Annual Report and Outlook Net Asset Value $5.42 billion $4.34 billion $4.08 billion. Participating Pension Plans

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1 Annual Report and Outlook Table of Contents Page 2 Retrospective Page a Year in Review Economic Overview Commercial Real Estate Recovery MEPT Page Outlook Economy and Commercial Real Estate Markets Outlook for MEPT Page 14 Responsible Property Investing Report Page 18 Appendix I MEPT Performance Page 19 Appendix II Investment Management Fee Page Consolidated Audited Financial Statements MEPT Highlights Net Asset Value $5.42 billion $4.34 billion $4.08 billion Participating Pension Plans Committed Acquisitions 1 $1.4 billion $386.3 million $43.7 million Dispositions Net Proceeds 2 $518.7 million $342.9 million $355.6 million Real Estate Assets Operating Portfolio (square feet) 39.7 million 36.3 million 34.8 million Operating Portfolio (percent leased) 89.7% 86.3% 89.6% 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.

2 Retrospective When MEPT was founded in 1982, it had a simple mission to responsibly and conservatively invest pension dollars in commercial real estate while creating jobs and economic activity in local communities. As MEPT celebrates its 30 th anniversary, the Fund s longevity, growth and performance have proven that such a simple strategy is viable and sustainable. MEPT s management team is especially grateful for the leadership exemplified by the Fund s first five participating plans, which committed $16 million to MEPT and which all remain invested in MEPT 30 years later. After receiving $561 million of investor commitments in 2011 a record for MEPT the Fund is pleased to count more than 360 participating plans as investors. The faith and confidence of MEPT s investors have enabled the Fund to capitalize on market opportunities and the real estate industry s growth. MEPT s success and the sustainability of its strategy, would not be possible without such a loyal partnership. MEPT has grown to over $5.4 billion in net assets, which makes it one of the largest open-end, diversified, core equity real estate funds available in the U.S. and enables it to provide many advantages to its participating plans: Liquidity: MEPT s management team is committed to providing superior liquidity to its investors the ultimate test of an open-end fund because of a guiding principle that the team is first and foremost a steward of our investors assets. As a result, MEPT maintained a top liquidity track record throughout the recent financial crisis: MEPT was the last open-end fund to put a redemption queue into place and the first to fully pay it off, while providing partial liquidity throughout the crisis MEPT Timeline Economic Timeline 5 investors commit $16 million and MEPT commences operations Prime rate hits 17% U.S. unemployment rate hits 9.8% U.S. Recession MEPT incorporates first green features to satisfy a tenant s criteria Space Shuttle Challenger explosion U.S. Tax Reform Act MEPT NAV $500 million 98 investors Dow Jones Industrial Average plunges 508 points U.S. Savings & Loan Crisis MEPT becomes one of the largest open-end funds in the U.S. MEPT NAV $660 million 105 investors Exxon Valdez runs aground Operation Desert Storm U.S. Recession Hurricane Andrew hits Florida/Louisiana Deficit Reduction Act signed by Pres. Clinton Study shows MEPT s projects since inception create over 11.4 million construction job hours and $1.5 billion of economic impact in U.S. MEPT portfolio grows to 8.4 million square feet in 22 markets MEPT NAV $1 billion 102 investors Oklahoma City bombing DJIA closes above 5000

3 Top-quality Portfolio: MEPT is able to be a meaningful participant in the marketplace and therefore access top-quality investment opportunities. In 2011, the Fund completed a record $1.9 billion in transactions, and the portfolio expanded to include 146 investments in 29 markets around the country. Stable Income: MEPT s 40 million square foot operating portfolio, which was 89.7 percent leased at year-end, generates a stable income stream (7.39 percent annual gross return since inception). The income from the portfolio not only bolsters the Fund s total return, but it generates cash that is available for liquidity, acquisitions, and re-investment in the Fund s properties. Since 1982, MEPT s governance and management structure has evolved and endured several cycles of global corporate and financial turmoil. The management team s consistent commitment to uphold fiduciary standards, maintain superior transparency, and diligently execute the Fund s strategy has led to success over several market cycles. In 2008, as a testament to its on-going commitment to good governance, MEPT was the first U.S. open-end fund to sign onto the United Nations Principles of Responsible Investment (UNPRI). Over the last 30 years, MEPT has emerged nationally and globally as a leader in responsible property investing. In 1982, MEPT committed to use only contractors signatory to collective bargaining agreements to construct its buildings, thereby creating jobs that pay competitive wages, provide important benefits, and help sustain local communities. MEPT has created over 85 million job hours and nearly $17 billion in economic activity in the markets where it has invested. More than 10 years ago, MEPT strategically began to explore opportunities to ensure that the buildings themselves were sustainable by adopting and pioneering property-level, energy-efficiency standards and green building operations and construction practices. In 2011, the Global Real Estate Sustainability Benchmark Foundation (GRESB ) report ranked MEPT #1 in the Americas and #5 globally among 340 real estate managers. Most importantly, MEPT s experience has proven that the triple bottom line is achievable, and that investors can do well by doing good. Indeed, MEPT s performance, since inception, has out-performed its benchmark, with below-benchmark risk. Similar to the past 30 years, the future will surely bring significant social and economic events that investors, and MEPT, will have to navigate. However, that which has sustained MEPT for the past 30 years the Fund s proven investment strategy, the management team s discipline and focus, and the investors confidence will sustain MEPT for the next 30 years and beyond. MEPT thanks its investors for their confidence and for entrusting us with your assets. It has been an honor to serve you and we look forward to many more successful years together Since 1995, MEPT s projects create over 4.3 million more construction job hours MEPT portfolio grows to over 21 million square feet MEPT begins EPA s ENERGY STAR benchmarking program to measure energy efficiency MEPT provides over $1.2 billion in liquidity to investors during financial crisis. MEPT earns first USGBC LEED certification for Portland, OR building Highest one-year return in Fund history: 18.5% (net of fees) MEPT becomes signatory to UNPRI Since 2003, MEPT projects create 14 million more job hours a total of 67 million job hours since inception and $13 billion in economic impact Japanese recession begins MEPT NAV $2.1 billion 148 investors U.S. jobless rate hits 4% lowest in three decades DJIA has record losing year DJIA hits 11,000 mark U.S. poverty rate falls to lowest in 20 years U.S. Recession Since 1998, MEPT projects create 15 million more construction job hours U.S. invades Iraq September 11 th Terrorist Attacks U.S. invades Afghanistan Stock market falls for second straight year MEPT NAV $5.0 billion 259 investors Hurricane Katrina hits the Gulf Coast MEPT NAV peaks at $7.2 billion 328 investors DJIA rises to record high U.S. retirement assets grow to $17.9 trillion Subprime mortgage crisis starts Federal Reserve takes emergency steps U.S. Recession MEPT Edgemoor formed for income benefits and new capital sources U.S. poverty rate jumps to 14.3% highest since 1994 MEPT NAV $5.4 billion 363 investors Arab Spring Japanese Earthquake Iraq war ends MEPT named #1 in the Americas by GRESB survey Portfolio grows to over 40 million square feet 3

4 2011 A Year In Review Despite the challenges of a volatile economic environment and a modestly improving commercial real estate market, MEPT had a record year on many fronts: MEPT produced a total return of 14.0 percent, gross of fees ranking the 2011 return as one of the highest annual returns in MEPT s 30-year history. The Fund s investment activity in 2011 was the largest volume of transactions that MEPT has ever closed in a single year with approximately $1.4 billion committed to new investments, and over $500 million in net proceeds from asset sales and loan payoffs to the Fund. Net investment in the Fund by 81 existing investors and 29 new investors was the highest in the past 30 years, and MEPT ended the year with over 360 participating plans. MEPT was ranked 1 st in the Americas and 5 th globally for its environmental and social performance, as measured by the Global Real Estate Sustainability Benchmark (GRESB) Foundation. As evidenced by these achievements, MEPT s disciplined investment strategy has proven to serve the Fund well through many economic and real estate cycles and continued to provide much needed stability in Economic Overview Economic growth in the U.S. improved in 2011, although at a slow and tenuous pace. The residual effects of the financial crisis that began in 2008 remained a factor in 2011, and at times, kept the U.S. economy from establishing a stable and steady pattern of growth. The year started with a jolt to the global economy caused by the earthquake and tsunami in Japan which disrupted global supply chains and multiple industries. Additionally, the struggling U.S. housing market, modest job growth, state and local government fiscal pressures, the European debt crisis, and political brinkmanship over U.S. fiscal policy all weighed on business and consumer sentiment, hindering economic growth. Furthermore, business investment in equipment and software, which had been a strong driver of growth early in the year, stalled in the fourth quarter due to rising concerns about sovereign debt defaults and their impact on the U.S. economy. Nevertheless, there were meaningful improvements which resulted in economic growth year-over-year. Factory orders, exports and business spending rebounded. Additionally, the manufacturing sector, which accounts for approximately 11 percent of the U.S. economy, continued to expand December 2011 was the 29th consecutive month of expansion, according to the Institute for Supply Management s index. In the U.S. and abroad, demand for U.S. products and inventories increased. Moreover, the U.S. consumer continued to deleverage and household bankruptcies declined during the year. While consumer spending remained subdued and below pre-recession highs, year-over-year retail sales in 2011 increased by 6.5 percent. Job growth accelerated in late 2011, and as a result, the unemployment rate fell to 8.5 percent in December from 9.0 percent in September 2011, according to the U.S. Bureau of Labor Statistics. In 2011, employment rose by 1.8 million jobs with year-over-year job growth of 1.4 percent. A closer look at employment statistics shows that private sector job growth was even stronger, at 1.9 percent growth year-over-year as of December The private sector job growth was broad based with increased retail trade, manufacturing, and construction employment. However, federal, state, and local government job cuts offset some of the gains in the private sector, dampening the progress made in overall employment growth. Consumer spending was a key driver of GDP growth in late 2011, 4

5 increasing to a 2.1 percent annual rate from 1.7 percent in the prior quarter. Additionally, the Conference Board s consumer confidence index rose to 64.5 in December 2011, its highest level since April 2011 and a considerable improvement from its low of 25 in February However, even with recent improvement, the index continues to show consumers are far from exuberant. The consumer confidence index averaged approximately 100 points between 2004 and 2007, and averaged about 80 points over the past 10 years. As a result, Real Gross Domestic Product (GDP) grew at an annual rate of 3.0 percent in the fourth quarter, up from the annual rate of 1.8 percent at the end of the third quarter and the fastest growth since the second quarter of 2010, according to the U.S. Bureau of Economic Analysis. Commercial Real Estate Recovery In combination, all of these factors including GDP growth and modest job growth had a positive impact on demand for commercial real estate space in the U.S. in Additionally, the fact that new construction has been limited in recent years has been beneficial to U.S. commercial real estate markets since there has been very little new supply as demand has increased. Consequently, conditions in the U.S. commercial real estate sector continued to improve during the year across a variety of property types and markets. While fundamentals were modestly improving, institutional investors seeking yields in excess of those available in the equity and bond markets pursued investments in high-quality, core real estate assets in gateway markets driving prices upward and capitalization rates 1 lower. Thus, substantial capital inflows into commercial real estate and improving market fundamentals contributed to a significant turnaround and rapid recovery in values for the asset class, from which MEPT benefitted. The leasing environment varied dramatically from market to market and by property type. Coastal markets with stable job growth, such as New York, Washington D.C., and San Francisco, continued to experience increasing demand and stabilizing rental ( 1 A cap rate or capitalization rate is an approximation of expected current income yield determined by dividing net operating income by the purchase price.) rates, while other markets hardest hit by the recession continued to have double digit vacancies and declining rents. Nationally, vacancy rates declined year-over-year for the apartment, office and industrial sectors, but vacancy was slightly higher for neighborhood, community, and strip center retail. During 2011, the number of commercial real estate properties on the market for sale increased as pricing became more attractive to sellers. Well-located, and well-leased multi-family, central business district (CBD) office, modern industrial distribution facilities and grocery-anchored retail were in high demand from investors throughout the year, driving yields lower for those property types. Additionally, investor interest and transaction activity increased noticeably at the end of 2011 for the industrial sector, which on average had the highest yields of any property type at year end. Most of the capital pursued institutional-quality assets in the markets with the best fundamentals Washington, D.C., New York, Boston, San Francisco and Los Angeles. Pension fund advisors, non-traded REITs, sovereign wealth funds and publicly-traded REITs were all active buyers for core and coreplus assets. As a result, the competition for attractively priced investment opportunities intensified. While prices improved in 2011 across all property types, the degree of improvement varied greatly by property type and market. For example, according to Real Capital Analytics (RCA), cap rates for apartment properties in Manhattan averaged 4.5 Cap Rate U.S. COMMERCIAL REAL ESTATE TRANSACTION CAP RATES ( ) 11% 10% 9% 8% 7% 6% 5% 4% Source: Real Capital Analytics Provided by Bentall Kennedy Research Apartment Industrial Office Retail

6 percent while cap rates for apartments remained above 7.5 percent in certain tertiary markets. In the office sector, declining cap rates for properties in the CBDs of Boston, Chicago, San Francisco and Los Angeles caused investors to seek higher yielding alternatives in suburban submarkets of major metro areas, leading to some improvement in the fourth quarter in office cap rates in those markets as well. Nationally, cap rates for industrial assets fell by 60 basis points over the year, but transaction volume slowed in the fourth quarter. Finally, groceryanchored retail centers experienced more yield compression than most other property types. Nationally, real estate investment sales activity in 2011 totaled $220.0 billion and involved over 14,700 properties in 2011, according to RCA. The volume of property transactions increased by 57 percent over 2010; however, most of the increased sales activity occurred in the first three quarters of the year, losing momentum by year-end. MEPT Based on research and analysis of current and forecasted macro-economic and commercial real estate trends prepared by MEPT s real estate advisor, Bentall Kennedy, the management team updated MEPT s five-year strategic plan in The plan is intended to enhance the Fund s ability to deliver competitive risk-adjusted returns by pursuing certain property type and geographic diversification targets, providing for efficient cash and leverage management, taking advantage of the low interest rate environment, maximizing net operating income, and capitalizing on the management team s development capabilities. MEPT s five-year strategic plan includes the following key objectives: Work aggressively to achieve the following diversification targets for the MEPT portfolio through acquisitions and dispositions. Relative to the NCREIF Fund Index Open- End Diversified Core Equity (NFI-ODCE) benchmark, strategic weighting targets are as follows: Overweight apartments in primary markets and product types particularly appealing to the Echo Boom generation (i.e., the 19 to 34 year old population currently entering the workforce). Reduce the Fund s overall office allocation and shift the weighting within office from suburban to urban properties; Raise retail weighting, targeting grocery-anchored retail centers and urban mixed-use projects in the best submarkets in major markets; Maintain industrial weighting with emphasis on primary U.S. population centers with direct access to main shipping hubs; Underweight the benchmark in the South; overweight the East. MEPT DIVERSIFICATION BY GEOGRAPHIC REGION AS OF DECEMBER 31, 2011 Midwest 18.2% East 42.9% South 5.7% West 33.1% Note: Based on Net Real Estate Asset Value. MEPT DIVERSIFICATION BY LIFE CYCLE AS OF DECEMBER 31, 2011 Operating 96.5% Pre-Development 1.0% Development 1.7% Re-Development 0.8% Note: Based on Net Real Estate Asset Value. 6

7 Use development when/where existing product is trading at a significant premium to replacement cost; Selectively increase leverage (to the lesser of 25 percent of gross assets or NFI-ODCE s average leverage) to capitalize on historically low interest rates; Manage fund-level cash at necessary levels to provide liquidity to investors while also meeting the Fund s commitments in managing an approximately 40 million square foot real estate portfolio, including development fundings, acquisitions, property operations and debt service; Maintain leadership in Responsible Property Investing (RPI) to ensure a modern, efficient, well-built portfolio. In 2011, as the recovery in commercial real estate gained momentum, the MEPT management team was particularly focused on acquiring existing assets at attractive yields, and in those markets and asset types where cap rates had decreased substantially, consider new development opportunities. Furthermore, in order to achieve the property type and geographic sector target weights in the strategic plan, the team was actively selling assets that were underperforming expectations or no longer fit with the Fund s investment strategy. In 2011, the team targeted $800 million to $1 billion in acquisitions for the Fund. MEPT exceeded its goal, and completed over $1.4 billion in investments, representing 4.4 million square feet in 12 markets, including: 18 existing assets: two CBD-office assets, one industrial building, 14 grocery-anchored retail centers, and one multi-family asset; Four development commitments: three multi-family projects, and one suburban office build-to-suit project; and, Funding of one mezzanine loan to finance a multi-family development. MEPT has sought to increase its allocation to apartments because the sector remains very healthy and the vacancy rate continues to decline. The national apartment vacancy rate was 5.2 percent at the end of 2011, according to REIS, Inc. There is an inadequate supply of new units relative to demand, which is driven by an overall decline in homeownership in the U.S., improving job growth, and the formation of households by the Echo Boom generation in urban centers. Neither completions nor construction starts are at levels that will satisfy the anticipated growth in demand. Because of these trends, investors have been aggressively acquiring well-leased, well-located mid and high-rise multi-family assets in urban markets. In 2011, MEPT purchased one existing multi-family asset and made commitments to finance or fund development of five new projects. As prices for existing assets increased, the management team determined that the projected risk-adjusted return on cost for certain developments would exceed current yields for existing assets to the extent that new construction could be justified. MEPT DIVERSIFICATION BY PROPERTY TYPE AS OF DECEMBER 31, 2011 Industrial 18.8% Land 1.0% Retail 7.6% Hotel 0.3% Multi-family 18.0% Office 54.4% Note: Based on Net Real Estate Asset Value. MEPT also focused on increasing its investment in the retail sector in MEPT s investments were primarily in shopping centers that are leased to the dominant grocer in the market, have minimum near-term rollover and serve affluent, densely populated areas, making the centers attractive long-term investments for the Fund. Based on Bentall Kennedy s research, the management team believes that consumer demand for necessity goods will continue to drive sales growth at grocery-anchored, neighborhood centers with solid demographics and attractive long-term growth prospects. In order to increase the Fund s allocation to CBD office assets and reduce its weighting to suburban office assets, MEPT targeted urban or close-in high density locations where barriers to entry result in higher long-term occupancy and material growth over time. In particular, the Fund focused 7

8 on select opportunities in markets with above-average concentrations to certain industries anticipated to grow in the near-term, such as information services, business services, and healthcare/ education. MEPT acquired 200 West Madison, a 928,040 square foot, Class A office building in Chicago s West Loop neighborhood for $217.5 million, and Newport Tower, a 1.1 million square foot, high-rise office tower in Jersey City, New Jersey, for $377.5 million. Both assets are in urban, infill locations, are well-leased, and have environmentally-efficient property operations. The team aimed to generate $400 million to $500 million in net sales revenue from dispositions of assets that no longer fit with the Fund s long-term strategy: MEPT exceeded its sales objective, generating $518.7 million in total net sales price and completed the sale of 14 assets and three partial assets, as follows: 9 office buildings 4 industrial buildings 2 land parcels 1 hotel 1 garden-style multi-family asset, and the receipt of full repayment to MEPT on two mezzanine loans. MEPT s 2011 performance resulted in a total gross return of percent, composed of 5.35 percent income and 8.31 percent appreciation. The Fund s performance exceeded the management team s original expectation of 9 percent to 11 percent (gross of fees) return set at the start of A significant contributor to net operating income during the year was the stable income generated by the 39.7 million square foot operating portfolio. In addition, leases at certain development assets enhanced revenue late in 2011 as tenants moved in and began to pay rent. Gross leasing activity for 2011 totaled over 5.7 million square feet in over 300 leases. As a result, the Fund s operating occupancy increased to 89.7 percent at the end of December, Mept 2011 Returns Gross of Fees Gross Income Appreciation Total Return First Quarter 1.17% 2.24% 3.41% Second Quarter 1.14% 2.53% 3.67% Third Quarter 1.64% 1.86% 3.51% Fourth Quarter 1.30% 1.43% 2.73% Annualized Gross Returns* 5.35% 8.31% 14.00% *Due to compounding, totals may be different that the sums of each period. up from 86.3 percent at year-end MEPT s controllable net retention in 2011 was 99.7 percent, well in excess of its goal of 80 percent. Additionally, with more than 1,300 leases in place, an important asset management metric for MEPT is the tenant accounts receivable and write-offs delinquency rate. MEPT s tenant accounts receivable delinquencies and writeoffs at December 31, 2011 represented approximately only 0.5 percent of total revenue. A major positive contributor to both income and appreciation in the portfolio was the full payoff of a mezzanine loan to MEPT by the equity partners of 200 Fifth Avenue, a well-leased office building in New York City, after the property was recapitalized. The recapitalization was the second largest office transaction in the U.S. during the third quarter. Appreciation in the portfolio was largely attributable to continued cap rate compression for high-quality properties in primary markets with stable leasing and operating fundamentals and evidenced rent growth. Multi-family assets and CBD office assets contributed the greatest appreciation. In the fourth quarter, several industrial assets located in major regional distribution hubs also experienced material value improvement. Appreciation in the portfolio was also meaningfully impacted by positive leasing activity at certain assets as well as improving rent growth assumptions. Further, certain assets benefited from the expiration of rent concessions while other assets experienced higher than expected leasing activity. 8

9 In Detail MEPT 2011 Acquisitions Multi-family Property Name Market Gross Purchase Price/ Commitment Square Feet/ Units Occupancy at 12/31/11 Rendering Rendering Rendering The Vermont Los Angeles $65.2 million 464 units Development (Mezzanine Loan) 360 West Hubbard Chicago $75.7 million 450 units Development (Joint Venture) 309 Fifth Avenue New York $101.1 million 165 units Development Enso Pearl District Portland, OR $54.5 million 152 units 86.8% Rendering Sixth and Lenora Seattle $102.0 million 654 units Development (Joint Venture) Office Courtesy of Transwestern Rendering 200 West Madison Chicago $217.5 million 928,000 square feet Milestone V Washington, DC $40.8 million 162,000 square feet 89.7% Development 9

10 In Detail MEPT 2011 Acquisitions Office Property Name Market Gross Purchase Price/ Commitment Square Feet/ Units Occupancy at 12/31/11 Newport Tower New York $377.5 million 1.1 million square feet 87.5% Retail Woodland Park Crossing Washington, DC $62.4 million 137,000 square feet 97.5% Westwood Village Seattle $78.1 million 303,700 square feet 96.1% Penn Mar Shopping Center Washington, DC $60.2 million 387,000 square feet 91.8% Shopping USA Portfolio Atlanta, Miami, Tampa, Austin, Orlando $130.0 million 842,300 square feet 93.6% Industrial Dick s Sporting Goods at Springbrook Prairie Pavilion Chicago $11.3 million 50,200 square feet 1900 Clark Road Baltimore $26.4 million 613,100 square feet 100% 100% 10

11 2012 Outlook Economy and Commercial Real Estate Markets While several key economic indicators showed positive trends in the fourth quarter of 2011, risks to the U.S. economic and real estate recovery remain. Business optimism will remain tenuous until demand for U.S. goods and services grow and the global political, economic and regulatory environment stabilizes. The U.S. Federal Reserve lowered its outlook for the economy in 2012 and published growth estimates of between 2.2 percent and 2.7 percent for the year, which has raised concerns about the overall economy. Additionally, although job growth is resuming, the unemployment rate remains persistently high. This is both a supply and demand problem. There are 1.4 million fewer jobs today than 10 years ago and, the labor force continues to grow with Baby Boomers delaying retirement and Echo Boomers entering the workforce in significant numbers. Without meaningful job creation, these factors will keep the unemployment rate stubbornly high for an extended period. U.S. businesses are well positioned for growth with low borrowing costs, high profit levels, and sufficient excess capacity to increase production when the economy demands it. However, policy makers in the U.S. and Europe will need to continue to take measures that set their economies on a course towards fiscal health in order to accelerate growth. The capital markets in 2011 were quite volatile and fixed-income and equity yields were low relative to commercial real estate, driving capital to invest in real estate. The capital markets volatility is likely to continue in 2012 and real estate cap rates still remain attractive. The spread between the 10 year Treasury rate and real estate cap rates is about 200 basis CAP RATE VS TREASURY SPREADS 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Cap Rate Spread 10-Year Treasury Cap Rate 4 Quarter Moving Average 25-Year Average Spread Sources: NCREIF (transaction-based cap rates), Federal Reserve, Moody's Analytics Provided by Bentall Kennedy Research 1, Spread (bps) Transaction Volume ($Billions) U.S. COMMERCIAL REAL ESTATE TRANSACTION VOLUME ( ) AS OF DECEMBER 31, 2011 $ 500 $ 450 $ 400 $ 350 $ 300 $ 250 $ 200 $ 150 $ 100 $ 50 $ Source: Real Capital Analytics Provided by Bentall Kennedy Research Apartment Industrial Office Retail

12 points above the average over the past 25 years. As a result, institutional investors will likely continue to target commercial real estate in Stronger economic growth and favorable demographic trends should drive increased demand for commercial real estate space in As recovery matures, increasing investor confidence is expected to bring new capital and increasing values to additional markets beyond the most sought-after coastal markets. MEPT Based on the economic and commercial real estate outlook, the MEPT management team established a tactical plan for the Fund which estimates a total return of 7.5 percent to 8.5 percent, gross of fees for MEPT in While investor interest in real estate should continue, cap rate compression is expected to slow. In 2012, value increases in the MEPT portfolio are expected to be largely driven by improving fundamentals and increases in net operating income (NOI). For MEPT, major positive contributors to NOI will include income resulting from 2011 leasing activity, in-place leases at newly acquired, well-leased assets, and newly-built assets with rent abatement or concessions expiring. Substantial leasing activity is projected across the MEPT portfolio in The Asset Management team anticipates the portfolio will be more than 92 percent leased at the end of 2012 due to over 1 million square feet of budgeted net absorption in the portfolio. The team anticipates 4.5 million square feet of gross leasing activity in 2012, consisting of approximately 300 transactions. Over the next two years, more than 85 percent of the Fund s anticipated gross rental revenue for the office, industrial and retail assets will be generated from current in-place rents that are generally consistent with market rates and are contractually secured by lease agreements. Also, existing leases contain rent step provisions that, on average, include one to two percent increase per year that will further enhance current contract revenue. Furthermore, for the next few years, rollover exposure averages approximately 11 percent of revenue per year, which is both moderate and manageable. MEPT s five-year strategic plan provides a road map of the target property types and markets for new acquisitions. In 2012, MEPT will continue acquiring CBD office, multi-family and grocery-anchored retail assets, which will fulfill the strategic objective of improving the Fund s exposure to these targeted sectors as well as enhancing overall portfolio diversification and income contribution. At the same time, MEPT plans to maintain its industrial weighting. Through Bentall Kennedy s research, MEPT management has identified specific submarkets with demographics and economies that support long-term growth where the Fund would like to acquire assets. The management team has set an acquisitions target of $1.1 billion for 2012, building on the $1.4 billion in investment activity in 2011, and positioning the portfolio for solid growth going forward. Most investments will take the form of equity interests in real estate. However, the MEPT management team may utilize debt investments when attractive opportunities arise, including investments such as mezzanine loans, convertible construction loans, or seller financing. Based on current expectations for market fundamentals, the team anticipates that approximately 75 percent of acquisition funding in 2012 will be directed to existing properties and 25 percent of the investment activity will targeted for new construction commitments. It is also likely that a significant portion, if not all, of the development activity will remain focused in the multi-family sector. Bentall Kennedy expects that positive job growth, Echo Boom demographics and a lower U.S. home ownership rate will drive above-average demand for apartments for the next decade. Bentall Kennedy s research further indicates that there is going to be approximately 1 million to 1.5 million additional renters per year over the next few years in the U.S., which will be concentrated in major gateway markets. MEPT looks for several key factors when pursuing multi-family development opportunities that include strong demographics, job growth, low vacancy rates, high barriers to entry, and strong effective rent growth. In addition, MEPT s activity is concentrated in urban areas where the Echo Boom population is more likely to live and the employment opportunities are most abundant. Consistent with the Fund s Responsible Property Investing 12

13 principles, all new construction projects will be designed and built to the achieve the high standards for energy efficiency that tenants and investors now demand, and earn, at a minimum, U.S. Green Building Council Leadership in Energy & Environmental Design (LEED ) Silver certification. MEPT will maintain an active disposition program in 2012, targeting assets that no longer fit the investment strategy or have less potential to contribute to future performance. Also, the Fund will opportunistically sell assets when there is an opportunity for outsized returns due to specific asset or market conditions. The management team is aiming to generate approximately $350 million $450 million in net sales proceeds. MEPT intends to limit leverage to the lesser of 25 percent of gross asset value or NFI-ODCE s average leverage. At December 31, 2011, MEPT had total leverage of 19.2 percent and the management team plans to selectively increase leverage in 2012 to capitalize on historically low interest rates, facilitate efficient cash management, marginally increase exposure to floating rate debt, and expand lender relationships. Liquidity for all investors has always been a principal objective of the Fund. In 2012, MEPT s cash management policies will continue to ensure that MEPT has sufficient cash to fund acquisitions and new construction commitment, maintain a top-quality portfolio and have sufficient cash to honor withdrawal requests from its investors. With slow and steady improvement in the U.S. economy in 2012, commercial real estate market conditions in the U.S. should continue to improve throughout the year. The management team expects that value increases in the MEPT portfolio will be driven by improving fundamentals and increases in NOI and as a result, the team will be focused on maintaining stable income. The management team believes that, as a result of the disciplined implementation of the Fund s strategy, MEPT is well positioned for this market environment. The Fund is not under pressure to service debt, has manageable rollover, and has a well-diversified portfolio with strategic targets aimed at achieving further diversification benefits and growth. In 2012, the team plans to continue building upon the Fund s 30-year track record of success. 13

14 RESPONSIBLE PROPERTY INVESTING REPORT Responsible Property Investing (RPI) is an important component of the MEPT investment strategy. The principles of RPI are founded in the belief that, consistent with fiduciary responsibilities and performance objectives, including environmental, social, and governance (ESG) considerations into a fund s investment process and portfolio management is an important tool in mitigating risk. 2011: MEPT made new construction commitments to four projects totaling over $600 million in investment which are expected to generate approximately 6.5 million job hours and $1.3 billion in economic activity over the next two years in the markets where MEPT invests. MEPT has played an active role in the U.S. in developing green building practices and identifying opportunities to capture the value created by sustainable and energy-efficient projects. Indeed, with over 15.5 million square feet of U.S. EPA ENERGY STAR labeled and U.S. Green Building Council (USGBC) LEED -certified properties, MEPT is a recognized leader and earned the #1 ranking in the Americas from the Global Real Estate Sustainability Benchmark (GRESB ) Foundation s survey. Additionally, MEPT has also been a leader in terms of socially responsible investing by requiring that all contractors working on its properties be signatory to collective bargaining agreements with recognized trade unions. Over 30 years, MEPT has created more than 85 million job hours for the Building Trades, thereby ensuring competitive wages and benefits for the people working on its projects. Moreover, through governance structure and policies, the Fund upholds a high degree of fiduciary standards and works to provide transparency and best-in-class investor communications. Since 2008, MEPT has been signatory to the United Nations-backed Principles of Responsible Investment (UN PRI) Initiative. Additionally, through its work on behalf of MEPT, Bentall Kennedy was awarded its fourth consecutive ENERGY STAR Sustained Excellence Award. MEPT s management team believes that its U.S. leadership in RPI distinguishes MEPT from other open-end commingled real estate funds and most U.S. institutional real estate owners. Signatory of 360 West Hubbard: a 47-story, 450-unit apartment MEPT development project in Chicago. Rendering 14

15 MEPT RPI Principles Principle Goal 2011 Result Environmental Sustainable Development and Redevelopment: MEPT has found that assets built with sustainable design and construction best practices have higher levels of energy and water-efficiency and healthier indoor environmental quality. These assets also remain in demand with creditworthy tenants during most economic cycles. 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. As of December 31, 2011, MEPT achieved LEED New Construction, Core & Shell or Neighborhood Development certification for 13 projects, representing a total of 3.9 million square feet including one project that delivered in Also, in 2011, MEPT made investment commitments to five new projects seeking certification. High-performance, Energy-efficient Operations: MEPT believes that high-performance property operations that emphasize practices such as energy and water conservation, waste management and green cleaning not only promote environmental stewardship, but also result in better asset performance through reduced expenses and increased tenant demand and retention. 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-Existing Buildings: Operations & Maintenance (EB:O&M) Volume program and maintains a quality control and assurance program for all assets. MEPT had 54 buildings that have earned the ENERGY STAR label, representing 11.4 million square feet and $2.2 billion in value. Of the labeled buildings, in 2011, 46 obtained renewals and four started the renewal process for the ENERGY STAR label. Social Fair Labor Practices: MEPT maintains an unwavering commitment to fair labor practices. MEPT s Responsible Contractor Policy requires that the Fund use signatory contractors for all new construction, renovation or rehabilitation, and tenant improvements, thereby assuring investors that they own the best built and maintained buildings in their competitive set. By working with qualified signatory contractors and paying fair wages and benefits, the Fund aims to support the long-term health of the local communities where its properties are located. Tenant improvement work completed in 2011 generated over 500,000 job hours and over $106 million in economic activity. Additionally, new construction commitments made in 2011 are expected to generate approximately 6.5 million job hours and $1.3 billion in economic activity in the markets where MEPT invests over the next two years. Tenant Well-Being and Satisfaction: MEPT s focus on environmentally friendly assets means that tenants have a healthier and more productive building environment in which to operate their businesses. MEPT upholds a high degree of fiduciary standards, transparency and communication with its investors. It is the responsibility of NewTower Trust Company, trustee and fiduciary to MEPT, to provide oversight, valuation services and risk management for the Fund. NewTower s Board of Directors actively oversees operational performance, risk management and internal controls. MEPT seeks to use sustainable practices as a way to attract and maintain controllable tenant retention of more than 80 percent. Governance The Management Team seeks to consistently provide disclosure and transparency on all matters of fund governance and implement best-practices for responsible investment. MEPT s portfolio achieved a 99.7% controllable retention rate in Within governance framework, MEPT met or exceeded 2011 tactical goals and objectives in regard to overall Fund performance, asset transaction activity, investor commitments and RPI leadership. 15

16 2011 Highlights MEPT Ranked 1 st in North America and 5 th Globally by GRESB MEPT earned a top spot on the Global Real Estate Sustainability Benchmark (GRESB) Foundation s survey, which measured the social and environmental performance of listed and private property funds from around the world. MEPT ranked #1 in the Americas and 5th on the Global Top Ten list the only U.S. fund listed in the Global Top Ten. After submitting extensive information regarding its portfolio, MEPT was awarded a top ranking based on the Fund s score on more than 50 metrics of Environmental, Social and Governance (ESG) performance, including outperforming in all sustainability-related categories. The report identifies MEPT as a Green Star, a fund with an integrated organizational approach towards measurement and management of environmental key performance indicators that resulted in a reduction of resource consumption and innovation in measures beyond energy efficiency. Less than 20 percent of the 340 respondents were ranked Green Stars. The GRESB Foundation, an initiative of some of the world s largest institutional investors, gathered data from 340 respondents globally to create a science-based sustainability benchmark. Respondents represented close to US$1 trillion in commercial real estate assets or 35 percent of the global real estate market. 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. The industry-led initiative seeks to enhance shareholder value by increasing transparency in ESG practices in the property sector. LEED-EB:O&M Volume Certification: Three years ago, Bentall Kennedy, on behalf of MEPT, began participation in a pilot program of the USGBC in order to achieve LEED for Existing Buildings Operations and Maintenance (EB:O&M) certification for multiple buildings simultaneously. In 2010, MEPT achieved certification for 27 buildings. In the first quarter of 2011, MEPT received notification from the USGBC that 17 additional buildings, totaling nearly 2.3 million square feet, obtained certification, making MEPT the largest single-owner volume certified LEED EB: O&M office portfolio in the U.S. Additionally, during the third quarter of 2011, Bentall Kennedy put in place a quality control and assurance program to monitor certified assets. Multi-family Sustainability Pilot Program: In the second quarter of 2011, five MEPT multi-family assets were selected by Bentall Kennedy for a pilot program within the MEPT portfolio aimed at reducing operating costs and improving overall asset sustainability. The program included ENERGY STAR benchmarking measurements identified as applicable to apartment assets, site visits, energy-efficiency audits and property team training. The work resulted in a report for each asset with recommendations for financially-feasible property enhancements and capital improvements that are expected to increase energy efficiency and substantially reduce operating expenses Eco Tracker Deployment Expands to U.S.: Bentall Kennedy launched the use of its proprietary measurement and verification tool, Eco Tracker, for the MEPT portfolio in the fourth quarter of Utilized successfully by Bentall Kennedy for six years in Canada, Eco Tracker gauges energy usage, water waste and building emissions, and provides reports on key property performance indicators. Data from Eco Tracker will be used to improve portfolio sustainability, reduce operating costs, identify underperforming assets, and strengthen RPI reporting for MEPT ENERGY STAR Partner Sustained Excellence Award: Bentall Kennedy, through its work on behalf of MEPT to maintain energy management programs and year-overyear improvement in energy efficiency, was recognized by the EPA and awarded its fourth consecutive ENERGY STAR Sustained Excellence Award. The ENERGY STAR Award was presented in April, 2012 in Washington, D.C. LEED Development Projects Underway: In 2011, MEPT made commitments to four multi-housing development projects in Seattle, New York, Chicago and Los Angeles and one commitment to a build-to-suit office project in the Washington, DC market. The projects have a total investment value of over $600 million. All projects are designed to achieve USGBC LEED-Silver certification, at a minimum. The multi-family developments are concentrated in urban areas where the Echo Boom population is more likely to live, and the employment opportunities are most abundant. In addition, the projects have access to public transit, retail and entertainment, and are within walking distance of major employers. Collectively, this development activity, over the next two years, is expected to generate approximately 6.5 million green job hours for members of the Building Trades and $1.3 billion in economic activity in the communities where the projects are located. 16

17 MEPT Environmental Metrics as of december 31, 2011 USGBC LEED Development and Existing Building Certification Certified Buildings LEED New Construction/Core & Shell/Neighborhood Development LEED Existing Buildings Operations & Maintenance Total Number of Buildings Gross Real Estate Asset Value $1,233,007,111 $2,024,960,987 $3,257,968,097 Square Feet 3,886,352 8,369,174 12,255,526 EPA ENERGY STAR Benchmarking Benchmarked Buildings Office Industrial Total Number of Buildings Gross Real Estate Asset Value $2,546,124,110 $415,015,557 $2,961,139,667 Square Feet 10,489,160 7,078,186 17,567,346 Labeled Buildings Office Industrial Total Number of Buildings Gross Real Estate Asset Value $1,958,347,081 $236,092,085 $2,194,439,166 Square Feet 7,961,815 3,409,657 11,371,472 The LEED Certification Mark is a registered trademark owned by the U.S. Green Building Council and is used with permission. 17

18 APPENDIX I: Returns 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, 2011 is compiled from the same information sources Bentall Kennedy used to prepare previous GIPS compliant schedules; the performance data as of December 31, 2010 was audited by Peterson Sullivan and found to be fully GIPS compliant. The 2011 audit is expected to be completed by June, MEPT s annual returns, since inception, are presented below: Multi-Employer Property Trust 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 % 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% % 13.00% 18.49% 6.01% 13.00% 19.58% % 5.95% 11.25% 6.09% 5.95% 12.30% % 2.85% 8.62% 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% 12.67% % 6.20% 11.64% 6.42% 6.20% 12.91% 18 Total Return Total return, in accordance with REIS, is computed by adding the net operating income/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 Net operating income is calculated on a property-by-property basis according to REIS. 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 % 7.19% 12.98% 6.81% 7.19% 14.36% % 3.90% 10.69% 8.00% 3.90% 12.14% % 1.98% 8.78% 8.08% 1.98% 10.20% % 2.41% 8.88% 7.75% 2.41% 10.31% % -2.86% 2.50% 6.89% -2.86% 3.89% % -5.37% 0.52% 7.56% -5.37% 1.89% % -8.91% -3.31% 7.40% -8.91% -1.97% % -4.24% 1.55% 7.40% -4.24% 2.93% % 0.78% 7.59% 8.20% 0.78% 9.03% % 0.06% 7.36% 8.77% 0.06% 8.83% % 0.91% 7.21% 7.75% 0.91% 8.71% % 2.87% 9.22% 7.74% 2.87% 10.77% % 0.85% 8.17% 8.84% 0.85% 9.76% % -0.08% 7.98% 9.66% -0.08% 9.58% % 0.52% 10.84% 11.90% 0.52% 12.46% % 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.