Exploring Complementary Investment Opportunities: Real Estate Investment Trusts

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1 Exploring Complementary Investment Opportunities: Real Estate Investment Trusts 1

2 Traditional Investments: Stocks Bonds Treasuries Annuities

3 Common Alternative Investments: Real Estate Investment Trusts (REITs) Private Equity Hedge Funds Business Development Companies (BDCs) 3

4 Risk and Return ( ) Moderate Asset Allocation Stocks 60% Bonds 40% Return 7.8% Std Dev 12.9% Source: As of December 31, Stocks S&P 500; Bonds BarCap US Aggregate Bond Index Past Performance is for Illustrative Purposes Only and Does Not Guarantee Similar Results in the Future The average return and risk are represented by the arithmetic average return and standard deviation, respectively. Standard deviation measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns. The data assumes reinvestment of all income and does not account for taxes or transaction costs.

5 Risk and Return Regarding REITs ( ) 10% REIT Allocation 20% REIT Allocation Stocks 55% Bonds 35% REITs 10% Stocks 40% Bonds 40% REITs 20% Return 7.9% Std Dev 12.6% Return 7.7% Std Dev 10.8% Source: As of December 31, Stocks S&P 500; Bonds BarCap US Aggregate Bond Index: REITs = NCREIF Property Index Past Performance is for Illustrative Purposes Only and Does Not Guarantee Similar Results in the Future 5

6 General Characteristics of Successful Real Estate Investing Time Knowledge Patience Access to Capital Property Management Capability 6

7 Barriers to Direct Investment Capital Daily Responsibility of Property Management Results Tied to a Single Property Expertise to Identify a Property 7

8 Real Estate Investment Trust ( REIT ) Publicly Traded Registered, Non-Traded There is no guarantee an investment in real-estate will meet all or any of these objectives. These are only some considerations. Speak with an Advisor to discuss your individual circumstances and suitability. Diversification does not assure a profit or protect against losses in a declining market.

9 What is a Real Estate Investment Trust ( REIT )? A REIT Pools Investor Funds Purchases and Operates Institutional-Grade Income Producing Real Estate Typically Established with a Goal of Providing Stable Income and Potential for Capital Appreciation Investor Owns Stock in a REIT, with the REIT Owning Real Estate Not Direct Real Estate Ownership Typically a Specified Total Pool of Investment Funds

10 What is a Real Estate Investment Trust ( REIT )? Established by a Real Estate Sponsor Who Will Typically Manage the REIT and All Assets Distributes Net Income and Gains to its Investors Provides Income Tax Documentation to Investors at the End of Each Calendar Year Receives Beneficial Tax Treatment if it Meets Strict Requirements Like All Investments REITs Have Risks and May Not Be Suitable for All Investors There is no guarantee that any REIT will meet it investment objectives and distribute net income and gains to investors. Before investing, speak with a tax advisor/professional regarding special tax circumstances. Each tax situation may be unique.

11 REIT Asset Classes Office Multi-Family Industrial Retail Medical Leisure Self Storage

12 Publicly Traded REIT Potential Benefits Include: Passive Participation in Commercial Real Estate Market Liquidity Potential Risks Include: Correlation to Non-Real Estate Oriented Stocks These are just examples of common possible risks and benefits. There may be others that are not indicated. This information is provided for educational and illustration purposes only.

13 Publicly Registered Non-Traded REIT Potential Benefits Include: Passive Participation in Commercial Real Estate Market Limited Correlation to the Stock Market Professional Asset Management Diversification Amongst Multiple Properties These are just examples of common possible risks and benefits. There may be others that are not indicated. This information is provided for educational and illustration purposes only.

14 Publicly Registered Non-Traded REIT Potential Risks Include: Tenant Risk Distribution Risk Tax Status Risk Liquidity Risk These are just examples of common possible risks and benefits. There may be others that are not indicated. This information is provided for educational and illustration purposes only.

15 Non-Traded REIT Life Cycle Few Properties Track Record Raise Capital Property Acquisition Begin Rental Income Raise Continues Stop Raise Actively Managed Portfolio Management Exit List on Exchange Liquidate Non-Trade REIT Life Cycle Provided for educational and illustration purposes only. There is no guarantee that all or any non-traded REIT will go through this life cycle.

16 Limited Liquidity Typical Liquidity Events Listing of REIT on Public Exchange Acquisition or Merger Sell REIT to Institutional Investor Sell Assets Individually Redemption Programs: Should Not Be Part of Investment Strategy Typically Used in Cases of Death or Hardship Typically Limited to 5% per year May Be Cancelled by Sponsor Without Notice Limited Liquidity - These are just characteristics of common potential events. There may be others that are not indicated. This information is provided for educational and illustration purposes only and is not reflective of any particular program. An investment in a non-traded REIT involves a high degree of risk and is not suitable for all investors.

17 Management & Other Fees Management Fees: Incurred in the Ongoing, Active, Day-to-Day Property Management Disposition Fees: Incurred in the Sale of Property or Liquidation of the REIT Subordinated Participation Management & Other Fees. Non-traded REITs generally includes substantial fees, expenses and sales charges that may materially reduce an investor's return

18 Upfront Fees & Expenses Selling Expenses: Organization and Offering Expenses Commissions and Placement Fees Real Estate Expenses: Acquisition Fee to Sponsor Financing Fees & Costs Third Party Broker Fee Closing Costs

19 Is A Non-Traded REIT Right For You? Need Current Income Need to Decrease Tax Liability Can Allocate 10%-20% to Alternative Investments Looking to Diversify or Exit Self Managed Properties Maintain a Long Term Horizon There is no guarantee an investment in real-estate will meet all or any of these objectives. These are only some considerations. Speak with an Advisor to discuss your individual circumstances and suitability. 19 Diversification does not assure a profit or protect against losses in a declining market.

20 Next Steps Set Appointment Portfolio Assessment Meeting to Review Findings

21 Exploring Complementary Investment Opportunities: Real Estate Investment Trusts 21