstore SSS Estimated Music SSS Music % of Sales Music Impact on Reported SSS Est. Superstore SSS (ex-music) Difference 2.0% (4.0%) 22.0% (0.9%) 2.9% 0.9%
2002 (1.2%) (8.0%) 17.0% (1.4%) 0.2% 1.4%
2003 1.2% (11.4%) 16.0% (1.8%) 3.0% 1.8%
2004 0.6% (12.0%) 15.0% (1.8%) 2.4% 1.8%
2005 1.1% (12.0%) 11.0% (1.3%) 2.4% 1.3% Avg. 2.2% Avg. 0.7%
24
Remodeling: Improving the Superstore

Remodeling program will reduce Music category exposure by ~50% and improve Coffee and Paperchase sales
Reducing Music category exposure and replacing with high-margin Paperchase category Music margins are ~20% versus Paperchase margins of ~50% Paperchase has higher sales per square foot than Music Upgrading Caf offering to Seattles Best Coffee (Starbucks subsidiary) Significant financial benefits in Year 1 Estimated storewide 2.6% sales lift 40bps of margin improvement due to mix shift to higher-margin products with minimal maintenance capital requirements Remodels one year after conversion continue to outperform
25
Remodeling: Attractive Use of Cash Flow

Based on the first year of remodel activity, the New Format Superstores should have over 22% return on remodel cap ex
$ in thousands Revenue Sales Lift (Year 1) Incremental Sales Contribution Margin Profit on Incremental Sales Margin Benefit from Mix (Year 1) Margin Increase from Mix Combined Margin Benefit Remodel Cost (net of W/C reduction of $15k) ROIC (Year 1) Old Format $5,700 New Format $5,848 2.6% $148 35.0% $52 40 bps $23 $75 $335 22.5% Commentary
Note: 40% current contribution margin
Seattle's Best Coffee / Specialty Paper
Based on Pershing estimates and management guidance.

26
Rewards Program Creating Noise in Financials

Newly launched Rewards Program has created noise in Superstores financials
What is the Rewards Program? 5% of all purchases (triggered at $200 per Rewards customer) are credited towards a Holiday Spending Account Use it or lose it What is the impact? Accrual assuming 100% redemption Launch and accrual expenses have reduced YTD Superstores segment EBITDA compared to prior years Rewards accruals of $8.4mm Advertising and payroll for launch of $4.2mm Reduced YTD EBITDA by 18%
27
Rewards Program Creating Noise in Financials

What will be the impact of Rewards going forward?
Q3 reported earnings will feel the most impact Accrual amount likely to accelerate as larger member base exceeds $200 spending level Q3 is historically the weakest quarter, usually breakeven to slightly negative earnings We expect that Q4 will see a positive impact from Rewards We believe Q4 guidance conservatively assumes high redemption rate and no incremental sales Prior year test markets showed positive impact Comparable sales in test markets were higher implying incremental sales Avg. ticket w/ rewards credit was 2x avg. ticket w/o rewards credit
28
One-Time Costs Expected in 2006E
Superstores Segment Financials

($ in millions)
Redundant distribution center costs: YTD $7.8mm
Same store sales Revenue EBITDA Margins One time costs: Redundant Distribution Center Costs Advertising / G&A for Launch of Rewards Impact of Remodels Total Pro Forma EBITDA Pro Forma Margins
2005A 1.1% $2,710 261 9.6%
2006E 0.0% $2,795 228 8.2%
Launch of Rewards: YTD: $4.2mm
$10 5 5 $20 $249 8.9%
One time P&L impact of Remodels: YTD $2.5mm
Based on Pershing estimates.

29
What Could Superstores EBITDA be in 2008?

Assuming 2% comps and the Companys unit growth plan, if EBITDA margins were to improve 100bps by 2008 (returning to 5-year average levels), EBITDA could increase by 41% from reported levels
$340 $320 $300
EBITDA $ in millions
$280 $260 $240 $220 $200 $180
$289 8.9% $249 8.9%
$322 9.9% Margin

Avg. 5 year margins: 9.9%
41%
increase
$228 8.2% EBITDA Margin

Superstores 2006E EBITDA
One-time expenses in 2006 of ~$20mm

30
2% comps and 30 new units annually
Remodeling & SSS leverage: 100bps margin increase
Working Capital Opportunity

Potential for $130mm of cash flow generation (or ~12% of the current equity market value) through working capital improvements at Superstores over the next 2 years
Net Working Capital at Superstores currently at ~$550M Company can reduce working capital by 10-15% near term and 30-40% in the long term Consolidating distribution centers and new merchandising system Increasing face outs / decreasing stock Current Superstores inventory turns of ~1.7x We have assumed Superstores segment achieves inventory turns equal to 2.2x, a discount to Barnes and Nobles at ~2.4x Equals approximately ~$130mm of free cash flow generation
31
Mall Stores
Mall Stores: Obsolete Format

Obsolete Format: Mall stores have difficulty competing with Mass Merchants on price and with book superstores on selection / experience
~600 Waldenbooks stores Typical store has 3,000 sq. ft and 30,000 titles Best sellers are a higher % of sales Weak margins / deteriorating business 2006E Revenues of $615mm and EBITDA of $5m Seasonal Calendar Kiosk business is the main EBITDA contributor Barnes and Noble has exited nearly all mall locations
33
Mall Stores: Deteriorating Business

Mall segment Adjusted EBITDA margins in 2005 were 3%, having fallen ~60% since 2003
$80 $70
7.4% $67
7.2% $61
7.5%
8.0% 7.0%
$61 5.6%
6.0% 5.0%
Adjusted EBITDA
($ in millions)
$60 $50
$44
$40 $30 $20 $10 4.0%
Adjusted EBITDA Margins
3.0% $23
3.0% 2.0% 1.0% 0.0%
Note: EBITDA Adjusted for non-cash asset impairment associated with store closures.
$0 2001 2002 2003

34
2004
2005
Mall Stores: Rationalization Plan
410 Mall Stores (~70% of total) have leases expiring in 2006 Management says that 200 are profitable, 200 are marginal, and 200 are losing money Plan to close unprofitable stores as leases expire Remaining stores negotiate rent reductions with 1-year renewals
35
Mall Stores: Worth More Dead than Alive

Assuming $150,000 of Net Working Capital on average per Waldenbooks store, we believe there is $90mm of total Net Working Capital trapped in the Mall segment
Waldenbooks Total Units Net Working Capital per store ($000) Total Net Working Capital ($ in mm) 2006E EBITDA
600 $150k $90mm ~$5mm
36
International
U.K.
Australia
International Stores
U.K. stores 37 Borders Superstores 31 Books, Etc. (small format) 90 Paperchase Australia / New Zealand: 18 Superstores 2005 EBITDA margins of 4.3% Significantly lower than 2005 Superstore margins of 9.6% We estimate International 2006E EBITDA margins of 1.5% (assuming revenue of $650mm and EBITDA $10mm)
38
International May Be Sold if Not Fixed Soon

Management has indicated it would sell the International business (franchising) if it cant be fixed in a timely manner
International Segment has seen dramatic deterioration UK Business is struggling Books, Etc. (small format) stores are obsolete and have negative EBITDA UK Superstores challenged, contributing <$10mm of EBITDA Aus/NZ business is healthy, contributing ~$10mm of EBITDA Management sees no synergy to operating international markets, has ceased additional development
39
International: Worth More Dead than Alive?

Based on our assumptions, we believe there is approximately $110mm of Net Working Capital in the International Stores
NWC / Store
UK Superstores Books, Etc. (small format) Australia / NZ Superstores $2.2mm $285k $900k
# of Units
37 31 18 4
Net Working Capital (mm)

$80 9 16 5 $110 ~$10
Other (Puerto Rico, Singapore, etc) $1.2mm Total (in mm)
2006E International Stores EBITDA (mm)
40
3. Other Factors: Share Repurchase Activity and New CEO
Strong Share Repurchase Focus

Borders management guidance implies ~55mm common shares outstanding by January 2007. This is an approximate 30% reduction from its common share count in March 2004 of 78mm. Borders common share outstanding
90 80 70 60 50 40 30 20 10 0
78 73 65 55
March 2004
March 2005
42
March 2006
January 2007E
New CEO: Focused on Returns

New CEO, George Jones Joined in July Purchased ~$1mm of stock Retail merchandising and operations expertise (Target, Warner Bros., Saks) Renewed sense of urgency Fixing / rationalizing the business Emphasis on returns
43
Valuation
We believe our valuation assumptions are conservative
No EV / EBITDA multiple expansion Mall and International Segments value based on NWC The least these segments are worth Upside at International segment -- it was generating $40mm of EBITDA in 2004 (versus ~$10mm in 2006E) Reduced share repurchase rate Current rate of ~$250mm/year We assume $80mm/year (proceeds from Superstores net working capital improvements and FCF after capex) No incremental leverage to fund share repurchases
45
Borders Group: Whats It Worth?

With no multiple expansion, Borders could be worth $36 in the next 18 months, a 72% premium to the current price (of $21).
Segment Superstores Mall Stores International Unallocated G&A Methodology 7.0x '08E EBITDA of $322 Commentary Assumes no multiple expansion The least it's worth The least it's worth Value $2,257 90 110 ($175) $2,282 (450) $1,832 55 (4) 51 $36.17 72.2%
Value of Net Working Capital Value of Net Working Capital 7.0x '08E EBITDA of ($25)
Enterprise Value Less: Net Debt expected at Year End 2006 Equals: Equity Value FD shares outstanding expected at year end 2006 Less: Shares repurchased using $130mm from NWC improvement at Superstores, net of options (1) Equals: FD shares outstanding
$ in millions, except per share data
Share price Premium to current price
(1) Assumes $130mm of proceeds from Net Working Capital improvement and $30mm of FCF generated between 2007 2008 used to repurchase shares at $30 per share. Fully diluted calculation based on the treasury stock method and assumes ~7mm of options outstanding by FYE 2008.
46
Trading Multiples at Target Valuation

At a $36 share price (adjusting for ~$4 of equity value ascribed to the NWC at the Mall and International Stores), Borders would trade at 7x 08E EBITDA, 7.5x 08E EBITDAR and approximately 11x 08E Maintenance Free Cash Flow
BGP Trading Multiple EV / EBITDA EV / (EBITDA - Maint Capex) Adj EV / EBITDAR Price / Earnings Price / Maint Free Cash Flow 2008E 7.0 x 8.4 x 7.5 x 14.7 x 10.9 x
47
Recent LBO Leverage Levels

At a $36 price, Borders would trade at 7.5x 08E EBITDAR, only a slight premium to 6.8x, the average of total leverage levels used in several recent retail LBO transactions
Transaction: Linens 'n Things Burlington Coat Factory The Sports Authority Michael's Stores Average
Purchase Price EV / EBITDA 7.7 x 7.4 x 7.7 x 11.0 x 8.5 x
Total Leverage Adj. Debt/ EBITDAR 6.2 x 6.5 x 6.8 x 7.8 x 6.8 x
48
Concluding Thoughts
Concluding Thoughts
Borders is similar to other investments where we have had success
Value of high-quality segment obscured by performance of low-return segments Traditional sentiment on the Company is negative or neutral at best Market is more focused on consolidated same store sales rather than the underlying business quality New CEO is focused on making changes to fix the business
50
Concluding Thoughts Investment requires a long-term view

Near-term performance impacted by current business structure and initiatives (Rewards, Remodeling, etc) Near-term risk is somewhat mitigated by an upcoming slate of strong book releases We believe it will take time for management to realize full opportunity
51
A TIP for Target Shareholders

October 29, 2008
Disclaimer
The information contained in this presentation (the Information) is based on publicly available information about Target Corporation (Target). None of Pershing Square Capital Management, L.P., its affiliates and any of their respective officers, directors and employees (collectively, Pershing), nor any representative of Pershing, has independently verified any of the Information. Pershing recognizes that there may be confidential or otherwise non-public information in Targets possession that could lead others to disagree with Pershings conclusions. The sole purpose of presenting the Information is to inform analysts and shareholders about the transaction described in this presentation (the Transaction). This presentation does not constitute an offer or a solicitation of any kind. Neither Pershing nor any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the Information or any other written or oral communication made in connection with this presentation or the Transaction. The Information includes certain forward-looking statements, estimates and projections with respect to the anticipated future financial, operating and stock market performance of Target in the absence of the Transaction and the two public companies that may result if the Transaction is completed. Such statements, estimates and projections may prove to be substantially inaccurate, reflect significant assumptions and judgments that may prove to be substantially inaccurate, and are subject to significant uncertainties and contingencies beyond Pershings control, including those described under the caption Risk Factors in Targets filings with the Securities and Exchange Commission as well as general economic, credit, capital and stock market conditions, competitive pressures, geopolitical conditions, inflation, interest rate fluctuations, regulatory and tax matters and other factors. Pershing and its representatives expressly disclaim any and all liability relating to or resulting from the use of the Information or any errors therein or omissions therefrom, including under applicable securities laws. The Information does not purport to include all information that may be material with respect to the Transaction or Target. Thus, shareholders and others should conduct their own independent investigation and analysis of Target, the Transaction and the Information. The Information is not intended to provide the basis for fully evaluating, and should not be considered a recommendation with respect to, the Transaction, Target, the securities of Target or any other matter. Except where otherwise indicated, the Information speaks as of the date hereof. Neither Pershing nor any of its representatives undertakes any obligation to correct, update or revise the Information or to otherwise provide any additional materials. The preparation and distribution of this presentation should not be taken as any form of commitment on the part of Pershing to take any action in connection with the Transaction. Pershing is in the business of buying and selling securities. It has, and may in the future, buy, sell or change the form of its position in Target for any or no reason.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any discussion of U.S. tax matters contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such discussion of tax matters is written in connection with the promotion or marketing of the matters addressed; and (iii) you should seek advice from an independent advisor.
1
Pershings Investment in Target

Pershing initiated its investment in Target (Company) in April 2007 We currently have beneficial ownership of slightly less than 10% of the Company Since May 2008, we have been discussing a potential Transaction with Target management Pershing has improved its initial Transaction to address issues raised by the Company. Today, we are presenting this revised Transaction to the Company, its shareholders, and members of the investment community
2
Pershings Relationship with Target

Since our first meeting with management in the summer of 2007, Pershing has enjoyed a very constructive relationship with Target We view Targets management as the best in the Retail Industry We appreciate managements willingness to listen to and evaluate ideas proposed by shareholders Our goal is to work with management and other shareholders to find the best strategic and valuemaximizing outcome for the Company, its employees, and its shareholders
Why Are We Going Public?

Given the materiality of the Transaction, Pershing thought it would be beneficial to share the idea publicly with Target stakeholders and the investment community
The Transaction is important enough to warrant testing with shareholders We think the insights gained by sharing the Transaction publicly will be of tremendous benefit to Target as well as other stakeholders Target is currently evaluating the Transaction By going public with our presentation in advance of Targets decision regarding the Transaction, shareholders and the investment community can provide their input on the Transactions merits
4
Significant Preparation and Analysis

To assist in preparing this presentation, Pershing retained UBS Investment Bank (UBS) and Sullivan & Cromwell LLP (S&C) as financial and legal advisors Pershing and its advisors analyses are based on publicly available information UBS has provided financial advisory services S&C has provided legal, structural, and tax advisory services
Note: All financials in this presentation are based on Calendar Year

5
Agenda
Objectives The Transaction Transaction Rationale Valuation Appendix Detailed Valuation Analysis Credit Rating Analysis Structural and Legal Considerations
6
Objectives
Target: Retail and Real Estate Operations
Retail Operations
Iconic U.S. retail brand Best-in-class operator with distinctive merchandising strategy 1,685 stores in 48 states Best management team in the retail industry Attractive growth profile, driven by mid-tohigh single-digit square footage growth and market share gains Recently sold an undivided interest in credit card receivables
Real Estate Operations

High-quality owned real estate in attractive suburban and urban locations Significant value embedded in real estate, not accounted for in public market valuation Owns ~95% of its retail buildings and ~85% of the land under its retail locations Owns ~84% of its distribution centers (DCs) and ~81% of the land under its DCs Facilities Management Services comprising hundreds of employees responsible for property maintenance
8
Significant Real Estate Ownership

Target owns the highest percentage of its real estate compared to other big box retailers
100 90 % Units Owned (Buildings)1 80 70 60 50 40 30 20 10 0 34% 34% 68% 63% 58% 95% 92% 87% 87%
% owned units/land(2): 85% % DCs owned(3): 84%
79% ND
ND 2%
ND 84%
55% 76%
ND 55%
35% 89%
ND 54%
27% ND
ND represents Not Disclosed (1) Represents % owned stores (includes owned stores on leased land) (2) Represents % owned stores on owned land only (3) Represents % owned DCs (includes owned DCs on leased land)
What if Target Were to Rent its Real Estate?

Assuming that Target were to rent all of its owned store locations at an estimated market rent of 4.25% of store sales (or approximately $13/sq. ft.) and its owned distribution facilities at $4.25/sq. ft., Target would pay an additional rent of $2.5bn in 2008
Target Real Estate Co

$ in billions Target Retail Sales Implied Retail Rent as % of Sales Percentage of Owned Real Estate Retail Rental Income Dist. Facilities Rental Income Real Estate 4-Wall EBITDA 2008E $64.9 4.25% 85% $2.4 0.2 $2.5
Pro Forma Target Corp

$ in billions Existing Retail EBITDA (2) Less: Additional Rent Equals: PF Retail EBITDA 2008E $6.3 (2.5) $3.8
(1)
Implied EV of '08E EBITDA Pro Forma Target Corp 7.0x $26.9
Targets resulting EBITDA after rent expense would be $3.8bn

(1) Implied cap rate of 8.5% on 35mm square feet of distribution facilities, valued at $50 per square foot (2) Assumes for illustrative purposes that the remaining 53% interest in credit card receivables is sold to an Investment Partner for $4.4bn and that Target retains $150mm of credit card income
10
$39 Billion of Real Estate Replacement Value

Assuming that on average, a new store costs $26mm to zone, develop and build or approximately $197/sq. ft. (1) and that each Distribution Facility costs $70mm or approximately $50/sq. ft. (1), the replacement cost of Targets owned real estate (excluding the value of its buildings on ground leased land and its existing leases) is approximately $39bn
Replacement Value of Owned Land and Buildings (2), (3)

2008E Retail Real Estate: 2008E Total Sq. Ft. (mm) 222 2008E DCs and WHs: 2008E Total Sq. Ft. (mm) 44 Estimated % Owned 81% Owned Sq. Ft. (mm) 35 Value / Sq. Ft. $50 Total Value ($bn) $1.8 Estimated % Owned 85% Owned Sq. Ft. (mm) 189 Value / Sq. Ft. $197 Total Value ($bn) $37.4
Total Real Estate Replacement Value ($bn) Implied Cap Rate @ $2.5bn of Estimated Market Rent
$39.1 6.4%
(1) Based on average store size of 132k square feet, and DCs & WHs size of 1.4mm square feet (2) Analysis excludes the value of owned buildings on third-party ground leased land; assumes cost of a Target store of $26mm ($13mm building and $13mm land) and cost of distribution facility and warehouse of $70mm ($50mm building and $20mm land) (3) Assumes 1,438 stores, and 25 distribution facilities and warehouses on owned land in 2008E
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Market Assigns Little Value to Targets Real Estate

Assuming Target were to rent its owned real estate and using a 7.0x 08E EBITDA multiple on the pro forma retail business, the 20-day trading average stock price of $40 implies only $13bn of value for Targets owned real estate, a significant discount to book and replacement value
$ in billions
Current TGT Enterprise Value @ $40/Share Less : PF Target Corp Less : Credit Card Receivables Equals : Implied Real Estate Value Gross Book Value of Land and Buildings Discount to Gross Book Value Replacement Value of Owned Real Estate Discount to Replacement Value
$48.3 (1) (26.9) (2) (8.0) $13.4 $25.2 47% $39.1 66%
(1)
(1) Based on 2008 Q2 company filings and a 20-day trading average stock price as of 10/24/08 (2) Assumes for illustrative purposes that the remaining 53% interest in credit card receivables is sold to an Investment Partner for $4.4bn and that Target retains $150mm of credit card income
12
Objectives
In considering alternatives for the Company, Pershing Squares objective was to eliminate the stock markets ascribed discount to the intrinsic value of Targets real estate and allow the Company to: Retain complete control of its buildings and its brand Retain 100% flexibility with respect to its construction, remodeling, and relocation plans Improve the Companys free cash flow and access to capital Increase the Companys ROIC and lower its cost of capital Maintain an investment grade credit rating Increase the Companys EPS growth rate Minimize tax leakage and friction costs
13
Several Alternatives Were Reviewed

In the course of our work, we reviewed several structures:
Transaction Alternatives
1. Tax-Free Spin-off of all owned land and buildings
Gating Items
Difficult to maintain sufficient control over buildings and achieve tax-free status Lease life (including fixed rate renewals) limited to 75% of the useful life of the buildings
2.
Taxable Spin-off of all owned land and buildings Large sale-leaseback transaction
Value destruction due to tax leakage, both at the corporate and shareholder levels Value destruction due to tax leakage at the corporate level Transaction execution may be difficult
3.
Pershing concluded that the above alternatives were not optimal, given the Companys strategy and objectives
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Pershing has identified a Transaction which will achieve all of the stated objectives The Transaction is consistent with the way Target owns some of its real estate today The Transaction will create tremendous shareholder value
15
The Transaction
The Transaction
Tax-free spin of Target Inflation Protected REIT (or TIP REIT) as Groundlessor and Facility Manager
PreSpin
TARGET Shareholders
PostSpin
TARGET Shareholders
TARGET
TARGET Corp
Ground Leases
Target Inflation Protected REIT

Facilities Mgmt. Services
Existing Retail Business
Owned Buildings 1
Land
New Target Corp owns its buildings on 75-year ground leases Outsources Facilities Management Services Continues to maintain properties
Leases back land to Target Corp through a Master Lease for a 75-year term Elects REIT status at the time of spin-off Becomes Target Corps outsourced facilities management provider Becomes Targets exclusive land developer for the first two years
(1) Includes third-party ground leases

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After two years, becomes Target Corps Preferred Vendor for land procurement
Solving a Retailers Real Estate Dilemma

TIP REIT
Facilities Mgmt. Services Land under Stores and DCs
Question: How can a Retailer unlock the value of its real estate without losing control of its buildings? Answer: Tax-free spin-off of an active business that ground leases the land back to the Retailer
Retailer retains ownership of its buildings and 100% control with respect to its construction, remodeling, and relocation plans Retailer becomes a 75-year ground lessee for its owned properties on attractive terms with no financial covenants Retailer gets an unlevered business partner (a land-only REIT) that can more efficiently finance future land development
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Unlocking Immense Real Estate Value

REITs, private market ground leases, and inflation-protected securities all trade at much higher valuation multiples than Targets multiple, at only 6.0x 09E EV/EBITDA, based on a 20-day trading average stock price of $40
Targets Market Valuation (1) 2009E EV / EBITDA Inflation Protected Securities / REIT Market Valuations 2009E EV / EBITDA
6.0x
$40/Share (1)
15.7x
Large Cap REITs (1)
17.0x
Recent Big Box Ground Lease (2)
33.3x
Inflation Protected Treasury Securities (TIPS) (3)
The Transaction creates immense and instant value because 22% of Targets current EBITDA will be valued at a significantly higher multiple than where Target trades today
(1) Based on a 20-day trading average as of 10/24/08 (2) Based on mid-point precedent cap rate of 5.9% (3) Based on current 20-year TIP yield of 3.0%
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Execution is Not Impacted by the Current Markets

Target does not need access to the capital markets to consummate this Transaction
Given the global credit markets today, the only strategic transactions that can take place are those that do not require access to capital: Spin-offs Stock-for-stock mergers / acquisitions Acquisitions by cash-rich acquirors The Transaction is structured as a spin-off where each current shareholder will receive pro rata shares in TIP REIT No equity or debt capital is required to spin off TIP REIT
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Transaction Plan: How Would it Happen?

Asset Contribution
Target Corp
Transaction Description Step 1: The existing company (Target Corp) forms a new subsidiary (TIP REIT) and transfers to it the Facilities Management Services business, the owned land under the stores, and the owned land under the distribution facilities
Land
TIP REIT
1
Facilities Management Services
Land Lease
2
75-year
Target Corp
Master Lease
Step 2: TIP REIT leases the land back to Target Corp through a Master Lease for a 75-year term
TIP REIT
Land
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Transaction Plan (contd)

Spin-off and REIT Election
Shareholders
Transaction Description Step 3: Target Corp spins off TIP REIT to its shareholders pro rata and tax-free Step 4: TIP REIT elects REIT status effective immediately Simultaneously, TIP REIT drops the Facilities Management Services business into a new corporation, a taxable REIT subsidiary (TRS) Step 5: TIP REIT pays a taxable dividend (at the 15% dividend tax rate to non-corporate taxpayers) to shareholders equal to its allocated portion of Targets $16bn of retained Earnings and Profits (E&P), estimated to be $8bn based on the implied mid-point valuation of TIP REIT/Target Corp 20% of the dividend ($1.6bn) may be paid in cash with the remaining paid in TIP REIT common stock This cash dividend can be deferred until the end of the calendar year in which the REIT election occurs
Tax-Free Spin-off
Target Corp
TIP REIT
4
Facilities Mgmt Services (TRS)
Land
E&P Purge
Shareholders
$8bn Taxable Dividend (E&P Purge)
TIP REIT
Target Corp
Land
75-year Lease
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Illustrative Master Lease Term Sheet

Lessee Lessor Leased Property Term
Target Corp TIP REIT Land in fee under stores and distribution centers 75-year term
Rate Financial Covenants Preferred Vendor Agreement Maintenance of Buildings Sublease
Flat dollar amounts per year with annual increases For this Transaction we have assumed annual increases based on CPI increases None For the first 2 years post-Transaction, TIP REIT will be Target Corps exclusive land developer Thereafter, TIP REIT will become Target Corps preferred vendor for future land procurement / development needs Target Corp will have the right to re-model or tear down and rebuild stores as it sees fit
Target Corp may sublease one or more sites but no sublease would release Target Corp from its obligations under the lease The lease is intended to be treated as a lease for tax purposes; lessor will be treated as the owner Note: The lease is assumed to be treated as an operating lease for accounting purposes
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Lease Structure
Ongoing Relationships
Post separation, Target Corp and TIP REIT will continue to be closely aligned, but on an arms-length basis
TIP REIT will provide Facilities Management Services to Target Corp under a long-term agreement Arms-length terms TIP REIT expected to continue to perform Facilities Management Services for third parties after the spin-off Target Corp agrees to use TIP REIT as its land procurement developer for the first two years after the spin-off on agreed-upon terms Creates a contractual 2-year development pipeline for TIP REIT and a funding source for Target Corp Afterwards, Target Corp will grant TIP REIT preferred vendor status for Target Corps land procurement needs on market terms for future Target stores Under this Preferred Vendor Agreement, it is anticipated that TIP REIT will be Target Corps land procurement developer in the future After the spin-off, TIP REIT and Target Corp may also share overlapping board members The number of overlapping board members would comprise a minority of each board There may be restrictions on the duration of the overlap
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Transaction Assumptions
The following transaction assumptions were used for an illustrative 01/01/09 transaction:
09E rent/square foot on land for stores $7/sq. ft.; equals to 7% of $100/sq. ft.
Lease Terms Credit Card Business

(Both Transaction and Standalone)
09E rent/square foot on land for distribution centers and warehouses $1.25/sq. ft. Rental rate grows based on CPI (assumes CPI = 2.5%) Target sells 53% remaining interest of credit card portfolio $4.4bn of proceeds used to pay down debt (including all securitized debt) Elimination of $3.6bn JPMorgan financing Target retains $150mm of pre-tax earnings stream from its credit card business in partnership transaction Target Corp funds all maintenance capex as well as all building development TIP REIT funds all new Target store land procurement, development and improvement costs ($100/sq. ft.) Assumes $125mm of 09E internal Facilities Management Services expense at Target Corp Assumes TIP REIT receives $144mm in revenues from Target Corp and third parties, expenses $125mm of costs and earns $19mm in EBIT, implying a 13% EBIT margin in 2009E After reducing $4.4bn of debt from the sale of the remaining 53% interest of CC business (and accordingly eliminating the JPMorgan credit card liability), we have assumed all existing debt stays at Target Corp Flexibility to re-allocate debt between Target Corp and TIP REIT
Capital Expenditures Facilities Management Services Capital Structure Dividends TIP REIT G&A
100% of AFFO distributed at TIP REIT Results in total dividends to shareholders of $1.86/share in PF2009E vs. current $0.60/share Assumes $20mm of G&A allocated to TIP REIT and incremental $15mm of standalone costs in 08E
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Selected 2009E Income Statement Data

Based on the assumptions provided, the Transaction would result in $1.4bn EBITDA in 2009E to TIP REIT
2009E Target Corp
($mm, except per share)
2009E TIP REIT
2009E "Combined"
2009E Target Standalone

22% of total EBITDA to TIP REIT Minimal D&A at TIP REIT and no maintenance capex
EBITDA D&A EBIT Taxes EPS
$5,172 1,884 3,288 1,004 $2.23
$1,427 56 1,372 7 $1.79

(2)
$6,599 1,940 4,659 1,011 $4.02
(1)
$6,614 1,940 4,674 1,528 $3.40
TIP REIT pays almost no taxes
(1) Includes incremental $15mm of standalone costs at TIP REIT (2) Normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution
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18% EPS accretion from tax efficiencies and improved free cash flow
2009E Detailed Income Statement Data

The table below sets forth the Income Statements for the two entities
($mm) P&L Data: Retail Revenue Rental Revenue 1 Facilities Management Revenue Total Revenue COGS Gross Margin Gross Margin (%) Less: Existing Rent Expense 2 Less: Incremental Ground Lease Expense payable to TIP REIT Less: SG&A (excluding rent expense) 3 Less: Incremental Standalone Cost 1 Less: Facilities Management Expense 4 Plus: Credit Card EBITDA Equals: EBITDA % of Total Less: Depreciation and Amortization Equals: EBIT % of Total 2009E Target Corp $68,249 $68,249 (47,777) 20,472 30.0% (173) (1,444) (13,814) (19) 150 $5,172 78.4% (1,884) $3,288 70.6% 2009E TIP REIT 1,444 144 $1,587 1,587 100.0% (20) (15) (125) $1,427 21.6% (56) $1,372 29.4% Intercompany Adjustments (1,444) (144) ($1,587) (1,587) 1,444 144 2009E "Combined" $68,249 $68,249 (47,777) 20,472 30.0% (173) (13,834) (15) 150 $6,599 100.0% (1,940) $4,659 100.0%
(1) (2) (3) (4)
Reflects payment to TIP REIT of $144mm less assumed expense of $125mm Assumes rent of $7.00/sq. ft. on store land and $1.25/sq. ft. on DCs and WHs land for CY 2009E Incremental standalone cost of TIP REIT Assumes the sale of the remaining 53% interest on credit card receivables on 01/01/09, with Target retaining $150mm of credit card EBITDA
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2009E Maintenance Free Cash Flows

The Transaction achieves significant cash flow savings given the taxefficient structure for owning land
2009E Maintenance Free Cash Flow per Share (1)

$6 Maintenance FCF/Share $5
16% $3.92 Target Standalone
$4.54 TIP REIT $1.86 Target Corp $2.68
$4 $3 $2 $1 $0
Target
Target "Combined"
(1) Includes cost of store remodeling; normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution
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Detailed 2009E Maintenance Free Cash Flows

The Transaction achieves significant cash flow savings given the taxefficient structure for owning land
($mm, except per share data) Cash Flow Data: EBITDA Less: Maintenance Capex 2 Less: Interest Expense 3 Less: Taxes Plus: Change in Net Working Capital Plus: Other Equals: Maintenance Free Cash Flow Weighted Average Shares Outstanding Maintenance FCF/Share 2009E Target Corp 1 $5,172 (1,714) (673) (1,004) 79 73 $1,933 722 $2.68 2009E TIP REIT $1,427 (76) (7) $1,344 722 $1.86 2009E "Combined" $6,599 (1,714) (748) (1,011) 79 73 $3,278 $4.54 2009E Standalone 1 $6,614 (1,714) (694) (1,528) 79 73 $2,830 721 $3.92
Maintenance FCF/share accretion ($) Maintenance FCF/share accretion (%)
$0.62 16%
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09 with Target retaining $150mm of credit card EBITDA (2) Assumes interest rate on debt of 6.2% at Target Corp and 7.0% at TIP REIT; normalized to exclude $112mm of incremental interest expense due to CY2009 cash E&P distribution (3) Assumes tax rate of 38% for Target Corp and TIP REIT Facilities Management Services business
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Valuation Summary
Based on the assumptions provided and using the mid-point of the valuation analysis, this Transaction would result in total combined value of $70 per share for Target shareholders (74% premium to the 20-day average trading price) and $83 per share twelve months later
$83
$80
$70
TIP REIT
$60 $/Share
74% $40
Target Standalone
TIP REIT
$42
$40
$38
Target Corp Target Corp
$20
$32
$0 Target (20-Day Avg. Price) Target REIT Spin-Off
$42
12-Month Price Target
For illustrative purposes, assumes Transaction occurs on 01/01/09 (1) Based on a 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis 30
Even ignoring valuation benefits, there are important strategic reasons to consummate the Transaction
31
Transaction Rationale
Transaction Rationale
Target Corp retains control over its buildings and brand Improves Targets access to capital and decreases its capital needs Creates a non-cash currency for tax-efficient real estate acquisitions Improves management focus on core operations Tax-free spin-off Optimizes ownership of land Increases total free cash flow Improves store-level ROIC and Targets EPS growth rate Maintains investment grade credit ratings profile Increases total dividends from $0.60/share today to $1.86/share in 2009E (1) Enormous value creation
(1) Excludes $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution
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Retains Control Over its Buildings and Brand

Flexible lease structure will allow Target Corp to retain control of its brand and stores
Target Corp maintains control over its real estate construction, remodeling, and relocation efforts All economic benefits of construction / remodeling of stores stay with Target Corp Ground lease provides Target Corp with a high degree of control and flexibility 75-year lease term with the ability to relocate and sublease Lease term flexibility on a store-by-store basis Contingent rent eliminates GAAP straight-line rent leveling requirements Unique landlord / tenant relationship benefits both TIP REIT and Target Corp TIP REIT and Target Corp have a mutual vested interest in maintaining the strong viability of the Target brand and retail business
34
Improves Overall Access to Capital

Today, only the most stable and unlevered businesses can freely access the debt and equity capital markets. TIP REIT will be one of the most stable companies in the world today
TIP REIT
Simple, predictable business High margins and strong cash flows Unlevered balance sheet 75-year lease No transaction income Inflation-protected income stream Tremendous security No maintenance capital requirements No currency or commodity risk High-quality, in-demand tenant Diversified real estate geography
35
TIP REIT will have better and cheaper access to the capital markets than any retailer. As such, Target will have a stable strategic and financial partner to fund future growth
Decreases Target Corps Capital Needs

Today, on average, it costs Target approximately $100/sq. ft. to procure and develop land for its stores. In 2009, this is expected to amount to roughly 50% of growth capital or $1.1bn
Land Cost of raw land Permits / Zoning Professional fees (title search, legal, engineering, appraisal, etc) Surveying and environmental assessments Real estate taxes Land Improvements Land excavation (fill, grading) Drainage Demolition costs of existing properties (1) Sewage systems (1) Parking lots (1) Lights (1) Fencing (1) Sidewalks (1) Landscaping
(1) Depreciable asset
36
Outsourcing these capital requirements to TIP REIT would increase Target Corps cash flows and decrease its need for growth capital
Decreases Target Corps Capital Needs (contd)

The Transaction enables Target Corp to generate more free cash flow after growth capex than Target today. As such, Target Corp will not need to access the capital markets because TIP REIT will provide future growth capital and taxes will be reduced
($mm, except per share data) Maintenance Free Cash Flow Less: New Building Development/Other Capex Less: New Land Development Capex Equals: Free Cash Flow after Total Capex 2009E Target Corp (1) $1,933 (1,112) $821 2009E TIP REIT $1,344 (1,079) $266 2009E "Combined" $3,278 (1,112) (1,079) $1,087 2009E Standalone (1) $2,830 (1,112) (1,079) $639
Target Corp would have approximately $200mm of incremental FCF after growth capex versus Target Standalone as a result of not funding new land development and reduced taxes
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09 with Target retaining $150mm of credit card EBITDA in '09E
37
Creates Currency for Tax Efficient Acquisitions

Utilization of an UPREIT structure would provide TIP REIT with an attractive acquisition currency that allows selling landowners to access liquidity, diversification, and yield without triggering tax
An UPREIT owns some or all of its assets through an Operating Partnership (OP) and can make acquisitions by exchanging OP units for real property OP units are convertible, on a one-for-one basis, into TIP REIT shares
38
Creates Currency for Tax Efficient Acquisitions

There are several benefits to an UPREIT structure
To TIP REIT: OP units are an attractive acquisition currency in transactions with landowners who typically have a very low basis in their properties OP units do not require any capital market access TIP REIT may be able to acquire land from current Target landowners who historically would not sell for tax reasons To Land Owners: Defers tax on sale of land to OP Conversion right gives seller liquidity OP unit represents a diversified real estate investment Structure allows a diverse group of property owners to manage individual tax, liquidity, and other needs
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Improves Management Focus

Management will be able to focus on retail operations
Targets core competency is retailing (i.e. merchandising, branding, marketing, and designing a unique shopping experience) Management will increase focus on Targets core competencies and outsource certain other functions: Facilities management (lawn care, parking lot maintenance, etc.) Land development, planning, and zoning Environmental planning
Target Corp can better focus on retailing while TIP REIT can focus on facilities management and land acquisitions
40
Tax-free Spin-off
The Transaction satisfies all of the requirements for a tax-free spin-off
Requirements
The spin-off must be motivated by a non-tax corporate business purpose
Application
Improved access to capital and capital allocation Improved currency for future real estate acquisitions Improved management focus on retail operations Enhanced equity-based management compensation Leases are structured to ensure TIP REIT is treated as tax owner of land Facilities Management Services business is an active trade or business that has been conducted by Target Corp, in addition to its retail business, for the past five years TIP REIT expected to continue to offer Facilities Management Services to customers other than Target Corp Non-tax business purpose for separation, widely-held ownership of Target Corp and TIP REIT, and absence of plan by shareholders to sell stake in either company evidence that transaction is not a device Leases are structured to ensure TIP REIT is treated as tax owner of land
Business Purpose
Active Trade or Business
Both Parent and SpinCo must each be engaged in an active trade or business immediately after the spin-off The business must also have been conducted throughout the 5-year period ending on the date of the spin-off The spin-off cannot be principally used as a device for the distribution of earnings and profits
Device
Distribution of Control
Parent must have control of SpinCo immediately prior to the distribution Control means 80% of total voting power and 80% of the number of shares of each class of non-voting stock
41
Target Corp will have control of 100% of TIP REIT prior to spin-off
Optimizes Land Ownership: Depreciation Considerations

Raw land (and the majority of the capitalized costs associated with land procurement / development) cannot be depreciated Unlike buildings, which are depreciable and remain at Target Corp, land development has minimal offsetting tax deductibility However, ground rent is tax deductible As such, long-term ground leases are a more tax-efficient way for a tax-paying entity to control real estate than outright land ownership Unless it is in the business of land speculation, there is no distinct strategic advantage for a retailer to own land versus a very longterm, covenant-free ground lease On the other hand, a REIT should own land since (1) it is not a taxpaying entity and does not get any benefits from depreciation and (2) it is in the business of owning real estate
42
Optimizes Land Ownership: REIT Conversion

The Transaction satisfies all the requirements of a REIT conversion, thus optimizing the ownership of land for Target shareholders
REIT Requirements
Ownership
REIT must have 100 or more shareholders Five or fewer individual shareholders may hold no more than 50%
Application
TIP REIT will be widely held by the public Restrictions will be placed on the ownership of TIP REIT shares to ensure no single shareholder may own > 9.9% of its shares Land satisfies the asset test The Facilities Management Services business will be placed in a TRS and its income will be taxed at the corporate level The value of TIP REITs TRS shares will be less than 25% of the total value of TIP REIT Rental income from leases will satisfy the 75% income test; rental income and dividends will satisfy the 95% income test New 9.9% TIP REIT ownership restriction will ensure that rents from Target Corp are not relatedparty rents
Asset Test
At least 75% of assets must be comprised of real estate, cash or cash items and Government securities REIT can conduct non-real estate related activities through a taxable REIT subsidiary (TRS). TRS shares could be up to 25% of the gross asset value of all the REITs assets At least 75% of REITs gross income must consist of rents, gain from disposition of real property and income from other REITs Rents from related parties are disqualified under the income test (parties are related if there is a 10% or greater ownership by vote or value of the tenant by the REIT) At least 95% of gross income must consist of (i) income that satisfies the 75% income test and (ii) dividends and interest from any source In the year of election, REIT must distribute C-Corp earnings and profits by end of taxable year At least 90% of REIT taxable income must be distributed annually (undistributed income would remain subject to corporate-level tax)
43
Income Test
Distribution Requirements
TIP REIT will make a taxable distribution of stock and cash by December 31 of year of spin-off to purge retained Earnings and Profits TIP REIT will distribute 100% of its REIT taxable income
Increases Total FCF via REIT Conversion

The Transaction allows for greater free cash flow generation for Targets shareholders than the Standalone company provides
Most D&A remains at tax-paying entity (Target Corp) Ground lease expense at Target Corp is tax deductible REIT does not pay taxes
TARGET Corp TIP REIT 2 TARGET Combined TARGET Standalone
Differential $0.62 $0.62
2009E Maintenance FCF/Share 2009E EPS

1
$2.68 $2.23
$1.86 $1.79
$4.54 $4.02
$3.92 $3.40
Using Targets 09 P/E multiple of 11.8x (based on $40/share), the incremental earnings accretion from this Transaction creates $7 per share of value ignoring other valuation benefits
(1) Assumes sale of remaining 53% interest on credit card business is sold in both Standalone and Transaction scenarios (2) Normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution
44
Improves Store-level ROIC at Target Corp

Assuming the average store real estate costs $26mm, of which $13mm is allocated to the land and $13mm to the building, store-level return on investment increases from 23.0% to 39.8%
Owned Store Level Operating Data and Assumptions ($mm) Standalone 2007A Pro Forma 2007A
Retail Sales per Avg. Store Estimated Four-Wall Operating Costs Ground Lease Expense per Avg. Store Estimated Four-Wall EBIT per Avg. Store Margin (%) New Land Capex New Building Capex Total Investment Estimated Returns on Investment (%)
$40 34 -$6 15.0% $13 13 $26 23.0%
$40 35 1(1) $5 13.0% -13 $13 39.8%
(1) Assumes $0.9mm of ground lease rent expense, based on $7/sq. ft. lease cost and 131k of store square footage, on average
45
Increases Target Corps EPS Growth Rate

Because of its higher ROIC, improved free cash flow profile, and more efficient capital structure, Target Corps EPS growth will exceed that of Target Standalone
Earnings per Share ($)

'09-'13 CAGR (%)
2008 PF Target Corp 1 EPS Growth (%)
2009 $2.23
2010 $2.67 19.5%
2011 $3.20 20.2%
2012 $3.70 15.5%
2013 $4.27 15.3%
17.6%
Target Standalone 1, 2 EPS Growth (%)
$3.29
$3.40 3.5%
$3.90 14.8%
$4.57 17.0%
$5.18 13.4%
$5.89 13.8%
14.7%
Memo: Operating Assumptions: Same-store sales Sq. ft. growth Gross Margin SG&A as % of sales
0.5% 4.7% 30.0% 20.2%
3.3% 4.1% 30.1% 20.1%
3.5% 6.0% 30.2% 20.0%
3.5% 6.5% 30.2% 20.0%
3.5% 7.0% 30.2% 20.0%
(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt (2) Assumes Target Standalone maintains existing dividend policy
46
Increases Target Corps EPS Growth Rate (contd)

Pro forma for the Transaction, Target Corps long-term EPS growth rate would be at the top of its peer group
Long-term EPS Growth (%)
21 17.6%(1),(2),(3) 16.0% 15.0% 15
18
14.7%(1),(2),(3) 14.5%
14.0%
14.0%
Average(4) = 11.9% 13.5% 13.0% 12.9% 12.0% 12.0% 12.0% 11.0% 10.0% 10.0% 9.0% 9.0% 8.0% 8.0%
12
0 Whole Foods
Corp
Kohl's
Standalone
CVS
Lowe's
Staples Walgreens
TJX
Costco
Safeway
Home Depot
Best Buy Wal-Mart
Sears
BJ's
Kroger
JCPenney SUPERVALU Macys
(1) Represents 20092013 EPS CAGR (2) Assumes additional future share buyback at a constant forward P/E of 16.0x (3) Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt (4) Excludes Target Source: FactSet and Company filings for Retailers, excluding Target
47
Maintains Investment Grade Credit Ratings

Post-transaction, we believe Target Corp will be rated investment grade, either in the Mid - High BBB or Low A categories, depending on whether the rating agencies take a De-consolidated or Consolidated view. A Consolidated view would assess the credit profile of the Target system, effectively cancelling TIP REITs rent payments, leading to a higher rating. This is similar to how the agencies rate Coca Cola and its bottlers
Target Corp
"De-consolidated View" PF 2008E Credit Metrics: Lease Adj. Debt/EBITDAR Debt/EBITDA EBITDAR/(Interest + Rent) EBITDA/(Interest) 3.6x 2.3x 3.2x 9.7x 2.4x 2.3x 7.3x 8.8x
Target Combined
"Consolidated View"
Expected Rating
Mid - High BBB/Baa
A- / A3
To be conservative, we have assumed that the agencies will take a De-consolidated View and Target will maintain solid investment grade ratings in the Mid - High BBB/Baa category (versus A+/A2 rating today)
48
Pro Forma 2008E Balance Sheets

The table below sets forth the Balance Sheets for the two entities
"Combined"
Target Corp $19,655 (200) 19,455 (4,400) (3,600) $11,455 12,309 $23,764 TIP REIT 1,600 1,322 $2,922 $2,922 Intercompany Adjustments (10,956) ($10,956) Consol. Rating Angencies View $19,655 (200) 0 $19,455 (4,400) (3,600) 1,600 1,322 $14,377 1,353 $15,730
($mm) Balance Sheet Data: 8/2/08 Debt 1 Less: Debt Paydown with H2 '08 Cash Flow Less: Debt Paydown from Excess Cash CY2008E Debt Less: Debt Paydown from Credit Card Proceeds Less: Elimination of JPMorgan Financing 2 Plus: Debt Issued for E&P Distribution at TIP REIT 3 Plus: Debt Issued to Fund Land Development at TIP REIT Less: Debt Paydown PF2008E Ending Debt Plus: Lease Adjusted Debt (8x 2008E Total Lease Expense) PF2008E Lease Adj. Total Debt PF 2008E Credit Metrics: Debt / EBITDA Lease Adj. Total Debt / EBITDAR EBITDAR / (Interest+Rent)
2.3x 3.6x 3.2x
2.2x 2.2x 6.6x
2.3x 2.4x 7.3x
(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt
(2) $1.6bn of debt issued to fund E&P dividend, which must be paid by December 31 of the year REIT status is elected (3) Assumes that 1st year land acquisitions financed solely with debt
49
Target Corp: Deleveraging to an A Ratings Profile after 2 Years

TIP REIT will be required to fund land capex for the first two years after the spin-off. Thereafter, TIP REIT will be Target Corps land developer through its Preferred Vendor Agreement. As such, Target Corp will generate significant free cash flow and will likely deleverage to an A-/A3 ratings profile after two years
PF 2008E ($bn, except where noted) End of Year Debt Balance Lease Adj. Debt End of Year Adj. Debt Balance EBITDAR Target Corp Adj. Debt/EBITDAR Expected Ratings Profile 11.5 12.3 23.8 6.5 3.6x Mid - High BBB/Baa 10.8 12.9 23.8 6.8 3.5x Mid - High BBB/Baa 9.6 13.8 23.4 7.5 3.1x High BBB/Baa 8.3 15.0 23.3 8.4 2.8x A- / A3 2009E 2010E 2011E
Despite temporarily having a lower credit rating than today, (1) Target Corp will not need access to capital because it will be significantly free cash flow positive after growth capex and (2) it will be able to deleverage back to an A category credit rating in a short time frame
50
Target Corp: Bondholders Perspective

The Transaction allows for meaningful debt paydown by 2011E of $7.8bn. Of this amount, $4.4bn comes from selling the remaining 53% interest in credit card receivables and $3.2bn from free cash flow after operating and investing activities
Target Corp Balance Sheet Data
($bn) August 2, 2008 Debt Less: Credit Card Proceeds Less: Debt Paydown from H2 '08E CY2008E Debt Less: Debt Paydown in '09E Less: Debt Paydown in '10E Less: Debt Paydown in '11E CY2011E Debt Debt $16.1 (4.4) (0.2) 11.5 (0.6) (1.2) (1.3) $8.3 0.5 0.7 0.7 0.8 $0.8
(1)
Cash $1.5
Comments Debt excludes JP Morgan GAAP liability of $3.6bn Sale of 53% interest of credit card receivables for $4.4bn Assumes $1bn of stock buyback
(1)
78% of Free Cash Flow generated 96% of Free Cash Flow generated 95% of Free Cash Flow generated
(1)
(1)
(1)
(1)
Assumes a minimum cash balance of 1% of sales

51
Whats Better: Debt or a TIP REIT Master Lease?

TIP REITs Master Lease is much more attractive than long-term debt Debt
Liquidity Risk Financial Covenants Holders Yes Many covenants Unrelated investors
TIP REIT Master Lease

None None Strategic partner / Friendly landlord Spin-off will obviate requiring access 75 years 7%
(Rent / cost sq. ft.)
Market access?
Currently difficult to access
Duration Targets cost
30 year maximum 7.3% for 10-year bond

(20-day average cost)
52
Strong Similarities with a Credit Card Partnership

Credit Card Partnership
Control
Target can control its credit card business without the need to own receivables Receivables ownership is transferred to a party with a lower cost of capital Primarily to return capital to shareholders (via buyback) Minimal Credit Card Partner funds future receivables growth CC ROIC improves significantly
TIP REIT Spin-off

Target can control its buildings and retailing strategy without the need to own land Land (and land improvements) ownership is transferred to a party with a lower cost of capital Return capital to shareholders (via spin-off of TIP REIT) None TIP REIT funds future land procurement and development Store-level ROIC nearly doubles
Capital Allocation
Use of Proceeds Taxable Gains Improved Access To Capital ROIC
53
Valuation Summary
$83
$80
$70
TIP REIT
$60 $/Share
74% $40
Target Standalone
TIP REIT
$42
$40
$38
$20
$32
$23 $34 6.5x 14.2x $27.5 $27.5 4.9% 5.3% 20.5x 19.3x
$42

$30 $40 7.0x 15.6x $30 $31 4.7% 5.0% 21.4x 20.3x
Equity Value ($bn) Enterprise Value ($bn) 09E Dividend Yield Cap Rate '09E P/AFFO '09E EV/EBITDA
Target Corp
Equity Value ($bn) Enterprise Value ($bn) '09E EV/EBITDA '09E P/E
$29 $40 6.0x 11.8x
Equity Value ($bn) Enterprise Value ($bn) '10E EV/EBITDA '10E P/E Equity Value ($bn) Enterprise Value ($bn) 10E Dividend Yield Cap Rate '10E P/AFFO '10E EV/EBITDA
For illustrative purposes, assumes Transaction occurs on 01/01/09 (1) Based on 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis 54
TIP REIT
Sources of Value
The main sources of value creation are incremental earnings generation via the REIT structure and multiple expansion at TIP REIT and Target Corp
100
$5/share $17/share $40/share $7/share
$/Share
80 60 40 20 0 Target Standalone Value/Share (Assuming 20-Day Avg. Price Multiples) Incremental Earnings Generation
$70/share
TIP REIT Multiple Expansion
Target Corp Multiple Expansion
Pro Forma Value/Share
Incremental EPS Generation "Target Combined" 2009E EPS Target Standalone 2009E EPS Difference Target Current EPS Multiple $4.02 $3.40 $0.62 11.8x
Multiple Expansion Target Corp 2009E EPS Implied P/E Multiple
Valuation $2.23 14.2x
Multiple Expansion $2.23 2.4x
Target Corp ($/share)

TIP REIT 2009E EPS (2) Implied P/E Multiple
(1)
$32
$1.79 21.3x
$5
$1.79 9.6x
Value Creation from Incremental EPS ($/share)
$7
TIP REIT ($/share)
$38
$17
(1) Normalized to exclude $112mm of incremental interest expense due to CY2009 cash E&P distributions (2) Implied P/E multiple of 21.3x based on the mid-point of todays estimated market value of $27.5bn, implying a 20.5x 2009E AFFO multiple, 4.9% dividend yield and 5.3% cap rate 55
Hypothetical Value Creation over Time
(1)
The implied hypothetical future value per share post-transaction for Target shareholders is $109 in three years
$109 $110 $100 $90 $/Share $80 $70 $70 $60 $50 Today
TRANSACTION Target Corp - Hypothetical Value/Share TIP REIT - Hypothetical Value/Share (2) TIP REIT - Cumulative Dividend Total Hypothetical Value/Share ($) $32 $38 $0 $70 $42 $40 $2 $83 $50 $43 $4 $97 $58 $45 $6 $109
$97
PostTransaction Hypothetical Valuation
$83
1 Year
2 Year
3 Year
(1) Future values post 1-year are based on constant multiples (2) Excludes one-time dividend from E&P distribution 56
Valuation: Potential Questions and Answers
Potential Questions
Whats so special about TIP REIT? Why are TIPS the best comparable security to TIP REIT? Why is TIP REIT more valuable than a private ground lease? Why is TIP REIT unlike any existing REIT today? Why would this Transaction improve Target Corps valuation? Why is this Transaction ideally suited for Target? What are the risks? Other potential questions
58
Whats So Special About TIP REIT?
TIP REIT Investment Highlights

Land-only structure is extremely secure
$39bn of Lease Security, including $20bn of unencumbered buildings

Long-term lease provides bond-like stability and inflation-protection
75-year, inflation-protected Master Lease with Target Corp

Significant growth opportunity
Formal arrangement with Target Corp provides long-term growth pipeline

High quality locations and superb tenant profile De minimis maintenance capex allows for strong FCF generation Tremendous size and scale a must-own REIT
60
Land-only Structure is Tremendously Secure

TIP REITs land-only leases are the most secure form of real estate investment
Ground leases are the most secure form of real estate investment In the event of a default on a ground lease, the building and improvements revert to the landowner As such, in the event of tenant default, a landowner can re-lease the land and the building at significantly lower rent than market and still maintain its current lease payments Event of default
Illustrative Example:
Today
Ground lessor leases land at $7 / sq. ft.
$13 sq. ft. Rent

Ground lessor re-leases land AND building at $13/sq. ft.
$7 sq. ft. Rent
Significant cushion for rents to fall in the event of default
Because it will lose its building in the event of default, a tenant is highly motivated to make its ground lease payments. The unencumbered building acts as collateral, making the ground lease extremely secure
61
$39 Billion of Lease Security

Although the buildings are not pledged as security, they will revert to the landowner upon a ground lease default. As such, illustratively, we define TIP REITs Lease Security as the value of the land and unencumbered buildings. Based on replacement cost, this Lease Security is valued at $39bn
Total Lease Security: $39bn
Replacement Value of Owned Land and Buildings
2008E Retail Real Estate:
2008E Total Sq. Ft. (mm) Estimated % Owned Owned Sq. Ft. (mm) Value / Sq. Ft. Total Value ($bn)
(1), (2)
Unencumbered Collateral: $20bn (3)

Value of Buildings Only (on the Owned Land)
Retail Buildings - 1,438 Stores in '08E:
Estimated Replacement Cost per Square Foot 2008E Owned Square Feet (mm)
(1)
222
85%
189
$197
37.4
Value of Owned Store Buildings ($bn)
$99 189 $18.7
2008E DCs and WHs:

2008E Total Sq. Ft. (mm) Estimated % Owned Owned Sq. Ft. (mm) Value / Sq. Ft. Total Value ($bn)
DC and WH Buildings - 25 DCs and WHs in '08E:

Estimated Replacement Cost per Square Foot 2008E Owned Square Feet (mm)
44
81%
35
$50
1.8
Value of Owned DC and WH Buildings ($bn)
$36 35 $1.3
Total Real Estate Replacement Value ($bn)
$39.1
Total Value of Buildings on Owned Land ($bn)
$19.9
(1) Analysis excludes the value of owned buildings on third-party ground leased land; assumes cost of a Target store of $26mm ($13mm building and $13mm land) and cost of DC and WH of $70mm ($50mm building and $20mm land) (2) Assumes 1,438 stores, and 25 DCs and WHs on owned land in 2008E (3) Although the buildings are not pledged as security, the effective result is that they act like collateral in the event of tenant default 62
Unencumbered Assets Provide Significant Coverage

Based on our illustrative definition of Lease Security, if TIP REIT trades at a dividend yield of 4.9%, its Lease Security would still be worth 142% of the enterprise value of TIP REIT. No other REIT in the world today has this level of asset coverage in the event of a tenant default
$ in billions
"Lease Security" Value of Land and Unencumbered Buildings TIP REIT Enterprise Value at 4.9% Dividend Yield Illustrative Asset Coverage "Lease Security" / EV $39.1 $27.5
(1)
142%
(1) Based on the implied mid-point of valuation

63
Benefits of a Master Lease

A Master Lease has a number of structural advantages that will enhance the stability and security of TIP REIT
Under a master lease, all of the sites will be subject to a single lease agreement The master lease provides for an aggregate amount due for all of the sites Under the master lease, a failure to pay full rent due on a single site will cause all of the leases covered by the master lease to be in default TIP REITs rights under the master lease require Target Corp to satisfy its lease obligations under all events As the tenant, Target Corp must continue making lease payments to maintain ownership of all buildings and other improvements
64
Long-term Lease Provides Bond-like Stability

Given its long-term lease arrangement and its land-only structure, TIP REITs risk profile will be similar to that of a long-term, senior secured, highly-rated, and inflation-protected bond
75-year Master Lease

Long-term lease 100% occupancy Highly rated, high-quality tenant in Target Inflation protection Extremely low probability of lease default
TIP REIT Risk profile: Long-term Senior Secured Highly-rated Inflationprotected Bond
Land-only REIT structure

$39bn of lease security or 142% asset coverage at a 4.9% dividend yield Effectively over collateralized by $20bn of buildings
65
Significant Growth Opportunity

In addition to its incredibly stable and secure cash flows, TIP REIT has strong growth prospects, given its initial 2-year exclusive right as Target Corps land developer and its formal Preferred Vendor Agreement with Target Corp thereafter
TIP REITs Preferred Vendor Agreement with Target Corp will provide it with a strong pipeline of land development opportunities Target Corp believes that in the U.S. alone it can double its store count to more than 3,000 stores Significant square footage growth at TIP REIT will translate into strong NOI growth 2009E 2013E retail square footage CAGR of 6.8% 2009E 2013E top-line CAGR of 9.3% 2009E 2013E NOI CAGR of 9.3%
66
High Quality Locations and Superb Tenant

TIP REITs high quality locations and strong tenant profile will support its premium valuation
Attractive urban / suburban locations with strong demographics Geographically diversified portfolio of approximately 1,438 stores (1) in 48 states Multiple opportunities for alternative use of land sites Ability to attract shadow development, enhancing value of ground leases as sites evolve into in-fill locations Strong tenant in Target Corp Leading brand, market share winner and in demand tenant Investment grade tenant with strong financial outlook Strong focus on maintaining and improving buildings 100% occupancy for 75 years Low store churn rate
(1) Represents 2008E Target Corp stores on TIP REIT land
67
Large Market Cap Must Own Yield Stock

TIP REIT will be the 62nd largest company in the S&P 500
S&P 500 Ranked by Market Cap
Rank Company 55 Home Depot 56 57 58 59 60 61 62 63 64 65 Devon Energy Lockheed Martin Union Pacific Colgate-Palmolive American Express UnitedHealth Group TIP REIT Burlington Northern Santa Fe Southern Co. E.I. DuPont de Nemours & Co. Market Cap. ($mm) 31,439 30,851 30,382 29,674 28,291 27,898 27,896 27,500 27,386 26,656 26,466
S&P 100 Non-Financials Ranked by Dividend Yield (1)

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Company Pfizer Verizon Communications Dow Chemical Bristol-Myers Squibb General Electric Altria Group AT&T Carnival Eli Lilly E.I. DuPont de Nemours Merck Philip Morris International Caterpillar TIP REIT (2) Home Depot Southern Co. Dividend Yield (%) 7.7 7.3 7.0 7.0 7.0 6.7 6.5 6.0 5.9 5.6 5.6 5.3 5.0 4.9 4.9 4.9
Given its market cap, TIP REIT will be owned by S&P 500 index funds, large cap funds, real estate index funds, yield-oriented investors, and investors seeking inflation-protected assets
(1) Represents non-financial companies in the S&P 500 with market caps greater than $20bn (2) Based on 2009E dividends
68
Why are Treasury Inflation Protected Securities (TIPS) the Best Comparable Security to TIP REIT?
How is TIP REIT Similar to TIPS?

TIP REIT has many of the same features of Treasury Inflation Protected Securities (TIPS). However, TIP REIT has the added benefit of a growth platform and no Phantom tax TIP REIT
Extremely low probability of default Inflation protection Long-term duration with required payments Liquidity Growth platform Phantom tax
(1) Size of total TIPS market
70
20-Year TIPS
Backed by federal government Payment based on CPI adjusted principal 20 years Interest payment required by law Over $450bn market (1) No Yes (tax on inflation adj. principal)
Backed by highly-rated Target Corp $39bn of Lease Security or ~140% TIP REITs EV at 4.9% dividend yield Rent income adjusted for CPI 75-year lease term REIT dividend payment required by law $28bn market cap Yes No
TIP REIT Can Be Valued As Two Entities

TIP REIT stock can be valued as two entities: (1) an Inflation-Protected Secured Bond that is nearly identical to TIPS and (2) a Land Developer with a stable growth platform
TIP REIT
TIP-like Security
Cash flows from the rental income generated by the existing, static ground lease portfolio
Nearly identical to TIPS, given stability, security and the long-term, inflation-adjusted nature of the Master Lease Inflation-linked rents based on the same CPI measure as used for TIPS Semi-annual dividend payments on the same date as TIPS interest payments Highly liquid
71
Land Developer
Cash flows generated as the Preferred Land Developer of new Target stores
Exclusive right to be Targets land developer for the first two years post Transaction Preferred Land Developer after two years Attractive 6% 8% square footage growth for the foreseeable future Provide Facilities Management services as part of land developer platform
TIP REIT: (1) Valuing the TIP-like Security

The TIP-like Security should trade at a small spread to TIPS of 165 215 bps
Rate / Yield 20-year TIP Yield Today 3.0% Spread to TIPS
Current TGT Unsecured CDS @ 190bps 25 bps
1.65% 2.15%
165 bps 215 bps
TIP REIT: TIP-like Security
4.65% 5.15%
165 bps 215 bps
The current TIPS yield of 3.0% implies an expected 20-year inflation rate of only 1.4%. If the expected 20-year inflation rate increased to 2.0% and the 20-year Treasury rate remained constant, then the 20-year TIPS would yield 2.4% and TIP REIT would yield 4.05% 4.55%. The higher the inflation rate, the more valuable TIP REIT will be
72
TIP REIT: (1) Valuing the TIP-like Security (contd)

Importantly, we believe our TIPS-based valuation analysis conservatively measures TIP REITs credit risk
In the preceding analysis, we use Targets unsecured CDS spreads as the measure of credit risk under the TIP REIT Master Lease. We believe this is conservative because while TIP REIT has Targets (unsecured) credit, it also has $20bn of unencumbered buildings that would revert to TIP REIT in the event of tenant default.
We estimate that Targets ground lease credit risk should be materially lower than Targets unsecured CDS spread
73
TIP REIT: (2) Valuing the Land Developer

TIP REITs land development opportunity can be valued based on its growth platform value
Growth Platform Valuation Based on 20-year DCF analysis Implied valuation at 4.65% 5.15% cap rate and 10.5% 12.5% discount rate 2029E terminal NOI: $2,560mm Valuation range of $0.0bn $2.3bn
2009 Incremental Rental Revenues After-tax Facilities Management Income Platform Value G&A Expense Total Capex Free Cash Flow from Platform Terminal Value Discount Rate Terminal Cap Rate Present Value of Platform 12.5% 5.15% 10.5% 4.65% $2,293 $74 12 (20) (1,079) ($1,013)
2010
$145 12 (21) (1,008) ($872)
2011
$257 14 (21) (1,582) ($1,332)
2012
$391 15 (22) (1,863) ($1,478)
2013
$551 17 (22) (2,190) ($1,644)
...
Terminal Value (1) 2029
$55,047
(1) Based on 2029E NOI of $2,560mm and 4.65% cap rate

74
Valuation: TIP REIT in Total

Based on TIPS-based valuation of TIP REIT, the implied TIP REIT valuation is $29bn, or $40/share today
Equity Value (1) TIP-like Security $38/share Implied Cap Rate (2) 4.9% Valuation
2008E Existing dividends: $1,354mm Dividend yield: 4.65% 5.15% Valuation: $26bn $29bn
2029E NOI: $2,560mm
Land Developer
Terminal cap rate: 4.65% 5.15%
$2/share
Discount rate on 20-yr DCF: 10.5% 12.5% Valuation: $0.0bn $2.3bn
Total TIP REIT
$40/share
5.1%
2009E NOI of $1,462mm Valuation: $26bn $31bn or $36/share $44/share
(1) At mid-point valuation (2) Implied yield calculated based on NOI / Implied value
75
Conservative Approach to Valuation

Our mid-point valuation price for TIP REIT of $38 (1) implies a 4.9% dividend yield for the TIPS-like security and (2) excludes the value of the Land Developer
$70
TIP REIT
$38
Using a TIPS-based valuation analysis, our mid-point valuation price of $38/share excludes the value of TIP REITs development platform
Target Corp
$32
TIP REIT Spin-off Equity Value / Share
76
TIP REIT Presents an Attractive Arbitrage
Long:
TIP REIT @ $38 (mid-point of valuation analysis) implies a ~490 bps dividend yield TIPS @ 300 bps yield 190 bps (1) Keep the 190 bps spread (nearly risk-free, given the security offered by $20bn of unencumbered buildings), or hedge Target unsecured risk with CDS Get the Land Developer for free, worth $2/share
77
Short: = Spread: Value:
(2)
How is this Trade Possible?

This arbitrage trade is feasible for several reasons:
The TIPS market is highly liquid TIP REIT would be a highly liquid security with an initial market capitalization of approximately $28 billion TIPS trade, even in the current low liquidity environment, approximately $1 $2 billion per day
Normal volume is typically $3 $5 billion or more per day
TIPS are readily borrowable and easily shortable TIP REIT would pay semi-annual dividends on the exact same day that TIPS pay interest payments (Jan 15th and July 15th )
78
High Demand for Inflation-Protected Securities

There is a strong demand for liquid, inflation-protected, incomeoriented securities that offer higher yields than TIPS Pensions, endowments, retirement funds Income-oriented institutional funds Retail / individual investors TIP REIT solves the phantom tax problem for individual investors Depository institutions Arbitrage / hedge funds Insurance companies Strong international demand generated by recent European pension reforms requiring returns linked to inflation
79
Why is TIP REIT More Valuable than a Private Ground Lease?
Ground Leases Typically Trade from 5.50% to 6.25%

Precedent private ground lease transactions support cap rates of approximately 5.50% 6.25% for a typical ground lease with no development pipeline
Building Size (Sq. Ft.) 116,000 68,416 152,890 137,933 40,000 89,008 99,402 166,609 130,948 94,213 178,712 111,371 Lot Size (Acres) 14.16 4.47 13.10 12.30 5.15 14.75 5.28 14.24 14.46 9.09 11.27 12.50 Lease Term 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years na 20 Years 20 Years Total Lease Term with Options 50 Years 60 Years 60 Years na 95 Years 40 Years 50 Years na na na 50 Years 60 Years
Transaction For Sale For Sale For Sale For Sale For Sale For Sale Sold Sold - March 27, 2008 Sold - March 23, 2008 Sold - October 2007 Sold - September 2007 Sold - July 2007
Tenant Lowe's Kohl's Lowe's Lowe's Wal-Mart Kohl's Target Lowe's Home Depot Kohl's Lowe's Lowe's
Location Princeton, WV Selinsgrove, PA Derby, CT Eugene, OR Albuquerque, NM Fort Gratiot, MI Fairlawn, OH Whitehall, PA Austell, GA Reno, NV Escondido, CA Sayre, PA
Cap Rate 6.61% 6.25% 5.50% 6.25% 5.50% 5.75% 6.00% 6.05% 5.75% 6.10% 6.00% 6.25%
Options 6, Five-Year 8, Five-Year 8, Five-Year na 15, Five-Year 4, Five-Year 6, Five-Year na na na 6, Five-Year 8, Five-Year
Mean Median High Low

Source: LoopNet and other public filings 81
6.00% 6.03% 6.61% 5.50%
Why is TIP REIT Better than a Private Ground Lease?

TIP REIT offers better value to investors than a typical private ground lease
TIP REIT has several qualities which make it more attractive than a private ground lease Large cap, liquid public ownership 75-year Master Lease term (longer than most private ground leases) 1,438 retail properties (1) in 48 states Inflation-protected rental stream with annual adjustments Best-in-class retail tenant Geographic diversity Unlike a static ground lease, TIP REIT also has growth, given its dependable new store growth pipeline
Given the above factors, TIP REIT will trade at a lower cap rate than an individual private ground lease
82
Why is TIP REIT Unlike Any Existing REIT Today?
TIP REIT: Unlike Any Existing REIT Today

TIP REIT
Leverage Refinancing Risk / Earnings Pressure Transaction Income Re-leasing Risk Maintenance Capital Growth None None
Large Cap REITs

High: 63% Debt-to-TMC Average: 47% Debt-to-TMC High REITs have borrowed at low rates and are facing much higher rates and refinancing risk for debt maturities Sometimes
None / 100% rental income
None / 75-year lease None Preferred vendor arrangement
Yes, typically 10% or more of leases up for renewal annually Yes, typically 8% of EBITDA No preferred arrangement None. Owns both land buildings
Lease Security $20bn of unencumbered buildings, given land-only structure

84
TIP REIT: No Maintenance Capital Requirements

TIP REITs land-only structure maximizes cash flow. Unlike large cap real estate companies that spend on average 8% of EBITDA to maintain depreciable properties, TIP REIT requires virtually no maintenance capital
10 Largest REITs (1) TIP REIT Simon Property Group Public Storage Vornado Realty Trust Boston Properties Equity Residential HCP, Inc. Kimco Realty Corporation ProLogis AvalonBay Communities Average (Excluding TIP REIT) Maint. Capex / EBITDA (2) 0.0% 8.7% 5.5% 13.4% 11.8% 6.9% 6.9% 6.7% 8.5% 5.7% 8.2%
1 2 3 4 6 5 7 8 9 10
Given TIP REITs de minimis maintenance capital requirements, TIP REITs free cash flow should be compared to a real estate investment trusts AFFO, not the FFO metric
(1) By equity market value (2) Source: Wall Street research; 2008E maintenance Capex / EBITDA
85
TIP REIT: Tremendous Size and Scale

TIP REIT owns land under 225mm square feet of buildings (1), including 35mm sq. ft. of distribution facilities. TIP REIT would have a larger equity market capitalization than any real estate company in the U.S. today
Equity Market Value ($mm) 27,500 20,836 13,891 13,023 10,679 10,479 8,450 7,451 7,170 6,106 Total Owned GLA (3) (mm) 225 160 125 81 41 na na 74 487 na
1 2 3 4 6 5 7 8 9 10
10 Largest REITs (2) TIP REIT (1) Simon Property Group Public Storage Vornado Realty Trust Boston Properties Equity Residential HCP, Inc. Kimco Realty Corporation ProLogis AvalonBay Communities
Given its size and scale, TIP REIT will be a must own stock for any real estate equity investor
(1) Represents 2008E Target Corp stores, distribution facilities and warehouses on TIP REIT land (2) By equity market value; based on a 20-day trading average as of 10/24/08 (3) Based on company filings as of Q2 2008A
86
TIP REIT versus Triple Net Lease REITs

TIP REIT is a much more stable, faster growing and higher quality business than any Triple Net Lease REIT
TIP REIT
Lease Type and Terms Land-only Master Lease
Highly secure given unencumbered buildings worth $20bn 75-year lease term
Triple Net Lease REIT

Fee simple individual leases
No over-collateralization and often unmarketable specialty use properties ~13-year avg. remaining lease term (1) Individual leases have re-leasing risk
Asset Quality Tenant Quality
High quality / Multiple alternative uses Investment grade credit and improving
Leading GM Retailer
Mixed quality / Limited alternative use Generally below investment grade credit and deteriorating
Unproven, often specialty retail
Size and Scale

Growth
Largest market equity cap Preferred Vendor Agreement with a fast-growing, leading retailer
87
Small equity market cap Limited growth / no formal arrangement
(1) Extension option detail not disclosed in company filings
Side-by-Side Comparison with Triple Net Lease REITs

TIP REIT
Leases:
Leased Property Lease Type Unencumbered Assets of the Tenants Effective Over-collateralization Avg. Remaining Lease Terms (Yrs) Estimated Lease Turnover (0817)
@ $38/share
Land-only Master Lease 1,438 Stores and 25 Distribution Facilities (1) $20 billion of Buildings 75.0 0.0% Land and Building Individual Leases None None 13.0
( 3)
Land and Building Individual Leases None None 13.0 45.6%

(3) (4)
Land and Building Individual Leases None None 13.0

( 3), (4)
34.8% ( 4)
35.4% ( 4)
Size:
Equity Market Value ($mm) Enterprise Value ($mm) (2) Gross Leasable Area (mm sq. ft.)
(2)
$27,500.0 $27,500.0 225

(1)
$2,405.5 $4,183.6 19
$1,523.3 $2,714.5 11
$1,428.9 $2,934.4 9
(4)
Leverage:
(Net Debt + Preferred) / EV 8.6%
(5)
42.5%
43.8%
50.7%
Growth Opportunity:
Preferred Vendor Agreement Yes No No No
Source: Company filings (1) Represents 2008E Target Corp stores, distribution facilities and warehouses on TIP REIT land (2) Triple net lease REITs are based on a 20-day trading average stock price as of 10/24/08 (3) Extension option detail not disclosed in company filings (4) Based on 2007A (5) Based on 2009E
88
Triple Net Lease REIT Tenants: A Closer Look

Leading tenants for triple net lease REITs are predominantly junk credits with some in bankruptcy; real estate has limited alternative uses
Five Leading Tenants: (23% of Revenues) (1)

Buffets Filed for bankruptcy in January 2008 Buffets restaurants have limited alternative use Kerasotes ShowPlace Theatres Mid-west movie theatre chain Junk credit rated B1 / B Real estate has poor alternative use
Five Leading Tenants: (32% of Gross Assets) (1)

The Pantry Convenience store operator with bankruptcy concerns Junk credit with bonds Caa1 rated by Moodys trading at 14.5% Circle K (Susser Holdings) Struggling owner of convenience stores Susser is B+ rated by S&P with a negative outlook Senior Unsecured Debt is B3 rated by Moodys Kerasotes ShowPlace Theatres Mid-west movie theatre chain Junk credit rated B1 / B Real estate has poor alternative use Mister Car Wash Conveyor car wash chain started in Houston, TX Portfolio of 60 car washes, 24 lube shop, and 3 convenience stores Road Ranger Private Mid-west convenience store operator Portfolio of 73 locations in seven states
89
Movie theatre REIT with AMC Entertainment representing over 50% of gross leasable area AMC has ~6.4x rent adjusted leverage and its bonds trade at a 14.1% yield The movie theatre industry is highly competitive, very consumer sensitive and suffering secular pressures from at-home-entertainment Movie theatres have limited alternative uses
The Pantry Convenience store operator with bankruptcy concerns Junk credit with bonds Caa1 rated by Moodys trading at 14.5% La Petite Academy Child care/learning center operator Operate 570+ education centers in 36 states Childrens World Child care/learning center operator Mostly operating in the Mid-west
(1) Source: Wall Street research
REIT Multiples
TIP REIT will trade at a significant premium to any REIT because of its stability, security, and certain growth
2009E EV/EBITDA
2009E EBITDA (x)
19.3x 15.7x 12.7x 6.0x
TIP REIT '09E Dividend Yield Cap Rate 4.9% 5.3%
Large Cap REIT Average
Triple Net Lease REIT Average
Target Standalone
Note: Target Standalone, Large Cap REITs, and Triple Net Lease REITs stock prices based on 20-day trading average as of 10/24/08
90
TIP REITs only commonality with other REITs is its Tax-Exempt structure
91
Why Would this Transaction Improve Target Corps Valuation?
Improves Store-level ROIC at Target Corp

Assuming the average store real estate costs $26mm, of which $13mm is allocated to the land and $13mm to the building, we believe store level return on investment would increase from 23.0% to 39.8%
Owned Store Level Operating Data and Assumptions ($mm) Standalone 2007A Pro Forma 2007A
Retail Sales per Avg. Store Estimated Four-Wall Operating Costs Ground Lease Expense per Avg. Store Estimated Four-Wall EBIT per Avg. Store Margin (%) New Land Capex New Building Capex Total Investment Estimated Returns on Investment (%)
$40 34 -$6 15.0% $13 13 $26 23.0%
$40 35 1(1) $5 13.0% -13 $13 39.8%
(1) Assumes $0.9mm of ground lease rent expense, based on $7/sq. ft. lease cost and 131k of store square footage, on average
93
Increases Target Corps EPS Growth Rate

Because of its higher ROIC, improved free cash flow profile, and more efficient capital structure, Target Corps EPS growth will exceed that of Target Standalone

'09-'13 CAGR (%)
2008 PF Target Corp 1 EPS Growth (%)
2009 $2.23
2010 $2.67 19.5%
2011 $3.20 20.2%
2012 $3.70 15.5%
2013 $4.27 15.3%
17.6%
Target Standalone 1, 2 EPS Growth (%)
$3.29
$3.40 3.5%
$3.90 14.8%
$4.57 17.0%
$5.18 13.4%
$5.89 13.8%
14.7%
Memo: Operating Assumptions: Same-store sales Sq. ft. growth Gross Margin SG&A as % of sales
0.5% 4.7% 30.0% 20.2%
3.3% 4.1% 30.1% 20.1%
3.5% 6.0% 30.2% 20.0%
3.5% 6.5% 30.2% 20.0%
3.5% 7.0% 30.2% 20.0%
(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt (2) Assumes Target Standalone maintains existing dividend policy
94
Increases Target Corps EPS Growth Rate (contd)

Pro forma for the Transaction, Target Corps long-term EPS growth rate would be at the top of its peer group
Long-term EPS Growth (%)
21 17.6%(1),(2),(3) 16.0% 15.0% 15
18
14.7%(1),(2),(3) 14.5%
14.0%
14.0%
Average(4) = 11.9% 13.5% 13.0% 12.9% 12.0% 12.0% 12.0% 11.0% 10.0% 10.0% 9.0% 9.0% 8.0% 8.0%
12
0 Whole Foods
Corp
Kohl's
Standalone
CVS
Lowe's
Staples Walgreens
TJX
Costco
Safeway
Home Depot
Best Buy Wal-Mart
Sears
BJ's
Kroger
JCPenney SUPERVALU Macys
(1) Represents 20092013 EPS CAGR (2) Assumes additional future share buyback at a constant forward P/E of 16.0x (3) Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt (4) Excludes Target Source: FactSet and Company filings for Retailers, excluding Target
95
Multiple Expansion at Target Corp

Target Corp will trade at a higher multiple than current Target Standalone due to a powerful combination of improved ROIC and EPS growth
ROIC and EPS Growth key value drivers with a direct impact on multiples Improving both metrics concurrently is a powerful value creating combination which should lead to multiple expansion More efficient cash generation results in higher ROIC at virtually same level of risk, resulting in substantial economic value added Increased returns and more efficient cash flow generation allow for additional share buybacks that foster EPS growth Growth does indeed drive multiples, but only when combined with a healthy return on invested capital. (Tim Koller et. al, McKinsey & Co.)
96
Why is this Transaction Ideally Suited for Target?
Land-only REIT Spin-off is Value Maximizing for Retailers Meeting Certain Criteria
To create the most value from a Land-only REIT spin-off, a retailer must meet certain criteria including very high land ownership, predominantly U.S.-based real estate and retail sales, strong square footage growth in the U.S., and low valuation multiples. Target meets ALL of these criteria Retailer Criteria:
High Land Ownership
Commentary:
Retailers that own most of their land and buildings are ideally suited for a Landonly REIT spin-off Retailers with strong growth opportunities in the U.S. can provide a dependable development pipeline for the Land-only REIT, enhancing the REITs value International real estate is not well suited for a tax-free REIT spin-off, given regulatory issues and tax complications
Application to Target:
Target owns more of its store land and buildings than any other big box retailer in the U.S. Target is one of the fastest growing U.S. big box retailers in the country with mid-to-high single digit expected sq. ft. long-term growth for the foreseeable future Targets real estate is exclusively based in the U.S. Targets EBITDA is generated exclusively from U.S.-based sales Target trades at 6.0x 09E EBITDA versus large cap REITs at 15.7x EBITDA and TIP REIT at 19.3x EBITDA Target is a market share winner with leading retail operations, stable FCF and strong management
Strong Square Footage Growth Opportunity in the U.S.
Predominantly U.S. Real Estate and U.S. Retail Sales
Low EV / EBITDA Multiple Relative to REITs
Retailers trading at low EV / EBITDA multiples can release the greatest value from the Land-only REIT spin-off Retailers with strong and stable operations will be a high-quality tenant
98
Strong, Stable Retail Operations with Attractive Credit Profile
High Quality, Stable Tenant

Target is ideally suited as a tenant for TIP REIT because of its high business quality and stable operations, even during a recession High Business Quality
Best management team in the retail industry Leading brand and strong marketing capabilities Best-in-class merchandisers Quality suburban and urban infill locations Solid infrastructure, leadingedge retailing systems ~10% EBITDAR margins
Stable Cash Flows Even Today

Discount retailer with prices within approximately 1% 3% of Wal-Mart on comparable goods Beneficiary of trade down Nearly 40% of sales are consumables / non-discretionary Less fashion risk than a department store Less cyclicality than a home improvement retailer Higher margins than grocery stores and warehouse clubs
99
Target: Beneficiary of Trade Down

Consider the $1,235 patent-leather satchel with golden hardware designed by Anya Hindmarch. Mary Hall, a marketing manager at I.B.M. in Redondo Beach, Calif., heard its siren call. Then she went to Target to purchase a similarly shiny purse, made out of polyvinyl chloride, by the same designer. Price: $49.99. In the current economy, I thought I would reform, Ms. Hall said. Welcome to recession chic and its personification, the recessionista, the new name for the style maven on a budget.
New York Times, 10/24/2008
Indeed, many diehard Nordstrom fans came prepared to open up their purses for $545 Moschino shoes and $1,495 Valentino handbags. Kim Calloway, a 38-year-old senior accountant, arrived at 7:50 a.m. and walked out with $1,200 worth of jeans, cosmetics and skin care products, noting that she hasn't cut back on her spending. "I probably should, but I probably won't," she said. Others, warier about the economy, came more for the spectacle. Charlene Stone, 49, of Wexford, an affluent suburb, didn't buy anything but enjoyed looking. Lately, she has been shopping more at discounter Target for her daughter's clothes. "I'm about the bargains," she said.
Wall Street Journal, 10/25/2008

100
What if TGTs Valuation Normalizes to Historical Levels?

When reviewing Targets historical EV / EBITDA multiples, on average, Target has not been afforded the valuation levels of a typical Large Cap REIT or the expected valuation multiple of TIP REIT
Targets EV / Forward EBITDA Multiple 8.2x
Last 5 year average
REIT Forward EV / EBITDA Multiple 19.3x

TIP REIT @ 38/share
6.0x
@ $40 (1)
15.7x
Large Cap REITs (1)
Even if Targets valuation multiples normalized over the next 12 18 months to historical levels, Targets Standalone valuation multiples would never reach the expected EV/EBITDA multiples of TIP REIT TIP REIT does not pay taxes and has no maintenance capital requirements Importantly, with 22% of Targets existing EBITDA representing the ground lease rents available to TIP REIT, the separation of TIP REIT would allow for significant shareholder value creation for Target shareholders
(1) Based on a 20-day trading average as of 10/24/08
101
What are the Risks?
Potential Concerns: Credit Ratings

Concern Mitigating Factor
First two years of land development capital will be contractually funded by TIP REIT. Thereafter, TIP REIT will be the preferred land developer The Transactions tax efficiencies improve free cash flow at Target Corp (ground lease is expensed while land is not depreciable) As such, Target Corp will not need access to long-term capital because it will generate $2bn of FCF after all capex in the first two years alone Cash flow will be primarily used to delever to an A category rating after two years
103
Long-term Credit Rating
Target Corps rating could be temporarily lowered to a midto-high BBB category
Potential Concerns: Credit Ratings / Inflation

Concern Mitigating Factor
$2bn untapped line of credit which expires in April 2012 Is the value creation worth the higher cost of shortterm financing using the line of credit?
Line of credit financing cost Est. A1 commercial paper cost Approximate Spread
$ in millions, except per share data:
Short-term Credit Rating
Targets commercial paper ratings could be temporarily lowered to A2 / P2 category
L+14bps L-175bps 190bps
Short-term working capital needs Months / year Est. Incremental costs (pre tax) Estimated annual cost (after tax) Estimated annual cost/share
$1,500 3 1.9% $4.4 $0.006
Inflationadjusted Rent
In periods of high inflation, ground rent expense could increase

104
Based on the current TIPS yield, Target can hedge 20-year inflation risk at ~140bps
Pros and Cons of this Transaction

Pros
Instantly and meaningfully accretive on all key measures (EPS, FCF/share) Improves ROIC and EPS growth at Target Corp Reduces taxes by ~$520mm in 09E More than triples dividends: $0.60/share today to $1.86/share in 09E Improves capital access and decreases the need for growth capital at Target Corp Increases the stock price from $40/share to $70/share today
Cons
Temporarily lowers Target Corps

ratings from A+ / A2 to Mid - High BBB/Baa
Mitigating Factors:
Target Corp remains investment grade Target Corp can pay down debt and regain an A category credit rating profile in two years
We believe the Pros of doing this Transaction far outweigh the Cons of having a temporarily lower rating. Post-Transaction, the Company will have improved access to capital and lower capital needs. As such, credit ratings will be less material to Target Corp going forward
105
Another way to pose the question:
Would you pursue this Transaction if it were a Strategic Acquisition?
106
What If this Were an Acquisition?

Acquisition Rationale
Instantly and meaningfully accretive on all key measures (EPS, FCF/share) Improves ROIC and EPS growth at Target Corp Reduces taxes by ~$520mm in 09E More than triples dividends: $0.60/share today to $1.86/share in 09 Improves capital access and decreases the need for growth capital at Target Corp Increases the stock price from $40/share to $70/share today
Acquisition Risks
Temporarily lowers Target Corps

ratings from A+ / A2 to Mid - High BBB/Baa
Mitigating Factors:
Target Corp remains investment grade Target Corp can pay down debt and achieve a higher credit rating in two years
It is common for a company to pursue an acquisition that greatly increases shareholder value and temporarily lowers ratings to an acceptable investment grade level
107
Mitigating Risk
However, if in the future, unforeseen circumstances dictate otherwise, TIP REIT could be collapsed back into the current structure
In the highly unlikely event that a recombination of Targets real estate with its retail operation would become desirable at some point in the future, an unwind the structure can be effectuated: Post REIT Spin-off: An unwind of the structure could be accomplished with an agreed-upon tax-free merger by the two companies
108
Other Potential Questions
What is the Governance Structure of TIP REIT?

TIP REIT would be incorporated where most REITs are incorporated: Maryland Jurisdiction: We believe Maryland is the most favorable jurisdiction for TIP REIT Ownership Restrictions: The certificate of incorporation of TIP REIT would include a customary 9.9% actual and constructive ownership limit and other provisions customary for REITs to assure compliance with REIT ownership and related-party rent rules Other Governance Provisions: Similar to Target Corps existing governance rules except as the Board may otherwise determine in connection with the Transaction
110
Will Consents Be Needed?

No Shareholder or Bondholder consents are needed
Minnesota Corporate Statute Requiring Shareholder Vote for Transfer of All or Substantially All Assets The Transaction meets Minnesotas safe harbor for not being a transfer of all or substantially all assets and therefore does not trigger shareholder vote Bond Indenture Covenants Covenant restricting transfer of assets substantially as an entirety: The Transaction which only involves Targets land is not a transfer of assets substantially as an entirety and therefore does not breach this covenant Covenant restricting sale (or transfer) and leaseback of an Operating Property with an entity other than a restricted subsidiary: The transfer/leaseback is with an entity that at the time of the transfer/leaseback is a restricted subsidiary and it is therefore exempt from this covenant (the subsequent spin off is permitted since the indenture does not include any dividend stopper) In addition, none of the land parcels being transferred is an Operating Property subject to this covenant since none has a net book value greater than 0.35% of Consolidated Net Tangible Assets Also, if the Board designates subsidiaries currently holding land to be unrestricted subsidiaries as permitted by the indenture, the covenant will not apply to a transfer / leaseback by those subsidiaries No other indenture issues identified
111
Q&A
Appendix
Detailed Valuation Analysis
Valuation Summary
$83
$80
$70
TIP REIT
$60 $/Share
74% $40
Target Standalone
TIP REIT
$42
$40
$38
$20
$32
$23 $34 6.5x 14.2x $27.5 $27.5 4.9% 5.3% 20.5x 19.3x
$42

$30 $40 7.0x 15.6x $30 $31 4.7% 5.0% 21.4x 20.3x
Target Corp
$29 $40 6.0x 11.8x
For illustrative purposes, assumes Transaction occurs on 01/01/09 (1) Based on 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis 115
TIP REIT
Valuation Analysis TIP REIT
TIP REIT Summary of Valuation Analysis: Today

Various methodologies imply a TIP REIT reference range of $25 $30bn, or $35 $42/share today
Valuation Range ($25bn $30bn)
Net Asset Value (TIPS)
4.65% 5.15% Dividend Yield on Existing Ground Lease Dividend Yield Based on Sum of CDS Spread and TIPS Yield CY2008 Existing Dividends: $1,354mm 20-year DCF Analysis of Platform 10.50% 12.50% Discount Rate on Platform
26.3
31.4
Net Asset Value (Precedents)
5.50% 6.25% Cap Rate on Existing Ground Lease Cap Rate Range Based on Precedent Transactions CY2009 Existing NOI: $1,354mm 20-year DCF Analysis of Platform 10.50% 12.50% Discount Rate on Platform
21.7
25.8
Discounted Cash Flow
8.0% 10.0% WACC 4.65% 5.15% Terminal Cap Rate
27.8
33.6
15.0
20.0
25.0
30.0
35.0
40.0
Implied Multiples: CY2009 AFFO CY2009 EBITDA CY2009 Div. Yield Cap Rate
($mm) 1,344 1,427 1,344 1,462
$25.0 18.6x 17.5x 5.4% 5.8%
Equity Value ($bn) $27.5 20.5x 19.3x 4.9% 5.3%
$30.0 22.3x 21.0x 4.5% 4.9%
117
TIP REIT Summary Income Statement

($mm, except as noted) Gross TIP REIT Revenues from Ground-leased Store Land Gross TIP REIT Revenues from Ground-leased DCs & WHs Land Total Gross TIP REIT Revenues Total TIP REIT Net Rental Revenues % of Target Corp Retail Sales Plus: Facilities Management Income Less: Facilities Management Expense Net Facilities Management Income Net Operating Income Less: G&A Expense Less: Incremental G&A Cost EBITDA Less: Depreciation & Amortization Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Income Normalized Net Income (1) Ending Shares Outstanding Earnings per Share Normalized Earnings per Share (1) Dividends on Common Special Dividends Normalized Dividends (1) Normalized Dividends per Share (1) % AFFO 100.0% Pro Forma CY2008 1,325 44 1,369 1,369 2.1% 144 (125) 19 1,388 (20) (15) 1,353 (42) (205) (7) 1,099 1,211 721.9 $1.52 $1.68 1,141 1,253 $1.74 2009 1,398 46 1,444 1,444 2.1% 144 (125) 19 1,462 (20) (15) 1,427 (56) (188) (7) 1,177 1,289 721.9 $1.63 $1.79 1,232 1,600 1,344 $1.86 Calendar Year, 2010 2011 1,501 1,645 48 51 1,549 1,696 1,549 2.1% 155 (134) 20 1,569 (21) (15) 1,533 (68) (221) (8) 1,235 1,331 721.9 $1.71 $1.84 1,304 1,400 $1.94 1,696 2.1% 170 (147) 22 1,718 (21) (16) 1,681 (88) (316) (8) 1,268 1,364 721.9 $1.76 $1.89 1,356 1,452 $2.01 2012 1,811 55 1,866 1,866 2.1% 187 (162) 24 1,890 (22) (16) 1,853 (111) (428) (9) 1,304 1,400 721.9 $1.81 $1.94 1,415 1,511 $2.09 2013 2,004 59 2,063 2,063 2.1% 207 (180) 27 2,090 (22) (17) 2,051 (139) (559) (10) 1,342 1,438 721.9 $1.86 $1.99 1,481 1,577 $2.18 CAGR '09 - '13 9.4% 6.3% 9.3% 9.3%
9.5% 9.3%
9.5%
38%
3.3% 2.8% 3.3% 2.8% 4.7%
4.1% 4.1%
(1) Normalized to exclude incremental interest expense due to CY2009 cash E&P distribution 118
TIP REIT Summary Balance Sheet/CF Statement
($mm, except as noted) EBITDA Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Less: Development Capex Total Free Cash Flow Total Cash Total Debt Total Debt / EBITDA EBITDA / Interest Expense Total Debt / Total Real Estate Value Ending Shares Outstanding
2009 1,427 (188) (7) (1,079) 154 3 2,682 1.9x 7.6x 11.1% 722
Calendar Year, 2010 2011 1,533 1,681 (221) (316) (8) (8) (1,008) (1,582) (226) 295 3 3,690 2.4x 6.9x 14.2% 722 3 5,272 3.1x 5.3x 18.6% 722
2012 1,853 (428) (9) (1,863) (447) 3 7,135 3.9x 4.3x 22.9% 722
2013 2,051 (559) (10) (2,190) (709) 3 9,325 4.5x 3.7x 27.0% 722
119
TIP REIT Valuation Matrix

Set forth below is a valuation matrix that demonstrates TIP REITs trading multiples at various values within the reference range
Value per Share
($mm) Shares O/S EQUITY VALUE Multiples of: CY 2009 FFO CY 2010 FFO CY 2011 FFO
(1) (1) (1) (1) (1) (1)
$34.50
$36.50
$38.09
$40.50
$42.50
721.9 Metrics 1,344 1,400 1,452 1,344 1,400 1,452
24,907
26,351
27,500
29,238
30,682
18.5x 17.8x 17.1x 18.5x 17.8x 17.1x
19.6x 18.8x 18.1x 19.6x 18.8x 18.1x
20.5x 19.6x 18.9x 20.5x 19.6x 18.9x
21.7x 20.9x 20.1x 21.7x 20.9x 20.1x
22.8x 21.9x 21.1x 22.8x 21.9x 21.1x
CY 2009 AFFO CY 2010 AFFO CY 2011 AFFO
Dividend Yield Assuming Payout Ratio of: 80% of CY 2009 AFFO 90% of CY 2009 AFFO 100% of CY 2009 AFFO Implied Value: Implied Value of Land / Blended Sq. Ft. 225 $111 $117 $122 $130 $137 1,076 1,210 1,344 4.3% 4.9% 5.4% 4.1% 4.6% 5.1% 3.9% 4.4% 4.9% 3.7% 4.1% 4.6% 3.5% 3.9% 4.4%
(1) Normalized to exclude incremental interest expense due to CY2009 cash E&P distributions
120
TIP REIT NAV (TIPS) Analysis

The implied TIP REIT valuation range on TIPS-based NAV analysis is $26 $31bn, or $36 $44/share today
Existing Lease Valuation Inflation-indexed rent growth allows for a TIPS-like risk/return Dividend yield range based on theoretical analysis: TIPS yield of 3.00% + Target unsecured CDS of 1.65% 2.15% = Total yield of 4.65% 5.15% Implied valuation at 4.65% 5.15% dividend yield range 2008E dividend: $1,354mm Valuation range of $26bn $29bn Platform Valuation Based on 20-year DCF analysis Implied valuation at 4.65% 5.15% cap rate and 10.5% 12.5% discount rate 2029E terminal NOI: $2,560mm Valuation range of $0.0bn $2.3bn
121
TIP REIT NAV (TIPS) Analysis (contd)

The implied TIP REIT valuation range on TIPS-based NAV analysis is $26 $31bn, or $36 $44/share today
($mm, except per share data) Existing Ground Lease Rental Revenues - Store Land Rental Revenues - DCs & WHs Land Incremental Standalone Costs Rental Revenues from Existing Ground Lease Dividend Yield Present Value of Existing Ground Lease 2008 $1,325 44 (15) $1,354 5.15% $26,300 4.65% $29,128
2009 Incremental Rental Revenues After-tax Facilities Management Income Platform Value G&A Expense Total Capex Free Cash Flow from Platform Terminal Value Discount Rate Terminal Cap Rate Present Value of Platform 12.5% 5.15% $74 12 (20) (1,079) ($1,013)
2010
$145 12 (21) (1,008) ($872) 10.5% 4.65% $2,293
2011
$257 14 (21) (1,582) ($1,332)
2012
$391 15 (22) (1,863) ($1,478)
2013
$551 17 (22) (2,190) ($1,644)
...
$55,047
Existing Ground Lease Platform Value Total TIP REIT Value Implied Enterprise Value Net Debt Implied Equity Value Value per Share
$26,300 $26,300 $26,300 $36
$29,128 2,293 $31,421 $31,421 $44
122
TIP REIT NAV (Ground Lease Precedents) Analysis

The implied TIP REIT valuation range on Ground Lease Precedents-based NAV analysis is $22 $26bn, or $30 $36/share today
Existing Lease Valuation Cap rate range based on ground lease precedents: 5.50% 6.25% Implied valuation at 5.50% 6.25% cap rate range 2009E NOI: $1,354mm Valuation range of $22bn $25bn Platform Valuation Based on 20-year DCF analysis Implied valuation at 5.50% 6.25% cap rate and 10.5% 12.5% discount rate 2029E terminal NOI: $2,560mm Valuation range of $0.0bn $1.1bn
123
TIP REIT NAV (Ground Lease Precedents) Analysis (contd)

The implied TIP REIT valuation range on Ground Lease Precedents-based NAV analysis is $22 $26bn, or $30 $36/share today
($mm, except per share data) Existing Ground Lease Rental Revenues - Store Land Rental Revenues - DCs & WHs Land Incremental Standalone Costs Rental Revenues from Existing Ground Lease Cap Rate Present Value of Existing Ground Lease 2009 $1,325 44 (15) $1,354 6.25% $21,671 5.50% $24,626
2009 Incremental Rental Revenues After-tax Facilities Management Income Platform Value G&A Expense Total Capex Free Cash Flow from Platform Terminal Value Discount Rate Terminal Cap Rate Present Value of Platform 12.5% 6.25% $74 12 (20) (1,079) ($1,013)
2010
$145 12 (21) (1,008) ($872) 10.5% 5.50% $1,138
2011
$257 14 (21) (1,582) ($1,332)
2012
$391 15 (22) (1,863) ($1,478)
2013
$551 17 (22) (2,190) ($1,644)
...
$46,540
Existing Ground Lease Platform Value Total TIP REIT Value Implied Enterprise Value Net Debt Implied Equity Value Value per Share
$21,671 $21,671 $21,671 $30
$24,626 1,138 $25,764 $25,764 $36
124
TIP REIT DCF Analysis

The implied TIP REIT valuation range based on DCF analysis is $28 $34bn, or $39 $47/share today
($mm) Rent (Cash) - Store Land Rent (Cash) - DCs & WHs Land Net Facilities Management Income Less: G&A Expense EBITDA Less: Taxes on Facilities Mgmt. Income Less: Development Capex Less: Maintenance Capex UNLEVERED FREE CASH FLOWS ILLUSTRATIVE VALUATION ($ in millions, except per share amounts) Terminal NOI - Store Land Terminal Cap Rate - Store Land Terminal Value - Store Land Terminal NOI - DCs & WHs Land Terminal Cap Rate - DCs & WHs Land Terminal Value - DCs & WHs Land Present Value of TV Sum of Discounted Cash Flows (2009-2013) Implied Enterprise Value Less: Debt (01/01/09) Plus: Cash (01/01/09) Implied Equity Value 2009 1,398 46 19 (35) 1,427 (7) (1,079) 341 Projected Calendar Year, 2010 2011 2012 1,501 1,645 1,811 48 51 55 20 22 24 (36) (37) (38) 1,533 1,681 1,853 (8) (1,008) 517 (8) (1,582) 91 (9) (1,863) (19) 2013 2,004 59 27 (39) 2,051 (10) (2,190) (149) CAGR '09 - '13 9.4% 6.3% 9.5% 2.5% 9.5% 9.5% 19.4% na na
Implied Equity Value 2,209 4.9% 45,072 65 8.5% 764 29,791 739 30,529 30,529 Terminal Store Cap Rate 5.15% 4.90% 4.65% Discount Rate 9.00% 29,107 30,529 32,104
8.00% 30,450 31,939 33,588
10.00% 27,836 29,195 30,700
Implied Perpetuity Growth Rate (%) Terminal Store Cap Rate 5.15% 4.90% 4.65% Discount Rate 9.00% 3.6 3.8 4.1
8.00% 2.6 2.9 3.1
10.00% 4.5 4.7 5.0
(1) Assumes store land 2014E NOI growth equal to 9.4%: NOI includes store related net facilities management income (2) Assumes DCs & WHs land 2014E NOI growth equal to 6.3% NOI includes DCs & WHs related net facilities management income (3) Assumes mid-year convention (4) Normalized to exclude impact of development Capex in exit year
125
TIP REIT Valuation12-Month Price Target

Various methodologies imply a TIP REIT reference range of $27.5 $32.5bn, or $38 $45/share 12 months from today
Valuation Range ($27.5bn $32.5bn)
Net Asset Value (TIPS)
4.65% 5.15% Dividend Yield on Existing Ground Lease Dividend Yield Based on Sum of CDS Spread and TIPS Yield CY2009 Existing Dividends: $1,429mm 20-year DCF Analysis of Platform 10.50% 12.50% Discount Rate on Platform Includes normalized dividends of $1,344mm in CY2009
28.0
33.3
Net Asset Value (Precedents)
5.50% 6.25% Cap Rate on Existing Ground Lease Cap Rate Range Based on Precedent Transactions CY2010 Existing NOI: $1,464mm 20-year DCF Analysis of Platform 10.50% 12.50% Discount Rate on Platform Includes normalized dividends of $1,344mm in CY2009
23.7
28.0
Discounted Cash Flow
8.0% 10.0% WACC 4.65% 5.15% Terminal Cap Rate Includes normalized dividends of $1,344mm in CY2009
17.5 22.5 27.5
31.2
37.4
32.5
37.5
42.5
Implied Multiples: CY2010 AFFO CY2010 EBITDA CY2010 Div. Yield Cap Rate
($mm) 1,400 1,533 1,400 1,569
$27.5 19.6x 18.6x 5.1% 5.5%
Equity Value ($bn) $30.0 21.4x 20.3x 4.7% 5.0%
$32.5 23.2x 21.9x 4.3% 4.7%
126
Valuation Analysis Target Corp
Target Corp Summary Valuation Analysis: Today

The implied valuation range for Target Corp based on several methodologies outlined below is $20.3 $25.3bn, or $28 $35/share today
Valuation Range ($20.3bn$25.3bn)
Trading Data Retailers 1 (EV/EBITDA) Trading Data Retailers 1 (P/E) 5.57.5x EBITDA CY2009 EBITDA: $5,172mm Current Multiple is 6.0x 11.014.5x EPS CY2009 EPS: $2.23 Current Multiple is 11.8x
17.5 27.8
17.7
23.4
Trading Data 5 Year P/E of 15.9x and 5 Year EV/EBITDA of 8.2x Target 5 Year Historical CY2009 EPS: $2.23 and CY2009 EBITDA: $5,172mm (P/E and EV/EBITDA) Current P/E is 11.8x and current EV/EBITDA is 6.0x Discounted Cash Flow 9.011.0% WACC 6.07.0x Terminal EBITDA Multiple
15.0
25.6
31.5
26.4 25.0
35.4 35.0
Equity Value ($bn)

($bn)
Equity Value Enterprise Value Share Price ($/Share) '09 P/E '10 P/E '09 PEG '10 PEG
(1) Based on 20-day average as of October 24, 2008
20.3 31.3 $28 12.6x 10.6x 0.7x 0.6x 6.0x 5.4x
22.8 33.8 $32 14.2x 11.8x 0.8x 0.7x 6.5x 5.9x
25.3 36.3 $35 15.7x 13.1x 0.9x 0.7x 7.0x 6.3x
'09 EV/EBITDA '10 EV/EBITDA
128
Target Corp Summary Income Statement

($mm) PF2008 2009E Projected Calendar Year, 2010E 2011E 2012E 2013E CAGR '09-'13
Retail Sales
Retail Sales Growth(%)
64,892
5.6%
68,249
5.2%
73,356
7.5%
80,479
9.7%
88,710
10.2%
98,241
10.7%
9.5%
COGS
Gross Margin (%)
(45,459)
29.9%
(47,777)
30.0%
(51,279)
30.1%
(56,177)
30.2%
(61,919)
30.2%
(68,563)
30.2%
SG&A
SG&A as % of Sales
(13,038)
20.1%
(13,814)
20.2%
(14,740)
20.1%
(16,093)
20.0%
(17,739)
20.0%
(19,646)
20.0%
Retail EBITDAR
Retail EBITDAR Margin (%)
6,395
9.9%
6,657
9.8%
7,337
10.0%
8,208
10.2%
9,051
10.2%
10,033
10.2%
Credit EBITDAR Incremental Facility Management Services Expense EBITDAR

EBITDAR Margin (%)
143 (19) 6,519

10.0%
150 (19) 6,789

9.9%
161 (20) 7,478

10.2%
177 (22) 8,363

10.4%
195 (24) 9,221

10.4%
216 (27) 10,222

10.4%
10.8%
Current Rent Expense Additional Rent Expense Pro Forma EBITDA

EBITDA Margin (%)
169 1,369 4,980

7.7%
173 1,444 5,172

7.6%
178 1,549 5,751

7.8%
182 1,696 6,485

8.1%
187 1,866 7,169

8.1%
191 2,063 7,968

8.1%
11.4%
Depreciation & Amortization Net Interest (Income) / Expense Income Tax Provision Net Income
Net Income Margin (%) Weighted Average Shares Outstanding
1,765 515 1,037 1,663

2.6%
1,884 673 1,004 1,611

2.4%
2,017 611 1,199 1,924

2.6%
2,199 531 1,441 2,312

2.9%
2,410 509 1,632 2,618

3.0%
2,654 623 1,802 2,890

2.9%
15.7%
766 $2.17
722 $2.23
722 $2.67
722 $3.20
707 $3.70
677 $4.27 17.6%
129
Target Corp Summary Balance Sheet/CF Statement

Significant Free Cash Flow generation allows Target Corp to de-leverage to 2.8x Lease Adj. Debt/EBITDAR
Projected Calendar Year, 2010E 2011E
($mm)
PF2008
2009E
2012E
2013E
EBITDA Less: Interest Expense Less: Taxes Plus: Decrease in Net Working Capital Plus: Other Less: Maintenance Capex Maintenance Free Cash Flow Less: Growth Capex Total Free Cash Flow Total Cash Total Debt Lease Adj. Debt/EBITDAR Debt/EBITDA EBITDAR/(Interest+Rent) EBITDA/Interest Ending Shares Outstanding Weighted Average Shares Outstanding
4,980 (515) (1,037) 79 73 (1,714) 1,866 (1,112) 754 500 11,455 3.6x 2.3x 3.2x 9.7x 722 766
5,172 (673) (1,004) 79 73 (1,714) 1,933 (1,112) 821 682 10,817 3.5x 2.1x 3.0x 7.7x 722 722
5,751 (611) (1,199) 120 73 (1,827) 2,307 (1,023) 1,284 734 9,584 3.1x 1.7x 3.2x 9.4x 722 722
6,485 (531) (1,441) 167 73 (1,785) 2,967 (1,615) 1,352 805 8,303 2.8x 1.3x 3.5x 12.2x 722 722
7,169 (509) (1,632) 193 73 (1,968) 3,327 (1,902) 1,424 887 8,938 2.8x 1.2x 3.6x 14.1x 693 707
7,968 (623) (1,802) 224 73 (2,179) 3,662 (2,237) 1,425 982 10,078 2.8x 1.3x 3.6x 12.8x 662 677
130
Target Corp Valuation Matrix

Set forth below is a valuation matrix that demonstrates Target Corps trading multiples at various stock prices
Value per Share Valuation Range ($mm) Shares O/S EQUITY VALUE Net Debt (1/1/09) ENTERPRISE VALUE Multiples of: CY 2008 EBITDA CY 2009 EBITDA CY 2010 EBITDA Metrics 4,980 5,172 5,751 6.3x 6.0x 5.4x 6.5x 6.3x 5.7x 6.8x 6.5x 5.9x 7.0x 6.7x 6.0x 7.3x 7.0x 6.3x 721.9 20,214 10,955 31,169 21,658 10,955 32,613 22,800 10,955 33,755 23,824 10,955 34,779 25,268 10,955 36,223 $28.00 $30.00 $31.58 $33.00 $35.00
CY 2008 Earnings CY 2009 Earnings CY 2010 Earnings CY 2009 PEG CY 2010 PEG
$2.17 $2.23 $2.67 17.6% 17.6%
12.9x 12.5x 10.5x 0.7x 0.6x
13.8x 13.4x 11.3x 0.8x 0.6x
14.5x 14.2x 11.8x 0.8x 0.7x
15.2x 14.8x 12.4x 0.8x 0.7x
16.1x 15.7x 13.1x 0.9x 0.7x
131
Trading Data For Other Retailers (1)

Company name Stock (2 ) Price ($) % of 52wk High Equity Value ($mm) EV/CY08E EV ($mm) Sales (x) EBITDA (x) EV/CY09E Sales (x) EBITDA (x) EV/CY10E Sales (x) EBITDA (x) P/E Ratio CY09E (x) CY10E (x) PEG Ratio CY09E (x) CY10E (x) IBES LTG (%) Total Debt/ CY08E EBITDA (x) Adj. Debt/CY08E EBITDAR (x)
Target (3) Standalone Target Corp( 4)
39.98 31.58
28,863 22,800
39,818 33,755
0.61 0.52 0.63 0.63 0.32 0.34 0.28 0.37 0.33 0.33 0.57 0.75 0.24 0.38 0.48 0.47 0.61 0.65 0.69 0.43 0.33 0.72 0.32 0.61 0.20 0.51 0.61 0.47 0.41 0.75 0.20
6.3 6.8 8.4 8.4 6.2 4.9 4.8 5.8 5.4 5.4 5.0 5.8 6.4 3.9 5.3 5.4 7.2 6.5 6.1 6.0 9.2 8.2 5.1 6.1 6.2 6.7 6.2 6.2 6.1 9.2 3.9
0.58 0.49 0.58 0.58 0.30 0.33 0.28 0.34 0.31 0.32 0.58 0.72 0.25 0.39 0.49 0.48 0.57 0.66 0.68 0.40 0.30 0.61 0.29 0.59 0.18 0.47 0.57 0.45 0.39 0.72 0.18
6.0 6.5 7.8 7.8 5.8 4.8 4.8 5.2 5.2 5.0 5.3 5.7 7.2 4.1 5.6 5.5 6.4 6.7 6.1 5.5 8.4 7.1 4.8 5.9 6.0 6.3 6.1 6.0 5.9 8.4 4.1
0.54 0.46 0.55 0.55 0.28 0.32 0.28 0.31 0.30 0.30 0.58 0.69 0.25 0.37 0.47 0.48 0.52 0.64 0.64 0.37 0.28 0.58 0.26 0.55 0.17 0.45 0.52 0.42 0.37 0.69 0.17
5.5 5.9 7.4 7.4 5.6 4.7 4.7 4.9 5.0 4.8 5.3 5.4 7.3 3.9 5.5 5.4 5.7 6.0 5.5 5.0 8.0 6.5 4.5 5.5 5.7 5.8 5.7 5.6 5.5 8.0 3.9
11.8 14.2 14.4 14.4 12.3 9.3 6.5 14.1 10.6 10.8 9.8 11.3 32.4 8.8 15.6 10.5 10.6 13.2 13.6 10.6 17.8 11.5 9.0 11.5 15.4 12.6 11.5 12.9 11.5 32.4 6.5
10.2 11.8 13.0 13.0 11.2 8.8 6.1 11.2 9.3 10.0 9.1 10.3 43.9 7.4 17.7 9.7 9.4 11.1 11.5 9.5 15.9 9.7 8.0 10.2 13.9 11.0 10.2 12.2 10.2 43.9 6.1
0.8 0.8 1.3 1.3 1.4 0.8 0.8 0.9 1.0 0.8 1.2 0.8 3.2 1.0 1.5 1.1 0.7 1.1 1.0 0.8 1.4 0.8 0.8 0.9 1.5 1.0 0.9 1.1 0.9 3.2 0.7
0.7 0.7 1.2 1.2 1.2 0.7 0.8 0.7 0.9 0.7 1.1 0.7 4.4 0.8 1.8 1.0 0.7 0.9 0.9 0.7 1.2 0.7 0.7 0.8 1.4 0.9 0.8 1.1 0.8 4.4 0.7
14.7 (5) 17.6 (5) 11.0 11.0 9.0 12.0 8.0 16.0 11.3 10.5 8.0 15.0 10.0 9.0 10.5 9.5 14.5 12.0 14.0 13.5 12.9 14.0 12.0 13.0 10.0 12.9 13.0 11.9 12.0 16.0 8.0
1.8 2.3 1.5 1.5 1.9 1.9 3.4 1.6 2.2 1.9 3.7 1.0 2.1 2.0 2.2 2.1 1.3 1.6 1.0 0.3 0.9 2.1 0.9 0.4 0.0 1.0 0.9 1.5 1.5 3.7 0.0
2.0 3.6 1.8 1.8 2.8 2.7 4.0 3.4 3.2 3.1 4.0 2.1 4.0 2.8 3.2 3.4 2.5 2.3 1.4 2.4 1.3 3.5 2.4 2.8 2.5 2.3 2.4 2.7 2.6 4.0 1.3
Discounters Wal-Mart 54.91 86.0 Mean/Median Supermarkets Kroger 26.08 84.2 Safeway 22.39 62.2 SUPERVALU 18.32 42.3 Whole Foods 15.67 30.7 Mean Median Department Stores Macy's 12.31 36.5 Kohl's 35.31 60.8 Sears 70.38 50.5 JCPenney 25.45 44.3 Mean Median Other Large Cap Retailers CVS 30.13 68.0 Home Depot 21.59 67.8 Lowe's 19.85 69.7 Walgreens 25.63 63.4 Costco 57.95 77.0 Staples 18.08 68.0 Best Buy 28.42 52.7 TJX 27.43 73.1 BJ's 35.16 79.4 Mean Median Mean(6) (6) Median (6) High Low (6)
(1) (2) (3) (4) (5) (6)
216,168 255,900
17,196 9,617 3,879 2,198
24,618 15,105 12,755 3,013
5,176 10,769 8,897 5,652
14,260 12,545 11,581 7,249
43,682 36,678 29,089 25,369 25,310 12,936 11,718 11,686 2,108
52,640 47,282 33,699 26,346 24,463 17,200 14,589 12,023 1,994
As of October 24, 2008 Assumes 20-day average stock price, except for Target Corp Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt Implied multiples from midpoint of Target Corp valuation ($20.3bn$25.3bn) Represents 20092013 EPS CAGR Excludes Target
132
Implied Valuation Based on Other Retailers

The implied Target Corp valuation range based on other publicly traded retailers is $18 $28bn, or $24 $39/share today
2009E Multiple EV/EBITDA P/E
2009E Metric ($mm) 5,172 $2.23 5.5x 11.0x
Multiple Range 7.5x 14.5x
Implied Value ($bn) 17.5 17.7 27.8 23.4
Implied Reference Range
133
Target Corp Comparable Companies-Trading Multiples(1)

Target is currently trading near the midpoint of its peer group
2009E EV/EBITDA Multiples (x)

12 8.4 8 7.8
7.2
7.1
6.7
6.5(2)
6.4
6.1
6.0(3)
6.0
5.9
5.8
5.7
5.5
5.3
Average(4) = 6.0 5.2 4.8 4.8 4.8 4.1
0 Costco Wal-Mart Sears Staples Home Depot CVS Lowe's BJ's TJX Kroger Kohl's Walgreens Macy's Whole Foods Best Buy Safeway SUPERVALU JCPenney
Corp
Standalone
2009E P/E Multiples (x)

35 30 25 20 15 10 5 0 Sears Costco BJ's Wal-Mart Whole Foods Lowe's Home Depot Kroger Staples TJX Kohl's CVS Walgreens Macy's Safeway Best Buy JCPenney SUPERVALU 17.8 15.4 14.4 14.2(2) 14.1 13.6 32.4 Average(4) = 12.9
13.2
12.3
11.8(3)
11.5
11.5
11.3
10.6
10.6
9.8
9.3
9.0
8.8
6.5
Corp
(1) (2) (3) (4)
Standalone
As of October 24, 2008 Implied multiple from midpoint of Target Corp valuation ($20.3bn$25.3bn) Represents fiscal year ending January Excludes Target
134
Target Corp Discounted Cash Flow Analysis

The implied Target Corp valuation range based on DCF analysis is $26 $35bn, or $37 $49/share today
($mm) 1 EBITDA Less: Depreciation and Amortization EBIT Less: Taxes @ 38% After-Tax EBIT Plus: Depreciation and Amortization Less: Net Capital Expenditures Plus: Decrease in Working Capital UNLEVERED FREE CASH FLOWS ILLUSTRATIVE VALUATION ($ in millions, except per share amounts) 2 Terminal EBITDA Terminal EV/EBITDA Multiple Terminal Value 3 Present Value of TV 3 Sum of Discounted Cash Flows (2009-2013) Implied Enterprise Value 4 Less: Debt (1/1/09) 4 Plus: Cash (1/1/09) Implied Equity Value 2009E 5,172 (1,884) 3,288 (1,262) 2,025 1,884 (2,826) 79 1,162 Projected Calendar Year, 2010E 2011E 2012E 5,751 6,485 7,169 (2,017) (2,199) (2,410) 3,735 (1,434) 2,301 2,017 (2,850) 120 1,588 4,285 (1,645) 2,640 2,199 (3,400) 167 1,606 4,759 (1,827) 2,931 2,410 (3,870) 193 1,665 2013E 7,968 (2,654) 5,314 (2,041) 3,274 2,654 (4,416) 224 1,736
Implied Equity Value 8,824 6.5x 57,357 35,614 6,073 41,687 (11,455) 500 30,732 Terminal Multiple 6.0x 6.5x 7.0x 9.00% 29,668 32,536 35,403 Discount Rate 10.00% 27,993 30,732 33,472 11.00% 26,404 29,022 31,641
Implied Perpetuity Growth Rate (%) 5 Terminal Multiple 6.0x 6.5x 7.0x 9.00% 2.4 2.9 3.3 Discount Rate 10.00% 3.3 3.8 4.2 11.00% 4.2 4.7 5.1
Notes: 2 3 4 5
1 Assumes sale of remaining 53% interest on credit card receivables for $4.4bn; ongoing royalty stream of $150mm Assumes 2014E EBITDA growth equal to 2013E growth Assumes mid-year convention Assumes $4.4bn of proceeds from sale of remaining 53% interest on credit card receivables used to pay down debt Assumes capital expenditures equal to depreciation and amortization in perpetuity
135
Target Corp12-Month Price Target

The implied valuation range for Target Corp based on several methodologies outlined below is $27.5 $32.5bn, or $38 $45/share 12 months from today
Valuation Range ($27.5bn$32.5bn)
Trading Data Retailers (EV/EBITDA) Trading Data Retailers (P/E) 6.08.0x EBITDA CY2010 EBITDA: $5,751mm Current Multiple is 6.0x 13.016.0x EPS CY2010 EPS: $2.67 Current Multiple is 11.8x
24.4
35.9
25.0
30.8
Trading Data 5 Year P/E of 15.9x and 5 Year EV/EBITDA of 8.2x Target 5 Year Historical CY2010 EPS: $2.67 and CY2010 EBITDA: $5,751mm (P/E and EV/EBITDA) Current P/E is 11.8x and current EV/EBITDA is 6.0x Discounted Cash Flow 9.011.0% WACC 6.57.5x Terminal EBITDA Multiple
22.0 27.0
30.6
37.0
33.0 32.0 37.0
42.3 42.0
Equity Value ($bn)

($bn)
Equity Value Enterprise Value Share Price ($/Share) '10 P/E '10 PEG '10 EV/EBITDA
27.5 37.6 $38 14.3x 0.8x 6.5x
30.0 40.1 $42 15.6x 0.9x 7.0x
32.5 42.6 $45 16.9x 1.0x 7.4x
136
Credit Rating Analysis
Maintains Investment Grade Credit Rating

We believe the Rating Agencies will adopt one of two possible analytical approaches when assessing the credit profiles of the new Target Corp and TIP REIT Consolidated vs. De-consolidated
Target Corp and TIP REIT will have integrated, mutually dependent business models Vast majority of TIP REIT revenues will be based on Target Corp land leases for many years Lease arrangements and large size of land portfolio lead to high correlation of credit quality between TIP REIT and Target Corp TIP REIT will also provide facility management services to Target Corp Target Corp and TIP REIT will be separate legal entities with common public ownership at the onset; shareholder base expected to diverge over time due to differing business profiles of the two entities Based on this structure, we believe that the Rating Agencies will adopt one of either two possible analytical approaches for their analysis of Target Corp and TIP REIT: a Consolidated analysis of the combined group/system, or a De-consolidated analysis of the two separate entities on a standalone basis, but with some linkage A Consolidated approach is supported by the integrated, economically inter-twined business relationship between Target Corp as lessor and TIP REIT as landowner A De-consolidated approach is supported by the fact that the companies will be separate legal entities with no common ownership, except for shareholders initially Agencies may not unanimously take the same analytical approach when assessing Target Corp and TIP REIT profile Leading to potential for one or more agency taking a consolidated approach and another taking a deconsolidated approach
138
Maintains Investment Grade Credit Rating (contd)

Regardless of the analytical approach adopted by the Agencies, we believe that Target Corp will maintain Investment Grade credit ratings
Under a Consolidated methodology, Agencies are expected: To review metrics of the consolidated group where lease payments between Target Corp and TIP REIT are expected to cancel out To assign the consolidated groups rating to both Target Corp and TIP REIT Under a De-consolidated methodology, Agencies are expected: To review Target Corp and TIP REIT independently To assign independent ratings to both Target Corp and TIP REIT, although we anticipate that there will be some ratings linkage between the two Regardless of the analytical approach, we believe: Target Corp will maintain solid Investment Grade credit ratings Between Mid-High BBB/Baa to A-/A3 TIP REIT will achieve Investment Grade credit ratings Under any scenario, we anticipate that Target Corp will generate significant free cash flows with ability to deleverage to credit metrics supportive of stronger Investment Grade ratings over the near to intermediate term
139
Structural and Legal Considerations
Land Development / Procurement

Set forth below is an illustrative example of how Target Corp and TIP REIT can work together on future land procurement
Immediately after spin-off, TIP REIT enters into a two-year exclusive agreement to develop land for Target Corp Afterwards, Target Corp will have a Preferred Vendor Agreement with TIP REIT It is anticipated that TIP REIT will act as the land procurement developer for Target Corp Target Corp will notify TIP REIT when it identifies a place to build a store and will inquire about TIP REITs interest in providing land procurement development services for the specified area (assembling, clearing and entitling one or more parcels of land) If TIP REIT expresses interest, the parties will discuss terms over a standard period (e.g. 10+ days); upon reaching terms, TIP REIT will commence land procurement development services If TIP REIT decides not to pursue the opportunity offered by Target Corp, or the parties do not agree upon terms within the specified standard period, Target Corp may secure the services of another party or undertake the land procurement development services on its own
141
Land Development / Procurement (contd)

Target Corp will have the right to purchase land for the store directly, but in that case Target Corp must notify TIP REIT to determine whether TIP REIT wishes to purchase the land from Target Corp and lease it back to Target Corp If TIP REIT expresses interest and agrees on market terms within the specified standard period, TIP REIT will purchase the land from Target Corp, clear and entitle it and lease it back to Target Corp on the agreed terms Target Corp will be under no obligation to accept any terms if it determines in good faith that doing so would not be in the best interest of Target Corp and its shareholders The agreement will contain customary confidentiality and standstill provisions that will prevent TIP REIT from misusing the information that Target Corp is looking to build a particular site After the fifth anniversary of the spin-off, either TIP REIT or Target Corp may terminate the Preferred Vendor Agreement Store development: Target Corp will retain its store development function and will be solely responsible for developing its owned stores
142
Property Transfer Taxes

Transfer of property to TIP REIT may be subject to property transfer tax
Tax imposed at the state and local level in jurisdictions where property is located Rate of tax will vary among the jurisdictions Transfer may qualify for an exemption in some jurisdictions whereby beneficial ownership of property is deemed unchanged In some states such as California, the transfer may trigger a reassessment of the property value which would impose higher ongoing property taxes
143
Supporting Data
Storelevel ROIC
P&L Data:
($mm) Standalone 2007A Pro Forma 2007A
Retail Sales Retail Gross Margin Retail EBIT Plus: Advertising (50% of Consolidated) Plus: Buying Group Expense and Occupancy Expense Less: Incremental Ground Lease Rent (Stores) Less: Incremental Ground Lease Rent (DCs & WHs) Plus: Estimated Corporate G&A % of Revenues Plus: Estimated Distribution Center Costs % of Revenues Estimated Four-Wall Retail EBIT Store Level Operating Data and Assumptions:
($mm)
$61,471 19,576 $4,213 598 1,321 --615 1.0% 2,459 4.0% $9,040
Standalone 2007A
$61,471 19,576 $4,213 598 1,321 (1,235) (1) (46) (2) 615 1.0% 2,505 4.1% $7,970
Pro Forma 2007A
Retail Sales per Avg. Store Memo: Avg. # of Stores Estimated Four-Wall Operating Costs per Avg. Store Ground Lease Expense per Avg. Store Estimated Four-Wall EBIT per Avg. Store Margin New Land Capex New Building Capex Total Investment Est. Pre-Tax Unlevered Returns on Investment
$39.9 1,540 $33.9 -$6.0 15.0% $13 13 $26 23.0% 1,540
$39.9 $34.7 1 $5.2 13.0% -13 $13 39.8%
(1) Assumes $1.2bn of ground lease rent expense from stores, based on $7/sq. ft. lease cost, 131k of square footage per store and 1,350 stores, on average; implying a cap rate of 7.0% (2) Assumes $46mm of ground lease rent expense from DCs & WHs, based on $1.25/sq. ft. lease cost, 1.4mm of square footage per DC & WH and 26 DCs & WHs, on average 145
Triple Net Lease REIT Tenants: Detailed Review

Tenant % of Revenue Industry Moody's / S&P Adj. Debt/ LTM EBITDAR (x) LTM EBITDA/ Interest (x) LTM EBIT/ Interest (x) Yield (%) Commentary
Buffets
Restaurant
WR / NR
9.8
0.8
0.3
In default
March 31, 2008: Buffets auditor raises "going concern" doubt January 22, 2008: Buffets files for bankruptcy Moodys does not expect Kerasotes to become free cash flow positive until after 2009 July 17, 2008: Moody's downgrades Pantry's Corporate Family Rating to B2 and assigned a negative rating outlook. April 9, 2008: Merrill Lynch reduces its investment rating on The Pantry to Sell June 26, 2008: Morgan Stanley Private Equity acquires a 60% stake in Learning Care Group Inc., the parent company of La Petite Academy na
Kerasotes ShowPlace Theatres
Movie Theater
B1/ B-
na
na
na
na
The Pantry (NASDAQ: PTRY)
Convenience Store
WR / B+
6.5 4
2.4
1.2
14.5
La Petite Academy
Education Services
WR/NR
na
na
na
na
Children's World
Education Services
na / na
na
Adj. Debt/ LTM EBITDAR (x)
na
LTM EBITDA/ Interest (x)
na
LTM EBIT/ Interest (x)
na
Yield (%)
Tenant
% of Gross Assets Industry
Moody's / S&P
Commentary
The Pantry (NASDAQ: PTRY) Circle K Susser Holdings (NASDAQ: SUSS)
11 9
Convenience Store Convenience Store
WR / B+ B3 / B+
6.5 6.1
2.4 2.7
1.2 1.4
14.5 14.3
See above August 6, 2008: Susser reports earnings; Free Cash Flow for Susser Holdings deteriorates 19.1% See above
Kerasotes ShowPlace Theatres Mister Car Wash Road Ranger
5 4 4
% of Total GLA
Movie Theater Conveyor Car Wash Convenience Store
B1/ Bna / na na / na
na na na
Adj. Debt/ LTM EBITDAR (x)
na na na
LTM EBITDA/ Interest (x)
na na na
LTM EBIT/ Interest (x)
na na na
Yield (%)
Tenant
Industry
Moody's / S&P
Commentary
AMC Entertainment Regal (NYSE: RGC) Rave Motion Pictures Consolidated Theaters Muvico
Source: (1) (2) (3) (4) (5)
51 7 6 5
5
Movie Theater Movie Theater Movie Theater Movie Theater Movie Theater
WR / NR B2 / BBna / na na / na na / na
6.4 5.7 na na na
2.6 4.3 na na na
0.9 2.7 na na na
14.1 10.7 na na na
35
Real industry revenue is expected to decline at an average annual rate of 1.8% over the next 5 years The industry is in a mature phase of its development, as witnessed by the recent significant operator site and screen consolidation process associated with the filing for Chapter 11 Bankruptcy protection by most major operators in the early 2000s.
Company filings and Wall Street research Bloomberg as of October 24, 2008 Company filings Yield to Maturity of the most liquid security with the largest outstanding amount based on Interactive Data Rent Expense as of last fiscal year reported Wall Street research as of May 5, 2008
146
Model Standalone
Standalone Model Income Statement

($mm) Retail Sales
Base Sales Growth (%)
Status Quo CY2007 61,471 1,896 63,367 42,929

69.8%
Status Quo CY2008 64,892 2,078 66,970 45,459

70.1%
Credit Card Adj.
Pro Forma CY2008 64,892 143 65,034 45,459

70.1%
2009 68,249
5.2%
Calendar Year, 2010 2011 73,356 80,479

7.5% 9.7%
2012 88,710
10.2%
2013 98,241
10.7%
CAGR '09 - '13 9.5% 9.5% 9.5%
Credit Revenue
Credit Sales Growth
(1,936)
150
5.2%
161
7.5%
177
9.7%
195
10.2%
216
10.7%
Total Revenue
Total Revenue Growth
68,399
5.2%
73,517
7.5%
80,655
9.7%
88,905
10.2%
98,457
10.7%
COGS
% of Retail Sales
47,777
70.0%
51,279
69.9%
56,177
69.8%
61,919
69.8%
68,563
69.8%
SG&A (excluding D&A and Rent Expense)

% of Retail Sales
12,392
20.2%
13,058
20.1%
13,058
20.1%
13,834
20.3%
14,761
20.1%
16,115
20.0%
17,761
20.0%
19,668
20.0%
Credit Expenses
% of Credit Revenue
950
50.1%
1,460
70.2%
(1,460)
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Retail EBITDAR
6,150
10.0%
6,375
9.8%
6,375
9.8%
6,637
9.7%
7,316
10.0%
8,187
10.2%
9,029
10.2%
10,011
10.2%
10.8% 9.5% 10.8%
Credit EBITDAR
Credit EBITDAR Margin (%)
946
49.9%
619
29.8%
(476)
143
100.0%
150
100.0%
161
100.0%
177
100.0%
195
100.0%
216
100.0%
EBITDAR
EBITDAR Margin (%)
7,096
11.2%
6,993
10.4%
6,517
10.0%
6,787
9.9%
7,478
10.2%
8,364
10.4%
9,224
10.4%
10,227
10.4%
Rent Expense EBITDA

EBITDA Margin (%)
165 6,931
10.9%
169 6,824
10.2%
169 6,348
9.8%
173 6,614
9.7%
178 7,300
9.9%
182 8,182
10.1%
187 9,038
10.2%
191 10,036
10.2%
11.0%
Depreciation & Amortization

% of Retail Sales
1,659
2.7%
1,807
2.8%
1,807
2.8%
1,940
2.8%
2,085
2.8%
2,288
2.8%
2,522
2.8%
2,793
2.8%
Operating Income Net Interest (Income) / Expense Income Tax Provision

Tax Rate (%)
5,272 647 1,776

38%
5,017 995 1,483

37%
4,541 555 1,469

37%
4,674 694 1,528

38%
5,215 722 1,725

38%
5,894 798 1,957

38%
6,516 897 2,158

38%
7,243 1,003 2,396

38%
11.6%
Net Income
Net Income Margin (%)
2,849
4.5%
2,539
3.8%
2,517
3.9%
2,452
3.6%
2,767
3.8%
3,139
3.9%
3,461
3.9%
3,844
3.9%
11.9%
Current Diluted Shares Outstanding Shares Repurchase Share Repurchase from Options
Total Shares Outstanding Weighted Average Shares Outstanding
882.6 (63.7) 0.0 819.0 850.8

$3.33
819.0 (97) 0.0 721.9 765.9

$3.32
819.0 (97.0) 0.0 721.9 765.9

$3.29
721.9 (1.6) 0.0 720.4 721.1

$3.40
720.4 (23.1) 0.0 697.3 708.8

$3.90
697.3 (20.0) 0.0 677.3 687.3

$4.57
677.3 (18.2) 0.0 659.1 668.2

$5.18
659.1 (14.0) 0.0 645.2 652.2

$5.89
6.71
14.7%
148
Standalone Model Balance Sheet

Status Quo ($mm) Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets Total Assets Debt Other Current Liabilities Other Non-Current Liabilities Total Liabilities Total Equity Total Equity & Liabilities CY2007 2,450 8,054 8,402 31,982 (7,887) 24,095 1,559 44,560 17,090 9,818 2,345 29,253 15,307 44,560 Status Quo CY2008 500 8,383 9,232 35,734 (9,350) 26,384 1,368 45,867 19,455 10,757 2,392 32,604 13,264 45,867 (383) (8,000) Adj. 0 (8,383) Pro Forma CY2008 500 9,232 35,734 (9,350) 26,384 1,368 37,484 11,455 10,757 2,392 24,604 12,880 37,484 2009 607 9,710 39,639 (11,290) 28,348 1,368 40,033 11,455 11,313 2,392 25,160 14,873 40,033 Calendar Year, 2010 653 10,436 43,497 (13,375) 30,122 1,368 42,579 12,455 12,160 2,392 27,007 15,572 42,579 2011 716 11,450 48,479 (15,663) 32,816 1,368 46,350 13,955 13,340 2,392 29,687 16,663 46,350 2012 790 12,621 54,212 (18,185) 36,027 1,368 50,805 15,705 14,705 2,392 32,802 18,004 50,805 2013 874 13,977 60,817 (20,977) 39,840 1,368 56,059 17,455 16,285 2,392 36,132 19,927 56,059
149
Standalone Model Cash Flow Statement

Calendar Year, 2010 2011 7,300 8,182 (722) (798) (1,725) (1,957) 73 73 120 167 0 0 5,045 5,667 (3,858) (3,858) 1,000 0 (1,688) (454) (1,142) 607 45 653 630 19 (4,982) (4,982) 1,500 0 (1,654) (467) (621) 653 63 716 685 21
($mm) EBITDA less: Interest Expense less: Taxes Share-based Compensation less: Increase in Net Working Capital less: Increase Funding of CC Growth Cash Flow from Operating Activities Capital Expenditures Cash Flow from Investing Activities Issuance of Debt Repayment of Debt Issuance of Equity / (Buy Back) Issuance of Dividends to Common Cash Flow from Financing Activities Beginning Cash Balance Change in Cash Ending Cash Balance Average Cash Balance Interest Income
2009 6,614 (694) (1,528) 73 79 0 4,544 (3,905) (3,905) 0 0 (99) (433) (532) 500 107 607 554 17
2012 9,038 (897) (2,158) 73 193 0 6,249 (5,732) (5,732) 1,750 0 (1,713) (481) (444) 716 73 790 753 23
2013 10,036 (1,003) (2,396) 73 224 0 6,933 (6,605) (6,605) 1,750 0 (1,498) (496) (243) 790 85 874 832 25
3.0%
150
Standalone Model Build-ups and Credit Metrics

Status Quo CY2007 208 296 61,471 Pro Forma CY2008 222 293 64,892 5.6% 6.6% (0.9%) 2007 4,369
7.1%
Sales Buildup Square Feet (mm) $ / Sq. Ft. Retail Sales Implied Retail Sales Growth (%) Sq. Footage Growth (%) SSS Growth (%) CapEx Buildup Total System CapEx
CapEx as % of Retail Sales
2009 232 294 68,249 5.2% 4.7% 0.5% 2009 3,905

5.7%
Calendar Year, 2010 2011 241 256 304 314 73,356 80,479 7.5% 4.1% 3.3% 2010 3,858
5.3%
2012 273 325 88,710 10.2% 6.5% 3.5% 2012 5,732

6.5%
2013 292 337 98,241 10.7% 7.0% 3.5% 2013 6,605

6.7%
9.7% 6.0% 3.5% 2011 4,982

6.2%
2008 4,112
6.3%
Credit Metrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
8x
Status Quo CY2007 1,320 17,090 18,410 2.6 x 2.5 x 8.7 x 10.7 x
Pro Forma CY2008 1,353 11,455 12,808 2.0 x 1.8 x 9.0 x 11.4 x
1,387 11,455 12,842 1.9 x 1.7 x 7.8 x 9.5 x
1,421 12,455 13,876 1.9 x 1.7 x 8.3 x 10.1 x
1,457 13,955 15,412 1.8 x 1.7 x 8.5 x 10.3 x
1,493 15,705 17,198 1.9 x 1.7 x 8.5 x 10.1 x
1,531 17,455 18,986 1.9 x 1.7 x 8.6 x 10.0 x
151
Model TIP REIT
TIP REIT Model Income Statement

($mm, except as noted) Gross TIP REIT Revenues from Ground-leased Store Land Gross TIP REIT Revenues from Ground-leased DCs & WHs Land Total Gross TIP REIT Revenues Total TIP REIT Net Rental Revenues % of Target Corp Retail Sales Plus: Facilities Management Income Less: Facilities Management Expense Net Facilities Management Income Net Operating Income Less: G&A Expense Less: Incremental G&A Cost EBITDA Less: Depreciation & Amortization Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Income Normalized Net Income (1) Ending Shares Outstanding Earnings per Share Normalized Earnings per Share (1) Dividends on Common Special Dividends Normalized Dividends (1) Normalized Dividends per Share (1) % AFFO 100.0% Pro Forma CY2008 1,325 44 1,369 1,369 2.1% 144 (125) 19 1,388 (20) (15) 1,353 (42) (205) (7) 1,099 1,211 721.9 $1.52 $1.68 1,141 1,253 $1.74 2009 1,398 46 1,444 1,444 2.1% 144 (125) 19 1,462 (20) (15) 1,427 (56) (188) (7) 1,177 1,289 721.9 $1.63 $1.79 1,232 1,600 1,344 $1.86 Calendar Year, 2010 2011 1,501 1,645 48 51 1,549 1,696 1,549 2.1% 155 (134) 20 1,569 (21) (15) 1,533 (68) (221) (8) 1,235 1,331 721.9 $1.71 $1.84 1,304 1,400 $1.94 1,696 2.1% 170 (147) 22 1,718 (21) (16) 1,681 (88) (316) (8) 1,268 1,364 721.9 $1.76 $1.89 1,356 1,452 $2.01 2012 1,811 55 1,866 1,866 2.1% 187 (162) 24 1,890 (22) (16) 1,853 (111) (428) (9) 1,304 1,400 721.9 $1.81 $1.94 1,415 1,511 $2.09 2013 2,004 59 2,063 2,063 2.1% 207 (180) 27 2,090 (22) (17) 2,051 (139) (559) (10) 1,342 1,438 721.9 $1.86 $1.99 1,481 1,577 $2.18 CAGR '09 - '13 9.4% 6.3% 9.3% 9.3%
9.5% 9.3%
9.5%
38%
3.3% 2.8% 3.3% 2.8% 4.7%
4.1% 4.1%
TIP REIT Model Balance Sheet
($mm, except as noted) Real Estate: Gross Existing Properties - Land & Improvements Maintenance Capex Development Properties - Land & Improvements Accumulated Depreciation Net Real Estate Asset Cash Total Assets Debt: Revolver New Debt Total Debt Common Equity Retained Earnings (Deficit) Total Equity Total Liabilities & Equity
Pro Forma CY2008 12,228 (846) 11,382 11,382 11,382 11,382 11,382
2009 12,228 1,079 (901) 12,405 3 12,408 3 2,679 2,682 11,382 (1,656) 9,727 12,408
Calendar Year, 2010 2011 12,228 2,087 (970) 13,345 3 13,348 3 3,687 3,690 11,382 (1,724) 9,658 13,348 12,228 3,669 (1,058) 14,839 3 14,842 3 5,269 5,272 11,382 (1,812) 9,570 14,842
2012 12,228 5,532 (1,169) 16,590 3 16,593 3 7,132 7,135 11,382 (1,924) 9,459 16,593
2013 12,228 7,722 (1,308) 18,641 3 18,644 3 9,322 9,325 11,382 (2,063) 9,320 18,644
CAGR '09 - '13
10.7%
10.7%
154
TIP REIT Model Cash Flow Statement
($mm, except as noted) Cash Flow from Operating Activities: EBITDA Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Cash Flow from Operating Activities Cash Flow from Investing Activities: Development Capex Maintenance Capex Net Cash Flow from Investing Activities Cash Flow from Financing Activities: Debt Financing: Increase (Decrease) in Revolver Increase (Decrease) in New Debt Equity Financing: Increase (Decrease) in Common Equity Dividends on Common Special Dividends Net Cash Flow from Financing Activities Beginning Cash Balance Net Change in Cash Ending Cash Balance
2009 1,353 (205) (7) 1,141 1,427 (188) (7) 1,232 (1,079) (1,079)
Calendar Year, 2010 2011 1,533 (221) (8) 1,304 (1,008) (1,008) 1,681 (316) (8) 1,356 (1,582) (1,582)
2012 1,853 (428) (9) 1,415 (1,863) (1,863)
2013 2,051 (559) (10) 1,481 (2,190) (2,190)
CAGR '09 - '13
4.7%
19.4%
3 2,679 (1,141) (1,232) (1,600) (151) 3 3
1,008 (1,304) (295) 3 3
1,582 (1,356) 226 3 3
1,863 (1,415) 447 3 3
2,190 (1,481) 709 3 3
155
TIP REIT Model Rent Build-up

Assumptions ($mm, except as noted): Total Combined Stores - Sq. Ft. Count Owned Stores 1,438 Combined (Ground-leased) Stores 172 Third-party Leased Stores 73 Total Combined Stores Square Footage Total Combined Stores Square Footage Growth TIP REIT Stores - Sq. Ft. Owned Stores Total TIP REIT Stores Square Footage Total TIP REIT Stores Square Footage Growth Count 1,438 Yes Pro Forma CY2008 189 23 10 222 2009 200 23 10 232 4.7% 200 200 5.4% 37 1 7 45 19.5% 37 37 4.4% $7.00 2.5% 2.5% 1,398 $1.25 2.5% 2.5% 46 1,444 Calendar Year, 2010 2011 209 23 10 241 4.1% 209 209 4.8% 37 1 7 46 19.0% 37 37 1.8% $7.18 2.5% 2.5% 1,501 $1.28 2.5% 2.5% 48 1,549 224 23 10 256 6.0% 224 224 6.9% 39 1 7 47 18.5% 39 39 3.9% $7.35 2.5% 2.5% 1,645 $1.31 2.5% 2.5% 51 1,696 2012 240 23 10 273 6.5% 240 240 7.4% 41 1 7 49 18.0% 41 41 4.4% $7.54 2.5% 2.5% 1,811 $1.35 2.5% 2.5% 55 1,866 2013 259 23 10 292 7.0% 259 259 7.9% 43 1 7 51 17.5% 43 43 4.9% $7.73 2.5% 2.5% 2,004 $1.38 2.5% 2.5% 59 2,063 6.3% 9.3% 9.4% CAGR '09 - '13
5.9%
189 189
6.8%
Total Combined DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Combined (Ground-leased) DCs & WHs 1 Third-party Leased DCs & WHs 5 Total Combined DCs & WHs Square Footage Total DCs & WHs Sq. Ft. vs. Total Combined Stores Sq. Ft. TIP REIT DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Total TIP REIT DCs & WHs Square Footage Total TIP REIT DCs & WHs Square Footage Growth Rent / Square Foot - Store Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased Land Rent / Square Foot - DCs & WHs Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased DCs & WHs Total TIP REIT Gross Revenues Yes
35 1 7 44 19.7% 35 35
3.1%
3.7%
$7.00
1,325 $1.25
44 1,369
156
TIP REIT Model FFO & AFFO Reconciliations, Credit Statistics and Implied Metrics
FFO & AFFO Reconciliations: Net Income Plus: Depreciation & Amortization Funds from Operations Ending Shares Outstanding FFO / Share Less: Maintenance Capex Adjusted Funds from Operations Normalized AFFO (1) Pro Forma CY2008 1,099 42 1,141 721.9 $1.58 1,141 1,253 2009 1,177 56 1,232 721.9 $1.71 1,232 1,344 Calendar Year, 2010 2011 1,235 1,268 68 88 1,304 1,356 721.9 $1.81 1,304 1,400 721.9 $1.88 1,356 1,452 2012 1,304 111 1,415 721.9 $1.96 1,415 1,511 2013 1,342 139 1,481 721.9 $2.05 1,481 1,577 CAGR '09 - '13 4.7% 4.7% 4.7% 4.1%
Credit Statistics: Coverage: EBITDA / Interest Expense (EBITDA - Maintenance Capex) / Interest Expense Leverage: Total Debt / EBITDA Capitalization: Total Debt / Total Real Estate Value (NOI capped at 6.0% and 8.5% for store land and DCs & WHs land, respectively) Implied Metrics: Incremental Stores Square Footage SuperTarget Stores 50.0% Implied New Combined SuperTarget Stores 0.177 % of Total New Stores Built Combined Total Number of SuperTarget Stores
7.6x 7.6x 1.9x 11.1%
6.9x 6.9x 2.4x 14.2%
5.3x 5.3x 3.1x 18.6%
4.3x 4.3x 3.9x 22.9%
3.7x 3.7x 4.5x 27.0%
Sq. Ft. / SuperTarget 239
10 5 29 41.4% 268 5 41 58.6% 1,485 70 1,753 2 1
10 5 27 41.5% 295 5 38 58.5% 1,523 65 1,818 1 0 0 33
14 7 41 41.4% 336 7 58 58.6% 1,581 99 1,917 1 1 1 34
17 8 47 41.2% 383 8 67 58.8% 1,648 114 2,031 2 1 1 35
19 10 54 41.2% 437 10 77 58.8% 1,725 131 2,162 2 1 1 36
General Merchandise Stores 50.0% Implied New Combined GM Stores 0.124 Sq. Ft. / GM % of Total New Stores Built Combined Total Number of General Merchandise Stores Total Implied New Stores Cumulative Combined Total Implied Stores Incremental DCs & WHs Square Footage Implied Combined New DCs & WHs Total Implied New DCs & WHs Cumulative Combined Total Implied DCs & WHs 1.408
1,444 1,683
31
1 32
TIP REIT Model Capex Schedule
($mm, except as noted) Total Combined Expenditures Maintenance / Retail Capital Expenditures Target Corp - Store Buildings TIP REIT Development Capital Expenditures Target Corp Building - Store and DCs & WHs TIP REIT Land - Store and DCs & WHs Target Corp - Other TIP REIT Land - Store Store Land Cost per Square Foot TIP REIT Land - DCs & WHs DCs & WHs Land Cost per Square Foot TIP REIT Land - Store TIP REIT Land - DCs & WHs Total Development Capex Development Financing Sources: Debt Financing Equity Financing 100% 0% Yes Yes 71.4% 28.6% 0.0%
2009 3,905 1,714 1,714 2,191 1,112 1,079 1,056 $102.50 22 $14.35 1,056 22 1,079 1,079 -
Calendar Year, 2010 2011 3,858 4,982 1,827 1,827 2,031 1,023 1,008 999 $105.06 10 $14.71 999 10 1,008 1,008 1,785 1,785 3,198 1,615 1,582 1,560 $107.69 22 $15.08 1,560 22 1,582 1,582 -
2012 5,732 1,968 1,968 3,765 1,902 1,863 1,836 $110.38 26 $15.45 1,836 26 1,863 1,863 -
2013 6,605 2,179 2,179 4,426 2,237 2,190 2,158 $113.14 31 $15.84 2,158 31 2,190 2,190 -
CAGR '09 - '13 6.2%
19.2%
$14.00
19.4%
158
Model Target Corp
Target Corp Model Income Statement

($mm) Retail Sales
Base Sales Growth (%)
Status Quo CY2008 64,892 2,078 66,970 45,459

70.1%
REIT Adj.
Credit Card Adj.
Pro Forma CY2008 64,892 143

na
2009 68,249
5.2%
Calendar Year, 2010 2011 73,356 80,479

7.5% 9.7%
2012 88,710
10.2%
2013 98,241
10.7%
CAGR '09 - '13 9.5% 9.5% 9.5%
Credit Revenue
Credit Sales Growth
(1,936)
150
5.2%
161
7.5%
177
9.7%
195
10.2%
216
10.7%
Total Revenue
Total Revenue Growth
65,034 45,459
70.1%
68,399
5.2%
73,517
7.5%
80,655
9.7%
88,905
10.2%
98,457
10.7%
COGS
% of Retail Sales
47,777
70.0%
51,279
69.9%
56,177
69.8%
61,919
69.8%
68,563
69.8%
SG&A (excluding D&A and Rent Expense)

% of Retail Sales
13,058
20.1%
(20) (1,460)
13,038
20.1%
13,814
20.2%
14,740
20.1%
16,093
20.0%
17,739
20.0%
19,646
20.0%
Credit Expenses
% of Credit Revenue
1,460
70.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Retail EBITDAR
6,375
9.8%
6,395
9.9%
6,657
9.8%
7,337
10.0%
8,208
10.2%
9,051
10.2%
10,033
10.2%
10.8% 9.5% 10.8%
Credit EBITDAR
619
29.8%
(476)
143
na
150
na
161
na
177
na
195
na
216
na
EBITDAR (Pre-spin)
EBITDAR Margin (%)
6,993
10.4%
6,537
10.1%
6,807
10.0%
7,498
10.2%
8,385
10.4%
9,246
10.4%
10,249
10.4%
Current Embedded Facility Management Costs External Facility Mgmt. Payments to TIP REIT Current Rent Expense Additional Rent Expense Pro Forma EBITDA (Post-spin)
EBITDA Margin (%)
(125) 144 169 6,824

10.2%
(125) 144 169 1,369 4,980

7.7%
(125) 144 173 1,444 5,172

7.6%
(134) 155 178 1,549 5,751

7.8%
(147) 170 182 1,696 6,485

8.0%
(162) 187 187 1,866 7,169

8.1%
(180) 207 191 2,063 7,968

8.1%
11.4%

% of Retail Sales
1,807 5,017 995 1,483

37%
(42)
1,765
2.7%
1,884
2.7%
2,017
2.7%
2,199
2.7%
2,410
2.7%
2,654
2.7%
Operating Income Net Interest (Income) / Expense Income Tax Provision

Tax Rate (%)
3,215 515 1,037

38%
3,288 673 1,004

38%
3,735 611 1,199

38%
4,285 531 1,441

38%
4,759 509 1,632

38%
5,314 623 1,802

38%
12.8%
Net Income
Net Income Margin (%)
2,539
3.8%
1,663
2.6%
1,611
2.4%
1,924
2.6%
2,312
2.9%
2,618
2.9%
2,890
2.9%
15.7%
Current Diluted Shares Outstanding Shares Repurchase

Total Shares Outstanding Weighted Average Shares Outstanding
819.0 (97.0) 721.9 765.9

$2.17
721.9 0.0 721.9 721.9

$2.23
721.9 0.0 721.9 721.9

$2.67
721.9 0.0 721.9 721.9

$3.20
721.9 (29.0) 693.0 707.5

$3.70
693.0 (31.4) 661.6 677.3

$4.27
4.92
17.6%
160
Target Corp Model Balance Sheet

Status Quo ($mm) Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets Total Assets Debt Other Current Liabilities Other Non-Current Liabilities Total Liabilities Total Equity Total Equity & Liabilities CY2008 500 8,383 9,232 35,734 (9,350) 26,384 1,368 45,867 19,455 10,757 2,392 32,604 13,264 45,867 (11,382) (383) 0 (8,000) (12,228) 846 (11,382) REIT Adj. Credit Card Adj. 0 (8,383) Pro Forma CY2008 500 9,232 23,506 (8,505) 15,001 1,368 26,101 11,455 10,757 2,392 24,604 1,498 26,101 2009 682 9,710 26,332 (10,389) 15,943 1,368 27,703 10,817 11,313 2,392 24,522 3,182 27,703 Calendar Year, 2010 734 10,436 29,182 (12,406) 16,776 1,368 29,314 9,584 12,160 2,392 24,135 5,179 29,314 2011 805 11,450 32,582 (14,605) 17,977 1,368 31,599 8,303 13,340 2,392 24,035 7,564 31,599 2012 887 12,621 36,452 (17,015) 19,437 1,368 34,312 8,938 14,705 2,392 26,035 8,278 34,312 2013 982 13,977 40,868 (19,669) 21,199 1,368 37,526 10,078 16,285 2,392 28,755 8,771 37,526
161
Target Corp Model Cash Flow Statement

($mm) EBITDA less: Interest Expense less: Taxes Share-based Compensation less: Increase in Net Working Capital less: Increase Funding of CC Growth Cash Flow from Operating Activities Capital Expenditures Cash Flow from Investing Activities Issuance of Debt Repayment of Debt Issuance of Equity / (Buy Back) Issuance of Dividends to Common Cash Flow from Financing Activities Beginning Cash Balance Change in Cash Ending Cash Balance Average Cash Balance Interest Income 2009 5,172 (673) (1,004) 73 79 0 3,647 (2,826) (2,826) 0 (638) 0 0 (638) 500 182 682 591 18 Calendar Year, 2010 2011 5,751 6,485 (611) (531) (1,199) (1,441) 73 73 120 167 0 0 4,134 4,752 (2,850) (2,850) 0 (1,233) 0 0 (1,233) 682 51 734 708 21 (3,400) (3,400) 0 (1,281) 0 0 (1,281) 734 71 805 769 23 2012 7,169 (509) (1,632) 73 193 0 5,294 (3,870) (3,870) 1,977 (1,342) (1,977) 0 (1,342) 805 82 887 846 25 2013 7,968 (623) (1,802) 73 224 0 5,841 (4,416) (4,416) 2,470 (1,330) (2,470) 0 (1,330) 887 95 982 935 28
4,980 (515) (1,037) 73 0 3,501
3.0%
162
Target Corp Model Build-ups and Credit Metrics

Sales Buildup Square Feet (mm) $ / Sq. Ft. Retail Sales Implied Retail Sales Growth (%) Sq. Footage Growth (%) SSS Growth (%) CapEx Buildup Total System CapEx
Pro Forma CY2008 222 293 64,892
2009 232 294 68,249 5.2% 4.7% 0.5%
Calendar Year, 2010 2011 241 256 304 314 73,356 80,479 7.5% 4.1% 3.3% 2010 3,858
5.3%
2012 273 325 88,710 10.2% 6.5% 3.5% 2012 5,732

6.5%
2013 292 337 98,241 10.7% 7.0% 3.5% 2013 6,605

6.7%
9.7% 6.0% 3.5% 2011 4,982

6.2%
2008 4,112
6.3%
2009 3,905
5.7%
Maintenance/Retail CapEx Additional Cap Ex TOTAL Maintenance/Retail CapEx Target Corp TIP REIT (Existing DC & WH) Development CapEx Buildings (Tgt Corp) Land Target Corp TIP REIT Other (Target Corp) % of Development % of Development
% of total
35.0%
1,439
1,514 200 1,714 1,714 0 2,191 1,112 1,079 0 1,079 0
1,627 200 1,827 1,827 0 2,031 1,023 1,008 0 1,008 0
1,785 1,785 1,785 0 3,198 1,615 1,582 0 1,582 0
1,968 1,968 1,968 0 3,765 1,902 1,863 0 1,863 0
2,179 2,179 2,179 0 4,426 2,237 2,190 0 2,190 0
% of total 50% 50%
65.0%
% of Development
0%
Facilities Management Business ($mm) Total Current Costs Growth % Markup to TIP REIT Facilities Management Revenue to TIP REIT Credit Metrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
125 15% 144
125 0.0% 15% 144
134 7.5% 15% 155
147 9.7% 15% 170
162 10.2% 15% 187
180 10.7% 15% 207
8x
1,353 19,455 20,808 3.0 x 2.9 x 6.0 x 6.9 x
12,309 11,455 23,764 3.6 x 2.3 x 3.2 x 9.7 x
12,935 10,817 23,752 3.5 x 2.1 x 3.0 x 7.7 x
13,811 9,584 23,394 3.1 x 1.7 x 3.2 x 9.4 x
15,024 8,303 23,327 2.8 x 1.3 x 3.5 x 12.2 x
16,421 8,938 25,359 2.8 x 1.2 x 3.6 x 14.1 x
18,033 10,078 28,111 2.8 x 1.3 x 3.6 x 12.8 x
163
Target: A Revised Transaction

November 19, 2008
Disclaimer
The information contained in this presentation (the Information) is based on publicly available information about Target Corporation (Target). None of Pershing Square Capital Management, L.P., its affiliates and any of their respective officers, directors and employees (collectively, Pershing), nor any representative of Pershing, has independently verified any of the Information. Pershing recognizes that there may be confidential or otherwise non-public information in Targets possession that could lead others to disagree with Pershings conclusions. The sole purpose of presenting the Information is to inform interested parties about the transaction described in this presentation (the Transaction). This presentation does not constitute an offer or a solicitation of any kind. Neither Pershing nor any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the Information or any other written or oral communication made in connection with this presentation or the Transaction. The Information includes certain forward-looking statements, estimates and projections with respect to the anticipated future financial, operating and stock market performance of Target in the absence of the Transaction and the two public companies that may result if the Transaction is completed. Such statements, estimates and projections may prove to be substantially inaccurate, reflect significant assumptions and judgments that may prove to be substantially inaccurate, and are subject to significant uncertainties and contingencies beyond Pershings control, including those described under the caption Risk Factors in Targets filings with the Securities and Exchange Commission as well as general economic, credit, capital and stock market conditions, competitive pressures, geopolitical conditions, inflation, interest rate fluctuations, regulatory and tax matters and other factors. Pershing and its representatives expressly disclaim any and all liability relating to or resulting from the use of the Information or any errors therein or omissions therefrom, including under applicable securities laws. The Information does not purport to include all information that may be material with respect to the Transaction or Target. Thus, shareholders and others should conduct their own independent investigation and analysis of Target, the Transaction and the Information. The Information is not intended to provide the basis for fully evaluating, and should not be considered a recommendation with respect to, the Transaction, Target, the securities of Target or any other matter. Except where otherwise indicated, the Information speaks as of the date hereof. Neither Pershing nor any of its representatives undertakes any obligation to correct, update or revise the Information or to otherwise provide any additional materials. The preparation and distribution of this presentation should not be taken as any form of commitment on the part of Pershing to take any action in connection with the Transaction. Pershing is in the business of buying and selling securities. It has, and may in the future, buy, sell or change the form of its position in Target for any or no reason. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any discussion of U.S. tax matters contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such discussion of tax matters is written in connection with the promotion or marketing of the matters addressed; and (iii) you should seek advice from an independent advisor.
1
Recent Events
On October 29, 2008, Pershing presented A TIP for Target Shareholders, which detailed a potential Transaction (October 29th Transaction) that would create long-term value for Target Corporation and its shareholders After the presentation, Target expressed concerns regarding the October 29th Transaction Since then, Pershing has met with Target, members of its Board, as well as Retail and Real Estate investors We have received valuable feedback from these meetings Today, we will present a Revised Transaction that addresses Targets concerns, incorporates feedback from the investment community, and creates great value for Target shareholders
2
Agenda
Review of the October 29th Transaction Targets Concerns A Revised Transaction Benefits of the Revised Transaction Appendix
Review of the October 29th Transaction
Updating Our Model

We have updated our model to reflect Q3 2008 results as well as revised guidance provided by Target management on its earnings call on Monday, November 17, 2008 Reduced Q4 08E same-store-sales expectations to negative 5% Lowered capital expenditures in 2009 by approximately $1bn Slowed square footage growth in 2010E Halted share buybacks in Q4 2008 and for the full year 2009 Used a 20-day average stock price of $37 per share for Target The analyses provided in this presentation reflect the updated model
5
Objectives
In reviewing alternatives for Target, Pershing Squares objective was to eliminate the stock markets ascribed discount to the intrinsic value of Targets real estate and allow the Company to: Retain complete control of its buildings and its brand Retain 100% flexibility with respect to its construction, remodeling, and relocation plans Improve the Companys free cash flow and access to capital Increase the Companys ROIC and lower its cost of capital Maintain an investment grade credit rating Increase the Companys EPS growth rate Minimize tax leakage and friction costs
6
October 29th Transaction

Tax-free spin of Target Inflation Protected REIT (or TIP REIT) as Groundlessor and Facility Manager
PreSpin
TARGET Shareholders
PostSpin
TARGET Shareholders
TARGET
TARGET Corp
Ground Leases

Owned Buildings 1
Land
Leases back land to Target Corp through a Master Lease for a 75-year term Elects REIT status at the time of spin-off Becomes Target Corps outsourced facilities management provider Becomes Targets exclusive land developer for the first two years

7
After two years, becomes Target Corps Preferred Vendor for land procurement
Unlocking Immense Real Estate Value

REITs, private market ground leases, and inflation-protected securities all trade at much higher valuation multiples than Targets multiple, at only 5.8x 09E EV/EBITDA, based on a 20-day trading average stock price of $37
Targets Market Valuation 2009E EV / EBITDA
(1)
Inflation Protected Securities / REIT Market Valuations 2009E EV / EBITDA
5.8x
$37/Share (1)
14.5x
Large Cap REITs (1)
17.0x
35.7x
Inflation Protected Treasury Securities (TIPS) (3)
The Transaction creates immense and instant value because 22% of Targets current EBITDA will be valued at a significantly higher multiple than where Target trades today
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDA (1) Based on a 20-day trading average as of 11/14/08 (2) Based on mid-point precedent cap rate of 5.9% 8 (3) Based on current 20-year TIP yield of 2.8% as of 11/14/08
Valuation Summary
$80
$80
$67
$60 $/Share
TIP REIT
81% $37
Target Standalone
TIP REIT
$39
$40
$36
$20
$31
$0 Target (20-Day Avg. Price) TIP REIT Spin-Off
$24 $33 6.5x 14.7x $27 $27 5.0% 5.4% 20.0x 19.1x
$41

$31 $39 7.0x 16.1x $29 $30 4.8% 5.1% 21.0x 20.1x
Target Corp
$28 $37 5.8x 11.4x
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn For illustrative purposes, assumes Spin-off Transaction occurs on 01/01/09 (1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis 9
TIP REIT
Even ignoring valuation benefits, there are important strategic reasons to consummate the Transaction
10
Benefits of the October 29th Transaction

1. Allows Target Corp to retain control over its buildings and brand
2. Improves Targets overall access to capital

There is risk to Targets status quo. Retailers access to capital has been called into question TIP REIT is one of the most stable companies in the world TIP REIT is better able to access capital for future land acquisitions than Target today, given TIP REITs immense security, stability, and unleveraged balance sheet TIP REIT can use non-cash currency (OP units) for tax-efficient real estate acquisitions
11
Benefits of the October 29th Transaction (contd)

3. Increases free cash flow at Target Corp by nearly $500mm, thereby
decreasing Targets capital needs
After-tax rent expense of ~$890mm is offset by land development capex of ~$890mm, which is funded by TIP REIT TIP REIT pays all of Targets 2009E dividends of 64 cents/share as well as an incremental $1.15/share to Target shareholders
($mm, except per share data) Memo: Incremental Rent Expense 2009E Standalone (1) 2009E Target Corp (1) 1,433 Net Incremental Cash Flow
Cash Flow Impact on Key Affected Metrics Incremental After-Tax Rent Expense Dividends Paid Land Development Capex Net Impact to Cash Flow
483 890 $1,373
888 $888
(888) 483 890 $484
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with Target retaining $150mm of credit card EBITDA in 09E
12

4. Maintains an investment grade credit ratings profile
5. Provides a clear path back to an A category credit rating

PF 2008E (1) ($bn, except where noted) Target Corp Adj. Debt/EBITDAR Expected Ratings Profile 3.4x Mid - High BBB/Baa 3.2x Mid - High BBB/Baa 2.8x A- / A3 2.8x A- / A3 2009E 2010E 2011E
6. Creates over $510mm of tax savings in the first year post transaction
Optimizes ownership of land, a non-depreciable asset, through a REIT structure
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with proceeds used to pay down debt
13

7. Increases total dividends for Targets current shareholders from
$0.64/share to $1.79/share in 2009E (1)
8. Improves store-level ROIC and increases Targets EPS growth rate
9. Achieves a tax-free spin-off
10. Creates enormous shareholder value, potentially increasing Targets

stock price from $37 to $67 per share
(1) Excludes $112mm (approximately $0.15/share) of incremental interest expense due to CY2009 cash E&P distribution
14
TIP REIT Investment Highlights

Land-only structure is extremely secure
$39bn of Lease Security, including $20bn of unencumbered buildings

Long-term lease provides bond-like stability and inflation-protection
75-year, inflation-protected Master Lease with Target Corp

Significant growth opportunity
Formal arrangement with Target Corp provides long-term growth pipeline

High quality locations and superb tenant profile De minimis maintenance capex allows for strong FCF generation Tremendous size and scale a must-own yield stock
15
Large, Liquid, Must-Own Yield Stock

TIP REIT will be the 58th largest company in the S&P 500
S&P 500 Ranked by Market Cap (1)
Rank Company 50 Time Warner 51 52 53 54 55 56 57 58 59 60 Colgate-Palmolive Devon Energy Boeing Union Pacific Lockheed Martin Southern Burlington Northern Santa Fe TIP REIT Celgene Lowes Market Cap (1) ($mm) 32,821 31,323 30,960 30,129 29,160 28,948 27,273 27,257 27,000 26,965 26,689
S&P 100 Non-Financials Ranked by Dividend Yield (2)

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Company Altria Group Pfizer General Electric Bristol-Myers Squibb Verizon Communications E.I. DuPont de Nemours Eli Lilly AT&T Philip Morris International Merck TIP REIT (3) Southern Co. Caterpillar Home Depot Dominion Resources Dividend Yield (%) 7.9 7.9 7.7 6.3 6.1 6.0 5.9 5.8 5.6 5.6 5.0 4.8 4.5 4.4 4.3
Given its market cap, TIP REIT will be owned by S&P 500 index funds, large cap funds, real estate index funds, yield-oriented investors, and investors seeking inflation-protected assets
(1) As of November 14, 2008 (2) Represents non-financial companies in the S&P 500 with market caps greater than $20bn (3) Based on 2009E dividends
16
TIP REIT: Unlike Any Existing REIT Today

TIP REIT
Leverage Refinancing Risk / Earnings Pressure Transaction Income Re-leasing Risk Maintenance Capital Growth None None
Large Cap REITs

High: 54% Debt-to-TMC Average: 44% Debt-to-TMC High REITs have borrowed at low rates and are facing much higher rates and refinancing risk for debt maturities Sometimes
None / 100% rental income
None / 75-year lease None Preferred vendor arrangement
Yes, typically 10% or more of leases up for renewal annually Yes, typically 8% of EBITDA No preferred arrangement None. Owns both land buildings
Lease Security $20bn of unencumbered buildings, given land-only structure

17
How is TIP REIT Similar to TIPS?

TIP REIT has many of the same features of Treasury Inflation Protected Securities (TIPS). However, TIP REIT has the added benefit of a growth platform and no Phantom tax TIP REIT
Extremely low probability of default Inflation protection Long-term duration with required payments Liquidity Growth platform Phantom tax
(1) Size of total TIPS market
18
20-Year TIPS
Backed by federal government Payment based on CPI adjusted principal 20 years Interest payment required by law Over $450bn market (1) No Yes (tax on inflation adj. principal)
Backed by highly-rated Target Corp $39bn of Lease Security or 145% TIP REITs EV at 5.0% dividend yield Rent income adjusted for CPI 75-year lease term REIT dividend payment required by law $27bn market cap Yes No
Feedback from REIT Investors

Since the October 29th presentation, Pershing Square has met or held calls with several of the largest REIT investors and received valuable feedback regarding TIP REIT
Feedback from REIT investors Appreciation of the security and stability offered by land-only structure Agreement on a valuation premium for land-only REIT (versus a land and building REIT) Strong interest in an unlevered REIT Desire for more large cap, liquid REITs Interest in an independent TIP REIT Board and management Valuation benefits of an A category credit rating at Target
19
Interest from a Broad Group of Investors

In addition, Pershing Square has received strong interest in TIP REIT from a broad category of large investor groups beyond traditional REIT investors
Pensions Endowments Income-oriented funds

These investors are seeking security, stability, long-term inflation-protection, and a higher yield than that offered by TIPS
20
Targets Concerns Regarding the October 29th Transaction
Targets Concerns
Target expressed the following concerns regarding the October 29th Transaction:
Concern 1. Valuation Managements Commentary
The validity of assumptions supporting Pershing Square's market valuation of Target and the separate REIT entity The reduction in Target's financial flexibility due to the conveyance of valuable assets to the REIT and the large expense obligation created by the proposed lease payments which are subject to annual increase The adverse impact that the company believes the proposed structure would have on Target's debt ratings, borrowing costs and liquidity, exacerbated by current market conditions
2. Reduction in Targets financial flexibility and inflation risk 3. Credit ratings, borrowing costs, and liquidity
22
Targets Concerns (contd)

Target expressed the following concerns regarding the October 29th Transaction:
Concern 4. Frictional costs and operational risks Managements Commentary
The frictional costs and operational risks, including tax implications, of executing Pershing Square's ideas
5. Management diversion
The risk of diverting management's focus away from core business operations over an extended time period to execute such a complex transaction, particularly in the current environment
23
A Revised Transaction
Revised Transaction: <20% IPO of TIP REIT

Step 1: Formation of Target Inflation-Protected Real Estate Investment Trust
Target contributes land and Facilities Management Services to a new subsidiary (TIP REIT) (1) TIP REIT leases the land back to Target Corp through a Master Lease for a 75-year term (2)
Step 2: Primary IPO of <20% of TIP REIT shares

At the time of the IPO, TIP REIT will elect REIT status (3) IPO does not trigger any capital gains taxes Target retains >80% interest in TIP REIT Immediate valuation benefits: Allows investors to value Target on a sum-of-the-parts basis
(1) TIP REIT assumes a portion of Target liabilities. This could include a portion of Targets debt (2) TIP REIT will lease land to Target Corp (i.e. the parent company) (3) Non-REIT assets (e.g., the Facilities Management Services) will be placed in a taxable REIT subsidiary (TRS) 25
Credit ratings impact: Target Corp will maintain its A+/A2 credit rating
Post IPO: Pay Down ~$9bn of Debt

Step 3: Sale of the remaining 53% interest in Targets Credit Card Receivables Step 4: Pay down ~$9bn of Target debt using all of the credit card proceeds, a portion of the IPO proceeds, and free cash flow
($bn) Paydown using Proceeds from Credit Card Sale Securitized Debt Unsecured Debt Total Paydown using IPO Proceeds (1) Paydown using Free Cash Flow Total Debt Paydown $1.9 2.5 $4.4 3.0 1.8 $9.2
At an opportune time (either pre- or post-IPO), Target sells remaining 53% interest in its credit card receivables For this analysis, we have assumed $4.4bn of proceeds from the sale
$ in billions Gross Receivables CY 2008E Allowance Net Receivables CY 2008E 53% Interest at Net Book Value $9.0 (0.8) $8.2 $4.4
$1.6bn of cash proceeds from the IPO is left on TIP REITs balance sheet
(1) Assumes TIP REIT funds land development capital expenditures of approximately $0.9bn post-IPO using debt
26
Post IPO: Spin-off TIP REIT and Purge E&P

Step 5: Spin-off of remaining interest in TIP REIT to Target shareholders
Immediately prior to spin-off, Target enters into an inflationswap agreement to hedge inflation (alternative is to buy swaption today) Targets >80% interest in TIP REIT is distributed tax-free to shareholders Post spin-off, Target maintains its A category credit rating
Step 6: TIP REIT purges retained Earnings and Profits
By December 31 of the calendar year of spin-off, TIP REIT pays a $1.6bn cash E&P dividend to TIP REIT shareholders
Note: Cash E&P dividend could be materially lower than $1.6bn The REIT industry group has requested the Treasury Department to issue a rule allowing low-cash stock-cash dividends If granted, this rule would reduce the cash portion of TIP REITs E&P dividend to as little as $400mm
27
TIP REIT IPO Proceeds

Assuming a 19.9% IPO of TIP REIT at a 15% IPO discount, the IPO would generate roughly $5.1bn in gross proceeds. After frictional costs and expenses, IPO proceeds of $3.0bn will be paid to retire Target debt and $1.6bn will remain at TIP REIT
$ in billions TIP REIT Equity Value Implied 2009E Dividend Yield Captive TIP REIT Equity Value Discount New Issuance TIP REIT Post-IPO Equity Value TIP REIT Gross IPO Proceeds Use of IPO Proceeds: Retire Target Debt Cash Remaining at TIP REIT Pay Frictional Costs and Fees Total IPO Proceeds 15% 19.9% $27.0 5.0% $24.0 20.4 25.5 $28.6 $5.1
(1)
(2)
(3)
$3.0 1.6 0.5 $5.1
(4)
(1) Calculation based on allocating and subsequently paying down $3.0bn of debt (2) Calculation based on adding net proceeds of $4.6bn to captive TIP REIT equity value of $24.0bn; assumes cash balance of $1.6bn at TIP REIT upon IPO (3) Assumes a 19.9% IPO of TIP REIT at a 15% IPO discount; net of paying $500mm after-tax frictional costs and fees, IPO proceeds are $4.6bn (4) Assumes approximately $350mm of after-tax frictional costs and $150mm of IPO fees
28
Sources and Uses of Cash at Target Corp

Proceeds from the IPO and the sale of the remaining interest in the credit card receivables can be used to pay down debt
Cash Sources ($bn) IPO Proceeds to Retire Target Debt Credit Card Sale Proceeds 1-Yr Cash Flow Generated at Target Corp (1) Total Cash Sources $3.0 4.4 1.8 $9.2 Total Cash Uses (Debt Paydown) $9.2 Cash Uses ($bn) Paydown of Securitized Debt Paydown of Unsecured Debt $1.9 7.3
(1) Reflects cash flow generated after working capital, capex, and dividends; assumes maintenance of $500mm minimum cash balance; assumes TIP REIT funds land development capital expenditures of approximately $0.9bn by issuing debt during the first year post-IPO
29
Post Spin-off: Target Corp Credit Ratings

Post Spin-off, Target Corp will maintain an A category credit ratings profile
Target Standalone 2008E $3.6 1.9 12.3 $17.8 1.4 $19.2 2.8x
(2)
($bn) JPMorgan GAAP Liability Credit Card Securitized Debt Unsecured Debt (1) Ending Debt Plus: Lease Adjusted Debt (8x Total Lease Expense) Ending Lease Adj. Debt Lease Adj. Total Debt / EBITDAR Expected Ratings Profile Memo: Rent Expense
Adjustments ($3.6) (1.9) (7.3) ($12.8)
Pro Forma Target Corp Post Spin-off 5.0 $5.0 13.6 $18.7 2.6x
(3)
"A" Category 0.2

(2)
"A" Category 1.7

(3)
$9.2bn of Total Debt Paydown

(1) Based on $14.8bn of unsecured debt as of Q3 08A, reduced in 4Q 08E by $2.5bn through debt pay down with free cash flow and cash on balance sheet (while maintaining $500mm minimum cash balance) (2) Based on 2008E EBITDAR for Target Standalone of $6.9bn and 2008E Rent Expense of $0.2bn (3) Based on 2010E EBITDAR for Target Corp post spin-off of $7.3bn and 2010E Rent Expense of $1.7bn 30
Illustrative Timeline
2009CY Q1 Q2 Q3 Q4 2010CY Jan Nov Dec
Step 1: TIP REIT Formation

Contribute Land & Facilities Management Services to TIP REIT Execute 75-year Master Lease with Target Corp
Step 2: TIP REIT IPO

TIP REIT elects REIT status Primary IPO of <20% of TIP REIT shares
Step 3: Sale of 53% Interest in CC Receivables Step 4: Debt Paydown Step 5: Spin-off of TIP REIT
Target enters into inflation-swap agreement Tax-free spin-off of remaining >80% interest in TIP REIT
Step 6: TIP REIT E&P Purge
31
Valuation Analysis
$79
$80
$65
TIP REIT
$60 $/Share
77% $37
TIP REIT (Captive)
$33
$40
$30
$20
Target Standalone
$35
TIP REIT IPO
$26 $33 6.5x 15.1x $29 $27 5.0% 5.4% 20.0x 19.1x
$46
12-Month Future Price / TIP REIT Spin-Off
$35 $39 7.0x 16.8x $31 $30 4.8% 5.1% 21.0x 20.1x
$0 Target (20-Day Avg. Price)
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDA For illustrative purposes, assumes 19.9% REIT IPO occurs on 01/01/09 and full REIT Spin-off occurs on 01/01/10 (1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis (3) Based on Adjusted Equity Value excluding cash balance of $1.6bn reserved for E&P distribution in 2010E 32
TIP REIT
Equity Value ($bn) Enterprise Value ($bn) (3) 09E Dividend Yield Cap Rate (3) '09E P/AFFO '09E EV/EBITDA
Target Corp
$28 $37 5.8x 11.4x
Equity Value ($bn) Enterprise Value ($bn) '10E EV/EBITDA '10E P/E Equity Value ($bn) Enterprise Value ($bn) (3) 10E Dividend Yield Cap Rate (3) '10E P/AFFO '10E EV/EBITDA
Tremendous Upside at Various Assumptions

At any plausible valuation of TIP REIT and Target Corp, the Transaction results in a significant premium to the stock price of $37 / per share
Value/Share ($)
Target Corp EV/ 09E EBITDA TIP REIT 09E Dividend Yield
6.0x 6.5x 7.0x 7.5x 8.0x
7.5% $52 56 59 62 66
7.0% $54 57 60 64 67
6.5% $55 59 62 65 69
6.0% $57 61 64 67 70
5.5% $59 63 66 69 73
5.0% $62 65 68 72 75
4.5% $65 69 72 75 78
Premium to $37 stock price (%)

Target Corp EV/ 09E EBITDA
TIP REIT 09E Dividend Yield
6.0x 6.5x 7.0x 7.5x 8.0x
7.5% 41% 51% 59% 68% 77%
7.0% 45% 55% 63% 72% 81%
6.5% 49% 59% 67% 76% 85%

33
6.0% 54% 64% 72% 81% 90%
5.5% 60% 70% 78% 87% 96%
5.0% 4.5% 67% 76% 77% 85% 85% 94% 94% 103% 103% 112%
Benefits of the Revised Transaction
Advantages of a Minority IPO of TIP REIT

A <20% IPO of TIP REIT would have several important advantages
Immediate value creation for Target shareholders Force a market revaluation of Target Enable investors to value Target based on a sum-of-the-parts basis, using the public valuation of TIP REIT Immediately improves Targets access to capital through TIP REIT Increases Targets liquidity, given ~$5bn of IPO proceeds <20% IPO is a tax-free transaction Maintains Targets current A category credit rating Provides funds for debt paydown Preserves an unwind mechanism in the form of a buyback of the public minority stake of TIP REIT
35
Advantages of a Minority IPO of TIP REIT (contd)

A Minority IPO would offer Target significant control and flexibility in executing the Revised Transaction
Offers flexibility as to when Target: Sells remaining interest in credit card receivables Completes TIP REIT spin-off Pays an E&P dividend ($1.6bn of cash in the calendar year of TIP REIT spin-off) While maintaining control of TIP REIT, Target has the opportunity to: Test the valuation of TIP REIT Fine tune the relationship between Target / TIP REIT on land development issues
36
Pros and Cons of the Revised Transaction

Assuming the spin-off of the remaining >80% interest in TIP REIT occurs in 2010, the Revised Transaction offers many pros and few cons
Pros
Meaningfully accretive on all key measures (EPS, FCF/share) Maintains A category credit rating More than doubles dividends: $0.64/share today to $1.49 (1) share in 2010 Improves capital access and decreases the need for growth capital at Target Corp Reduces taxes by over $510mm Improves Targets ROIC and EPS growth Increases the total stock price from $37/share to $79/share by 2010
(1) Assumes a 19.9% IPO which increases TIP REITs shares outstanding to approximately 940mm shares from 755mm shares pre-IPO (2) Assumes a 15% IPO discount and a 19.9% IPO 37
Cons
Dilution:
<20% IPO of TIP REIT results in some dilution to Target shareholders, versus the October 29th Transaction proposal, equivalent to ~$1.50 per share in total value (2) Certain benefits such as reduced taxes and increased dividends wont be fully achieved until the spinoff is complete
Delay of certain benefits:
Mitigating Factors: In the context of total value creation from Targets $37 stock price, the dilution is minimal Despite the longer transaction plan, the increased flexibility afforded to Target will significantly reduce execution risks
Addressing Managements Concerns

Concern
1) Valuation
Total Stock Price at Various 09E Dividend Yields and 09E Multiples
TIP REIT 09E Dividend Yield
7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 6.0x $52 56 59 62 66 $54 57 60 64 67 $55 59 62 65 69 $57 61 64 67 70 $59 63 66 69 73 $62 65 68 72 75 $65 69 72 75 78

Under any plausible valuation of TIP REIT, the Revised Transaction offers tremendous upside to Targets stock price of $37 At Targets current stock price of $37 and EV / 09E EBITDA multiple of 5.8x, the implied dividend yield of TIP REIT is an improbable 16% IPO provides a seasoning period for TIP REIT An IPO would give the investment community several quarters to value TIP REIT before it is spun off, effectively seasoning the market and attracting long-term investors Potential unwind mechanism Should the Company not be satisfied with TIP REITs Transaction, Target can repurchase TIP REITs public minority stake, effectively unwinding the structure
38
Target Corp EV/09E EBITDA
6.5x 7.0x 7.5x 8.0x
Addressing Managements Concerns (contd)

Concern
2) Reduction in Targets financial flexibility and inflation risk

Target pays down ~$9bn of debt, eliminating significant interest expense obligations
<20% IPO of TIP REIT provides the Company with the proceeds and flexibility to deleverage before the spin-off of the remaining interest in TIP REIT
Ground lease is more attractive than debt

TIP REIT ground lease is, in many ways, more attractive than Targets debt given the 75-year term, the lack of financial covenants, and the lack of refinancing risk
Inflation risk can be hedged out cheaply

Target can lock in 20-year inflation protection today at ~250 bps per year, which implies an annual aftertax cost of approximately $0.03/share
39

Concern
3) Credit ratings, borrowing costs, and liquidity

Target will maintain its A category credit ratings at all times
Post spin-off of TIP REIT, Target Corp will maintain its A category credit rating as a result of deleveraging
Borrowing costs will not be impacted by the Revised Transaction The Revised Transaction offers several key credit benefits:
Targets liquidity is significantly increased given IPO proceeds Targets access to and cost of capital is improved by the formation of TIP REIT
40

Concern
4) Frictional costs and operational risks

After-tax frictional costs are small in light of total value creation of $28-plus dollars per share
Main frictional costs are professional fees (investment banking, legal, and accounting) and property taxes After-tax frictional costs will likely be less than $1 per share
Operational risks are mitigated by the Revised Transaction given:

The presence of an unwind mechanism The ability to test drive the Target / TIP REIT relationship during the IPO period
Tax-free nature of spin-off

41

Concern
5) Management diversion

The formation of TIP REIT will require a modest amount of retail operating managements time
Predominantly third-party legal and accounting work CFO, EVP of Property Dev., and GC oversight required Other members of senior operating management largely uninvolved
The Transaction is akin to placing a master ground lease on Targets stores. It will be completely transparent and seamless to Targets core business IPO and eventual spin-off of TIP REIT will not distract Targets core business teams: Merchandising / purchasing Vast majority of Targets team Marketing members will be Regional and store-level uninvolved
IT / systems / administration
42
Risk of the Status Quo

In todays world, even the best retailers may lose access to capital The TIP REIT IPO transaction would immediately increase Targets access to capital
TIP REIT will have strong access to the debt and equity capital markets, far better than any retailer TIP REIT will be able to issue OP units for tax-efficient land acquisitions
This Transaction will best position Target to benefit from a weak competitive environment
Given potential retailer bankruptcies, Target can use the liquidity provided by TIP REIT to acquire real estate that might be for sale at substantial discounts in the next 12-18 months
The risk of the status quo is that Target may lose access to capital and not be able take advantage of the current environment
43
Why Is Now the Time?

The Transaction requires several months of planning before an IPO is achievable. To complete an IPO even a year from now, work on this Revised Transaction will need to begin shortly
Formation of TIP REIT and the issuance of pro forma financials will take several months
Predominantly legal (lease structuring) and accounting work Search for a management team and new board of directors for TIP REIT
To achieve a TIP REIT IPO in Q3 2009, the Company will need to authorize work on this Revised Transaction in the beginning of 2009 In 2009, there could be opportunities for Target to benefit from a weak competitive landscape
TIP REIT needs to be in place for the Company to best do so
44
Fast Forward: 2010E and Beyond

For investors with a longer-term view, the Revised Transaction offers explosive potential upside in 2010E and beyond
A turn in the economy would lead to

Potentially explosive earnings growth at Target Corp, particularly given recent expense reductions
Improved retail sales
Heightened inflation expectations

45
Increased demand for TIP REIT, given inflationprotected income stream
Pershings Relationship with Target

Pershing has been in discussions with Target since May 2008 about a potential real estate transaction We appreciate Targets candid feedback and respect the Companys concerns Throughout this process, we have continually improved upon the transaction in an effort to create an outcome that satisfies Targets strategic goals and concerns We believe our Revised Transaction addresses all of Targets concerns and achieves enormous value creation
46
Questions and Answers
Appendix
The Revised Transaction

Tax-free IPO and spin of Target Inflation Protected REIT (or TIP REIT) as Groundlessor and Facility Manager
PreTransaction
TARGET Shareholders
PostTransaction
TARGET Shareholders >80%
Public Shareholders <20%
TARGET
TARGET Corp
Ground Leases

Owned Buildings 1
Land
Leases back land to Target Corp through a Master Lease for a 75-year term Elects REIT status at the time of IPO Becomes Target Corps outsourced facilities management provider Becomes Target Corps Preferred Vendor for land procurement

49
Revised Transaction: Steps 1 - 2

Step1: Formation of TIP REIT
Target Corp
Transaction Description Step 1a: The existing company (Target Corp) forms a new subsidiary (TIP REIT) and transfers to it the Facilities Management Services business, the owned land under the stores, and the owned land under the distribution facilities TIP REIT will assume a portion of Targets liabilities Step 1b: TIP REIT leases the land back to Target Corp (i.e. the parent company) through a Master Lease for a 75-year term
Land
TIP REIT 1a
Target Corp 1b 75-year TIP REIT
Master Lease
Land
Step 2: IPO / REIT Election

Target Corp Cash 2a 2b TIP REIT <20% of TIP REIT Shares Public
Step 2a: After some period of time, TIP REIT offers up to 19.9% of its shares in a primary IPO for cash Cash proceeds could be retained for corporate business purposes or used to reduce TIP REIT debt Step 2b: TIP REIT elects REIT status effective immediately Simultaneously, TIP REIT drops the Facilities Management Services business into a new corporation, a taxable REIT subsidiary (TRS)
50
Land
Revised Transaction: Steps 3 - 6

Step 5: Spin-off
Target Shareholders
Transaction Description
Step 3: Target Corp sells the remaining 53% interest in the credit card receivables business to an Investment Partner Step 4: Target Corp pays down debt using proceeds from the credit card receivables and the TIP REIT pays down assumed debt using proceeds from the TIP REIT IPO Step 5: Target Corp spins off its remaining >80.1% interest in TIP REIT to its shareholders pro rata and tax-free Step 6: TIP REIT pays a taxable dividend (at the dividend tax rate to non-corporate taxpayers) to shareholders equal to its allocated portion of Targets $16bn of retained Earnings and Profits (E&P), estimated to be $8bn based on the implied mid-point valuation of TIP REIT/Target Corp 20% of the dividend ($1.6bn) may be paid in cash with the remaining paid in TIP REIT common stock This cash dividend can be deferred until the end of the calendar year in which the spin-off occurs
51
5
Tax-free Spin-off of TIP REIT shares held by Target
Target Corp
>80%
TIP REIT Shareholders
<20%
TIP REIT
Land
Step 6: E&P Purge

TIP REIT Shareholders Target Shareholders
<20%
>80%
$8bn Taxable Dividend (E&P Purge)
TIP REIT
Target Corp
Land
75-year Lease
Why are Treasury Inflation Protected Securities (TIPS) the Best Comparable Security to TIP REIT?
TIP REIT: (1) Valuing the TIP-like Security

The TIP-like Security should trade at a small spread to TIPS of 195 245 bps
Rate / Yield 20-year TIP Yield Today 2.8% Spread to TIPS
Current TGT Unsecured CDS @ ~220bps 25 bps
1.95% 2.45%
195 bps 245 bps
TIP REIT: TIP-like Security
4.75% 5.25%
195 bps 245 bps
The current TIPS yield of 2.8% implies an expected 20-year inflation rate of only 1.6%. If the expected 20-year inflation rate increased to 2.0% and the 20-year Treasury rate remained constant, then the 20-year TIPS would yield 2.4% and TIP REIT would yield 4.35% 4.85%. The higher the inflation rate, the more valuable TIP REIT will be
53
TIP REIT: (2) Valuing the Land Developer

TIP REITs land development opportunity can be valued based on its growth platform value
Growth Platform Valuation Based on 20-year DCF analysis Implied valuation at 4.75% 5.25% cap rate and 10.5% 12.5% discount rate 2029E terminal NOI: $2,503mm Valuation range of $0.0bn $2.4bn
2009 Incremental Rental Revenues After-tax Facilities Management Income Platform Value G&A Expense Total Capex Free Cash Flow from Platform Terminal Value Discount Rate Terminal Cap Rate Present Value of Platform 12.5% 5.25% 10.5% 4.75% $2,387 $62 12 (20) (890) ($836)
2010
$122 12 (21) (830) ($716)
2011
$233 14 (21) (1,539) ($1,313)
2012
$366 15 (22) (1,801) ($1,442)
2013
$524 17 (22) (2,117) ($1,599)
...
$52,694

54
Valuation: TIP REIT in Total

Based on TIPS-based valuation of TIP REIT, the implied TIP REIT valuation is $28bn, or $38/share today
Equity Value (1) TIP-like Security $36/share Implied Cap Rate (2) 5.0% Valuation
2008E Existing dividends: $1,356mm Dividend yield: 4.75% 5.25% Valuation: $26bn $29bn
2029E NOI: $2,503mm
Land Developer
Terminal cap rate: 4.75% 5.25%
$2/share
Discount rate on 20-yr DCF: 10.5% 12.5% Valuation: $0.0bn $2.4bn
Total TIP REIT
$38/share
5.1%
2009E NOI of $1,452mm Valuation: $26bn $31bn or $34/share $41/share
(1) At mid-point valuation (2) Implied yield calculated based on NOI / Implied value
55
Conservative Approach to Valuation

Our mid-point valuation price (pre-IPO) for TIP REIT of $36 (1) implies a 5.0% dividend yield for the TIPS-like security and (2) excludes the value of the Land Developer
$67
TIP REIT
$36
Target Corp
Using a TIPS-based valuation analysis, our mid-point valuation price of $36/share excludes the value of TIP REITs development platform
$31
TIP REIT Spin-off Equity Value / Share
56
Why is TIP REIT More Valuable than a Private Ground Lease?
Ground Leases Typically Trade from 5.50% to 6.25%

Precedent private ground lease transactions support cap rates of approximately 5.50% 6.25% for a typical ground lease with no development pipeline
Building Size (Sq. Ft.) 116,000 68,416 152,890 137,933 40,000 89,008 99,402 166,609 130,948 94,213 178,712 111,371 Lot Size (Acres) 14.16 4.47 13.10 12.30 5.15 14.75 5.28 14.24 14.46 9.09 11.27 12.50 Lease Term 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years 20 Years na 20 Years 20 Years Total Lease Term with Options 50 Years 60 Years 60 Years na 95 Years 40 Years 50 Years na na na 50 Years 60 Years
Transaction For Sale For Sale For Sale For Sale For Sale For Sale Sold Sold - March 27, 2008 Sold - March 23, 2008 Sold - October 2007 Sold - September 2007 Sold - July 2007
Tenant Lowe's Kohl's Lowe's Lowe's Wal-Mart Kohl's Target Lowe's Home Depot Kohl's Lowe's Lowe's
Location Princeton, WV Selinsgrove, PA Derby, CT Eugene, OR Albuquerque, NM Fort Gratiot, MI Fairlawn, OH Whitehall, PA Austell, GA Reno, NV Escondido, CA Sayre, PA
Cap Rate 6.61% 6.25% 5.50% 6.25% 5.50% 5.75% 6.00% 6.05% 5.75% 6.10% 6.00% 6.25%
Options 6, Five-Year 8, Five-Year 8, Five-Year na 15, Five-Year 4, Five-Year 6, Five-Year na na na 6, Five-Year 8, Five-Year
Mean Median High Low

Source: LoopNet and other public filings 58
6.00% 6.03% 6.61% 5.50%
Why is TIP REIT Better than a Private Ground Lease?

TIP REIT offers better value to investors than a typical private ground lease
TIP REIT has several qualities which make it more attractive than a private ground lease Large cap, liquid public ownership 75-year Master Lease term (longer than most private ground leases) 1,435 retail properties (1) in 48 states Inflation-protected rental stream with annual adjustments Best-in-class retail tenant Geographic diversity Unlike a static ground lease, TIP REIT also has growth, given its dependable new store growth pipeline
Given the above factors, TIP REIT will trade at a lower cap rate than an individual private ground lease
59
Revised Transaction: Financial Models
Key Revised Assumptions in Models

For illustrative purposes, we have assumed the sale of remaining 53% interest in the credit card business and the 19.9% IPO of TIP REIT occurring 1/1/09, to be followed by a full spin-off of TIP REIT on 1/1/10
We have updated our model to reflect Q3 2008 results as well as new guidance provided by Target management on its earnings call on Monday, November 17, 2008 Consolidated Model Assume TIP REIT is captive and fully consolidated with the retailer for accounting purposes For illustrative purposes, financials show full consolidation of the captive REIT throughout the entire projection period (such consolidation would cease upon full spin-off on 1/1/10) TIP REIT Model $1.6bn of cash E&P distribution now funded with proceeds from the 19.9% IPO of TIP REIT instead of additional debt Target Corp Model Adjustments to opening balance sheet reflect de-consolidation of TIP REIT from Consolidated Model
61
Model Consolidated
Consolidated Model Income Statement

($mm)
Retail Sales Base Sales Growth (%) Credit Revenue Credit Sales Growth
Status Quo CY2007 61,471 1,896 63,367 42,929

69.8%
Status Quo CY2008 63,720 2,087 65,807 44,531

69.9%
Credit Card Adj.
20% IPO TIP REIT
Pro Forma CY2008 63,720 144 63,863 44,531

69.9%
2009
66,600 4.5%
Calendar Year, 2010 2011

71,171 6.9% 78,082 9.7%
2012
86,068 10.2%
2013
95,316 10.7%
CAGR '09 - '13 9.4% 9.4% 9.4%
(1,944)
150
4.5%
160
6.9%
176
9.7%
194
10.2%
215
10.7%
Total Revenue
Total Revenue Growth COGS % of Retail Sales SG&A (excluding D&A and Rent Expense) % of Retail Sales Credit Expenses % of Credit Revenue
66,750
4.5% 46,544 69.9%
71,331
6.9% 49,632 69.7%
78,258
9.7% 54,373 69.6%
86,262
10.2% 60,075 69.8%
95,530
10.7% 66,521 69.8%
12,392
20.2%
12,899
20.2%
15 (1,520)
12,914
20.3% 0.0%
13,596
20.4%
14,423
20.3%
15,744
20.2%
17,352
20.2%
19,213
20.2%
950
50.1%
1,520
72.8%
0.0%
0.0%
0.0%
0.0%
0.0%
Retail EBITDAR
6,150
10.0%
6,290
9.9%
6,275
9.8% (424)
6,460
9.7%
7,117
10.0% 160 100.0%
7,965
10.2% 176 100.0%
8,641
10.0% 194 100.0%
9,582
10.1% 215 100.0%
10.4% 9.4% 10.3%
Credit EBITDAR
946
49.9%
567
27.2%
144
100.0%
150
100.0%
EBITDAR
EBITDAR Margin (%) Rent Expense
7,096
11.2%
6,857
10.4%
6,418
10.1%
6,610
9.9% 173
7,277
10.2% 178
8,140
10.4% 182
8,834
10.2% 187
9,796
10.3% 191
EBITDA
EBITDA Margin (%)
165 6,931
10.9%
169 6,688
10.2%
169 6,249
9.8%
6,436
9.6%
7,099
10.0%
7,958
10.2%
8,648
10.0%
9,605
10.1%
10.5%

% of Retail Sales
1,659
2.7%
1,819
2.9%
1,819
2.9%
1,940
2.9%
2,073
2.9%
2,274
2.9%
2,507
2.9%
2,776
2.9%
Operating Income
Net Interest (Income) / Expense Income Tax Provision Tax Rate (%) Minority Interest Expense
5,272 647 1,776

38%
4,870 942 1,545

39% 259
4,431 (440) (232) 270 1,519

36%
4,496
333 1,469 35% 257
5,026 352 1,659

35%
5,684 422 1,879

36%
6,141 469 2,032

36%
6,829 515 2,272

36%
11.0%
Net Income
Net Income Margin (%) Current Diluted Shares Outstanding Shares Repurchase Share Repurchase from Options Total Shares Outstanding Weighted Average Shares Outstanding
2,849
4.5%
2,383
3.6%
259 2,383
3.7%
2,438
3.7%
266 2,750
3.9% 754.7
273 3,110
4.0% 702.1 (13.8)
280 3,360
3.9% 688.3 (10.0)
289 3,753
3.9% 678.3 (7.2)
11.4%
882.6 (63.7) 0.0 819.0

850.8 $3.33
819.0 (64) 0.0 754.7

773.7 $3.08
819.0 (64.3) 0.0 754.7 773.7

$3.08
754.7 0.0 0.0

754.7
(52.5) 0.0
702.1 728.4 $3.78
0.0
688.3 695.2 $4.47
0.0
678.3 683.3 $4.92
0.0
671.1 674.7 $5.56
754.7
$3.23
6.29
14.6%
63
Consolidated Model Balance Sheet
($mm)
Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets
Status Quo CY2007 2,450 8,054 8,402 31,982 (7,887) 24,095 1,559 44,560 17,090 9,818 2,345 29,253 0 15,307 44,560
Status Quo CY2008 500 8,249 8,903 35,316 (9,265) 26,051 1,277 44,980 17,811 10,373 2,521 30,705 0 14,275 44,980
Credit Card Adj. 0 (8,249)
20% IPO TIP REIT 1,600
Pro Forma CY2008 2,100

-
8,903 35,316 (9,265) 26,051 1,277 38,331 (8,000) (2,974) 6,837 10,373 2,521 19,731 4,574 14,026 38,331
2009 2,100 9,305

38,427 (11,205) 27,223
Calendar Year, 2010 2011 500 500 9,944 10,909

41,510 (13,278) 28,233 46,271 (15,552) 30,719
2012 500 12,025

51,715 (18,059) 33,656
2013 500 13,317

57,993 (20,836) 37,157
Total Assets
Debt Other Current Liabilities Other Non-Current Liabilities
1,277 39,905 5,925 10,842 2,521 19,288

4,563 16,054
1,277 39,953 6,675 11,586 2,521 20,782

4,550 14,622
1,277 43,405 7,425 12,711 2,521 22,657

4,533 16,215
1,277 47,458 8,175 14,011 2,521 24,707

4,511 18,239
1,277 52,251 8,925 15,516 2,521 26,963

4,485 20,804
Total Liabilities
Minority Interest Total Equity
4,574 (249)
Total Equity & Liabilities
39,905
39,953
43,405
47,458
52,251
64
Consolidated Model Cash Flow Statement
($mm) EBITDA less: Interest Expense less: Taxes less: Dividends Paid to Minorities
Share-based Compensation less: Increase in Net Working Capital less: Increase Funding of CC Growth
Pro Forma CY2008

6,688 (270) (1,545) (268)
2009
6,436 (333) (1,469) (268)

7,099 (352) (1,659) (279) 7,958 (422) (1,879) (289)
2012
8,648 (469) (2,032) (302)
2013
9,605 (515) (2,272) (315)
Cash Flow from Operating Activities

Capital Expenditures
73 54 0 4,733 (3,820) (3,820)
73 66 0 4,506 (3,111) (3,111) 0 (912) 0 (483) (1,395) 2,100 0 2,100 2,100 63
73 105 0 4,988 (3,083) (3,083) 750 (0)

(3,760)
73 159 0 5,600 (4,761) (4,761)

750
73 184 0 6,103 (5,444) (5,444)

750
73 213 0 6,789 (6,277) (6,277)

750
Cash Flow from Investing Activities

Issuance of Debt Repayment of Debt Issuance of Equity / (Buy Back) Issuance of Dividends to Common
0
(1,089)
0
(890)
0
(722)
Cash Flow from Financing Activities

Beginning Cash Balance Change in Cash
(495) (3,505) 2,100 (1,600) 500 1,300 39
(501) (839) 500 0 500 500 15
(519) (659) 500 0 500 500 15
(540) (512) 500 0 500 500 15
Ending Cash Balance Average Cash Balance Interest Income
3.0%
65
Consolidated Model Build-ups and Credit Metrics

Status Quo CY2007 208 296
61,471
Sales Buildup Square Feet (mm) $ / Sq. Ft. Retail Sales Implied Retail Sales Growth (% ) Sq. Footage Growth (% ) SSS Growth (% ) CapEx Buildup Total System CapEx
Pro Forma CY2008 222

286
2009
231 288 66,600 4.5% 4.0% 0.5%

239 297 71,171 6.9% 3.5% 3.3% 254 308 78,082 9.7% 6.0% 3.5%
2012
270 318 86,068 10.2% 6.5% 3.5%
2013
289 330 95,316 10.7% 7.0% 3.5%
63,720
3.7% 7.0% (3.1%)
2007 4,369
7.1%
2008 3,820
6.0%
2009 3,111
4.7%
2010 3,083
4.3%
2011
4,761 6.1%
2012
5,444 6.3%
2013
6,277 6.6%
Credit M etrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
8x
Pro Forma CY2008

1,353 1,387 1,421 1,457 1,493 1,531
6,837 8,190 1.3 x 1.1 x 14.6 x 23.2 x
5,925 7,312 1.1 x 0.9 x 13.1 x 19.3 x
6,675 8,097 1.1 x 0.9 x 13.7 x 20.2 x
7,425 8,882 1.1 x 0.9 x 13.5 x 18.9 x
8,175 9,669 1.1 x 0.9 x 13.5 x 18.5 x
8,925 10,456 1.1 x 0.9 x 13.9 x 18.6 x
66
Consolidated Model Tax Adjustments

($mm)
Profit Before Taxes Tax Rate (%) Taxes Less: State Tax Savings Less: Tax Adj. for Public REIT Shareholders Less: Facilities Mgmt Tax Adj. Net Consolidated Taxes
Pro Forma CY2008

4,161 39% 1,636 (16) (102) (0) 1,519
2009
4,164 38% 1,582 (16) (98) (0) 1,469

4,674 38% 1,776 (16) (101) (0) 1,659 5,262 38% 1,999 (16) (104) (0) 1,879
2012
5,672 38% 2,155 (17) (106) (0) 2,032
2013
6,313 38% 2,399 (17) (110) (0) 2,272
Adjustment Calculations: State Tax Savings: Total REIT Net Income Net Income to Other Shareholders Net Income to Target Assumed Tax Rate (150bps less than current rate) Total State Tax Savings Facilities Management Adjustments: Facilities Mgmt Income Facilities Mgmt Taxes Minority Interest on Taxes Target Share of Facilities Mgmt Income Adjustment for Dividend Received Deduction Incremental Facilities Mgmt Adj. Total Facilities Management Tax Adj. 1,303 259 1,044 38% (16) 1,292 257 1,035 37% (16) 1,334 266 1,069 37% (16) 1,370 273 1,097 37% (16) 1,408 280 1,128 37% (17) 1,450 289 1,161 37% (17)
19 7 (1) 10 12% 1 (0)
19 7 (1) 10 11% 1 (0)
20 8 (2) 11 11% 1 (0)
22 8 (2) 12 11% 1 (0)
24 9 (2) 13 11% 2 (0)
27 10 (2) 15 11% 2 (0)
67
Model TIP REIT
TIP REIT Model Income Statement

($mm, except as noted) Gross TIP REIT Revenues from Ground-leased Store Land Gross TIP REIT Revenues from Ground-leased DCs & WHs Land Total Gross TIP REIT Revenues Total TIP REIT Net Rental Revenues % of Target Corp Retail Sales Plus: Facilities Management Income Less: Facilities Management Expense Net Facilities Management Income Net Operating Income Less: G&A Expense Less: Incremental Standalone Cost EBITDA Less: Depreciation & Amortization Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Income Normalized Net Income (1) Ending Shares Outstanding Earnings per Share Normalized Earnings per Share (1) Dividends on Common Special Dividends (2) Normalized Dividends (1) Normalized Dividends per Share (1) % AFFO 100.0% Pro Forma CY2008 1,327 44 1,371 1,371 2.2% 144 (125) 19 1,389 (20) (15) 1,354 (44) (7) 1,303 1,303 942.1 $1.38 $1.38 1,347 1,347 $1.43 2009 1,389 44 1,433 1,433 2.2% 144 (125) 19 1,452 (20) (15) 1,417 (55) (62) (7) 1,292 1,292 942.1 $1.37 $1.37 1,347 1,347 $1.43 Calendar Year, 2010 2011 1,482 1,625 45 49 1,527 1,673 1,527 2.1% 154 (134) 20 1,547 (21) (15) 1,511 (66) (103) (8) 1,334 1,334 942.1 $1.42 $1.42 1,400 1,400 $1.49 1,673 2.1% 169 (147) 22 1,695 (21) (16) 1,659 (85) (196) (8) 1,370 1,370 942.1 $1.45 $1.45 1,455 1,455 $1.54 2012 1,789 52 1,842 1,842 2.1% 186 (162) 24 1,866 (22) (16) 1,828 (108) (304) (9) 1,408 1,408 942.1 $1.49 $1.49 1,515 1,515 $1.61 2013 1,980 56 2,037 2,037 2.1% 206 (179) 27 2,063 (22) (17) 2,025 (134) (431) (10) 1,450 1,450 942.1 $1.54 $1.54 1,584 1,584 $1.68
38%
(1) Normalized to exclude incremental interest expense due to CY2010 cash E&P distribution (2) $1.6bn of proceeds from a 19.9% IPO of TIP REIT used to pay cash E&P distribution in CY 2010 69
TIP REIT Model Balance Sheet
($mm, except as noted) Real Estate: Gross Existing Properties - Land & Improvements Maintenance Capex Development Properties - Land & Improvements Accumulated Depreciation Net Real Estate Asset Cash Total Assets Debt: Revolver New Debt Total Debt Common Equity Retained Earnings (Deficit) Total Equity Total Liabilities & Equity
Pro Forma CY2008 11,833 (885) 10,948 10,948 10,948 10,948 10,948
2009 11,833 890 (941) 11,782 3 11,785 3 890 893 10,948 (55) 10,892 11,785
Calendar Year, 2010 2011 11,833 1,720 (1,007) 12,546 3 12,549 3 1,720 1,723 10,948 (121) 10,827 12,549 11,833 3,258 (1,092) 14,000 3 14,003 3 3,258 3,261 10,948 (206) 10,742 14,003
2012 11,833 5,059 (1,199) 15,693 3 15,696 3 5,059 5,062 10,948 (314) 10,634 15,696
2013 11,833 7,176 (1,333) 17,677 3 17,680 3 7,176 7,179 10,948 (448) 10,500 17,680
70
TIP REIT Model Cash Flow Statement
($mm, except as noted) Cash Flow from Operating Activities: EBITDA Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Cash Flow from Operating Activities Cash Flow from Investing Activities: Development Capex Maintenance Capex Net Cash Flow from Investing Activities Cash Flow from Financing Activities: Debt Financing: Increase (Decrease) in Revolver Increase (Decrease) in New Debt Equity Financing: Increase (Decrease) in Common Equity Dividends on Common Special Dividends Net Cash Flow from Financing Activities Beginning Cash Balance Net Change in Cash Ending Cash Balance
2009 1,353 (205) (7) 1,141 1,417 (62) (7) 1,347 (890) (890)
Calendar Year, 2010 2011 1,511 (103) (8) 1,400 (830) (830) 1,659 (196) (8) 1,455 (1,539) (1,539)
2012 1,828 (304) (9) 1,515 (1,801) (1,801)
2013 2,025 (431) (10) 1,584 (2,117) (2,117)
3 890 (1,141) (1,347) (455) 3 3
830 (1,400) (570) 3 3
1,539 (1,455) 84 3 3
1,801 (1,515) 285 3 3
2,117 (1,584) 533 3 3
71
TIP REIT Model Rent Build-up

Assumptions ($mm, except as noted): Total Combined Stores - Sq. Ft. Count Owned Stores 1,435 Combined (Ground-leased) Stores 176 Third-party Leased Stores 73 Total Combined Stores Square Footage Total Combined Stores Square Footage Growth TIP REIT Stores - Sq. Ft. Owned Stores Total TIP REIT Stores Square Footage Total TIP REIT Stores Square Footage Growth Count 1,435 Yes Pro Forma CY2008 190 23 10 222 2009 198 23 10 231 4.0% 198 198 4.7% 35 1 7 44 18.9% 35 35 0.0% $7.00 2.5% 2.5% 1,389 $1.25 2.5% 2.5% 44 1,433 Calendar Year, 2010 2011 207 23 10 239 3.5% 207 207 4.1% 35 1 7 44 18.2% 35 35 0.0% $7.18 2.5% 2.5% 1,482 $1.28 2.5% 2.5% 45 1,527 221 23 10 254 6.0% 221 221 7.0% 37 1 7 46 18.0% 37 37 5.7% $7.35 2.5% 2.5% 1,625 $1.31 2.5% 2.5% 49 1,673 2012 237 23 10 270 6.5% 237 237 7.5% 39 1 7 47 17.5% 39 39 4.3% $7.54 2.5% 2.5% 1,789 $1.35 2.5% 2.5% 52 1,842 2013 256 23 10 289 7.0% 256 256 8.0% 41 1 7 49 17.0% 41 41 4.8% $7.73 2.5% 2.5% 1,980 $1.38 2.5% 2.5% 56 2,037 6.3% 9.2% 9.3% CAGR '09 - '13
5.7%
190 190
6.6%
Total Combined DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Combined (Ground-leased) DCs & WHs 1 Third-party Leased DCs & WHs 5 Total Combined DCs & WHs Square Footage Total DCs & WHs Sq. Ft. vs. Total Combined Stores Sq. Ft. TIP REIT DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Total TIP REIT DCs & WHs Square Footage Total TIP REIT DCs & WHs Square Footage Growth Rent / Square Foot - Store Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased Land Rent / Square Foot - DCs & WHs Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased DCs & WHs Total TIP REIT Gross Revenues Yes
35 1 7 44 19.6% 35 35
3.0%
3.7%
$7.00
1,327 $1.25
44 1,371
72
TIP REIT Model FFO & AFFO Reconciliations, Credit Statistics and Implied Metrics
FFO & AFFO Reconciliations: Net Income Plus: Depreciation & Amortization Funds from Operations Ending Shares Outstanding FFO / Share Less: Maintenance Capex Adjusted Funds from Operations Normalized AFFO (1) Pro Forma CY2008 1,303 44 1,347 942.1 $1.43 1,347 1,347 2009 1,292 55 1,347 942.1 $1.43 1,347 1,347 Calendar Year, 2010 2011 1,334 1,370 66 85 1,400 1,455 942.1 $1.49 1,400 1,400 942.1 $1.54 1,455 1,455 2012 1,408 108 1,515 942.1 $1.61 1,515 1,515 2013 1,450 134 1,584 942.1 $1.68 1,584 1,584
Credit Statistics: Coverage: EBITDA / Interest Expense (EBITDA - Maintenance Capex) / Interest Expense Leverage: Total Debt / EBITDA Capitalization: Total Debt / Total Real Estate Value (NOI capped at 6.0% and 8.5% for store land and DCs & WHs land, respectively) Implied Metrics: Incremental Stores Square Footage SuperTarget Stores 50.0% Implied New Combined SuperTarget Stores 0.177 % of Total New Stores Built Combined Total Number of SuperTarget Stores
22.7x 22.7x 0.6x 3.7%
14.6x 14.6x 1.1x 6.7%
8.5x 8.5x 2.0x 11.6%
6.0x 6.0x 2.8x 16.4%
4.7x 4.7x 3.5x 21.1%
Sq. Ft. / SuperTarget 239
9 4 25 41.0% 264 4 36 59.0% 1,481 61 1,745 0
8 4 23 41.8% 287 4 32 58.2% 1,513 55 1,800 0 0 31
14 7 41 41.4% 328 7 58 58.6% 1,571 99 1,899 2 1 1 32
16 8 47 41.6% 375 8 66 58.4% 1,637 113 2,012 2 1 1 34
19 9 54 41.5% 429 9 76 58.5% 1,713 130 2,142 2 1 1 35
General Merchandise Stores 50.0% Implied New Combined GM Stores 0.125 Sq. Ft. / GM % of Total New Stores Built Combined Total Number of General Merchandise Stores Total Implied New Stores Cumulative Combined Total Implied Stores Incremental DCs & WHs Square Footage Implied Combined New DCs & WHs Total Implied New DCs & WHs Cumulative Combined Total Implied DCs & WHs
1,445 1,684
1.408 31
0 31
TIP REIT Model Capex Schedule
($mm, except as noted) Total Combined Expenditures Maintenance / Retail Capital Expenditures Target Corp - Store Buildings TIP REIT Development Capital Expenditures Target Corp Building - Store and DCs & WHs TIP REIT Land - Store and DCs & WHs Target Corp - Other TIP REIT Land - Store Store Land Cost per Square Foot TIP REIT Land - DCs & WHs DCs & WHs Land Cost per Square Foot TIP REIT Land - Store TIP REIT Land - DCs & WHs Total Development Capex Development Financing Sources: Debt Financing Equity Financing 100% 0% Yes Yes 71.4% 28.6%
2009 3,111 1,332 1,332 1,779 890 890 890 $100.00 $14.00 890 890 890 -
Calendar Year, 2010 2011 3,083 4,761 1,423 1,423 1,660 830 830 830 $102.50 $14.35 830 830 830 1,638 1,638 3,122 1,583 1,539 1,509 $105.06 30 $14.71 1,509 30 1,539 1,539 -
2012 5,444 1,806 1,806 3,638 1,837 1,801 1,776 $107.69 24 $15.08 1,776 24 1,801 1,801 -
2013 6,277 2,000 2,000 4,278 2,160 2,117 2,088 $110.38 29 $15.45 2,088 29 2,117 2,117 -
$14.00
74
Model Target Corp
Target Corp Model Income Statement

($mm)
Retail Sales Base Sales Growth (%) Credit Revenue Credit Sales Growth
Status Quo CY2009

66,600 150
REIT Adj.
Pro Forma CY2009 66,600

150 na
2010
71,171 6.9% 160 6.9%

78,082 9.7% 176 9.7% 86,068 10.2% 194 10.2%
2013
95,316 10.7% 215 10.7%
CAGR '09 - '13 9.4% 9.4% 9.4%
Total Revenue
Total Revenue Growth COGS % of Retail Sales SG&A (excluding D&A and Rent Expense) % of Retail Sales Credit Expenses % of Credit Revenue
66,750
46,544 69.9% 13,596 20.4% 0.0%
66,750
46,544 69.9% 13,561 20.4% 0.0% 6,495 9.8% 150 na
71,331
6.9% 49,632 69.7%
78,258
9.7% 54,373 69.6% 15,708 20.1% 0.0%
86,262
10.2% 60,075 69.8% 17,314 20.1% 0.0%
95,530
10.7% 66,521 69.8% 19,175 20.1% 0.0%
(35)
14,387
20.2% 0.0%
Retail EBITDAR
6,460
9.7% 150 100.0%
7,153
10.0% 160 na
8,001
10.2% 176 na
8,678
10.1% 194 na
9,620
10.1% 215 na
10.3% 9.4% 10.3%
Credit EBITDAR
EBITDAR (Pre-spin)
EBITDAR Margin (%)
6,610
9.9% (125) 144 173
6,645
10.0% (125) 144 173 1,433
7,313
10.3% (134) 154 178 1,527
8,177
10.4% (147) 169 182 1,673
8,872
10.3% (162) 186 187 1,842
9,835
10.3% (179) 206 191 2,037
Current Embedded Facility Management Costs External Facility Mgmt. Payments to TIP REIT Current Rent Expense
Additional Rent Expense
Pro Forma EBITDA (Post-spin)

EBITDA Margin (%)
6,436
9.6%
5,020
7.5%
5,588
7.8%
6,300
8.0%
6,819
7.9%
7,580
7.9%
10.9%

% of Retail Sales
1,940 4,496 333 1,469

35%
(55)
1,885 2.8%
2,007
2.8%
2,189
2.8%
2,400
2.8%
2,642
2.8%
Operating Income
Net Interest (Income) / Expense Income Tax Provision Tax Rate (%) Minority Interest
3,135 (31) 302

1,077 38% 0
3,581
330 1,235 38% 0
4,110 346 1,430

38%
4,420 463 1,504

38%
4,938 555 1,665

38%
12.0%
Net Income
Net Income Margin (%) Current Diluted Shares Outstanding Shares Repurchase Share Repurchase from Options Total Shares Outstanding Weighted Average Shares Outstanding
257 2,438
3.7%
(257)
1,757
2.6%
2,015
2.8%
0 2,334
3.0% 726.2
0 2,453
2.8% 683.8 (26.8)
0 2,717
2.8% 657.0 (29.3)
11.5%
754.7 0.0 0.0 754.7 754.7

$2.33
754.7 (28.5) 0.0

726.2 740.4 $2.72
(42.4) 0.0
683.8 705.0 $3.31
0.0
657.0 670.4 $3.66
0.0
627.7 642.3 $4.23
16.1%
76
Target Corp Model Balance Sheet

Status Quo CY2009 2,100 9,305
38,427 (11,205) 27,223
($mm)
Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets
REIT Adj. (1,600)
Pro Forma CY2009

500 9,305 25,704 (10,264) 15,440 1,277
2010 500 9,944

27,958 (12,271) 15,686
Calendar Year, 2011 2012 500 500 10,909 12,025

31,179 (14,461) 16,719 34,823 (16,860) 17,962
2013 500 13,317

38,983 (19,503) 19,480
(12,723)
941 (11,782)
Total Assets
Debt Other Current Liabilities Other Non-Current Liabilities
1,277 39,905 5,925 10,842 2,521 19,288

4,563 16,054
26,523 (890)
5,036 10,842 2,521
1,277 27,407 4,595 11,586 2,521 18,702

0 8,705
1,277 29,405 5,544 12,711 2,521 20,776

0 8,629
1,277 31,765 5,892 14,011 2,521 22,424

0 9,340
1,277 34,574 6,697 15,516 2,521 24,735

0 9,840
Total Liabilities
Minority Interest Total Equity
18,398
(4,563) (7,930) 0 8,124
Total Equity & Liabilities
39,905
26,523
27,407
29,405
31,765
34,574
77
Target Corp Model Cash Flow Statement

($mm) EBITDA less: Interest Expense less: Taxes
Share-based Compensation less: Increase in Net Working Capital less: Increase Funding of CC Growth
2010 5,020 (302) (1,077) 73 0 3,714

5,588 (330) (1,235)

6,300 (346) (1,430) 6,819 (463) (1,504)
2013
7,580 (555) (1,665)
Cash Flow from Operating Activities

Capital Expenditures
73 105 0 4,201 (2,253) (2,253)

1,507
73 159 0 4,756 (3,222) (3,222)

2,483
73 184 0 5,110 (3,643) (3,643)

1,815
73 213 0 5,646 (4,160) (4,160)

2,291
Cash Flow from Investing Activities

Issuance of Debt Repayment of Debt Issuance of Equity / (Buy Back) Issuance of Dividends to Common
(1,948)
(1,507)
(1,534)
(2,483)
(1,467)
(1,815)
(1,486)
(2,291)
Cash Flow from Financing Activities

Beginning Cash Balance Change in Cash
0 (1,948) 500 0 500 500 15
0 (1,534) 500 0 500 500 15
0 (1,467) 500 0 500 500 15
0 (1,486) 500 0 500 500 15
Ending Cash Balance Average Cash Balance Interest Income
3.0%
78
Target Corp Model Build-ups and Credit Metrics

Sales Buildup Square Feet (mm) $ / Sq. Ft. Retail Sales Implied Retail Sales Growth (% ) Sq. Footage Growth (% ) SSS Growth (% ) Pro Forma CY2009 231
288
2010
239 297 71,171 6.9% 3.5% 3.3%

254 308 78,082 9.7% 6.0% 3.5% 270 318 86,068 10.2% 6.5% 3.5%
2013
289 330 95,316 10.7% 7.0% 3.5%
66,600
CapEx Buildup Total System CapEx

2009
3,111 4.7%
2010 3,083
4.3%
2011
4,761 6.1%
2012
5,444 6.3%
2013
6,277 6.6%
Maintenance/Retail CapEx Additional Cap Ex TOTAL M aintenance/ Retail CapEx Target Corp TIP REIT (Existing DC & WH) Development CapEx Buildings (Tgt Corp) Land Target Corp TIP REIT Other (Target Corp)
% of Development % of Development
1,332
0.0 % of total 35.0%
1,332
1,423 0.0 1,423

1,423 0
1,638 1,638
1,638 0
1,806 1,806
1,806 0
2,000 2,000
2,000 0
% of total 50% 50%
65.0%
1,779 890 890 0 890

0
1,660 830 830 0 830

0
3,122
1,583
3,638
1,837
4,278
2,160
1,539 0 1,539
0
1,801 0 1,801
0
2,117 0 2,117
0
% of Development
0%
Facilities M anagement Business ($mm)

Total Current Costs Growth % Markup to TIP REIT Facilities Management Revenue to TIP REIT 125 15% 144
134 6.9%
15% 154
147 9.7%
15% 169
162 10.2%
15% 186
179 10.7%
15% 206
Credit M etrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
8x
1,387
12,851
13,637
14,844
16,228
17,823
5,925 7,312 1.1 x 0.9 x 13.1 x 19.3 x
5,036 17,887 2.7 x 1.0 x 3.5 x 16.6 x
4,595 18,232 2.5 x 0.8 x 3.6 x 16.9 x
5,544 20,388 2.5 x 0.9 x 3.7 x 18.2 x
5,892 22,120 2.5 x 0.9 x 3.6 x 14.7 x
6,697 24,520 2.5 x 0.9 x 3.5 x 13.7 x
79
The Nominees for Shareholder Choice

May 11, 2009
Disclaimer
In connection with the 2009 Annual Meeting of Shareholders of Target Corporation (Target), Pershing Square Capital Management, L.P. and certain of its affiliates (collectively, Pershing Square) filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission (the SEC) on May 1, 2009 containing information about the solicitation of proxies for use at the 2009 Annual Meeting of Shareholders of Target. The definitive proxy statement and the GOLD proxy card were first disseminated to shareholders of Target on or about May 2, 2009. SHAREHOLDERS OF TARGET ARE URGED TO READ THE PROXY STATEMENT CAREFULLY BECAUSE IT CONTAINS IMPORTANT INFORMATION. The definitive proxy statement and other relevant documents relating to the solicitation of proxies by Pershing Square are available at no charge on the SECs website at http://www.sec.gov. Shareholders can also obtain free copies of the definitive proxy statement and other relevant documents at www.TGTtownhall.com or by calling Pershing Squares proxy solicitor, D. F. King & Co., Inc., at 1 (800) 290-6427. Pershing Square and certain of its members and employees and Michael L. Ashner, James L. Donald, Ronald J. Gilson and Richard W. Vague (collectively, the Participants) are deemed to be participants in the solicitation of proxies with respect to Pershing Squares nominees. Detailed information regarding the names, affiliations and interests of the Participants, including by security ownership or otherwise, is available in Pershing Squares definitive proxy statement. This presentation contains forward-looking statements. All statements contained in this presentation that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words anticipate, believe, expect, estimate, plan, and similar expressions are generally intended to identify forward-looking statements. These statements are based on current expectations of Pershing Square and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Pershing Square does not assume any obligation to update any forward-looking statements contained in this presentation. This presentation is for general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice on the merits of any investment decision. The views expressed herein represent the opinions of Pershing Square, which opinions may change at any time and are based on publicly available information with respect to Target. Certain financial information and data used herein have been derived or obtained from filings made with the Securities and Exchange Commission (SEC) by Target or other companies that Pershing Square considers comparable or relevant.
1
Disclaimer (contd)
Pershing Square has not sought or obtained consent from any third party to the use of previously published information as proxy soliciting material. Any such statements or information should not be viewed as indicating the support of such third party for the views expressed herein. No warranty is made that data or information, whether derived or obtained from filings made with the SEC or from any third party, are accurate. Neither Pershing Square nor any of its affiliates shall be responsible or have any liability for any misinformation contained in any SEC filing or third party report. Pershing Square disclaims any obligation to update the information contained herein. This presentation does not recommend the purchase or sale of any security. Under no circumstances is this presentation to be used or considered an offer to sell or a solicitation of an offer to buy any security. There is no assurance or guarantee with respect to the prices at which any securities of Target will trade. Pershing Square and its affiliates currently hold a substantial amount of common stock and options of Target and may in the future take such actions with respect to its investments in Target as it deems appropriate including, without limitation, purchasing additional shares of Target common stock or related financial instruments or selling some or all of its beneficial and economic holdings, engaging in any hedging or similar transaction with respect to such holdings and/or otherwise changing its intention with respect to its investments in Target. Pershing Square may also change its beneficial or economic holdings depending on additions or redemptions of capital. Pershing Square is in the business of trading buying and selling securities and other financial instruments. Consequently, Pershing Squares beneficial ownership of Target common stock and options will vary over time depending on various factors, with or without regard to Pershing Squares views of Targets business, prospects or valuation (including the market price of Target common stock), including without limitation, other investment opportunities available to Pershing Square, concentration of positions in the portfolios managed by Pershing Square, conditions in the securities market and general economic and industry conditions.
Agenda
Situation Overview Why Board Change is Warranted The Nominees for Shareholder Choice
Food Retailing: Jim Donald Credit Cards: Richard Vague Real Estate: Michael Ashner Shareholder Value: Bill Ackman Corporate Governance: Ron Gilson
Targets Board: Avoiding the Real Issues Corporate Elections and Shareholder Choice
3
Situation Overview
Pershing Square
Pershing Square is a long-term Target shareholder Pershing Square initiated its investment in Target in April 2007 We are the third largest beneficial owner of Target We have ownership of 7.8% of Target ~$1 billion of common stock (3.3% of the company) ~$280 million in stock options (4.5% of the company)(1) Target is the largest investment in Pershing Squares portfolio
(1) Unless and until these options are exercised, the underlying shares do not carry voting rights.
5
Pershings Background with Target

April 2007: Pershing Square becomes a Target shareholder
Retail Business Credit Card Business Real Estate Assets
August 2007: Pershing Square, in its first meeting with Target management, proposes that Target pursue a credit card partnership transaction to minimize credit risk, eliminate funding risk, and increase Targets valuation September 2007: Target announces a review of ownership alternatives for its credit card receivables and an analysis of its capital structure December 2008: Pershing Square, in two separate presentations to Target, emphasizes the importance of credit risk transfer in any contemplated partnership transaction May 2008: Target announces a sale of a 47% interest in it receivables, but retains credit risk MISTAKE: Board elects not to transfer credit risk in the transaction, primarily to retain underwriting control Target share repurchase program is principally funded with debt, despite credit risk and funding risk remaining on its balance sheet
6
Pershings Background with Target (contd)

May 2008: Pershing Square meets with management to discuss value creation opportunities regarding Targets real estate Pershing Square proposes a spin-off of a land-only REIT to Target shareholders Transaction would preserve Targets flexibility in controlling its buildings/brand and allow the market to appropriately value the companys ~200 million square feet of real estate Management agrees that the transaction is worthy of further exploration
July 2008: Pershing Square meets with Target and Goldman Sachs to discuss real estate transaction
September 2008: Board raises concerns regarding Pershing Squares real estate proposal, primarily with respect to credit ratings impact and valuation assumptions

Fall 2008: Pershing Square encourages Target to halt buyback program due to credit market conditions October 2008: Pershing Square seeks shareholder input by publicly presenting A TIP for Target Shareholders Immediately after the presentation, Target issues a press release expressing concerns November 2008: Pershing Square presents A Revised Transaction which addresses Targets concerns regarding credit ratings and valuation Within 48 hours of Pershings presentation, board rejects the Revised Transaction without seeking rating agency review Pershing defers discussion of the Revised Transaction until 2009 to allow Target to focus on its business

February 2009: Pershing Square meets with Target and Goldman Sachs to discuss the assumptions behind the boards decision Pershing Square learns that the board restricted Goldman Sachs to the narrow task of evaluating Pershing Squares proposal, rather than fully investigating all potential value creating alternatives for real estate Pershing Square concludes that the Revised Transaction was not adequately explored by the board or its advisors February 2009: Pershing Square requests one board seat and one additional independent director March 2009: Pershing Square presents, in total, four candidates Bill Ackman and three independent nominees Board rejects all four candidates, three without explanation Board did not even meet with two of them (Richard Vague, Michael Ashner)
9
Situation Overview
On March 17, 2009, Pershing Square announces the nomination of five independent directors for the open seats on Targets board We did so principally because we believe that the incumbent Target board has: Suboptimal composition Made significant strategic mistakes that have destroyed shareholder value Performed key corporate governance duties poorly Our goal in this election: Improve Targets board and help make Target a stronger, more profitable, and more valuable company
10
Why Board Change is Warranted
Why Board Change is Warranted in Our View

Boards Suboptimal Composition
Lacks senior operating experience in key business lines and assets (1) Lacks significant shareholder representation Average tenure of independents nearly a decade 12 incumbent directors serve on 18 other boards (including Citi, Wells Fargo and Goldman)
Boards Mistakes in Assessing Strategic Transactions
Boards Faulty Corporate Governance
Board lacks a fair and open Board did not exit the nominating process credit card business before meeting Pershing Square Compensation plan fails to foster a culture of equity The board-approved credit ownership card transaction structure was a mistake that we believe cost shareholders Board rejected the request for Universal Proxy thereby dearly limiting shareholder choice Board did not authorize a full review of all real estate Interlocking directorships and affiliate transactions ownership alternatives for maximizing shareholder value
(1) Pershing Square defines senior operating experience as experience in a specific line of business with the director having served as the CEO of a company in that business for a meaningful period of time during his or her career. Pershing Squares view is not only based on the length of time served by a specific director in the relevant business line, but also on the extent, nature and specialization of each directors service and the principal responsibilities during that service.
12
Board Lacks Sufficient Relevant Experience

Our view of Targets Current Board
Retail Business
NO Retail senior operating experience
Credit Card Business
NO Credit Card senior operating experience
Real Estate Assets

Over 200 million sq ft of retail real estate
NO Real Estate senior operating experience
13
Board Lacks Significant Shareholder Representation

Targets board lacks significant shareholder representation, owning less than 0.3% of the company. Independent directors own only 0.02% of the company in common stock
Board Members
Austin Darden Dillon Johnson Kovacevich Minnick Mulcahy Rice Sanger Tamke Trujillo Steinhafel Total Board % of common shares outstanding Total Independent Directors % of common shares outstanding
Issued shares beneficially owned 2,388 2,901 0 11,116 61,569 886 7,114 0 27,683 10,334 38,025 429,424 591,440 0.08% 162,016 0.02%
Total beneficial ownership 48,487 35,781 3,058 97,135 128,671 9,446 29,536 3,058 120,699 86,300 124,181 1,309,840 1,996,192 0.27% 686,352 0.09%
Common Shares Outstanding

Source: Target proxy
14
752,672,699
Average Tenure of Nearly a Decade

Board Member Mary Dillon Richard Kovacevich Solomon Trujillo George Tamke Calvin Darden Anne Mulcahy Stephen Sanger Roxanne Austin James Johnson Mary Minnick Derica Rice Current Occupation (Title) Executive Vice President and Global Chief Marketing Officer of McDonalds Corporation Chairman of the Board of Wells Fargo & Company CEO of Telstra Corporation Limited, an Australian telecommunications company Partner with Clayton, Dubilier & Rice, Inc., a private investment firm Chairman of the Atlanta Beltline, Inc., an urban revitalization project for the City of Atlanta CEO and Chairman of the Board of Xerox Corp., a document management company Retired. Previously, CEO and Chairman of the Board of General Mills, Inc President of Austin Investment Advisors, a private investment and consulting firm Vice Chairman of Perseus, LLC, a merchant banking private equity firm Partner of Lion Capital, a private investment firm Senior Vice President and CFO of Eli Lilly and Company Years on Board 2 13 15 10 6 12 13 7 13 4 2
Incumbent Nominees
The average tenure of the independent directors is approximately 9 years. The average tenure of the incumbent nominees is approximately 10 years
15
Boards Strategic Mistake: Credit Card

Targets board decided not to transfer credit risk in a credit card transaction, despite Pershing Squares repeated requests. In 2008, Targets credit card operating profits fell 65% predominantly due to increased credit risk and bad debt expense
Credit Card EBIT as a % of average receivables
$1,000 $900
$ in millions
$930 12.8%
14.0%
12.0%
$800
Credit Card EBIT
$700 $600 $500 $400
10.0%
65% drop
$322
8.0%
6.0%
$300 $200 $100 $0
4.0%
3.7%
2.0%
0.0%
Source: Company filings
2007A
16
2008A
Board Lacks Initiative: Real Estate

Target owns over 200 million square feet of high-quality retail real estate We believe that Targets real estate has a replacement cost of nearly $40 billion (based on managements estimates of the current average cost to build its stores and distribution facilities) Despite this immense value, Targets board has been unwilling to examine alternatives to unlock real estate value Notably, the board assigned its advisors the narrow task of only evaluating Pershing Squares TIP REIT spin-off structure Board would not authorize Goldman Sachs to explore alternative real estate value creation opportunities
17
Governance: Faulty Nomination Process

Is Targets board nomination process fair, open, and thorough?
Independent nominees Ashner and Vague were never interviewed Nomination Committee Chair Sanger would not give an explanation for the rejection of the nominees Nominating Committee Chair Sanger received over $1.25 million in fees and equity compensation since 2003 from incumbent nominee Kovacevichs company, Wells Fargo Nominating Committee Chair Sanger also serves on Wells Fargos compensation committee
Conflict
In our view, the board nomination process is insular, conflicted, and unreceptive to shareholder input
18
Board is Attempting to Limit Choice

Request for a Universal Proxy card: Rejected Request to name Target Nominees on Gold card: Ignored Targets Reasons
Technology barrier Too Late Too expensive Causes delay and confusion
Reality
Feasibility confirmed by Broadridge, consent of parties is all that is needed Can be implemented at any time Pershing Square will pay the expense Mitigates confusion and allows shareholders to choose the best nominees from both slates No liability to Target or its nominees
Liability concerns
Shareholders have expressed disappointment with Targets position. Target and its nominees should consent to have all nominees named on one proxy card. Even now, this can still be achieved. Shareholders should press this issue with Target
19
Board Does Not Foster an Ownership Culture

We believe that Targets compensation plan does not foster an ownership culture at Target, as senior management and the board have sold $429 million of stock in the last five years Last Five Years of Activity in Target Stock (1) Executive Management Total Open Market Purchases Total Sales Board (2) Total
$0.0 mm
$3.8 mm
$3.8 mm
$(419.7) mm
$(8.8) mm
$(428.5) mm
How can we be sure that Targets board and managers are truly focused on creating long-term shareholder value if they sell so much stock?
(1) Based on the trailing five years prior to the announcement of Pershing Squares nomination of the Nominees for Shareholder Choice on 3/17/2009. (2) Includes only non-employee directors.
20
Grading the Board: Key Duties

Key Duties Hiring / firing management Assessing strategic transactions Pershings Grade Good Poor Commentary
Strong management team Credit card transaction structure approved by the board was a mistake Board did not authorize a full review of Targets real estate ownership alternatives Boards decision to sell Mervyns and Marshall Fields took years of prodding by the investment community Independent directors have an average tenure of nearly a decade Board lacks non-executives with CEO-level retail, credit card, and real estate experience Board refused to interview two of Pershings nominees Board refused a request for universal proxy Board has not fostered an ownership culture, as witnessed by $429 million of Target stock sales by executive management in the last five years We question whether this board has sufficient expertise to advise management on running a retail and credit card company
21
Nominating directors
Poor
Executive compensation Advising management on existing strategies
Poor
N/A
We believe that Targets suboptimal board has contributed to the companys material underperformance during this recession
22
Underperformance Relative to Wal-Mart

From the beginning of the fourth quarter of 2007 to the day prior to our announcement of our proposed slate, Target stock declined by 51%. Over the same period, the stock of Wal-Mart, Targets principal competitor, appreciated 11%, a ~62 percentage point outperformance
Stock price returns
1 38.39
1 8.39 1
Wal-Mart Up 11%
98.39
78.39
58.39
Target
38.39
Down 51%
Measured on a 10-year trailing basis ending on the day prior to the announcement of the Nominees for Shareholder Choice, Wal-Marts stock price outperformed Targets stock price by approximately 18%.
23
Underperformance in Same Store Sales Growth

We believe that Targets substantial negative returns to its shareholders are reflective of its operating underperformance compared with Wal-Mart
Year-over-Year Growth Rate of Quarterly Same Store Sales
6.0%
4.0%
2.0%
Wal-Mart US
0.0% 4Q07 (2.0%) 1Q08 2Q08 3Q08 4Q08
(4.0%)
(6.0%)
Target
24
Underperformance in Earnings Per Share Growth

Since Q4 2007, Targets earnings per share growth has been significantly less than Wal-Marts earnings per share growth
Year-over-Year Growth Rate of Reported Quarterly EPS from Continuing Operations
20.0%
10.0%
0.0% 4Q07 1Q08 2Q08 3Q08 4Q08
Wal-Mart
- 10.0%
-20.0%
-30.0%
Target
-40.0%
25
Target Retail Profitability Should Be Higher

Even before the recession, Targets retail margins have been deteriorating while Wal-Marts margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods
7.6% 7.4% 7.2% 7.0% 6.8% 6.6% 6.4% 6.2% 6.0% 5.8% 5.6% 2005 2006
26
Retail EBIT Margins

Wal-Mart US
7.3% 2008 Retail EBIT margin
2006 2007: Why were Targets retail margins weaker even during the strong economy?
Target
2007
2008
Wal-Marts Board Has Deep, Relevant Experience

Current Board
Retail Business
Allen Questrom, former CEO of JCPenney, Neiman Marcus, Federated Department Stores Roger Corbett, retired CEO of Woolworths, Australias leading retail company
Real Estate
Wal-Mart owns a lower percentage of its stores than Target
Arne Sorenson, EVP and CFO of Marriott International
We note that Wal-Mart partnered with a financial institution for its store credit card years ago. It does not own credit card receivables and has none of the material risks associated with these assets
27
Is Targets Board Too Insular?

Pershing Squares observations of Targets incumbent board:
Chose board members without relevant senior operating experience in Targets key business lines and assets Rejected significant shareholder representation Continually re-elects its own members, despite the lack of relevant senior operating experience Ignored major shareholder regarding credit risk Refused to authorize full review of alternatives for real estate ownership Rejected major shareholders request to join the board without explanation Refused to interview leading executives Richard Vague or Michael Ashner in its nominating process
28
Retailing is a Constantly Evolving Industry

We believe that a key role of an independent board is to bring an outside perspective to challenge strategies that might have worked in the past but will likely need to evolve over time contrary to Targets boards apparent instinct to maintain the status quo
Competitive Landscape 1993
3,000
Competitive Landscape Today

3,000 2,601
Number of supercenters
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500 239 185 128
77 0
76
68
17
55
29
Time for Board Change
In our view, the Nominees for Shareholder Choice will bring much needed new life to Targets insular incumbent board The Nominees for Shareholder Choice offer deep and relevant experience, major stock ownership, and fresh perspectives
30
Introducing the Nominees for Shareholder Choice
Gold Proxy Card
The Nominees for Shareholder Choice

Nominee for Shareholder Choice Significant Relevant Experience Commentary
Jim Donald
Food Retailing Credit Cards Real Estate Shareholder Value Corporate Governance
30 years of grocery experience Former CEO of Starbucks and Pathmark Oversaw the development and growth of Wal-Marts SuperCenter business
Richard Vague
Leading credit card operating executive Former CEO and co-founder of First USA, the largest VISA credit card issuer before it was sold to Bank One (now JPMorgan Chase)
Michael Ashner
Established real estate CEO and investor Currently manages over 20 million sq ft of commercial real estate Has acquired more than $12 billion of real estate in 45 states
Bill Ackman
Founder of Pershing Square Owner of a 7.8% stake in Target (1) Track record for creating value in consumer and retail businesses
Ron Gilson
World-renowned expert in the field of corporate governance Professor of Law and Business at both Stanford Law School and Columbia University School of Law
(1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
32
Nominees Are Entirely Independent

The Nominees for Shareholder Choice are entirely independent and have no preconceived agenda other than to maximize shareholder value
Jim Donald, Richard Vague, Michael Ashner, and Ron Gilson are independent nominees with no commercial relationships with Target or Pershing Square Each is a highly regarded leader in his area of expertise Each has his own unique perspective, background, and ideas Pershing Square has no agreements, understandings, or arrangements with the Nominees for Shareholder Choice, other than they have agreed, if elected, to serve on the board (1) The Nominees for Shareholder Choice have only one common goal: to help oversee the management of Target for the purpose of creating long-term value for all stakeholders
If elected, the Nominees for Shareholder Choice will represent the interests of all shareholders using their own independent business judgment
(1) Other than customary indemnifications and expense reimbursement arrangements.
33
Comparison of Slates
The Incumbent Nominees Lack senior operating experience in key business lines and assets Beneficially own less than 0.05% of the company Are accountable for strategic mistakes Three out of four incumbent nominees have served for at least a decade The Nominees for Shareholder Choice CEO-level operating experience in: Retail Credit cards Real Estate Corporate governance expertise Beneficially own 7.8% of the company (1) Offer fresh perspectives while preserving board continuity Entirely independent
(1) Consisting of 3.3% in shares (approximately $1bn in market value) and 4.5% in stock-settled call options (approximately $280mm in market value).
34
Food Retailing: Jim Donald
Food Retailing is A Critical Growth Initiative
Food retailing represents a critical strategic growth initiative for Target. We and the company believe that an expanded food presence can help Target increase the frequency of visits from its customers and generate higher and more predictable sales
36
Food: Critical Strategic Growth Initiative

We continue to focus on food as a priority . . . [W]eve nearly doubled our commitment to food over a five to sevenyear timeframe.
Gregg Steinhafel, CEO Target 2Q07 Earnings Call, 8/21/07
We also continue to invest in our food offering in

recognition of its importance in driving greater frequency, increasing guest loyalty, and making Target a preferred shopping destination.
Gregg Steinhafel, CEO Target 4Q08 Earnings Call, 2/24/09
37
Target: Slow to Innovate with Grocery/Superstores

Wal-Mart was not always the dominant player in the supercenter / grocery space, but eventually emerged as a clear segment leader
Competitive Landscape 1993
3,000
Competitive Landscape Today

3,000 2,601
2,500
2,500
2,000
2,000
1,500
1,500
Did Target miss an important opportunity in food?
1,000
1,000
500
500 239 77 76 68 17 0 0 185 128
55
38
Increasing Food Could Help Sales Significantly

In our view, Targets more limited food offering partially explains why Targets same-store-sales growth rate has been considerably weaker than Wal-Marts in every quarter since Q4 2007
6.0%
Year-over-Year Growth Rate of Quarterly Same Store Sales
4.0%
2.0%
Wal-Mart US
0.0% 4Q07 (2.0%) 1Q08 2Q08 3Q08 4Q08
(4.0%)
(6.0%)
Target
(8.0%)

39
We Believe Target Needs A Retailer on its Board

Even before the recession, Targets retail margins have been deteriorating while Wal-Marts margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods
7.6% 7.4% 7.2% 7.0% 6.8% 6.6% 6.4% 6.2% 6.0% 5.8% 5.6% 2005 2006
40
Retail EBIT Margins

Wal-Mart US
2006 2007: Why were Targets retail margins weaker even during the strong economy?
Target
2007
2008
Why Wasnt Target More Profitable in the Boom Times?

% of 2008 Sales
41%
NonConsumables Consumables Consumables NonConsumables
37.0%
59%
63.0%
Consumables: Typically lower margin goods Non-consumables (e.g., apparel, home furnishings): Typically higher margin goods
Source: Company filings. For Wal-Mart, consumables incorporate grocery and health & wellness categories. Includes Wal-Mart US only. For Target, consumables defined as consumables and commodities.
41
Opportunities to Make Target More Profitable
Given the differences in profitability between Target and Wal-Mart, we believe there are opportunities to improve Targets retail margins. Having an experienced retail operator on the board can only help Target become a more profitable company in our view
42
Jim Donald: Food Retailing Leader

Jim Donald served as the CEO of Starbucks Corporation from April 2005 until January 2008. He joined Starbucks in October 2002 as President, North America. Jim served as Chairman, President and CEO of Pathmark Stores, Inc. from 1996 until joining Starbucks in 2005. Jim served as President and Manager of Safeway Inc.s 130-store Eastern Division from 1994 to 1996. He was responsible for a $2.5 billion business, comprised of 10,000 employees working at 130 stores and two distribution centers. From 1991 until joining Safeway in 1994, Jim was an executive at Wal-Mart Stores, Inc, were he worked on the development and expansion of the Wal-Mart Super Center, supervising all merchandising, distribution, store design and real estate operations. Jim began his career in 1971 as a trainee with Publix Super Markets, Inc. He joined Albertsons in 1976 and quickly rose through its managerial ranks in the Florida, Alabama and Texas divisions. He was head of Albertsons operations in Phoenix, Arizona.
Jim Donald Nominee for Shareholder Choice
43
Compare Jim Donald with Mary Dillon

Mary Dillon Target Incumbent Nominee EVP and Global Chief Marketing Officer for McDonalds Jim Donald Nominee for Shareholder Choice Leading Food Retailing Operating Executive
Is fast-food marketing experience highly relevant to Target? Ms. Dillon is not a grocery store operator Without Ms. Dillon, the board will continue to have marketing expertise Mary Minnick, Coca Colas former President of Marketing Target does business with McDonalds
44
Over 30-years of food retailing experience Former CEO Of Pathmark and Starbucks Oversaw the development of Wal-Marts SuperCenters Helped build out Wal-Marts grocery business Entirely independent
Credit Cards: Richard Vague
Target Initially Resisted a Transaction for its Receivables
We have consistent performance ... and we're enjoying double-digit growth rates," Scovanner said. "No one else in the credit-card arena has those attributes. For the life of me, I don't understand why those attributes in combination would cause anyone to want to get into an active mode of analyzing a sale.
Doug Scovanner, CFO Star Tribune, July 15, 2007
46
Pershing Square Urged Target to Transfer Credit Risk
From August through December 2007, in multiple calls and meetings, Pershing Square endeavored to convince Target to transfer the credit and funding risks associated with its credit card operation to a partnering financial institution In May, 2008, Target sold a 47% interest in its credit card receivables to JPMorgan Chase Target elected, however, to retain substantially all of the credit risk and more than half of the funding risks associated with this business segment because of its insistence on retaining underwriting control We believe this decision was ill-advised, and shareholders have suffered as a result
47
We Believe Target Made Poor Underwriting Decisions

In the summer of 2007, Target converted a large portion of its private label Target card accounts (typically lower FICO score customers with lower credit limits) to Target VISA accounts, thereby giving lower quality credit customers significantly higher credit limits and lower rates. We believe this was a mistake
Average receivables grew 19.6% over last year,

faster than our pace of sales primarily due to changing the product features for yet another group of our higher credit quality Target card accounts to become higher limit Target Visa accounts.
Doug Scovanner, CFO Q307 conference call, 11/20/2007
48
The Results: Significant Profit Declines

In our view, as a result of poor underwriting decisions and exposure to credit risk, Targets credit card operating profits declined 65% in 2008
$ in millions
$1,000 14.0%
Credit Card EBIT as a % of average receivables
$930
$900
12.8%
$800
12.0%
Credit Card EBIT
$700 $600 $500 $400
10.0%
65% drop
8.0%
6.0%
$322
$300 $200 $100 $0 0.0% 4.0%
3.7%
2.0%
2007A
49
2008A
Underperforming Relative to Credit Card Peers

In 2008, Targets net write-offs as a % of average receivables increased to 9.3% from 5.9% the year prior. This compares to 5.7% for Targets credit card competitors in 2008
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2005 2006
50
Net Write-offs as a % of Average Receivables

9.3%
Target
7.2%
~360 bps spread
5.9% 5.3% 5.1% 3.9% 3.3%
5.7% Credit
Card Competitor Average
(JPM, BAC, AXP, COF, DFS)
2007
2008
Underperforming Relative to Credit Card Peers

In 2008, Targets bad debt expense as a % of average receivables increased to 14.4% from 6.6% the year prior. This compares to 7.3% for Targets credit card competitors
Bad Debt Expense as a % of Average Receivables
16.0% 14.0% 12.0% 14.4%
Target
~710 bps spread

10.0% 8.0% 6.0% 4.0% 3.5% 2.0% 0.0% 2005 2006 2007 2008 8.4% 7.3% 5.6% 6.1% 6.6% 4.5%
Credit Card Competitor Average

(JPM, BAC, AXP, COF, DFS)
51
Richard Vague: Leading Credit Card Executive

Richard Vague has served as CEO and co-founder of Energy Plus Holdings LLC, a Philadelphia-based, progressive, independent Energy Service Company (ESCO) since 2007. From December 2004 until 2007, Richard served as the Chairman and CEO of Barclays Bank Delaware, a financial institution and credit card issuer. From 2000 until its sale to Barclays PLC in 2004, Richard was CEO of Juniper Financial, a direct consumer credit card bank that he co-founded. From 1984 until 2000, Richard was President and then CEO and Chairman of First USA and Chairman of Paymentech, the merchant processing subsidiary of First USA. Richard co-founded First USA which grew from a start-up to the single largest Visa credit card issuer in the United States when it was sold to Bank One (now JPMorgan Chase) in 1997.
Richard Vague Nominee for Shareholder Choice
52
Compare Richard Vague with Richard Kovacevich

Richard Kovacevich Target Incumbent Nominee Chairman of Wells Fargo & Company Richard Vague Nominee for Shareholder Choice Veteran credit card industry executive
Voted to retain the credit risk associated with Targets credit card business We believe this decision ultimately led to dramatic profit declines for Target last year Given the financial crisis, does Mr. Kovacevich have the time to devote to being a Target director? Target does business with Wells Fargo
Co-founder of First USA, serving as its CEO until it was sold to Bank One (now JPMorgan Chase) Founded and sold Juniper Financial Valuable operating experience can assist Target achieve recovery in its credit card business Strong transaction experience and relationships can help Target structure a risk-reducing transaction in the future Entirely independent
53
Real Estate: Michael Ashner
Target: Significant Real Estate Ownership

Target owns the highest percentage of its real estate compared to other big box retailers
100 90 % Units Owned (Buildings)1 80 70 60 50 40 30 20 10 0 34% 34% 68% 61% 58% 96% 92% 87% 87%
% owned units/land(2): 86% % DCs owned(3): 82%
79% ND
ND 2%(4)
ND 84%
55% 71%
36% 90%
ND 52%
ND 54%
27% ND
Represents data from latest 10-K filing ND represents Not Disclosed (1) Represents % owned stores (includes owned stores on leased land) (2) Represents % owned stores on owned land only (3) Represents % owned DCs (includes owned DCs on leased land) (4) Represents % owned DCs on a square footage basis
55
Target: A Leading Owner of Retail Real Estate in the US

Target currently owns approximately 213 million square feet of retail square footage (1), more than any other publicly traded retail real estate company in the U.S. today based on our estimates
Estimated Total Owned GLA (sq. ft.) (2) (mm) 1 2 3 4 5 6 7 8 9 10 Target Corporation General Growth Properties Simon Property Group The Macerich Company Kimco Realty Corporation CBL & Associates Properties Developers Diversified Realty Corporation Regency Centers Corporation Weingarten Realty Investors Pennsylvania Real Estate Investment Trust 213 168 153 76 74 73 67 37 34 26
(1) (3) (4) (5) (6) (7) (8) (9) (10) (11)
(1) Includes owned and combined retail square footage. Excludes leased retail square footage and owned distribution centers square footage (2) Based on the latest company filings (3) Includes consolidated and unconsolidated GLA for the company (4) Based on U.S. properties square footage which the company owns. Excludes international properties square footage (5) Includes square footage of properties which the company owns or has a majority and minority ownership interest (6) Based on pro rata share of GLA in shopping center portfolio (7) Includes total square footage of the anchors (whether owned or leased by the anchor) and mall stores. Excludes future expansion areas (8) Based on actual pro rata ownership of joint venture assets and excluding developments and redevelopments in process and scheduled to commence in 2009 (9) Based on wholly-owned and pro rata share of co-investment partnerships. Represents GLA including anchor-owned stores (10) Based on retail GLA owned by the company (11) Includes owned GLA on consolidated and unconsolidated properties 56
The Market Does Not Appreciate Targets Real Estate

Real estate companies trade at substantially higher multiples of EBITDA compared to Target or other retailers
Targets Market Valuation (1) 2009E EV / EBITDA Real Estate Companies and Private Ground Lease Valuations 2009E EV / EBITDA
7.2x
$40/Share(1)
14.3x
Large Cap REITs (1)
17.0x
Pershing Square believes that there may be more efficient ways for Target to structure its real estate business in order to highlight its strong value. Pershing Square, however, does not currently have any specific plans or proposals with respect to Targets real estate
Note: Target valuation excludes the net book value of the credit card receivables and the operating profit associated with such receivables in order to better compare Target with real estate companies which do not have credit card segments. (1) Based on current stock price as of 05/01/09. Large cap REITs multiples are based on Wall Street consensus estimates. (2) Based on mid-point precedent cap rate of 5.9%.
57
Questions to Ask
Given the stock markets discounted valuation of Targets vast real estate holdings, shouldnt the board be willing to investigate opportunities to create value? Pershing Square made several suggestions to Target, including a tax-free 19.9% REIT IPO, which Pershing Square believed would Improve Targets access to the capital markets Maintain its strong investment grade credit ratings Allow Target to maintain control over its buildings and brand Highlight the value of Targets greater than 200 million sq ft of real estate Pershing Squares past suggestions may not have been the perfect solution, but why was Targets board unwilling to explore other real estate strategic alternatives?
58
Michael Ashner: Experienced Real Estate Executive
Michael Ashner Nominee for Shareholder Choice
Michael Ashner has served as the CEO of Winthrop Realty Trust, Inc. since December 31, 2003 and Chairman of the board of directors since April 2004. Michael served as the Executive Chairman of Lexington Realty Trust, a REIT from December 31, 2006 through March 2008. He has also served as the Chairman, President and CEO of Winthrop Realty Partners, L.P. (a real estate investment and management company) since 1996. Michael has served as the Managing Director of AP-USX LLC, which owns a 2.4 million square foot office tower, since 1998. Since 1981, Michael has been the President and principal shareholder of Exeter Capital Corporation, a privately held real estate investment banking firm. Michael manages over 20 million square feet of commercial real estate and has acquired more than $12 billion of real estate in 45 states, including more than 85,000 apartment units, 50 million square feet of office, retail and industrial space, and 10,000 hotel rooms.
59
Compare Michael Ashner with Solomon Trujillo
Solomon Trujillo Target Incumbent Nominee CEO of Telestra Corporation an Australian telecom company
Michael Ashner Nominee for Shareholder Choice CEO and Chairman of Winthrop Property Trust
We do not believe that Mr. Trujillos Australian telecommunications background brings relevant expertise to a US retail company Why has Mr. Trujillo been on Targets board since 1994 or 15 years?
Chairman and CEO of Winthrop Realty Partners, L.P. Manages more than 20 million square feet of commercial real estate, including over 11 million square feet owned by Michael and his affiliates Entirely independent
60
Shareholder Value: Bill Ackman
Board Lacks Significant Shareholder Representation

Targets incumbent board beneficially owns less than 0.3% of Target. By contrast, Pershing Square beneficially owns 7.8% of Target
Targets Board
Owns ~0.3% of Target in common stock and options comprised of: ~0.1% in common stock ~0.2% in stock options Independent directors own less than 0.1% in common stock and options
Pershing Square
Pershing Square beneficially owns 7.8% in common stock and options comprised of: ~$1 billion of common stock, equal to 3.3% ownership ~$280 million in stock options, equal to 4.5% ownership Third largest beneficial owner Fourth largest common stock holder
62
William Ackman: Leading Shareholder

Bill Ackman is the founder and managing member of the general partner of Pershing Square Capital Management, L.P., an investment adviser founded in 2003 and registered with the SEC. Pershing Square is a concentrated research-intensive fundamental value investor in long and occasionally short investments in the public markets, typically focusing on large-cap and mid-cap companies. Bill has significant experience investing in multi-billion dollar retail and consumer companies. Pershing Square is the third largest beneficial shareholder of Target with 7.8% of the company, including approximately $1 billion in common stock (3.3% of the company) and $280 million in stock options (4.5% of the company) based on recent market prices.
Bill Ackman Nominee for Shareholder Choice
63
Compare Bill Ackman with George Tamke

George Tamke Target Incumbent Nominee Partner at Clayton, Dubilier & Rice, a leveraged buyout firm Owns 0.01% of Target in common stock and options Serves on the boards of Culligan (Chairman), ServiceMaster (Chairman) and Hertz all Clayton, Dubilier & Rice portfolio companies How does Mr. Tamke allocate his time? Target purchases products and services from several companies that are controlled by Clayton, Dubilier & Rice
64
Bill Ackman Nominee for Shareholder Choice Founder of Pershing Square, a public equity investment firm
Pershing Square beneficially owns 7.8% in common stock and options (1) Represents the third largest beneficial owner of Target Significant investment experience in multi-billion dollar retail and consumer companies
(1) Consisting of 3.3% in shares (approximately $1bn in market value) and 4.5% in stock-settled call options (approximately $280mm in market value).
Pershing Square: Track Record of Success

In our view, Pershing Square has established a track record of creating shareholder value in retail, consumer, and other businesses
Canada
65
Corporate Governance: Ron Gilson
Ron Gilson: Corporate Governance Authority
Ron Gilson is the Meyers Professor of Law and Business, Stanford Law School (1979 to present) and the Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present). Ron is a fellow of the American Academy of Arts and Sciences and the European Corporate Governance Institute. Ron has served on the board of directors of certain of the American Century Mutual Funds, managing over $26 billion in assets, since 1995 and has been the Chairman of the board of directors since 2005. Ron Gilson is one of our countrys preeminent thinkers on corporate governance. We believe that, if elected, Rons extensive academic and real world experience as an independent board chair would ensure fair process, fair dealing, and diligent care for the benefit of all shareholders.
Ron Gilson Nominee for Shareholder Choice
67
Targets Board: Avoiding the Real Issues
Targets Board: Avoiding the Real Issues

We believe the Real Issue of this election is that Targets board is suboptimal Lacks significant relevant senior operating experience Lacks significant shareholder representation Has made expensive mistakes in assessing strategic transactions Has failed on key governance duties In our view, Targets board has not addressed this issue satisfactorily Instead, the board, its advisors, and PR team have publicly made what we believe to be misleading statements to dissuade investors from focusing on the CORE ISSUES
69
Favoring Risk Taking

Targets misleading stance:
Pershing Squares sizeable derivative position creates an incentive for risk taking
The ACTUAL FACTS:

Target is Pershing Squares largest investment Pershing Square owns $1 billion in common stock and $280 million in stock options
Unlike the incumbent board, Pershing Square paid cash for its stock options and can extend the life of its options
Targets management and the board have a greater percentage of their ownership in derivatives than Pershing Square Pershing Square has been a major buyer of Target shares in recent years unlike members of senior management
Gregg Steinhafel, had not purchased one share of stock during the last five years until 3/18/09 one day after we nominated directors for the board Board and executive management have sold $429 million of stock in the last five years
70
Risky Agenda
Pershing Square has launched a proxy contest to push its real estate agenda Bill Ackmans slate of nominees
The ACTUAL FACTS:

The Nominees for Shareholder Choice are entirely independent There is no Bill Ackman slate The independent nominees have no pre-conceived real estate agenda Even if all of the Nominees for Shareholder Choice are elected, two-thirds of Targets current board will remain, providing board room continuity Bill Ackman supports exploration of real estate ideas if you dont want Target to explore real estate alternatives, dont vote for him. You can still vote for Jim Donald, Richard Vague, Michael Ashner, and Ronald Gilson
This election is not about Bill Ackman but rather about choosing board members with the most relevant experience
71
Credit Ratings and Risk

Bill Ackman, if elected, does not intend to support any action that will impair Targets credit ratings
Since our first meeting with management, Pershing Square has urged Target to decrease credit risk Instead, Targets board chose to maintain credit exposure to the credit card business Fall 2008, Pershing Square encouraged Target to halt buyback program In Pershing Squares view, Target can be an enormously valuable company without the need to over-leverage its business Pershing Square believes that positioning the company so that it can increase its access to capital may allow it to take advantage of distressed real estate opportunities that could result from the current shakeout in the retail industry
72
Hasty Selection
Hasty selection of candidates by Pershing Square is inconsistent with a professional search required by good corporate governance
Our Response:
The Nominees for Shareholder Choice are leaders in food retailing, credit cards, real estate, shareholder value, and corporate governance The credibility, independence, experience, reputation, and integrity of the Nominees for Shareholder Choice speak for themselves
Questions to Ask Target: Why are the current independent board members the most qualified to serve on the board of Target, a retail and credit card company? Why does Targets board continue to nominate its own members and not conduct a professional search for new directors with senior operating experience?
73
Target Says:
We do not believe that Pershing Square's nominees would add value to the Board.
- Target spokesperson
Ackman campaign for Target like prize fight Reuters, 4/18/2009
74
Really?
Nominee for Shareholder Choice Significant Relevant Experience Commentary
Jim Donald
Richard Vague
Michael Ashner
Bill Ackman
Ron Gilson
75
Corporate Elections and Shareholder Choice
Pershing Square Offers Shareholders a Choice

Pershing Square is bringing shareholders an important choice at the Annual Meeting
In this election, you can choose to vote for: The Nominees for Shareholder Choice, or Targets incumbent slate, or Nominees from each of the two slates Had Pershing Square not nominated a slate, shareholders would have no viable alternative other than to elect the incumbent nominees
77
How We Think about Voting

This is an election is about choosing the best directors for Target
Considerations Incumbent Nominees vs. Shareholder Nominees
Which candidates have the fewest commercial ties to Target? Is it possible that only incumbents are the best candidates? Are any incumbents accountable for underperformance? This contest is not a change of control At least 2/3rds of the incumbent directors will remain on the board Board continuity is preserved Both slates support management continuity Should shareholders be forced to simply choose from competing slates? Should shareholders have the option of choosing the best nominees from all available candidates?
78
How to Choose
Choose candidates with no conflicting economic interests Choose fresh perspectives Choose the best nominees with the most relevant experience Choose continuity and fresh perspectives Choose the best nominees with the most relevant experience
Maintaining Continuity
How Should Elections Work?
Shareholder choice is good for Target and good for corporate governance Support efforts to simplify the voting process and ensure that each vote is counted
Vote for the Nominees for Shareholder Choice
GOLD PROXY CARD
Jim Donald
Richard Vague
Michael Ashner
Bill Ackman
Ron Gilson
79
The Bucks Rebound Begins Here

May 27, 2009
Disclaimer
The analysis and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") regarding General Growth Properties, Inc. and its affiliates (collectively, GGP or the Company) are based on publicly available information. Pershing Square recognizes that there may be confidential or otherwise non-public information in the possession of the Company that could lead the Company to disagree with Pershing Squares conclusions. The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing Square advises funds that are in the business of trading - buying and selling - public securities. Pershing Square owns GGP equity, total return swaps, and GGP unsecured debt. It is possible that there will be developments in the future that cause such funds to change their positions regarding the Company and possibly increase, reduce, dispose of, or change the form of their investment in the Company.
1
Agenda
Why We Like General Growth Properties A Brief History Not Your Typical Bankruptcy GGPs Assets Are Greater Than Its Liabilities
Why Do We Like GGP?
Ala Moana
What is GGP?
GGP REIT
Includes Retail & Office Properties
GGMI
General Growth Management Inc.
MPC
Master Planned Communities
Over 200 regional malls (>160mm sq ft) (1) / outdoor shopping centers Over 30 grocery-anchored shopping centers Office properties in Arizona, Nevada and near Maryland / Washington D.C. 1.3bn mall visits per year >24,000 tenants >3,700 employees (2)
________________________________________________ (1) (2)
Provides management, leasing and marketing services Over 60% of revenue derived from third party (non-GGP) malls Manages many of GGPs JV malls
Develops and sells land for residential and commercial use Land located near Maryland / Washington D.C., Summerlin, NV and Houston, TX ~18,000 saleable acres
Includes anchor GLA and the Companys pro rata share of JV malls. >400,000 employees including retail tenants.
Diverse Footprint
GGP is geographically well-diversified with malls in 44 states. The Company also has interests in joint ventures in Brazil and Turkey
Diverse Tenant Base

GGP has over 24,000 tenants, with its largest tenant accounting for only 2.7% of revenue as of March 31, 2009
Memo: Market Cap $11.8bn 4.0bn 2.4bn 1.8bn 5.0bn 3.0bn Private Private Private 6.0bn
________________________________________________
Source: GGP Q109 operating supplement.

6
High Quality Assets

Green Street assigns an A grade to 73 malls in GGPs portfolio
Not Included
Other Examples: Faneuil Hall Marketplace South Street Seaport Ward Centers (Honolulu, HI)
________________________________________________
Source: Green Street.
GGPs portfolio consists of many of the best malls in America

7
High Quality Assets (Contd)
Indicative of the strength within our portfolio is the performance of our 50 most productive United States centers. These properties generated average sales per square foot of approximately $648. Not only do these 50 centers produce tremendous sales per square foot, they also represent approximately 50% of our total mall NOI. This is one more example of the quality of our portfolio, and quality will be more important than ever as we move forward in 2008 and 2009. John Bucksbaum, Chairman and Former CEO, July 31, 2008
Because the NOI from GGPs highest quality malls should be valued at materially lower cap rates than its lower quality malls, a substantial majority of GGPs equity value is in the Companys best assets
8
Why We Like Malls

Relative to other real estate asset classes, malls have historically generated the most stable cash flow
Weighted-Average Same-Store NOI Growth Across Various Property Types
8.0%
6.0%
Apartment
4.0%
Office Industrial
2.0%
Mall
0.0%
(2.0%)
(4.0%)
(6.0%)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E
________________________________________________
Source: Green Street. Sector data represents weighted average of companies in coverage universe during the period in question.
Long Term Leases

GGPs business is far less cyclical than that of the retail industry because its revenues are insulated by long-term leases which are structurally senior claims
GGP Lease Expiration Schedule (1)
20.0% 18.0% 16.0% 14.0% 12.0% 9.9% 10.0% 8.0% 5.9% 6.0% 4.0% 2.0% 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After 8.8% 8.1% 10.1% 9.0% 8.2% 9.7% 10.2% 8.4% 11.7%
More than 75% of GGPs leases do not expire until 2012 or later
Rent & Recov. $36.83 Per Sq Ft
$41.07
$47.78
$53.07
$56.24
$56.04
$64.70
$67.47
$70.16
$74.81
$61.75
________________________________________________
Source: GGP Q109 operating supplement. Expiration includes Companys pro rata share of its unconsolidated segment. (1) Excludes leases on anchors of 30,000 square feet or more and tenants paying percentage rent in lieu of base minimum rent. Excludes all international operations which combined represent ~1% of segment basis real estate property NOI. Also excludes community centers. Percentage is weighted based on rent per square foot. 10 .
Embedded Growth
GGPs long term lease-based revenue model offers embedded growth in good times and mitigates revenue declines in bad times
GGP Rent & Recoverable Per Sq Ft Expiration Schedule (1)
$75 $75.00 $70 $70.00 $65 $62 $60.00 $56 $55.00 $53 $56 $67
$65.00
Average: $56
Embedded Growth Opportunity
$50.00
$48
$45.00 $41 $40.00 $37 $35.00
$30.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After
________________________________________________
Source: GGP Q109 operating supplement. Expirations include companys pro rata share of its unconsolidated segment. (1) Data includes significant proportion of short-term leases on inline spaces that are leased for one year. Rents and recoverable common area costs related to these short-term leases are typically much lower than those related to long-term leases. Any inferences the reader may draw regarding future rent spreads should be made in light of this difference between shrort- and long-term leases. . 11
Inflation-Protected
Approximately 82% of GGPs debt is fixed rate
________________________________________________
Source: Q109 operating supplement.
12
Why Do We Like GGP?
High Quality Assets Diversified Geographical Footprint Inflation-Protected Stable Cash Flows Diverse Tenant Mix Embedded Growth Opportunity
13
High Quality Business
A Brief History
Town and Country Center Cedar Rapids, 1954
The Rise of GGP: 1954 2007

1954: Brothers Martin & Matthew Bucksbaum found GGP and open Town & Country Shopping Center in Cedar Rapids, IA
During its time as a Public Company

GGP paid ~$4bn in dividends GGP refinanced or paid down ~$32bn of debt Until Q109, GGP never defaulted on a mortgage
$70
April-2007: GGP achieves a market cap of ~$20bn
$60
$50
$40
$30
1960: GGP opens Duck Creek Plaza, one of the first malls to have a department store anchor
August-2004: Rouse acquisition April-1993: GGP goes public on the NYSE resulting in net cash proceeds of ~$383mm
$20
$10
$0
1954 1960 1993 1995 1997 1999 2001 2003 2005 2007
15
The Fall of GGP: 2008 Current

March 28, 2008: GGP raises $822mm in a stock offering priced at $36 per share, implying a market cap of ~$12bn. ~$100mm is purchased by an affiliate of the Bucksbaum family September 15, 2008: Lehman Brothers declares bankruptcy. Market cap: ~$9bn
$50
$40
$30
$20
June-July, 2008: The CMBS new issuance market grinds to a halt November 12, 2008: GGP market cap hits ~$100mm
Apr-08 Jul-08
$10
November 28, 2008: $900mm of GGP debt comes due
April 16, 2008: GGP voluntarily files for bankruptcy
$0 Jan-08 Oct-08 Feb-09 May-09
16
The Problem
Over the past decade, GGP was a significant issuer of CMBS with ~$15bn of CMBS debt. In mid-2008, the CMBS market shut down
U.S. CMBS New Issuance Market ($ in billions)
$250
$230
$203
$200
$169
No market exists for refinancing GGPs ~$15bn of CMBS debt
$150
$100
$74 $67 $57 $51 $78
$93
$50
$47
$16 $0
$0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
________________________________________________
Source: Bank of America equity research.
17
The Problem (Contd)

GGPs bankruptcy is the result of the unprecedented disruption in the credit markets coinciding with large near-term debt maturities
________________________________________________
Source: GGP Q109 operating supplement.

18
Despite the turmoil in the credit markets, GGPs operating performance remains strong
Occupancy as of Q109
GGPs occupancy ranks among the top of its peer group
Glimcher occupancy benefitted in Q109 from the signing of temporary tenants to one year leases that had previously been excluded from the occupancy calculation. Occupancy was 90.6% as of Q307
92.0% 91.2% 91.0% 90.0% 89.0% 88.0% 87.0% 86.0% 85.0% 84.0% 83.0% Glimcher
________________________________________________
90.9%
90.8%
90.5%
90.2%
90.1%
88.9%
83.8%
General Growth
Simon Property Group
Taubman
Macerich
Westfield
CBL
Pennsylvania REIT
Note: Occupancy is defined as percent of mall shop and freestanding GLA leased. (1) SPG figures are for regional malls only. (2) CBL figures are for stabilized regional malls only (excludes new developments and redevelopments).
20
Trailing Twelve Month Cash NOI

As of Q109, GGPs trailing twelve month cash NOI grew 1.4% on a year over year basis. Adjusting for lease termination income, cash NOI grew 2.4%
TTM Cash NOI ($ in millions)
$2,750 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09
$2,211 $2,211 $2,255 $2,328 $2,413 $2,489 $2,542 $2,554 $2,542 $2,524
Cash NOI Growth (YoY)
6.6%
4.0%
5.0%
7.2%
9.2%
12.6%
12.7%
9.7%
5.3%
1.4%
Excl. Termination Income

Adj. Cash NOI Growth (YoY) 5.7% 5.1% 5.7% 7.6% 9.1%
21
10.8%
10.9%
8.5%
5.1%
2.4%
________________________________________________
Note: NOI figures exclude management fee income and NOI associated with the MPC segment. Cash NOI adjusts for non-cash items such as straight-line rent, lease mark to market adjustments (FAS 141), non-cash ground rent expense and real estate tax stabilization.
Not Your Typical Bankruptcy
Water Tower Place
Unlike most bankruptcies where equity holders lose most, if not all, of their value, we believe GGPs bankruptcy provides the ideal opportunity for a fair and equitable restructuring of the Company that preserves value for all constituents: secured lenders, unsecured lenders, employees, and equity holders
A Little Personal History

While in bankruptcy, Alexanders stock price appreciated 358%
$80 $70 $60 $50 $40 $30 $20 $10 $0 May-92 Jan-93 Oct-93
24
September 21, 1993: Alexanders Plan of Reorganization is confirmed
March 1, 1995: Alexanders emerges from bankruptcy
May 12, 1992: Alexanders files a voluntary petition for bankruptcy
Jul-94
Apr-95
Dec-95
Amerco Bankruptcy
While in bankruptcy, Amercos stock price appreciated 456%
$80 $70 $60 $50 $40 $30 $20 $10 $0 Jan-03 Aug-03 Mar-04
25
February 2, 2004: Amercos Plan of Reorganization is confirmed June 20, 2003: Amerco files a voluntary petition for bankruptcy
March 15, 2004: Amerco emerges from bankruptcy
Oct-04
May-05
Dec-05
Why Did Amerco File for Bankruptcy?

Amerco filed for bankruptcy as the result of a liquidity issue that arose even though the underlying business was solvent
Following Enron in late 2002, Amercos auditors advised the company thats its financial results would have to be restated The restatement, which involved the consolidation of an off balance-sheet financing subsidiary (SAC Holdings), resulted in a material decrease in reported net worth and an increase in reported leverage ratios. The restatement also required a time-consuming restatement of prior periods results that led to the delayed filing of quarterly reports with the SEC As this situation was developing, Amerco was attempting to negotiate and replace its revolving credit facility and complete a $275mm bond offering Ultimately, Amerco was unable to complete the bond offering, and, as a result, it did not have sufficient funds to meet maturing debt obligations, which led to cross-defaults and an acceleration of substantially all of the Companys other outstanding debt instruments
26
Why Did Amerco Shareholders Retain Value?
Analyst Question: How can there be any value left for shareholders under your plan when in almost every bankruptcy stockholders receive no recovery? Have creditors signed on to your plan for a full recovery? Answer: Well, quite simply, Amerco has more assets than liabilities. Real estate appraisals showed the market value of Amercos unencumbered owned real estate is $550 million higher than stated book value. Two of four major creditor groups have agreed to our plan and were working with the remaining persons to get agreement to our plan.
Joe Shoen, Amerco CEO, Q403 Conference Call Transcript
27
Bankruptcy 101
1129. Confirmation of plan
(b) (2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements: (A) With respect to a class of secured claims, the plan provides (i)(I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claim (B) With respect to a class of unsecured claims (i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim
Creditors are entitled to a fair and equitable plan of reorganization

________________________________________________
Source: U.S. Bankruptcy Code, Title 11, Chapter 11, Subchapter II.
28
Bankruptcy 101 (Contd)

Although many of the factors interpreting fair and equitable are specified in paragraph (2), others, which were explicated in the description of section 1129(b) in the House report, were omitted from the House amendment to avoid statutory complexity and because they would undoubtedly be found by a court to be fundamental to fair and equitable treatment of a dissenting class. For example, a dissenting class should be assured that no senior class receives more than 100 percent of the amount of its claims. Congressional Record House Regarding the Bankruptcy Reform Act of 1978 H.R. 7330, 95th Cong., 1st Sess. 201 September 28, 1978
A fair and equitable plan only entitles creditors to recover 100% of the amount of their claims. When a debtors asset value exceeds the amount of its liabilities, equity holders are entitled to the residual value
29
GGP Reminds Us of Amerco

Typical Bankruptcy Year Founded Reason for Filing? High Quality Business? Assets Worth More Than Liabilities? Cash Flow Before Debt Maturities Stability of Cash Flows Insider Owns Large % of Company? Shareholder Advocate
________________________________________________
1945
Extrinsic Factors Created Liquidity Crisis
1954
Extrinsic Factors Created Liquidity Crisis
N/A Insolvency No No
(Post-Filing TBV: Negative)
Yes Yes
(Post-Filing TBV: >$350mm)
Yes Yes
(Post-Filing TBV: >$1bn)*
Positive Medium Yes Joe Shoen (CEO)

30
Positive High Yes Pershing Square
Negative Low No None
* We believe that Tangible Book Value materially understates the fair market value of GGPs equity.
Historical Bankruptcy Analysis

We looked at 150 bankruptcies over the past decade to see if we could find any other examples of public companies entering bankruptcy with (i) positive cash flow before debt maturities and (ii) asset values in excess of liabilities. Our analysis was limited to U.S.-based non-financial companies with asset values in excess of $1bn. We could only find four bankruptcies that fit the bill
What Happened To Equity Holders?
Shareholders retained 100% of post-reorg equity Stock appreciated 456% during bankruptcy; increased from $4 to $105 trough-to-peak Creditors repaid in full Shareholders received warrants in ~30% of the post-reorg equity Personal recourse management loans largely forgiven Shareholders retained 100% of post-reorg equity Stock appreciated 358% in bankruptcy; increased from $13 to $467 trough-to-peak Creditors repaid in full To be determined
________________________________________________
Shareholder Advocate?
Joe Shoen
Mgmt
Steve Roth Pershing Square
Note: Bankruptcies since 1999 in excess of $1bn as provided by Web BRD (Bankruptcy Research Database). Post-filing tangible book value used as a proxy for asset value in excess of liabilities. Asbestos liability bankruptcies excluded from the analysis.
31
Incentives of Various Constituencies in a Typical Bankruptcy Given the incentives of the various parties involved in a typical bankruptcy, equity holders require a shareholder advocate to protect their interests
Liquidate?
Secured Creditors Unsecured Creditors Management
Valuation
Rationale
Full recovery of claim Loan to own Eliminate unsecured leverage Desire to be fulcrum security
Depends No No
Low
>Secured ; <Equity
Aim to receive 100% of postreorganization equity Hit with your eyes closed POR projections Low-struck options Minimize post-reorg leverage
Conservative
Post-reorganization equity is often underpriced as a result of the incentives of the various constituencies in a bankruptcy process
32
Given the incentives of the various constituencies in bankruptcy, what is the best way for GGP to reorganize that preserves value for secured lenders, unsecured lenders, employees, and equity holders?
A Simple Solution
A seven-year extension of GGPs secured and unsecured loans at their existing interest rates would provide the Company with sufficient time to use cash flow from operations to delever its balance sheet. With a sevenyear extension, we believe the Company would be able to repay existing creditors in full
Benefits of this Approach:
Secured and unsecured lenders receive 100% of the present value of their claims Prevents the liquidation of assets at fire-sale prices Preserves value for equity holders GGP platform remains intact Preserves jobs
34
Deleveraging Analysis Assumptions

All Debt maturities extended seven years at current interest rates Cash NOI projections per Green Street Same Store Mall NOI Projections (1) GGMI income declines / grows at 2x Cash NOI GGP suspends its cash dividend payment to common shareholders through year-end 2009 10% cash / 90% stock thereafter GGP maintains Future Development Spending as outlined in the Companys Q109 supplement GGP maintenance capex, tenant allowances and restructuring costs as outlined in the Companys 2009-2010 Cash Flow Forecast Maintenance capex and TAs in forecast are increased by ~20% to account for unconsolidated segment outlays
________________________________________________ (1)
See Mall REITs: May 2009 Update, page 6. Note that Simon is guiding for same store regional mall NOI to be up 0% to 1% in 2009e. Note that this method is conservative in that it does not account for NOI generated by future development spending projects.
35
Illustrative Deleveraging Analysis

Seven-year maturity extensions coupled with a reduced cash dividend would allow GGP to delever its balance sheet and create a substantial equity cushion
(US$ in millions, except per unit data) 2008a 2009e $2,481 (2.4%) 73 98 (269) (180) (156) (183) (50) (1,698) $115 2010e $2,412 (2.8%) (38) 92 (272) (112) (197) (99) (28) (1,693) (16) $48 Seven Year Period 2011e $2,390 (0.9%) 15 91 (274) (200) (138) (30) (1,687) (6) $160 2012e $2,411 0.9% 25 92 (277) (200) (138) (30) (1,676) (6) $202 2013e $2,462 2.1% 50 96 (280) (205) (140) (30) (1,662) (15) $277 2014e $2,536 3.0% 75 102 (283) (205) (140) (30) (1,642) (29) $385 2015e $2,612 3.0% 75 108 (286) (210) (145) (30) (1,616) (47) $462 Total
Cash Flow Available for Debt Repurchase

Cash NOI (excl MPC) Growth Plus / Less: MPCs (1) Plus: Fee income Less: Overhead from recurring ops (2) Less: Restructuring / Strategic costs Less: Maint Capex / TAs Less: Development capex Less: Other (incl income taxes, pfd distributions) Less: Pro Forma Interest expense Less: Cash dividend (10% cash) Cash Flow Available for Debt Repurchase $2,542 5.3%
6.04%
$1,648
Illustrative Equity Value

Propco Enterprise Value (@ 7.5% cap rate) Plus: Cash / GGMI / Dvlpmt Pipeline / MPC (3) Less: Total Debt (EOP) Illustrative Equity Value Per Share
________________________________________________ (1) Assumes proceeds from ~$90mm sale of (2) (3)
$33,082 $32,155 $31,866 $32,153 $32,828 $33,813 $34,827 3,119 3,119 3,119 3,119 3,119 3,119 3,119 (28,059) (28,011) (27,851) (27,649) (27,372) (26,987) (26,525) $8,141 $7,263 $7,134 $7,623 $8,575 $9,944 $11,420 $25.47 $22.73 $22.32 $23.85 $26.83 $31.12 $35.74
Substantial Equity Cushion
Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company. Represents annualized Q109 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves. See valuation section for details. 36
Illustrative Deleveraging Analysis: Unsecured Debt Converts into Equity

Alternatively, 100% of GGPs unsecured lenders could be converted into equity. Under this scenario, GGP would be able to pay a meaningful cash dividend
(US$ in millions, except per unit data) 2008a 2009e $2,481 (2.4%) 73 98 (269) (180) (156) (183) (50) (1,392) $421 2.9% 2010e $2,412 (2.8%) (38) 92 (272) (112) (197) (99) (28) (1,392) $366 2.7% Seven Year Period 2011e $2,390 (0.9%) 15 91 (274) (200) (138) (35) (1,392) $457 3.4% 2012e $2,411 0.9% 25 92 (277) (200) (138) (35) (1,392) $487 3.6% 2013e $2,462 2.1% 50 96 (280) (205) (140) (35) (1,392) $557 3.9% 2014e $2,536 3.0% 75 102 (283) (205) (140) (35) (1,392) $658 4.3% 2015e $2,612 3.0% 75 108 (286) (210) (145) (35) (1,392) $728 4.4% Total

Cash NOI (excl MPC) Growth Plus / Less: MPCs (1) Plus: Fee income Less: Overhead from recurring ops (2) Less: Restructuring / Strategic costs Less: Maint Capex / TAs Less: Development capex Less: Other (incl income taxes, pfd distributions) Less: Pro Forma Interest expense (3) Cash Flow Available for Dividend Cash Dividend Yield $2,542 5.3%
6.45%
$3,673
Using conservative assumptions, GGP would be able to pay a 4.4% dividend yield by year 7 In this scenario, Unsecureds would require ~45% of postreorg equity to be made-whole

Propco Enterprise Value (@ 7.5% cap rate) Plus: Cash / GGMI / Dvlpmt Pipeline / MPC (4) Less: Total Debt (EOP) Illustrative Equity Value Per Share (Adj for dilution from debt conversion)
% of Equity Required for Unsecureds to get 100% of Claim
________________________________________________
$33,082 $32,155 $31,866 $32,153 $32,828 $33,813 $34,827 3,119 3,119 3,119 3,119 3,119 3,119 3,119 (21,588) (21,588) (21,588) (21,588) (21,588) (21,588) (21,588) $14,613 $13,686 $13,397 $13,684 $14,359 $15,344 $16,358 $25.12 $22.22 $21.31 $22.21 $24.32 $27.40 $30.58 Average 45.1% 48.1% 49.2% 48.1% 45.9% 42.9% 40.3% 45.6%
Note: Assumes $6.6bn of GGPs unsecured debt converts fully into equity. (1) Assumes proceeds from ~$90mm sale of Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company. (2) Represents annualized Q109 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves. (3) Assumes weighted average interest expense of unsecured debt is 4.7%. (4) 37 See valuation section for details.
What if our Simple Solution cannot be achieved consensually? The Bankruptcy Code offers the ability for debtors to cram down creditors so long as each class of creditor receives the present value of their claims
If a creditor is not paid in cash or property upon emergence, it must receive future payments, the present value of which equals its bankruptcy claim
Plans that invoke the cram down power often provide for installment payments over a period of years rather than a single payment. In such circumstances, the amount of each installment must be calibrated to ensure that, over time, the creditor receives disbursements whose total present value equals or exceeds that of the allowed claim. Opinion of Justice Stevens, Till v. SCS Credit Corp
What interest rate must the debtor pay over time on its obligations to its creditors in a cram down?
The Till Precedent

In the case of Till v. SCS Credit Corp. (2004), the U.S. Supreme Court established a precedent upon which to adjust interest rates in the bankruptcy context: If There is an Efficient Market:
If an efficient market exists for the debt, then the court may apply the market rate, which is the rate that the market will bear for the proposed loan
Absent an Efficient Market:

Absent an efficient market, the court is to apply a formula approach involving setting the rate at the prevailing prime rate plus a risk adjustment rate
generally between 1% and 3%

41
GGP falls into this category
The Logic of Till
Thus, unlike the coerced loan, presumptive contract rate, and cost of funds approaches, the formula approach entails a straightforward, familiar, and objective inquiry, and minimizes the need for potentially costly additional evidentiary proceedings. Moreover, the resulting prime-plus rate of interest depends only on the state of financial markets, the circumstances of the bankruptcy estate, and the characteristics of the loan, not on the creditors circumstances or its prior interactions with the debtor. For these reasons, the prime-plus rate best comports with the purposes of the Bankruptcy Code.
Opinion of Justice Stevens Supreme Court of the United States Till v. SCS Credit Corp May 17, 2004
42
The Progeny of Till

Since the Supreme Court ruling in 2004, Till has been applied in numerous bankruptcy proceedings Cases:
In re Bivens In re Cachu In re Cantwell In re Flores In re Harken In re Pokrzywinski In re Prussia Associates
________________________________________________
Rate:
Prime + 2.25% Prime + 0.5% Prime + 1.0% Prime + 1.0% Prime + 3.0% Prime + 1.5% Prime + 1.5%
Source:
317 B.R. 755, 769 (Bankr.N.D.Ill.2004) 321 B.R. 716, 725 (Bankr.E.D.Cal.2004) 336 B.R. 688, 45 (Bankr.D.N.J.2006) Not Reported in B.R. (Bankr.D.N.J.2006) Not Reported in B.R. (Bankr.N.D.Iowa.2004) 311 B.R. 846, 850-51 (Bankr.E.D.Wis.2004) 322 B.R. 572, 44 (Bankr.E.D.Pa.2005)
Note: The above list is not meant to be comprehensive.

43
In re Prussia Associates
The Bankruptcy Courts ruling in the case of Prussia Associates, a limited partnership that owns and operates one hotel in King of Prussia, PA, shows that even if an efficient market is deemed to exist, the Court might still opt for a prime-plus formula approach
The Court is constrained, therefore, to conclude that, although this case presented an occasion upon which it indeed made sense to inquire as to what the relevant market rate of interest might be, the totality of the evidence presented did not permit a sufficiently informed conclusion to be drawn. Put differently, this case demonstrates that the mere existence of an efficient market does not guarantee that the short-comings of the coerced loan approach to rate setting, as described in Till, will automatically be overcome. The Court will thus fall back upon Till, and the formula approach, as the preferred means for setting the interest rate herein. Opinion of Judge Raslavich United States Bankruptcy Court, E.D. Pennsylvania In re Prussia Associates April 5, 2005
44
In re Prussia Associates (Contd)

The Court ruled that the appropriate mortgage rate should be set at Prime + 1.5% (7.25%), despite the Creditors contention that the market rate was 9.72%
The prime rate as of today is 5.75%. This rate, therefore, will be the applicable base rate. The risk premium, per Till, will normally fluctuate between 1% and 3%. The appropriate size of the adjustment, per Till, will depend on factors such as the circumstances of the estate, the nature of the security and the duration and feasibility of the reorganization plan. The creditor bears the burden of proof on this issue. In this instance, [the Creditor] has raised certain legitimate questions as to the feasibility of the Debtors plan; however it has done little to overcome the evidence which indicates both that the Debtors operations are improving apace, and that the value of Fremonts collateral is appreciating steadily. The Court thus views the risks attendant to the proposed loan as neither negligible nor extreme. Based upon this, the Court will require the addition of a 1.5% risk premium to the aforesaid prime rate for the recast [Creditor] loan. Opinion of Judge Raslavich United States Bankruptcy Court, E.D. Pennsylvania In re Prussia Associates 45 April 5, 2005
We note that GGP is a higher quality, lower risk business than Prussia Associates, which owns one hotel, the Valley Forge Hilton
What Factors Will the Court Consider in Determining the Appropriate Risk Adjustment Spread for GGP?
Based on these precedents, we believe the court could confirm a plan at a rate that is lower than GGPs current weighted average interest rate
Cash flow in excess of interest expense NOI has increased since the issuance of >95% of GGPs outstanding loans In the process of deleveraging Cutting costs, lowering development spending and reducing cash dividend
Circumstances of the Estate
Appropriate RiskAdjustment Rate:
Nature of the Security Duration and Feasibility of POR
Oversecured Equivalent in value to the present value of the creditors claim
Prime-plus 0.5% 1.0%
Seven years, though debt paydown begins day one Highly feasible POR Negiligible risk of nonpayment
The appropriate size of [the] risk adjustment depends, of course, on such factors as the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan Opinion of Justice Stevens, Till v. SCS Credit Corp
46
The Prime Rate May be Sufficient

In light of GGPs highly diversified, high quality portfolio, in a reorganization where the unsecured debt converts to equity, the court may deem the Prime rate plus 0% to be a sufficient rate of interest on GGPs secured debt
Footnote 18: We note that, if the court could somehow be certain a debtor would complete his plan, the prime rate would be adequate to compensate any secured creditors forced to accept cram down loans Opinion of Justice Stevens, Till v. SCS Credit Corp.
47
What If GGPs Debt Were Re-Priced to Till-Mandated Rates?
Illustrative Deleveraging Analysis: Prime [3.25%] + 0.75% for Secured; Prime + 1.50% for Unsecured
A plan that sets GGPs secured debt and unsecured debt to Prime + 0.75% and Prime + 1.50%, respectively, would allow for substantial deleveraging and further increase the probability of a highly successful reorganization
(US$ in millions, except per unit data) 2008a 2009e $2,481 (2.4%) 73 98 (269) (180) (156) (183) (50) (1,161) $652 2010e $2,412 (2.8%) (38) 92 (272) (112) (197) (99) (28) (1,134) (126) $498 Seven Year Period 2011e $2,390 (0.9%) 15 91 (274) (200) (138) (35) (1,107) (120) $622 2012e $2,411 0.9% 25 92 (277) (200) (138) (35) (1,076) (124) $679 2013e $2,462 2.1% 50 96 (280) (205) (140) (35) (1,042) (137) $770 2014e $2,536 3.0% 75 102 (283) (205) (140) (35) (1,002) (155) $893 2015e $2,612 3.0% 75 108 (286) (210) (145) (35) (958) (177) $985 Total

Cash NOI (excl MPC) Growth Plus / Less: MPCs (1) Plus: Fee income Less: Overhead from recurring ops (2) Less: Restructuring / Strategic costs Less: Maint Capex / TAs Less: Development capex Less: Other (incl income taxes, pfd distributions) Less: Pro Forma Interest expense (3) Less: Cash dividend (10% cash) Cash Flow Available for Debt Repurchase $2,542 5.3%
$5,099

Propco Enterprise Value (@ 7.5% cap rate) Plus: Cash / GGMI / Dvlpmt Pipeline / MPC (4) Less: Total Debt (EOP) Illustrative Equity Value Per Share
________________________________________________ (1) (2) (3) (4)
$33,082 $32,155 $31,866 $32,153 $32,828 $33,813 $34,827 3,119 3,119 3,119 3,119 3,119 3,119 3,119 (27,522) (27,024) (26,402) (25,723) (24,953) (24,060) (23,075) $8,679 $8,251 $8,583 $9,548 $10,993 $12,871 $14,871 $27.16 $25.82 $26.86 $29.88 $34.40 $40.28 $46.53
Assumes proceeds from ~$90mm sale of Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company. Represents annualized Q109 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves. Sets secured debt interest rate at Prime + 0.75% (4.00%) and unsecured debt interest rate at Prime + 1.50% (4.75%). See valuation section for details. 49
Whats the Alternative?

GGP is not the exception many REITs have the same problem
________________________________________________
Source: Green Street estimates (5/14/09).
A liquidation will lead to a windfall for the secured creditors It will destroy the GGP franchise A liquidation will put downward pressure on real estate values impairing other borrowers ability to refinance Nearly all REITs and other leveraged real estate owners will likely suffer the same fate if GGP is forced to liquidate
50
Valuation
The Grand Canal Shoppes
Because creditors are not entitled to get more than 100% of their claim, valuation will play an important role in determining the extent to which GGP equity holders receive value in the bankruptcy process
Simon is the Best Comp for GGP REIT

Based on size, similarity of portfolio quality and relevant operating metrics, Simon represents the best comp for GGP
Note that ~20% of Simons GLA relates to the Mills portfolio. These properties have lower occupancy and rent per square foot than traditional regional malls and deserve a lower valuation than typical GGP assets
________________________________________________
Source: Green Street (May 14, 2009).

53
Simon Trades at an 8.4% Cap Rate

($ in millions, except per share data)
Share Price (as of 5/26/09) Shares & Units (1) Market Cap Pro Rata for JVs: (2) Plus: Total Debt (3) Plus: Preferred Debt Plus: Other Liabilities Less: Cash (4) Less: Other Assets (5) Less: Development Pipeline (6) TEV Less: Mgmt Business (7) Value of Simon's REIT LTM Cash NOI (8) Implied Cap Rate
$51.32 343 $17,598 24,172 276 1,983 (2,847) (2,285) (256) 38,641 (423) 38,218 $3,211 8.4%
(1) Includes 23mm share issuance on 5/12. Includes diluted shares as detailed on pg. 8 of Simon's operating supplement. (2) Numbers as reported in pro-rata balance sheet. (3) Includes $600mm senior note issuance on 5/12. (4) Includes proceeds from 23mm share issuance and $600mm senior note issuance, net of 3% fees. (5) Excludes goodwill. (6) Applies 25% discount to Simon's share of U.S. CIP (page 41 of operating supplement). (7) Applies 25% EBIT margin to LTM fee income of $130mm and a 13.0x EBIT multiple. (8) Excludes mgmt income. Adjusts for non-cash revenue items such as straight-line rent and FAS 141. NOI calculation deducts interest income and land sale gains from other revenue to be apples to apples with GGP.
54
Simon Debt Maturity Schedule

With ~$11bn of debt maturities coming due by 2012, we note that Simon has meaningful liquidity risk. We believe that Simons current valuation reflects a downward adjustment for liquidity risk and the likelihood of future equity dilution
________________________________________________
Source: Green Street (May 14, 2009).
55
Value of GGP REIT

Simons cap rate suggests the value of GGP REIT, not including GGMI and MPC, is somewhere between $9 and $22 per share.
($ in millions, except per share data)
Low $2,524 8.5% $29,689 (28,174) (121) (1,585) 722 1,777 603 2,911 $9.11
High $2,524 7.5% $33,647 (28,174) (121) (1,585) 722 1,777 603 6,870 $21.50
We believe the market assigns 100bp risk premium for Simons refinancing risk
LTM Cash NOI (1) Cap Rate Implied Value of GGP's REIT Pro Rata for JVs: (2) Less: Total Debt (3) Less: Preferred Debt Less: Other Liabilities (4) Plus: Cash (5) Plus: Other Assets (6) Plus: Development Pipeline (7) Implied Equity Value Per Share
Note that GGPs 2006 Loan Agreement uses a 6.75% Retail Cap Rate in its calculation of Capitalization Value for covenant purposes
(1) Excludes mgmt income. Adjusts for non-cash revenue items such as straight-line rent, FAS 141, and non- cash ground rent expense. (2) Applies 50% share to condensed balance sheet of unconsolidated real estate affiliates in 10-Q. (3) Includes $400mm DIP loan. (4) Excludes book value of deferred tax liabilities as these mostly relate to MPC. These are taken into account when valuing the MPC segment. (5) Includes $400mm DIP proceeds. (6) Excludes goodwill. (7) 40% discount to book value. 56
Why 7.5%
8.5% is a Conservative Cap Rate Range
Assuming that (i) GGPs A caliber assets deserve a 7.0% cap rate and (ii) 75% of GGPs NOI is derived from A assets, GGPs A assets alone are worth more than its liabilities
Assumptions:
GGPs top 50 assets generate 50% of NOI (see pg. 8) We estimate GGP has >80 A caliber assets (see pg. 7) Therefore, we assume ~75% of GGPs NOI is derived from A assets
________________________________________________ (1)
Illustrative Analysis: GGPs A Assets Alone are Greater than its Liabilities
($ in millions)
This analysis suggests GGPs A mall assets alone validate GGPs current market cap. When buying the equity at ~$1.19, one is getting the following for free: >130 non A malls >30 grocery-anchored strip centers GGMI MPC Hidden Asset Value
LTM Cash NOI (1) % of NOI from 'A' assets LTM Cash NOI - 'A' assets Illustrative Cap Rate - 'A' assets Asset Value - 'A' Assets Less: Total Debt (1) Less: Preferred Debt Less: Other Liabilities (1) Plus: Cash (1) Plus: Other Assets (1) Plus: Development Pipeline (1) Net Asset Value - 'A' Assets
$2,524 75.0% 1,893 7.0% $27,038 (28,174) (121) (1,585) 722 1,777 603 $260
See page 56 for details.
57
Historical Mall Cap Rates

Since 1986, Malls have traded at an average cap rate of 7.6%, and this average was achieved in much higher long-term interest rate markets
Historical Cap Rate Across Various Property Types
10.0%
9.0%
8.0%
7.0%
Mall Average: 7.6%
6.0%
Apartment Office Industrial Mall
5.0%
4.0%
Ja n86 Ja n87 Ja n88 Ja n89 Ja n90 Ja n91 Ja n92 Ja n93 Ja n94 Ja n95 Ja n96 Ja n97 Ja n98 Ja n99 Ja n00 Ja n01 Ja n02 Ja n03 Ja n04 Ja n05 Ja n06 Ja n07 Ja n08 Ja n09
________________________________________________
58
Source: Green Street. Cap rates are weighted by (% NOI from primary property type times market cap). Data from January, 1986 through February, 2009.
Value of GGMI
GGMI is one of the few national platforms capable of providing management and leasing services to regional retail centers. We estimate its value to be between $1 and $2 per share
($ in millions, except per share data) Low LTM Management Income & other fees EBIT Margin (1) LTM EBIT Multiple Value of GGMI Per Share $100 25.0% $25 13.0x $326 $1.02 High $100 35.0% $35 17.0x $596 $1.87
CB Richard Ellis trades at ~15x NTM EBIT
GGMI likely deserves a higher multiple given that CB Richard Elliss fee stream is more transaction driven
________________________________________________ (1) Pershing Square estimate.
59
Value of MPC
We estimate the net value of GGPs MPC segment to be anywhere between $0.27 and $6.72 per share
($ in millions, except per share data) Low
Estimated Value Per Share Gross Value of MPC as of 12/31/07 (1) Less: Estimated Bridgeland Portion (2) Gross Value of MPC as of 12/31/07 excl. Bridgeland Memo: Net Book Value (as of 3/31/09) Haircut Adj. Gross Value of MPC Plus: Estimated Proceeds from Sale of Bridgeland, net (3) Less: Present Value of Deferred Tax Liability (4) Net Value of MPC Per Share $3,280 (721) 2,559 1,391 100.0% 87 $87 $0.27
High
$3,280 (392) 2,888 1,391 20.0% 2,311 87 (250) $2,148 $6.72
As of 12/31/07, management estimated the gross value of these assets to be $3.3bn, more than $10 per share
This segment generated ~$150mm of net cash flow in 2005 and ~$190mm in 2006
________________________________________________
Note: Does not reflect impact of Contingent Stock Agreement, which could, in certain circumstances, create meaningful dilution. (1) Represents managements valuation of the gross assets as of 12/31/07. Source: page 22 of Q308 operating supplement. (2) Low case trues up 3/31/09 net book value of Bridgeland as a % of managements 12/31/07 gross value estimate. High case represents Bridgeland net book value as of 3/31/09. (3) Assumes Bridgeland is divested for $90mm, net of 3% transaction fees. (4) Pershing Square estimate. The present value of the tax liability will depend on the operating performance of the segment.
60
Hidden Asset Value: Las Vegas

GGPs Las Vegas assets have option value as future development sites
Fashion Show is a little bit of a different situation. The income there continues to grow very significantly, well ahead of our comp NOI average, and we expect that to continue. There are other things that we've been telling people for years that we're trying to get done there, including getting a certain portion of the project land in the Northeast corner under control, where we might be able to do additional development of that site, given its highly lucrative location right on the strip. So we wanted that flexibility.
Bernie Freibaum, Former CFO of GGP, Q108 earnings transcript

61
Hidden Asset Value: Victoria Ward

GGP recently received zoning approval to transform 60 acres of land in the heart of Honolulu into a vibrant and diverse neighborhood of residences, shops, entertainment and offices
The plan clears a path for GGP to bring to the oceanfront neighborhood as many as: * 4,300 residential units, many of them in towers aligned to preserve mountain and ocean views * 5 million square feet of retail shopping, restaurants and entertainment * 4 million square feet of offices and other commercial space * 700,000 square feet of industrial uses * 14 acres of open space, parks and public facilities
62
Hidden Asset Value: Park West

In 2007, GGP spent $105mm developing its Park West property in Peoria, AZ. Based on the recent photograph below, we estimate that this property has the potential to generate substantially more NOI. There are likely other properties like Park West that are currently under-earning in GGPs portfolio
63
Hidden Asset Value: Non-Recourse Financing

GGPs liabilities are one of its most valuable assets. Non-recourse debt gives the Company a put option at the mortgage amount on properties worth substantially less than their associated mortgage
Relative to other REITs, GGPs capital structure consists of a high amount of non-recourse mortgage debt The substantial majority of GGPs ~$22bn of secured financing is non-recourse
64
GGPs Assets are Greater than its Liabilities
Value Per Share

GGP REIT GGMI MPC Hidden Asset Value
Low $9.11 1.02 0.27 ? $10.40

774%
High $21.50 1.87 6.72 ? $30.08

2428%
Value Per Share

Premium to Current (as of 5/26/09)
65
Whats the Downside?

Using our most conservative assumptions, and assuming the conversion of all unsecured debt into equity at the cap rate implied by GGP equitys current fair market value of $380mm, equity need only retain 5.5% of the post-reorganization company to break even at todays stock price Illustrative Stock Price at Various Cap Rates and Post-Reorganization Ownership Levels:
Ownership 5.5% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 100.0% 7.5% $2.37 4.34 8.68 13.02 17.36 21.70 26.04 22.79 8.0% $2.01 3.68 7.36 11.04 14.73 18.41 22.09 16.21 Cap Rate 8.5% 9.0% $1.69 3.10 6.20 9.30 12.40 15.51 18.61 10.40 $1.41 2.58 5.17 7.75 10.34 12.92 15.51 5.24 9.4% $1.19 2.18 4.36 6.54 8.72 10.90 13.08 1.19 Does the Unsecured 10.0% Convert? $0.93 1.71 3.42 5.12 6.83 8.54 10.25 (3.53) Yes Yes Yes Yes Yes Yes Yes No
Conservative Assumptions:
Cap rate of 9.4% based on the current market cap of $380mm GGMI is worth $1.02 per share MPC is worth $0.27 per share No value assigned to hidden asset value opportunities
________________________________________________
Note: Current implied market cap based on $1.19 stock price as of 5/26/09. 66
Conclusion GGP equity offers an enormous potential reward for the risk taken High quality, recession-resistant assets Principal risks are bankruptcy court outcome and a further severe economic decline We believe bankruptcy law precedent and public policy will lead to a favorable outcome for shareholders Inflation is the friend of the leveraged mall company The nuisance value of the equity is meaningfully greater than zero
67
O No!
October 6, 2009
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates own investments in real estate investment trust including long investments (e.g., General Growth Properties, Inc.) as well as short investments (e.g., Realty Income Corporation). With respect to short investments, such investments may include, without limitation, credit-default swaps, equity put options and short sales of common stock. Pershing Square manages funds that are in the business of trading - buying and selling securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding the companies discussed in this presentation. Pershing Square may buy, sell, cover or otherwise change the form of its investment regarding such companies for any or no reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
1
We Are Short Realty Income

Realty Income (O) is a Triple-Net-Lease REIT
Owns standalone retail properties which it triple-net-
Ticker: O Stock price: $25 (1)
leases to middle-market retailers

Provides sale / leaseback financing to below
investment grade and unrated businesses
Capitalization:
Enterprise value: $4.3 billion Equity market value: $2.7 billion Total Debt (and preferred) / Enterprise value: ~40%
Recent valuation multiples:

1) Based on a five-day average price of $25.34 for the period 9/28/09 10/2/09. 2) Cap rate based on 2009E Cash NOI of $316mm.
09E Cap rate: 7.3%
(2)
Annualized current dividend yield: 6.8%

2
Realty Income: Business Review

Owns 2,338 predominantly free-standing retail properties
Single-tenant, typically specialty-use properties 19mm rentable sq ft in total Average rentable space per property is ~8,100 sq ft Lease term typically 15 - 20 years Top 15 tenants account for ~53% of rental revenues
Tenants:
Typically leased to regional or local retailers Many large tenants have junk credit ratings Many smaller tenants are unrated and compete in struggling sectors of the
retail industry Average remaining lease term is ~11.6 years Occupancy rate is currently very high at 97%
We believe a decline in occupancy is likely as tenant quality deteriorates
Source: 6/30/09 10-Q. 3
Realty Income: Specialty-Use Properties

Below are properties listed on Realty Incomes website (www.realtyincome.com) as for sale
Spring Hill, FL Former Day Care Center 5,371 sq ft
Wichita, KS Former Restaurant 3,129 sq ft
Richmond, IN Former Audio / Video Store 6,449 sq ft
Hurst, TX Former Video Rental Store 7,366 sq ft
Tucker, GA Former Auto Repair Shop 24,132 sq ft

4
Alexandria, LA Former Mexican Restaurant 5,858 sq ft
Capitalization and Trading Multiples

Realty Income trades at a 2009E Cap Rate of 7.3%, an AFFO multiple of 14.4x, and a dividend yield of approximately 6.8%, implying a valuation of $227 / rentable sq ft
Capitalization
$ in mm except per share and sq ft data
Trading Multiples
$25 105 $2,668 $1,645 4,313 19 $227
Recent share price Fully diluted shares Market Value of Equity Net Debt and Preferred Enterprise Value Rentable Square Feet (mm) Enterprise Value / Sq Ft
(1)
Cash NOI Cap Rate EV / EBITDA
(2)
2009E 7.3% 14.6x 14.1x 7.1% 14.4x 6.9% 6.8%
Price / Recurring FFO Yield Price / Recurring AFFO (3) Yield Dividend yield (4)
1) Based on the treasury stock method using all options outstanding. Includes all unvested restricted stock. 2) 2009E Cash NOI ($316mm) is based on estimates for recurring NOI adjusted for straight line rents. 3) Recurring AFFO = Estimated recurring net income + D&A recurring capital expenditures straight line rent adjustment. 4) 2009E dividend yield annualized for current monthly dividend.
5
The Monthly Dividend Company

Realty Income pays a dividend every month. It aggressively markets itself to retail investors as the Monthly Dividend Company.
Realty Incomes stated business purpose is to maintain and grow its monthly dividend
The First 9 Pages of the Annual Report

Cover Page 2 Page 3
First 9 Pages of the Annual Report (Contd)

Page 4 Page 5 Page 6
First 9 Pages of the Annual Report (Contd)

Page 7 Page 8 Page 9
10
Short Thesis: Investment Highlights
Short Thesis: Investment Highlights
Poor tenant quality

High concentration of discretionary retail tenants (casual dining restaurants,
movie theaters, day care centers, etc)

Junk or unrated credits, many with bankruptcy potential
Properties often have limited alternative use and high re-leasing risk
Unlike prime shopping center locations, Realty Incomes standalone locations
generally lack anchor tenants to drive traffic and assist in re-leasing
Os profitability is levered to occupancy

We believe the current 97% occupancy rate will decline due to tenant
deterioration
Realty Income is responsible for all expenses (taxes, insurance) and capital
expenditures associated with a vacant property until it is re-leased

A decrease in occupancy could materially impact NOI
12
Investment Highlights (contd)
Balance sheet assets doubled from 1/1/05 12/31/07

O was a leveraged lender to private equity during the real estate and credit
bubbles
Dividend coverage is minimal

If O misses its dividend, the Companys reason for being is in question
O trades at a substantialand we believe unjustifiedpremium to private market valuations

Asking prices for properties similar to Os are at a 10%-11% cap rate We dont believe that O shareholders are being paid appropriately for tenant risk
We believe that the monthly dividend marketing tactic has created demand for O stock from retail investors who may not value the company appropriately At a 9.5% Cap Rate and a 7.5% decline in NOI, Realty Income would have a stock price of ~$14 (down ~46%)
13
Tenants: O Does Not Disclose Its Tenants

Unlike many other REITs, Realty Income does not disclose its tenants
Simon Property Group, for example, discloses tenants representing as little
as 0.2% of its minimum rental income
Limited transparency as to:

Names of tenants Credit of tenants Average credit rating of total tenant pool Individual tenant contribution to revenue
Analysts and investors have asked for more tenant disclosure, but the Company has refused QUESTION: Why? ANSWER: We believe that Os tenant quality is poor and the company is concerned about the impact of transparency on its stock price
14
Tenants: O Does Not Disclose Its Tenants

Q1 2009 Earnings Call Q2 2009 Earnings Call
Analyst: I was just wondering if the RV dealer, Camping World, that's at that 1.2 times, 1.22 times [EBITDAR-to-rent coverage] at the low end, if they're one of the ones that only discloses annually? I was just surprised to see that that 1.22 didn't move. Company Representative: Right. We do not discuss the individual business of tenants, so I wouldn't comment to that. Analyst: Okay. Company Representative: And we never referred to them as that tenant.
15
Analyst: The other thing is Rite Aid announced that they're seeking rent relief on 500 stores earlier this quarter -- or I guess in the second quarter. Of the 24 Rite Aids that are in your portfolio, do you have any exposure? I mean it's obviously not their whole -- their entire store base. It's just a fraction of their system. I'm just wondering if you have any exposure to that. Company Representative: Yes, it's not our policy to comment on our individual tenants and what they're doing. We could sit here all day. We have 118 tenants. And a lot of times on these calls, people get mentioned who aren't our tenants, so that's the policy we'll maintain.
Tenants: Discretionary Consumer Risk

Realty Income Tenant Industries
Restaurants Convenience stores Theaters Child care Automotive tire services Health and fitness Automotive service Drug stores Motor vehicle dealerships Sporting goods Home improvement Other Total
Source: 6/30/09 10-Q
As of 6/30/09
21% 17% 9% 8% 7% 6% 5% 4% 3% 2% 2% 16% 100%
16
Although Realty Income does not disclose its tenants, it provides tenant industry information
The vast majority of its tenants are discretionary, regional retailers
Nearly 40% are restaurants (predominantly casual dining restaurants) and convenience stores
Largest Tenants Are Poor Credits

We list below some of Realty Incomes largest tenants that we have been able to identify. They are all junk credits with high leverage
Tenant Description Casual dining / steak-buffet restaurants Regional convenience store operator (Southeast US) Day care operator Credit Rating Junk: Caa1

Commentary Adj. Debt / EBITDAR: 6.5x (1) Emerged from bankruptcy in 2009 Adj. Debt / EBITDAR: 5.0x (2) Bonds trade at 9.75% yield Adj. Debt/ EBITDAR: 7.4x (3) Morgan Stanley Private Equity LBO Adj. Debt/ EBITDAR: 5.9x (4)
Buffets (owns Ryans Grill Buffet Bakery) Pantry
Junk: B+
Estimated ~20% of Realty Incomes revenues (6)
La Petite Academy (Learning Care Group)
Junk: B-
Kerasotes Showplace Theatres
Movie theatre chain
Junk: B-
Day care operator Knowledge Learning Corp. (Childrens World)
Junk: B1
Adj. Debt/ EBITDAR: 4.7x (5)
Sources for tenants: Compiled using Wall Street Research, Os filings, Os website, various press reports and Os earnings conference calls. 1) Source: Moodys, April 2009. Based on Moodys estimates post emergence from bankruptcy. 2) Source: Company filings, LTM ended June 2009. Capitalized operating rents calculated at 8x rent expense. 3) Based on Learning Care Group (parent company) S&P corporate ratings, leverage estimate for LTM ended June 2009. 4) Source: S&P, leverage estimate for LTM ended June 2009. 5) Source: Moodys, leverage estimate for LTM ended June 2009. 6) Based on Citi sell-side report entitled, Realty Income Corp (O): Non-Investment Grade Tenant Credit Weakness and Margin Pressure Add Risk, dated 8/1/08. 17
Other Major Tenants Are Also a Major Concern

Other major tenants are mostly regional discretionary retailers, including several 2005-2007 vintage LBOs. Some tenants have already filed Chapter 11 and we believe many could be forced to liquidate
Listed in no particular order
Tenant Description Casual dining restaurants

Leverage / Commentary Largest Pizza Hut franchisee Adj. Debt / EBITDAR: 5.7x Merrill Lynch PE LBO (2006) Adj. Debt/ EBITDAR: 5.8x
NPC International
Midas Big 10 Tires
Retail automotive services Tire retailer
Filed for Chapter 11 (4/2/09)
Realty Income major tenants(1)
Friendlys Rite Aid Pier 1 Imports Sports Authority Circle K
Casual dining / ice cream distributor Drug store chain
Sun Capital LBO (2007)
Adj. Debt/ EBITDAR: 9.6x Bonds trade between 10 - 13%+ yield LTM EBITDA is negative
Specialty retailer of home furnishings Specialty apparel retailer Convenience store operator
Leonard Green LBO (2006) Mezz. Loan implied yield of ~18% O provided $100.5m of saleleaseback financing for Alimentation Couche-Tard acquisition of Circle K
Source for Adj. Debt / EBITDAR: Company filings (capitalized operating rents calculated at 8x rent expense) and recent credit rating agency reports. Sources for tenants: Compiled using Wall Street Research, O filings, Os website, various press reports and Os earnings conference calls. 1) We define a major tenant as renting 10 or more Realty Income properties OR involved in a sale/leaseback transaction with O for $30m or greater. 18
If a Tenant Files for Bankruptcy Tenant bankruptcy filings raise a number of issues:
Tenants in Chapter 11 could choose to reject their lease(s) Vacant properties have re-leasing risk, typically require significant capital investment and brokerage commissions, and may be re-leased at materially lower rents Tenants armed with market and/or bankruptcy leverage will likely seek to renegotiate rents
19
Balance Sheet Doubled from 1/1/05 12/31/07

During the peak of the real estate and credit bubbles, Realty Incomes assets more than doubled from $1.4bn to $3.1bn as the company became a financing source for LBOs and corporate M&A
Realty Income Total Assets
$3,500
$3,000
1/1 / Cr 0 5 1 ed it B 2/31 ub /07 ble
$3.1 bn
$2,500
Realty Income provided financing for the following LBOs:

Year Financing Amount Transaction LBO Firm
$2,000
2006
$350mm
$1,500
$1.4 bn
$860mm LBO of Ryans Restaurants (acquired by Buffets)
CaxtonIseman Capital (owner of Buffets) Sun Capital
$1,000
2007
Undisclosed amount
$500
~$340mm LBO of Friendlys Sale/LB for 160 Restaurants restaurants
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
20
2008
Note: Realty Income entered into a sale/leaseback transaction with Friendlys in October 2007, shortly after the August 2007 LBO of Friendlys by Sun Capital.
Dividend Coverage is Minimal

Dividend coverage is minimal. Small declines in NOI will stress the companys ability to maintain its dividend
Minimal room for error
Decline in Recurring 2009E NOI (1) 0.0% Recurring AFFO/share (2) Current annualized dividend Dividend coverage Required Dividend Decrease $1.76 $1.76 $1.71 103% NA -2.5% $1.68 $1.71 98% -2% -5.0% $1.61 $1.71 94% -6% -7.5% $1.53 $1.71 89% -11% -10.0% $1.46 $1.71 85% -15%
1) Calculation of AFFO assumes $21mm of G&A expenses, $3mm of capex and straight line rent adjustments, and $86mm of interest expense. 2) Recurring AFFO = Recurring Net Income + D&A Cap Ex straight line rent adjustment. 21
What Could Happen If?

Despite having no debt maturities until 2013, Realty Income could face significant problems if its tenants continue to go bankrupt
Even a small decline in NOI could prevent the company from funding
its current dividend from operating cash flow Liquidity from Os current revolver may be at risk if there are sufficient asset writedowns or sufficient reductions in FFO(1) (2)
Asset writedowns could be caused by tenant bankruptcies and / or declines
in real estate values

Current cash on hand represents only about 2.5 months of dividends
O may need to reduce its cash dividend which we expect would adversely impact its stock price
Many retail shareholders own the stock for its monthly dividend
We believe that Os stock price depends on its ability to maintain its monthly dividend
1) Dividends and Other Restricted Payments covenant: Per the Credit Agreement (5/15/08), quarterly dividends and share repurchases may not exceed 95% of FFO plus preferred dividends for each of the trailing four quarters. 2) Minimum Tangible Net Worth covenant: Per the Credit Agreement (5/15/08), we estimate that O must maintain a Tangible Net Worth of ~$1.3bn and that Tangible Net Worth is currently ~$1.6bn (as of 6/30/09) implying that O has an approximate $0.3bn cushion under that credit facility. Os Net PPE is approximately $2.8bn. 22
Os Business Model and its Stock Price

We believe that Realty Incomes ability to grow its dividend is a function of several factors including:
1. Performance and creditworthiness of its existing tenant portfolio 2. Ability to issue equity at a valuation materially higher than private market values
We believe that if Realty Incomes stock price were to decline meaningfully, its business model could be in jeopardy
23
Equity Offerings: Ceiling on Valuation

Since 2005, Realty Income has issued equity to the public five times at an average price of $25 and at ranges from $23.79 - $26.82
Average price of equity offerings: $25.15
Denotes equity offering
Given Os recent stock price of ~$25, we would not be surprised if Realty Income issues equity soon, based on this history
24
Properties Offered for Sale at a 11% Cap Rate

Current asking prices for some Ryans restaurants (one of Os largest tenants) is an 11% cap rate. In comparison, Realty Income trades at a 7.3% cap rate
Tenant Ryans Grill Buffet Bakery Location Indianapolis, IN Sq Ft 9,601 Price / SqFt $178 Cap Rate 11%
Ryans Grill Buffet Bakery
Millington, TN
9,752
$176
11%
Springfield, MO
11,557
$148
11%
Simpsonville, SC
10,607
$161
11%
Gastonia, NC
10,164
$169
11%
Oak Ridge, TN
10,403
$165
11%
Seymour, IN
12,331
$139
11%
Foley, AL
10,996
$156
11%
Gardendale, AL
11,066
$155
11%
Source: All listings with Colliers International.
25
Unwarranted Premium to Private Market Value

Knowledge Learning Corp., a large tenant of Os, lists properties for sale on its website at $115/sq ft, on average. In comparison, Realty Income trades at $227/sq ft, a 97% premium
City
Waterford Decatur Jonesboro Snellville Beverly Hattiesburg Glassboro Lawrenceville Desoto Garland Houston Sterling Kennewick West Allis Temecula Farmington Hills Indianapolis Sugarland Lebanon
State
CT GA GA GA MA MS NJ NJ TX TX TX VA WA WI CA MI IN TX PA
Bldg Size(sq ft)

6,054 6,400 4,631 6,365 4,335 4,625 4,982 4,739 14,588 8,724 7,380 5,130 7,243 4,860 6,206 8,880 9,166 6,182 6,312
Land Size
1 Acre 48,351 39,204 1.3 Acres 23,990 22,000 105,850 96,703 61,021 56,327 20,892 0.75 Acres 31,947 0.25 Acres 34,788 71,743 58,065 33,149 23,225
Listing Price
$299,000 $700,000 $440,000 $650,000 $460,000 $500,000 $990,000 $990,000 $850,000 $925,000 $500,000 $995,000 $1,200,000 $250,000 $870,000 $735,000 $900,000 $925,000 $600,000
Price/ Bldg Sq Ft
$49 $109 $95 $102 $106 $108 $199 $209 $58 $106 $68 $194 $166 $51 $140 $83 $98 $150 $95
Not one property is offered for sale at or above Os valuation
Avg Listing Price / Sq Ft Realty Income Valuation Enterprise Value / Sq Ft Premium

26
$115 $227 97%
Source: www.knowledgelearning.com/xls/Real-Estate-Listings.xls
Managements View on Private Market Valuations

In talking about cap rates -- I mentioned this last quarter, but I think it really is worthwhile saying -- and that is if you look back on the 40 years that we've been doing this and kind of follow cap rates, from 2005 to 2008, we were buying kind of in the 8.4% to 8.7% cap rate range, and in those years bought about $1.5 billion worth of property. And I'd probably estimate that we were 75 to 100 basis points in cap rate above where the one-off market was, which was really a function of buying in bulk and you get a better price and a better cap rate. From 2003 to 2004, the caps were around 9.5, and if you go back to when we went public in '94 and take it to 2003, I went back and looked, and the cap rates from during that period were always between 10 and 11. And then going back and looking at transactions going all the way back before '94, cap rates were pretty much always up 11% or so. So I really think that kind of the 7 and 8 caps that you saw at retail and even some of the 9 caps on the institutional transaction, like a lot of assets in many different areas, were a function of the abundant and cheap financing that was out there, and it shouldn't be too surprising to see cap rates moving up again.
--Tom Lewis, Realty Income, CEO Q2 2009 Conference Call
27
If private market cap rates today for Realty Income-type properties are between 10% - 11%, then why should Realty Income trade at a 7.3% cap rate?
Why is a ~40% premium to NAV justified?
28
RE Index Versus Realty Income Since 1/1/2008

Despite its tenant exposure, Realty income has outperformed the U.S. real estate index (1) by ~35% since January 1, 2008
1) As measured by iShares Dow Jones Real Estate Index Fund 29
Insider Ownership and Selling

Realty Income does not foster an ownership culture
Despite restricted stock grants, insiders own less than 1.5% of the company The top three executives (CEO, COO, CFO) own less than 1% of the company despite having an average tenure at the company of 18 years
CEO, COO and CFO have not made an open market stock
purchase in over six years
Material insider selling

On August 3, 2009, CEO Tom Lewis sold ~20% of his holdings at $23.69, below todays stock price
On the same day, COO Gary Malino sold ~9% of his holdings
30
Insider Ownership and Selling

Are Insiders and Shareholders playing on an even field? Why should Management be permitted to sell stock knowing the identity of all tenants and their creditworthiness while shareholders are kept in the dark? We believe that the SEC should immediately require Realty Income to disclose to all shareholders a list of its tenants and financial information sufficient to assess their creditworthiness We believe that there is no competitive or other business reason why Realty Income should not be required to do so
31
Short Sensitivity Analysis

Stock price at various cap rates and decline rates in 2009E Cash NOI
Assuming 2009E recurring Cash NOI of $316mm, if NOI drops only 5% to 10% and Os cap rate increases to 9.5% to 10.5%, Realty Incomes stock price could decline ~43% to ~60% from recent prices
$17.93 8.5% 9.0% 9.5% 10.0% 10.5% 11.0%
Decline in 2009E Cash NOI -2.5% -5.0% -7.5% -10.0% $19 $18 $17 $16 $17 $16 $15 $14 $15 $14 $14 $13 $14 $13 $12 $11 $12 $12 $11 $10 $11 $10 $10 $9
-12.5% $15 $14 $12 $11 $9 $8
Stock price return (from $25) at various cap rates and decline rates in 2009E Cash NOI
Decline in 2009E Cash NOI -5.0% -7.5% -10.0% -29% -33% -36% -37% -40% -43% -43% -46% -49% -49% -52% -55% -54% -57% -60% -59% -62% -65%
Cap rate
8.5% 9.0% 9.5% 10.0% 10.5% 11.0%

32
-2.5% -26% -33% -40% -46% -52% -57%
-12.5% -40% -46% -53% -58% -63% -67%
Cap rate
How is Management Compensated?

Management is compensated with restricted stock, no options are granted
In 2001, Realty Income discontinued the practice of granting stock options in favor
of only granting stock awards

Os 2008 10-K: We believe that stock awards are a more appropriate incentive
to our executive officers given the focus of our business on monthly dividends
Vesting program for restricted stock is highly unusual

Based on age rather than years of service New program approved in August 2008
Employee Age at Grant Date 55 and below 56 57 58 59 60 and above Vesting period 5 years 4 years 3 years 2 years 1 year Immediate
Executive
Thomas A. Lewis Gary M. Malino Paul M. Meurer Michael R. Pfeiffer Richard G. Collins Robert J. Israel Laura S. King Michael K. Press
33
Title
CEO, Vice Chairman COO CFO General Counsel EVP, Portfolio Management SVP, Research SVP, Assistant GC SVP, Head of Acquisitions
Age
56 51 43 48 60 49 47 35
Conclusion
We believe that Realty Incomes current shareholders are not being sufficiently compensated for the companys tenant risk
Shareholders and investors should demand transparency from Os management
regarding its tenants If tenant deterioration continues

Realty Incomes cash flow may not be sufficient to pay its current dividend
We believe that the SEC should require Reality Income to disclose its tenants because without this information it is nearly impossible to value the company and its associated risks At $25 and a 7.3% cap rate, we believe there is little downside to the short
~40% premium to current private market valuations Company has historically issued stock at these levels Ceiling on valuation
34
Prisons Dilemma
October 20, 2009
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in common stock and total return swaps on Corrections Corporation of America (CXW). Pershing Square manages funds that are in the business of trading buying and selling securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding CXW. Pershing Square may buy, sell, cover or otherwise change the form of its investment in CXW for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
Corrections Corporation of America

Corrections Corp owns and operates private prisons Owns the land and building at most of its facilities
Ticker: CXW Stock price: $24.50 (1)
Largest private prison company Fifth largest prison manager behind California, the Bureau of Prisons, Texas and Florida
Capitalization:
Enterprise value: $4.1 billion Equity market value: $2.9 billion
Recent valuation multiples:

09e Cap rate: 12.2% 09e P / Free Cash Flow Per Share: 13.3x
1) All financials in this presentation assume a share price of $24.50.
2
Overview of CXW
CXW operates its business in two segments: Owned & Managed Facilities and Managed Facilities
Owned & Managed Facilities

CXW owns the land and building for the vast majority of its owned & managed facilities 44 owned & managed facilities 61,054 beds ~35% Facility EBITDA margin High-multiple, high-margin business
Managed Facilities
CXW operates facilities on the governments behalf, but does not own the underlying property 20 managed facilities 25,916 beds ~14% Facility EBITDA margin Subject to higher competition
~90% of Facility EBITDA

________________________________________________
~10% of Facility EBITDA
Note: Facility EBITDA is before G&A.

3
Strong National Footprint
________________________________________________
Source: CXW investor presentation, Aug. 2009. 4
Tenants Unlikely to Default

CXW provides services under management contracts to all three federal agencies, 19 state agencies, the District of Columbia and multiple local agencies
Other States Alaska Arizona Hawaii Kentucky Minnesota Oklahoma Vermont
________________________________________________
Source: CXW investor presentation, Aug. 2009.
Market Leader
CXW is the clear leader in privatized prisons, controlling approximately 46% of the private prison and jail beds in the U.S.
________________________________________________
Spare Capacity (includes development projects not yet completed)
He who has the beds gets the prisoners

NA
~12,000
________________________________________________
~7,000
~2,000
NA
Source: Company filings and Pershing Square estimates. 6
Large and Under-penetrated Market

CXW addresses a total U.S. market that exceeds $65bn, of which only ~8% is outsourced. Privatized beds have grown from nearly 11,000 in 1990 to over 185,000 today (17% CAGR)
________________________________________________
Source: Bureau of Justice Statistic: Prison Inmates at Midyear 2008, CXW investor presentation, Aug. 2009. 7
Supply / Demand Imbalance

Public-sector correctional systems are currently operating at, or in excess of, design capacity
________________________________________________
Across the state of California, facilities are running at 170% of designed capacity
8
Competitive Advantage: State vs. Private

CXW has historically outperformed the public sector in safety and security
________________________________________________
Competitive Advantage: State vs. Private (Contd)

As a private company, CXW has cost and efficiency advantages compared with its largest competitor State / Federal Lead Time for Prison Build Cost to Build / Bed Annual OpEx / Inmate (1) Average Age of Facility Private
5 to 8 yrs ~$100-$150k $24k Old
~1.5 yrs <$70k ~$16k New
________________________________________________ (1)
Source: 2007 Pew Charitable Trusts report Public Safety, Public Spending Forecasting Americas Prison Population 2007 2011. Annual Operating Cost per Inmate for the year 2005. States vary widely; for instance, California had a $34k annual operating cost per inmate in 2005. 10
Increasing Market Penetration

Because of constraints in new public prison construction, private prison operators were able to capture 49% of the incremental growth in U.S. inmate populations in 2007
11
Historical Prison Population Growth

Historically, inmate populations in the U.S. have grown regardless of economic factors
12
Prison Populations Expected to Rise
13
Federal Demand Drives Growth

Federal demand alone could fill CXWs ~12,000 bed inventory over the coming years
The Federal Bureau of Prisons (BOP) is currently operating at 137% of rated capacity, with a stated desire to operate closer to 115% The BOP projects that between 2008 and 2011 its population will grow by ~19,000 inmates, with just over 12,000 new beds planned for development by 2012 The United States Marshals Service (USMS) has a population of about 60,000-65,000 and has grown 8%-10% per annum over the last five years Since 1994, Immigration and Customs Enforcement (ICE) detainee populations have grown by over 300% to ~35,000
14
Federal Demand Drivers BOP: Shift from 137% to 115% capacity (1) BOP: Undeveloped growth (2) USMS / ICE (3) Incremental Federal Demand CXW inventory (as of 8/1/09) (4) Incr. Federal Demand as % of Inventory Capture Rate Required to Fill Inventory
________________________________________________ (1) (2)
Beds 28,000 7,000 15,000 50,000 11,979 417% 24%
(3) (4)
Based on 172,827 inmates in BOP facilities as of 9/26/09. Source: BOP website. Assumes the shift from 137% to 115% takes place over the next three years. The BOP projects its inmate population will grow by ~19,000 inmates from 2008 to 2011 but has only planned the development of ~12,000 beds. Assumes ~5% growth of USMS / ICE inmate populations over the next three years. Includes 2,572 beds not yet developed. Source: CXW investor presentation, Aug. 2009.
State Demand Drives Growth

State prison populations are projected to increase by more than 90,000 over the next three years. If CXW can capture ~13% of this demand, it could achieve 100% occupancy
Of the 19 state customers that CCA does business with, we are currently
estimating that those states will have an incremental growth that will be twice as much as their funded plan capacity by 2013. Damon Hininger, CEO, Q1 Earnings Call
15
Supply / Demand Imbalance Drives Growth

If private prisons can capture just 25% of the incremental growth in the U.S. inmate population, CXW should achieve >98% occupancy in its Owned & Managed business by 2012. Private prison operators captured 49% of the growth in 2007 as state budget pressures have postponed new prison construction
(Beds in thousands) 2004a Market Analysis Total Inmate Population (MM) (1) Growth Private Inmate Pop'n (000s) (2) Growth % Private Incremental Private Inmates Incremental Total Inmates Private Capture Rate (2) Incremental Private Inmates CXW Capture Rate (Owned only) 1,546 2.1% 107 5.0% 6.9% 32 16.1% 5 27.7% 1,580 2.2% 114 6.8% 7.2% 33 21.6% 7 18.5% 1.3 88.3% 1.3 88.3% 1,627 3.0% 126 10.7% 7.7% 48 25.5% 12 33.6% 4.1 93.9% 4.1 93.9% 1,655 1.7% 139 10.7% 8.4% 27 49.1% 13 33.4% 4.5 98.6% 4.5 98.6% 1,677 1.3% 147 5.6% 8.8% 22 35.0% 8 43.6% 3.4 94.5% 3.4 94.5% 1,701 1.4% 153 4.1% 9.0% 24 25.0% 6 40.0% 2.4 87.5% 1.9 86.6% 1,726 1.5% 159 4.2% 9.2% 26 25.0% 6 40.0% 2.6 89.8% 2.0 88.0% 1,760 1.9% 168 5.3% 9.5% 34 25.0% 8 40.0% 3.4 93.2% 3.3 91.5% 1,795 2.0% 177 5.2% 9.8% 35 25.0% 9 40.0% 3.5 98.7% 2.5 95.5% 2005a Potential Growth Opportunity 2006a 2007a 2008a 2009e 2010e 2011e 2012e
We estimate CXWs owned beds represent >40% of the industrys spare capacity
Incremental CXW Beds (Owned) 1.4 Occupancy (Owned) 90.3% Memo: Pershing Square Forecast Incremental CXW Beds (Owned) Occupancy (Owned) 1.4 90.3%
Potential upside to our estimates
(1) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics. Excludes juvenile, jail and ICE population. Source ('08-'12): In 2007, Pew Charitable Trust estimated there will be an incremental 153,000 prisoners by YE 2011. This analysis assumes an incremental 140,000 prisoners by YE 2012. (2) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics. Excludes juvenile, jail and ICE population. Assumes 35% private capture rate in 2008 and 25% private capture rate going forward.
16
Near-Term Catalysts: Post-Recession Growth

Inmate populations have historically grown at an accelerated rate after recessions
Increased crime during times of economic weakness and high U.S. recidivism rates drive post-recessionary inmate population growth
Of 300,000 prisoners released from 15 states in 1994, 67.5% were rearrested for a new offense within three years (1)
17
Near-Term Catalysts: Increased Occupancy Drives EBITDA

At current margins, CXW management estimates its inventory of existing beds could generate an additional ~$100mm of EBITDA
________________________________________________
18
Near-Term Catalysts: Operating Leverage

Management derives its ~$100mm estimate by applying CXWs Q209 margin to the lease-up of its existing inventory; however, approximately 84% of the costs in CXWs Owned & Managed Facilities segment are fixed
CXW Facilities (Owned-only) Revenue per man-day Less: Fixed expense per man-day (1) Less: Variable expense per man-day (2) Facility EBITDA per Man-Day Margin Contribution Margin Analysis: (3) Revenue per man-day Less: Variable expense per man-day Facility EBITDA per Incremental Man-Day Contribution Margin Q2'09 $66.88 (32.74) (10.68) $23.46 35.1% $66.88 (10.68) $56.20 84.0%
Implies ~$100mm of incremental EBITDA
Implies ~$230mm of incremental EBITDA
While this contribution margin analysis implies $230mm of incremental EBITDA, we believe the actual number will be somewhere between $100mm and $230mm
________________________________________________
Source: CXW Q209 financial supplement. See page 33 of the CXW investor presentation for details of the assumptions used to derive managements ~$100mm estimate. (1) The vast majority of CXWs fixed expense is labor. Also includes utilities, property taxes, insurance, repairs & maintenance and other similar expenses. (2) Includes legal, medical, food, welfare and other similar expenses. (3) This analysis is illustrative. We note that there will be some amount of incremental fixed expense associated with the ramp-up of CXWs inventory as staffing requirements increase with occupancy. 19 We further note that some of the beds in CXWs inventory have not yet been developed, and therefore do not yet have associated fixed expenses.
Near-Term Catalysts: Stock Buyback

CXWs repurchase of 10.7 million shares in Q4 08 Q2 09 (~8.5% of total shares) provides a tailwind for NTM free cash flow per share growth
Recent Share Repurchases Timeframe November through December 31 January through February February through May Total Memo: Remaining Buyback Authorization Shares (mm) Amount (mm) 1.1 1.4 8.2 10.7 $16.6 21.4 87.0 $125.0 $25.0 Per Share $15.09 $15.29 $10.61 $11.68
Q108a WASO Growth (YoY) 126.1
Q208a 126.5
Q308a 126.5
Quarter Ended, Q408a Q109a 126.1 120.6 (4.4%)
Q209a 115.7 (8.6%)
Q309e 117.3 (7.3%)
Q409e 117.3 (7.0%)
20
Strong Free Cash Flow Generation

Because prisons are made of concrete and steel, depreciation expense meaningfully exceeds maintenance capex. As a result, CXWs free cash flow per share is substantially greater than earnings per share
$2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
2003a 2004a 2005a 2006a 2007a 2008a
$1.73 $1.40 $1.06 $0.84 $0.59 $0.64 $0.53 $0.40 $0.61 $0.86 $1.20 $1.07
Diluted EPS
________________________________________________
Normalized FCFPS
21
Strong Balance Sheet

As of Q209, CXWs interest coverage ratio was 5.4x. Its next debt maturity is not until 2012. Its cash interest expense is less than 6%, and more than 80% of its debt is fixed rate
________________________________________________
22
High Returns on Capital
________________________________________________
23
Culture of Equity Ownership

Board and management own more than 6 million shares of CXW (1)
Name of Beneficial Owner William F. Andrews John D. Ferguson Donna M. Alvarado Lucius E. Burch, III John D. Correnti Dennis W. DeConcini John R. Horne C. Michael Jacobi Thurgood Marshall, Jr. Charles L. Overby John R. Prann, Jr. Joseph V. Russell Henri L. Wedell Damon Hininger Todd J. Mullenger G.A. Puryear, IV Richard P. Seiter William K. Rusak (2) All Directors & Exexutive Officers as a Group Percent of Common Stock Beneficially Owned (3)
________________________________________________
Title Director Chairman Director Director Director Director Director Director Director Director Director Director Director Chief Executive Officer Chief Financial Officer General Counsel Chief Corrections Officer Chief of Human Resources
Total Beneficial Ownership (1) 525,523 1,711,455 50,916 1,282,934 83,124 5,500 100,166 97,700 72,998 47,284 87,232 352,410 1,377,920 20,489 134,072 159,295 144,742 91,984 6,453,308 5.4%
Source: CXW March 31, 2009 proxy and Bloomberg. (1) Includes shares that could be purchased upon exercise of stock options at March 1, 2009 or within 60 days thereafter. (2) William Rusak was succeeded by Brian Collins on September 14, 2009. (3) Based on 117,681,012 shares outstanding as of March 1, 2009. Deems shares that could be purchased upon exercise of stock options as shares outstanding. 24
Valuation
CXW Capitalization and Multiples

CXW trades for ~13x free cash flow per share or at an implied cap rate of 12.2%
(US$ in mm, except per share data) Capitalization Share Price FDSO Market Cap Plus: Debt Less: Cash & Equivalents TEV $24.50 117 $2,873 1,212 (28) $4,057
Summary Financials
2008a Avg Occupied Beds (owned only) Avg Total Beds (owned only) Occupancy (owned only) Revenue
Growth
2009e 52,868 61,043 86.6% $1,650

3.2%
2010e 54,889 62,340 88.0% $1,723

4.4%
2011e 58,218 63,626 91.5% $1,828

6.1%
2012e 60,763 63,626 95.5% $1,932

5.7%
51,005 53,990 94.5% $1,599

8.1%
NOI (owned only) (2)

Margin
431
27.0%
445
27.0%
467
27.1%
514
28.1%
571
29.6%
Cap Rate Analysis TEV Less: Mgmt Business (1) PropCo TEV 2009e NOI (owned only) (2) Cap Rate $4,057 (400) $3,657 445 12.2%
EBITDA
Margin
395
24.7%
402
24.3%
419
24.3%
462
25.3%
518
26.8%
EBITDA - Maint Capex

Margin
359
22.5%
362
22.0%
372
21.6%
414
22.7%
470
24.3%
Normalized FCFPS (3)

Growth
$1.73
23.6%
$1.84
6.4%
$1.95
5.9%
$2.34
19.9%
$2.90
23.8%
Trading Multiples
2008a TEV / EBITDA TEV / EBITDA - Maint Capex Implied Cap Rate P / Normalized FCFPS 10.3x 11.3x 11.8% 14.2x 2009e 10.1x 11.2x 12.2% 13.3x 2010e 9.7x 10.9x 12.7% 12.6x 2011e 8.8x 9.8x 14.0% 10.5x 2012e 7.8x 8.6x 15.6% 8.5x
________________________________________________ (1) (2) (3)
Applies an 8.0x multiple to Facility EBITDA from the management business. NOI is defined as Facility EBITDA from CXWs Owned & Managed segment (owned only). Assumes a 38% cash tax rate. Assumes CXW uses future free cash flow to repurchase shares at a premium to market.
26
Historical Stock Chart

$35 $30 $105,000 $95,000
$24.50
$25 $20 $15 $10 $5 $0 $85,000 $75,000 $65,000 $55,000 $45,000 $35,000
Jan-07
Jul-07
Feb-08
Stock Price
Sep-08
TEV / Bed
Mar-09
Oct-09
Owned & Managed Available Beds
46,681
48,933
50,909
53,464
59,184
61,054
Weighted Average Shares Outstanding
125.3
125.6
126.1
27
126.5
120.6
115.7
Opportunity for Multiple Expansion

CXWs earnings quality has improved since 2007 as its Owned & Managed segment now accounts for more than 90% of Facility EBITDA
TEV / Forward EBITDA
14x
11x
Pre-Lehman Average: 11.5x
9.8x
8x
5x
Jan-07 Jul-07 Feb-08 Sep-08 Mar-09 Oct-09
Owned & Managed as % of Facility EBITDA (TTM)
85.9%
________________________________________________
87.1%
88.9%
28
89.8%
89.6%
90.1%
Source: Capital IQ, Pershing Square estimates.
Key Attributes of Corrections Corp
Principal Asset Primary Tenant Growth Opportunity Maint Capex as % of Revenue Tenant Allowances Return on New Development Competition for Existing Units Competition for New Construction Cyclicality
Real Estate Government Secular ~2% None High Local Monopoly Oligopoly Low
29
CXW has creditworthy tenants, requires limited maintenance capex, and enjoys excellent competitive dynamics all features of a high quality real estate business
Health Care REITs are the Best Comp

Typical Health Care REIT Primary Tenant Maint Capex as % of Revenue (2) Growth Tenant Allowances Cyclicality Competition for New Builds Competition for Existing Units Cap Rate
________________________________________________
(1)
Government ~2%
Supply / demand imbalance provides secular tailwind
Government ~3.5%
Aging baby boomers provide secular tailwind
None Low Oligopoly Local Monopoly
Minimal Low Medium

Senior Housing: High MOBs / Hospitals: Local Monopoly Skilled Nursing / Life Sciences: Medium
>12%
~7%
Source: Green Street research and Pershing Square estimates. 30 (1) We define typical health care REITs to include senior housing, skilled nursing, MOBs, hospitals and life sciences. (2) Maintenance capex is low for health care REITs due to the triple-net leases associated with senior housing, skilled nursing and hospitals.
Illustrative Sum-Of-The-Parts Valuation

CXW is composed of two businesses: an operating company (OpCo) and a real estate company (PropCo)
Illustrative OpCo / PropCo Financials ($ in millions) 2010e OpCo CXW Revenue (owned-only) Rent as % of Revenue Illustrative Rent Per Bed CXW EBITDA Less: Rent PF EBITDA PF Margin PropCo Rental Revenue NOI Margin Less: Cash expenses AFFO Margin
31
2011e $1,449 25.0% 362 $5,692 462 (362) $100 5.5%
2012e $1,543 25.0% 386 $6,062 518 (386) $132 6.8%
$1,349 25.0% 337 $5,411 419 (337) $82 4.7%
$337 $337 100.0% (10) 327 97.0%
$362 $362 100.0% (10) 352 97.2%
$386 $386 100.0% (10) 376 97.4%
Illustrative Sum-Of-The-Parts Valuation (Contd)

An OpCo / PropCo analysis suggests the stock could be worth between $40 and $54 per share
($ in millions) OpCo Valuation: 2012e PF EBITDA Multiple OpCo Value PropCo Valuation: 2012e NOI Cap Rate PropCo Value Memo: Dividend yield Total Value Per Share
32
$132 8.0x $1,057 $386 8.0% $4,822 7.8% $5,878 $40
$132 8.0x $1,057 $386 6.0% $6,429 5.8% $7,485 $54
CXW used to be a REIT

From 1997 through 1999, CXW operated as two separate companies: CCA Prison Realty Trust (a REIT), and Old CCA (the operating company) CCA Prison Realty Trust was a Huge Success IPOd in July-97 at $21 per share and immediately traded up to $29 Upon its formation, CCA Prison Realty Trust purchased 9 correctional facilities from Old CCA for $308mm. It then leased the facilities to Old CCA pursuant to long-term, noncancellable triple-net leases with built-in rent escalators Within five months of its IPO, CCA Prison Realty Trust used the remaining proceeds from its IPO and its revolver to purchase three additional facilities from Old CCA
By December-97, CCA Prison Realty Trusts stock had moved up to the $40s, trading at a ~5% cap rate and a ~4% dividend yield
33
CXW used to be a REIT (Contd)

On January 1, 1999, Old CCA and CCA Prison Realty Trust merged to form an even larger REIT, New Prison Realty. In order for New Prison Realty to qualify as a REIT, it had to spin off its management business (OpCo)
$80 $70 $60 $50 $40 $30 $20 $10 $0
Jan-99 Feb-01 Mar-03
34
New Prison Realty was not a Success

New Prison Realty saddled itself with debt to fund new prison builds Before the new prisons had been completed and could generate revenue, OpCos operating fundamentals began to decline and occupancy fell OpCo struggled to maintain profitability and rental payments to New Prison Realty soon had to be deferred As a result, New Prison Realtys stock price declined precipitously, limiting its ability to raise liquidity. This was further exacerbated by a shareholder lawsuit stemming from the fall in the stock price By the Summer of 2000, CXW was on the verge of default and had to raise dilutive capital to restructure and avoid bankruptcy
May-05
Jun-07
Jul-09
Why Did New Prison Realty Fail?

New Prison Realty did not fail because it was a REIT, it failed because:
It had too much leverage It had an overly aggressive development plan Its tenant, OpCo, was also over-leveraged (1)
________________________________________________ (1)
The rates on the Operating Company leases were set with the intention that the public stockholders of New Prison Realty would receive as much of the benefit as possible from owning and operating the correctional and detention facilities. In fact, the Operating Company lease rates were set so that Operating Company was projected to lose money for the first several years of its existence. Source: CXW 2002 10-K.
35
NOLs
CXW has not been a large taxpayer for the last eight years because of substantial NOLs that are now exhausted
Total: $149mm Total: $165mm
$90 $80 $70 $60 $50 $40 $30 $20 $10 $0 2001a 2002a 2003a 2004a 2005a 2006a 2007a 2008a 2009e 2010e
Cash Tax Rate
9.4%
2.4%
3.4%
20.4%
8.2%
36
24.1%
22.5%
37.6%
38.0%
Going forward, CXW expects to be a 38% cash tax payer
Owned vs. Managed

Since 2000, CXW has increasingly shifted away from a business focused on the management of prisons toward a business focused on the ownership of prisons
Managed EBITDA as a % of Facility EBITDA
30%
25.7% 26.0%
25%
19.7% 19.9% 18.4%
20%
15%
14.1% 11.9% 10.6% 10.1%
10%
9.3%
5%
0% 2001a 2002a 2003a 2004a 2005a

37
2006a
2007a
2008a
2009e
2010e
Management Gets It
The other thing I would point out is before we'd even sell stock, that there's a lot of value in these assets. I hear people talking to me about regional malls selling at six cap rates or parking garages selling at five cap rates or 20 times cash flow and you think about -- or highways selling at 50 times cash flow, you think about prisons as infrastructure or some type of real estate asset, I think these could be even sold and harvested in some fashion to avoid selling stock in the future. So there are a number of things that we could do to finance our growth, but just with respect to cash flow and leverage, we could go quite a ways. Irving Lingo, Former-CFO of Corrections Corp, Q206 Earnings Call
38
Conclusions
Market Leader / Competitive Advantage Secular Growth Opportunity Several Near-Term Catalysts Stable Free Cash Flow in Excess of EPS Strong Management Strong Balance Sheet Attractive ROC / Low Cost of Capital
39
High Quality Business at a Substantial Discount to Intrinsic Value
If You Wait For The Robins, Spring Will Be Over*

December 7, 2009
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in long and short positions of certain mall REITs, including long positions in General Growth Properties Inc. Pershing Square manages funds that are in the business of actively trading buying and selling securities and financial instruments. Pershing Square may currently or in the future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy, sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
________________________________________________
* Warren E. Buffett, Buy American. I am, New York Times (10/16/08).
At the Beginning of 2009, The World was a Very Different Place for Mall REITs
The U.S. economy was on the verge of a depression The U.S. consumer had hit the wall Credit markets were closed Mall REIT balance sheets were dangerously leveraged Cap rates increased and transactions stopped as bidask spreads widened Bankruptcy risk and tenant right-sizing initiatives were expected to result in massive store closures Rent relief was a serious concern Tenant sales were expected to fall off a cliff
2
Since Then
The U.S. Economy has Recovered
The Recession is Very Likely Over

GDP grew 2.8% in Q3 and Federal Reserve Chairman Bernanke said the recession is very likely over
Real GDP (% Change)
4.0% 2.8% 2.0% 1.5%
0.0% (0.7%) (2.0%) (2.7%) (4.0%)
(6.0%)
(5.4%) (6.4%)
(8.0%)
Q208
________________________________________________
Q308
Q408
4
Q109
Q209
Q309
Source: Bureau of Economic Analysis (11/24/09).
Unemployment Down in November

The U.S. unemployment rate improved 20bps in November
U.S. Unemployment Rate
10.5% 10.2% 10.0% 10.0% 9.8% 9.7%
9.5%
9.4%
9.0%
8.5% July
________________________________________________
August
September
5
October
November
Source: Bureau of Labor Statistics (12/4/09).
Housing Market Showing Signs of Recovery

New home inventories are falling sharply and are projected to continue to do so
________________________________________________
Source: Census Bureau, Haver Analytics, Barclays Capital (November 2009).
The U.S. Consumer is Beginning to Bounce Back
Consumer Confidence Improving

The University of Michigan Survey of Consumer Confidence Sentiment Index has improved since the beginning of the year
University of Michigan Consumer Confidence Index (Trailing Three Month Average)
80.0 74.9 75.0 70.5 70.0 67.5 65.0 64.0 60.2 60.0 61.1 59.2 63.7
55.0
50.0 Dec-Feb 2008

________________________________________________
Mar-May 2008
Jun-Aug 2008
Sept-Nov 2008
8
Dec-Feb 2009
Mar-May 2009
Jun-Aug 2009
Sept-Nov 2009
Source: University of Michigan / Bloomberg. Most recent data point available as of 11/25/09.
The Credit Markets Have Improved
Financial Markets Normalizing

Overnight bank lending markets have stabilized and debt issuance is beginning to pick up
________________________________________________
Source: FRB, FDIC, Haver Analytics, Barclays Capital (November 2009).
10
Stock Market has Rebounded

The S&P 500 is up over 60% since March
S&P 500 Index (YTD)
1200 1100 1000 900 800 700 600

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Dec-09
1,106
________________________________________________
Source: Capital IQ (as of 12/4/09).
11
REIT Stocks have Rebounded

The IYR REIT Index has doubled since March
IYR REIT Index (YTD)
50 45 40 35 30 25 20
Jan-09
________________________________________________
$45
Mar-09
May-09
12
Jul-09
Sep-09
Dec-09
REIT CDS Spreads Tightening

REIT CDS spreads have meaningfully compressed year-to-date
________________________________________________
Source: Credit Suisse equity research (December 4, 2009).
13
REIT Cost of Debt Improving

Over the past three months, REITs have been able to issue large amounts of low-cost debt
DDR TALF Deal
Closed on October 8, 2009 $400mm loan Five year term Blended interest of 4.225%
________________________________________________
Source: Goldman Sachs Global Investment Research (December 2, 2009). Includes AMB Property Corp (AMB), ProLogis (PLD), Boston Properties (BXP), DDR Corp (DDR), Vornado (VNO), Brandywine Realty (BDN), Kimco (KIM), Avalonbay (AVB), Alexandria Real Estate (ARE), Ventas (VTR) and Simon Property Group (SPG).
Based on secondary market trading, if Simon were to issue debt today, an issuance of five year unsecured debt could potentially be completed at a cost of 5% or less Credit Suisse Equity Research, December 4, 2009
14
Mall REIT Balance Sheets Have Strengthened
REITs Have Raised over $18bn of Equity YTD

REITs have raised equity capital equivalent to approximately 10% of the market cap of the entire industry
________________________________________________
Source: Goldman Sachs Global Investment Research (December 2, 2009).
16
Mall REITs have Delevered

Mall REIT leverage ratios have decreased meaningfully since May
Mall REIT Leverage Ratio (total liabilities net of cash as a % of current value of assets) (1)
62.5%
60.0%
59.1% 57.3%
57.5%
56.7%
57.0%
56.9%
55.0%
54.9% 53.7%
52.5%
52.2%
50.0%
47.5% May
________________________________________________
June
July
August
September
October
November
December
Source: Green Street Real Estate Securities Monthly. (1) Total liabilities (including preferred shares) net of cash as a % of current value of assets. Mall average includes CBL, GGP, Glimcher, Macerich, PREIT, Simon, Tanger, Taubman and Westfield.
17
Cap Rates Have Declined Substantially
Mall REIT Cap Rates Have Declined and Should Decline Further Based on Historical Precedent
Although mall REIT cap rates have come in from their double-digit highs, they still trade at a wide spread to corporate Baa yields
Mall Implied Cap Rate vs. Baa Yields
10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0%
Ja n0 M 5 ar -0 M 5 ay -0 5 Ju l-0 Se 5 p0 N 5 ov -0 Ja 5 n0 M 6 ar -0 M 6 ay -0 6 Ju l-0 Se 6 p0 N 6 ov -0 Ja 6 n0 M 7 ar -0 M 7 ay -0 7 Ju l-0 Se 7 p0 N 7 ov -0 Ja 7 n0 M 8 ar -0 M 8 ay -0 8 Ju l-0 Se 8 p0 N 8 ov -0 Ja 8 n0 M 9 ar -0 M 9 ay -0 9 Ju l-0 Se 9 p0 N 9 ov -0 9
________________________________________________
Mall Implied Cap Rate Baa
7.8% 6.3%
Source: Green Street (as of November 2009).
19
Store Closure Fears were Overblown
White Knights
Although there have been some tenant bankruptcies year-to-date, white knight buyers have minimized store liquidations
Selected Bankruptcies
Eddie Bauer Jun-09
White Knight
Golden Gate Aug-09
Comments
In July, CCMP bid $202mm for Eddie Bauer w/ plan to liquidate 121 of 371 stores In August, Golden Gate beat out CCMP w/ $286mm bid Golden Gate plans to keep the substantial majority of the companys stores open
Ritz Camera Feb-09 Filenes May-09
David Ritz Jul-09 Vornado / Syms Jun-09
David Ritz and RCI Acquisition LLC beat out three liquidators at auction Ritz will attempt to keep all the remaining 375 stores open, though some closures still expected In May, Crown Acquisition bid $22mm for Filenes w/ plan to liquidate 8 stores In June, a joint venture formed by Syms and Vornado beat out Crown w/ a $62.4mm bid Vornado / Syms plan to operate Filenes remaining 22 outlets and re-open a location in Boston
J. Jill Out of court
Golden Gate Jun-09
At the beginning of 2009, Talbots had been considering winding down its J. Jill concept In June, Golden Gate acquired the J. Jill retail chain for $75mm Golden Gate plans to keep open 204 of the existing 279 locations open
Store closures that have arisen in bankruptcy have tended to be in lowquality, underperforming locations
21
Liquidations Could Be Good For Malls

Retailers with successful concepts are acquiring leases from liquidating retailers, allowing malls to refresh their product offerings with concepts that should drive increased traffic
Selected Liquidations
Gottschalks Jan-09 Joes Sports Mar-09 Mervyns Jul-08
Strategic Acquirer(s)
Forever 21 Jun-09 Dicks Sporting Goods Jul-09 Forever 21 / Kohls Dec-08
Comments
Gottschalks auctioned to liquidation company, Great American Group 13 retail spaces sold to Forever 21 on June 10, 2009 Joes Sports sold to liquidator Gordon Brothers for $61mm 6 retail spaces sold to Dicks Sporting Goods in July, which will be opened by year-end In December, Kohls and Forever 21 acquired 46 Mervyns leases for $6.25mm Forever 21 primarily focused on Mervyns mall-based locations Speculation that Forever 21 has acquired additional Mervyns spaces since December
22
Many Mall-Based Tenants Expanded in 2009

Although there have been some right-sizing initiatives in 2009, many mall-based tenants actually expanded certain concepts
Stores Company Abercrombie & Fitch Concept abercrombie Hollister Gilly Hicks Aeropostale U.S. P.S. Aerie 2b bebe buybuy BABY CTS Harmon Face Values Charlotte Russe Cheesecake Factory WH|BM Soma Children's Place Coach N.A. (excl factory) Coldwater Creek Dick's Sporting Goods Dressbarn Maurices 20 BOY
(2) (1) (3)
Current
Aeropostale American Eagle Bebe Bed, Bath & Beyond
Charlotte Russe Cheesecake Factory Chico's Children's Place Coach Coldwater Creek Dick's Sporting Goods Dressbarn Subtotal
________________________________________________
212 515 14 874 116 32 15 52 40 495 145 344 71 917 324 348 384 834 697 6,429
213 522 16 894 11 137 33 25 57 42 501 146 347 76 950 340 356 420 846 741 6,673
Source: Company filings, earnings transcripts, investor presentations, company press releases. In some cases, stores were counted from the store locator on the companies websites. This analysis is not meant to be comprehensive and is limited by its inability to get information for private or international based tenants (i.e. Forever 21, Luxottica, etc) as well as many public companies. (1) Where available, attempted to limit store count to U.S., mall-based locations; however, many store counts include international stores or non mall-based locations. (2) Beginning of Year 2009. Most store data is as of January 31, 2009. 23 (3) Most store data is as of October 31, 2009 or November 2009.
Many Mall-Based Tenants Expanded in 2009 (Contd)

Stores Company Foot Locker Gamestop Genesco GNC Guess Gymboree Concept CCS Gamestop U.S. Journeys Johnston & Murphy GNC N.A. (excl franchise) Guess N.A. Gymboree U.S. Crazy 8 Janie & Jack H&M USA hhgregg J Crew (excl outlets) Crewcuts Madewell JC Penney Juicy Couture U.S. (excl outlets) Luluemon Sephora New York & Co Nordstrom full-line 20 BOY
(2) (1) (3)
Current
H&M hhgregg J Crew
JC Penney Liz Claiborne Lululemon Athletica LVMH New York & Co Nordstrom Subtotal
________________________________________________
4,331 1,012 157 2,774 425 583 38 115 169 108 211 6 12 1,093 62 113 898 589 109 12,805
2 4,425 1,022 162 2,806 433 594 62 120 175 128 243 9 17 1,109 65 119 963 592 112 13,158
Many Mall-Based Tenants Expanded in 2009 (Contd)

Stores Company Payless Restoration Hardware Rue21 Stage Stores Talbots The Buckle The Gap The Limited Tiffany & Co Urban Outfitters Concept Stride Rite Restoration Hardware (excl outlets) Rue21 Bealls, Palais Royal, Peebles, Goody's Talbots The Buckle Banana Republic N.A. Victoria's Secret Henri Bendel Tiffany U.S. Urban Outfitters Anthropologie Free People VF-operated retail stores Wet Seal West Elm Williams-Sonoma Home Zumiez 18 58 BOY
(2) (1) (3)
Current
VF Corp Wet Seal Williams-Sonoma Zumiez Subtotal Total

________________________________________________
355 101 449 739 587 387 573 1,043 5 76 142 121 30 698 409 36 10 343 6,104 25,338
360 109 537 751 589 405 582 1,046 9 78 151 133 34 733 420 40 11 378 6,366 26,197
Mall Occupancy is Stable

Occupancy is stable despite deterioration in lower-quality malls
Mall REIT Occupancy (GGP & Simon)
100.0%
(1)
97.5%
In Q309, occupancy was up 40bps sequentially
95.0% 92.5% 92.6%
92.5%
92.2%
92.5% 90.9% 91.0% 91.4%
90.0%
87.5%
85.0% Q1'08
________________________________________________ (1) Average of Simon and GGP. Simon data
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
excludes regional Mills malls.
26
Survival of the Largest

Comparing the occupancy performance of Simon & GGP to that of smaller mall REITs shows the benefit of scale in leasing negotiations
Large Mall REIT Occupancy vs. Small Mall REIT Occupancy
95.0%
(1)
Large Mall REITs (GGP & Simon)
Small Mall REITs (TCO, PEI, MAC)
92.5%
92.2%
92.5%
92.6%
92.5% 91.4% 90.9% 91.0% 89.9%
90.0%
89.8%
89.8%
89.8%
87.5% 87.5%
87.6%
87.8%
85.0% Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09
Difference
2.4%
2.7%
2.7%
2.7%
3.3%
3.4%
3.6%
________________________________________________ (1) Average regional mall occupancy. Excludes
anchors. Glimcher is excluded from the analysis as its occupancy includes temporary tenants that are excluded from other mall REIT reported occupancy metrics.
27
Bad Debt Expense

Mall REIT provisions for doubtful accounts have not increased materially
TTM Provision for Doubtful Accounts as a % of TTM Revenue (GGP & Simon)
2.00%
(1)
1.50%
1.00% 0.80% 0.61% 0.50% 0.47% 0.47% 0.32% 0.41% 0.30% 0.33% 0.46% 0.47%
0.87%
0.82%
0.00% Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09
________________________________________________ (1) Average of Simon and GGP. GGP data only
includes revenue from the mall segment
(i.e. excluding MPCs and GGMI).
28
Tenants Are Much Better Capitalized
Tenant Stock Price Performance

Mall REIT tenant stock prices have outperformed the S&P 500 by more than 30% year-to-date
180% 170% 160% 150% 140% 130% 120% 110% 100% 90% 80% 70% 60%
Jan-09 Mar-09 May-09
S&P 500
________________________________________________
+50%
+19%
Jul-09
Mall REIT Tenant Index
(1)
Sep-09
Dec-09
Source: Capital IQ. Stock price data through December 4, 2009. (1) Market cap weighted average index of GGPs publicly traded top 10 tenants (Gap, Limited, Abercrombie, Foot Locker, American Eagle, JC Penney, Macys and Genesco).
30
Tenants have Delevered
(Top Ten & Selected Anchor Tenants)
On average, tenants have improved their net debt positions more than 30% since the same period last year
($ in millions) Tenants Top Ten Tenants The Gap Limited Brands Abercrombie & Fitch Foot Locker American Eagle Express JCPenney Company Forever 21 Macy's Genesco
(1)
Selected Concepts Gap, Old Navy, Banana Republic Victoria's Secret, Bath & Body Works Abercrombie, Hollister, Ruehl Foot Locker, Champs Sports American Eagle, Aerie, M+O Express JC Penney 4 Love, Forever 21, Gadzooks Macy's, Bloomingdale's Journeys, Underground Station, Lids Subtotal
Net (Debt) / Cash Last Year Current Improvement $1,367 (2,520) 158 272 269 NA (1,881) NA (9,534) (120) ($11,989) ($1,306) (1,393) (2,674) (629) (3,475) ($9,477) $2,398 (1,912) 472 300 466 NA (1,263) NA (8,221) (5) ($7,765) ($1,212) (900) (2,131) (512) (2,450) ($7,205) 75% 24% 198% 10% 73% NA 33% NA 14% 95% 35% 7% 35% 20% 19% 29% 24%
Selected Anchor Tenants Bon-Ton Stores Dillard's Nordstrom Saks Incorporated Sears Holdings
Bon-Ton Dillard's Nordstrom, Nordstrom Rack Saks, Off Fifth Sears Subtotal
________________________________________________
Source: Capital IQ. Net debt data is most recent as of December 4, 2009. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
31
Tenants have Delevered (Contd)

(Selected In-line Tenants)
On average, tenants have improved their net debt positions more than 30% since the same period last year
($ in millions) Tenants Selected In-line Tenants Anntaylor Aeropostale Bebe Stores Borders The Buckle Chico's Fas Claire's Stores The Children's Place Coach Hot Topic Liz Claiborne Pacfic Sunwear Stores RadioShack Tiffany & Co. Wet Seal Zales Corporation Zumiez Selected Concepts Anntaylor, Anntaylor Loft Aeropostale, P.S. kids Bebe, Bebe Sport, 2b bebe Borders, Waldenbooks The Buckle Chico's, Soma, WH | BM Claire's, Icing The Children's Place Coach Hot Topic, Torrid Juicy Couture, Kate Spade, Lucky Brand D.E.M.O., Pacsun Radioshack Tiffany & Co. Wet Seal, Arden B Zales, Piercing Pagoda Zumiez Subtotal Net (Debt) / Cash Last Year Current Improvement $73 107 120 (487) 118 256 (2,382) 101 407 60 (924) (38) 63 (661) 125 (329) 62 ($3,329) $136 286 201 (375) 94 423 (2,364) 102 970 91 (803) 16 169 (378) 141 (442) 82 ($1,652) 87% 166% 68% 23% (21%) 65% 1% 1% 138% 52% 13% 141% 170% 43% 13% (34%) 33% 50%
Total
________________________________________________
($24,795)
($16,622)
33%
Source: Capital IQ. Net debt data is most recent as of December 4, 2009. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
32
Case Study: Bon-Ton

At the beginning of 2009, Bon-Ton was perceived to be on the verge of bankruptcy. Today, its stock has increased more than 10 times. In November, it secured a 3.5 year extension on its $750mm credit facility
Bon-Ton Stock Price Performance (YTD)
$16 $14 $12 $10 $8 $6 $4 $2 $0

Jan-09
________________________________________________
$13
Mar-09
May-09
Jul-09
Sep-09
Nov-09
33
Case Study: Claires

Like Bon-Ton, many feared Claires would seek bankruptcy protection. Year-to-date, its debt has traded up more than 4 times
________________________________________________
Source: Bloomberg.
34
Case Study: Zales

Zales net debt increased YoY primarily as the result of accelerating its payment of vendor merchandise receipts into Fiscal Q1. Going forward, its liquidity should benefit from the recently passed Business Assistance Act of 2009, which extends the period for which companies can carry-back NOLs
The recently-enacted Business Assistance Act of 2009, which extended the carry-back period for net operating losses from two to five years, is expected to provide a significant cash refund and tax benefit to us in fiscal 2010. Matt Appel, CFO of Zales Corp., November 24, 2009
We expect many other retailers will benefit from the Business Assistance Act
35
Rent Relief Has Been Minimal
Rent Relief Less of an Issue than Originally Anticipated
Simon expects to lose less than 2bps of total revenue as the result of rent relief concessions in 2009 Our 2009 rent relief total will be under $10 million, as in the $7 million to $8 million range. But as I think we said on the call last quarter, we hadnt seen much of it year-to-date. So its a little back-end weighted, and as you look at the impact of average base rent it could have a nominal impact. But its a small number in the context of the size of our income statements. Steve Sterrett, CFO of Simon Property Group, October 30, 2009
37
Tenant Sales are Down, but Inventories are Down Even More While Retailer Cash Flows Have Improved Materially
A New Paradigm: Sales vs. Cash Flow

Old Paradigm: Focus on Sales
From 2003 to 2007, retailers achieved high sales with bloated cost structures. Driven by Wall Streets insatiable demand for same-store sales growth, retailers overspent to achieve high rates of same-store sales growth Even though mall REITs derive a small percentage of NOI from overage rent, retail real estate investors and landlords have focused disproportionately on tenant sales
New Paradigm: Focus on Cash Flow

In 2009, retailers have used the economic crisis to re-shape their cost structures and improve inventory management to generate more cash flow at meaningfully lower sales levels Retailer focus has shifted from growing sales to improving profit margins and increasing cash flow As same-store sales again begin to increase, retailer profitability should accelerate
39
Its Hard to Increase Sales when there is Less on the Shelves

(Top Ten & Selected Anchor Tenants)
Comparing November same-store sales to October inventory levels partially explains why tenant sales were down in November
($ in millions) Tenants Top Ten Tenants The Gap Limited Brands Abercrombie & Fitch Foot Locker American Eagle Express JCPenney Company Forever 21 Macy's Genesco Subtotal / Wtd Avg Selected Anchor Tenants Bon-Ton Stores Dillard's Nordstrom Saks Incorporated Sears Holdings Subtotal / Wtd Avg
________________________________________________
Last Year
(1)
Inventory Current $1,999 1,426 347 1,228 425 NA 4,018 NA 6,622 360 $16,425 $901 1,752 1,193 799 10,805 $44,876
Decrease (10%) (13%) (31%) (3%) 1% NA (10%) NA (8%) (5%) (9%) (8%) (22%) (7%) (21%) (5%) (9%)
Memo: Nov SSS 0% 3% (17%) NA (2%) NA (6%) NA (6%) NA (5%) (6%) (11%) 2% (26%) NA (9%)
$2,224 1,648 505 1,262 422 NA 4,471 NA 7,161 380 $18,072 $979 2,243 1,278 1,016 11,364 $49,152
Inventories have declined more than same-store sales
Source: Capital IQ. inventory data is most recent as of December 4, 2009. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
40
Its Hard to Increase Sales when there is Less on the Shelves

(Selected In-line Tenants)
Comparing November same-store sales to October inventory levels partially explains why tenant sales were down in November
($ in millions) Tenants Selected In-line Tenants Anntaylor Aeropostale Bebe Stores Borders The Buckle Chico's Fas Claire's Stores The Children's Place Coach Hot Topic Liz Claiborne Pacfic Sunwear Stores RadioShack Tiffany & Co. Wet Seal Zales Corporation Zumiez Subtotal / Wtd Avg Last Year $275 207 49 1,257 118 187 149 233 402 95 549 234 681 1,639 41 985 82 $7,181 Inventory Current $211 222 37 1,157 118 160 139 251 338 91 410 168 737 1,542 40 902 76 $6,599 Decrease (23%) 7% (26%) (8%) 0% (15%) (7%) 8% (16%) (3%) (25%) (28%) 8% (6%) (3%) (8%) (7%) (8%) Memo: Nov SSS NA 7% NA NA 1% NA NA (13%) NA (10%) NA NA NA NA (5%) NA (9%) (4%)
Total
________________________________________________
$74,406
$67,900
(9%)
(6%)
Inventories have declined more than same-store sales
Source: Capital IQ. inventory data is most recent as of December 4, 2009. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
41
Lower Inventory = Higher Cash Flow

(Top Ten & Selected Anchor Tenants) Tenant cash flows have gone from materially negative to materially positive. This is all the more impressive given that Q3 is usually cash flow negative for retailers as they prepare for the holidays
($ in millions) Tenants Top Ten Tenants The Gap Limited Brands Abercrombie & Fitch Foot Locker American Eagle Express JCPenney Company Forever 21 Macy's Genesco Subtotal Selected Anchor Tenants Bon-Ton Stores Dillard's Nordstrom Saks Incorporated Sears Holdings Subtotal
(1)
Cash Flow from Operations Q3'08 Q3'09 Improvement $272 (244) NA NA 76 NA (189) NA (275) NA ($361) NA (69) 83 NA (962) ($1,697) $432 (114) NA NA 65 NA (30) NA (52) NA $301 NA 78 104 NA (35) $430 59% 53% NA NA (15%) NA 84% NA 81% NA 183% NA 214% 25% NA 96% 125%
Inventory Decrease (10%) (13%) (31%) (3%) 1% NA (10%) NA (8%) (5%) (9%) (8%) (22%) (7%) (21%) (5%) (9%)
Inventory declines, coupled with cost reduction measures, has resulted in materially higher tenant cash flows
________________________________________________
Source: Capital IQ. Most Q3 periods ended in October. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
42
Lower Inventory = Higher Cash Flow (Contd)

(Selected In-line Tenants) Tenant cash flows have gone from materially negative to materially positive. This is all the more impressive given that Q3 is usually cash flow negative for retailers as they prepare for the holidays
($ in millions) Tenants Selected In-line Tenants Anntaylor Aeropostale Bebe Stores Borders The Buckle Chico's Fas Claire's Stores The Children's Place Coach Hot Topic Liz Claiborne Pacfic Sunwear Stores RadioShack Tiffany & Co. Wet Seal Zales Corporation Zumiez Subtotal Cash Flow from Operations Q3'08 Q3'09 Improvement ($1) NA 15 NM NA 1 NA 61 77 14 (121) (7) 54 1 10 NA NA $104 $8 NA (10) NM NA 56 NA 79 241 17 (101) (7) (20) 99 7 NA NA $369 715% NA (168%) NM NA 3893% NA 29% 214% 22% 17% (5%) (137%) 8909% (36%) NA NA 253% Inventory Decrease (23%) 7% (26%) (8%) 0% (15%) (7%) 8% (16%) (3%) (25%) (28%) 8% (6%) (3%) (8%) (7%) (8%)
Total
________________________________________________
($1,953)
$1,100
156%
(9%)
Inventory declines, coupled with cost reduction measures, has resulted in materially higher tenant cash flows
Source: Capital IQ. Most Q3 periods ended in October. (1) GGPs top ten tenants as disclosed in its quarterly operating supplement.
43
Which is better for the landlord, tenant sales growth or tenant cash flow growth?
Simon Property Groups Point of View
The retailers that we are dealing with are certainly focused on sales, but they are far more focused today on profitability and cash flow, which leads to capital allocation for new stores or remodeled stores upon renewal. What we faced in 2009 was, most retailers saying we are preserving our cash because we are unsure about our line [of credit]. And we are insecure about our ability to finance. Now that they have better cash margins and better cash on deposit, we are now hearing that they are allocating money for new open-to-buys. And I think David gave you a list in his comments of those stores that are looking at that. So I think it is going to be less correlated with sales and more correlated with profitability and cash flow generation. Rick Sokolov, COO of Simon Property Group, October 30, 2009
45
Macerichs Point of View

On the sales side, I want to talk about sales and talk about our leasing activity and our leasing spread. As you know in the fourth quarter of last year, sales were off in general around 15% give or take, for most of the major mall owners including ourselves. That was a disastrous comp sales decrease from a retailer's viewpoint. Because it was totally unexpected from the retailer's viewpoint. As a result of that, it put the retailers into a freeze mode, not only into a freeze mode, they even got into a cutback mode, because it was totally unexpected. Over the course of this year, the retailers made major changes in their cost structure, major changes in their inventory levels and major changes in their business plan. Made plans for their businesses to be down roughly 10 to 15%. In February this year, we told you that we anticipated that for the first three quarters of this year, that we anticipated double digit sales declines, and at the time, frankly, that was not a very thrilling prospect. In fact, we've had double digit sales declines, off 12% in the first quarter, 11% in the second quarter, 9% in the third. But we're seeing a moderation in the decreases, but more importantly, and I said this on the last call, is that you have to be careful about the comp sales, because this year the difference between the first three quarters of this year and the fourth quarter of last year is that our retailers planned to have their sales be off at this level. This was their business plan. They are meeting their business plan. They are maintaining their margins. So being off 10% when you plan to be off 10% and you keep your margin is a significantly different situation than being off 15% when it wasn't your plan and your margins were decimated. As a consequence of that, it's put our retailers into a mood where they're willing to talk about new leasing and we're able to look at beginning to have some pickup in store growth. The moods of the retailers, and you've heard this on the other conference calls with our peers, is improving dramatically. They went from being in a freeze mode in the fourth quarter of last year, to things began to fall out in the second quarter of this year around ICSC. Now we're really having positive conversations with our retailers about how they can grow their business and how we can grow our business together.
Art Coppola, Chairman & CEO of Macerich, November 5, 2009

46
Summary
The U.S. economy was on the verge of a depression The U.S. consumer had hit the wall Credit markets were closed Mall REIT balance sheets were dangerously leveraged Cap rates increased and transactions stopped as bidask spreads widened Bankruptcy risk and tenant right-sizing initiatives were expected to result in massive store closures Rent relief was a serious concern Tenant sales were expected to fall off a cliff
48
Since Then
The World has Improved Dramatically

The U.S. economy has recovered The U.S. consumer is beginning to bounce back The credit markets have improved Mall REIT balance sheets have strengthened Cap rates have declined substantially Store closure fears were overblown Tenants are much better capitalized Rent relief has been minimal Tenant sales are down, but inventories are down even more while retailer cash flows have improved materially
49
Why We Are Optimistic About the Next Five Years
We Performed a Bottoms Up Analysis to Inform Our Outlook for Mall REITs Using public information we analyzed:
Store expansion plans for 2010 and beyond New concepts either currently being rolled out or upcoming Revenue forecasts Profit forecasts
Source of data for our analysis:

Evaluated tenant websites, public filings, earnings transcripts, investor presentations and press releases; mall REIT earnings transcripts; industry trade publications and news articles to develop a sense of tenant expansions and new concepts on tap for 2010 and beyond Gathered consensus equity research estimates for tenant revenue and EBITDA projections through 2010 and 2011
51
Expansions / New Concepts

Though there will continue to be store closures in 2010, there will be store openings as well. More than half the companies we reviewed were either planning to add new stores or roll out new concepts
Aeropostale A'gaci Rolling out 25-30 PS Kids new concept in '10 Growing store counts (per Simon) 25 Aeropostale stores in 2010 Apple 20-25 domestic stores in 2010 Best Buy Sees Best Buy Mobile as a growth vehicle going forward California Pizza Kitchen Growing store counts (per Simon) Chico's 40 new stores in 2010 Expanding Soma concept Coach 20 new stores in N.A. in 2010 Bebe 6 new stores in 2010 Expanding 2b bebe & PH8 concepts The Buckle Continues to expand and has added 18 stores YTD Charlotte Russe On track to open 20 stores in F2009 Already signed 11 leases for 2010 The Children's Place Rolling out new Tech II store format Coldwater Creek Sees opportunity to grow store base when margins improve American Eagle Plans to expand 77kids pop-up concept to a permanent brick & mortar store in 2010 Bed Bath & Beyond Expects to continue to add buybuy Baby locations Build-A-Bear Sees potential for 350 stores in N.A. Cheesecake Factory Testing Grand Lux and Rock Pan Asian Kitchen concepts CJ Banks Will opportunistically pursue store expansions in 2010, incl jewelry concept Cotton On Australian retailer looking to expand store base from 600 to the 1,000s
________________________________________________
Note: This list is not meant to be comprehensive. It is based off publicly disclosed expansion / new concept plans. Some of these tenants are also considering selectively closing stores as well.
52
Expansions / New Concepts (Contd)
Dave & Buster's Growing store counts (per Simon) Dressbarn 15 Dressbarn stores in 2010 35 Maurices in 2010 Forever 21 Rapid expansion in 2009 Rolling out Faith21 line GNC Testing new prototype store Plans to open more domestic stores in 2010 than 2009 (>30) H&M Flagged US as market where it plans to grow the most in 2010 Jones Apparel Group Rolling out 6 Shoe Woo test stores by end of F2009
Destination Maternity 12 to 17 stores in 2010 Opening new multi-brand store concept Five Below Aggressive growth plan -- 100+ stores in the next 3 years Gamestop 300 US stores in 2010 Guess 60 accessory stores in 2010 (new concept)
Dick's Sporting Goods Sees potential for 800 stores nationwide (~420 in Oct-09) Footlocker Plans to build out its CCS new concept in 2010 Genesco 60 to 70 stores in 2010, incl recently acquired Sports Fanatic concept Gymboree Goal of opening a minimum of 50 Crazy 8 stores next year J Crew Considering rollout of Madewell concept
hhgregg At least 45 new stores in 2010
Jos A Bank Limited Accelerating expansion plan to open 30 to 40 Expanding Henri Bendel in US stores in 2010
________________________________________________
53
Expansions / New Concepts (Contd)

Liz Claiborne Rolling out LCNY new concept Michael Kors Growing store counts (per Simon) Pandora Jewelry Has expanded to 10 US stores since opening first store in NC in 2007 Restoration Hardware Rolling out Baby & Child concept Lululemon Sees potential for over 300 stores in N.A. (119 in Oct-09) Microsoft Rolling out retail store to compete with Apple (new concept) Payless Growing Sperry TopSider stores (per Simon) Looking to expand Stride Rite in 2010 Rue21 Sees opportunity to grow store base from 527 to >1,000 in 5 yrs Rolling out Rue21! larger box concept Stage Stores Increase from ~750 to 1,000 stores by 2014 TJ Maxx Growing store counts (per Simon) Wet Seal Sees opportunity to nearly double its US store base (~400 stores) Mattel Expects to open more American Girl stores stores over time Nordstrom 3 full-line stores in 2010 15 Rack stores in 2010 Red Robin Growing store counts (per Simon) Saks (Off Fifth) Growing store counts (per Simon)
Sephora Pursuing expansions in US, France and China Tiffany Objective to open 14 stores (net) in F2009 Experimenting w/ new, smaller concept VF Corp Selectively opening stores Expects to open 80 stores in F2009
________________________________________________
Target Looking to grow store base, but they are constrained by new shopping center dvlpmt Looking to move into existing malls Urban Outfitters 50 new stores next year Williams Sonoma Rolling out PBteen concept
54
Store Expansions / New Concepts Create a Virtuous Cycle for Mall REITs and their Tenants
The current environment has set the stage for tenants with valuefocused concepts, which are performing well in todays market, to expand and replace underperforming tenants. This mall refresh creates a virtuous cycle
Start Here
Tenant Expansions / New Concepts
Increased Mall Occupancy
Higher Tenant Cash Flows
Higher Mall Traffic
55
Supply Constraints Enhance Virtuous Cycle
And frankly, when you look at the capital situation today, the construction in the retail sector is at a 20-year low. We certainly anticipate it will remain there, and the lack of new supply can only hopefully help the demand side for the existing product.
Rick Sokolov, COO of Simon Property Group, December 4, 2009

________________________________________________
Source: Goldman Sachs equity research November 2009.
56
Low Store Build-out Costs Enhance Virtuous Cycle
A lot of contractors out there, you have a lot of architect firms, you have a lot of vendors that are doing fixtures, a lot of them are very aggressive right now and doing deals. So if youre going to grow and open up stores, theres an opportunity to really drive down your build-out costs there . John Smith, SVP of Development, Collective Brands, October 6, 2009
57
Positive Tenant Sales Momentum

Though tenant sales are down year-to-date, sales momentum is starting to build Nordstrom Q309 Earnings Call
We experienced an improving sales trend in each month of the quarter and generated increases in year-over-year transactions in the months of September and October
Macys Q309 Earnings Release

Given the difficult economic climate, we had an excellent quarter. Our business improved progressively each month during the period and we are entering the holiday season confident in our locally focused organizational structure and the high caliber of our talent
Bon-Ton Q309 Earnings Call

Our comparable store sales turned positive in the month of October with a 3.1% increase as compared with last year, a good month following improvements in sales trends in August and September
58
Wall Street Anticipates Tenant Revenue Growth

Positive sales momentum has culminated in rising consensus revenue estimates for mall-based retailers. Wall Street is now forecasting 2.6% and 3.5% revenue growth in 2010 and 2011, respectively
($ in millions) Tenants Top Ten Tenants (1) The Gap Limited Brands Abercrombie & Fitch Foot Locker, Inc. American Eagle Express JCPenney Company Forever 21 Macy's Genesco Selected Concepts Gap, Old Navy, Banana Republic Victoria's Secret, Bath & Body Works Abercrombie, Hollister, Ruehl Foot Locker, Champs Sports, Footaction American Eagle, Aerie, M+O Express JC Penney 4 Love, Forever 21, Gadzooks Macy's, Bloomingdale's, Lord & Taylor Journeys, Underground Station, Lids Weight Factor
(2)
Consensus Revenue Estimates (CY) 2008a $14,526 9,043 3,450 5,237 2,989 NA 18,846 NA 24,892 1,552 2009e $14,149 8,528 3,002 4,796 2,956 NA 17,583 NA 23,448 1,563 2010e $14,324 8,612 3,235 4,803 3,093 NA 17,760 NA 23,838 1,621 2011e $14,672 8,799 3,533 4,842 3,238 NA 18,115 NA 23,908 1,726
Consensus Revenue Growth 2009e (2.6%) (5.7%) (13.0%) (8.4%) (1.1%) NA (6.7%) NA (5.8%) 0.7% 2010e 1.2% 1.0% 7.8% 0.1% 4.7% NA 1.0% NA 1.7% 3.7% 2011e 2.4% 2.2% 9.2% 0.8% 4.7% NA 2.0% NA 0.3% 6.5%
2.9% 2.6% 2.3% 2.3% 1.5% 1.3% 1.3% 1.2% 1.1% 1.1%
Total / Wtd Avg
17.6%
$80,534
$76,024
$77,286
$78,834
(5.8%)
2.6%
3.5%
________________________________________________
Source: Capital IQ consensus estimates as of December 5, 2009. (1) Based on GGPs top ten tenants as disclosed in its quarterly operating supplement. An analysis of other publicly traded mall-based retailers results in similar growth expectations. (2) Consensus revenue growth weighted average is weighted by each tenant as a % of GGPs revenue (as disclosed in GGPs quarterly operating supplement).
59
Wall Street Anticipates Tenant Margin Expansion

Cost cutting and inventory management initiatives will help tenant margins expand despite lower 2009 sales
($ in millions) Tenants Top Ten Tenants (1) The Gap Limited Brands Abercrombie & Fitch Foot Locker, Inc. American Eagle Express JCPenney Company Forever 21 Macy's Genesco Selected Concepts Gap, Old Navy, Banana Republic Victoria's Secret, Bath & Body Works Abercrombie, Hollister, Ruehl Foot Locker, Champs Sports, Footaction American Eagle, Aerie, M+O Express JC Penney 4 Love, Forever 21, Gadzooks Macy's, Bloomingdale's, Lord & Taylor Journeys, Underground Station, Lids Weight Factor (2) 2.9% 2.6% 2.3% 2.3% 1.5% 1.3% 1.3% 1.2% 1.1% 1.1% Consensus EBITDA Estimates (CY) 2008a $2,116 1,061 695 286 440 NA 1,604 NA 2,680 113 2009e $2,280 1,099 349 252 392 NA 1,156 NA 2,481 123 2010e $2,399 1,182 477 269 486 NA 1,355 NA 2,722 135 2011e $2,382 1,279 594 311 551 NA 1,494 NA 2,851 145 Consensus EBITDA Margin 2008a 14.6% 11.7% 20.2% 5.5% 14.7% NA 8.5% NA 10.8% 7.3% 2009e 16.1% 12.9% 11.6% 5.3% 13.3% NA 6.6% NA 10.6% 7.9% 2010e 16.8% 13.7% 14.7% 5.6% 15.7% NA 7.6% NA 11.4% 8.3% Comments 2011e '10e Margin > '08a? 16.2% 14.5% 16.8% 6.4% 17.0% NA 8.2% NA 11.9% 8.4% Yes Yes No Yes Yes NA No NA Yes Yes
Total / Wtd Avg
17.6%
$8,995
$8,132
$9,026
$9,608
12.2%
11.1%
12.4%
13.0%
Yes
________________________________________________
Source: Capital IQ consensus estimates as of December 5, 2009. (1) Based on GGPs top ten tenants as disclosed in its quarterly operating supplement. An analysis of other publicly traded mall-based retailers results in similar margin expectations. (2) Consensus EBITDA margin weighted average is weighted by each tenant as a % of GGPs revenue (as disclosed in GGPs quarterly operating supplement).
60
2009e Holiday Same-Store Comps

Citigroup performed a bottoms-up analysis to project 2009e holiday same-store sales of positive 2.5 percent
61
Mall Traffic Trending Up

Citigroup also anticipates improving Holiday 2009 mall traffic
62
Growing Strategic Interest in Malls

October 2008 June 2009:
No material mall transactions that we have been able to identify
July 2009:
Vintage Real Estate acquires regional mall, South Bay Pavilion, for $50mm
July 2009:
Macerich sells a 49% interest in Queens Center in NY to Cadillac Fairview for $150mm in cash plus $168mm in property level debt
September 2009:
Macerich sells a 75% interest in its Flatiron Crossing Mall in CO for $116mm in cash plus $136mm of assumed debt to private equity firm, GI Partners
October 2009:
Heitman pays $168mm in cash and assumes $167mm of property level debt to acquire a 49.9% interest in Macerichs Freehold Raceway Mall in NJ and Chandler Fashion Center in AZ
November 2009:
Blackstone acquires a 60% interest in two of Glimchers best malls Lloyd Center and WestShore Plaza for $62mm in cash and $130mm in assumed debt
November / December 2009:

Simon Property Group hires advisers to evaluate a potential acquisition of GGP The Wall Street Journal announces Brookfield has acquired $1bn of GGPs unsecured debt
63
Mall REITs are Still Cheap

All of the principal drivers of mall valuations are favorable in the current economic environment
Principal Drivers of Mall Valuation 1. Occupancy Current Environment
Store liquidations have been less than anticipated Many retailers are planning expansions in 2010 New mall construction is on hold Economics of new store openings are attractive
2. Risk-Free Rate
10-yr Treasury yield of 3.4%; 10-yr TIPS yield 1.3%; other inflation protected assets trade at very low yields Corporate BBBs yield ~6% Mall cap rates are estimated to be ~7 to 8%
3. Tenant Creditworthiness
Tenant stock prices are up over 50% year-to-date Tenant cash flows have improved and margins are projected to expand Tenant balance sheets have strengthened
64
Which would you rather own?

1) A 10-yr Treasury at a 3.4% yield 2) A 10-yr TIP at a 1.3% yield, or 3) Shares in a mall REIT at a 7.5%, 7.0%, or even 6.0% cap rate
What are the Characteristics of the Ideal Mall REIT Best Positioned to Perform in the Current Environment?
Assets
Established national platform
provides leverage when dealing with tenants who are looking to expand or reposition stores
Liabilities
Secured, non-recourse debt
a portfolio of options is more valuable than an option on a portfolio
High-quality malls, B+ to A+ Established tenant relationships Low in-place occupancy costs Diverse footprint Lease-up / redevelopment opportunities
Fixed-rate debt
provides a hedge against inflation
Low interest rates Long-dated maturities A healthy amount of leverage

provides upside for return on equity
Good liabilities are an asset
66
Conclusion
During one of the worst recessions in over 50 years, mall REITs and their tenants have proven to be highly resilient Consumer spending does not need to return to 2007 levels for mall REITs and their tenants to outperform Store closures of underperforming tenants is a long-term positive for the mall industry Tenant cash flows and balance sheets have massively improved over the last twelve months Many opportunistic retailers have substantial growth plans. Retailers on the sidelines are just like those investors who didnt buy stocks in the spring
67
GeneralGrowthProperties FoolsGold
WeThinkCurrentEquityInvestorsWillBe DisappointedintheCompanys Reorganization
December14,2009
HovdeCapitalAdvisorsLLC
TableofContents
Thesis(p.3) TheDemiseofMallsinAmerica(p.411) TheBeginningoftheEnd(p.1214) ValuationAnalysis(p.1531) CommercialRealEstateValuation(p.3235) PotentialRoadblocks(p.36) Disclosures(p.3738)
HovdeCapitalAdvisorsLLC 2
December14,2009
OurThesis
Duetohighlyleveragedacquisitionsnearthepeakofthecycle,adeclinein theoveralleconomy,andinsufficientcapitalspending,webelievetheassets ofGeneralGrowthnolongersupportthecurrentcapitalstructure. Inourview: thecompanyscashflowsareinsufficienttoservicethedebtandpayfor maintenancecapitalatitsmalls;and thebankruptcyisnotjusttheresultofaliquidityproblem;itisacashflow andloantovalueproblem. Webelievethevalueoftheassetsnolongerexceedthevalueofthedebt,in contrasttoseveralrecentanalyses. DespiterecentupwardmoveintheGGWPQshareprice,webelievecurrent equityinvestorsarelikelytobeleftwithlittleintherestructuredentity.
NOTE:THATFUNDSADVISEDBYHOVDECAPITALADVISORS,LLCANDONEOFITSPRINCIPALSHAVE SHORTPOSITIONSINGGWPQ.SEEADDITIONALIMPORTANTDISCLOSURESATPAGES26AND27.
December14,2009 HovdeCapitalAdvisorsLLC 3
TheDemiseofMallsinAmerica
StructuralChangeinRetail ConsumptionandDistribution
December14,2009
ConsumersAreSavingMoreand SpendingLess
PersonalSavingsRate (%ofDisposableIncome)
16 14 12 10 Percentage 8 6 4 2 0 2 4 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source:U.S.BureauofEconomicAnalysis. December14,2009 HovdeCapitalAdvisorsLLC 5
ConsumersHaveLessAccessto Credit
Source:FederalReserve. December14,2009 HovdeCapitalAdvisorsLLC 6
ConsumersHaveLessHomeEquity AvailabletoSupportSpending
Source:FederalReserve. December14,2009 HovdeCapitalAdvisorsLLC 7
ConsumersAreFocusedonValue
Givenlowerlevelsofdiscretionaryincomeandhighersavingsrates,we believeconsumersareseekingmorevalueintheirconsumptionhabits. Thisisevidentintheoutperformanceofdiscountretailersversusbroader retailsales.Theseretailerstendtobediscountersandinnonmall locations,typicallystandaloneorlocatedinstripcentersandpower centers. Inourview,outletsarealsolikelytogainshare,whichwethinkis demonstratedintherecentlyannouncedacquisitionofPrimeOutletsby SimonPropertiesGroup(NYSE:SPG).Theoutletbusinessoffers consumersbettervalue,offersretailersloweroccupancycosts,and provideslandlordswithbettermargins. Onlineshoppinghasexperiencedtremendousgrowthinshareofretail spendingasconsumersseekvalueandefficiency. Thesetrendsdonotbodewellformallfundamentalssinceneitherare mallbased.
December14,2009
NonMallRetailersAreSeeing ImprovingPerformance
Same-Store Retail Sales (% Chg.) Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08
Non-Mall Average BJ's Wholesale Club Inc Cato Corp/The Costco Wholesale Corp Kohl's Corp Nordstrom: Rack Stores Old Navy North Amer Rite Aid Corp Ross Stores Inc Stage Stores Inc Stein Mart Inc Target Corp TJX Cos Inc Walgreen Co
1.2 1.0 2.0 2.0 3.3 3.3 6.0 (0.8) 8.0 (12.5) (7.2) (1.5) 8.0 3.9
2.8 3.7 4.0 1.4 5.9 14.0 (0.5) 9.0 (0.1) (4.9) (0.1) 10.0 (6.2)
1.4 5.5 6.0 4.0 5.5 13.0 (0.3) 8.0 (5.6) (5.4) (1.7) 7.0 (17.6)
(0.9) 2.2 5.0 2.0 0.2 3.8 4.0 (1.9) 6.0 (9.5) (8.9) (2.9) 5.0 (16.6)
(4.0) 1.8 (3.0) (1.0) 0.4 (0.5) (8.0) (0.6) 4.0 (11.9) (5.5) (6.5) 4.0 (25.5)
(4.4) 2.7 (3.0) 1.0 (5.6) 0.6 (7.0) (0.6) 1.0 (12.6) (8.0) (6.2) 4.0 (23.0)
(1.8) 4.0 (3.0) 1.0 (0.4) 2.2 3.0 0.6 4.0 (7.2) 0.2 (6.1) 5.0 (27.0)
(1.7) (4.9) 11.0 (6.2) 4.4 1.0 1.8 6.0 (1.5) (12.3) 0.3 3.0 (24.6)
(2.7) 8.5 6.0 4.0 (4.3) 0.1 (0.7) 3.0 (15.0) (1.4) (6.3) 2.0 (31.2)
(3.4) 8.2 8.0 4.0 (1.6) (0.6) (13.0) (0.9) 1.0 (8.6) (12.2) (4.1) (24.2)
(8.5) 7.6 (10.0) 5.0 (13.4) (2.2) (34.0) 1.0 (2.0) (13.1) (16.7) (3.3) (4.0) (25.8)
(4.8) 5.9 (2.0) 2.0 (1.4) (1.8) (16.0) (0.2) (4.9) (8.5) (4.1) (31.2)
December14,2009
Source:Bloomberg.
MallBasedRetailersarePerforming Poorly
WeBelieveThisIsLikelytoLeadtoRetailBankruptciesandStoreClosings
Same-Store Retail Sales (% Chg.) Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08
Mall-based Average Abercrombie & Fitch Co Aeropostale Inc American Eagle Outfitters Inc Banana Republic N. Amer Bon-Ton Stores Inc/The Buckle Inc/The Childrens Place Retail Stores Inc/The Destination Maternity Corp Dillard's Inc Gap North America HOT Topic Inc JC Penney Co Inc Ltd Brands Inc Macy's Inc Neiman Marcus Group Nordstrom: Full-line Stores Saks Inc Wet Seal Inc/The Zumiez Inc
(6.7) (17.0) 7.0 (2.0) (4.0) (6.0) 1.4 (13.0) (11.6) (11.0) (4.0) (11.7) (5.9) 3.0 (6.1) (5.9) (0.6) (26.1) (5.0) (8.5)
(2.6) (15.0) 3.0 (5.0) 5.0 3.1 4.3 (2.0) (5.2) (8.0) (6.0) (2.6) (4.5) (4.0) (0.8) (6.0) 3.7 0.7 (1.3) (8.9)
(3.8) (18.0) 19.0 (12.0) (4.8) 5.1 4.0 (7.0) (6.0) (8.0) (4.0) (1.4) 1.0 (2.3) (16.9) (3.9) (11.6) (4.5) (0.8)
(9.3) (29.0) 9.0 (7.0) (8.0) (5.1) 3.6 (8.0) (10.6) (12.0) (7.0) (8.1) (7.9) (4.0) (8.1) (19.6) (12.9) (19.6) (11.2) (12.1)
(10.5) (28.0) 6.0 (11.0) (7.0) (9.8) 2.8 (4.0) (8.3) (12.0) (9.0) (8.5) (12.3) (7.0) (10.7) (27.3) (7.8) (16.3) (12.1) (16.8)
(10.6) (32.0) 12.0 (11.0) (20.0) (8.0) 9.6 (12.0) (10.7) (14.0) (10.0) (7.9) (8.2) (12.0) (8.9) (20.8) (13.6) (4.4) (11.1) (19.3)
(10.1) (28.0) 19.0 (7.0) (14.0) (12.1) 13.4 (9.0) (5.4) (12.0) (11.0) (6.4) (8.2) (7.0) (9.1) (23.3) (16.7) (26.6) (8.4) (20.7)
(6.1) (22.0) 20.0 (5.0) (8.0) (5.1) 18.2 5.0 (1.2) (6.0) (10.0) 3.1 (6.6) (6.0) (9.1) (22.5) (13.4) (32.0) (2.2) (13.8)
(11.6) (34.0) 3.0 (16.0) (16.0) (11.2) 14.7 (2.0) (7.6) (19.0) (14.0) 7.1 (7.2) (9.0) (9.2) (29.9) (16.9) (23.6) (12.5) (17.9)
(8.3) (30.0) 11.0 (7.0) (16.0) (8.5) 21.0 (3.5) (13.0) (12.0) 10.8 (8.8) (7.0) (8.5) (20.9) (19.7) (26.0) (6.6) (13.4)
(10.6) (20.0) 11.0 (22.0) (22.0) (8.2) 14.7 (11.0) 5.1 (12.0) (18.0) 6.0 (16.4) (9.0) (4.5) (24.4) (18.1) (23.7) (14.7) (14.8)
(8.6) (24.0) 12.0 (17.0) (15.0) (5.8) 13.5 (6.9) (5.0) (12.0) 4.3 (8.1) (10.0) (4.0) (27.5) (12.8) (19.8) (12.5) (12.3)
December14,2009
Source:Bloomberg.
10
OnlineSalesAreGainingShare
EstimatedQuarterlyU.S.RetailEcommerceSalesasaPercentofTotal QuarterlyRetailSales: 4thQuarter1999 2ndQuarter2009 PercentofTotal
Source:U.S.CensusBureau. December14,2009 HovdeCapitalAdvisorsLLC 11
TheRouseCompany AcquiredNovember2004
TheBeginningoftheEnd
December14,2009
12
TheRouseCompanyAcquisition
Purchaseprice:$14.3billion. Portfolioof37regionalmalls(andvariousofficeassets)and $2billionoflandandlots,mostlyinSummerlin(LasVegas) reportsfrommarketparticipantsasnotedonthenext pagesuggestlandpricesinthismarkethavefallen dramatically,and,insomecases,thelandhasanimplied valueofzeroorevennegativevalues. Capitalizationrateof5.3% impliesover$4billion destructionofestimatedassetvalueattodaysmarket prices,assumingan8%caprate. $400millionofgoodwill notonlydowebelieveitwas purchasedatnearpeakvalues,itwasovervaluedwhen theyboughtit!
Source:RouseCompanySECfilings. December14,2009 HovdeCapitalAdvisorsLLC 13
TheRouseCompanyAcquisition
LasVegaslandisnowworthmateriallylessthanin 2004.Wethinkthereislittlevalueinthemaster plannedcommunityassetsofGeneralGrowth.
finishedlotsaretradingatadiscountandtheunderlyinglandatmany nonprimelocationsforresidentialdevelopmenthasvirtuallynovaluein todaysdistressedmarket,Cherneysays. Thereismorepaintocomeinthis Vegaslandmarket.Thefundamentalsofsupplyanddemandarealiveandwell andwillensurefurtherdeclinesinto2009.Thiswashoutisfarfromover.
CraigCherney,directorofWesternoperationsofPhiladelphiabasedAmericanLandFundasquotedinthe LasVegasSun,March1,2009.
December14,2009
14
ValuationAnalysis
December14,2009
15
WidelyReliedUponAnalysisIs Outdated
Webelievemanyinvestors/speculatorshaverelieduponaPershing SquareCapitalLPanalysisofthecompanyissuedinMay2009, whichuseddatafrom2008.Weareoftheopinionthatthisvery datedanalysisisflawedbasedonthedeteriorationinfinancial performanceatGeneralGrowthsince2008. Thecompanysactualcashflow(seep.19)isnowmorethan20% below2008levels,andrentsonnewleasesaredown33%versus currentinplacerentsasofthethirdquarter. Weviewthe7.5%capitalizationrateassumptionasfartoo optimisticrelativetoprivatemarkettransactionvalues.Macerich (NYSE:MAC)recentlysoldcomparableandhigherqualitymall assetsatcaprateshigherthan8%(afterfactoringinpreferred returnstoinvestors).* Bottomline:webelievetheassetsareworthlessthanthe liabilities.
*Source:MacerichpressreleasesonSeptember3,2009andOctober1st 2009;MacerichconferencecallNovember5th,2009. December14,2009 HovdeCapitalAdvisorsLLC 16
LeverageisaSignificantValuation Factor
PershingSquareusesSimonPropertiesGroup(NYSE:SPG) asacomparableintheiranalysiswithoutgiving considerationtoleverage.Simonismoderatelyleveraged, withdebttoEBITDAof6x,andisaninvestmentgraderated credit.GeneralGrowthsleverageisinexcessof16xand wouldstillbeinexcessof12xevenifalloftheunsecured debtwasconvertedtoequity. Therearenocomparablyleveragedpubliccompaniesin themallsector,butthosethataremorehighlyleveraged tradeatasignificantdiscounttothosewithlessleverage. Clearlycompanieswithlessleveragetradeatpremium valuationsasshownonthefollowingpage.
Source:GeneralGrowththirdquarter2009supplementalpackage;SimonPropertyGroupthirdquarter2009supplementalpackage. December14,2009 HovdeCapitalAdvisorsLLC 17
LeverageIsaSignificantValuation Factor
Leverage and Valuation Comparison Implied Cap Rate Average CBL & Associates Macerich Simon Property Group Average 9.3% 8.3% 7.3% 8.3% Leverage (Debt/EBITDA) Average 8.9x 8.2x 6.8x 8.0x
General Growth Properties
16.5x
AverageofanalystestimatesfromISIandDeutscheBankasof12/4/09;GeneralGrowththirdquarter2009supplementalpackage. December14,2009 HovdeCapitalAdvisorsLLC 18
CashFlowsHaveCollapsed
Thisisthe realityoftoday (27%yr/yr). Thisisthe startingpoint forPershing Squares analysis.
Source:Thirdquarter2009GeneralGrowthsupplementalpackage. December14,2009 HovdeCapitalAdvisorsLLC 19
RentsAreRollingDownDramatically
Newleaseratesare33%lower thaninplacerents.Thisisnot goodfortheNOIoutlook.
NOISensitivityDrivesValuation
ThedeclineinNOIsince2008drivesadecline inenterprisevalueof$3.8$4.3billionunder thePershingSquarevaluationframework. ApplyingQ3annualizedNOItothePershing Squarevaluationanalysis,theimpliedequity valuepershareofthecompanytodayis NEGATIVE$5.03atan8.5%caprateand +$5.73ata7.5%caprate.
Source:TheBucksReboundBeginsHeredatedMay27,2009 PershingCapitalManagement,L.P.(p.56)andHovdeCapitalAdvisorsLLCanalysis(see page30).
December14,2009
21
RecentComparableTransactionsIndicate CapRatesAreHigher
*Macerichs(NYSE:MAC)saleofJVinterestin QueensCenter(NYC,NY)toCadillacFairview Corporationatalow7%cap percompany management. Thismallgenerates$876/squarefootinsales versusGeneralGrowths$409/squarefoot.
*Source:MacerichpressreleaseJuly30,2009;MacerichconferencecallNovember5th,2009;thirdquarter2009GeneralGrowth supplementalpackage. December14,2009 HovdeCapitalAdvisorsLLC 22
RecentComparableTransactions IndicateCapRatesAreHigher
*Macerichs(NYSE:MAC)saleofJVinterestsin mallstoHeitmanandGIPartnersataless than100basispointsoverthe7.5%caprate onaverage. perArthurCoppola(11/5/09 conferencecall).Thusweinfertheeffective impliedcaprateisinthe8.0%8.5%range. Thesemallsgenerate$443$500/squarefoot insalesversusGeneralGrowths$409/square foot.
*Source:MacerichpressreleasesonSeptember3,2009andOctober1st,2009;MacerichconferencecallNovember5th,2009. December14,2009 HovdeCapitalAdvisorsLLC 23
RecentComparableTransactions IndicateCapRatesAreHigher
TherecentlyannouncedacquisitionofPrime OutletsbySimonPropertyGroup(NYSE:SPG)was estimatedtobepricedatan8.0%8.4%caprate oninplaceNOIbasedonsomeWallStreet estimates.(1) Thesemallsgenerate$370/squarefootinsales versusGeneralGrowths$409/squarefoot, however,outletmallsgenerallytendtogenerate slightlyhigherNOImarginsthanregionalmall formatinourview.
(1)DeutscheBankestimate8.4%(reportdated12/8/09,titledSPGAcquiringPrimeOutlets.)SandlerONeilestimates~8%caprate(reportdated 12/8/09,titledSPG:StockingUpBeforetheHolidays;SPGtoAcquirePrimeOutlets.
December14,2009
24
WhatIstheAppropriateCapRate?
Basedonrecentcomparabletransactions,theuseof acapratebelow8%seemsdisconnectedwithreality inourview. Wewouldargueacaprateinthe8.5%rangeor higherwouldbemoreappropriatefortheGeneral Growthportfolio,giventhebelowaverage productivityofitsmalls*andthefactthatitis experiencingsignificantdeclinesinnewrentsthatin ouropinionwilldrivelowerrevenuesandNOIfor someperiodoftime.
* Source: based on Q3-09 disclosures from Macerich and Simon Properties Group. December14,2009 HovdeCapitalAdvisorsLLC 25
InterestCoverageIsUnsustainable
(Thisiscashflowproblem,notjustaliquidityproblem)
Interest coveragehas fallento minimallevels (1.17x) thisis beforecapital expenditures.
AmortizingSecuredDebtWillFurther ReduceDebtServiceCapacity
Recentagreementwith$9.7billionofsecuredcreditors requiresthatinterestonlydebtnowamortizesprincipal ona30yearschedule. Thiswilladdover$300millionofannualdebtservice initially,whichstepsupovertime,i.e.increasing amortization. Byourestimates,thiswillinitiallydrivethecompanys debtservicecoverageratioto1.0xorbelowbasedonthe companystrailing12monthEBITDAasof9/09. Basedonthecompanysprojections,debtservice coverageforthepropertiessecuredbytheseloanswill be1.0xin2010,beforeconsideringmandatoryprincipal paydownsandothercashcosts.
Source:US_ACTIVE:\43244255\04\47658.0008,debtorsplanfiled12/1/09;thirdquarter2009GeneralGrowthsupplemental package. December14,2009 HovdeCapitalAdvisorsLLC 27
CreditorsWillTaketheCash
Cash($2/share)willlikelybepaidouttocreditorsintheformof feesandreimbursementoflegalexpenses. Accordingtodocumentsrecentlyfiledinbankruptcycourt,General Growthwillbeforcedtopay$423.2millioninextensionfees, servicerfeesandexpenses,catchupamortizationpayments, accruedinterest,thefundingofcertainescrowsandother expenses. Thisisonlyrelatedtotheagreementon$9.7billionofsecured loans,sowebelievethecosttosecureagreementstorestructure theremaining$12billionofdebtwilllikelycostsignificantlymoreif thecostsarecomparabletothisagreement. Givenourviewthatthecashcostsoftherestructuringswilllikely exceedthecompanyscurrentcashposition,webelieveadditional claimswilllikelybesettledinequityownership,suggestinglittleif anyrecoveryforcommonshareholders.
Source:US_ACTIVE:\43244255\04\47658.0008,Exhibit3,filed12/7/09. December14,2009 HovdeCapitalAdvisorsLLC 28
Valuation
PershingSquaresAnalysisUsesDatedNOI
Pershing Square Analysis Framework
Thisisfrom 2008
Low $ 2,524 8.5% 29,694 $
ThisisQ3annualizedNOI,andrents arerollingdownsharply(33%), whichwilldrivelowerNOI.

More Realistic Scenario High 2,524 7.5% 33,653 $ 2,200 (1) 8.5% 25,882 $ 2,200 (1) 7.5% 29,333
($ in millions, except per share data) LTM Cash NOI Cap Rate Implied Value of GGP's REIT Pro Rata for JVs: Less: Total Debt Less: Preferred Debt Less: Other Liabilities Plus: Cash Plus: Other Assets Plus: Development Pipeline Implied Equity Value $
Cashwillbe paidto creditorsin feesand recoveryof legalexpenses.
(28,174) (121) (1,585) 722 1,777 603 2,916 $
(28,174) (121) (1,585) 722 1,777 603 6,875 $
(28,174) (121) (1,585) 0 1,777 603 (1,618) $
(28,174) (121) (1,585) 0 1,777 603 1,833
Per Share
(1)SeecalculationofNOIonthepage30.
9.11
21.50
(5.06)
5.73
Source:TheBucksReboundBeginsHeredatedMay27,2009 PershingSquareCapitalManagement,L.P.(p.56)andHovdeCapitalAdvisorsLLC analysis.
December14,2009
29
CalculationofTodaysNOI
Net Operating Income Calculation (as of Q3-09)
(figures in 000s)
Consolidated & JV Share NOI (as reported) Less: lease termination fees Less: above/below-market rents Less: straight lined rents Less: tenant allowances & leasing costs Less: capital expenditures Plus: non-cash ground rent expense Total NOI Total Annualized NOI (x4)
$ $ $ $ $ $ $ $ $
585,203 3,859 3,121 11,478 16,620 3,362 1,823 548,586 2,194,344
Source:Thirdquarter2009GeneralGrowthsupplementalpackage.
December14,2009
30
Valuation
Assumesunsecureddebtwouldrequireamoderatediscounttoconvert,althoughit isquestionableinourviewwhethertherewillbeanyvalueforexistingshareholders giventhatwebelievethevalueofthedebtexceedsthatoftheassets. BestCase
($ in millions, except per share data) Annualized Cash NOI (1) Cap Rate Implied Value of GGP's REIT Pro Rata for JVs: Less: Total Debt Less: Preferred Debt Less: Other Liabilities Plus: Cash (2) Plus: Other Assets Plus: Development Pipeline Implied Equity Value $ (21,174) (121) (1,585) 1,777 603 8,833 $ (21,174) (121) (1,585) 1,777 603 8,833 $ (21,174) (121) (1,585) 1,777 603 8,833 $ (21,174) (121) (1,585) 1,777 603 8,833 $ (21,174) (121) (1,585) 1,777 603 5,382 $ (21,174) (121) (1,585) 1,777 603 5,382 $ (21,174) (121) (1,585) 1,777 603 5,382 $ (21,174) (121) (1,585) 1,777 603 5,382 $ 2,200 7.5% 29,333 Best Case - Assuming Conversion Conversion Price Range $5-$8 $ 2,200 7.5% 29,333 $ 2,200 7.5% 29,333 $ 2,200 7.5% 29,333 $ 2,200 8.5% 25,882 $
RealisticCase
Realistic Scenario - Assuming Conversion Conversion Price Range $3-$6 2,200 8.5% 25,882 $ 2,200 8.5% 25,882 $ 2,200 8.5% 25,882
Per Share
5.14
5.94
6.69
7.39
2.03
2.60
3.13
3.62
Assumedconversionprice:$5.00$6.00$7.00
(1) See calculation on page 24. (2) Assumes cash is paid out to creditors in forbearance fees and reimbursement of legal expenses.
$8.00$3.00$4.00$5.00$ 6.00
December14,2009
31
CommercialRealEstate ValuationAnalysis
December14,2009
32
CommercialRealEstateValues HaveDropped43%SincethePeak
Source: Moodys/REAL Commercial Property Index, Real Capital Analytics. December14,2009 HovdeCapitalAdvisorsLLC
33
CapitalizationRatesHaveMoved SignificantlyHigherSincethePeak
CapitalizationRates
11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% Oct01 Oct02 Apr01 Oct03 Jan01 Jul01 Apr02 Oct04 Jan02 Jul02 Apr03 Oct05 Jan03 Jul03 Apr04 Oct06 Jan04 Jul04 Apr05 Oct07 Jan05 Jul05 Apr06 Oct08 Jan06 Jul06 Apr07 Apr08 Apr09 Oct09 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09
Apartment
Industrial
Office CBD
Office Sub
Strip
AllCore
Source: Real Capital Analytics. December14,2009
34
2009MallTransactionData
2009 Regional Mall Transactions Retail - Regional Malls | North America | Us
Type Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Property Name West Oaks Mall Lloyd Center Westshore Plaza Bridgewater Falls Chandler Fashion Center Freehold Raceway Mall New Orleans Centre Mall Cupertino Square FlatIron Crossing Queens Center Kohl's South Bay Pavilion Colonie Center Mall Westland Fair Shopping Center (portion) Cincinnati Mall sq ft 1,083,573 1,229,140 1,059,612 650,000 1,325,379 1,666,812 668,000 476,000 722,855 966,499 83,281 370,000 633,000 387,000 1,442,339 Year Built 1984 1959 1967 2005 2001 1990 1988 1975 2000 1990 1984 1973 1966 1963 2004 Price in $ 15,000,000 171,851,210 148,148,790 43,750,000 296,079,278 372,352,733 24,243,791 64,000,000 347,333,000 306,117,000 17,250,000 49,751,333 16,400,000 25,505,000 35,450,000 $ $/sq ft 14 140 140 67 223 223 36 134 481 317 207 134 26 66 25 149
Average
Source: Real Capital Analytics.
December14,2009
35
PotentialRoadblocks
Objectionstothecompanysplanofemergencerelatedto assetssecuring$9.7billionofloanshavebeenfiledrecently bysecuredcreditorswhoholdmechanicsliens,taxliens, claimsrelatingtorentclawbacks,andclaimssecuringsurety bonds. Suchcreditorsinclude:
Apple Dillards Lewisville(TX)IndependentSchoolDistrict PimaCounty(AZ) TravelersCasualtyandSuretyCompany
Source: United States Bankruptcy Court for the Southern District of New York. December14,2009 HovdeCapitalAdvisorsLLC 36
Disclosures
FundsadvisedbyHovdeCapitalAdvisors,LLCandone ofitsprincipalshaveestablishedshortpositionsinthe commonstockofGeneralGrowthProperties(OTC: GGWPQ)andinthecommonstockofMacerich(NYSE: MAC).Oneoftheprincipalshasestablishedashort positioninSaks(NYSE:SKS).Theirpositionsinthese stocksandothersmaychangewithoutfurthernotice. NeitherthefundsadvisedbyoranyaffiliatesofHovde CapitalAdvisors,LLCholdpositionsinanyother companiesmentionedinthisdocumentotherthan thosementionedabove.
DisclosuresContinued
Theopinionsandviewsexpressinthisdocument andtheanalysissetforththereinmaychangeand HovdeCapitalAdvisors,LLCisnotundertakingto updateitsopinions,viewsoranalysis. Althoughthefactualinformationcontainedin thisdocumentisbelievedtobeaccurate,Hovde CapitalAdvisors,LLCdoesnotwarrantits accuracyorcompleteness. Thisdocumentisnotintendedtobe,andshould notbeconstruedas,investmentadviceora recommendationtobuyortosellanysecurity.
GGP Part II
May 26, 2010
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Pershing Square manages funds that are in the business of actively trading buying and selling securities and financial instruments. In particular, funds managed by Pershing Square and its affiliates have invested in long and short positions of certain mall REITs, including long debt and equity positions in General Growth Properties Inc. and other commitments to recapitalize that company. Pershing Square may currently or in the future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy, sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
At Last Years Ira Sohn Conference, We Delivered a 67-page Presentation on General Growth Entitled:
The Bucks Rebound Begins Here

May 27, 2009

2
On Page 34 of The Bucks Rebound Begins Here, We Proposed the Following Solution for GGP to Address Its Bankruptcy
A seven-year extension of GGPs secured and unsecured loans at their existing interest rates would provide the Company with sufficient time to use cash flow from operations to delever its balance sheet. With a sevenyear extension, we believe the Company would be able to repay existing creditors in full
Benefits of this Approach:
Secured and unsecured lenders receive 100% of the present value of their claims Prevents the liquidation of assets at fire-sale prices Preserves value for equity holders GGP platform remains intact Preserves jobs
________________________________________________
Source: See page 34 of The Bucks Rebound Begins Here, May 27, 2009.
GGPs Bankruptcy has Progressed Largely as We Expected

All of GGPs property-level debtors have consensually agreed to extend $15bn of secured debt The weighted average contract interest rate for these loans is 5.07%, which is lower than the original interest rate
(1)
The weighted average duration of the loans is 6.5 years from January 1, 2010
(1)
GGP has avoided a fire-sale of its assets Equity value has been enhanced While we suggested a maturity extension of GGPs unsecured debt, the vast majority of it will be repaid at emergence
________________________________________________ (1) Source: GGP Press Release (4/29/10).
GGP has Secured a Commitment for Enough Capital to Repay its Unsecured Creditors in Full at Par Plus Accrued
________________________________________________ (1) Source: GGP Press Release (5/3/10).
The Buck Has Rebounded

Though GGPs stock price has risen more than 1000% over the past year, its TEV has only increased 12%. This compares to Simon Property Group (SPG or Simon) whose TEV has risen 29% over the same period
GGP Stock Price Performance
$20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0

Jan-09
________________________________________________
GGP traded at $1.19 as of last years Ira Sohn Conference
$14
Apr-09
Jul-09
Oct-09
Feb-10
May-10
A Little Context
The U.S. economy was in a serious recession The U.S. consumer had hit the wall Mall REITs had limited access to capital Cap rates increased and transactions stopped as bidask spreads widened Bankruptcy risk and tenant right-sizing initiatives were expected to result in massive store closures Rent relief was a serious concern Tenant sales were expected to continuously decline
8
Since Then
U.S. Economy Recovering

U.S. Real GDP growth has been positive the past three quarters
Real GDP (% Change)
8.0% 5.6%
6.0%
4.0% 2.2% 2.0% 1.5%
3.0%
0.0% (0.7%) (2.0%) (2.7%) (4.0%)
(6.0%)
(5.4%) (6.4%)
(8.0%)
Q208
________________________________________________
Q308
Q408
Q109
9
Q209
Q309
Q409
Q110
Source: Bureau of Economic Analysis (5/27/10).
The Housing Market is Showing Signs of Improvement

The ABX AAA 06-2 Index, which tracks pricing on a basket of 2006 vintage subprime loans, has marched upward over the past year
Markit ABX.HE.AAA 06-2 Index
________________________________________________
Source: Bloomberg (as of 5/28/10).
10
Consumer Confidence is Up
The University of Michigan Survey of Consumer Confidence Sentiment Index has improved since the beginning of 2009
University of Michigan Consumer Confidence Index (Trailing Three Month Average)
75.0
73.5 70.5
73.1
70.0 67.5
65.0 61.1 60.0 59.2
63.7
55.0
50.0 Sept-Nov 2008

________________________________________________
Dec-Feb 2009
Mar-May 2009
Jun-Aug 2009
11
Sept-Nov 2009
Dec-Feb 2010
Mar-May 2010
Source: University of Michigan / Bloomberg. Most recent data point available as of 5/28/10.
Personal Savings Rate Reverting

After peaking in May 2009, the U.S. personal savings rate has reverted to near its 10-yr average
U.S. Personal Saving as a Percentage of Disposable Personal Income
7.0%
LTM
6.0%
5.0%
4.0%
Average:
2.8%
3.0% 2.0%
3.6%
1.0%
0.0% Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
12
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
________________________________________________
Source: Bloomberg / Bureau of Economic Analysis (as of 5/28/10). Most recent data point as of Apr-10.
Mall Traffic Improving

Consumers are returning to malls as evidenced by positive mall traffic trends year-to-date in 2010
________________________________________________
Source: Jefferies equity research (4/22/10).
13
Retail Construction Remains at a 20-Year Low
And frankly, when you look at the capital situation today, the construction in the retail sector is at a 20-year low. We certainly anticipate it will remain there, and the lack of new supply can only hopefully help the demand side for the existing product.
Rick Sokolov, COO of Simon Property Group, December 4, 2009

________________________________________________
Source: Goldman Sachs equity research November 2009.
14
Mall REITs Have Regained Access to Capital

Simon Debt Issuances
On March 25, 2009, Simon announced the completion of the issuance of $650 million of 10.35% senior notes due 2019 On January 19, 2010, Simon announced the sale of $2.25bn of senior unsecured notes, including: $400mm of 4.20% notes due 2015 yielding 4.25% $1.25bn of 5.65% notes yielding 5.70%
Macerich Equity Issuance

Macerich Issues Biggest Share Offer On Record WSJ 4/15/10 Macerich raised $1.23bn in equity at a ~7.0% cap rate, more than 25% of its market cap, representing the largest secondary stock offering by a REIT on record The 30mm share sale was 62% over-subscribed relative to the original 18.5mm anticipated share sale announcement on April 14th
________________________________________________
Source: The Wall Street Journal, 4/15/10.
15
Mall REIT Cap Rates Have Declined and Should Decline Further Based on Historical Precedent
Although Mall REIT cap rates have come in from their double-digit highs, mall REITs still trade at a discount to corporate Baa yields
Mall Implied Cap Rate vs. Baa Yields
10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0%
Ja nM 05 ar -0 M 5 ay -0 Ju 5 lSe 05 p0 N 5 ov -0 Ja 5 nM 06 ar -0 M 6 ay -0 Ju 6 l-0 Se 6 p0 N 6 ov -0 Ja 6 n0 M 7 ar -0 M 7 ay -0 Ju 7 lSe 07 p0 N 7 ov -0 Ja 7 nM 08 ar -0 M 8 ay -0 Ju 8 lSe 08 p0 N 8 ov -0 Ja 8 nM 09 ar -0 M 9 ay -0 9 Ju l-0 Se 9 p0 N 9 ov -0 Ja 9 nM 10 ar -1 M 0 ay -1 0
Mall Implied Cap Rate Baa
6.4% 6.1%
________________________________________________
Source: Green Street (as of 5/1/10). Most recent available.
16
Tenant Bankruptcies Have Decreased

Taubmans reported tenant bankruptcies dropped to 0% in Q110
Taubman Reported Tenant Bankruptcy Filings as a % of Total Tenants
1.5%
1.2% 1.0%
1.1%
1.1%
0.9% 0.9% 0.8%
0.6%
0.3% 0.1% 0.0% 0.0% Q3'08

________________________________________________
Q4'08
Q1'09
17
Q2'09
Q3'09
Q4'09
Q1'10
Source: Taubman quarterly financial supplements.
Tenant CDS Spreads Have Narrowed

Mall tenant CDS spreads have narrowed approximately 400 basis points from peak levels seen in 2009
GGP Top 10 Tenants CDS Basket
600bps
500bps
400bps
300bps
200bps
139bps
100bps 0bps Jan-09
________________________________________________
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Note: Represents an equal-weighted basket of CDS prices for GGPs top 10 tenants (where CDS pricing is available), which include Gap, Limited, JC Penney and Macys. Source: Bloomberg (5/28/10).
18
Rent Relief Less of an Issue than Originally Anticipated
Simon expects to lose less than 2bps of total revenue as the result of rent relief concessions in 2009 Our 2009 rent relief total will be under $10 million, as in the $7 million to $8 million range. But as I think we said on the call last quarter, we hadnt seen much of it year-to-date. So its a little back-end weighted, and as you look at the impact of average base rent it could have a nominal impact. But its a small number in the context of the size of our income statements. Steve Sterrett, CFO of Simon Property Group, October 30, 2009
19
Mall Leasing Activity Picking Up Substantially
Retail leasing activity increased significantly in the first quarter of 2010, with total in-line and outparcel tenant leasing deals covering 1.36 million square feet signed, an increase of 21% over the same period of last year. Within total deals, the number of new lease deals grew 84%, representing new deal square footage of approximately 284 thousand square feet. Although rents remain below 2007 peak levels, they have stabilized. As sales continue their upward trend, the Company expects lease rates to reflect those increases over time.
GGP Q110 Operating Supplement
20
Tenant Sales Growing Quickly

Anchor tenant same store sales have turned from negative in late 2008 and 2009 to materially positive so far in 2010
________________________________________________
Source: Why the Sad Face Mall Sector? Credit Suisse equity research (4/26/10).
21
Mall REIT Comp Tenant Sales Growth Positive in Q110

8.0% 7.5% 6.6% 6.0% 5.3%
4.0%
3.4%
2.0%
0.0%
Based on Westfields U.S. portfolio only.
On a quarterly basis, comparable tenant sales rose a healthy 7.5% year-over-year, with momentum picking up over the course of the quarter. January 2010 comparable sales increased 2.5% year-over-year, with February and March showing accelerating increases of 6.0% and 10.0%, respectively.
22
GGP Q110 Operating Supplement
The World has Improved Dramatically

The U.S. economy has recovered The U.S. consumer is bouncing back Mall traffic is increasing Demand for mall REIT debt and equity capital is high Cap rates have declined substantially Store closure fears were overblown Tenants are much better capitalized Rent relief has been minimal Tenant sales have returned to growth
23
What Will GGP Look Like When It Emerges?

GGP will emerge as two separate companies: General Growth Properties (PF GGP) and General Growth Opportunities (GGO)
PF GGP
Ownership or management of approximately 200 regional malls Community / strip retail centers Office properties GGMI 13 underperforming malls (Special Consideration Properties or SCPs) assumed to be transferred to lenders
GGO
Master Planned Communities (MPC) Development assets (i.e. Victoria Ward, South St Seaport) Non-income producing assets (i.e. Fashion Show air rights) Other assets
Estimated Value: ~$15

24
Estimated Value: ~$5
PF GGP
Why is PF GGP a Good Investment?

Low Risk
PF GGP will emerge with much less debt, but similar NOI PF GGP will be a portfolio of approx. 200 regional malls and other assets ~80% of its financing will be single-property, non-recourse debt Removal of SCPs, settlement of Hughes claim, and elimination of deferred tax liabilities
High Quality
Approximately 100 of PF GGPs malls are high-quality, mini-monopolies within their respective markets A disproportionate share of PF GGPs NOI is generated by its top assets Events of the past two years have further confirmed that high quality mall assets are recession-resistant
Recent Underperformance Creates Future Upside

Two years of financial distress have caused GGP to underperform its peer group Investors get the benefit of a turnaround opportunity without the risk
26
Why is PF GGP a Good Investment? (Contd)

A mall is like a trust which holds a portfolio of bonds
Over the past twelve months, the credit quality of the bonds has improved as tenant credit quality has strengthened and their CDS spreads have narrowed Leasing up the mall adds new bonds and incremental cash flow to the portfolio with minimal capital investment The bonds represent a diverse group of retailers, restaurants and entertainment concepts, and if a tenant defaults, it can be replaced at little cost Malls have a 50-year track record of stability and strong performance This bond portfolio is inflation-protected due to percentage rent and the rollover of 10-15% of leases per annum
27
The Value of Non-Recourse Debt

Non-recourse financing creates material value for all real estate portfolios, but mall portfolios in particular The reason is that B minus and lower malls have potential catastrophic risk. For example, a mall might lose key anchor tenants, or be disintermediated by a better located mall, which could cause a mall to lose 80% or more of its value If such events were to destroy the value of a mall, the exposure to an investor with non-recourse financing is limited to its equity in the mall because the property can be sold to the lender for the mortgage amount If a mall is a portfolio of bonds, then a mall REIT is a portfolio of portfolios of bonds On the other hand, a mall REIT primarily financed with unsecured, recourse debt (i.e. Simon or Westfield) is analogous to an investors portfolio with margin debt, where the failure of a portion of the portfolio can destroy large amounts, if not 100%, of the equity value
28
Illustrative Example: Non-Recourse Financed Mall Portfolio
Imagine a portfolio of three malls, each worth $100 and each with a 60% LTV non-recourse mortgage
$60 $40 $100 $60 $40 $60 $40 Total Mall Value $300 $60 $60 $60 $40 $40 $40
$100
Leverage 60%
$100
Total Debt $180

29
Total Equity $120
Illustrative Example: Non-Recourse Financed Mall Portfolio (Contd) Now assume one of the malls suffers catastrophic risk. Onethird of the equity value is lost, and leverage remains the same
$0 $60 $40 $60 $40 Total Mall Value $200 $60 $60 $40 $40
Leverage 60%
$100
$100
Total Debt $120

30
Total Equity $80
Illustrative Example: Recourse Financed Mall Portfolio
Imagine the same portfolio of malls financed with unsecured, recourse debt
$100 $180 $100 $120 $120 $180
Leverage 60%
$100
Total Mall Value $300
Total Debt $180

31
Total Equity $120
Illustrative Example: Recourse Financed Mall Portfolio (Contd) If one of the malls dies, equity value is nearly wiped out. Given the covenants associated with recourse debt, the destruction of value would likely be even more severe
$0
$100 $180 $100 $180 $20

Leverage 90%
Total Mall Value $200
Total Debt $180

32
Total Equity $20
PF GGP Operating Metrics

The disposition of Special Consideration Properties (SCPs) and GGO assets materially enhances PF GGPs operating metrics
TTM Tenant Sales PSF $411 250 325 $424
GLA (4) GGP (1) Less: SCPs / Highland (2) Less: GGO Malls (3) PF GGP 65.3 3.9 2.0 59.4
Occup. 90.5% 82.5% 82.5% 91.3%
Occup. Cost 14.6% 18.0% 17.0% 14.3%
(1) Source: GGP Q1'10 supplement pgs. 31-32. (2) See appendix for details. (3) Includes Victoria Ward, Landmark Mall, Rio West, South Street Seaport, Redlands Mall, Riverwalk Marketplace, Park West and Cottonwood Mall. See Exhibit E docket #4874 for full list of GGO assets. Source for tenant sales, occupancy and occupancy cost: Pershing Square estimates. (4) Mall and freestanding gross leasable area (excludes anchors). Units in millions of sq ft.
33
PF GGP Debt
PF GGPs leverage will be meaningfully reduced upon emergence
PF GGP Debt Buildup ($ in mms) Total GGP Debt (3/31/10) (1) Interest coverage ratio (2) Less: SCPs debt (3) Less: GGO debt (3) Less: Stonestown mezz (4) Less: Highland (5) Less: TopCo unsecured debt (6) Less: DIP (6) Plus: New Debt (7) PF GGP Debt (3/31/10) Less: Additional amortization through 9/30/10e (3) PF GGP Debt (9/30/10e) Interest coverage ratio (3)
(1) Source: Q1'10 supplement pg 2. See appendix for details. (2) As of 9/30/09, the last time GGP published its interest coverage ratio in its operating supplement. (3) See appendix for details. (4) Paid down Apr-10. (5) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). (6) Assumed to be paid down as part of PF GGP's emergence. (7) Assumed to be issued as part of PF GGP's emergence.
$27,506 1.2x (948) (506) (57) (32) (6,373) (400) 1,500 $20,691 (212) $20,478 2.0x
34
PF GGP Cash NOI

Despite the dispositions of SCPs and GGO assets, PF GGPs net operating income will be relatively unaffected
PF GGP Adj Cash NOI Buildup ($ in mms) LTM GGP Cash NOI (1) Plus: Bankruptcy claims revenue/expense impact (2) Plus: One-time R&M spend (3) Plus: Real estate tax expense from dvlpmt projects (4) Less: SCPs / GGO / Highland LTM cash NOI (5) LTM PF GGP Adj Cash NOI $2,360 25 16 5 (115) $2,290
(1) Source: GGP operating supplements. See appendix for detail. (2) One-time revenue/expense impacts arising due to the bankruptcy. These are non-recurring items. Assumes 2009 and LTM are equal. Source: GGP Q4'09 operating supplement pg 7. (3) One-time additional property upkeep costs. This reflects "catch-up" R&M spend. Assumes 2009 and LTM are equal. Source: GGP Q4'09 operating supplement pg 7. (4) Represents drag to GGP NOI from PF GGP development projects. Source: Pershing Square estimate. (5) Represents LTM cash NOI attributable to the SCP malls and GGO assets that are assumed to not be included in PF GGP cash NOI post-emergence. Excludes MPC NOI. Source: Pershing Square estimate.
35
PF GGP Shares Outstanding / Market Cap

At $15 per share, PF GGP would emerge with a ~$16bn market cap
(units in mms, except per share data)
$10.00 Current FDSO (1) BPF minimum commitment Clawback shares (2) Liquidity Equity Issuances (3) PF GGP FDSO (excl warrants) Warrants (share equivalent) (4) PF GGP FDSO (incl warrants) PF GGP Market Cap Memo: Warrant Translation Fair Value of warrants (5) Divided by: Share Price Warrants (share equivalent) 324 440 190 65 1,019 31 1,051 $10,506
Illustrative PF GGP FDSO @ Various Share Prices $11.00 $12.00 $13.00 $14.00 $15.00 324 440 190 65 1,019 36 1,056 $11,612 324 440 190 65 1,019 41 1,060 $12,725 324 440 190 65 1,019 45 1,065 $13,843 324 440 190 65 1,019 50 1,069 $14,965 324 440 190 65 1,019 53 1,073 $16,090
$16.00 324 440 190 65 1,019 57 1,076 $17,219
$312 10.00 31
$399 11.00 36
$492 12.00 41
$590 13.00 45
$693 14.00 50
$799 15.00 53
$908 16.00 57
(1) Includes OP Units and options. Source: Q1'10 operating supplement, pg 27. (2) Assumes full clawback of 190mm Pershing Square and Fairholme shares. (3) Assumes GGP sells 65mm Liquidity Equity Issuances shares. (4) Represents the share-equivalent amount of 120mm warrants at various PF GGP share prices. (5) Black-Scholes warrant valuation. Assumes 20 vol, 60mm warrants at $10.50 strike, 60mm warrants at $10.75 strike, and 7-yr duration.
36
PF GGP Would Be the Second Largest U.S. REIT Top 5 REITs in the IYR REIT Index by Rank (as of 5/28/10)
REIT 1. Simon Property Group PF GGP 2. Vornado 3. Equity Residential 4. Public Storage 5. Boston Properties 15. Macerich % of IYR 8.7% 0.0% 5.0% 4.4% 4.3% 3.8% 1.9% Mkt Cap $29,987 16,090 15,016 13,297 15,456 12,341 5,782
At $15 per share, PF GGP would be the second largest REIT in the index
________________________________________________
Source: Market cap data from Green Street Real Estate Securities Monthly (as of 6/1/10).
37
PF GGP Will Be A Must-Own REIT Stock

Shareholder overlap among public REITs is extremely high due to a large, dedicated REIT investor universe Dedicated REIT investors closely track REIT indexes As a result of GGPs bankruptcy, it was removed from REIT indexes When PF GGP emerges from bankruptcy, it will once again be added to the real estate indexes. This will make it a must-own equity
38
Simon Crossholdings Analysis

There is enormous shareholder overlap among the top five REITs in the IYR. On average, the same 25 holders own ~60% of the top five REITs, yet they currently own less than 1% of GGP. In order to obtain similar ownership of PF GGP, they must buy 60% or $9bn of PF GGP
(units in millions)
Top 25 Holders
The Vanguard Group BlackRock Cohen & Steers State Street Global Advisors Fidelity Investments Stichting Pensioenfonds ING Investment Mgmt Morgan Stanley Inv Mgmt Invesco PGGM LaSalle Investment Mgmt Old Mutual Asset Mgmt RREEF AEW Capital Mgmt T. Rowe Price Group Security Capital Research Frank Russell STB Asset Mgmt Northern Trust Principal Global Investors Dimensional Fund Advisors Goldman Sachs Asset Mgmt TIAA-CREF Nikko Asset Mgmt Adelante Capital Mgmt
Simon Shares Value

25 20 17 13 11 9 9 8 8 10 6 4 7 5 5 3 4 4 3 4 3 5 3 3 3 $2,120 1,668 1,464 1,117 965 789 761 660 657 852 529 346 547 416 387 266 325 310 291 328 265 436 250 241 218
Vornado Shares Value

14 13 6 8 7 6 7 5 5 4 5 5 1 3 3 1 2 2 2 1 2 1 2 2 2 $1,073 975 444 579 524 489 567 392 358 280 343 393 99 211 192 98 154 189 152 108 152 66 133 159 126
Equity Residential Shares Value

24 22 11 13 8 12 8 17 7 5 6 7 3 6 3 6 4 3 3 2 3 0 2 3 3 $1,068 977 476 555 341 519 332 734 311 225 251 312 150 285 149 254 168 139 150 102 134 14 106 118 142
Public Storage Shares Value

11 11 8 6 6 5 2 3 3 2 3 3 3 2 1 2 2 2 2 2 2 1 2 1 1 $1,034 969 680 559 505 490 149 288 316 194 311 285 317 212 132 185 180 160 146 159 168 118 148 130 126
Boston Properties Shares Value

12 11 4 6 4 5 2 4 4 3 3 3 4 3 2 3 2 2 2 2 2 2 2 2 2 $922 833 336 481 286 400 145 299 290 213 213 200 335 236 155 231 125 171 129 151 116 178 127 137 117
Shares
9 9 6 3 6 2 12 1 4 3 1 3 2 3 2 2 2 0 1 1 1 0 1 0 1
Macerich Value
$364 359 229 130 224 68 496 30 163 128 21 115 96 108 97 76 64 3 31 27 40 3 51 16 31
Shares
0 0 0 0 0 1 2 0 0 0 -
GGP Value
0 2 5 0 0 17 24 0 6 3 -
Top 25 Holders % of Mkt Cap (1)

________________________________________________
193 $16,209 66%
109
$8,255 60%
182
$8,010 64%
88
$7,961 52%
90
$6,826 65%
74
$2,971 57%
$57 0%
Source: Capital IQ as of 5/21/10. (1) % of market cap is based on Capital IQ market cap estimates, which tend to rely solely on basic shares outstanding. % of GGP market cap is based on PF GGP market cap at $15 per share. 39
Not Your Typical Public Offering

PF GGPs emergence from bankruptcy will be tantamount to an initial public offering (IPO) Unlike traditional IPOs where buyers have all the leverage, PF GGPs equity is already fully committed pre-offering. As a result, rather than be a forced seller, PF GGP can achieve a high value execution Under the terms of the Brookfield, Fairholme, and Pershing Square agreement, PF GGO can sell up to 255 million shares at prices of $10.50 or greater
(1)
________________________________________________ (1) Assumes full clawback of 190mm Pershing
Square and Fairholme shares. Assumes GGP sells full amount of 65mm Liquidity Equity Issuances shares.
40
PF GGP IPO Supply / Demand Dynamic
Demand
($ and shares in millions) Anticipated Demand from the Dedicated REIT Universe PF GGP Market Cap (@$15) Top 25 REIT Investors average % of Mkt Cap (1) Anticipated Demand $ 16,090 60.0% $9,654
Supply
Anticipated PF GGP IPO Supply Clawback shares (2) Liquidity Equity Issuances (3) PF GGP IPO Share Supply PF GGP share price Anticipated Supply $ 190 65 255 15.00 $3,825
(1) Based on Simon Crossholdings Analysis. (2) Assumes full clawback of 190mm Pershing Square and Fairholme shares. (3) Assumes GGP sells 65mm Liquidity Equity Issuances shares.
41
Illustrative PF GGP Valuation at Various Share Prices

At $15 per share, PF GGP would trade at a 6.6% cap rate, in line with comparable mall REITs
(units in mms, except per share data)
Illustrative PF GGP Cap Rate @ Various Share Prices $11.00 $12.00 $13.00 $14.00 $15.00 $10.00 $10.00 1,051 $10,506 $11.00 1,056 $11,612 $12.00 1,060 $12,725 $13.00 1,065 $13,843 $14.00 1,069 $14,965 $15.00 1,073 $16,090
$16.00 $16.00 1,076 $17,219
Memo: $9.00 $9.00 1,045 $9,408 $22,971 (948) (506) (32) (15) (1,678) 1,345 (1,686) $28,859 (151) (183) $28,525 2,290 8.0% 69.2%
Price PF GGP FDSO (incl warrants) Market Cap Target Net Debt (1) Less: SCPs debt (2) Less: GGO debt (3) Less: Highland debt Less: Brazil adjustment (4) Less: Excess Sources (5) Plus: Other liabilities (6) Less: Other assets (7) TEV Less: GGMI (8) Less: Development assets (9) Adj TEV PF GGP LTM Adj Cash NOI Cap Rate Net Debt / TEV (10)
$22,971 $22,971 $22,971 $22,971 $22,971 $22,971 $22,971 (948) (948) (948) (948) (948) (948) (948) (506) (506) (506) (506) (506) (506) (506) (32) (32) (32) (32) (32) (32) (32) (15) (15) (15) (15) (15) (15) (15) (1,678) (1,729) (1,780) (1,831) (1,882) (1,933) (1,984) 1,345 1,345 1,345 1,345 1,345 1,345 1,345 (1,686) (1,686) (1,686) (1,686) (1,686) (1,686) (1,686) $29,957 $31,012 $32,074 $33,141 $34,212 $35,287 $36,364 (151) (151) (151) (151) (151) (151) (151) (183) (183) (183) (183) (183) (183) (183) $29,623 $30,678 $31,740 $32,807 $33,878 $34,953 $36,030 2,290 7.7% 66.7% 2,290 7.5% 64.4% 2,290 7.2% 62.3% 2,290 7.0% 60.3% 2,290 6.8% 58.4% 2,290 6.6% 56.6% 2,290 6.4% 54.9%
(1) Target Net Debt as of the original Cornerstone Investment Agreement. Target Net Debt is an estimate of GGP's net debt as of 9/30/10e. Target Net Debt includes PF GGP and GGO liabilities. In addition, Target Net Debt includes non-debt liabilities, such as accrued interest and Permitted Claims (i.e. the KEIP), among other things. Therefore, Target Net Debt includes the Company's estimate of bankruptcy "exit costs." Furthermore, Target Net Debt includes the following: $1.5bn of New Debt, debt associated with GGP's international subsidiaries, and preferred stock. Source: pg 75 of docket #4874. See appendix for details. (2) SCP debt needs to be removed from Target Net Debt to arrive at an estimate of PF GGP debt upon emergence (assumed to be 9/30/10e). This assumes GGP "hands back the keys" on SCP malls. This is a Pershing Square assumption as the outcome is TBD. Source: pg 17 of Q1'10 10-Q. See appendix for details. (3) Debt associated with properties going to GGO needs to be removed from Target Net Debt to arrive at an estimate of PF GGP debt. GGO debt includes debt associated with Victoria Ward, GGP's headquarters leasehold, the Bridgelands MPC and GGP's pro rata share of the Woodlands MPC debt. Debt estimate is derived from GGP's public filings and may not exactly reconcile to GGP's 9/30/10e estimate of such debt. See appendix for details.
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(4) Brazil debt included in Target Net Debt is $110.4mm (Source: Cornerstone Investment Agreement.) GGP's share of this debt as of 3/31/10 was $95.2mm. Source: Q1'10 supplement pg 2. (5) See Excess Sources appendix page for details. Excess Sources are treated as cash and offset Target Net Debt. Bankruptcy "exit costs" are excluded from uses in the Excess Sources calculation because they are included as Permitted Claims in Target Net Debt. Excess Sources will likely be higher than presented, to the extent GGO's IPO Participation is greater than permitted liabilities. (6) Includes GGP's other liabilities that are not accounted for as part of Target Net Debt. See appendix for details. (7) See appendix for details. Excludes goodwill. (8) Applies 25% EBIT margin assumption to LTM management income of $80mm. Applies 7.5x multiple to implied LTM EBIT. Source for LTM fee income: GGP operating supplements. (9) PF GGP development assets including Christiana Mall, Fashion Place, St Louis Galleria. Source: Q1'10 operating supplement. (10) 9/30/10e PF GGP debt less $500mm of Proportionally Consolidated Unrestricted Cash.
GGP Currently Trades at a Meaningful Cap Rate Spread to Simon

At a $14 share price, PF GGP trades at an 8.0% implied cap rate net of GGO(1)
________________________________________________
Source: Why the Sad Face Mall Sector? Credit Suisse equity research (4/26/10). (1) See previous page for details.
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PF GGP Will Have An Industry Leading Balance Sheet

Although PF GGP will have slightly more leverage than its peers on an absolute basis, it will have a long-dated, laddered debt maturity profile. We believe a reasonable amount of non-recourse leverage, especially if the debt is high-quality, is more of an asset than a liability
Pro Forma
(1) (2) (3) (4)
Interest Rate Debt duration Non-Recourse Leverage Ratio

(5)
5.21% 5.3 yrs 78% 57%
5.50% 5.2 yrs < 52% 50%
NA 7.0 yrs < 20% 49%
5.49% 3.2 yrs < 89% 53%
(1) See appendix for PF GGP balance sheet details. PF GGP Leverage Ratio represents Net Debt / Adj TEV at $15 per share. (2) Source: Simon operating supplements. Assumes 100% of mortgage debt is non-recourse. Most likely, some of this debt is recourse but disclosure is unavailable. (3) Source: Westfield financial results. Data as of Q4'09 if Q1'10 data is unavailable. (4) Source: Macerich operating supplements. Adjusted to reflect April 25, 2010 paydown of $690mm line of credit and April 7, 2010 paydown of $24mm Carmel Plaza loan. Adjusted to reflect refinancing and extension of Vintage Faire Mall loan. Assumes 100% of mortgage debt is non-recourse. Most likely, some of this debt is recourse but disclosure is unavailable. 44 (5) Source: Green Street Real Estate Securities Monthly (as of 6/1/10).
PF GGP Will Have Industry Leading Operating Metrics

PF GGP will have the added benefit of near-term growth as it refocuses on its operations post-emergence and corrects for the underperformance that resulted from its bankruptcy
Pro Forma
(1) (2) (3)
Sales per Sq Ft Occupancy Occup. Cost

(4)
$424 91.3% 14.3% 7.5% 8.0%

45
$420 91.0% 15.1% 6.6% 6.6%
$400 92.1% 17.0% 5.3% 6.0%
$416 91.2% 14.2% 3.4% 7.0%
Tenants Sales Growth (Q110) Cap Rate

(5)
(1) Simon malls only. Includes regional mall portfolio, the Mills, Mills regional malls, and malls included in Other Properties (excl Highland Mall). Source: Simon operating supplements and 10-K. See later pages for Simon Malls operating metrics details. (2) Based on Westfield's U.S. mall portfolio only. Data as of Q4'09 if unavailable in Q1'10 financial results. Source: Westfield financial results. (3) Source: Macerich operating supplements. (4) Source for Macerich / Westfield: "U.S. Mall REITs May '10 Update" Green Street 5/19/10. See PF GGP Operating Metrics for PF GGP occupancy cost details. See appendix for details on Simon's occupancy cost. (5) Source for Macerich / Westfield: Green Street Real Estate Securities Monthly (as of 6/1/10). PF GGP cap rate based on implied share price of $9 net of GGO. See appendix for details on Simon's cap rate.
Aliansce
GGP owns 35% of Aliansce, a Brazilian mall developer, which went public in January. Pershing Square is the second largest owner with roughly 14% of the total shares outstanding
(1) (2) (2) (2)
Sales per Sq Ft Occupancy Occup. Cost Tenants Sales Growth (Q110) Cap Rate
(1) Source: Aliansce Q1'10 financial results and Pershing Square estimates. (2) See previous page for details.
$540 98.0% 13.4% 16.5% ~11%

46
$420 91.0% 15.1% 6.6% 6.6%
$400 92.1% 17.0% 5.3% 6.0%
$416 91.2% 14.2% 3.4% 7.0%
A Word On Simons Reported Operating Metrics

Beginning in Q110, Simon consolidated its Premium Outlets segment into its Regional Malls segment. This caused its newly reported Regional Malls segments occupancy and sales per square foot to appear to increase meaningfully
________________________________________________
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Source: Simon operating supplements.
A Word On Simons Reported Operating Metrics (Contd)
We note that Simons Regional Mall portfolio excludes several regional malls in The Mills and Mills Regional Malls segments
In our view, these assets should be included in Simons Regional Malls portfolio
Simon has also transferred certain of its underperforming malls into its Other Properties segment
For example, Highland Mall, a joint venture between Simon and GGP that was 51% occupied as of 12/31/09, was recently transferred back to the lender Highland Mall was included in Simons Regional Mall portfolio as of 12/31/08, but showed up in its Other Properties segment as of 12/31/09. This further served to increase Simons reported Regional Mall occupancy and sales per square foot as of Q110
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A Word On Simons Reported Operating Metrics (Contd)

We believe the most appropriate way to compare Simon and PF GGP is to look at Simons true regional mall portfolio, which excludes its outlets, but includes its Mills malls and the underperforming malls included in its Other Properties segment
(GLA in millions) Q4'08 Regional Malls Occupancy (2) Sales per Sq Ft (2) Owned GLA (excl anchors) The Mills Occupancy Sales per Sq Ft Owned GLA (excl anchors) Mills Regional Malls Occupancy Sales per Sq Ft Owned GLA (excl anchors) 92.4% $470 59.6 94.5% $372 20.3 87.4% $418 8.6 Q1'09 Simon Property Group (1) Q2'09 Q3'09 90.9% $442 59.7 90.9% $369 20.2 88.4% $397 8.6 30.0% $250 0.8 90.1% $419 89.3 91.4% $438 60.3 92.4% $369 20.2 88.9% $388 8.6 30.0% $250 0.8 90.8% $416 89.9 Q4'09 92.1% $433 60.1 93.9% $369 20.2 89.3% $380 8.6 30.0% $250 0.8 91.7% $412 89.7 Q1'10 91.6% $440 60.1 93.3% $372 20.2 87.4% $410 8.7 30.0% $250 0.8 91.0% $420 89.8
90.8% $455 59.6 89.7% $373 20.3 87.4% $410 8.6 30.0% $250 0.8 89.7% $430 89.3
As of 6/1/10, Tanger Factory Outlet Centers, the best comp for Simons Premium Outlets segment, was trading at a higher cap rate than Simon*
* Tanger traded at a 6.9% implied cap rate as of 6/1/10. Source: Green Street Real Estate Securities Monthly (as of 6/1/10).
Other Properties Malls (excl Highland Mall) (3) Occupancy 30.0% Sales per Sq Ft (4) $250 Owned GLA (excl anchors) 0.8 Simon Malls Occupancy Sales per Sq Ft Owned GLA (excl anchors) 91.8% $441 89.3
(1) Source: Simon operating supplements. (2) Q1'10 data not available in Simon filings. Source: Pershing Square estimates. (3) Includes Mall at the Source, Nanuet Mall and Palm Beach Mall (at share). (4) Data not available. Source: Pershing Square estimates.
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GGO
What is General Growth Opportunities?

GGOs portfolio features some of the best real estate development assets in the country. We believe GGO will have the balance sheet and the intellectual and operating capital to take full advantage of these opportunities
General Growth Opportunities (Select Assets)
MPC
Summerlin Columbia Woodlands Bridgeland
Development
Victoria Ward South St. Seaport Summerlin Center Landmark Mall Park West
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Non-Income/Other
Fashion Show Princeton Land 110 N. Wacker
GGO IPO Participation

Under the terms of the fully executed Cornerstone Investment Agreement, GGO will retain 80% of every dollar PF GGP raises above $10 per share, up to the value of the ~$300mm deferred tax liabilities and the Hughes claim. This IPO Participation allows GGO to benefit from a successful PF GGP capital raise
GGO IPO Participation at a $15/share GGP Offering ($ in millions, except per share data)
Clawback Shares Liquidity Shares (1)
GGP Shares Total Proceeds Issued Proceeds above $10 190 $ 2,850 $ 950 975 325 65 255 $ 3,825 $ 1,275
GGO % Share 80% $ 80% $
GGO $ Share 760 260 1,020
Sensitivity of GGO IPO Participation to GGP Offer Price GGP Offer Price GGO IPO Participation
(1) Assume 65mm Shares
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$ $
10.00 -
$ $
11.00 204
$ $
12.00 408
$ $
13.00 612
$ $
14.00 816
$ $
15.00 1,020
$ $
16.00 1,224
GGO IPO Participation (Cont.)

GGOs use of proceeds from the PF GGP share offering is limited to satisfying permitted liabilities. We believe that cash from a PF GGP capital raise even at prices meaningfully lower than $15 per share is more than sufficient to satisfy these claims
Permitted Use of IPO Participation ($ in millions, except per share data) Promissory Note (1) Deferred Tax Liabilities (2) Hughes Heirs' Claim Permitted Liabilities $ $ 304 X $304 + X
The face value of the note is equal to overruns above a conservative projection of bankruptcy exit costs At $15 per share, the GGO IPO Participation will be ~$1bn, substantially more than enough to satisfy these permitted liabilities
(1) Projected bankrupcty exit costs, "Permitted Claims", are $650mm per Pershing Square assumptions (2) Source: Cornerstone Investment Agreement
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Hughes Claim
GGP can settle the claim in bankruptcy at an estimation hearing Settlement is based on a 12/31/09 valuation of Summerlin MPC We expect the company to settle this claim at a reasonable number Post settlement, GGO will have 100% ownership of Summerlin (from 50%)
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GGO Share Count

A $250 million share backstop at $5.00 per share strengthens GGOs balance sheet
Share Count (millions): Current GGO FDSO (1) Rights Offering Backstop Shares (2) PF GGO FDSO (excl warrants) Warrants (share equivalent) (3) GGO FDSO (incl warrants)
(1) Includes OP Units and options. Source: Q1'10 operating supplement, pg 27. (2) Assumes only the backstop rights are exercised. Includes 2.5mm share backstop consideration. (3) Black-Scholes warrant valuation. Assumes 20 vol, 80mm warrants at $5.00 strike.
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324 53 377 23 400
GGO Capital Structure (Cont.)

GGO will have a strong balance sheet. 100% of GGOs debt is property level and non-recourse. $250mm of balance sheet cash ensures GGO has ample liquidity to fund value creation opportunities
GGO Capital Structure ($ in millions, except per share data) Price Shares (mm) Equity Value Non-Recourse, Property Specific Debt (1) Permitted Liabilities, net of GGO IPO Participation Cash (2) Net Debt Enterprise Value
(1) See Appendix (2) Excludes property level cash balances because data is unavailable
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5.00 400 2,000 506 (250) 256
2,256
MPC Portfolio
MPC Portfolio
Bridgeland
Maryland, MPCs
Summerlin
Woodlands
11,400 acres outside of Houston, TX
Collection of properties between DC and Baltimore
22,500 acre community west of Las Vegas
Successful JV MPC near Houston, TX
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Development Asset: Victoria Ward

GGP recently received zoning approval to transform 60 acres of land in the heart of Honolulu into a vibrant and diverse neighborhood of residences, shops, entertainment and offices The plan clears a path for GGP to bring to the oceanfront neighborhood as many as: 4,300 residential units, many of them in towers aligned to preserve mountain and ocean views 5 million square feet of retail shopping, restaurants and entertainment 4 million square feet of offices and other commercial space 700,000 square feet of industrial uses 14 acres of open space, parks and public facilities
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Development Asset: Victoria Ward (Contd)
1.43 acres of land sold for $26mm ($18mm / acre) here in June-07 (1)
________________________________________________ (1) See appendix for details.
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Development Asset: South St. Seaport

Before the market turned, GGP was exploring a billion dollar redevelopment of South St. Seaport Highlights of the development include: 400,000 square feet of retail space A 286 room hotel and a smaller 163 room boutique 103 residential units Nearly 5 acres of open space
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Development Asset: South St. Seaport (Contd)
61
Non-Income Producing Asset: Fashion Show Air Rights GGO owns the air rights above the Fashion Show Mall in Las Vegas This 48 acre, three-story property is located across from the Wynn and Encore, the most lucrative part of the Las Vegas Strip In 2007, nearby North Vegas Strip land sold for $34mm/acre Fashion Shows location is within walking distance of 75% of the citys more than 150,000 hotel rooms Located adjacent to Fashion Show is The Venetian, The Palazzo, and Sands Expo Center the largest hotel convention complex in the world
Source: "Vegas Land Values Soaring Sky High", Glenn Haussman, Hotel Interactive, 5/25/2007
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The North Vegas Strip
Encore Fashion Show Wynn
Palazzo Venetian
Caesars
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Conclusion
GGP Trades at a Meaningful Discount to Intrinsic Value

At a $14 GGP share price, you are buying GGO for negative $1
GGP Valuation PF GGP GGO Combined GGP Share Price Implied Return at Emergence by Year-end ~$15 ~$5 ~$20 ~$14 43%
65
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Buy Christine Richards Book, and Tell Your Friends
67
And one more thing

We have accumulated ~150mm shares of Citigroup during the past several weeks
68
Appendix
SCPs / Highland Mall

(units in millions, except per unit data) GLA (5) Consolidated Properties (1) Eagle Ridge Mall Oviedo Marketplace Grand Traverse Mall Country Hills Plaza Moreno Valley Mall Lakeview Square Northgate Mall Bay City Mall Mall St. Vincent Southland Center Chapel Hills Mall Chico Mall Piedmont Mall Subtotal Unconsolidated Properties (2) Silver City Montclair Subtotal SCPs Highland Mall (3) SCPs / Highland 0.2 0.3 0.3 0.1 0.3 0.3 0.3 0.2 0.2 0.3 0.4 0.2 0.2 3.3 0.2 0.3 0.5 3.7 0.2 3.9 Balance Sheet Data Interest Duration Debt Rate (yrs) $47 51 84 13 86 41 44 24 49 107 114 56 33 $750 66 134 $198 $948 32 $980 5.41% 5.12% 5.02% 6.04% 5.96% 5.81% 5.88% 5.30% 6.30% 4.97% 5.04% 4.74% 5.98% 5.38% 4.95% 5.88% 5.57% 5.42% 6.83% 5.47% 5.5 3.8 3.8 6.2 3.8 5.9 6.4 3.8 4.3 3.8 3.8 3.8 6.4 4.3 1.2 1.5 1.4 3.7 1.3 3.6 $250 51.1% 82.5% 18.0% Operating Metrics (4) Sales Occup PSF Occup Cost
(1) Source: Exhibit C, docket #3660. Source for debt balance / interest rate / duration: 5/12/10 8-K. (2) Source for malls: Q1 10-Q pg. 21-22. Data presented pro rata (i.e. if GGP owns 50%, 50% of the GLA is shown). Source for debt balance / interest rate / duration: Q3'08 supplement. Source for subtotal debt balance (as of 3/31/10): Q1 10-Q, pg 22.
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(3) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). Source for debt detail: Simon Q1'10 supplement. Source for occupancy: Simon 10-K. Source for duration: Q3'08 operating supplement. (4) Source: Pershing Square estimates. Note: Occupancy costs are higher at underperforming malls because sales are low but rents are locked in. (5) Mall and freestanding gross leasable area (excludes anchor space).
GGP Debt Detail GGO
($ in 000s) GGO Debt Victoria Ward Cmbd 110 N. Wacker Bridgelands MPC Woodlands MPC GGO Debt
Debt Balance $213,889 45,943 29,812 216,343 $505,987
Debt Balance as of: 3/31/10 9/30/08 12/31/09 9/30/08
Source 5/12/10 8-K Q3'08 supp 10-K Q3'08 supp
Note: Most recent debt balance reported assumed to be 3/31/10 balance. True balance is actually less as amortization has occurred since most recent reported debt balance. Note: All GGO debt sits at the property-level and is non-recourse. Note: Excludes debt which may arise to the extent there is a GGO Promissory Note. We believe the amount of this note will be $0.
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GGP Debt Detail Debtor Entities

($ in 000s) Debtor Entities: 10 Columbia Corporate Center 10000 Chrlston/ 9901/21 Cvngton 10000 Covington Cross 10190 Covington Cross 1160/80 Town Center Drive 1201/41 Town Center Drive 1251/81 Town Center Drive 1551 Hillshire Drive 1635 Village Center Circle 1645 Village Center Circle 20 Columbia Corporate Center 30 Columbia Corporate Center 40 Columbia Corporate Center 50 Columbia Corporate Center 60 Columbia Corporate Center 9950/80 Covington Cross Ala-Moana - Total Animas Valley Cmbd Apache Cmbd Arizona Center Cmbd Augusta Mall Cmbd Austin Bluffs Plaza Bay City Mall Cmbd Bayshore Cmbd Beachwood Place Cmbd Bellis Fair Cmbd Birchwood Cmbd Boise Towne Plaza Boise Towne Square Brass Mill Cmbd Burlington Town Center Cmbd Cache Valley Cmbd Capital Cmbd Chapel Hills Cmbd Chico Mall Cmbd Chula Vista Center Cmbd Collin Creek Combine Colony Square Cmbd Columbia Center-C.A. Building Columbia Center-Exhibit Bldg Columbia Mall Cmbd Columbiana Centre Cmbd Coronado Center Cmbd Debt 3/31/10 21,772 8,320 1,482,189 35,054 174,422 2,219 23,745 30,473 240,164 59,826 44,308 10,704 69,489 120,142 31,406 28,043 19,975 113,785 55,913 65,884 25,239 89,807 105,441 166,028 Debtor Entities: Corporate Pointe #2 Corporate Pointe #3 Country Hill Plaza Crossing Business Center #6 Crossing Business Center #7 Crossroads (MN) Cmbd Deerbrook Mall Division Crossing Eagle Ridge Cmbd Eastridge (WY) Cmbd Eastridge Mall Cmbd Eden Prarie Cmbd Faneuil Hall Marketplace Cmbd Fashion Place Cmbd Fashion Show Cmbd Foothills Mall Cmbd Fort Union Four Seasons Cmbd Fox River Cmbd Gateway Cmbd Gateway Crossing Shopping Ctr Gateway Overlook Glenbrook Square Cmbd Grand Teton Cmbd Grand Traverse Cmbd Greenwood Cmbd Halsey Crossing Harborplace Cmbd Hulen Mall Cmbd Jordan Town Creek Cmbd Knollwood Mall Cmbd Lakeside Mall Cmbd Lakeview Square Cmbd Lansing Cmbd Lincolnshire Commons Lynnhaven Cmbd Mall at Sierra Vista Cmbd Mall of Louisiana Mall of Louisiana Power Center Mall of the Bluffs Cmbd Mall St. Mathews Cmbd Mall St. Vincent Cmbd Market Place Cmbd Debt 3/31/10 4,458 4,458 13,352 82,754 71,202 5,114 46,942 38,497 169,620 78,311 92,788 142,255 645,918 50,758 2,670 97,950 194,400 39,148 14,931 54,877 174,262 48,795 83,919 43,952 2,503 49,884 111,085 182,227 39,332 176,810 40,771 23,081 27,939 233,105 23,556 235,174 35,951 142,008 49,000 105,773 Debtor Entities: Mayfair Cmbd (offices included) Mondawmin Mall Cmbd Moreno Valley Mall Cmbd Neighborhood Stores Newgate Mall Cmbd Newpark Mall North Plains Mall Cmbd North Point Mall Cmbd North Star Mall North Town Cmbd Northgate Cmbd Northridge Fashion Ctr Cmbd Oakwood Center Cmbd Oakwood Cmbd Oglethorpe Cmbd Orem Plaza Center Street Orem Plaza State Street Oviedo Marketplace Cmbd Owings Mills Oxmoor Cmbd Park City Center Cmbd Park Place Cmbd Peachtree Cmbd Pecanland Mall Piedmont Cmbd Pierre Bossier Cmbd Pine Ridge Cmbd Pioneer Place Cmbd Prince Kuhio Plaza Providence Place Cmbd Red Cliffs Mall Cmbd Regency Square Cmbd Ridgedale Center Cmbd Ridgley Building River Hills Cmbd River Pointe Plaza Riverside Plaza Rivertown Cmbd Rogue Valley Cmbd Saint Louis Galleria Salem Center Cmbd Sikes Senter Cmbd Silver Lake Cmbd Debt 3/31/10 274,932 84,689 86,432 40,207 67,143 10,656 212,567 228,174 114,976 44,440 124,232 95,000 75,772 138,994 2,386 1,477 51,066 53,281 56,128 146,522 173,397 88,121 56,159 33,478 40,382 25,956 156,764 36,885 381,691 24,669 91,588 175,127 79,831 3,696 5,290 115,948 25,966 233,390 41,728 60,395 18,228 Debtor Entities: Sooner Cmbd Southlake Cmbd Southland Center Cmbd Southland Cmbd Southwest Plaza Cmbd Spring Hill Cmbd Staten Island Mall Steeplegate Mall Cmbd Stonestown Mezz Stonestown Notes A/B The Boulevard Cmbd The Crossroads (MI) Cmbd The Gallery at Harborplace Cmbd The Maine Mall Cmbd The Palazzo The Shoppes at Fallen Timbers Cmbd The Woodland Mall Three Rivers Cmbd Towneast Cmbd TRS-Fallbrook Cmbd TRS-Grand Canal Shoppes Cmbd Tucson Mall Tysons Galleria Cmbd University Crossing Valley Hills Cmbd Valley Plaza Cmbd Victoria Ward Center Victoria Ward Village/Gateway/Indust Victoria Ward Warehouse/Plaza Village of Cross Keys Cmbd Visalia Cmbd Vista Commons Vista Ridge Mall Cmbd Washington Park Mall Cmbd West Valley Cmbd Westwood Mall White Marsh Mall Cmbd White Mountain Cmbd Willowbrook Cmbd Woodbridge Center Cmbd Woodlands Village Debtor Entity Debt Debt 3/31/10 59,873 99,799 106,940 79,325 96,187 68,088 278,672 76,505 57,400 215,600 105,345 39,074 78,512 212,597 249,623 42,401 239,268 21,132 102,775 84,820 386,487 118,674 254,194 11,147 55,775 93,129 57,175 88,214 68,500 10,257 40,253 78,869 11,893 54,543 24,117 186,800 10,656 155,974 203,884 6,758 $14,712,876
(1) (1) (1)
(1)
(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1) (1)
(1)
Source: GGP 5/12/10 8-K. Note: Entities with no debt will be unencumbered upon emergence. (1) Represents an SCP mall. (2) Paid down in April-10.
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GGP Debt Detail Non-Debtor Entities

($ in 000s) Non-Debtor Entities: 110 N. Wacker (headquarters) Baybrook Cmbd Bayside Marketplace Cmbd Coastland Center Cmbd Coral Ridge Cmbd Cumberland Cmbd Governor's Square Cmbd Lakeland Square Mall Cmbd Meadows Cmbd Oak View Cmbd Paramus Park Cmbd Pembroke Lakes Mall Cmbd The Mall in Columbia Cmbd The Parks at Arlington Cmbd The Shoppes @ Buckland Hills Cmbd West Oaks Mall 10450 W. Charleston LLC Senate Plaza 70 Columbia Corporate Center Non-Debtor Entity Debt
Note: Most recent debt balance reported assumed to be 3/31/10 balance. True balance is actually less as amortization has occurred since most recent reported debt balance.
Debt Balance $45,943 168,570 84,103 117,006 88,250 103,862 74,368 53,675 101,463 83,292 102,855 126,924 400,000 174,517 161,319 68,301 4,756 12,084 19,676 $1,990,964
Debt Balance as of: 9/30/08 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 9/30/08 9/30/08 9/30/08
Source Q3'08 supp 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K 10-K Q3'08 supp Q3'08 supp Q3'08 supp
73
GGP Debt Detail Joint Ventures (at share)

($ in 000s) Joint Ventures (at share): Alderwood Mall Cmbd Altamonte Mall Cmbd Arrowhead Towne Center Bridgewater Commons Carolina Place Cmbd Christiana Mall Clackamas Town Center Cmbd First Colony Mall Cmbd Florence Mall Cmbd Galleria Tyler Cmbd Glendale Galleria Cmbd Highland Mall Cmbd Kenwood Towne Centre Cmbd Mizner Park Total Montclair Place Cmbd Natick Mall Cmbd Natick West Northbrook Court Cmbd Oakbrook Center Cmbd Park Meadows Cmbd Perimeter Mall Cmbd Pinnacle Hills Promenade / West Debt Balance $145,783 75,000 25,820 47,754 80,281 56,838 100,000 95,149 68,786 125,000 191,317 31,990 168,095 133,825 175,000 70,000 42,513 103,010 126,000 70,000 Debt Balance as of: 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 3/31/10 9/30/08 3/31/10 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 3/31/10 9/30/08 Source Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Simon Q1'10 supp (1) Q3'08 supp Paid down (2) Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Paid down Q3'08 supp Joint Ventures (at share): Provo Towne Centre Cmbd Quail Springs Mall Riverchase Galleria Cmbd Silver City Galleria Cmbd Spokane Valley Cmbd Stonebriar Centre Cmbd Superstition Springs Center The Oaks Mall Cmbd The Shops at La Cantera Cmbd The Streets at Southpoint Towson Town Center Cmbd Village of Merrick Park Total Water Tower Place Cmbd Westlake Center Cmbd Westroads Mall Cmbd Whalers Village Cmbd Willowbrook Mall Owings Mills-One Corporate Ctr Center Pointe Plaza Lake Mead Blvd & Buffalo Trails Village Center Joint Venture Debt Debt Balance 43,302 37,409 152,500 65,528 41,052 84,405 22,498 52,020 129,402 242,881 44,760 76,034 89,514 68,119 45,518 64,893 46,003 4,119 6,846 2,947 8,073 $3,259,984 Debt Balance as of: 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 9/30/08 Source Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp Q3'08 supp
(3)
(2) (3)
(3) (3)
(3)
Note: Most recent debt balance reported assumed to be 3/31/10 balance. True balance is actually less as amortization has occurred since most recent reported debt balance. (1) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). (2) Represents an SCP mall. (3) Represents a Joint Venture mall included in GGP's "Consolidated Debt" disclosure.
74
GGP Debt Detail Other Debt

Debt Balance as of: 12/31/09 9/30/08 3/31/10 3/31/10 9/30/08 3/31/10
($ in 000s) Other Debt Bridgelands MPC Woodlands MPC Homart I Ivanhoe Capital Turkey DIP Unsecured Debt: Exchangeable debt Rouse debt Revolver Senior term loan TopCo Unsecured Debt TRUPS Other Debt
Debt Balance $29,812 216,343 245,115 93,713 57,221 400,000
Source 10-K Q3'08 supp 5/12/10 8-K 5/12/10 8-K Q3'08 supp 5/12/10 8-K
1,550,000 2,245,000 590,000 1,987,500 6,372,500 206,200 $7,620,904
3/31/10 3/31/10 3/31/10 3/31/10
5/12/10 8-K 5/12/10 8-K 5/12/10 8-K 5/12/10 8-K
3/31/10
5/12/10 8-K
Note: Most recent debt balance reported assumed to be 3/31/10 balance. True balance is actually less as amortization has occurred since most recent reported debt balance.
75
GGP Debt Detail 3/31/10 Reconciliation

($ in 000s) Total GGP Debt Debtor entity debt Non-Debtor entity debt Joint Venture debt Other debt Subtotal Less: Amortization (1) Total GGP Debt (3/31/10) (2)
Note: Excludes mark-to-market debt discounts which would make the reported debt balance lower. Excludes GGP's share of Brazil debt ($95.2mm as of 3/31/10). GGP has no obligations for further contributions to its Brazilian subsidiary, Aliansce. (1) Represents amortization that has occurred since the most recent reported date of GGP's debt. For example, much of GGP's JV debt, reported as of 9/30/08, amortizes each month. Data for which specific debt has been amortized, and in what amounts, is unavailable. (2) Source: GGP Q1'10 operating supplement, pg 2.
Debt Balance $14,712,876 1,990,964 3,259,984 7,620,904 27,584,728 (78,406) $27,506,322
76
PF GGP Debt Detail

PF GGP Debt Buildup ($ in mms) Total GGP Debt (3/31/10) (1) Interest coverage ratio (2) Less: SCPs debt (3) Less: GGO debt (3) Less: Stonestown mezz (4) Less: Highland (5) Less: TopCo unsecured debt (6) Less: DIP (6) Plus: New Debt (7) PF GGP Debt (3/31/10) Less: Additional amortization through 9/30/10e (3) PF GGP Debt (9/30/10e) Interest coverage ratio (3) $27,506 1.2x (948) (506) (57) (32) (6,373) (400) 1,500 $20,691 (212) $20,478 2.0x
(1) Source: Q1'10 supplement pg 2. See appendix for details. (2) As of 9/30/09, the last time GGP published its interest coverage ratio in its operating supplement. (3) See appendix for details. (4) Paid down Apr-10. (5) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). (6) Assumed to be paid down as part of PF GGP's emergence. (7) Assumed to be issued as part of PF GGP's emergence.
77
PF GGP Debt Detail Interest / Duration / Non-Recourse

($ in millions) PF GGP Debt Detail Debtor entities (1) Plus: Oakwood (2) Less: Consolidated SCPs (3) Less: Victoria Ward (4) Less: Stonestown mezz (5) PF GGP Confirmed Debtors Non-debtor consolidated debt (6) Less: 110 N Wacker (4) Less: Bridgeland (4) PF GGP Non-Debtors JV Debt (excl Consolidated JVs) (7) Less: Woodlands (4) Less: Highland (8) Less: JV SCPs (Silver City / Montclair) PF GGP Pro Rata JV Debt Homart / Ivanhoe (9) TRUPs (9) New Debt (10) PF GGP Debt (3/31/10) PF GGP LTM Adj Cash NOI (11) Plus: LTM GGMI income (12) Plus: LTM interest income Less: Overhead (13) PF GGP LTM EBITDA PF GGP Cash Interest PF GGP Interest Coverage Amt $14,618 95 (750) (214) (57) 13,692 2,530 (46) (30) 2,455 2,946 (216) (32) (198) 2,499 339 206 1,500 $20,691 $2,300 80 7 (260) $2,127 1,078 2.0x Cash Interest 5.07% 2.75% 5.38% 5.24% 5.79% 5.03% 5.68% 5.14% 6.50% 5.68% 5.61% 5.69% 6.92% 5.57% 5.59% 5.89% 1.70% 5.75% 5.21% Duration (Years) 6.3 4.2 4.3 4.9 3.8 6.4 3.1 0.5 14.8 3.0 2.1 3.5 1.3 1.4 2.0 2.8 26.0 3.0 5.3 NonRecourse $11,718 (710) (214) (57) 10,737 2,530 (46) (30) 2,455 2,946 (216) (32) (198) 2,499 339 $16,029 Pct NonRecourse 80.2% 94.7% 100.0% 100.0% 78.4% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 77.5%
78
(1) Includes all Secured Assset Loans, excluding Oakwood, Homart and Ivanhoe. Source: 5/12/10 8-K. Cash interest / duration as provided in GGP's 4/29/10 press release. Amount that is non-recourse deducts $2.9bn. Source: Q1'10 10-Q pg 29. (2) Interest rate assumed to be L+225. Source: docket #5225 and 5206. (3) Assumes $40mm is recourse to GGP. (4) This debt will be going to GGO. (5) Paid down Apr-10. (6) See Non-Debtor Consolidated Debt appendix page for details. (7) See JV Debt (excluding Consolidated JVs) appendix page for details. (8) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). Interest rate / duration assumptions from Q3'08 operating supplement. (9) Source: 5/12/10 8-K. (10) Assumes new debt issued at 5.75% cash interest with 3 year duration. This debt will be issued at market rates. Note Simon issued 5-yr notes in Jan-10 yielding 4.25%. (11) See PF GGP Cash NOI slide for details. (12) LTM GGMI income as of 3/31/10. Source: operating supplements, see "Management fees and other corporate revenues." (13) Source: 2009 Annual Letter to Shareholders. Note "over the coming months, [GGP] intend[s] to introduce many other innovations to improve the efficiency and effectiveness of the Company."
GGP Debt Detail Non-Debtor Consolidated Debt

($ in 000s) Non-Debtor Consolidated Debt 110 N. Wacker (headquarters) Baybrook Cmbd Bayside Marketplace Cmbd Coastland Center Cmbd Coral Ridge Cmbd Cumberland Cmbd Governor's Square Cmbd Lakeland Square Mall Cmbd Meadows Cmbd Oak View Cmbd Paramus Park Cmbd Pembroke Lakes Mall Cmbd The Mall in Columbia Cmbd The Parks at Arlington Cmbd The Shoppes @ Buckland Hills Cmbd West Oaks Mall 10450 W. Charleston LLC Senate Plaza 70 Columbia Corporate Center Bridgelands MPC (2) Consolidated JV Debt Provo Towne Centre Cmbd Spokane Valley Cmbd The Shops at La Cantera Cmbd The Streets at Southpoint Westlake Center Cmbd Non-Debtor Consolidated Debt Less: Amortization (3) Non-Debtor Consolidated Debt (3/31/10) Memo: Alternative Buildup Consolidated Debt (3/31/10) (4) Less: Total Debtor Debt (3/31/10) (5) Non-Debtor Consolidated Debt (3/31/10) Debt Balance 45,943 168,570 84,103 117,006 88,250 103,862 74,368 53,675 101,463 83,292 102,855 126,924 400,000 174,517 161,319 68,301 4,756 12,084 19,676 29,812 Interest 5.14% 5.75% 6.00% 5.75% 5.75% 5.75% 5.75% 5.24% 5.54% 5.75% 4.97% 5.06% 5.87% 5.75% 5.01% 5.36% 6.84% 5.79% 10.15% 6.50% Maturity 10/11/10 1/1/14 7/1/14 1/1/14 1/1/14 1/1/14 1/1/14 10/1/13 8/1/13 1/1/14 10/1/15 4/11/13 10/1/12 1/1/14 7/2/12 8/1/13 12/31/18 7/1/13 10/1/10 1/1/25 Duration (Yrs) 0.5 3.8 4.3 3.8 3.8 3.8 3.8 3.5 3.3 3.8 5.5 3.0 2.5 3.8 2.3 3.3 8.8 3.3 0.5 14.8
(1)
(1) (1) (1)
(1)
(1)
43,302 41,052 129,402 242,881 68,119 2,545,532 (15,163) 2,530,369
5.91% 5.91% 5.29% 5.45% 8.00% 5.68%
4/5/12 4/5/12 6/7/10 4/6/12 2/1/11 4/18/13
2.0 2.0 0.2 2.0 0.8 3.1

Source: Interest rates per the Q3'08 GGP operating supplement. Many of these interest rates, especially to the extent loans have been refinanced or are floating, may have changed since 9/30/08. Source: Maturities per the Q3'08 operating supplement. (1) For loans with maturity dates preceding 3/31/10, we have assumed they were refinanced with 1/1/14 maturity dates and with 5.75% interest rates. Source: Pershing Square assumption. (2) Source: Q3'08 operating supplement. Reported as "Houston Land Notes." The current interest rate is likely lower to the extent this debt is floating. Maturity date assumption is the midpoint of 2017-2033. (3) Represents amortization that has occurred since the most recent reported date of GGP's debt. (4) Source: Q1'10 supplement pg. 29. (5) Source: 5/12/10 8-K.
5.68%
4/18/13
3.1
24,560,733 (22,030,364) 2,530,369
79
GGP Debt Detail Joint Venture Debt (excluding Consolidated JVs)

($ in 000s) Joint Venture Debt (Excl Consolidated JVs) Alderwood Mall Cmbd Altamonte Mall Cmbd Arrowhead Towne Center Bridgewater Commons Carolina Place Cmbd (1) Christiana Mall Clackamas Town Center Cmbd First Colony Mall Cmbd Florence Mall Cmbd Galleria Tyler Cmbd Glendale Galleria Cmbd Highland Mall Cmbd Kenwood Towne Centre Cmbd Mizner Park Total Montclair Place Cmbd Natick Mall Cmbd Natick West Northbrook Court Cmbd Oakbrook Center Cmbd Park Meadows Cmbd Perimeter Mall Cmbd Pinnacle Hills Promenade / West Debt Balance 145,783 75,000 25,820 47,754 80,281 56,838 100,000 95,149 68,786 125,000 191,317 31,990 168,095 133,825 175,000 70,000 42,513 103,010 126,000 70,000 Interest 5.03% 5.19% 6.92% 5.27% 4.60% 4.61% 6.35% 5.68% 5.04% 5.46% 5.01% 6.92% 5.58% 5.88% 5.74% 5.82% 7.17% 5.12% 6.00% 5.84% Maturity 7/6/10 2/1/13 10/3/11 1/2/13 1/11/14 8/2/10 10/5/12 10/3/11 9/10/12 10/11/11 10/1/12 7/8/11 12/1/10 9/12/11 10/7/11 10/7/11 9/1/11 10/1/12 7/5/12 12/8/11 Duration (Yrs) 0.3 2.8 1.5 2.8 3.8 0.3 2.5 1.5 2.4 1.5 2.5 1.3 0.7 1.5 1.5 1.5 1.4 2.5 2.3 1.7 Joint Venture Debt (Excl Consolidated JVs) Quail Springs Mall Riverchase Galleria Cmbd Silver City Galleria Cmbd Stonebriar Centre Cmbd Superstition Springs Center The Oaks Mall Cmbd Towson Town Center Cmbd Village of Merrick Park Total Water Tower Place Cmbd Westroads Mall Cmbd Whalers Village Cmbd Willowbrook Mall Owings Mills-One Corporate Ctr Center Pointe Plaza Lake Mead Blvd & Buffalo Trails Village Center Woodlands MPC Turkey Joint Venture Debt Less: Amortization (4) Joint Venture Debt (3/31/10) (5) Debt Balance 37,409 152,500 65,528 84,405 22,498 52,020 44,760 76,034 89,514 45,518 64,893 46,003 4,119 6,846 2,947 8,073 216,343 57,221 3,008,792 (63,203) 2,945,589 5.61% 4/27/12 2.1 Interest 6.87% 5.78% 4.95% 5.30% 3.45% 5.87% 5.75% 5.94% 5.04% 5.83% 5.63% 7.00% 8.50% 6.38% 7.30% 8.24% 5.69% 6.72% 5.61% Maturity 6/5/15 10/3/11 6/10/11 12/11/12 9/9/11 12/3/12 1/1/14 8/8/11 9/1/10 12/3/12 11/8/10 4/1/11 12/1/11 1/2/17 7/15/23 7/10/23 10/9/13 1/1/18 4/27/12 Duration (Yrs) 5.2 1.5 1.2 2.7 1.4 2.7 3.8 1.4 0.4 2.7 0.6 1.0 1.7 6.8 13.3 13.3 3.5 7.8 2.1
(2)
(3)
(2)
(2)
(3)
Source: Interest rates per the Q3'08 GGP operating supplement. Many of these interest rates, especially to the extent loans have been refinanced or are floating, may have changed since 9/30/08. Source: Maturities per the Q3'08 operating supplement. (1) GGP extended this loan at 4.5975% in Jan-10. Source: 1/25/10 press release. (2) Represents an SCP mall. On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40). (3) For loans with maturity dates preceding 3/31/10, we have assumed they were refinanced with 1/1/14 maturity dates and with 5.75% interest rates. Source: Pershing Square assumption. (4) Represents amortization that has occurred since the most recent reported date of GGP's debt. (5) Source: Q1'10 supplement pg. 29.
80
PF GGP Debt Detail 9/30/10e Reconciliation

Target Net Debt Reconciliation ($ in mms) Target Net Debt (9/30/10e) (1) Plus: Proportionally Consolidated Unrestricted Cash (2) Less: Permitted Claims (3) Less: Accrued interest (4) Less: Bridgelands/Woodlands (5) Less: Brazil (6) Less: Pfd stock (7) Less: SCP debt / Highland (5) Less: Other GGO debt (5) PF GGP Debt (9/30/10e) PF GGP Debt (3/31/10) (8) Additional Amortization Through 9/30/10e $22,971 500 (650) (625) (246) (110) (121) (980) (260) $20,478 20,691 ($212)
(1) Target Net Debt as of the original Cornerstone Investment Agreement. Target Net Debt is an estimate of GGP's net debt as of 9/30/10e. Target Net Debt includes PF GGP and GGO liabilities. In addition, Target Net Debt includes non-debt liabilities, such as accrued interest and Permitted Claims (i.e. the KEIP), among other things. Therefore, Target Net Debt includes the Company's estimate of bankruptcy "exit costs." Furthermore, Target Net Debt includes the following: $1.5bn of New Debt, debt associated with GGP's international subsidiaries, and preferred stock. Source: pg 75 of docket #4874. (2) Source: Original Cornerstone Investment Agreement. (3) Represents Pershing Square's estimate of bankruptcy "exit costs," including the KEIP, transaction costs, etc. Pershing Square estimates this $650mm estimate could be more than $200mm too high. (4) Includes accrued interest on unsecured debt, DIP loan, Homart/Ivanhoe, TRUPs, pfd stock, and secured debt. Pershing Square estimate. (5) As of 3/31/10. Projected 9/30/10e balances included in Target Net Debt may differ than 3/31/10 actual debt balances due to interim amortization. (6) Per the Cornerstone Investment Agreement. GGP's share of this debt as of 3/31/10 was $95.2mm. Source: Q1'10 supplement pg 2. (7) Source: Q1'10 supplement pg 2. (8) See appendix for details.
81
PF GGP Cap Rate Detail Excess Sources
($ in mms, except per share data)
$10.00 Emergence Sources New Debt (1) BPF (pre-clawback) (2) Clawback (3) Liquidity Equity Issuances (4) Emergence Sources Emergence Uses TopCo unsecured debt (5) DIP loan (5) Emergence Uses Excess Sources $1,500 4,400 1,900 650 8,450
Illustrative PF GGP Equity Raise Price $11.00 $12.00 $13.00 $14.00 $15.00 $1,500 4,400 1,938 663 8,501 $1,500 4,400 1,976 676 8,552 $1,500 4,400 2,014 689 8,603 $1,500 4,400 2,052 702 8,654 $1,500 4,400 2,090 715 8,705
$16.00 $1,500 4,400 2,128 728 8,756
6,373 400 6,773 $1,678
6,373 400 6,773 $1,729
6,373 400 6,773 $1,780
6,373 400 6,773 $1,831
6,373 400 6,773 $1,882
6,373 400 6,773 $1,933
6,373 400 6,773 $1,984
(1) New Debt is included as a source of funds because the corresponding liability is included in Target Net Debt. The estimated fee to raise the New Debt is also included as a Permitted Claim in the Target Net Debt amount. (2) Represents PF GGP's sale of 440mm shares to BPF at $10 per share. (250mm to B, 190mm to PF). (3) Subject to the 80/20 GGO IPO Participation, PF GGP is entitled to keep 20% of excess proceeds raised above $10. To the extent GGO's 80% IPO Participation exceeds permitted liabilities, PF GGP will be entitled to keep more cash than presented above. (4) Assumes GGP sells 65mm Liquidity Equity Issuances shares. GGP is entitled to keep 20% of excess proceeds raised above $10. (5) TopCo unsecured debt, which includes GGP's convert, Rouse debt, term loan, and revolver, and the DIP loan are treated as uses of funds because they are excluded from Target Net Debt as part of the Reinstatement Adjustment Amount.
82
PF GGP Cap Rate Detail Other Assets / Other Liabilities
PF GGP Other Liabilities (as of 3/31/10) ($ in mms) Consolidated other liabilities (1) Plus: Unconsolidated other liabilities (2) Less: Hughes participation payable (3) Less: Accrued interest accounted for in Target Net Debt (4) Less: Professional fees incl in other liabilities (5) Less: Accrued KEIP incl in other liabilities (6) Less: Other "Exit Costs" incl in other liabilities (7) PF GGP Adjusted Other Liabilities $1,774 219 (69) (383) (18) (79) (100) $1,345
PF GGP Other Assets (as of 3/31/10) ($ in mms) Accounts & notes receivable, net (1) Deferred expenses, net (1) Prepaid expenses & other assets (1) PF GGP Other Assets $506 384 796 $1,686
(1) Source: GGP Q1 10-Q pg 34. (2) Assumes pro rata GGP share of unsonsolidated other liabilities is 50%. Source: 10-Q pg 23. (3) Excluded from other liabilities as we assume this liability will be covered by the GGO IPO Participation. Source: 10-Q pg 34. (4) Target Net Debt includes accrued and unpaid interest on GGP's unsecured debt, pfd stock, partner loans, DIP loan, and certain mortgage notes. As of 3/31/10, GGP had $450mm of accrued interest included in other liabilities (Source: 10-Q pg 34). The vast majority of this is included in the Target Net Debt amount and therefore needs to be adjusted to avoid double-counting. Pershing Square estimates at least 85% of this amount needs to be deducted as it likely relates to accrued interest included in Target Net Debt. (5) Target Net Debt includes professional fees associated with GGP's bankruptcy. As a result, any amount of professional fees included in other liabilities need to be deducted. Source: 10-Q pg 12. (6) Target Net Debt includes GGP's ultimate KEIP payment, which was estimated to be $165mm as of 3/31/10. As of 3/31/10, $79mm of the KEIP had been accrued as a liability. Source: 10-Q pg 12. (7) Includes pre-petition vendor liabilities and mechanics' liens that should be covered by the $650mm Permitted Claims cushion in Target Net Debt. Source: Pershing Square estimate.
Note: Excludes goodwill of $199.7mm as of 3/31/10. (1) Includes unconsolidated other assets at 50% share. Source: pgs 3 and 23 of Q1'10 10-Q.
83
GGP Detail LTM Cash NOI

($ in millions) GGP Cash Net Operating Income (1) 2Q09a 3Q09a 4Q09a 1Q10a $596 263 7 35 $901 (81) (58) (8) (127) (11) $616 (13) (4) 2 1 $602 $584 257 12 32 $884 (82) (65) (9) (136) (7) $585 (11) (3) 2 1 $573 $605 248 30 48 $931 (81) (82) (16) (138) (7) $607 1 (2) 2 1 $609 $593 254 12 27 $885 (85) (41) (9) (157) (8) $586 (13) (1) 2 1 $575
LTM
Minimum rents Tenant recoveries Overage rents Other Total Property Revenues Less: Real estate taxes Less: Repairs & maintenance Less: Marketing Less: Other property operating costs Less: Provision for doubtful accounts NOI Less: Straight-line rent adj. Less: FAS 141 adj. (lease mark to mkt) Plus: Non-cash ground rent expense Plus: Real estate tax stabilisation adj. GGP Cash NOI
$2,360
(1) Source: GGP operating supplements.
84
Simon Cap Rate Detail LTM Cash NOI

($ in millions) Minimum rent Overage rent Tenant reimbursements Other income Less: Interest income (1) (2) Less: Gains on land sales (2) Total Revenue Less: Property operating costs Less: Real estate taxes Less: Repairs & maintenance Less: Advertising & promotion Less: Provision for credit losses Less: Other NOI Less: Straight-line rent adj. (3) Less: FAS 141 adj. (lease mark to mkt) (3) Cash NOI Memo: Other income Consolidated portion Total share Ratio 4Q08a $807 63 393 92 (15) (5) $1,334 (172) (106) (47) (42) (10) (41) $916 (9) (9) $899 1Q09a $746 21 345 68 (9) (0) $1,171 (161) (112) (33) (24) (17) (35) $789 (11) (7) $772 2Q09a $754 26 345 56 (9) (3) $1,168 (168) (106) (30) (25) (9) (40) $791 (7) (13) $770 3Q09a $754 33 356 57 (10) (0) $1,191 (180) (99) (29) (29) (0) (36) $817 (8) (6) $803 4Q09a $806 58 376 92 (13) (19) $1,300 (164) (108) (43) (39) (2) (44) $901 (6) (6) $889 1Q10a $758 26 342 80 (10) (2) $1,194 (157) (114) (34) (25) 3 (35) $830 (5) (5) $821 LTM
$3,284
62 92 32.2%
45 68 33.6%
35 56 37.7%
36 57 35.8%
71 92 22.9%
56 80 30.2%
Source: Simon operating supplements. (1) Simon includes interest income in other revenue. This needs to be backed out to create an apples to apples comparison with GGP. (2) Simon does not disclose the amount of interest income and gains on land sales from its unconsolidated segment. Assumes the ratio of interest income and gains on land sales in other revenue is similar to the ratio of consolidated other income to total share. For example, Q1'10 reported consolidated interest income was $7.714mm. Multiplying this by 1.302x results in assumed total share interest income of $10.047mm. (3) Source: See Footnotes to Reconciliation of Consolidated Net Income to FFO in Simon's operating supplements for straight-line rent and FAS 141 adjustments.
85
Simon Cap Rate Detail Cap Rate Buildup

(units in millions, except per share data) Share Price (as of 5/28/10) Shares & Units (1) Market Cap Pro Rata for JVs: (2) Plus: Total Debt Plus: Preferred Debt Plus: Other Liabilities Less: Cash Less: Other Assets (3) Less: Development Pipeline (4) TEV Less: Mgmt Business (5) Value of Simon's REIT LTM Cash NOI (6) Implied Cap Rate $85.03 352 $29,906
24,250 126 1,845 (3,609) (2,445) (35) $50,038 (229) $49,809 $3,284 6.6%
(1) Includes Series I preferred shares and options (Source: Simon Q1'10 operating supplement). (2) As reported in Simon's pro rata balance sheet (Source: Simon Q1'10 operating supplement). (3) Excludes $20mm of goodwill (Source: Simon 2009 10-K). (4) Simon's share of U.S. CIP (page 36 of Q1'10 operating supplement). (5) Applies 25% EBIT margin to LTM fee income of $122mm and a 7.5x EBIT multiple. (6) See Simon LTM Cash NOI appendix page for details.
86
Simon Occupancy Cost Detail

Occup. Cost Buildup (1) Simon GGP Q4'09 Q4'07 Rent per sq ft Recoverable common area costs per sq ft Rent & recoverable common area costs per sq ft Rent & recoverable common area costs PSF / rent PSF Reported Tenant Sales per Square Foot Rent & recoverable common area costs / tenant sales Occupancy Cost Adjustment Factor (4) $35.32 9.58 $44.90 1.27x $444 10.1% 12.5% 1.24x
(2)
Memo: GGP Q4'09

(5)
(3)
$40.04 13.58 $53.62 1.34x $433 12.4% 15.1% 1.22x
(6)
NA NA $47.09 NA $393 12.0% 14.6% 1.22x
(8)
(3)
(5)
(8)
(3)
(8)
(7)
Note: Unlike GGP, Simon does not disclose occupancy cost data. The exercise above uses historical reported GGP data to attempt to back into Simon's implied Regional Malls occupancy cost. Actual data may vary. (1) Represents Consolidated Portfolio (i.e. excl unconsolidated). This is done because GGP does not disclose rent per sq ft metrics on a pro rata basis. (2) GGP used to report rent per sq ft instead of rent & recoverable common area costs per sq foot before Q1'07. Represents GGP Q4'06 consolidated rent per sq ft of $34.29 with assumed 3% YoY growth (same as Q4'06 reported growth). Source: GGP Q4'06 operating supplement. (3) Source: GGP Q4'07 operating supplement. (4) Represents the ratio of Occupancy Cost to rent & recoverable common area costs / tenant sales. (5) Source: Simon Q4'09 operating supplement. (6) Assumes Simon's ratio of rent and recoverable common area costs PSF / rent PSF is 1.34x based on GGP's historical ratio of 1.27x. Simon derives approximately 5% more of its revenue from tenant reimbursements than GGP. (7) Based on GGP's adjustment factor as of Q4'09. (8) Source: GGP Q4'09 operating supplement.
87
GGO Detail Victoria Ward Comp
88
Wait to Rate: How To Save The Rating Agencies (and the Capital Markets)
May 26, 2010
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in long and short positions in various securities and financial instruments. Pershing Square manages funds that are in the business of actively trading buying and selling securities and financial instruments. Pershing Square may currently or in the future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy, sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
The Context Rating agencies were material contributors to the credit crisis as their inaccurate ratings allowed for the issuance of trillions of dollars of securities and derivatives which generated trillions of dollars of losses globally What they do well
Rating agencies are generally good at rating the debts of corporate issuers
Where they have failed

Rating agencies overstated the ratings of structured finance securities and bond insurers like MBI, ABK, FNM, FRE and AIG
Various proposals have been floated to address the problem. As currently proposed, we believe that none will succeed as comprehensive reform
2
What Are the Principal Problems? Problems are caused by corrupting incentives at the original issuance of a security or derivative by an issuer Investors Overly relied on ratings rather than their own due diligence and are often subject to ratings-based investment limitations Issuers/Banks Are incentivized to get highest ratings with highest yielding (riskiest) assets NRSROs Are conflicted by how they are paid; without high ratings, agencies do not earn fees on new issue transactions Success Fee model leads to competition and grade inflation among NRSROs for new issuers and new product ratings
3
What Are the Principal Problems? (Contd)

Regulators and investors with ratings-based mandates have been illserved by the NRSROs before and throughout the credit crisis Rating agencies have failed to meet expectations: Act as Underwriters in substance, have acted as part of the underwriting team for new issues Are Slow to Downgrade are incentivized to keep ratings stable so new issues can continue to be sold and rated Are Loath to Pass Judgment on Themselves did initially forbear from downgrading financial guarantors (e.g., MBI, ABK, FNM, FRE, AIG), as simultaneous downgrades would be triggered on thousands of other securities, putting NRSROs in the uncomfortable position of questioning their own prior ratings
How Do You Solve These Problems?

Make a new law Our suggested rider to the Restoring American Financial Stability Act of 2010 New Issue Ratings Moratorium. Prior to the date 60 days after the issuance of a new fixed income security, it shall be unlawful for any NRSRO to: (1) (2) (3) Have any contact with issuers, sponsors, servicers, trustees or underwriters of such security during such period, Comment publicly on, or issue ratings regarding, any such security, or Otherwise participate in the structuring, underwriting, offering or sale of such securities during such period. Conduct due diligence based solely on publicly available information of the issuer or otherwise related to the security in respect of future ratings for such issuer or security, and At all times broadly publish their ratings standards, procedures and methodologies.
5
Notwithstanding the foregoing, NRSROs shall at all times be permitted to: (a)
(b)
How Do You Solve These Problems? (Contd)

Allow Non-NRSROs to Publish During New Issue Moratorium Firms can (1) apply to be qualified as NRSROs and be subject to the new issue ratings moratorium or (2) choose to be non-NRSROs and compete for business from investors during the moratorium on the basis of the quality of their research Creates incentive for the development of an Investor Pays model for nonNRSRO rating agencies who will seek to fill the ratings void left by the New Issue Ratings Moratorium on NRSROs Insist on NRSRO Accountability The SEC should be required to revoke a ratings agencys NRSRO status if it consistently underperforms its peers While the SEC currently has the power to revoke NRSRO status, it has failed to exercise that power likely because of the lack of credible alternatives to NRSROs Bright line rules requiring the exercise of that power after material consistent underperformance could address the breakdown caused by the SECs past regulatory forbearance Buyside analysts will develop into credible alternatives and even new NRSROs
6
How Do You Solve These Problems? (Contd)

Make a new law Repealing NRSRO legal exemptions will mitigate undue reliance on ratings Re-Thinking Reg FD The SEC should repeal the NRSRO exemption from fair disclosure rules that currently allow rating agencies access to issuers material nonpublic information Investors justified their over-reliance on ratings in large part on account of NRSRO information advantages. Repeal of the SECs Reg FD exemption would reduce reliance premised on information asymmetries Prospectus Delivery Requirements Each issuer that seeks an NRSRO rating should be required to include in its bond offering prospectus all information that a reasonable investor would need to form an investment decision Any information that could reasonably be expected to impact ratings should be viewed by definition as material and therefore should be disclosed in prospectuses and in on-going public disclosures Improved disclosure requirements would improve the accuracy of fundamental analysis and level the playing field among market participants
7
What Are the Impacts of Our Proposed Changes?

Old Paradigm:
Investors overly relied on ratings and performed inadequate due diligence Issuers/Banks structured deals to minimally achieve desired ratings thresholds through negotiations with rating agencies NRSROs monopolized ratings, became an essential participant in underwriting process which was corrupted by the success fee payment scheme Investor Pay Research Investor Pays ratings model is virtually nonexistent
New Paradigm:
Investors will need to do their own due diligence and will benefit from truly independent ratings/research Issuers/Banks ratings opinion uncertainty will force them to underpromise and over-deliver creating margins of safety above ratings targets NRSROs will call em like they see em and will be completely removed from the structuring and underwriting process Investor Pay Research creates opportunity for Investor Pays ratings and research to develop as non-NRSRO analysts will be permitted to publish preoffering and during the blackout period
8
How Should Ratings Agencies Be Compensated? New Fee Arrangements Ratings fees should be set aside and paid over time by issuers to NRSROs and failure to pay fees would be deemed an Event of Default for issuers Base Fee a minimum fee will be paid in quarterly increments over the life of the bond to those NRSROs that pre-commit to rate a new bond after the 60-day moratorium and to continue to update those ratings over the bonds life Ranking Fee a portion of the remaining set aside will be paid in annual increments based on investor-determined annual rankings of each NRSRO Performance Fee the remaining set aside will be paid in annual increments to the NRSROs based on the performance of the bond relative to the ratings designated by each participating NRSRO
9
What Are the Impacts of Our Proposed Changes?

Old Paradigm:
Investors had no impact on NRSRO compensation Issuers/Banks had the ability to manipulate the process through NRSRO compensation to achieve desired ratings NRSROs received full, upfront payments which were unrelated to the ratings performance for that issue Investor Pay Research Investor Pays ratings model is virtually nonexistent
New Paradigm:
Investors will help allocate ratings fees, closer to an Investor Pays model Issuers/Banks will have no ability to set compensation or even choose which NRSROs will rate a bond NRSROs will be paid over time, with a large percentage of compensation based on performance; material consistent underperformance assures loss of NRSRO status Investor Pay Research will create market opportunity which will improve independent research for buyside investors
10
Conclusion
The combination of increased buyside due diligence coupled with mitigation of conflicts of interest and a new payment scheme can restore the integrity of ratings The steps toward regaining confidence are deceptively simple: Exclude the NRSRO rating agencies from the initial offering and underwriting process Create incentives for fundamental research and valuation analysis by investors Create the market opportunity for Investor Pays research and ratings to develop Create a payment regime that focuses on NRSRO performance and the quality of their ratings over time and aligns their interest with investors Failure to address fundamental flaws in the legacy ratings system is not an option
11
Not for Public Distribution
How To Make A Fortune*

November 3, 2010
* My compliance team cautions you that this is a tongue in cheek title
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, historical and anticipated performance of certain assets, and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained in this presentation.
1
What We Look for in Our Investments

Low valuation Forced Sellers Attractive capital structure Favorable long-term supply dynamics Favorable long-term demand dynamics Out-of-favor
We Believe Weve Identified an Investment with:

A low valuation Lowest valuation in at least a generation Forced sellers A large number of distressed transactions Extremely attractive financing available High LTV, low-rate, fixed-rate, long-dated, non-recourse debt, pre-payable without penalty Favorable long-term supply dynamics Short-term oversupplied market, but long-term supply is controlled Favorable long-term demand dynamics Demographically driven demand growth Out-of-favor Currently, this is a somewhat shunned asset class
3
So How Can You Make A Fortune?
The American Dream - On Sale
What Happened?
What Happened in the Credit Markets?

More Leverage / More Buyers Increasing Asset Values
Freely Available Credit

Relaxed lending standards Financial innovation CDO Demand
Decreasing Defaults
Source: Whos Holding the Bag?, PSCM, May 2007 7
Leverage Increased
The second lien market allowed borrowers to layer additional leverage
Total Second Lien & Piggyback Second Lien Issuance
Source: Standard & Poors, and Whos Holding the Bag?, PSCM, May 2007 8
Financial Innovation
The popularity of Interest Only and Negative Amortization loans grew rapidly
IO and Neg. Amortization Originations (% of dollar volume)

35% 30% 25% 25% 20% 15% 10% 6% 5% 2% 0% 2000
Source: Loan Performance, Credit Suisse
29%
23%
4% 1% 2001 2002 2003 2004 2005 2006
The ABS Market Provided Liquidity for Originators

Sub-prime and Second-lien ABS Issuance Volume
Facilitated by Rating Agencies and Bond Insurers
Source: Thompson Financial, Deutsche Bank, Whos Holding the Bag?, PSCM, May 2007 10
Asset Values Went Up

Between January 2001 and June 2006 home prices rose at a 13% CAGR
Home Price Appreciation (Case-Shiller 10-City Index)
250 230 210 190 170 150 130 110 90 70 50 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Source: Case-Shiller Home Price Indices
11
Valuation
Asset Values Have Declined Meaningfully

Home prices are down 28% nationwide
Home Price Appreciation (Case-Shiller 10-City Index)
250 230 210 190 170 150 130 110 90 70 50 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Source: Case-Shiller Home Price Indices
13
Housing is More Affordable Today

Falling home prices and lower interest rates dramatically improved affordability. Median family income is now 78% higher than what is required to qualify for a loan to purchase the median price single family home using 80% loan-to-value, fixed-rate financing
NAR National Housing Affordability Index Fixed Rate Composite
200 180 160 140 120 100 80 60
19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10
Source: National Association of Realtors
Affordability = Median Income/Qualifying Income
178 170 150 134 117 109 122 127 117 134 130 133 137 125 126 127 128 124 128 120 109 110
14
Cheap Compared to Renting

The breakeven appreciation rate for rental equivalent value is the best since the 1970s
Housing as a hedge: Home ownership with fixed-rate financing protects buyers from asset and rent inflation
Source: Beracha and Johnson, Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise? Assumptions in appendix 15
Forced Sellers
Foreclosures and Short Sales

Nationwide, ~30% of sellers are in or are approaching foreclosure
Distressed Sales (% of total re-sales)
Long-term the foreclosure crisis is good for housing. Over-priced and overleveraged homes will be transitioned to new, stable owners at more reasonable prices and on more favorable financing terms
Source: Deutsche Bank, Whither the distressed inventory flood 17
Short Sales
Short sale transactions are increasing
Number of Short Sales Per Month
Source: HUD, Core Logic
18
Distressed Sales are an Opportunity for Buyers

REO sales tend to be priced below the broader market
Houston REO vs. Overall Pricing ($ thousand)
Source: Deutsche Bank, Whither the distressed inventory flood
19
A Sellers Race to the Bottom in Vegas

Buyers benefit when conventional sellers compete with distressed sales. Las Vegas is an extreme example, where distressed and non-distressed sale prices have nearly converged
Las Vegas REO vs. Overall Pricing ($ thousand)
Source: Deutsche Bank, Whither the distressed inventory flood
20
Financing
Mortgage Rates are Very Low

Mortgage rates have fallen to historically low levels. Fixed 30-year rates are now below 4.5% for the first time in the history of the Freddie Mac lender survey
30-Year Fixed-Rate 80% LTV Mortgage
19% 17% 15% 13% 11% 9% 7% 5% 3% 1973
Source: Freddie Mac
1977
1982
1987
1992
22
1997
2002
2007
What Makes a Home Mortgage So Attractive?

Typical Conforming Mortgage Term Sheet
Low Fixed Rate 4.43% APR Long Term 30-Year Amortization High LTV 80% (97% for FHA loans) Non-Recourse Loans are explicitly or effectively non-recourse Adequate Financing Available $417k to $730k, depending on location No Prepayment Penalties Creates refinancing optionality Tax Deductible Interest More valuable with coming tax increases
No other business or investor can get financing on such favorable terms
23
The Mortgage Market Benefits from Government Support

Support from the federal government provides qualified borrowers with access to credit on favorable terms
GSE and FHA mortgages are now >90% of the origination market The target Fed Funds rate is 0% The Fed has purchased more than one trillion dollars of Mortgage Backed Securities FHA high LTV refinancing programs are helping distressed borrowers
24
What Are the True Economics of Home Ownership?

Our Assumptions:
Conventional Loan Down Payment Mortgage Interest Rate FHA Loan Down Payment Mortgage Interest Rate Upfront Mtge Insurance (Financed) Annual Mtge Insur. Premium (First 5yrs) 20% 30yr Fixed Rate 4.40% Transaction Costs Closing Costs (% of Purchase Price) Selling Fees (% of Sale Price) 2% 6%
3.5% 30yr Fixed Rate 4.25% 1.00% 0.90%
Annual Fees Property Taxes (% of Home Value) 1.50% Maint. + Insurance (% of Home Value) 2.00% Annual expenses grow with home appreciation Tax Rate Income Tax Rate
25%
Rent Implied rent grows with home appreciation Holding Period 10 Years
25
What Are the True Economics of Home Ownership? (cont.)
After a small down payment, a buyers monthly after-tax cost of carry is at or below the monthly rental expense
Average Two Bedroom Home in Baltimore:
Conventional Home Price Equivalent Monthly Rent Owner's Monthly Out of Pocket Downpayment + Closing Costs LTV $ 187,998 $ 1,300 1,072 41,360 80%
FHA 187,998 1,300 1,362 10,406 96.5%
Source: Trulia - home price and rent expense data

26
The Benefits of Low-Cost, High-LTV Financing

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions
Conventional 80% Financing

Annual Appreciation 1% 2% 3% 4% 5% 6% IRR Assuming 10yr Hold Residual Current Return Return Total 3.8% 6.6% 10.4% 6.9% 6.8% 13.7% 9.5% 7.0% 16.5% 11.8% 7.3% 19.1% 14.0% 7.5% 21.5% 15.9% 7.8% 23.7% Multiple of Equity 2.7x 3.6x 4.6x 5.7x 7.0x 8.4x
If the borrower has the opportunity to refinance at better rates, returns would be even higher
27
The Benefits of Low-Cost, High-LTV Financing (Contd)

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions
FHA 96.5% Financing

Annual Appreciation 1% 2% 3% 4% 5% 6% IRR Assuming 10yr Hold Residual Current Return Return Total 16.3% 0.4% 16.7% 20.5% 1.7% 22.2% 24.0% 2.8% 26.8% 27.0% 3.8% 30.8% 29.7% 4.7% 34.4% 32.1% 5.6% 37.7% Multiple of Equity 5x 7x 11x 15x 19x 25x
If the borrower has the opportunity to refinance at better rates, returns would be even higher
28
Favorable Long-Term Demand Dynamics
Household Formation Trends

Household Formation has been positive, with some degree of cyclicality, since at least the 1970s. Household growth will likely accelerate as the recovery gains traction
Annual Household Formation (% growth)
5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 19 00 20 03 20 06 20 09 20
Household growth is cyclically depressed
Source: US Census Bureau

30
Homeownership Rates have Normalized

Homeownership rates have declined to pre-bubble levels. While ownership is above pre-2000 rates, higher affordability and an aging population should support an ownership rate near todays level
Homeownership (% of households)
70 69 68 67 66 65 64 63 62 61 60 1983
Source: US Census 31
1986
1989
1992
1995
1998
2001
2004
2007
2010
The Number of Owner Households Will Rebound

Accelerating household formation and a stabilization of the homeownership rate should lead to growth in owner households
Change in Owner Households =

(Household Formation x Homeownership Rate) + [Number of Households x (Change in Homeownership Rate)]
Source: US Census Bureau, BLS, Maximus Advisors
32
Long-Term Demand for Housing

Projected Long-Term Demand for New Housing Units (single and multi-family)
Household Formation Growth needed to maintain constant vacancy rate
X Homeownership Rate
LT Annual Single Family Home Demand
Assumed: 66%
1,101
1,253
Source: Joint Center for Housing Studies, Harvard University, Updated 2010-2020 Household and New Home Demand Projections Applies 66% to all figures excluding: Vacant Rental (0%) and Second Homes (100%)
33
Favorable Long-Term Supply Dynamics
Temporarily Elevated Inventory Levels

In the short-term, for-sale homes and shadow inventory will weigh on home prices. This provides an opportunity to buy a long-term investment at an attractive valuation in a market facing short-term distress
Change in Home Prices vs. Months of Inventory
-25%
Price
14
-20% 12 -15% 10 -10% 8
-5%
Supply
0% 6
5% 4 10% 2 15%
20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0 2011
35
Source: US Census Bureau
Months of Supply (6 Month Lead)
Home Prices (YoY%, Inverted)
New Supply Growth Will be Slow

Builders have sharply reduced their construction capacity, increasing lead times when the market does recover
Community Counts for Public Builders
It can take three to seven years to get land permitted in many of the more desirable markets
Sources: Deustche Bank, Builder Community Analysis Toll Brothers Management 36
Housing Starts are Now Below Long-Term Demand Growth

Housing starts have fallen sharply and are now lower than at any time in at least the past 50 years. Starts today are less than half of average long-term demand
Seasonally Adjusted Housing Starts (thousands)
3,000
2,500
Projected LT Demand:
1.1-1.25mm new single family homes per year
2,000
1,500
1,000
Inventory Depletion
500
0 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
New Supply Growth Will be Slow
Source: Chart: US Census Bureau 37 Joint Center for Housing Studies, Harvard University, Updated 2010-2020 Household and New Home Demand Projections
Out-of-favor
Everybody Else is Afraid

The best investments we have made are the ones no one else would touch
So even at 89 cents a share, it still looks pretty bleak out there for General Growth Shareholders - Businessweek, April 2009 The U.S. housing market is headed for a complete and total nightmare - Business Insider, August 2010 Now They Tell Us: Experts say housing is a lousy investment and it always will be - Yahoo Finance, August 2010
39
Concluding Thoughts
Why Now?
Interest rates wont stay this low forever New monetary easing increases the risk of inflation Even with the current inventory levels, at todays valuations, it is unlikely we will see another substantial decline in prices Forced selling may abate as lenders balance sheets improve Generally, there is more liquidity on the way down than on the way up An economic recovery could cause housing to recover faster than many people think
41
The Housing Purchase is One of the Most Emotional Investment Decisions a Family Can Make
Once a family is able to purchase a home, the decision is based on psychological factors: Confidence in the, and ones, future The fear of missing the opportunity to buy at the bottom These psychological factors have self-reinforcing qualities that are similar to the forces that drive financial markets
Catalyst
Housing Prices Increase
Increase in Buyer Confidence
Decision to Purchase
42
An Institutionally Under-Owned Asset Class
Institutional investors have almost no exposure to singlefamily home rental properties (SFHRPs) as an asset class Low valuation, high current yield and long-term appreciation potential make SFHRPs an intelligent investment for institutional investors Despite these investment characteristics, we are unaware of any large pools of capital that have been raised to pursue this opportunity. This will change
43
The SFHRP Investment Opportunity Is Best Understood By Analogy

For the vast majority of the 20th century, timber was never considered an institutional asset class Led by forward thinking investors, institutional investments in timberland emerged in the USA in the 1980s With the advent of timber institutional management organizations (TIMOs) and timber REITs, institutional timberland investments have grown significantly DANA Limited estimated that institutional investors had invested ~$50bn in timberlands as of early 2008 In 2007, the first timber ETF launched The same features that attracted institutional investors to timber: current yield, inflation-protection, portfolio diversification, demand for hard assets, and the ability to create long-term tax-deferred gains, also apply to SFHRPs
44
Potential Institutional Investment Demand is Material

If global institutions and private wealth funds allocated approximately 1% of their assets under management to SFHRPs, it would absorb the entire U.S. for-sale inventory of single-family homes
Median Priced Single Family Home U.S. For-Sale Inventory of Single-Family Homes U.S. For-Sale Housing Inventory ($Tn) Global Institutional & Private Wealth AUM ($Tn)* U.S. For-Sale Inventory as % of Global AUM
$172,000 3,970,000 $0.7 $64.3 1.1%
* Source: IFSL, US Census Bureau
45
Appendix
Appendix Buy vs. Rent Assumptions:

Home Buyer's Assumptions Down Payment 20% Mortgage 30yr Fixed Rate Closing Costs 2% Holding Period 8 Years Selling Fees 6% Income Tax Rate 25% Capital Gains 20% Property Taxes - Annual 1.50% Maint. + Insur - Annual 2.00% Annual expenses grow with appreciation Renter's Assumptions Down Payment seeds investment portfolio Diff between mtge and rent is invested Portfolio is made of stocks and bonds Rent Growth Same as home appreciation Income Tax Rate 25% Capital Gains 20%
Source: Beracha and Johnson, Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise?
47
Linked to Win
September 14, 2011
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of instruments of state, governments and other interested parties discussed in the presentation that could lead those constituents and other market participants to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation to buy or sell any securities, currencies or other investment instruments. All investments involve risk, including the loss of principal. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, historical and anticipated events, access to and changes in capital markets and the values of currencies, assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant political, regulatory, economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations or warranties, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates own U.S. dollars, Hong Kong dollars and options on the Hong Kong dollar. Pershing Square manages funds that are in the business of trading - buying and selling securities and other financial instruments. It is likely that there will be developments in the future that cause Pershing Square to change its position regarding such investments. Pershing Square may buy, sell, cover or otherwise change the form of these investments for any or no reason. Pershing Square hereby disclaims any duty to any recipient hereof or to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
Structure of the Presentation I. II. The Context The History
III. The Current State of Play IV. Our Prediction of What is Likely to Happen V. The Investment Opportunity
VI. Why Now?
I. The Context
The US Economy Today
GDP Growth U.S.

U.S. economic growth remains sluggish
Real GDP Growth (%QoQ Annualized, Seasonally Adj. )
5
________________________________________________
Source: Bloomberg.
GDP U.S.
U.S. GDP is still below the Q4 07 peak
Annualized Real GDP (Billion USD, 2005 Dollars)
Still below Q4 07 peak
________________________________________________
Source: Bloomberg.
Unemployment U.S.
Unemployment in the U.S. remains stubbornly high at over 9%
Unemployment Rate (%)
________________________________________________
Source: Bloomberg.
Inflation U.S.
Inflation has picked up, but seems to have leveled off and is forecast to decrease
Consumer Price Index Growth (YoY)
Median Bloomberg Forecast: 2011 +3.0% 2012 +2.1%
________________________________________________
Source: Bloomberg.
Home Prices U.S.

U.S. Home Prices are down 32% from peak and have not recovered
Home Price Index (Case Shiller Home Price 10-City Index)
-32% from peak
________________________________________________
Source: Bloomberg.
U.S. Monetary Policy Today

To combat persistent weakness in the U.S. economy, the Federal Reserve has reduced short-term rates to zero and enacted two rounds of quantitative easing
Economic Weakness
Accommodative Monetary Policy
Real GDP (YoY%) Unemployment Home Prices (YoY%) CPI (YoY%)
+1.5% 9.1% -3.8% 3.6%
Near 0% Short-Term Interest Rates through mid-2013 Multiple Rounds of Quantitative Easing
________________________________________________
10
Source: Based on the latest available Bloomberg data.
U.S. Monetary Policy Will Remain Extremely Accommodative: The committee currently anticipates that economic conditions including low rates of resource utilization and a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013
- Federal Reserve statement, August 2011
________________________________________________
11
Source: Press, Release August 9, 2011 Board of Governors of the Federal Reserve System (http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm).
Compare with Economy X
12
GDP Growth Economy X

Economy X has recovered strongly from the global recession
Real GDP Growth (YoY)
________________________________________________
Source: Bloomberg.
GDP Economy X
Economy X GDP is well above its peak
LTM Real GDP (Billion Local Currency)
________________________________________________
14
Source: Based on Bloomberg data (Cumulative Last 4Qs).
Unemployment Economy X
Unemployment is 3.4% and back to pre-recession lows
Unemployment Rate (%)
________________________________________________
15
Source: Bloomberg.
Home Prices Economy X

Since January 2006, home prices are up ~90%
Home Price Index
________________________________________________
16
Source: Centaline Property Centa-City Leading HK Index - Bloomberg.
Inflation Economy X
Inflation is accelerating and is now nearly 6%
Underlying Consumer Price Index Growth (YoY)
________________________________________________
Source: Monthly Report on the Consumer Price Index - Census and Statistics Department, Hong Kong SAR Government. (http://www.censtatd.gov.hk/products_and_services/products/publications/statistical_report/prices_household_expenditure/index_cd_B1060001_dt_detail.jsp).
17
Economy Xs Monetary Policy Mirrors the USs

Despite surging growth and inflation, Economy Xs monetary policy mirrors that of the United States with a near-zero interest-rate policy and large amounts of money printing
Economy X
U.S.
Real GDP (YoY%) Unemployment % Home Prices (YoY%) CPI (YoY%)
+5.1% 3.4% +18.5% +5.8%
+1.5% 9.1% -3.8% +3.6%
________________________________________________
Source: Based on the latest available Bloomberg data. 18 Press Release, August 22, 2011 Census and Statistics Department, Hong Kong SAR Government (http://www.censtatd.gov.hk/press_release/press_releases_on_statistics/index.jsp?sID=2798&sSUBID=19062&displayMode=D).
Who is Economy X? Why would Economy X have the same monetary policy as the United States?
19
Economy X = Hong Kong Why Does Hong Kong share U.S. monetary policy? The Hong Kong Dollars (HKD) peg to the U.S. Dollar (USD) forces Hong Kong to import the U.S.s ultraaccommodative monetary policy, despite its much stronger economy
II. The History
The Hong Kong Dollar Over Time

Hong Kong has implemented several different currency regimes, demonstrating a pattern of change and adaptation during times of stress
HKD/USD (inverted)
Sterling Peg
Free Floating
Dollar Peg
HKD Strength
7.75 to 7.85 Band 05 Strong Side Commitment 98 Weak Side Commitment

22
________________________________________________
Source: Hong Kongs Linked Exchange Rate System Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).
Sterling Link Adopted (1935)

By 1935, facing a dramatic rise in the price of silver and a shrinking money supply, Hong Kong abandoned silver as backing for its currency HK replaced the silver link with a Sterling-based currency board At the time, HK was a British colony and Sterling was a major reserve currency
23
The Sterling Peg (1935-1972)

Sterlings role as an international reserve currency was displaced by the USD after WWII
Denomination of Foreign Currency Reserves 1950-1982
Sterling
________________________________________________
Source: The Decline of Sterling: Managing the Retreat of an International Currency, 1945-1992 - Catherine R. Schenk, p.23.
Sterling Link Abandoned (1972)

In 1949 and in 1967, Sterling was devalued. Shortly after the 1967 devaluation, the HKD was revalued by 10% against Sterling to preserve its purchasing power
HKD/USD (inverted)
HKD Strength
1967 14% Sterling devaluation Countered by +10% HKD revaluation
________________________________________________
25
Source: Hong Kongs Linked Exchange Rate System - Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).
Sterling Link Abandoned (1972)

In 1971, Nixon gave up the gold standard and devalued the USD. In 1972, Sterling broke its USD peg. Two weeks later HK announced a USD link
HKD/USD (inverted)
HKD Strength
1967 14% Sterling devaluation Countered by +10% HKD revaluation
Sterling ends USD peg and two weeks later HKD is pegged to USD
1971 USD devaluation
________________________________________________
26
Source: Hong Kongs Linked Exchange Rate System - Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).
First Dollar Link (1972-1974)

In February 1973, with the US struggling with inflation and Vietnam war debt, USD was devalued against gold by 10% HK responded to this USD devaluation and adjusted its currency to maintain HKDs price relative to gold, implying a 10% revaluation against USD Finally, in November 1974, without a reliable anchor, HK discarded the USD link and floated its currency
27
The Float (1974-1983)

Until 1982, the Float worked reasonably well despite HKs lacking a formal central bank. The commercial banks were made responsible for managing the system, leaving the HKD vulnerable to a crisis
HKD/USD
HKD Weakness
28
________________________________________________
Source: Bloomberg.
The Float Ends in Crisis (1983)

In September 1983, negotiations over the UKs agreement to transfer control of HK to the Mainland sparked a crisis of confidence in the HKD, leading to bank runs and food shortages. A rapid decline in the HKD ensued
HKD/USD
Black Saturday (9/24/1983) HKD hits an all time low: 9.60
HKD Weakness
________________________________________________
29
Source: Bloomberg.
The Float Ends in Crisis (1983) Cont.

Panic Overwhelms the Streets Fear Grips Hong Kong
________________________________________________
30
Source: Hong Kong SARs Monetary and Rate Challenges - Catherine Schenk, p149-50.
The Dollar Link (1983 Present)

To stem the panic, authorities adopted a currency board and a USD peg. While the initial workings of the currency board were basic, the strength of the USD and the simplicity of the currency board made it credible
HKD/USD
HKD Weakness
Creation of 7.75 to 7.85 Band Resumption of the USD peg, this time at 7.80 HKD/USD 98 Weak Side Intervention Commitment 05 Strong Side Intervention Commitment
Floating Rate
________________________________________________
31
Source: Bloomberg.
Why Did HK Choose the USD as an Anchor in 1983? US monetary policy established tremendous credibility in the Volcker era There was no other viable anchor Precious metals had been discredited and Sterling was a secondary currency The US was a major HK trading partner The USD was commonly used in international trade and finance The crucial factor is that there should be confidence that the anchor currency will be managed responsibly by its central bank. - Tony Latter, Former HKMA Deputy Chief Executive and coarchitect of the peg
________________________________________________
32
Source: Hong Kongs Money: The History, Logic and Operation of the Currency Peg - Tony Latter, p.56.
How do we know what the HK government was thinking when the peg was introduced in 1983? This publically available HK government policy memo details the HK governments thinking at the time:
We will get back to this memo later in the presentation
________________________________________________
33
Source: Stabilization of the Exchange Rate (http://www.sktsang.com/ArchiveI/1983.pdf).
HK Has Been Responsive to Change Event: Silver appreciation (1935) Response: Sterling Peg Event: Sterling devaluation (1967, 1972) Response: Revaluation; Switch to USD Peg Event: USD devaluation (1973, 1974) Response: Revaluation; HKD Float Event: HKD Crisis (1983) Response: USD Peg
34
III. The Current State of Play
Hong Kong
Population: 7.1mm GDP by Sector: Finance 26%, Trade 27%, Public Administration 18%, Transportation 9% Economic Freedom: Ranked #1 for 17 consecutive years by the Heritage Foundation History: British colonial rule (18421997) Reversion to Chinese sovereignty (1997) One Country, Two Systems (1997-2047) Harmonization with the Mainland (2047 - Onward)
________________________________________________
Source: Hong Kong Yearbook 2010 - Information Service Department, Hong Kong SAR Government, p.49 (http://www.yearbook.gov.hk/2010/en/index.html). Picture - (http://www.expatify.com/hong-kong/navigating-the-residential-neighborhoods-of-hong-kong.html).
36
The Hong Kong Economic Miracle

Hong Kongs real GDP has grown 21x over the last 50 years. This success is a product of its unique location and successful economic policy
Real GDP ($HKD mm, 2005 dollars)
________________________________________________
Source: National Income and Balance of Payments - Census and Statistics Department, Hong Kong SAR Government, Table 32.
HKs Currency Regime is Tremendously Flexible

The Basic Law, HKs constitution, allows for a broad range of currency regimes Consequently, unlike many currency boards, the HKD system can be quickly and easily amended Any change would be made through an administrative process involving the Financial Secretary, the Chief Executive, and the Monetary Authority (HKMA), with likely consultation with Mainland authorities
The Linked Exchange Rate System (LERS)
39
The LERS
Since 1983, the LERS has kept the HKD pegged to the USD at a rate of ~7.80 HKD/USD The HKMA has established a 7.75 to 7.85 HKD/USD trading band for the currency The price of the HKD is kept within the trading band through a series of arbitrage and automatic intervention mechanisms
How the LERS System Works

Strong Side Defense: 7.75 HKD/USD
Capital Inflow
Weak Side Defense: 7.85 HKD/USD

Capital Outflow
Market Participants Buy HKD Upward Pressure On Exchange Rate
Market Participants Sell HKD
Downward Pressure On Exchange Rate
Currency Board Sells HKD at 7.75
Currency Board Buys HKD at 7.85
Monetary Base Expands
Monetary Base Contracts
Interest Rates Fall
Interest Rates Rise
Downward Pressure On Exchange Rate Back Towards 7.80 HKD/USD
Upward Pressure On Exchange Rate Back Towards 7.80 HKD/USD
A Lot Has Changed Since 1983
Americas Trade Deficit

Americas trade deficit has grown enormously since 1983. Funding such deficits requires large corresponding capital inflows
Trade Deficit as of GDP (%)
Sustainable limit
________________________________________________
43 Source: Bloomberg. Estimates of Fundamental Equilibrium Exchange Rates - Peterson Institute for International Economics, p.3.
Hong Kongs Trade Surplus

Hong Kongs large trade surplus reflects its position as a global trading and financial services center, as well as the relative cheapness of its currency
Trade Surplus/ Deficit(% of GDP)
________________________________________________
44
Source: National Income and Balance of Payments - Census and Statistics Department, Hong Kong SAR Government, Table 42.
Americas Debt Crisis

The U.S. has suffered from decades of chronic deficits
Deficit/GDP (%)
________________________________________________
45
Source: Bloomberg.
Americas Debt Crisis The US is No Longer AAA

Americas fiscal position has worsened considerably since 1983. S&P recently downgraded the U.S., citing poor leadership from Washington in solving the U.S.s serious budget problems
Debt/GDP (%)
________________________________________________
Source: Bloomberg. Treasury Direct (http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm).
46
Hong Kongs Fiscal Health is Solid

Hong Kong has a history of budget surpluses
HK Surplus (% of GDP)
________________________________________________
Source: Surplus - Public Account, Money and Finance - Census and Statistics Department, Hong Kong SAR Government, Table 192. Nominal GDP - National Income and Balance of Payments - Census and Statistics Department, Hong Kong SAR Government, Table 32.
47
HKs Fiscal Health is Strong 2010 S&P AAA Upgrade

HK has built a USD $77bn foreign currency fiscal reserve, or $294bn (~126% of trailing GDP) including the funds backing the currency board and other assets
Foreign Currency Assets (% of GDP)
________________________________________________
Source: Foreign Currency Assets - Bloomberg (Adjusted for HKD). 48 Nominal GDP - National Income and Balance of Payments - Census and Statistics Department, Hong Kong SAR Government, Table 32.
Evolving American Monetary Policy

Since the recent financial crisis, the Federal Reserve has struggled to stimulate the US economy, resorting to massive quantitative easing and promises of extended ultra-low interest rates
Fed Balance Sheet (Billion) Fed Funds (%) QE II
________________________________________________
49
Source: Bloomberg.
Persistent US Dollar Weakness

Accommodative monetary policy, a weak economy and large fiscal and trade deficits have driven the USD lower and the HKD with it
Trade-Weighted Nominal USD Index
Down 49% since Oct. 1983
________________________________________________
50
Source: Nominal Major Currency Index - Board of Governors of the Federal Reserve System (http://www.federalreserve.gov/releases/h10/summary/default.htm).
The success of a currency board arrangement, and its acceptability to local people and businesses, depend to a considerable extent on the anchor currency being reasonably stable.
- Tony Latter, Former HKMA deputy chief executive and co-architect of the peg
________________________________________________
51
Source: Hands On, Hands Off?: The Nature and Process of Economic Policy in Hong Kong - Tony Latter, p.75.
Links with China are growing
52
Trade Links with China are Growing

Hong Kongs trade with America has fallen as a percentage of total trade, while trade with China is booming
% of Hong Kongs Total Trade
________________________________________________
Source: External Trade - Census and Statistics Department, Hong Kong SAR Government, Table 60.
53
Monetary Links with Beijing are Growing

Chinas increasing liberalization of the RMB market, especially via expanded usage in trade settlement, has led to a rapid increase in RMB deposits in Hong Kong, further deepening HKs economic ties with the Mainland
RMB Deposits (Billion in RMB) RMB Deposits (as % of Total HKD Deposits )
~20% of all HK bank assets are now on the Mainland
________________________________________________
Source: Bloomberg. RBS, June 22, 2011
54
The USD Peg Has Materially Reduced the Market Value of the HKD
55
HKD Trade-Weighted Value

Dragged down by a weak USD, the HKD has lost ~35% of its value on a real (inflation-adjusted) trade-weighted basis over the last ten years
Real Effective Exchange Rate (Trade Weighted)
China Begins Revaluation
________________________________________________
56
Source: BIS Real Effective Exchange Rates - Bank of International Settlements, Broad Index (http://www.bis.org/statistics/eer/index.htm).
Yuan Strengthening Pressures HKD Lower

HKDs trade-weighted value will continue to fall as China, HKs largest trading partner, steadily strengthens its own undervalued currency. The Yuans strengthening recently accelerated after the July U.S. credit downgrade
Yuan and HKD/USD
HKD Weakness
The RMB has appreciated by 30% since 2005 and officials have indicated that it will continue to appreciate
________________________________________________
57 Source: Bloomberg. China will stick to gradual appreciation of Yuan: Wen - Economic Times (http://articles.economictimes.indiatimes.com/2011-03-15/news/28691614_1_wen-jiabao-growth-rate-exchange-rate).
Valuation Summary
Economist models and changes in trade-weighted real exchange rates indicate that the HKD is materially undervalued relative to a basket of its trading partners
Model
Decline in Real Trade-Weighted Value - Last 10yrs Goldman Sachs DEER Model Barclays PPP Model
%Undervalued(MultiLateral)
54% 26% 33%
Undervaluation
% Undervalued: % Undervalued = (7.80/Fair Value) -1
26%54%
________________________________________________
Source: Economic Research: GS DEER - Goldman Sachs, Q2 2011 Trade Weighted Misalignment. 58 Currency valuation from a macro perspective - Barclays Capital, June 14, 2011, p.3. Estimates of Fundamental Equilibrium Exchange Peterson Institute for International Economics, Real Effective Exchange Rate, May 2011.
A Lot Has Changed Since 1983...
________________________________________________
Source: Bloomberg.
A Lot Has Changed Since 1983 (Cont.)
________________________________________________
Source: Bloomberg.
At the time the peg was introduced, the HK government recognized the risks of tying HKs monetary policy to that of the US [D]omestic interest rates and domestic inflation will be substantially influenced by the behavior of the economy to whose currency it is tied (the USA in this case). It was, in essence, the potential effect of such ties upon the Hong Kong economy which led to the abandonment of the sterling link in 1972 and then the US dollar link in 1974.
- Hong Kong government policy memo, 1983
But in the midst of crisis, the government had no other choice
________________________________________________
61
Impact of the Peg on HK
Inflation A growing concern

Consumer price inflation in Hong Kong is accelerating
Underlying Inflation (% YoY)
The HKMA recently increased its 2011 inflation expectation to 5.5% from 4.5%
________________________________________________
63
Source: Monthly Report on the Consumer Price Index - Census and Statistics Department, Hong Kong SAR Government.
Asset Bubbles Building - Residential Real Estate

Prices in Hong Kongs residential real estate market are soaring
HK Residential Price Index (Centaline Property Centa-City Leading Hong Kong Index)
222% Increase
________________________________________________
64
Source: Bloomberg.
Asset Bubbles Building - Residential Real Estate

Residential valuations are approaching Pre-Asian Financial Crisis levels
HK Residential Price to Income Ratio
________________________________________________
65
Source: Hong Kong Property - Citi, May 2011, p.51.
Asset Bubbles Building - Commercial Real Estate

Prices in Hong Kongs commercial real estate market are increasing rapidly
HK Commercial Price Index
Class A office market stats: Vacancy Rate: ~2% Rent (% yoy): ~+18% Cap Rates: ~3%
________________________________________________
Source: Half-Yearly Monetary and Financial Stability Report - March 2011 - Hong Kong Economy, HK Commercial Price Index , p. 38 (http://www.hkeconomy.gov.hk/en/reports/index.htm). 1 CBRE Data Prepared for Pershing Square.
66
How the USD Link Contributes to Inflation
How Does the Peg Cause Inflation

The USD peg and the vastly divergent US and HK economies impact the HK economy through various channels Rapid Expansion of the Monetary Base Imported Low Short-Term Rates Diminished Purchasing Power
Rapid Expansion of the Monetary Base
69
The Monetary Costs of Intervention

In 2008 and 2009, attracted by its safe-haven status and undervaluation, investors flooded into HKD, pushing the rate to 7.75 and forcing the HKMA to print money to defend the strong side of the band
HKD/USD
Weak-side Intervention Level
HKD Weakness
Strong-side Intervention Level
Strong-side Intervention
________________________________________________
Source: Bloomberg.
70
The Monetary Costs of Intervention (Cont.)

As a result of strong side intervention, HKs Monetary Base increased HKD $671bn or ~200% over two years. HK has effectively no control over the size of its Monetary Base
Monetary Base (HKD million)
Strong-side Intervention
________________________________________________
71
Source: Monthly Statistical Bulletin - Table 1.1 - Hong Kong Monetary Authority, September 5, 2011 (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).
Rapid Credit Growth

Growth in base money supply has contributed to HK having one of the fastest rates of credit growth in the world
Private Credit Growth less Nominal GDP Growth 12 Months
Same figure for the US: -3%
________________________________________________
72
Source: Overheating Emerging Markets: Temperature Gauge - The Economist (http://www.economist.com/blogs/dailychart/2011/06/overheating-emerging-markets-0).
The Strong Side Defense Risks Further Money Printing
The HKDs widely recognized undervaluation increases the likelihood that the HKMA will need to print more money to keep the HKD within the band With short-term interest rates already near zero, rates cant fall any further to discourage investors from holding the HKD
Imported Low Short-Term Interest Rates
74
Tied to U.S. Short-Term Interest Rates

Arbitrageurs take advantage of the peg and keep Hong Kong short-term rates (HIBOR) in line with LIBOR, irrespective of the suitability of such rates for Hong Kong
1-Month HIBOR and LIBOR Rates
Home mortgage rates in HK today are only ~2%
________________________________________________
75
Source: Bloomberg.
High Negative Real Interest Rates Today

Interest-rate parity with the US means Hong Kong suffers frequently from inappropriately high and low real interest rates
Real Interest Rates (1-Month HIBOR less Underlying CPI)
+10% real interest rates post the Asian Financial crisis retarded Hong Kongs recovery
High negative real interest rates have contributed Hong Kongs current and prior asset bubbles
________________________________________________
Source: Bloomberg. 76 Monthly Report on the Consumer Price Index - Census and Statistics Department, Hong Kong SAR Government, Underlying Inflation.
Diminished Purchasing Power
77
Rising Cost of Imports

Unable to revalue higher, Hong Kongs weak currency has led to a large increase in the cost of imports, particularly in the critical food sector
Unit Cost of Imports Trade-Weighted HKD Inverted
Hong Kong imports 90% of its food, mainly from China
HKD Weakness
________________________________________________
Source: Nominal Effective Exchange Rate Bloomberg. External Trade - Census and Statistics Department, Hong Kong SAR Government, Table 76.
78
Mainland Tourists Flocking to HK

Partly attracted to HK by the cheap HKD, visitors from the Mainland are flocking to HK, pressuring local prices upward
Mainland visitors (% YoY)
Mainland visits in 2011 is on pace for ~27mm, ~4x the population of HK
________________________________________________
79
Source: Half - Yearly Economic Report - Hong Kong SAR Government, p.111 (http://www.hkeconomy.gov.hk/en/pdf/er_11q2.pdf).
Home Price Inflation Rises with HKD Undervaluation

Mainland Chinese home buyers are taking advantage of an undervalued HKD. 30% to 40% of luxury new home sales are to Mainland buyers
HK Residential Price Index Trade Weighted HKD Inverted
HKD Weakness
________________________________________________
80
Source: Bloomberg.
Consumer Price Inflation Rises with HKD Undervaluation

There is a direct correlation between weak HKD and HK inflation
Underlying CPI Index (YoY)
Trade Weighted HKD Inverted
HKD Weakness
________________________________________________
Source: Bloomberg. 81 Monthly Report on the Consumer Price Index - Census and Statistics Department, Hong Kong SAR Government, Underlying Inflation .
HKs Inflation Problem Will Likely Get Worse
Near zero US short-term interest rates for two years or more Despite high inflation, the HKD is still undervalued by ~30% HKDs undervaluation will only worsen as the RMB appreciates Broad money supply (M2) has not yet grown to reflect the full impact of the massive 2008/2009 Monetary Base expansion Undervaluation increases the risk that the HKMA will need to print more HKD to keep the currency within the band The HKMA estimates that HK has no spare resource capacity to absorb further demand growth
________________________________________________
82
Source: Half - Yearly Monetary and Financial Stability Report - Hong Kong Monetary Authority, March 2010, p.33.
Significant Risk of Overheating

The Economist ranks HK near the top of its list of emerging-markets at risk of overheating
Emerging-Market Overheating Index
Countries were measured across six different economic indicators of overheating Inflation GDP Growth Employment Credit Interest Current Account
________________________________________________
83
Source: Overheating Emerging Markets: Temperature Gauge - The Economist (http://www.economist.com/blogs/dailychart/2011/06/overheating-emerging-markets-0).
Growing Social Risks
Social Consequences of Inflation

The Middle Class, Sandwich Class
Priced out of first time home ownership but too well-off to be comfortable in public housing
The Elderly
Value of their savings is eroded by inflation Low interest rates reduce fixed income investment returns
The Poor
Do not have the savings to absorb price shocks
The Rich
While some rich get richer speculating on real estate with lowcost credit, their global purchasing power deteriorates
85
Hong Kongs Wealth Gap

Hong Kongs rich-poor gap is Asias widest according to UN data
________________________________________________
86
Source: Pictures - Zoe Li, William McCallum, Christopher DeWolf (http://jmsc.hku.hk/hkstories/content/view/659/8786/) and (http://www.lcscapes.com/HK-VerticalHousing/LC-HK_VerticalHousing.html).
Beijing Has Taken Notice of HKs Inequality

In 2009, Chinese Premier Wen Jiabao called on the Chief Executive of Hong Kong to address deep rooted contradictions in Hong Kong in reference to Hong Kongs persistent and troubling wealth gap.
Gini Coefficient (2007)
45.0
40.0
35.0
The Gini Coefficient is a Measure of Wealth Inequality
30.0
25.0
20.0
________________________________________________
Source: Human Development Report 2009 - United Nation Development Programme, p.195 (http://hdr.undp.org/en/contacts/about/undp/).
Japan
Norway
Czech Republic
Germany
France
More Inequality
87
Switzerland
Australia
United Kingdom
Italy
New Zealand
United States
Hong Kong
Flat Real Wages

Gains from economic growth have not been evenly spread. Average wages have been flat for many years despite very low unemployment and strong productivity growth
Real Wages in Hong Kong Indexed to 2003 = 100
________________________________________________
Source: Real Wages - Bloomberg. Census and Statistics Department Hong Kong SAR Government, Productivity Index, table 103.
88
Housing Affordability is Squeezing the Middle Class

HK is one of the least affordable places in the world. With the home ownership rate at only ~53%, home price appreciation only benefits a small percentage of the population
Housing Affordability Index (Median Home Price/Median Annual Household Income)
12 10 8 6 4 2 0 Vancouver Hong Kong San Francisco San Diego Honolulu New York Los Angeles Montreal Sydney Toronto London
NYC Housing is nearly twice as Affordable as Hong Kongs
________________________________________________
Source: 7th Annual Demographic International Housing Affordability Survey: 2011 - Performance Urban Planning, p.10.
89
Apartment Rents Are Among the Highest in the World

In 2010, Hong Kong was the third most expensive market for two bedroom rental apartments, up from ninth place in 2009
Worlds 20 most expensive locations to rent a two bedroom apartment
Luxury rents in Hong Kong are up 23% YoY
________________________________________________
90
Source: 15% Rental Increase Makes Singapore 5th Most Expensive Locations Globally - ECA International (http://www.eca-international.com/news/press_releases/show_press_release?ArticleID=7309).
A high-level Beijing official has expressed concern that the housing situation may become politically destabilizing:
Housing is of course a social and an economic issue. However, if dealt with inappropriately, it will also become a political issue.
-Wang Guangya Director of Hong Kong and Macau Affairs Office of the State Council of the Peoples Republic of China
________________________________________________
91
Source: Wang Guangya Talking About Housing Market When Visiting HK: Housing Issues May Become a Political Issue if Inappropriately Deal With June 15, 2011 (translation).
Social Unrest Pressure for Change

Inflation, particularly in the price of food and housing; lack of democracy; public austerity followed by handouts, followed by howling protests, followedsome hopeby a change in government The Economist, May 2011
Tens of thousands of people are not satisfied with the level of political freedom in Hong Kong on July 1st, 2010
10,000 people protested against inflation (prices of food and housing) in March 2011
Several organizations protested against the dominance of property developers and high prices in May 2011
________________________________________________
Source: Picture - BBC (http://www.bbc.co.uk/news/10480116). Picture - The Economist (http://www.economist.com/blogs/banyan/2011/03/protests_hong_kong). 92 Picture - Macau Daily Times (http://www.macaudailytimes.com.mo/china/25180-residents-protest-high-property-prices.html).
MoreSocial Unrest
This year, 218,000 people, the most since the massive 2003 civil liberty protests, marched in Hong Kong's annual July 1st rally
They arent happy with the fact that they do not see an improvement in living standards, despite the good economic statistics. Bloomberg July 1st , 2011
________________________________________________
93
Source: Pictures - Seattle Pi (http://www.seattlepi.com/news/article/Marchers-vent-anger-on-Hong-Kong-prices-policies-1448544.php).
Unpopular Government
Despite a surging economy and 3.4% unemployment, the Chief Executive of Hong Kong has a lower approval rating than President Obama
% Who Would Vote Yes for the Current Chief Executive? Trade-Weighted Nominal HKD
75% Approval Rating
24% Approval Rating
Source: Bloomberg. University of Hong Kong (http://hkupop.hku.hk/english/popexpress/ce2005/vote/poll/datatables.html). Gallup (http://www.gallup.com/poll/149114/obama-close-race-against-romney-perry-bachmann-paul.aspx).
94
The Call for Change is Growing Louder

Major business publications, prominent investors, local politicians, and economists have all recently questioned the suitability of the peg
Recent Headlines Hong Kong Faces Heat on Dollar Peg Financial Times, November 2010 Hong Kong Should End Peg to U.S. Dollar, Deutsche Bank Says Bloomberg, November 2010 The Peg will be History The Standard, January 2010
________________________________________________
95
Source: Picture - Hong Kong Business (http://hongkongbusiness.hk/).
Diverse Voices are Calling for Change

Investor
A link to a basket of currencies or no link at all is more desirable Marc Faber March 2011 Continuous appreciation of the Renminbi means diminishing purchasing power of the Hong Kong dollarThe problem cannot be tackled unless we abolish the linked rate in Hong Kong. The Honourable Chan Kin-Por, Legislative Council Member & Chief Executive of Munich Re Hong Kong January 2011 I think its a case of a frog boiling in waterIt could happen sooner than people think given the rapid rise in circulation of the currency [RMB] Peter Redward, Barclays Economist October 2010 The merits of reform are high and the cost of the relevant option is low.4 James Grant May 2011
Politician
Economist
Analyst
Source: Its time to end the HK$ peg - Hong Kong Business, March 10, 2011. Legislative Council Transcript of January 6, 2011 meeting. 96 Hong Kong May have to revalue in 2 years, Barclays says - Bloomberg Businessweek, October 26, 2010. 4 Grants Interest Rate Observer, May 2011.
Fiscal and Regulatory Measures Have Been Inadequate

HK has implemented a series of unsuccessful macro-prudential reforms to deal with its inflation and wealth gap problems. These efforts do not address the underlying cause of the problems and in some cases are actually inflationary (e.g. cash handouts)
Housing Efforts have failed to reduce prices meaningfully LTV caps on new mortgages Transaction tax on homes sold soon after purchase Home Supply Increased land sales Introduction of a Minimum Wage Rent Relief Utility Subsidy Cash Handouts
Real Estate Market Intervention is Not Working

For example, the prevalence of cash buyers has reduced the impact of mortgage LTV caps
HK Residential Price Index
________________________________________________
Source: Bloomberg. Hong Kong Property Morgan Stanley, September 2, 2011, p.19. Asian Economics Analyst Goldman Sachs, June 23, 2011, p.4.
98
IV. Our Prediction of What is Likely to Happen
Reminder
The history demonstrates that Hong Kong has modified its exchange rate system to address major economic changes
HKD/USD (inverted)
Sterling Peg
Free Floating
Dollar Peg
HKD Strength
7.75 to 7.85 Band 05 Strong Side Commitment 98 Weak Side Commitment

100
________________________________________________
Source: Hong Kongs Linked Exchange Rate System Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).
The only effective way to mitigate inflation and a potential real estate bubble is to allow the HKD to appreciate
101
There are Four Principal Revaluation Alternatives 1. Allow the HKD to float 2. Repeg the HKD to a trade-weighted basket 3. Repeg the HKD to the RMB 4. Keep the USD peg, but revalue to an appropriate exchange rate
Alternative One Float

Pros: Full monetary independence The exchange rate would absorb economic shocks Cons: Large trade flows make it difficult for the monetary authority to manage money supply A floating exchange rate could be volatile HK had a bad experience when it allowed its currency to float between 1974 and 1983
103
Alternative Two Peg to a Trade-Weighted Basket Pros: Monetary policy would more closely match that of its trading partners Reduces HKs real exchange rate volatility Singapore has successfully used this approach Cons: A basket is less transparent and more complicated than the Peg The average interest rates of HKs trade partners is low today, which would mean continued low HK rates A basket introduces more discretion as trade weights can be adjusted and are subjective, increasing the risk of politicizing monetary policy
104
Alt. Three A Direct or Basket RMB Link is Inevitable HKs deepening economic ties with the Mainland make a direct or basket RMB link the widely understood best long-term solution to solving the pressures of the USD link While the HKMA has said that it does not support an RMB link now, it has laid out preconditions, which we believe will likely be met in the coming years The biggest impediment to an RMB peg today is the lack of capital account convertibility of the RMB But we believe full capital account convertibility is inevitable and coming soon
The RMB is rapidly internationalizing in the current account and full convertibility is possible by 2015: I should say it is quite possible for China to realise yuan convertibility by 2015.
Li Daokui, Peoples Bank of China (PBOC) Monetary Policy Committee, September 2011
________________________________________________
Source: Yuan Will Be Fully Convertible by 2015, Chinese Officials Tell EU Chamber Bloomberg, September 8, 2011 (http://www.bloomberg.com/news/2011-09-08/yuan-to-be-fully-convertible-by-2015-eu-chamber.html). China Yuan Likely Convertible by 2015 Thompson Reuters September 9, 2011. 106
The extremely divergent economic characteristics of HK and the US make the status quo unsustainable, destructive, and a distortion to the HK economy
The HKD will likely be pegged to the RMB or to an RMB-led basket within the coming years. All that is needed is an interim solution
107
We believe the HK government will repeg the HKD at a stronger exchange rate to the USD while leaving the LERS intact
Contemporaneous with this revaluation, we believe the HKMA may indicate that the HKD will eventually be pegged to the RMB or to an RMB-led basket when the RMB is fully convertible
108
Why Does This Make Sense? The current LERS is simple, transparent, and credible so a continuation of the current system makes sense A revaluation can be achieved quickly Only an interim solution is needed because the RMB will be convertible in coming years No other interim change will be necessary
How much should the HKD be allowed to appreciate?
110
Considerations
The exchange rate should be adjusted sufficiently to quell speculation about further appreciation But not so much that the currency would become overvalued A wider trading band could be introduced to provide greater flexibility in a volatile world
We Believe a 30% Revaluation to 6:1 is Likely

Would bring HKD back in line with fair value It would be sizeable enough to convince the market that this is a one-time event A revaluation is consistent with HKs handling of prior Sterling and USD devaluations in the 1960s and 1970s Hong Kong would retain the simplicity and credibility of the USD peg and maintain the current currency board apparatus It would reinforce the HKMAs and governments credibility as responsible stewards of Hong Kongs economy
Revaluation: How are Stakeholders Affected?

Citizens: The purchasing power of savings would instantly rise The cost of food imports (~30% of the poorest halfs spending) would drop immediately Real estate appreciation would moderate and rents should stabilize over time The Banks: HKMA data show that banks would not suffer large FX or loan losses on a revaluation The HKMA: Has sufficient foreign reserves to ensure that the Monetary Base is covered Mainland China: A revaluation could be seen as evidence that HK is addressing its social divide and political tensions
________________________________________________
Source: Half-yearly Hong Kong Economic Report 2011 Hong Kong SAR Government, p. 97. Foreign Currency Position and Asset Quality of Retail Banks Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).
V. Investment Opportunity
Three Ways to Make Money Buy HKD Outright Buy HKD with USD Leverage Buy HKD Call Options
Buy HKD Outright The HKMAs commitment to support HKD at 7.85 HKD/USD limits the downside to owning HKD to ~1%, making the HKD effectively a one-way bet The HKMAs 7.85 HKD/USD defense is credible: The HKD is materially undervalued HK has substantial international reserves, at ~2.2x the Monetary Base The HKMAs successful defense of the HKD during the Asian Financial Crisis makes its credibility unquestioned
Purchase HKD with USD Leverage

Similar short-term interest rates and the HKMAs pledge to support HKD at 7.85, means investors can cheaply and safely purchase HKD on USD leverage
Leverage: (Notional/Equity) 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x 12-Month %Total Return (from 7.80) 7.85 6.24 5.78 (Weak Side) (25% Reval) (35% Reval) -3% 100% 140% -5% 149% 209% -6% 199% 279% -8% 249% 349% -9% 298% 418% -11% 348% 488% -12% 398% 558% -14% 447% 627% -16% 497% 697%
12 Month Financing Cost (Fixed) HIBOR 0.67% LIBOR 0.82% Carry -0.15%
117
Reflects the cost of financing for a bank. Institutional and individual investors will pay a higher rate (~35bps more)
HKD Call Options

HKD call options are extremely cheap
OptionTerms
Notional Strike (HKD/USD rate) Premium (% of notional) Premium Dollars (USD) $ 1,000,000,000 $ 7.80 0.83% 1,000,000,000 $ 7.50 0.57% 1,000,000,000 7.00 0.27%
$8,300,000 $ 5,650,000 $2,700,000
PayoutsatExercise(Revaluationto6.00,+30%)
USD Received USD Spent (notional) $ 1,300,000,000 1,000,000,000 $ 1,250,000,000 1,000,000,000 $ 1,166,666,667 1,000,000,000
Payoff Payoff/Premium
$ 300,000,000 $250,000,000 $ 166,666,667 36x 44x 62x
USD received = value of HKD purchased at strike price converted back at spot (6.00)
________________________________________________
118
Source: Indicative broker quote September 8, 2011.
HKD Call Options are Cheap

The HKD options market implies that the probability of a revaluation is extremely remote. We think a ~30% revaluation is likely, giving investors a ~44x payout on one-year 7.50 strike options
Payout as Multiple of Premium
70.0x 60.0x 50.0x 40.0x 30.0x 20.0x 10.0x .0x 10% 15% 20% 25% 30% 35% 40%
% Revaluation
119
The Market is Mispricing this Option Because of the peg, HKD/USD volatility is very low We believe HKD call options should be priced based on expected value rather than volatility
Expected Value = (Probability of Reval) X (Expected Amount of Reval)
We think a revaluation is more likely than not, but the market price implies extremely low probabilities
One Year, 7.50 Strike Expected HKD Stregthening 15% 20% 25% 30% 35% 40% Implied Probability of Revaluation 5.3% 3.7% 2.8% 2.3% 1.9% 1.6%
A revaluation will likely be in this range
Payoff 18.7x 27.2x 35.7x 44.2x 52.8x 61.3x
Market implied probabilities are very low
The HKD is a cheap hedge against a weakening USD:
A falling USD puts more pressure on HK authorities to act
121
VI. Why Now?
Why Now? Benefits Outweigh the Cost

The benefits of acting now Consumer inflation could get materially worse Its not too late to prevent a real estate bubble Social unrest is building The fiscal and economic divergence with the US will continue Revaluation is inevitable when the RMB peg is established The costs of acting today are low The credibility of the HKMA would be enhanced The HKMA has reserves to support a large revaluation HKMA data show the banks FX exposure is minimal and their real estate loans are well performing HKs lack of an export manufacturing sector reduces the economic risk of a stronger currency
________________________________________________
Source: Foreign Currency Position and Mortgage Survey Results Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).
Why Now? 2012 Election

The March 2012 HK Chief Executive election increases the chances of a near-term revaluation Change tends to happen around political transitions: Outgoing politicians are often less risk averse Incoming politicians are often most bold when they first take office A revaluation may well materially increase the new Chief Executives approval ratings It would enhance HKs citizens perception of Chinas beneficence
________________________________________________
Source: Previewing the Political Year Ahead: Article 23 Suzanne Pepper (http://chinaelectionsblog.net/hkfocus/?p=168).
Revaluing Now Mitigates the Financial Risk to the HKMA
The conventional wisdom is that central banks (CBs) can defend the strong side of their currency without limit by simply printing an unlimited amount of money The reality is different: The CB loses money on a revaluation, because a revaluation reduces the value of foreign assets on their balance sheet Printing money expands and leverages the CBs balance sheet, making it more costly to revalue Printing money is highly inflationary Because the Basic Law requires the HKMA to back its Monetary Base 100% with international reserves, printing money could severely limit the HKMAs future revaluation options
Revaluing Now Mitigates Financial Risk to the HKMA The HKMAs 2008/2009 intervention, in response to over HKD $600bn of money flows, greatly increased the size and leverage of its balance sheet
Pre-Intervention Post-Intervention
Leverage: 75%
Leverage: 56%
Balance Sheet, Dec. 2007

________________________________________________
Balance Sheet, July 2011
Source: Monthly Statistical Bulletin Table 8.2 Hong Kong Monetary Authority, July 2011 (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).
We believe it would be imprudent for Hong Kong to print more money
127
The principal argument against a revaluation is that it might harm the HKMAs credibility. We believe this is false for two reasons: 1) Reducing inflation and the risk of asset bubbles in HK enhances HKs status as a stable, economically successful, AAA rated region 2) Allowing the HKD to appreciate only increases the credibility of the HKD as a store of value
128
Some observers have suggested a revaluation would be inconsistent with the HKMAs public statements
129
However, an upward revaluation was explicitly contemplated in 1983 when the LERS was introduced: It will be acceptable to indicate eventual possible appreciation in the event of confidence returning to such a degree as to produce unduly rapid monetary expansion, but such an indication must carry complete conviction that the rate would only ever be adjusted in that direction.
- Internal Hong Kong government policy memo, 1983
________________________________________________
130
A peg depends on confidence and credibility. Any hint of devaluation would compromise the integrity of the link: Any statement which can be interpreted as hinting at the possibility of depreciating the announced rate would sabotage the scheme from the onset.
- Hong Kong government policy memo, 1983
________________________________________________
131
As such, anytime observers have questioned the link, the HKMA has issued a prompt statement to quell speculation
"The Hong Kong dollar peg has been working well since its adoption in 1983. It's the foundation for the stability of the currency and financial system in Hong Kong so we have no intention to make any change"
Norman Chan, HKMA Chief August 2011
________________________________________________
132
Sources: Linked Exchange Rate System Hong Kong Monetary Authority, August 2011 (http://www.info.gov.hk/hkma/eng/insight/20110815e.htm).
In 2002, facing SARS, deflation, and budget deficits the then Financial Secretary strongly defended the peg publically:
We have no plans to change the peg. One of the reasons the peg remains and people are confident about the Hong Kong dollar is that it has not changed in the last 19 years
Antony Leung, Financial Secretary (2001-2003) Nov. 2002
But in private the story was very different
________________________________________________
133
Source: Financial Secretary Transcript - Press Release, November 23, 2002 (http://www.info.gov.hk/gia/general/200211/23/1123063.htm).
Behind the scenes
The chief executive, Joseph Yam, and I did seriously evaluate the various options including unpegging
Antony Leung, Financial Secretary (2001-2003) Interview Hong Kongs Peg Admission May Hurt its Future Defense Bloomberg, June 2007
________________________________________________
134
Sources: Hong Kong's Peg Admission May Hurt Its Future Defense Bloomberg, June 8, 2007 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akb5SpAzhFKg&refer=asia).
We also know from a document WikiLeaks released August 30th, 2011 that in 2006 a float was seriously considered by members of an important HK government commission:
Numerous commission [HKs Commission on Strategic Development One of the HK governments most prominent] members who, in Fungs words, have the ear of senior officials are arguing that the HKD-USD peg should be floated shortly after the Chinese RMB surpasses the HKD in value.
Internal US Treasury Memo, Hong Kong Dollar Pegs Future Under Consideration by Government Advisory Body April 2006
________________________________________________
135
Sources: Wikileaks, August 30, 2011 (http://wikileaks.org/cable/2006/04/06HONGKONG1383.html).
A prominent member of the HKMA committee responsible for advising on the peg suggests a revaluation could happen when the market least expects:
[T]he HKMA might choose a hot and boring Friday afternoon in mid-summer, when most fund managers and top government officials had gone vacationing, and announce the floating of the Hong Kong dollar.
-Shu-ki Tsang Academic Economist and HKMA Advisory Board Member, Currency Board Sub-Committee
________________________________________________
136
Source: Commitment to Exit Strategies from a CBA Hong Kong Baptist University (http://sktsang.computancy.com/attrachment/Tsang20000506.pdf).
We have every reason to believe HK decision makers will approach the HKD peg question with the same diligence and rationality they have used in the past
137
Economic and Monetary Policy Making in HK

Since its inception in 1993, the HKMA has built a reputation as one of the most credible monetary authorities in the world The HKMA is known for its intelligence, transparency, and prudent oversight of the economy and banking system Most importantly, the HKMA and other important decision makers in Hong Kong have a track record of behaving in an economically rational manner
Repegging is easy and quick to execute:
Unlike some other currency regimes, HKs peg can be modified through a purely administrative process. No legislative action is required
139
In Sum:
A highly undervalued currency
+
A highly undervalued option
= An extraordinary investment opportunity
Q&A
A Homespun Fortune
October 18, 2011
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in this presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation to buy or sell any securities. All investments involve risk, including the loss of principal. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies discussed in this presentation, access to capital markets, market conditions and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates are invested in Fortune Brands Home & Security, Inc. (FBHS) common stock and cash settled derivative financial instruments based on the price of FBHS common stock. Pershing Square manages funds that are in the business of trading buying and selling securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding FBHS. Pershing Square may buy, sell, cover or otherwise change the form of its investment in FBHS for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
Fortune Brands Home & Security

FBHS (or the Company) is a leading North American residential building products company
Ticker: FBHS Recent stock price: $13 (1)
Manufacturer of: Faucets Kitchen and bath cabinets Security and storage products Windows and doors Equity market capitalization of ~$2.0bn Enterprise valuation of ~$2.5bn Spun-off from Fortune Brands on October 4, 2011
(1) Based on stock price as of Friday, October 14 2011. 2
Snapshot of FBHS
Plumbing
#1 Faucet brand in North America Stable business driven by replacement demand and low ticket remodeling projects
Kitchen & Bath Cabinetry

#1 N. American kitchen and bath cabinet maker Leveraged to housing recovery
Security and Storage

#1 Padlock brand in North America Stable, recurring cash flows Good growth potential
Windows and Doors

Leveraged to housing recovery
3
Investment Highlights
Secular Winner
Industry leader with significant scale and strong market positions Winning new business and growing as financially leveraged competitors remain defensive Strong management team -- highly experienced operators
And Cyclical Winner

Well-positioned when the housing market normalizes Cyclical growth will not require capital investment above normal levels Immense operating leverage: EBITDA can be 3x in a normalized housing market
Platform Business
Highly fragmented industry is ripe for consolidation Opportunities to leverage scale and distribution through acquisitions in adjacent categories (i.e. electronic security, bath accessories)
4
Attractive Valuation
Current valuation assumes minimal housing recovery over the next five years Immense upside potential If housing starts improve by 2016, stock is worth ~$18 to $27 today, depending on the strength of recovery Midpoint of valuation analysis is ~$22 per share today, up about 70%(1) Minimal downside If housing starts dont improve, FBHS can still shrink capacity to get to an attractive level of profitability
Classic spin-off dynamics

Orphaned stock: October 4th spin-off Most Fortune Brands shareholders owned it for Beam, a non-cyclical business
Strong balance sheet

Flexibility to make opportunistic acquisitions Limits downside risk as we wait for the housing markets to recover
(1) See page 31 for valuation analysis. 5
FBHS: Business Overview
Plumbing
The Plumbing segment, which contributed 54% of FBHS pre-corporate 2010 EBIT, has performed exceptionally well in the downturn due to both marketplace gains and the small ticket aspect of the category Commentary
Manufactures faucets, accessories, and kitchen sinks under the #1 Moen brand Large installed base helps win replacement sales Faucets are a small ticket remodeling expenditure an affordable way to improve the look of the bathroom/kitchen Generally a stable category where branding and innovation can drive marketplace gains Variable-cost business model
7
Financials
$ in millions
Plumbing
Revenue Growth EBIT Margin % of FBHS Revenues % of FBHS pre-corp EBIT
FY 2008 $967 $171 17.6 % 26% 48%
FY 2009 $835 (14)% $117 14.0 % 28% 81%
FY 2010 $924 11 % $133 14.3 % 29% 54%
Kitchen & Bath Cabinets

The Cabinets segment is barely profitable today as demand for new homes and big ticket remodeling projects has diminished drastically
$ in millions Kitchen & Bath Cabinets
Revenue Growth EBIT Margin % of FBHS Revenues % of FBHS pre-corp EBIT FY 2008 $1,552 $141 9.1 % 41% 40% FY 2009 $1,126 (27)% $4 0.4 % 37% 3% FY 2010 $1,189 6% $31 2.6 % 37% 13%
The segment has significant excess capacity, which is pressuring margins today, but will allow for explosive growth when the housing markets recover
#1 North American manufacturer of kitchen and bath cabinets

Key brands include: Aristokraft, Omega, and Diamond Well-balanced distribution channels and flexible supply chain allow for differentiated price points and multiple levels of cabinet customization Distributes through dealers, wholesalers, home centers, and large builders Highly geared to big ticket remodeling projects and new home construction Currently winning new business against competitors like Masco High fixed-cost business model
8
Security and Storage

Masterlock is a great business with a strong marketplace position, stable cash flows, minimal capex requirements and good growth potential in adjacent categories Commentary
Manufactures Masterlock padlocks and Waterloo storage products Historically stable demand in core padlock market FBHS exploring opportunities to expand Masterlock brand through acquisitions Good potential to grow in adjacent categories (electronic security and monitoring)
9
Financials
$ in millions
Security & Storage

Revenue Growth EBIT Margin % of FBHS Revenues % of FBHS pre-corp EBIT
FY 2008 $571 $59 10.3 % 15% 17%
FY 2009 $495 (13)% $42 8.4 % 16% 29%
FY 2010 $520 5% $61 11.7 % 16% 25%
Security and Storage contributed 25% of FBHSs 2010 EBIT
Windows and Doors

FBHSs Windows and Doors segment contributed only 8% of total precorporate EBIT in 2010. Commentary
$ in millions
Financials
Windows & Doors
Revenue Growth EBIT Margin % of FBHS Revenues % of FBHS pre-corp EBIT FY 2008 $668 ($17) (2.6)% 18% (5)% FY 2009 $551 (18)% ($19) (3.4)% 18% (13)% FY 2010 $601 9% $21 3.4 % 19% 8%
Manufactures fiberglass and steel residential and patio door systems and vinyl-framed windows Key brands include Therma-Tru Doors and Simonton Windows Currently lapping difficult comparisons driven by 2010 federal tax credits for energy efficiency
EBIT Margins remain depressed as the segment is significantly leveraged to new home construction
10
FBHS: Margins Significantly Depressed

Consolidated EBIT margins are currently at ~5%, well below peak levels of 14% reached in 2006.
2006
($ in millions)
2007 $4,551 (3)% 97 % $703 15.4 % (11)% 86 % $553 12.2 % (15)% 83 %
2008 $3,759 (17)% 80 % $435 11.6 % (25)% 53 % $301 8.0 % (34)% 45 %
2009 $3,007 (20)% 64 % $195 6.5 % (44)% 24 % $81 2.7 % (66)% 12 %
2010 $3,234 8% 69 % $288 8.9 % 37 % 35 % $180 5.6 % 107 % 27 %
LTM $3,261 1% 69 % $264 8.1 % (9)% 32 % $160 4.9 % (12)% 24 %
Revenue Growth % of Peak EBITDA Margin Growth % of Peak EBIT Margin Growth % of Peak Memo: Housing Starts Growth
$4,694 100 % $816 17.4 % 100 % $668 14.2 % 100 %
1,812
1,342 (26)%
900 (33)%
555 (38)%
586 6%
569 (3)%
11
Segments: A Tale of Two Cities

The companys operating profit margin decline is primarily the result of comparatively weaker performance in the highly cyclical Cabinets and Windows/Doors segments FBHS Segments Doing Well Today:
% of FBHS 2010 Revenue % of FBHS 2010 EBIT (1) 54% 25% 79%
FBHS Segments Under Pressure:

% of FBHS 2010 Revenue % of FBHS (1) 2010 EBIT 13% 8% 21%
Plumbing Security and Storage

Total
29% 16% 45%
Cabinets Windows / Doors

Total
37% 19% 55%
Strong and stable replacement demand Leveraged to low-ticket remodeling More variable-cost model Represents ~45% of FBHS sales and ~80% of FBHS EBIT today (1) Margins have held up nicely
Leveraged to new home construction and big ticket remodeling More fixed-cost model Represents 55% of FBHS sales and ~20% of FBHS EBIT today (1) Currently at low capacity utilization rates, in anticipation of a recovery
12
(1) Excludes corporate costs
Explosive growth potential when housing markets recover
Restructured the Business in the Downturn

The Company substantially improved its cost structure by reducing its footprint between 2006 and 2009. Manufacturing facilities and employee count have been reduced by roughly 40%.
2004 Employees Y-o-Y Change Change Since Peak Manufacturing Plants Y-o-Y Change Change Since Peak 48 21,171
2005 21,480 1%
2006 27,729 29 %
2007 22,771 (18)% (18)%
2008 18,409 (19)% (34)% 47 (16)% (27)%
2009 15,834 (14)% (43)% 41 (13)% (36)%
53 10 %
64 21 %
56 (13)% (13)%
13
But Kept Enough Capacity for a Recovery

FBHS is well-positioned to accelerate profit growth as volumes grow in a recovery scenario Currently operating at ~60% capacity overall, in anticipation of a recovery Lower levels of capacity at highly cyclical segments (Cabinet and Window/Doors) Higher levels of capacity in more stable segments (Plumbing and Security) Footprint is currently right-sized to support $5bn in sales (at 1.5mm new housing starts) Current sales base is ~$3.3bn
14
What If Capacity Were Reduced Further?

If management becomes more bearish about a recovery, it can reduce capacity further and shrink the cost base. We believe that if the business were right-sized to the current sales base of ~$3.3bn, EBIT margins could be approximately 10%
% of 2010 Revenue Cabinets Plumbing Windows Doors Security & Storage Segment Corp. Expense as % of Rev Total 37 % 29 % 19 % 16 % 2010 Margins 2.6 % 14.3 % Normalized Margins 10 % 15 %
Capacity reduction
3.4 % 11.7 % 7.6 % (2.0)% 5.6 %
8% 12 % 11 % (1.4)% 10 %
15
Secular Winner: Growing in the Downturn

Since the downturn, FBHS has been aggressively winning new business and increasing its marketplace position through product innovations. As a result, the company has experienced organic growth in every quarter since Q1 2010 - even in this difficult housing market
Winning New Business: Martha Stewart Living cabinetry line at Home Depot In-stock cabinetry at Lowes rolling out in 2011 Waterloo storage products rolling out Husky Garage Organization at Home Depot Driving Sales through Innovation: Moen Spot Resist finish
Developed new finish that eliminates water spotting and finger printing Strong product receptivity in the market
Cabinetry: Paper laminate technology

Fashionable color and textures at affordable prices
16
Strong Balance Sheet Allows for Flexibility

The Company has significantly less financial leverage than its peers allowing it to acquire smaller building products companies that are currently operating at trough levels of profitability
Total Debt / EBITDA (1):
FBHS:
$520mm of total debt LTM EBITDA - Capex: $194mm No liquidity concerns
(1) Peer average based on Moodys. Peers include Armstrong, Lennox, Masco, Mohawk, Owens Corning, Stanley Black & Decker and Whirlpool. FBHS leverage based on 12/31/2010 pro forma metrics.
17
Housing Market Review
Long-term Housing Market Drivers

New Home Construction
Positive population / immigration growth Increased levels of household formation Favorable housing affordability
Repair and Remodel
Aging housing stock (average of 40 years), particularly homes > 12 years Existing home sales
Economic factors that enable a recovery: Consumer confidence Unemploymentat the local market level Credit availability Stability in home prices
Note: This page is taken from FBHS investor presentation dated September 6, 2011
19
Historical Housing Starts: 1965 to Present

Housing starts are currently at the lowest levels in the last 40 years and well below the long term annual average of ~1.5mm
Average ~1.5mm
Source: Bloomberg
20
We are in Year Five of the Housing Recession

Housing starts are currently at ~25% of peak levels achieved in 2006 and have been below the long-term trend of sustainable housing demand for nearly 4 years
Peak: ~2.3mm
Average ~1.5mm
Current: ~0.6mm
Trough: <0.5mm
Source: Bloomberg
21
What a Housing Recovery Might Look Like

Although the pace of the housing recovery is difficult to predict, we believe a recovery over the next several years is highly likely
We believe that the current level of excess supply is ~2mm to 2.5mm housing units and normalized housing demand is approximately 1.5mm At a normalized level of housing demand: Excess housing supply could be eliminated in roughly 2.5 years if housing starts remain at ~600k At the depressed level of housing demand (~1m): Excess supply could be eliminated in ~ 5.5 years if housing starts remain at ~600k
(Units in 000s, except years)
Housing Demand Housing Starts Annual Reduction of Excess Supply Current Excess Supply Years to Zero Excess Supply
22
Depressed Normalized 1,000 1,500 600 600 400 900 2,250 5.6 2,250 2.5
Repair/Remodel Market Overview

Repair / Remodeling projects are generally discretionary
Certain replacement projects can wait: Cabinets, tiling (versus more critical items such as doors, windows, roofing) Weak existing home sales are hurting the R&R market - new homeowners spend 2x the average repair/remodel level Despite the weak market, there is pent-up demand from an aging housing stock
Today the ticket matters a lot

Big ticket remodel items (cabinets, tiling) are weak Small ticket remodel items (faucets, paint) are showing strength
Longer term, Repair / Remodel growth rates tend to trend in line with GDP
23
Housing Market Summary

Housing starts are currently at the lowest levels in 40 years Long-term average of housing starts is ~1.5mm versus today of 600k Repair and remodel market is likely facing pent-up demand given aging housing stock Before housing starts return to their long-term trend, we need to absorb the current excess supply of homes a matter of time The current level of housing starts (~600k) is unsustainable over the longer term
Historical levels of annual household formation are far in excess of 600k
We think a meaningful recovery in housing starts could happen in the next several years
However, new homes will likely be smaller and more affordable (cheaper products) than in recent years FBHSs market position may improve, given the Companys skew to more value-priced products
24
The only way a correction takes place is to have household formation exceed new construction by a significant amount for a significant period of time. We've had it for quite a while. And when you see these figures of 500,000 or 600,000, that means we're sopping up housing inventory. And I don't know exactly when that hits equilibrium, but it isn't five years from now. I know that. And I think it actually could be reasonably soon.
--Warren Buffett (July 8, 2011 Bloomberg TV interview)
25
Valuation
Upside Case: Housing Recovery

Management estimates that when housing starts recover to ~1mm to 1.5mm, EBITDA will be 2 to 3x current levels
EBITDA: ~$850MM
EBITDA: ~$550MM ~2X LTM EBITDA Partial Recovery

1MM $4B ~14%
27
~3X LTM EBITDA
EBITDA: ~$265MM
Last Twelve Months

Home Starts Revenue EBITDA Margin ~0.6M $3B 8%
Full Recovery / Normalized Starts

1.5MM $5B ~17%
Note: Partial Recovery assumes 2-3% Repair & Remodel CAGR and Full Recovery assumes 4-6% CAGR
Downside: What if there is No Housing Recovery?

If housing starts were to stay at depressed levels (~600k) for the longer term, we believe FBHS could right-size the business to achieve a more normalized level of profitability
FBHS has maintained excess capacity to position itself for a housing rebound If it fails to materialize, we believe management can right-size the cost structure and achieve a ~10% EBIT margin
FY 2011E Revenue Normalized EBIT Margin EBIT Plus: D&A (reduced capacity) EBITDA $3.3bn 10% $330mm 70mm $400mm
We estimate that FBHS can generate at least $400MM in EBITDA on todays sales base by cutting capacity and excess cost
28
Current Trading Multiples

FBHS currently trades ~9.7x LTM EBITDA and ~16.5x LTM cash earnings. If no recovery occurs, FBHS is trading at ~10x our estimate of cash earnings. If a recovery occurs, FBHS trades at ~4x to 7x our estimates of cash earnings, depending on the strength of recovery
No Recovery (Cut Capacity) 600 $400 $330 $1.26 $1.26 Recovery Partial 1,000 $550 $450 $1.76 $1.76 Full 1,500 $850 $750 $3.00 $3.00
Housing Starts (000s) EBITDA EBITDA - Capex EPS FCF per Share
LTM 569 $264 $194 $0.57 $0.79
EV / EBITDA EV / EBITDA-Capex P/E P/FCF

Memo: Market Capitalization Recent Stock Price $13.00 Diluted Shares (mm) 157 Market Cap $2,045 Plus: Net Debt 520 Enterprise Value $2,565
Note: EPS and FCF per share based on a 35% normalized tax rate.
9.7 x 13.2 x 23.0 x 16.5 x
6.4 x 7.8 x 10.3 x 10.3 x
4.7 x 5.7 x 7.4 x 7.4 x
3.0 x 3.4 x 4.3 x 4.3 x
29
Valuing FBHS in a Recovery

Assuming a 7x Forward EBITDA multiple, even if the recovery is protracted or prolonged, we believe we will earn an attractive IRR at the current share price
Total Return Housing Starts 1.0M 1.3M EBITDA $550 $700 2014 83 % 139 % Recovery 2015 92 % 151 % Year 2016 101 % 162 % 2017 111 % 174 % IRR 1.0M $550 35 % 24 % 19 % 16 % 1.5M $850 196 % 209 % 223 % 237 %
Housing Starts EBITDA Recovery Year 2014 2015 2016 2017
1.3M $700 55 % 36 % 27 % 22 %
1.5M $850 72 % 46 % 34 % 28 %
Note: Assumes 7x EBITDA exit multiple and includes the value of annual free cash flow generated until exit. Based on R&M CAGR of 2-3%, 3-4%,and 4-6% for housing starts of 1.0m,1.3m, and 1.5m
30
Stock Price at Various Levels of Recovery

Assuming on a housing recovery over the next several years, we believe FBHS is worth ~$18 to $27 per share today. The midpoint valuation is $22/share today, which is up ~70% from the recent share price of $13. If the housing market never recovers, we believe FBHS is still worth nearly $14 per share today What FBHS is worth today: ~$27 per share
~$18 per share ~40% upside ~$14 per share ~8% upside No Recovery
(capacity reduction)
Housing Starts Year EBITDA ($MM) EBITDA Multiple 0.6M 2014 $400 7x
~110% upside
Partial Recovery
1.0M 2016 $550 7x
Full Recovery / Normalized Starts

1.5M 2016 $850 6.5x
Note: Assumes 157MM shares, $520MM of net debt, and uses a 10% discount rate to discount the future stock price to today. Includes the value of annual free cash flow generated until exit. 31
Conclusion
Pace and strength of a housing recovery is difficult to predict However, at some point, the housing markets will recover Investing in FBHS is a low-risk way to profit from an eventual housing market recovery Pure-play residential building products company Best operators in the business Improving marketplace position, even in tough housing markets Many of its competitors are on the defensive No liquidity concerns and currently generating a healthy FCF yield of 6% Downside is limited, given clean balance sheet and Companys ability to reduce capacity, if necessary Upside potential is enormous, as cyclical growth will not require capital investment above normal levels
32
Waiting for a Bounce from the Lowes

November 8, 2011
Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in this presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation to buy or sell any securities. All investments involve risk, including the loss of principal. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies discussed in this presentation, access to capital markets, market conditions and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates are invested in Lowes Companies, Inc. (LOW) common stock. Pershing Square manages funds that are in the business of trading buying and selling securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding LOW. Pershing Square may buy, sell, cover or otherwise change the form of its investment in LOW for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
Lowes (LOW)
Lowes (or the Company) is a leading North American home improvement retailer Operates ~1,750 stores consisting of approximately 200mm ft of selling space 99% of stores located in the US
Ticker: LOW
Div. Yield: ~2%
Recent stock price: $21.50 (1)
Equity market capitalization of ~$29bn Enterprise valuation of ~$34bn Current free cash flow yield of ~8%
(1) Based on stock price of $21.54 as of November 4, 2011. 2
Stock Price Performance: Last 5 Years

Lowes recent share price of $21.50 is nearly 40% below its peak of ~$35 in February 2007
Attractive retail category
Limited internet risk relative to other retailers High gross margin retail category and diversified commodity risk Limited fashion risk Service component = consumer value proposition
Good barriers to entry

Home Depot and Lowes are the central players in home center retail Home centers are low-cost providers, given scale and leverage with suppliers Limited risk of new entrants
Cheap Valuation
Lowes trades at 6.5x depressed EBITDA and less than 13.5x depressed EPS Lowes EBIT margin currently 7.5% only 70bps higher than its trough in 2009 at 6.8% Company believes normalized EBIT margins are 10% Company has maintained staffing to provide high service levels and be positioned for a recovery
4
Investment Highlights (contd)

Extremely shareholder friendly capital allocation policy
All free cash flow after dividends goes towards share repurchase Company is increasing leverage levels modestly to further accelerate buyback We expect the Company to buy back $10bn to $13bn of stock from 2012 to 2015 Equivalent to 35% to 45% of the current market cap of the Company
Strong asset value and low financial leverage limits downside

Lease-Adjusted Net Debt / LTM EBITDAR = 1.6x Owns roughly 89% of its ~1,750 buildings $23bn gross book value of land and buildings, or ~65% of Lowes enterprise value
Business Overview
Lowes Business Snapshot

Overview of Lowes
2nd largest home improvement retailer Typical customer shops at Lowes three to four times per year and spends ~$62 per transaction Each store averages ~$28mm in revenue LTM Sales/ft is $246
Repair & Maintenance Repair & Maintenance
Revenue Mix
2010
Discretionary
30% 70%
2005
50%
50%
Discretionary
Sales today are significantly more Repair & Maintenance items than Discretionary items
7
Why Do Consumers Shop at Home Centers?

Valuable Customer Service
Helps customers identify the exact products they need (e.g., replacement parts) Consults with customers on complex remodeling projects Provides installation services
One-Stop Shopping
Home improvement purchases are typically project-oriented (e.g., bathroom remodel) Consumers buy across categories (paint, plumbing, flooring, etc.) making one-stop shopping ideal Home centers big-box layout allows for ~40,000+ SKUs Product selection cant be matched by general merchandise retailers
Instant Satisfaction
Customers can purchase products and take them home from the store immediately
Convenience
Lowes has ~1,750 stores across 50 U.S. states
8
Why Do Consumers Shop Online?

Online retailing has become a headwind for most brick-and-mortar retailers over the recent years. Online shopping is most appealing to consumers when the following conditions apply:
Product is relatively high-priced (i.e., sales tax savings are more material) Product is not needed immediately Shipping cost is low Shipping is unlikely to damage the product Professional installation is not needed Item is not purchased as part of a larger project End-user of the product is making the purchasing decision
We believe that the home centers face limited risk from online shopping because the majority of products they sell do not meet most of these conditions
9
Home Improvement Retail: Limited Internet Risk

We believe that only 10% of Lowes revenues face a high risk of competition from online retailers
Category Lawn & Garden Electrical
Light Bulbs Technical Lighting Ceiling Fans
Est. % of Rev.
13 % 1% 1% 2% 3% 2% 2% 9% 4% 2% 2% 3% 3% 6% 1% 11 % 20 % 8% 2% 5%
Product Example
Grills, mowers, garden chemicals
Threat of Internet Competition

Limited High Limited Moderate Limited Moderate Limited Limited Limited Limited High High Limited Limited High Limited Shipping issues
Reason
Switches, dimmers
New LED bulbs ship well, high ticket Low ticket
Plumbing
Pipes/Fitting Faucets Large Fixtures Contractor purchase, project-based High ticket, ships well Paint not ship well, project-based Shipping issues Shipping issues Higher ticket, ships well Higher ticket, ships well, not project-based Low-ticket, project-based Low-ticket, project-based High ticket, ships well Shipping issues Contractor purchase, project based, shipping issues Service component High ticket, no service component, ships well Installation, shipping issues Tubs, sinks
Paint & Accessories Floor & Wall

Flooring Wall Storage Wall Dcor
Closets storage Curtain rods Electric drills, screwdrivers Manual hammer, screwdriver Nails, bolts, nuts Front door knobs, deadbolts
Hardware
Power Tools Handtools Hardware Accessories Door Lock Sets
Windows & Doors Building Materials Appliances

Installable Appliances Non-Installable Appliances
Lumber, insulation, roofing, concrete Limited Washer/Dryer, A/C, stove, refrig. Small appliances Cabinets Limited-Moderate High Limited
Kitchen Limited Risk Moderate Risk High Risk
82 % 8% 10 %
10
Note: Limited-Moderate category counts 50% towards limited, 50% towards moderate
Lowes Financials: Margins Down Significantly

Lowes sales/ft is 25% less than peak levels achieved nearly six years ago. EBIT margins are ~350bps below peak margins achieved nearly five years ago
Revenue ($ in B) Growth 2005 $43.2 19 % 2006 $46.9 9% 2007 $48.3 3% 2008 $48.2 (0)% 2009 $47.2 (2)% 2010 $48.8 3% LTM $48.8 (0)%
EBIT Margin
10.8 %
11.0 %
9.7 %
7.9 %
6.8 %
7.4 %
7.5 %
Sales / Ft Growth % of Peak
$328 5% 100 %
$316 (4)% 96 %
$292 (8)% 89 %
$267 (8)% 82 %
$249 (7)% 76 %
$250 1% 76 %
$246 (1)% 75 %
SSS Growth
6.1 %
0.0 %
(5.1)%
(7.2)%
(6.7)%
1.3 %
(0.1)%
Units Growth
1,234 14 %
1,385 12 %
1,534 11 %
11
1,638 7%
1,710 4%
1,749 2%
1,753 0%
LOW Outperformed HD for Most of the Last Decade

Lowes level of same-store sales growth outpaced Home Depots each year from 2001 to 2008
Same-Store Sales Growth

2000 1.2 % 4.0 % (2.8)% 2001 2002 2.4 % 5.8 % 0.0 % (0.5)% 2.4 % 6.3 % 2003 6.7 % 3.7 % 3.0 % 2004 6.6 % 5.1 % 1.5 % 2005 2006 2007 2008 6.1 % 0.0 % (5.1)% (7.2)% 3.1 % (2.8)% (6.7)% (8.7)% 3.0 % 2.8 % 1.6 % 1.5 %
Lowe's Home Depot Lowe's - Home Depot
Note: Home Depot same-store sales growth figures are for the entire company only, as Home Depot did not consistently disclose U.S.-only same-store sales growth figures during the period from 2000 to 2008.
12
But Now LOW is the Underperformer

Lowes level of same-store sales growth has underperformed Home Depots for eight out of the last ten quarters
Same-Store Sales Growth Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Lowe's (6.6)% (9.5)% (7.5)% (1.6)% 2.4 % 1.6 % 0.2 % 1.1 % (3.3)% (0.3)% Home Depot - U.S. Only (8.6)% (6.9)% (7.1)% (1.1)% 3.3 % 1.0 % 1.5 % 4.8 % (0.7)% 3.5 %
Lowe's - Home Depot
2.0 % (2.6)% (0.4)% (0.5)% (0.9)% 0.6 % (1.3)% (3.7)% (2.6)% (3.8)%
Potential Causes of Recent Underperformance: Strength of HDs current operational execution Strong regional-level merchandising Post Bob Nardelli, invigorated management team under CEO Frank Blake Lowes product mix is more discretionary than Home Depots Home Depot currently doing well with the basic repair customer versus Lowes more fashion-oriented customer
13
Trading Multiples Reflect Underperformance

Based on its recent underperformance, Lowes trades at a discount to Home Depot on both LTM and 2012 multiples
LTM EV/EBITDA Lowe's 6.5 x Home Depot 8.5 x
P/E 13.3 x 16.1 x
Consensus 2012E EV/EBITDA P/E 6.3 x 12.2 x 7.8 x 13.8 x
Despite the valuation discount relative to HD, we believe Lowes long history of same-store sales outperformance suggests that recent underperformance is more likely temporary rather than structural
Memo: Capitalization Stock Price Diluted Shares Market Cap Plus: Debt Less: Cash & Investments (1) Enterprise Value Dividend Yield Lowe's $21.50 1,328 $28,552 6,620 (1,423) $33,749 2.0 % Home Depot $37.00 1,577 $58,349 10,775 (2,551) $66,573 2.7 %
(1) For Lowes, Cash & Investments are net of restricted cash balances.
14
Lowes Management is Bullish

At last years analyst day, management guided to $3.40 of EPS in 2015, driven by a 4% average growth rate in same-store sales, a 10% EBIT margin, and an $18bn share repurchase program (2011 to 2015)
Recent Price $21.50 2015 EPS $3.40 Price / 2015 EPS 6.3 x
Note: This page is taken from Lowes investor presentation dated November 30, 2010. Red highlights added for emphasis.
15
And is Buying Back Stock Aggressively

Management plans to use all free cash flow after dividends to repurchase stock and will increase leverage to 1.8x Lease Adjusted Net Debt / EBITDAR from 1.6x. We estimate share repurchases will be ~$10bn to $13bn from 2012 to 2015 At the current share price, management could repurchase ~35% to 45% of the Company between 2012 and 2015 In the first half of 2011, management repurchased nearly $2.4B of shares at an average price of ~$25 Repurchased ~7% of the current share base Share repurchases may accelerate annual core earnings growth by 8% to 10% from 2012 to 2015 Current interest rate environment makes debt financing an attractive source of capital for share repurchases
16
Valuation
Our estimates are more conservative than managements 2015 targets
Management Targets 2012E to 2015E CAGR: Home Improvement Market Impact of Share Gains Same-Store Sales 2015 EBIT Margin 2015 EPS % Increase from LTM EPS
Drivers of share gains: Growth from internet site Gains from Mom & Pop dealers Gains from Sears Losses from cannibalization
Low 0.0 % 0.0 % 0.0 % 7.3 % $2.00 ~25%
Pershing Square Estimates Mid High 1.5 % 1.0 % 2.5 % 8.3 % $2.60 ~60% 3.0 % 1.0 % 4.0 % 9.3 % $3.20 ~100%
~ 3.0 % ~ 1.0 %
4.0 % 10.0 % $3.40 ~110%
Pershing Square Mid and High cases reflect our view of the most likely outcomes
Note: Management targets based on November 2010 analyst day and annualized same-store sales growth reflected management estimates for 2011E to 2015E.
18
Sales/ft
Sales/ft is still 25% below 2005 peak levels six years later. We believe sales/ft2 could increase materially by 2015 and still be meaningfully below inflation-adjusted peak levels reached in 2005
Sales/ft2:
LTM
Low
2015E Mid
High
2005 Peak
~$275 $246 ~$245
~$290
$328
2012E to 2015E Same-Store Sales CAGR % of 2005 Peak % of 2005 Inflation-Adjusted Peak
0% ~75% ~55% to 65%
~2.5% ~85% ~65% to 75%
~4% ~90% ~70% to 80%
Note: Inflation-adjusted peak based on a 1% to 2% annual inflation rate.

19
EBIT Margins
In our Mid and High cases, we believe EBIT margins could be ~8.3% to 9.3%. In our Low case, if same-store sales remain flat, we believe Lowes can maintain current EBIT margins through cost reductions
Low 0.0% 0bps 7.3 % 0.0 % 7.3 % Mid 2.5% 25bps 7.3 % 1.0 % 8.3 % High 4.0% 50bps 7.3 % 2.0 % 9.3 %
2012E to 2015E Same Store Sales CAGR Est. Annual EBIT Margin Improvement 2011E EBIT Margin Plus: Total Est. EBIT Margin Improvement 2015E EBIT Margin
Note: Current gross margins are partially elevated by a favorable mix of higher-margin, lower-ticket items. As sales recover, we expect a slight gross margin headwind, offset by positive operating leverage. Management estimates each 1% of same store sales growth above 1% will result in 20bps of operating expense leverage.
20
Valuing Lowes
We believe 2015 EPS will likely be between $2.60 to $3.20. At a 13x P/E, the total value per share at year end 2014 is $36 to $43. If same-store sales remain flat for the next several years, year end 2014 total value per share is $28, driven largely by share repurchases
Year End 2014 Total Value Per Share (includes dividends):

~$36 per share ~$28 per share ~30% Return 9% IRR Low
2012E to 2015E SSS CAGR 2015E EBIT Margin 2015 EPS P/E Multiple (based on current) 0% 7.3% $2.00 13x
~$43 per share ~100% Return 26% IRR
~65% Return 18% IRR Mid

~2.5% 8.3% $2.60 13x
High
~4% 9.3% $3.20 13x
Note: Based on ~1% annual net unit growth. Includes ~$1.80 of dividends received between 2012 and 2014.
21
Conclusion
We think Lowes is a good business in an attractive retail category
However, sentiment is poor because of the Companys more recent underperformance relative to Home Depot We think this underperformance is more temporary than structural
The current stock price is not factoring in a sales recovery, but we believe one is likely in the next several years Even if no sales recovery occurs, we believe downside is limited
Minimal financial leverage, limited lease leverage, cheap stock
Aggressive share repurchase program is a catalyst

Lowes has ~8% current cash earnings yield The Company is returning all cash earnings to shareholders in the form of buybacks and dividends Investors are effectively paid to wait for a recovery
22

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A Value Menu for McDonalds

Pershing Square Capital Management

I. II. III. IV. V.

Pershings Involvement with McDonalds

________________________________________________ (1) Based on Pershings assumptions. See

page 64 in the appendix.

Historical Financial Performance

McDonalds Historical Revenue and EBITDA Performance

$19,065 $17,141 $14,243 $14,870 $15,406

28.5% EBITDA Margin

$5,000 $4,144 $0 $4,041 $3,997 $4,512 $5,183

Same-store Sales Growth

________________________________________________ (1) EBITDA is adjusted for certain non-recurring

and non-cash items.

Historical Financial Performance (Contd)

$3,000 EBITDA CapEx

22% Margin (%)

Stock Price Performance

McDonalds Stock Price Performance

High of $48.32 11/12/99

5-Year Indexed Stock Performance

5-Year Indexed Stock Performance

5 Year Indexed Performance

08/22/03 QSR Comp

03/12/04 S&P 500

McDonalds versus its Peers

9.3x 8.7x 8.9x

Long-Term EPS Growth

McDonalds stock price is based on a 30-day average trailing price as of 11/11/05.

II. Pershings View of McDonald's

Pershings View of McDonald's

McDonalds: How the System Works

Landlord, Franchisor, Restaurant Operator

$650k 650k $1,300k $1,750k 9.0% 4.0% $158 70 $228 17.5%

Pershings View of McDonald's

A Landlord, Franchisor and Restaurant Operator

Real Estate and Franchise Business

Pershings View of McDonald's

Characteristics of Cash Flow Streams

Real Estate and Franchise Business

Typical EBITDA Margin: Typical average cost of capital:(2)

Pershings View of McDonald's

Adjusting for Market Rent and Franchise Fees

2004 Total EBITDA As Reported

Real Estate and Franchise

McOpCo Real Estate and Franchise Total

2004 EBITDA $1.1bn 4.0bn $5.2bn

% 22% 78% 100%

Pershings View of McDonald's

Adjusting for Market Rent and Franchise Fees (Contd)

McOpCo PF McDonald's Total

% 47% 53% 100%

McOpCo PF McDonald's Total

% 14% 86% 100%

Pershings View of McDonald's

Reconciling McDonalds 2004A P&L

McOpCo P&L $14,224

(1,280) (569) ($1,849) (583) (697) (569) ($1,849) -

Pershings View of McDonald's

Historical EBITDA by Business Type: As Currently Reported

Real Estate and Franchise

Pershings View of McDonald's

$5,183 $4,041 $900 $3,997 $828 $4,512 $944 $1,137