REITInsight. In this month s REIT Insight:

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Adelia Jefferson
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1 REITIsight Newsletter February 2014 REIT Isight is a mothly market commetary by Resource Real Estate's Global Portfolio Maager, Scott Crowe. It discusses our perspectives o major evets ad treds i real estate securities. REIT Isight is a viewpoit from a ivestmet practitioer with a uique focus o both publicly traded ad o-traded REIT markets. I this moth s REIT Isight: What could Ilad America be Worth? A Liquidity Evet Aalysis New FINRA rules o o-traded REIT cliet statemets Sale of Ilad Diversified to Kite Realty

What could Ilad America be Worth? A Liquidity Evet Aalysis Ilad America ( the compay ) is the largest o-traded REIT with approximately $6 billio of assets.

We believe the compay may execute a Iitial Public Offerig (IPO) of the lodgig assets ad the sale of its retail ad studet housig portfolios. Ilad s curret Net Asset Value (NAV) is $6.94 (withi the $6.

2 What could Ilad America be Worth? A Liquidity Evet Aalysis Ilad America ( the compay ) is the largest o-traded REIT with approximately $6 billio of assets. The compay recetly aouced that it will susped its share buyback program at the ed of February, ad that it is explorig possible multiple liquidity evets for its portfolio over the ext 3-24 moths. We believe the compay may execute a Iitial Public Offerig (IPO) of the lodgig assets ad the sale of its retail ad studet housig portfolios. Ilad s curret Net Asset Value (NAV) is $6.94 (withi the $6.51 -$7.09 rage published by the compay). Below we show the compay s uderlyig assumptios for its recetly published NAV, which i our view do ot appear ureasoable. The NAV implies a 2013 MFFOx of 14.8x (versus the publicly traded REIT market average of 17.7x) based o the most recet aualized quarterly Modified Fuds from Operatios (MFFO). We also ote that the publicly traded REIT market is curretly tradig at a discout to NAV. Ilad NAV Estimates Source: Data from the compay s 12/27/13 8K With a potetial liquidity evet o the horizo, ivestors ad aalysts are askig what Ilad may be worth. Our aalysis is based o limited publicly available iformatio ad curret publicly traded REIT market pricig by ature it is a imperfect estimate. We also do ot preclude the possibility of a outside buyer makig a acquisitio of the etire compay at a premium to NAV. That beig said, our work suggests that Ilad America may achieve $6.37 $6.68 share price, based o curret market prices, if they execute a IPO of the lodgig assets ad sell their retail ad studet housig portfolios (our view of the most likely evet). The higher ed of our rage reflects the possibility of a small premium for the studet housig (+10%) ad retail (+5%) portfolios as well as the possibility that its hotel portfolio trades a half multiple tur higher tha the chose peer group. 1 Recet acquisitios by publicly traded REITs, icludig Kite s acquisitio of Ilad Diversified (see further discussio later i this piece), may preset such a opportuity to sell above NAV. Estimated Break-up Value for Ilad America Portfolio Source: Compay data; Resource Real Estate estimates; Bloomberg; Broker estimates 1 Ilad s lodgig portfolio icludes some assets (especially recet acquisitios) that are full-service, higher quality. 2 REITIsight February 2014

A market commetary by RRE s Real Estate Securities Global Portfolio Maager, Scott Crowe REITIsight Based o curret REIT market pricig, i the hypothetical evet of a full public listig, however, Ilad

3 A market commetary by RRE s Real Estate Securities Global Portfolio Maager, Scott Crowe REITIsight Based o curret REIT market pricig, i the hypothetical evet of a full public listig, however, Ilad America may achieve materially less tha NAV, betwee $5.84 ad $6.46. Our aalysis (below) is based o the best available comparable publicly traded REIT valuatios (although agai we caveat this is a imperfect aalysis). Etire Portfolio Listig: Estimated Public Market Value for Ilad America 2 Note: Price (2/17/14) 2 This aalysis is a estimate oly, ad is based o publicly available iformatio ad recet comparable listed REIT sales Source: Compay data; Resource Real Estate estimates; Bloomberg; Broker estimates Our aalysis is based o the assumptio that o iteralizatio fee is charged, as has bee the case with the recet Ilad Diversified ad other recet iteralizatios. If a fee were charged, it would lower our estimate of liquidatio value. New FINRA Rules o No-Traded REIT Cliet Statemets O February 3, the Fiacial Idustry Regulatory Authority (FINRA) proposed chages to NASD Rule 2340 Customer Accout Statemets that would icrease disclosure o the fees ad commissios paid to brokers who sell o-traded REITs. Such chages may have a sigificat impact o the o-traded REIT market ad i particular a potetial chage i fee structures. This, i tur with more trasparecy o the et value of cliet positios, may make mutual fuds (that ca provide a retur profile similar to o-traded REITs) relatively more attractive for both advisors ad cliets. FINRA is seekig commets through April 11, 2014, after which the proposal will go before the Securities ad Exchage Commissio for review. We believe that the rule may be implemeted withi oe year. Uder the ew rules, it is proposed that statemets will display the per-share price et of the REIT s expeses. Thus, rather tha displayig the $10 omial per share price, the statemet will show the share value after the deductio of fees ad ay expeses related to orgaizatio, offerig ad property acquisitios. REITIsight February

At preset, o-traded REITs are ot required to show a estimate of the per-share value util 18 moths after the sposor stops raisig fuds a period that may spa may years.

4 At preset, o-traded REITs are ot required to show a estimate of the per-share value util 18 moths after the sposor stops raisig fuds a period that may spa may years. FINRA s proposal accelerates that process. The proposal icludes two valuatio methodologies et ivestmet ad idepedet valuatio. The et ivestmet method is based o the percetage amout available for ivestmet. This example is i FINRA s proposal: [If] the prospectus for a offerig with a $10 offerig price per share disclosed the sellig commissios totalig 10% of the offerig proceeds, ad orgaizatioal ad offerig expeses of 2%, the amout available for ivestmet would be 88%, or $8.80 per share. Hypothetical Net Ivestmet Calculatio Source: FINRA. Resource Real Estate estimates Sposors would be able to use the et ivestmet methodology for two years after the sposor first taps the fuds to buy properties. Idepedet valuatios, which are based o the most recet disclosures i the issuer s curret reports, may be used at ay time. This calculatio requires that a third-party expert determie value or provide material assistace i determiig the value of the REIT s assets. The Ivestmet Program Associatio, a idustry group workig with FINRA, has recommeded aual outside appraisals as a improvemet over today s less frequet appraisals. Hypothetical Cliet Statemet 4 REITIsight February 2014

A market commetary by RRE s Real Estate Securities Global Portfolio Maager, Scott Crowe REITIsight Such a reportig regime may improve the relative attractiveess of mutual fuds, which ted to have

5 A market commetary by RRE s Real Estate Securities Global Portfolio Maager, Scott Crowe REITIsight Such a reportig regime may improve the relative attractiveess of mutual fuds, which ted to have lower fees ad expeses ad report a price plus commissio cost basis (versus a et ivestmet) o the cliet statemet. We have provided a hypothetical example of a mutual fud statemet below. We believe fuller disclosure will beefit both customers ad the idustry, ad may lead to a more mutual fud-like fee structure, with differet share classes. Oce FINRA has addressed all commets ad the SEC has reviewed the chages, we may see the followig: Lower commissios Quicker idepedet valuatios Less over-distributio (retur of pricipal through ucovered distributios) More icetive to ivest quickly Differet share classes, as with mutual fuds. We ote the WP Carey s Corporate Property Associates 18 has recetly lauched with two share classes (the terms for which are show below). Corporate Property Associates 18 Share Classes Source: WP Cary, CPA 18, Resource Real Estate Estimates Kite Realty to Buy Ilad Diversified O February 10, 2014, Kite Realty Group Trust aouced the acquisitio of Ilad Diversified for $10.50 share (based o 1.7x Kite s share price of $6.38), capped at $10.85 for a total value of $1 billio. We estimate that the price reflects a 14.5x multiple of 2013 MFFO ad a cap rate of 6.6%. Kite ows ad develops shoppig ceters ad power ceters ad this acquisitio will double its holdigs to about 20 millio square feet. Ilad has sold its et lease which leaves it ivested mostly i power ceters. Kite is smaller tha Ilad ad hece Ilad will ow 60% of the ew compay. The combied etity will have a $3.8 billio eterprise value. The acquisitio is expected to close late i the secod quarter of this year or early i the third quarter. For Ilad ivestors this represets a exit 5% above their etry price (after oe to three years depedig o whe they ivested give the iitial offerig date of August 2009 ad closig date of August 2012). For Kite this merger brigs size, helps de-lever ad reduces developmet exposure. The deal will allow Kite to reduce its leverage from 7.3x Earigs Before Iterest, Taxes, Depreciatio ad Amortizatio (EBITDA) to about 6.5x. REITIsight February

A advatage of the trasactio is that there will be o iteralizatio fee the sum a o-traded REIT at times has bee required to pay to acquire its maagemet compay from its sposor.

6 A advatage of the trasactio is that there will be o iteralizatio fee the sum a o-traded REIT at times has bee required to pay to acquire its maagemet compay from its sposor. The merger aoucemet came after Ilad Diversified reached a deal i December to sell its sigleteat et lease portfolio to Realty Icome Corp. for $503 millio. That deal is expected to close before the merger with Kite. Additioally, after closig the proposed merger, Kite expects to dispose of three multifamily assets owed by Ilad Diversified, as well as its securities portfolio. The proceeds from these sales will be used to repay debt. Whe the deal closes, it is possible that Kite experieces a ofte-observed share price cycle followig liquidity evets, where o-traded REIT shareholders rotate out of the ew publicly traded etity, creatig a short-term dip i share price (ad which may provide a opportuity). Scott Crowe, Global Portfolio Maager Scott Crowe is the Global Portfolio Maager for Resource Real Estate. Previously, he was the lead Global Portfolio Maager for Cohe & Steers, where he led the ivestmet ad research team of over 20 portfolio maagers ad aalysts. Mr. Crowe was accoutable for over $10B i FuM across the firm s global, iteratioal ad emergig market portfolios. Prior to this, Mr. Crowe held the positio of Head of Global Real Estate for UBS Equities Research where he built ad maaged the US REIT divisio while leadig a global team of more tha 40 aalysts. Scott bega his career at Paladi Property Securities ad was also a Associate Lecturer at the Uiversity of Techology Sydey. Scott holds a Hoors Fiace Degree from the Uiversity of Techology Sydey ad a Bachelor of Commerce from the Uiversity of NSW/Natioal Uiversity of Sigapore Walut Street, 18th Floor Philadelphia, PA

REITInsight. In this month s REIT Insight:

REITInsight. In this month s REIT Insight: REITIsight Newsletter March 2014 REIT Isight is a mothly market commetary by Resource Real Estate's Global Portfolio Maager, Scott Crowe. It discusses our perspectives o major evets ad treds i real estate