MEPT Annual Report and Outlook Strength at the Core

Transcription

1 MEPT Annual Report and Outlook Strength at the Core

2 On the Cover: Hubbard Place, Chicago Hubbard Place is a 43-story, 450-unit multi-family development in the River North neighborhood in Chicago. In 2011, MEPT committed $75.5 million in a joint venture to build the apartment tower, and the project became shell complete in November The property has 378,729 square-feet of rentable living space with nearly 400 parking spaces and many attractive amenities. At the end of 2013, Hubbard Place began its initial lease-up phase and achieved 35.6% leased by year end with strong interest from young professionals. The building is centrally located with proximity to many of Chicago s major downtown employment hubs including North Michigan Avenue, LaSalle Street, and the West Loop, and multiple transit options are within walking distance. Investment Strategy Multi-Employer Property Trust (MEPT) is an open-end commingled real estate equity fund that invests in a diversified portfolio of institutional-quality real estate assets and 100% union-built new construction properties. MEPT s portfolio consists of 108 high-quality, energy-efficient investments positioned to serve tenant demand in 27 U.S. metropolitan markets. MEPT s primary investment strategy is focused on maintaining stable income, building a diversified modern portfolio, using low leverage and providing superior liquidity and is executed with a commitment to the principles of Responsible Property Investing. The Fund invests in office buildings, warehouses, flex/research and development facilities, retail centers and apartments in order to maintain a diversified, institutional-grade core portfolio that produces strong and stable current income. Trustee Investment Advisor Investor Relations

3 Table of Contents Table of Contents Letter to MEPT Participating Plans Portfolio Review & 2014 Outlook Commercial Real Estate Outlook Responsible Property Investing Report Appendix I: MEPT Performance Appendix II: Investment Management Fee Consolidated Audited Financial Statements MEPT Highlights Net Asset Value $5.1 billion $5.6 billion $5.4 billion Participating Pension Plans Committed Acquisitions 1 $219.4 million $738.3 million $1.4 billion Dispositions Net Proceeds 2 $930.5 million $206.8 million $518.7 million Real Estate Assets Operating Portfolio (square feet) 32.2 million 40.4 million 39.7 million Operating Portfolio (percent leased) 92.3% 91.5% 89.7% 1 Committed Acquisitions includes both the gross purchase price of acquired existing assets and commitments to fund development projects. 2 Disposition Net Proceeds is based on the total net sales price received, including partnership interests, if any.

4 MEPT Annual Report and Outlook To MEPT Participating Plans Since 1982, MEPT has remained steadfast in its mission to provide competitive returns while recognizing and respecting the importance of investing responsibly on behalf of our investors. We are pleased to report that, due to our commitment to this mission, the outlook for the Fund has never been stronger. The high-quality core property portfolio is positioned to benefit from key U.S. economic growth trends and the development pipeline continues to deliver best-in-class properties to further enhance the overall fund performance. The Fund delivered a 12.83% total return, gross of fees, for 2013 which placed it in the 2nd quartile of the NCREIF Fund Index Open-end Diversified Core Equity (NFI-ODCE) benchmark for the year and exceeded our performance targets. The substantial strategic work on the portfolio since 2010 has resulted in a more balanced portfolio and an improved risk profile to ensure that we can protect the value MEPT has created. With a $1.1 billion pipeline of new construction activity generating substantial levels of job hours and economic activity in 2013 and another Green Star ranking in the Global Real Estate Sustainability Benchmark (GRESB), MEPT continues to strengthen its leadership position with regards to responsible investing. The theme of this report is Strength at the Core, which very much reflects the focus of our team, the quality of the MEPT portfolio and our outlook for the Fund. As you will read, 2013 was a positive year for MEPT on several fronts. With an improving economy and an increase in commercial real estate demand, MEPT s well-positioned portfolio with an overweight to urban and modern properties in innovation markets allowed the Fund to increase occupancy, grow income and enhance value. On the transaction side, the portfolio was generally aligned with its strategic targets in 2013 and our team remained patient and selective in seeking new investments, particularly as demand for high-quality real estate in the U.S. drove prices up in We closed on two transactions to fund new development, bringing MEPT s pipeline at year end to seven projects underway in six markets. These investments will contribute income over time, boost appreciation as the projects progress, and create approximately 9.5 million green job hours of new work for Building Trades members and their signatory contractors in local economies. These sustainably-built, U.S. Green Building Council LEED certified projects will be completed in 2014 and Going forward, transaction activity will continue to focus on enhancing performance through the development and acquisition of properties that are well-positioned to attract and retain tenants and appreciate in value in the long term. For 2014, based on our economic and commercial real estate outlook, the MEPT management team has established a total return target of 8.5% to 9.5%, gross of fees, which is higher than historic norms for core real estate. As we have in the past, we meticulously managed the balance sheet in 2013 to ensure MEPT had the REPRESENTATIVE MEPT INVESTMENTS NeMa Multi-family, San Francisco Parkway Village Retail, Houston 200 West Madison CBD Office, Chicago 1150 Commerce Boulevard Industrial, Philadelphia 2

5 ability to capitalize on investment opportunities and, at the same time, provide liquidity to investors. We were able to take advantage of the near historically low interest rate environment by procuring new financing, which lowered the Fund s cost of capital. MEPT also generated proceeds from non-strategic asset sales and took advantage of strong institutional investor demand for core assets. The team successfully managed cash flow to satisfy property commitments, provide liquidity and protect the value of the portfolio. Finally, in a continuing effort to enhance asset-level performance, Bentall Kennedy restructured its Asset Management Team along the four main product types: office, industrial, multi-family and retail. Each property team is led by a sector professional with deep product-specific knowledge and expertise with more than 28 years of experience on average. This change reinforces Bentall Kennedy s intense focus on active asset management; in 2013, asset managers worked diligently to take advantage of every opportunity to attract and retain tenants and operate assets more efficiently in order to enhance income and increase overall asset value. As stewards of MEPT for the past 32 years, we appreciate the confidence you have shown, particularly as we have navigated challenges and taken advantage of opportunities. We believe that our disciplined execution of the MEPT strategy has served investors well indeed, MEPT s performance since inception has outperformed its benchmark. Moreover, we believe we have strategically positioned MEPT to perform competitively in the future. At the core is a MEPT portfolio that is stronger and better positioned for continued competitive performance than it has ever been and we are excited about the prospects ahead in Thank you for your investment and continued support. PATRICK MAYBERRY President and CEO NewTower Trust Company MIKE MCKEE CEO Bentall Kennedy US HEADLEY BUTLER President and CEO Landon Butler & Company, LP DOUG POUTASSE Executive Vice President and Head of Strategy and Research Bentall Kennedy DAVID ANTONELLI Executive Vice President and MEPT Portfolio Manager Bentall Kennedy 360 State Street Multi-family, New Haven Pacific Place Retail, Seattle th Street CBD Office, Denver Rivergate Corporate Center Industrial, Portland, OR 3

6 MEPT Annual Report and Outlook Portfolio Review and 2014 Outlook David Antonelli EXECUTIVE VICE PRESIDENT AND MEPT PORTFOLIO MANAGER BENTALL KENNEDY MEPT s 2013 performance of 12.83%, gross of fees, exceeded the management team s performance target of 10% to 11%. This performance was generated by MEPT s $6.8 billion 1, diversified portfolio that is strategically weighted to transit-oriented, urban multi-family and central business district (CBD) office assets and further enhanced by a $1.1 billion development pipeline of best-in-class urban, multi-family and office properties. The strategy is designed to address the increased demand in innovation markets driven by education, healthcare and technology sector expansion and the burgeoning Echo Boom workforce. The strength at the core of this portfolio is an absolute focus on growing and protecting net operating income (NOI), which will in turn contribute to value gains. U.S. COMMERCIAL REAL ESTATE REVIEW The U.S. economic performance in 2013 capped off four consecutive years of slow, but advancing growth and was characterized by many indicators of economic expansion. Most importantly, 2013 also marked the third year of steady job creation in the U.S., which was vital to the commercial real estate recovery in Job growth was mostly attributable to sectors such as professional and business services, energy, technology, healthcare and media. For the office sector, job growth coupled with constrained new supply further tightened leasing fundamentals in most markets. U.S. office vacancy fell below 15% in the fourth quarter well below the recessionary peak vacancy, according to CBRE. The 2013 HIGHLIGHTS: Exceeded 2013 performance target: 12.83%, total return gross of fees Increased operating occupancy from 91.5% to 92.3% Grew comparable property ( same store ) NOI by 4.8% over 2012, and exceeded budget by 4.6% Largely achieved strategic target weights for property-type and regional allocations Committed over $200 million to two development projects Generated over $900 million from asset sales and loan repayments Reduced weighted average interest rate on debt from 5.04% to 4.25% Maintained environmental leadership in industry; and ranked #3 by GRESB for all U.S. diversified property funds Published report shows MEPT s investments since inception have generated $15.9 billion in economic activity and created 118,000 jobs across the U.S. 1 Based on gross asset value at December 31, The Fund s net asset value at December 31, 2013 was $5.1 billion. 4

7 declining rate led to rent growth in many markets. The trend varied by market, submarket and class of property, but conditions in some markets started to shift in favor of landlords. In anticipation of rising rents, tenants began to increase leasing activity, particularly in markets with vibrant downtowns, plentiful amenities, good public transportation, and a high concentration of jobs in technology, energy and healthcare. There was robust demand for space in the industrial sector, especially for distribution facilities. While growing manufacturing activity and consumption helped drive improved conditions for industrial real estate in 2013, e-commerce was a notable factor as retailers expanded their distribution networks to support online sales. Large blocks of new modernized space are particularly hard to find given the shortage of supply. Construction activity picked up in the industrial sector, but is still relatively limited and far below historical levels. The absorption gains continue to be led by port cities and regional distribution centers, but growth has also extended to many other markets throughout the U.S. The apartment sector, which was the first sector to recover and by far the healthiest, moved into a sustained growth phase. The national vacancy rate leveled out at 5.6% and is consistent with the 95% occupancy most landlords target for optimal operational flexibility. The national trend of declining vacancy leveled off as a significant supply of new units began to deliver. Rent growth remained positive in the fourth quarter but decelerated from the robust rates experienced by this sector during its recovery. Improving job growth and favorable demographic trends should continue to support strong apartment demand. The retail sector experienced modest tightening as the year progressed, but the recovery varies by retail format type and location. Regional malls and well-located, well-leased shopping centers are thriving while lower-quality assets struggle to compete. New store openings are outpacing closures, yet many retailers remain cautious about leasing new space. While e-commerce is a boon to the industrial sector, competition from online merchants continues to be threatening and disruptive for traditional retailers and is adversely impacting bricks-and-mortar sales. As a result, construction has been muted and new development is principally focused on select markets where prime locations are still available. MEPT PERFORMANCE REVIEW The Fund s performance in 2013 was driven by several key factors. First and foremost, MEPT s portfolio was well-positioned in 2013 with property-type and geographic allocations in line with strategic targets. MEPT also continued to successfully execute its stable income investment strategy in 2013 through active asset management of the portfolio, with a strong focus on growing asset-level income driven by a proactive approach to leasing and tenant retention at existing operating assets and lease-up of newly developed properties. Furthermore, the Fund realized significant appreciation from its well-leased urban, operating assets and development projects currently underway. CORE STRENGTH: INCOME NOI for comparable properties ( same store portfolio ) generated $334.2 million and delivered a year-over-year increase of 4.8%. MEPT s income return reflects the strength and health of the in-place leases and the stability of the 32.2 million square foot operating portfolio. MEPT s tenant accounts-receivable delinquencies and write-offs at December 31, 2013 were very modest, totaling only 0.38% of total revenue. The Asset Management Team executed 282 leases and completed 5.5 million square feet in gross leasing activity in As a result, MEPT s operating portfolio was 92.3% leased at the end of 2013, up from 91.5% leased at the end of 2012 and above the benchmark occupancy of 91.2%. Through December 31, 2013, the Fund outperformed the NFI-ODCE on an income return basis for five consecutive quarters, with the Fund s one-year income return, gross of fees, of 5.72% exceeding the NFI-ODCE income return of 5.24% by 48 basis points and placing MEPT s income return in the first quartile. While the Fund s total 2013 performance of 12.83% trailed NFI-ODCE s return of 13.94%, it positioned the Fund in the second quartile of the benchmark. In addition, MEPT outperformed the NFI-ODCE in the third and fourth quarters, ranking in the first quartile in both periods. CORE STRENGTH: APPRECIATION The MEPT portfolio delivered a 6.82% appreciation return mainly due to improving market and rental rate fundamentals for urban apartment assets, CBD office 5

8 MEPT Annual Report and Outlook properties and bulk-distribution industrial facilities. Since commercial real estate, in general, and certain property types, in particular, continued to attract institutional investor capital during the year, there was capitalization rate 2 compression, but it moderated over the course of the year and improving market conditions became a bigger factor in value increases. Approximately 67% of MEPT s assets experienced positive appreciation in Additionally, the Fund s $1.1 billion development pipeline, which started to deliver high-quality urban, multi-family properties in 2013 with leasing and occupancy above pro-forma, contributed 95 basis points in appreciation. Furthermore, leverage in the portfolio was accretive as a result of mark-to-market adjustments, adding approximately 70 basis points to appreciation. Asset prices continued to rise in 2013 and buyers aggressively competed for deals. In response, the Bentall Kennedy Transaction Team remained disciplined and selective in identifying new investment opportunities for the Fund. In the fourth quarter, MEPT committed $113.1 million to a multi-family development in San Francisco and approved a $95 million senior construction loan for an office project in Los Angeles. Additionally, approximately $60 million of capital expenditure investments were made to enhance asset quality and improve occupancy in the operating portfolio. At the same time, in 2013, MEPT was a net seller PERFORMANCE: MEPT VS NFI-ODCE Gross of Fees MEPT NFI-ODCE* (Dollar Weighted) Gross Income Appreciation Total Gross Income Appreciation Total th quarter 1.36% 2.04% 3.40% 1.25% 1.91% 3.17% 3rd quarter 1.40% 2.36% 3.77% 1.31% 2.25% 3.56% 2nd quarter 1.51% 1.36% 2.87% 1.30% 2.55% 3.86% 1st quarter 1.33% 0.90% 2.23% 1.28% 1.40% 2.68% 2013 Total 5.72% 6.82% 12.83% 5.24% 8.35% 13.94% * NCREIF is an industry trade association that collects and disseminates real estate performance information. NCREIF Fund Index Open-end Diversified Core Equity (NFI-ODCE) is an index of investment returns reported on both a historical and current basis for 31 open-end U.S. commingled funds with a core investment strategy. The NFI-ODCE index is capitalization-weighted and the leverage metric represents total leverage held by the open-end funds. NFI-ODCE total leverage includes loans by open-end funds to entities controlled by such funds. 2 Capitalization rate or cap rate is an approximation of expected current yield determined by dividing net operating income by the purchase price. STRENGTH AT THE CORE PORTFOLIO BUILD-TO-CORE INVESTMENTS MEPT s $1.1 billion pipeline of new construction projects is generating meaningful appreciation for the Fund and adding modern, high-quality, income producing properties to the portfolio. 6

9 as strong institutional investor demand for core assets and favorable market conditions provided MEPT with an opportunity for net gains and liquidity from the sale of assets. The Fund benefitted from the sale of non-strategic assets and furthered a goal to increase the utilization of land assets or sell land to improve Fund performance. The Fund sold 36 assets and 3 partial assets (five of which were land) for total net sales price of $882.4 million 62% of proceeds were from sales of suburban office and suburban multi-family assets. The Fund also received proceeds from three loan repayments for a total of $48.2 million. CORE STRENGTH: BALANCE SHEET MEPT s balance sheet remained strong throughout With relatively low leverage at the start of the year, the Fund was able to take advantage of attractive terms and opportunistically added leverage to its portfolio. The Fund s leverage as a percentage of gross assets increased from 21.5% at the end of 2012 to 25.8% at the end of 2013, within the Fund s target range. Furthermore, MEPT was able to secure loans at historically low rates and reduced the Fund s weighted average interest rate, improving from 5.04% at the end of 2012 to 4.25% at the end of MEPT secured two single-asset mortgages on CBD office assets in San Francisco and Washington, D.C. with Prudential Insurance Co. and J.P. Morgan Chase Bank, N.A. for gross proceeds of $271 million. While securing these loans, the management team effectively managed the Fund s debt maturity ladder to stagger loan maturities, avoid large refinancing requirements, and minimize interest rate exposure. MEPT further improved its cash management flexibility in In April, MEPT put in place a $100 million, unsecured, line of credit with a floating interest rate of Libor basis points with J.P. Morgan Chase Bank, N.A. The line of credit allows MEPT to maintain flexibility in meeting its property-level operations requirements and acquisition commitments without sacrificing its commitment to liquidity for investors. PORTFOLIO OFFICE MEPT s office portfolio generated an 8.4% total unlevered return in As of year-end 2013, MEPT s allocation to office was 38.7% of net assets with more than 64% of the office portfolio in urban, infill locations. MEPT s office assets benefitted from the economic recovery and improving market fundamentals. The NOI for comparable office assets grew by 7.5%, year over year, from $160.3 million to $172.2 million. In particular, MEPT s CBD office assets attracted tenants from the expanding professional services, energy, technology, and healthcare sectors. During the year, leasing activity escalated for office space and the office operating portfolio occupancy increased from 87.0% leased at the end of 2012 to 88.6% leased at year-end The appreciation in the portfolio was driven by income growth resulting from increased occupancy as well as pricing for well-located, well-leased urban office assets. One of the highest contributors to appreciation in 2013 was 475 Sansome Street, a 353,686 square foot, 21-story building in San Francisco s financial district, which generated $13.8 million in appreciation largely from a significant lease renewal and expansion by Amazon. Additionally, th Street, a 90.7% leased, office building in Denver s CBD contributed $19.2 million of total appreciation in 2013, and 200 West Madison, a 928,040 square foot office building located in the Loop in Chicago, contributed $11.9 million during the year. With tenant demand strengthening, little new WELL-LEASED OPERATING PORTFOLIO MEPT s 32.2 million square foot, 92.3% leased operating portfolio contributes strong and stable income to the Fund as a result of the 1,175 in-place leases with manageable lease rollover and represented by a diverse tenant base. HEALTHY AND FLEXIBLE BALANCE SHEET MEPT s prudent cash management, diversified income stream, and conservative debt profile enables the Fund to maintain a high quality, well-leased portfolio as well as an active and disciplined transaction pipeline. 7

10 MEPT Annual Report and Outlook HOLLYWOOD 959, LOS ANGELES Property Type Office Senior Loan Commitment $95,000,000 Square Feet 241,563 Hollywood 959 will be a modern, Class A, LEED Silver office project with open-plan creative space designed to attract a broad range of tenants. The property is located in the entertainment-centric Hollywood submarket that attracts media, creative, entertainment, and content-producing industries, and is in close proximity to numerous Hollywood studios. There has been significant public and private investment in infrastructure and neighborhood amenities and this live/work/play environment makes Hollywood one of the preferred spots in Los Angeles for young, educated workers. supply, and prices for existing assets above replacement cost, the Bentall Kennedy Transaction Team sought out build-to-core opportunities for MEPT in In December, MEPT committed to a $95.0 million senior loan for the development of Hollywood 959 in Los Angeles. MEPT s investment in the 241,563 square foot office project is a senior secured mortgage with a seven-year term, an attractive 8.0% interest rate, and participation in appreciation of the asset. The senior position of the investment helps mitigate construction and lease-up risk and is critical in the financing of % LEASED OPERATING PORTFOLIO the $138.1 million project which also includes an in-place $25 million subordinated HUD Loan and $18.1 million of developer equity. The property is centrally located within the Hollywood submarket with numerous television and movie studios nearby. Hollywood has seen a resurgence spurred by significant public and private investments in infrastructure, retail, entertainment, hotel, and residential developments. Demand in the submarket is strong for new, creative office space due to robust job growth in the technology, media, and entertainment sectors. MULTI-FAMILY MEPT s multi-family portfolio including development assets delivered an 11.3% total unlevered return in The multi-family portfolio comprises 31.6% of MEPT s net assets at year-end STRENGTH AT THE CORE TEAM TRANSACTION AND DEVELOPMENT EXPERTISE The $1.4 billion in acquisitions, dispositions and financings that Bentall Kennedy s Transaction Team closed for MEPT in 2013 reflects the team s prudent underwriting, development expertise and strong deal execution capabilities. 8

11 (which does not include the value at completion for the assets under development). As part of the successful implementation of the Fund s strategic plan, the multi-family allocation has increased substantially from 24.2% of net assets at the end of Solid market fundamentals and strong tenant demand drove performance for operating assets and six projects under development during the year. Leasing demand for rental housing was driven by job growth in 2013 as well as the formation of households by the Echo Boom generation the 19 to 34 year old workforce. The multi-family operating portfolio was 93.6% leased at year end. MEPT s multi-family portfolio generated significant appreciation in 2013 from several assets including Via 6, a 654-unit, two-tower project in Seattle which became shell complete in May 2013, which was 88.2% leased at the end of the fourth quarter and contributed approximately $21.9 million in appreciation. Additionally, Hubbard Place, a 450-unit, 43-story development in the River North neighborhood of Chicago became shell complete in November with pre-leasing reaching 35.6% by year end 2013, and as a result, realized $18.7 million in value gains for the Fund in Furthermore, MEPT and the City of New Haven reached a settlement on a two-year property tax dispute regarding 360 State Street, a 98.4%-leased multi-family asset built by MEPT in Both parties agreed to lower the assessed value for the property and established a methodology for future assessments consistent with comparable properties. 5.5 MILLION SQUARE FEET OF GROSS LEASING ACTIVITY IN 2013 Largely as a result of this settlement, MEPT recognized $19.9 million of appreciation for 360 State Street, a property certified as Leadership in Environmental and Energy Design (LEED ) Platinum by the U.S. Green Building Council (USGBC ). During the year, the Bentall Kennedy Transaction Team continued to look for multi-family development opportunities for MEPT in markets with strong demographics, job growth, low vacancy rates, high barriers to entry, and strong effective rent growth. In October, MEPT committed $113.1 million to a joint venture development in San Francisco. Block 6, a 409-unit, $212.0 million project is located at 299 Fremont Street in the SoMa district in close proximity to the $4.7 billion Transbay Transit Center, which is under construction. The high-rise apartment complex is located within blocks of numerous employers in the Financial District and will cater to the area s large population of Echo Boomers by offering floor plans that feature luxury finishes and appliances and amenities, such as a bicycle storage and repair facility. Additionally, Block 6 will seek to achieve USGBC LEED Gold certification. This project will bring MEPT s apartment portfolio to approximately 9,000 units. At the end of 2013, MEPT had six apartment projects in development or initial leasing in supply-constrained, transit-served, urban, innovation markets with proximity to primary employment centers and high barriers to new construction. All of its construction commitments are designed, at a minimum, to achieve USGBC LEED Silver certification, consistent with the Fund s commitment to Responsible Property Investing to create, own and operate energy-efficient assets. These assets will not only further the Fund s goal of continually modernizing the portfolio, but they enable MEPT to earn a potential return premium associated with development and avoid purchasing PROACTIVE ASSET MANAGEMENT Bentall Kennedy asset managers steward MEPT properties throughout their life cycle and manage properties in order to maximize long-term performance, including proactively addressing lease rollover and maintaining tenant relationships which, in 2013, resulted in 282 leases representing 5.5 million square feet of gross leasing activity. RISK MANAGEMENT MEPT is committed to best-in-class fiduciary oversight for every stage of property ownership and fund management, including cost management, benchmarking, investment oversight, regulatory compliance and independent valuations, in order to minimize overall performance volatility and ensure MEPT is managed in the best interests of its participating plans and their beneficiaries. 9

12 MEPT Annual Report and Outlook FREMONT STREET (BLOCK 6), SAN FRANCISCO Property Type Multi-family Commitment $113,100,000 Units 409 Centrally-located in the South of Market (SoMa) submarket near employment, transportation, and entertainment, this highrise development will feature an appealing mix of unit types with luxury finishes and appliances, full-height windows with views of the City and San Francisco Bay and a comprehensive amenity package all of which should appeal to Echo Boom professionals. Just three blocks from the Transbay Transit Center, a multi-billion dollar infrastructure project that will redefine the core of San Francisco s Central Business District, 299 Fremont will benefit from the transformative Transbay District as it enhances the 24/7 live/work/play neighborhood. assets above replacement cost. Additionally, these assets will contribute significant income growth as the assets move from development to initial lease-up to operating status. There are also the added benefits of significant job creation and economic activity, of which MEPT estimates will create approximately 7.9 million green job hours for members of the Building Trades and generate over $1.8 billion of economic activity in the markets where the development occurs. $ 1.4 BILLION OF ACQUISITIONS, DISPOSITIONS AND FINANCINGS IN 2013 INDUSTRIAL MEPT s industrial portfolio was the best performing property type for the Fund and produced a total unlevered return of 16.0% for 2013, comprised of a 6.6% income return and 9.0% appreciation return. The appreciation return was attributable to significant leasing activity in the portfolio as well as to the rise in prices for well-located, modern facilities due to increased investor demand over the course of These factors positively impacted the appraisal assumptions and drove appreciation. NOI growth for the comparable property portfolio was 3.9%, year-over-year, and the operating portfolio was 94.4% leased at year end. Gross leasing in the industrial portfolio totaled 4.6 million square feet and included lease renewals for Fortune 500 companies such as Coca-Cola, Procter & Gamble, and Georgia Pacific. STRENGTH AT THE CORE DIVERSIFICATION 1 BY PROPERTY TYPE As of December 31, 2013 Multi-family 31.6% Retail 10.6% Land 0.7% Suburban Office 13.9% 10 1 Based on Net Asset Value Industrial 18.4% CBD Office 24.9%

13 The industrial allocation was 18.4% at year end and in line with the target weight for the portfolio. MEPT has and continues to focus on a build-to-core strategy where the Fund can build modern distribution facilities with best-in-class characteristics and amenities that meet tenant and investor demand. Furthermore, the Fund has sought to increase utilization of existing land assets. For example, at Gateway Distribution Center and Gateway Commerce Center in St. Louis, MEPT has built over 2.6 million square feet in the past eight years, including an expansion of 482,298 square feet in 2013 for Procter & Gamble. Given strong institutional demand for modern, well-leased, bulk distribution assets in 2013, MEPT marketed these assets for sale and sold the four buildings to two all-cash institutional buyers for a gross purchase price of $137.1 million, which equated to cap rates below 6.5% on both sales. RETAIL In 2013, MEPT s grocery-anchored and specialty centers were well positioned to serve their local area and demographic. For the year, the retail portfolio generated a total unlevered return of 11.7% and comprised 10.6% of the Fund s net assets. The retail portfolio was 93.9% leased at year end. Two assets, in particular, made notable contributions to the Fund s appreciation in Pacific Place, a 93.6% leased, 322,824 square foot, urban retail center in Seattle s CBD contributed $13.2 million of appreciation to the Fund in Additionally, Springbrook Prairie Pavilion, a 98.3% 91.3 % OF ASSETS ARE OPERATING leased, 278,844 square foot, grocery-anchored shopping center in suburban Chicago, generated $11.7 million in appreciation during the year MEPT OUTLOOK Based on the economic and commercial real estate outlook for 2014, the MEPT management team estimates that MEPT will produce a total return (gross of fees) in the range of 8.5% to 9.5% 3. Real estate should continue to be an attractive alternative investment for institutional investors in 2014, but cap rate compression is expected to moderate with value increases largely driven by improving fundamentals. As a result, leasing and NOI growth remain a top priority for the management team. The Fund s 2014 expected performance reflects continued strong income performance. The projected adjusted comparable property NOI is expected to grow by 3.1% in 2014, and with NOI contribution from development assets, total adjusted comparable NOI should grow by 8.4%, year-over-year. Substantial leasing is projected across the portfolio in 2013 and the Asset Management Team estimates that the portfolio will be over 94% leased by year-end 2014 due to positive net absorption. The portfolio s lease rollover remains quite manageable, and the Asset Management Team will continue to proactively work with tenants well in advance of lease expirations to renew or extend leases. The management team has set an acquisitions target of $600 million to $700 million for 2014 with an emphasis on build-to-core investment opportunities. MEPT will look beyond the multi-family sector as market conditions support development opportunities in the CBD office and industrial sectors. Furthermore, the Bentall Kennedy Transaction Team will continue to target investment opportunities in primary markets. Intense investor 3 Expectations stated in this report are subject to a variety of factors and risks. See Investment Considerations on page 24. BY GEOGRAPHIC REGION As of December 31, 2013 BY LIFECYCLE As of December 31, 2013 West 38.6% Midwest 16.2% East 36.1% South 9.0% Pre-development 0.7% Development 3.7% Initial Leasing 4.1% Re-development 0.3% Operating 91.3% 11

14 MEPT Annual Report and Outlook interest in primary markets has driven existing prices up; therefore, development projects may offer MEPT an attractive entry point into these markets as well as a return premium relative to existing asset purchases. The Fund s allocations are largely in line with MEPT s strategic targets so transaction activity in 2014 will help maintain a modern, state-of-the-art portfolio of assets. The management team is aiming to generate approximately $250 million to $350 million in net proceeds from dispositions in 2014 with sales focused on non-strategic assets. In 2014, MEPT will look to further reduce its borrowing costs. The debt capital markets continue to be attractive as interest rates remain close to historically low levels. However, it is likely that interest rates will rise in 2014 as the Federal Reserve winds down its stimulus policies. As a result, MEPT s preference will likely be for long-term, fixed-rate single asset loans. The Fund s maturity schedule is well-balanced as no single year s maturity exceeds 20% of the total debt portfolio. 9 4 % LEASED PROJECTED FOR OPERATING PORTFOLIO BY END OF 2014 MEPT will also maintain its commitment to sustainable development and energy-efficiency in its operating portfolio. In 2014, the Fund will specifically focus on three key areas of ESG (environmental, social and governance) management to drive value: 1) track key energy-efficiency performance indicators to monitor risk, 2) reduce expenses and energy-use to increase NOI, and 3) improve tenant loyalty due to energy-efficiency initiatives through communications, engagement and asset quality. MEPT s 2014 performance should be a reflection of the quality, size and location of the portfolio assets as well as its high occupancy, low lease rollover, solid income, and relatively moderate leverage. MEPT is now aligned with the strategic targets first contemplated by the management team over three years ago and the portfolio is positioned to address future challenges and opportunities in order to continue to offer investors a traditional, low-risk core fund option in the ever expanding open-end fund universe. The Fund is well positioned to deliver attractive risk-adjusted returns over the long term while maintaining and expanding its leadership in responsible investing, liquidity and risk management. MEPT LEASE ROLLOVER SUMMARY* As of December 31, Percent of Net Rentable Area 12.5% 11.5% 14.6% 12.1% 7.9% Percent of Total Revenue 10.7% 10.6% 15.0% 9.0% 10.4% * Consolidated Operating Industrial, Office and Retail 12

15 2014 Commercial Real Estate Outlook Doug Poutasse EXECUTIVE VICE PRESIDENT AND HEAD OF STRATEGY AND RESEARCH BENTALL KENNEDY 2014 COMMERCIAL REAL ESTATE OUTLOOK For the first time in a long time, there are signs that global economic growth is finally regaining momentum. The U.S. economic recovery continues to push forward despite multiple headwinds. Businesses remain profitable, households have significantly deleveraged, and the housing market continues to recover. While risks continue to exist particularly for U.S. political gridlock, severe weather and geopolitical issues in countries such as Syria and the Ukraine the agreement on a U.S. budget reached during the closing weeks of 2013 followed by the debt ceiling agreement in February 2014 were both good signs providing much needed certainty. Further, labor market trends show a private sector economy that continues to grow relatively unaffected by the 2013 government shutdown. Varied growth across employment sectors continues to have implications for metro-level job creation. The better-performing metros tend to have higher educational attainment levels and more innovative, technology-focused economies. Healthy job growth in these markets has resulted in stronger improvements in occupancies and rents. With the U.S. Federal Reserve now beginning to taper its quantitative easing (Q.E.) program, the U.S. is entering a period of flat to rising interest rates. The Bentall Kennedy Research Team believes any rise in interest rates is unlikely to have a materially adverse effect on commercial real estate pricing since long-term KEY PERFORMANCE DRIVERS: DEMOGRAPHICS AND INNOVATION As of December 31, 2013 PEAK (JANUARY 2008) TO TROUGH (FEBRUARY 2010) TROUGH TO DECEMBER 2012 DECEMBER 2012 TO DECEMBER 2013 Natural Resources & Mining Educational Services Health Services Leisure & Hospitality Professional & Business Services Management & Technical Consulting Computer Systems Design Management of Companies Other Professional and Technical Financila Activiities Accounting and Bookkeeping Legal -15% -10% -5% 0 5% 10% 15% 20% 25% 30% Source: Bureau of Labor Statistics Change in Employment 13

16 MEPT Annual Report and Outlook rates should ease slowly upward and property cash flows will be rising, barring any shocks to the markets. Further, the team does not expect this to materially affect valuations of prime properties because of their solid cyclical income growth. The exception will be bond-like properties with long-term lease profiles. The Fed will keep short-term rates low until there is more meaningful improvement in the labor market. If rates rise, it will likely be due to an improving economy, which could support healthier demand-side fundamentals and rising net operating income. REAL ESTATE OUTLOOK Commercial real estate should perform well over the next year since U.S. legislators appear ready to let the recovery resume unfettered. Continued recovery in many leading office and warehouse markets has pushed many to equilibrium levels, roughly two years after most apartment markets reached equilibrium. The result is rising rents and NOI. Apartment, urban office, modern distribution/warehouse and market dominant retail centers in primary markets and strong secondary markets are trading at or above replacement cost. Limited construction means even modest demand growth keeps absorption above supply growth, allowing occupancy growth in most markets and property types. The key drivers of future performance are demographics and job creation and Bentall Kennedy s Research Team expects these drivers to be most compelling in markets with well-educated populations and innovative economies. The U.S. is experiencing re-urbanization that will continue as the key demographic groups define their live, work, and play environments based on strength of amenities, transit access and walkability. Understanding and delivering appropriate product for the ever-evolving demands of aging baby boomers and the coming-of-age Echo Boomers will be essential. It is important to focus on the high-growth innovation job sectors technology, healthcare, education, and energy in order to identify the preferred high-demand growth markets. That said, the primary markets (i.e., New York, Boston, Washington, D.C., Denver, San Francisco, Seattle, Chicago) will remain strong investment performers, while select secondary markets (i.e., Austin, Raleigh-Durham, Portland) are emerging as economic and lifestyle factors support healthy growth. Compelling Opportunities: With desirable properties in strong markets increasingly trading above replacement cost, build-to-core development is an increasingly interesting opportunity, especially in the innovation driven markets. KEY PERFORMANCE DRIVERS: DEMOGRAPHICS AND INNOVATION As of December 31, 2013 Total Employment Change as a Percent of Peak 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% PEAK TO TROUGH TROUGH TO DECEMBER 2013 TROUGH TO DECEMBER 2012 PEAK TO DECEMBER % Austin Houston Dallas San Francisco San Jose New York Source: Bureau of Labor Statistics Salt Lake City Washington, DC Denver Baltimore Durham Boston Minneapolis Seattle United States Atlanta Portland, OR U.S. Markets Orlando San Diego Miami Philadelphia Chicago St. Louis Northern New Jersey Fort Lauderdale Los Angeles Orange County Phoenix Oakland West Palm Riverside Las Vegas 14

17 THE DYLAN, NEW YORK Property Type Multi-family Gross Asset Value $121,323,240 Net Asset Value $121,323,240 Units 165 Located in midtown Manhattan, this 165-unit, sustainably-built apartment building was completed in September It offers young urban professionals views of the Empire State Building, close proximity to major transportation hubs, and abundant nearby retail, dining and cultural options in a very dynamic neighborhood. By year end 2013, it was 80.6% leased, demonstrating that The Dylan at 309 Fifth Avenue is appealing to the Echo Boom population it was designed to serve. Particularly compelling opportunities are: Urban high-rise apartments near innovation centers High-volume warehouse/distribution facilities situated near major population centers and key intermodal/port facilities Urban office in innovation-driven locations evidencing pre-leasing or with very strong sub-market demand drivers NOI ONCE AGAIN PLAYING AN IMPORTANT ROLE Based on NCREIF Property Index as of December 31, % 12% 10% 8% 6% 4% 2% INCOME RETURN APPRECIATION FROM VALUATION EFFECT APPRECIATION FROM NOI GROWTH TOTAL RETURN 0 APARTMENT INDUSTRIAL OFFICE RETAIL Source: NCREIF Urban mixed-use projects which provide strong live, work, and play environments for Echo Boomers in leading innovation markets and locations. MULTI-FAMILY The U.S. apartment market remains a bright spot: economic recovery, stable homeownership, and favorable demographic tailwinds driven by Echo Boomers create substantial demand growth for apartments. Meanwhile, total development nationally is on par with historical levels. With job creation benefiting well-educated, younger workers who desire to live in urban areas, growth in urban populations will require more housing construction. As the economies expand in the tightest markets like Seattle, Boston, New York, and San Francisco, there is likely to be enough demand to support considerable levels of new supply. On a select basis, there may be opportunities to capitalize on fast-growing markets that are in the recovery phase of their economic cycle. Core Considerations: Development continues to be the focus as pricing for existing assets in preferred locations consistently exceeds replacement costs. Transit-oriented locations with better walkability remain essential. MEPT remains bullish on urban high-rise properties with full amenity packages in central locations. Projects are beginning to differentiate between target users (i.e., Baby vs. Echo Boomers) particularly relative to size and mix of units. As mentioned earlier, attention 15

18 MEPT Annual Report and Outlook SANSOME STREET, SAN FRANCISCO Gross Asset Value $181,000,000 Net Asset Value $105,000,000 Square Feet 353,686 Office demand is shifting from traditional to modern space, but modern doesn t have to be new. Though MEPT s 475 Sansome Street in San Francisco was built in the 1970s its design with tall floor to ceiling heights was ideally suited for modernization. Acquired by MEPT in 2012 after upgrades and a LEED Gold certification, more than three floors are occupied by Oracle. It is also well-located in a market with rising rents and is experiencing strong NOI growth. must be paid to proper design for target audiences. Additionally, Bentall Kennedy sees a development opportunity for MEPT for smaller mixed-use projects in preferred innovation neighborhoods. It s important to note that supply must be closely monitored, but in most primary markets and innovation hubs, demand growth remains at or above supply growth. OFFICE Office-using employment nationally is now just 0.05% below its 2007 peak. With economic and political uncertainties dissipating, Bentall Kennedy s Research Team forecasts office absorption to increase appreciably in Though the office recovery is broad-based, it remains concentrated in areas with knowledge-based industries such as technology, healthcare, and energy. The research team continues to see educational attainment accompanying high levels of innovation typically resulting in a strong local economy and a vibrant office market. Over the next year, there will be a growing need for new supply in a handful of innovation-driven office markets, as limited availability begins constraining tenant expansions. As young, educated professionals are increasingly massed in urban centers, urban locations become a more logical location for office space. Core Considerations: Many major office markets are entering the sweet spot of the cycle, with solid demand growth and little if any new supply driving vacancies down, resulting in rent and NOI growth. Bentall Kennedy has a long-term belief that urban markets will continue to outperform as skilled labor is drawn to city and town centers where they can successfully live, work and play. Acquisitions will be targeted that present greater prospects for NOI growth. As upward pressure continues to push rental growth in the innovation markets, select opportunities exist in build-to-core developments. These projects will be in high job growth sub-markets and will incorporate the STRENGTH AT THE CORE OUTLOOK FULLY-INTEGRATED RESEARCH PLATFORM From high-level strategic planning to proprietary real estate forecasting models that provide an outlook for every asset s market and submarket performance, Bentall Kennedy s Research Team ensures that MEPT s portfolio is well-positioned for the economic and capital market trends that will impact real estate market fundamentals. 16

19 best new design elements in order to accommodate the changing requirements of the innovation work force. Careful attention must be paid to assets with green/ sustainable features as they are gradually demanding premium pricing and are becoming a requirement for the majority of corporate America. INDUSTRIAL The outlook is positive for the industrial sector with improving demand and rising rents. Vacancies have dropped as demand has outpaced new supply. Over the past three years, new supply expanded at an average rate of just 0.44% whereas in prior peak periods inventory grew by more than 1.6% annually. To meet demand and the need for modern facilities, construction levels are likely to rise. Growing online retailers as well as brick-and-mortar retailers are modifying their distribution strategies to solve last-mile issues related to direct-to-consumer shipping. Increasingly, consumers are visiting stores, buying online and then returning items to the store. Movement of these items from warehouse to customer back to store and back into the warehouse/supply chain will be an interesting phenomenon to monitor. While investors will need to be cognizant of the evolving impacts of e-commerce, the overarching trend for the industrial market should be positive. Core Considerations: As economic activity increasingly moves into the major urban areas, demand for distribution/warehouse space will increase commensurately. Opportunities exist to acquire modern, functionally efficient properties and when prices exceed development costs, develop the same. Given the lower risk development characteristics of the distribution/ warehouse sector, the prospect of creating a return premium from development is quite possible. There are compelling e-commerce-driven opportunities. Acquisitions and built-to-suit demand will follow from the retail sector into the distribution/ warehouse sector. In addition, there is an increasing demand for high, clear height distribution centers located near major population centers/intermodal areas. For MEPT, Bentall Kennedy anticipates meeting this demand with active build-to-core development programs. RETAIL The outlook for retail is not as bleak as it was in previous years. Retailers will continue to employ cautious expansionary strategies, particularly as e-commerce represents a rapidly growing share of total sales. Some appear poised for modest expansion, with discounters such as Costco, Dollar General and H&M being the most aggressive and committed to taking more space. Improving consumer confidence, recovering home values and continued expansion in the U.S. economy should prove a boon to retail sales over the next several years. And since retailers are now selling more and spending less, their profits will only encourage additional expansions. Core Considerations: Competition from e-commerce and modest overall sales growth continue to challenge many traditional retailers. Commodity retail which does not offer a differentiated shopping experience is especially challenged. Maintaining an urban focus will be key as live, work, and play mixed-use locations continue to be developed. Additional focus needs to be placed on experiential/ high street retail both urban and in select suburban locations as there is increased competition for prime high street retail locations. Neighborhood centers in higher income areas with market leading grocers are strongly in demand and present additional targeted opportunities in retail. KEY THEMES FOR THE FUTURE Bentall Kennedy s research indicates that innovation-oriented markets that offer live/work/play environments have the most growth potential and as such, MEPT will pursue the most compelling urban office, apartment and mixed-use projects in those markets as well as seek high-volume warehouse/ distribution facilities serving those population centers. VISIONARY LEADER IN RESPONSIBLE PROPERTY INVESTING For over 30 years, MEPT has been an industry leader in leveraging its real estate investments to maximize their impact on local communities MEPT has created over 118,000 jobs and $15.9 billion in economic activity in the U.S. and the Fund owns energy-efficient assets including over 11.6 million square feet of LEED certified and 8.8 million square feet of ENERGY STAR labeled properties. 17

20 MEPT Annual Report and Outlook Responsible Property Investing Report RESPONSIBLE PROPERTY INVESTING (RPI) is an important and unique component of the MEPT investment strategy. The principles of RPI are founded in the belief that, where consistent with fiduciary responsibilities, including environmental, social, and governance (ESG) considerations into a fund s investment process can improve the risk management of a fund. E ENVIRONMENTAL MEPT is a leader in developing green building practices and identifying opportunities to capture the value created by sustainable projects. MEPT s ESG management practices for its operating portfolio enhances long-term asset value by reducing risks, reducing operating costs and increasing tenant loyalty. S SOCIAL G GOVERNANCE MEPT projects are well-built by trained craftsmen and women and completed on time and on budget. Since its inception, MEPT has required that all contractors working on its portfolio properties be signatory to collective bargaining agreements with recognized trade unions. MEPT s governance structure is designed to ensure that the management of the Fund is solely focused on investor interests. This is accomplished through a dedicated trustee, industry-leading governance expertise, and a high level of transparency in investor communications % OF OPERATING PORTFOLIO BENCHMARKED THROUGH EPA S ENERGY STAR PROGRAM YEAR MEPT BECAME SIGNATORY TO THE UNITED NATIONS PRINCIPLES OF RESPONSIBLE INVESTING (UN PRI) For MEPT s acquisitions and developments, the Fund carefully considers the environmental benefits of transit-oriented, accessible properties over the past three years, 74% of acquisitions were in transit-served, urban cores. 18

21 MEPT RPI ACHIEVEMENTS TARGET RESULTS ENVIRONMENTAL Sustainable Development and Redevelopment: MEPT seeks to achieve U.S. Green Building Council (USGBC) Leadership in Energy & Environmental Design (LEED ) Silver certification or higher for all development and redevelopment projects, as well as seek LEED certification on tenant build outs, wherever possible. High-performance, Energy-efficient Operations: MEPT participates in the U.S. Environmental Protection Agency s (EPA) ENERGY STAR Benchmarking Program and seeks to achieve the ENERGY STAR label for its operating assets. Additionally, MEPT has certified assets through the USGBC s LEED EBO&M Volume program and maintains a quality control and assurance program for all assets. 12 assets have LEED NC/SC/ND certification, totaling $1.7 billion or 4.8 million square feet. In 2013, MEPT made investment commitments totaling $208.1 million to two development projects seeking LEED certification. 61 buildings were benchmarked through the ENERGY STAR program, totaling $3.2 billion or 13.0 million square feet. 25 office and 12 industrial buildings earned the ENERGY STAR label, totaling $2.3 billion in value or 8.8 million square feet. 24 buildings have achieved LEED EBO&M certification and total $1.9 billion in value and 6.8 million square feet. SOCIAL Fair Labor Practices: MEPT seeks to uphold its Responsible Contractor Policy and seeks to use signatory contractors for all new construction, renovation or rehabilitation, and tenant improvements. By working with qualified signatory contractors and paying fair wages and benefits, MEPT aims to support the long-term health of the local communities where its properties are located. Tenant Well-Being and Satisfaction: MEPT s focus on environmentally-friendly assets means that tenants have a healthier and more productive building environment. MEPT seeks to use sustainable practices as a way to attract and maintain controllable tenant retention of more than 80%. Development activity in process and new commitments in 2013 included six multi-family projects and one office project, which are expected to generate approximately 9.5 million job hours for members of the Building Trades and $1.8 billion in economic activity in five U.S. markets. Additionally, tenant improvement work generated over 1.0 million job hours and over $199.3 million in economic activity. MEPT s operating portfolio went from 91.5% leased at the end of 2012 to 92.3% leased at year-end MEPT s portfolio achieved a 85.6% controllable net retention rate in GOVERNANCE The MEPT management team s commitment to industry-leading governance, including a dedicated bank trustee, seeks to ensure that the management of the Fund is solely focused on the interests of its investors and their beneficiaries. Studies on valuation best practices conducted by the Altus Group and Korpacz Realty Advisors for MEPT in 2013 confirmed that NewTower Trust Company continues to utilize industry-leading practices by employing the most thorough and independent quarterly appraisal and appraisal review processes for both real estate and debt in the valuation of the Fund. 19

22 MEPT Annual Report and Outlook RPI HIGHLIGHTS MEPT Investments Build Sustainable Communities Report Shows Million Job Hours and $15.9 Billion in Economic Activity in 40 U.S. Markets In their comprehensive report released in 2013, The Economic Impacts of MEPT Investments Across the U.S., ECONorthwest and Pinnacle Economics confirmed that by investing in MEPT, pension plans also play a vital role in stimulating local economies and creating good jobs. MEPT has invested a total of $7.5 billion 1 since 1982 which has translated into $15.9 billion in economic activity. MEPT has funded 283 construction projects in 40 U.S. markets. Since its inception, MEPT has sought to invest in real estate projects that, first and foremost, provide competitive returns for its investors. At the same time, MEPT s investments in new construction projects or capital improvements in existing buildings also creates a significant economic boost that reaches well beyond the direct beneficiaries of the Fund s participating plans. As a result, MEPT investment spending has a multiplier effect on communities which benefit from increased economic output, personal income, jobs and hours worked, and increased tax revenues for local governments, including: 118,000 jobs created $6.6 billion in income and benefits earned $526 million in tax revenues generated in 27 states and the District of Columbia. Of the $7.5 billion spent by MEPT since 1982, $6.0 billion represents hard costs (the services and labor provided by construction contractors). MEPT s hard cost spending on the construction of new buildings and second generation tenant improvements has had a significant direct economic impact on the signatory contractors and local union construction trades members working on MEPT s assets including: 42,450 jobs created 81.8 million hours of work generated $2.6 billion in wages and benefits earned $130.9 million in state personal income taxes paid by union workers The study also analyzed MEPT s investments that involved the latest sustainable building practices and energy-efficient property operations. Although MEPT s sustainable investments began in the 1990 s, MEPT officially began tracking its green investment activities in 2006 and since that time, MEPT has invested a total of $1.6 billion in sustainable development and energy-efficient property operations. These investments were made across 67 projects, in 19 markets and 16 states and the District of Columbia. 1 The report authors analyzed MEPT s projects acquired, built or invested in by the Fund from its inception in April 1, 1982 through December 31, Investments analyzed in the study were based on 2012 U.S. dollars. $7.5 BILLION INVESTED IN 283 CONSTRUCTION PROJECTS IN 40 COMMUNITIES 42,450 CONSTRUCTION JOBS AND 81.8 MILLION JOB HOURS CREATED WITH OVER 12,500 GREEN JOBS CREATED SINCE ,100 JOBS CREATED NATIONWIDE ACROSS MANY INDUSTRIES $15.9 BILLION IN LOCAL ECONOMIC ACTIVITY $3.4 BILLION IN WAGES AND BENEFITS IN THE CONSTRUCTION INDUSTRY AND PROFESSIONAL SERVICE SECTOR $ 6.6 BILLION IN PERSONAL INCOME AND BENEFITS CREATED $526.5 MILLION IN TAX REVENUE GENERATED $3.1 BILLION GENERATED FROM SUSTAINABLE PROJECTS Bentall Kennedy Participates in UNEP FI Initiative In 2013, Bentall Kennedy participated in the Property Working Group of the United Nations Environment Programme Finance Initiative (UNEP FI) to write Commercial Real Estate: Unlocking the Energy Efficiency Retrofit Investment Opportunity, released in early The paper outlines why and how asset owners and managers can create profitable energy efficiency investment opportunities and proactively manage the assets, even in cases where payback is uncertain. The report describes best practices from industry leaders and includes case studies of how investors can increase the value of their real estate assets through energy-efficiency retrofits. 3 RD PLACE 2013 GRESB U.S. DIVERSIFIED FUND RANK 20

23 MEPT Earns a Top Spot in the U.S. for Third Year by GRESB For the third year in a row, MEPT was ranked at the top of its peer set in the U.S. by the Global Real Estate Sustainability Benchmark (GRESB) as a result of the Fund s ESG performance. The published report ranks leaders in each asset class (retail, industrial, commercial and diversified) in each of the following regions: Americas, Asia, Oceania, and Europe. MEPT was ranked third out of 26 real estate funds in the U.S. in the Diversified category, which GRESB defines as no single asset class representing more than 60% of assets. MEPT was also identified as a Green Star, a fund with an integrated organizational approach towards measurement and management of environmental key performance indicators. This ranking reflects MEPT s commitment to ESG principles. The data compiled through the survey is evidence that MEPT s commitment to ESG is complementary to our commitment to retain and enhance asset value over time for our investors, stated David Antonelli, Executive Vice President and MEPT Portfolio Manager, Bentall Kennedy. The survey is conducted by the GRESB Foundation to measure the ESG performance of listed and private ENVIRONMENTAL property funds. This year, participation in the research survey included 543 property companies and funds, and U.S. $1.6 trillion in global assets under management. The GRESB Foundation created the survey to provide a tool for institutional investors to assess real estate funds on their ESG performance, which the Foundation believes helps investors fulfill their fiduciary responsibility. MEPT PERFORMANCE SOCIAL GOVERNANCE MEPT RPI SPOTLIGHT: Via6 Via6, Seattle Gross Asset Value $146,643,119 Net Asset Value $146,643,119 Units 654 Via6, a 654-unit, two-tower apartment complex built by MEPT in Seattle, was named the Mixed-Use Development of the Year by the Washington State chapter of the National Association of Industrial and Office Properties (NAIOP) for its outstanding quality, success in the marketplace and uniqueness in design. In 2013, Via6 also achieved LEED Gold certification from the U.S. Green Building Council. The property has been a strong performing asset for MEPT and has benefitted from its central location and strong demand from young professionals. The project started in 2011 when MEPT committed $102 million to develop Via6, a joint venture development. Via6 is proximate to the city s retail and entertainment core, and the primary transit hub providing access to monorail, streetcars, express buses, and the expanding regional light-rail network. Importantly, the property is within easy walking distance of major employers in the region s dominant CBD, and South Lake Union s flourishing bio-tech district, which is home to Amazon s headquarters, the region s emerging biotech center, and the new Gates Foundation campus. Via6 s location in Seattle is at the heart of one of the downtown s most dynamic neighborhoods, Belltown. Construction began at the end of 2011 and the project was delivered in the third quarter of Via6 was over 88% leased by year-end $ 3.6 BILLION VALUE OF LEED CERTIFIED ASSETS As the largest open-end fund in the country with a strict Responsible Contractor Policy and a growth strategy focused on new construction opportunities, MEPT is poised to continue to make a meaningful environmental and social impact for its pension plan participants and their communities. 21

24 MEPT Annual Report and Outlook Appendix I: MEPT Performance All MEPT returns are calculated in accordance with the Real Estate Information Standards (REIS) as governed by the National Council of Real Estate Investment Fiduciaries (NCREIF) and the Pension Real Estate Association (PREA). MEPT s real estate advisor, Bentall Kennedy, prepares schedules of investment performance that are independently verified by Peterson Sullivan PLLC for compliance with the Global Investment Performance Standards (GIPS) as governed by the CFA Institute. Bentall Kennedy complies with all the composite construction requirements of the GIPS standards on a firm-wide basis, and the firm s processes and procedures are designed to calculate and present performance results in compliance with the GIPS standards. The performance data presented as of December 31, 2013 is compiled from the same information sources Bentall Kennedy used to prepare previous GIPS compliant schedules; the performance data as of December 31, 2012 was audited by Peterson Sullivan and found to be fully GIPS compliant. The 2013 audit is expected to be completed in July Total Return Total return, in accordance with REIS, is computed by adding the NOI/loss and capital appreciation/depreciation for each property in the portfolio, as well as any realized gain/ loss on asset dispositions. This valuation is done on a calendar quarter basis, and completed ten business days after the quarter end. Net Operating Income NOI is calculated on a property-by-property basis according to GAAP. Real estate revenue is reported when contractually earned and billable to be consistent with the valuation methodology used to determine unrealized gains and losses. Annualized Returns Annualized returns are computed by chain linking, or compounding quarterly returns. Returns are annualized for periods over one year to time weight, and therefore more effectively compare returns with other indices. MEPT s returns since inception are presented below: MEPT RETURNS SINCE INCEPTION* Year Net Income Portion of Return Net Capital Appreciation (Depreciation) Portion of Return Total Net Return Gross Income Portion of Return Gross Capital Appreciation (Depreciation) Portion of Return Total Gross Return % 6.82% 11.83% 5.72% 6.82% 12.83% % 0.20% 4.70% 5.42% 0.20% 5.63% % 8.31% 12.99% 5.35% 8.31% 14.00% % 9.14% 13.91% 5.47% 9.14% 14.99% % % % 5.94% % % % % % 4.80% % -9.63% % 10.34% 15.18% 5.41% 10.34% 16.16% % 9.68% 14.63% 5.56% 9.68% 15.64% % 12.99% 18.49% 6.01% 12.99% 19.58% % 5.95% 11.25% 6.09% 5.95% 12.30% % 2.85% 8.61% 6.68% 2.85% 9.67% % -4.18% 1.58% 6.99% -4.18% 2.59% % -0.20% 5.83% 7.12% -0.20% 6.91% % 6.02% 11.49% 6.39% 6.02% 12.69% % 6.20% 11.64% 6.42% 6.20% 12.91% % 7.19% 12.97% 6.81% 7.19% 14.36% % 3.90% 10.69% 8.02% 3.90% 12.15% % 1.98% 8.77% 8.10% 1.98% 10.20% % 2.42% 8.87% 7.75% 2.42% 10.31% % -2.87% 2.50% 6.89% -2.87% 3.89% % -5.39% 0.52% 7.56% -5.39% 1.89% % -8.91% -3.31% 7.40% -8.91% -1.97% % -4.26% 1.54% 7.40% -4.26% 2.93% % 0.79% 7.59% 8.20% 0.79% 9.03% % 0.06% 7.37% 8.77% 0.06% 8.83% % 0.92% 7.22% 7.75% 0.92% 8.71% % 2.88% 9.22% 7.74% 2.88% 10.77% % 0.86% 8.16% 8.84% 0.86% 9.76% % -0.08% 7.98% 9.66% -0.08% 9.58% % 0.52% 10.83% 11.90% 0.52% 12.45% % 0.28% 9.09% 10.40% 0.28% 10.70% % 0.00% 7.70% 8.66% 0.00% 8.66% *From April 1, 1982 inception. 22

25 Appendix II: Investment Management Fee The Trustee of Multi-Employer Property Trust charges an annual, investment management fee based on the net assets of MEPT. The fee is determined as follows: 1.25% on the first $1 billion of MEPT total net assets, 1.0% on the second $1 billion of MEPT total net assets, and 0.75% on MEPT total net assets above $2 billion. Cash balances in excess of 7.5% of Property Trust net assets are excluded from the above fee calculation and will be subject to an annual fee of 0.15%. Therefore, the fee decreases as MEPT grows. There are no charges for entry or exit. The Trustee charges no additional fees of any kind to the investors. There is no minimum required account balance. The fee structure provides positive incentives and flexibility for the management team to concentrate on overall fund performance. As of December 31, 2013, the MEPT annual fee was approximately 0.90%. 23

26 MEPT Annual Report and Outlook Investment Considerations Past performance is not indicative of future results. Performance objectives (whether based on market conditions that affect MEPT or on MEPT itself) reflect a variety of assumptions, which may not be realized and are subject to significant uncertainties and contingencies. MEPT makes equity and debt position investments in commercial real estate. Performance goals, including investment returns (i.e., changes in MEPT s Unit Value), acquisition, disposition, and leverage levels, portfolio diversification (including cash position), portfolio occupancy and leasing rates could be adversely affected and may not meet expectations due to factors including, but not limited, to the U.S. economic recovery and job growth falling short of expectations, changes in economic conditions specifically affecting certain industries or geographic regions, demand for commercial real estate space not meeting expectations, certain markets experiencing oversupply of competing product, shifts in current demographic trends, consumer spending not meeting expectations, rising interest rates and increased borrowing costs, declining occupancy rates, unexpected tenant bankruptcies, insolvencies, or defaults, changes in government regulations, failure of rent growth to meet expectations, unexpected increases in property tax assessments, unexpected changes in retail and warehouse demand due to the evolution of e-commerce, unexpected increases in property level operating costs, or construction and leasing of current and future development projects failing to meet schedule and budget expectations. Furthermore, MEPT s ability to meet its liquidity objectives could be adversely affected by higher than expected redemption requests or portfolio cash requirements or an inability to achieve disposition goals. Additionally, the likelihood that MEPT could gain additional value from its environmental and sustainable focus depends in part on tenant and investor demand, and government policies. MEPT s statements of current plans and goals for the MEPT portfolio are not commitments by MEPT to take any particular actions with regard to the MEPT portfolio, nor are they promises that any stated goals will be met. MEPT expressly reserves the right to change or eliminate any of its current plans or goals, at any time. MEPT assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. MEPT is intended as a vehicle for long-term investments. Compared with many other asset classes, real estate is a relatively illiquid investment. MEPT is open to investments by qualified pension plans only. Questions regarding MEPT s performance or current plans and goals should be directed to: Pamela Silberman Senior Vice President Landon Butler & Company 700 Thirteenth Street NW Suite 925 Washington, DC Phone: psilberman@lbutler.com 24

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