Know Your Benchmark: What NCREIF Data is Telling Us

Know Your Benchmark: What NCREIF Data is Telling Us By Doug Poutasse Executive Director NCREIF Annual Conference October 7, 2009

NCREIF Property Index (NPI) Created early 1980 s, Data back to 1978q1 US Tax-exempt Institutions (Fiduciary) Mark to Market, REIS Standards Operating Properties (>60% occupancy) with and without leverage wholly-owned, joint ventures, funds, separate accounts Unlevered, gross of fees leveraged returns available Time-Weighted Returns simulated IRR s Not intended to be a benchmark Research Database return / risk characteristics Index released 25 th of month following quarter-end Published results are final (frozen 2003Q1) Masking Rules

NPI Size 7,000 6,000 count emv 2009q2 6,123 props $254,124 million $350,000 $300,000 # Properties 5,000 4,000 3,000 2,000 1,000 1978q1 233 props $581 million $250,000 $200,000 $150,000 $100,000 $50,000 Gross Market Value (Millions) - $0

NPI Changing Composition by Gross Market Value Apartments Hotels Industrial Office Retail 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1978Q1 1980Q1 1982Q1 1984Q1 1986Q1 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1

NPI Property Level Formula Income Return Net Operating Income -------------------------------------------------------------------------- Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 Net Operating Income Appreciation Return (Ending Market Value - Beginning Market Value) + Partial Sales - Capital Improvements --------------------------------------------------------------------------- Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 Net Operating Income Quarterly Total Return = Income Return + Appreciation Return

NPI Return History 8.0% 6.0% Total Income Appreciation 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% Appreciation, 1991Q4, -7.0% Appreciation, 1992Q4, -4.7% Appreciation, 2008Q4, -9.5% Appreciation, 2009Q1, -8.7% 1978Q1 1980Q1 1982Q1 1984Q1 1986Q1 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1

Category NPI 2009Q2 In Depth Count Income Return Capital Return Total Return Share of Props Share of Index All Properties 6,123 1.50% -6.70% -5.20% 100.0% 100.0% External Appraisals 2,398 1.53% -8.96% -7.43% 39.2% 39.3% Internal Valuations 3,030 1.50% -6.31% -4.81% 49.5% 48.8% No Valuation 695 1.42% -1.15% 0.28% 11.4% 11.9% Positive Movers >1BP 2 1.65% 7.18% 8.84% 0.0% 0.2% Negative Movers <-1BP 84 1.40% -15.86% -14.46% 1.4% 12.1% >$1 Billion 10 1.40% -8.35% -6.95% 0.2% 5.0% CBD Office >$300 MM 34 1.52% -11.63% -10.11% 0.6% 7.1% props<$100 MM 5,629 1.55% -6.67% -5.12% 91.9% 56.4% Positive Appreciation 380 1.64% 3.09% 4.72% 6.2% 4.3% Negative Appreciation 4,210 1.50% -9.63% -8.13% 68.8% 71.3% No Appreciation 1,533 1.49% 0.0% 1.49% 25.0% 24.4%

NPI 2009Q2 More Depth Category Count Income Return Capital Return Total Return Share of Props Share of Index New Properties 79 1.38% -6.87% -5.48% 1.3% 1.1% Sold Properties 43 2.47% -14.91% -12.44% 0.7% 0.3% Ongoing Properties 6,001 1.50% -6.71% -5.21% 98.0% 98.7% Income Growth 0.7% Cap Rate 6.4% Joint Venture Props 2,126 1.46% -6.43% -4.97% 34.7% 46.1% Wholly Owned 3,997 1.54% -6.99% -5.46% 65.3% 53.9% In Open End Fund 3,122 1.57% -6.88% -5.31% 51.0% 48.3% In Closed End Fund 646 1.31% -6.15% -4.84% 10.6% 10.5% In Separate Account 2,241 1.47% -6.80% -5.33% 36.6% 39.0% Leveraged 3,556 1.47% -6.27% -4.79% 58.1% 65.8% All Equity 2,567 1.56% -7.63% -6.07% 41.9% 34.2% Under Water 240 1.25% -10.33% -9.08% 3.9% 3.9%

What Moved the NPI Basis Point Move in NPI by adding (or removing) a sector, e.g. adding New York or adding New York office BP = (sector return NPI return) x weighting weighting = MV(sector) MV(NPI) MV(sector) Actually it is the denominator in the NPI formula used for the weighting. Impact calculated each quarter and then averaged for time period to get impact on time weighted returns. Example New York Office 2009-1 NY Return NPI Return ReturnDiff PropDenom NPIDenom Wt -0.103300881-0.073261-0.03004 $13,256,474,464 $292,346,718,070 0.047499 Return Diff = -.03004 x.047499 =.001427 = 14.27 bp

What Moved the NPI Top 10 NPI Upside NPI Movers for past year CBSA CBSAName BP Impact 47900 DC - Washington 9.08 26420 TX - Houston 8.98 16980 IL - Chicago 4.60 19100 TX - Dallas 3.89 33460 MN - Minneapolis 1.98 41740CA - San Diego 1.93 33100 FL - Miami 1.90 38900 OR - Portland 1.86 36740 FL - Orlando 1.79 19740 CO - Denver 1.76 Top 10 NPI Downside NPI Movers for past year CBSA CBSAName BP Impact 42660 WA - Seattle -0.60 33100 FL - West Palm Beach -0.87 38060 AZ - Phoenix -0.93 41860 CA - Oakland -1.87 14460 MA - Cambridge -2.11 31100 CA - Santa Ana -3.24 31100 CA - Los Angeles -3.27 40140 CA - Riverside -4.38 41860 CA - San Francisco -5.51 14460 MA - Boston -6.91 35620NY - New York -34.90

What Moved the NPI (2) Metro/Property Type Upside NPI Movers for past year CBSA Prop Type BP Impact Dallas Apartment 2.19 Houston Retail 2.35 Houston Office 2.80 Houston Apartment 2.88 Washington Retail 3.33 Chicago Retail 3.54 Washington Office 3.65 New York Retail 3.99 Metro/Property Type Downside NPI Movers for past year CBSA Prop Type BP Impact New York Office -20.08 New York Apartment -16.47 Boston Office -7.81 San Francisco Office -6.58 Riverside Industrial -2.76 Cambridge Office -2.40 Santa Ana Office -2.20 Los Angeles Office -2.03

NCREIF Property Index Valuation Frequency: Percentage of Index by Valuation Type

NCREIF Property Index Cap Rates (4 Quarter Moving Average)

NCREIF Property Index Cap Rates (Quarterly)

NCREIF Property Index Sales Number of Sales from NPI 300 250 200 150 100 50 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year-Quarter

NCREIF Fund Indices Open-end Diversified Core Equity (NFI-ODCE) Created in 2005, Data back to 1978q1 Inclusion Criteria US Open-end Funds Mark to Market, follow REIS Standards Strategy is diversified, core equity investments: must be At least 80% in Real Estate At least 80% in private equity properties At least 95% in U.S. markets At least 80% in 5 major property types At least 80% in operating properties No more than 40% leverage No more than 70% concentration in one property type or region. Time-Weighted Returns Levered, gross and net of fees Modified Dietz Investment / Fund level formula Data Release Policy Preliminary Index released 8 th business day Final Index released 30 th day following quarter-end

This document was presented during the 2009 NFI-ODCE NCREIF Annual Conference. Funds

NFI-ODCE This document was presented during the 2009 NCREIF Annual Conference.

NFI-ODCE Return History

NPI vs NFI-ODCE Return History

NPI/NFI-ODCE Differences

NCREIF / Townsend Fund Indices Created in 2007 First official release 2008Q4 Data collected by Townsend Group Indices by Style and Vehicle Core, Value-Added, Opportunistic Open-end, Closed-end Voluntary Data Contributors 187 Managers to date NCREIF Members and non Members Time Weighted Return Indices, gross and net Vintage Period Reports: IRR s and Multiples

NCREIF/Townsend Fund Indices: Comparative Performance

NCREIF/Townsend Fund Indices: Comparative Performance Gross Returns thru 2009Q1 Core Open- End Value Add Closed-End Opportunistic Closed End One Year Return -23.1% -26.0% -45.4% Five Year Return 7.1% 9.4% 11.9% Five Year Std Dev 7.13% 13.10% 21.24% Five Year Individual Fund Performance Core Value Add Opportunistic Count 15 34 88 Top Quartile Break 8.4% 14.6% 23.7% Median 6.8% 10.0% 13.7% Bottom Quartile Break 5.5% 3.4% 2.9% Dispersion 2.05% 8.44% 19.07%

NTFI Opportunistic 2000 Vintage