reit investing guide september 2011

8/2/2019 REIT Investing Guide September 2011

1/16

Research

:InvestingGuide

SupplementtoReSeaRch: magazine

I N P A R T N E R S H I P W I T H

the national association of real estate investment trusts

REITINVESTING

TheResearchMagazine Guide to

2011


2/16

National Retail Properties (NYSE: NNN), a real

estate investment trust, invests in single tenant

net-leased retail properties nationwide.

NNN has generated consistent returns or

more than a decade supported by its strong

dividend yield and 22 consecutive years o

increased dividends. Its annual total return

or the past 15 years has been 12.3%.

NNN maintains a conservatively managed,

diversied real estate portolio with properties

subject to long-term, net leases with established

tenants. Its 1,248 properties are located in

46 states with a total gross leasable area o

approximately 13.6 million square eet. Current

occupancy is 96.9% and these properties are

leased to more than 285 tenants in 36 industry

classications. A net lease shits property

operating expenses (i.e., maintenance, taxes,

insurance and utilities) to the tenant, so the

rental revenue NNN receives has signicantly

ewer expenses and more stable net cash fow.

NNN is one o 105 publicly traded companies

in America to have increased annual dividends

or 22 or more consecutive years.

Top TENANT LiNEs of TrAdE

(As a percentage o annual base rent)

1. Convenience Stores 23.1%2. Restaurants - ull service 10.7%

3. Automotive Parts 7.7%

4. Theaters 5.8%

5. Automotive Service 5.4%

6. Sporting Goods 4.6%

7. Restaurants - limited service 4.1%8. Drug Stores 3.8%

9. Books 3.0%

10. Health and Fitness 2.9%

CompANy HigHLigHTs:

22 consecutive years o annualdividend increases

Strong balance sheet - investmentgrade rated by S&P, Moodys and Fitch

Diversied: 1,248 propertiestotalling 13.6 million s..

Total market capitalizationover $3.5 billion

Long-term net leases with averageremaining lease term o more than

12 years 96.9% occupancy

diVErsifiCATioN rEdUCEs risk

South22.4%

Midwest26.1%

Northeast10.7%

Southeast

29.7%

West3.9%

RockyMountain7.2%

Total Assets $2.8 billion

AFFO per share (Q2 2011) $0.42

Quarterly Dividend $0.385

Annualized Dividend $1.54

Annualized Dividend Yield (06/30/11) 6.3%

52-Week Stock Range $21.05 - $27.73

1,248 Properties

More than 285 Tenants

46 States


3/16

1 Year 3 Years 5 Years 10 Years 15 Years

National Retail Properties(NNN)

21.3% 13.1% 11.4% 13.2% 12.3%

S&P 500 Index (SPX) 30.6% 3.3% 2.9% 2.7% 6.5%

Nasdaq (CCMP) 32.8% 7.6% 6.0% 3.3% 6.5%

S&P 600 Index (SML) 37.0% 8.1% 4.6% 7.8% 9.3%

Morgan Stanley REITIndex (RMS G)

34.1% 5.4% 2.4% 10.6% 10.7%

* Total retur n comprised of share price appreciation plus dividends paid

ANNUAL ToTAL rETUrN CompArisoN*

For Periods Ending June 30, 2011 (quarterly)

22 CoNsECUTiVE yEArs of iNCrEAsEd diVidENds

$1.50

$1.40

$1.30

$1.20

$1.10

$1.00

1990 1993 1996 1999 2002 2005 2008

*2011 estimated dividend based on annualized quarterly dividend

2011*

Kevin B. HabichtChie Financial Oicer

Investor Relations:Chris Barry

450 S. Orange AvenueSuite 900Orlando, FL 32801(800) NNN-REIT(407) 265-7348Fax: (407) 650-1044www.nnnreit.com

Inormation as o June 30, 2011 unless otherwise noted

NYSE: NNNAnnualized DividendYield: 6.3%


4/16

Portfolio contains positive defensive attributes and is well

positioned for long-term growth.

Kimco increases returns and leverages infrastructure for

long term value creation using institutional joint venture

capital.

Able to capitalize on strength of retailer relationships,

portfolio size and 50-year history.

PREMIER SHOPPING CENTER INVESTMENT

& MANAGEMENT SERVICES COMPANY

www.kimcorealty.com

KIMCO REALTY CORPORATION (NYSE: KIM)

real estate investment trust (REIT), owns and operates North Americas

rgest portfolio of neighborhood and community shopping centers.

of June 30, 2011, the company owned interests in 946 shopping center

operties comprising 138 million square feet of leasable space across 44

ates, Puerto Rico, Canada, Mexico and South America. Public since 1991,

e company has specialized in shopping center acquisitions, development

d management for 50 years.

CONSERVATIVE B ALANCE SHEET

Strong balance sheet provides liquidity and funding exibility.

NVESTMENT GRADE RATING

Standard & Poors | Moodys | Fitch (BBB+/Baa1/BBB+)

MANAGEMENT TEAM

Established and well recognized.

KEY STRENGTHS

R E A L T Y

Kimcos Shopping Center Portfolio Contains Positive

Defensive Attributes and is Well Positioned for the

Environment & Long-Term Growth

Top 20 Metro Statistical Areas (MSAs), including Puerto Rico,generate more than 60% of Annual Base Rent

Strategic Asset portfolio boasts above average median household

income demographics versus the associated MSA

Bias toward high credit quality tenants under long-term leases

Non-discretionary food and pharmacy are some of our largest

tenants

Approximately 55% of properties contain a grocery/food component

Strong position with discount stores and off-priced retailers

Geographically diversied

Conservative policy regarding TIs means in-place rents are not

articially inated

Capturing value through the re-leasing of below-market spaces andexecuting redevelopment opportunities

INTEGRITY | CREATIVITY | STABILITY


5/16

Researche p t e m b e r 2 O 1 1

email an sta member, use [email protected],

nless oterwise speciied. (Example to write Jon Smit, is

mail is [email protected].)

DITORIAL

oup Editorial Director James J. Green

tor Gil Weinreic

naging & Web Editor Janet Leaux

nior Editor Kennet Silber

ntributing Editors

obert Scott Martin,

ne Wollman Ruso, Ellen Uzelac

RODUCTIONDirector Jason T. Williams

ector o Production Georgia Barr (859) 692-2195

ector o Manuacturing Stee Jonston (859) 692-2116

Sales Coordinator Alice R. Kendrick (859) 692-2323

ROUP PUBLIShERndrew Sonnenberg (212) 557-7651

UBLIShER EMERITUSobert R. Tndall (415) 571-8474

SOCIATE PUBLIShERck Baggelaar (707) 939-1800

SPLAy ADvERTISING

ector o Salesilliam B. Stuart (203) 255-3896nior Sales Executie

ra haase (312) 504-8755ssifed Adertising

ameka Redle (646) 746-8878

ROKER SERvICESke Murp (859) 692-2184

UBSCRIBER SERvICESesearc Magazine, P.O. Box 2162kokie, IL 60076-7822one: (800) 458-1734 fax: (847) 763-9587

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UMMIT BUSINESS MEDIAndrew L. Goodenougesident and CEO

omas M. FlnnO/CFO

aid A. MacDonaldO

n Welannior vice President andnaging Director, Media Diision

TERS TO ThE EDITOR: Please include writers name, address and pone

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Winner of the nYSSCPA AWArd forexCellenCe in finAnCiAl JournAliSm

oo4 | 2oo5 | 2oo6 | 2oo7 | 2oo8 | 2oo9 | 2o10

new york society of

certified public accountants

NYSSCPA

5Increasing Client Returns

By Brad Case, Vice President, Research and Industry Information, National Association of Real Estate Investment Trusts

10Solid Returns & Positive Outlook

By ed MCCarthy, CFP

12Opportunities & Timing

By alexei Bayer

neW inVeStor fACt SheetS:

_____ Cedar Sopping Centers CDR

_____ KIMCO RealtKIM

_____ LTC Properties LTC

______National Retail PropertiesNNN

_____ Te Maceric Compan MAC

_____ W. P. CareWPC

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ResearchMagazine, wic does not endorse or recommend securities. Researchreceies a ee or distributing tis Inestor Fact Seet.

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s e p t e m b e r 2 0 1 1 t h R e s e a r c h G r e i t i v g 3

INVESTINGREIT

TheResearchMagazine Guide to

2011i n p a r t n e r s H i p w i t H

the natiOnal assOCiatiOn OF real estate investMent trusts


6/16

Macerich owns 70 regional malls in 72 million square eet, optimally located inthe nations most coveted markets defned by dominant market share, stronglong-term growth prospects and powerul demographics and psychographics.These malls are designed to deliver results with resh and exciting shoppingexperiences that start with undeniably lucrative markets and the very best inquality real estate.

Arrowhead Town Center - Glendale, AZ

Biltmore Fashion Park - Phoenix, AZ

Broadway Plaza - Walnut Creek, CA

Chandler Fashion Center -Chandler, AZ

Corte Madera, The Village at -Corte Madera, CA

Danbury Fair - Danbury, CT

Deptord Mall - Deptford, NJ

Fresno Fashion Fair - Fresno, CA

Freehold Raceway Mall - Freehold, NJ

Top 20 CenTers

Kierland Commons - Scottsdale, AZ

Los Cerritos Center - Cerritos, CA

North Bridge, The Shops at - Chicago, Il

Oaks, The - Thousand Oaks, CA

Queens Center - Elmhurst, NY

Santa Monica Place - Santa Monica, CA

Scottsdale Fashion Square -Scottsdale, AZ

Twenty Ninth Street - Boulder, CO

Tysons Corner Center - McLean, VAVintage Faire Mall - Modesto, CA

Washington Square - Portland, OR

Ivt rlati, Ja Wd

401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401310.899.6366 - www.macerich.com

Macerich (NYSE:MAC)

ngton Square

ns Center

Monica Place

s Corner

dale Fashion Square


7/16

S E P T E M B E R 2 0 1 1 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g 5

R E I T I N V E S T I N G G u I d E 2 0 1 1

Increasing ClientReturns

Cash is said to be the enemy o

portolio perormance, and with

good reason: Every uninvested

dollar, ailing to earn investment returns,

brings down the average return o the

overall portolio. But theres a way to

turn cash to your clients advantage.

Many clients make the mistake o

thinking o their cash holdings as a port-

olio stabilizer. Its not hard to see why:

Cash is the risk-ree asset, with almostno volatility, so every dollar kept in cash

brings down the volatility o the portolio.

Portolio stability is important to clients,

o course but what clients may ail

to appreciate is just how costly it is to

achieve that purpose using cash.

Suppose your client wants her (or

his) equity portolio to beat the S&P

500, but with no additional volatility.

Also suppose you correctly predicted

that the strongest-perorming sector othe stock market over the recent past

was the inormation-technology sector

(13.07 percent average annual total re-

turns since January 1990, according to

data or the S&P 500 ino-tech index, vs.

9.44 percent or the S&P 500).

Unortunately, as usual, high-return

assets carry the baggage o high volatil-

ity. I your client looked to cash to bring

the volatility o her equity portolio in

line with the S&P 500, her cash holding

would have had to displace 44 percent

o her equity holdings. Using cash as a

portolio stabilizer would have brought

her equity returns down to 8.81 percent

per year costing her an extra 63 basis

points per year relative to the S&P 500,

in spite o your sector-picking skill.

Diversifcation is a much more ef-

cient way to bring down portolio volatil-

ity. In the same example, suppose you

had combined equal holdings o the

high-return ino-tech sector o the stock

market with listed equity real estate in-

vestment trusts (REITs), which give your

client exposure to a completely dierent

asset class income-producing real es-

tate without giving up the liquidity

and other benefts o the stock market.

With that combination, your cli-

ent would have been able to slash her

cash position by 54 percent, and the

combined assets would have generated

returns averaging 10.84 percent per year

again o 140 basis points per year

relative to the S&P 500 with, as required,

no incremental volatility.

In short, portolio stabilization is a

job best let in the hands o diversiying

assets. That doesnt mean, though, that

cash is the enemy: In act, cash can give

your client the latitude to beneft rom

your abilities in both strategic and tacti-

Using REITs and other investments in conjunction with cash can lower volatility andimprove performance.

By Brad Case

Vice President, Research and Industry Information, National Association of Real Estate Investment Trusts

Declining correlations

th hp bw reit d s&P 500 udmh v h h f h vm m hz

Source: NAREIT, June 2011 (based on 1989-2011 data)

0 20 40 60 80

54.5%

64.8%

56.5%

45.5%

32.7%

20%

4.7%

1 month

6 months

12 months

24 months

36 months

48 months

60 months


8/16

Theres nothing fancy about everyday shopping needs: picking up dry cleaning

in the morning, grabbing pizza for lunch, shopping after work for a new DVD,

take-out food, sweat socks, shampoo or even bread and butter. Everyday necessity

shopping drives daily customer traffi c to the retail, food and big box stores at

Cedars Bread & Butter Shopping Centers. Our tenants have long-term leases that

generate predictable cash fl ow and our strong balance sheet permits us to take

advantage of attractive acquisition and redevelopment opportunities. Centers thatserve everyday shopping needs is our formula for good business.

Everyday Needs =Good Business

Lunch@PaneraBread- Noon

Fabricsoftener

pickup photos

Bread&butter

Coffeetoo

iTunescard

fertilizer,mulch

golf balls

Renew Drivers License


9/16

GEOGRAPHIC FOOTPRINTIN HIGH-ENTRY-BARRIER MARKETS

We manage a portfolio of over 130 shoppingcenter properties with approximately 16 millionsquare feet of GLA, located in market areas thathave features that align with our business strategy:

Significant barriers to entry Stable communities

Fixed traffic patterns Anchor tenants are the prime operators intheir respective market areas

DEVELOPMENT PIPELINE

There are presently seven projects in theCedar Pipeline. Four are ground-up projectsand three are redevelopment projects. Thetotal budget for the seven projects is $60

million. Pre-leasing of the seven projects isin excess of 80% at this time.

ALL OTHER

HOME APPLIANCES/MUSIC

GOVERNMENT OFFICES

MEDICAL/DENTAL OFFICES

OFFICE SUPPLIES

HOME FURNISHINGS

DRUGSTORES/PHARMACIES

CLOTHING/ACCESSORIES/SHOES

PERSONAL SERVICE

DOLLAR STORES/NOVELTIES

FOOD SERVICE

ENTERTAINMENT/COMMUNITY

BUILDING MATERIALS/GARDEN

DEPARTMENT STORES

DISCOUNT DEPARTMENT STORES

SUPERMARKETS31%

8%

8%

8%

7%

6%

6%

4%

4%

2%

2%

2%

2%

2%

1%

7%

Mid-AtlanticStates

Other States

NortheastCoastal States

8.2%

60.9%

30.9%

DIVERSIFIED TENANT BASE

0%

5%

0%

5%

0%

5%

0%

5%

40%

45%

0%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

STABLE LOW COST DEBT*

*Does not include (a) $29.5 million outstanding balance under stabilizedproperty credit facility due in January 2012, subject to a one-year extensionoption, or (b) $103.1 million outstanding balance under development propertycredit facility due in June 2011, subject to a one-year extension option. Doesnot include managed properties.

Favorable debt maturities with a low average interest rate,provide underlying financial stability for our portfolio

LONG-TERM LEASE RENEWALS*

Scheduled Lease Expirations as a percentage of total annualizedbase rents

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

*Includes managed properties and month-to-month tenancies.

Our properties are leased primarily to supermarket,

big box and brand-name-retailer anchor tenantsalong with a highly diversified group of qualityeveryday necessity retail and food service tenants.

Cedar Shopping Center s, Inc.

Developers, Owners and Managers of

Bread & Butter Shopping Center s

www.cedarshoppingcenters.com


10/16

8 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g S E P T E M B E R 2 0 1 1


cal portolio choices.

By protecting your clients rom

short-term liquidity problems, cash can

help them also achieve strong long-term

investment returns. In eect, clients

can use cash to separate the serious

part o their portolio the portion that

they may or will depend on to nance

spending needs rom the unny

part on which they can earn seriously

high returns.

You can help accomplish this by en-

couraging your client to think o cash

not as a given percentage o her overall

portolio, but as a given number o dol-

lars enough so that shes comortable

her expenses will be covered through

even a severe downturn. That way she

knows she wont have to sell assets

during a downturn shell be able to

ride it out and benet rom being in the

market during the recovery. And that

knowledge will give her the condence

to use a more aggressive, high-return

asset allocation.

Several advisors suggest that cash

holdings should be enough to cover

between six months and three years oanticipated household spending. Insu-

lating your clients investment portolio

rom her liquidity needs makes it pos-

sible or her to realize the ull benets

o diversication.

To extend the previous example, i

your client were condent that her li-

quidity needs were covered, then she

might be comortable with volatility, say,

one-ourth greater than the S&P 500 in

her equity portolio.In that case, splitting her equity hold-

ings between the inormation-technology

sector and listed equity REITs would

have produced returns averaging 12.72

percent per year since 1990. With an

initial investment o $100,000 that eq-

uity portolio diversied among two

asset classes, beneiting rom strong

sector selection, and with easily toler-

ated volatility would have generated

terminal wealth (as o mid-2011) o more

than $1 million, 75 percent greater than

the $591,000 that would have come rom

the S&P 500.

As you know, assets with lower cor-

relations provide greater diversica-

tion. Surprisingly, though, the corre-

lations o assets rom dierent assets

classes are actually lower when your

clients are able to use longer invest-

ment horizons meaning that the

beneits o diversiication actually

become stronger when your clients

dont have to raid their investment

portolios, but can let the synergies

among dierent asset classes work

the magic o diversication. Thats

the real value o cash: giving your cli-

ents the comort level to benet rom

longer investment horizons.

Using the returns every six months

or stocks (the S&P 500) and listed

equity REITs (the FTSE NAREIT Eq-

uity REIT Index) since the beginning

o 1990, the correlation between RE-

ITs and stocks is 64.8 percent, indi-

cating strong diversication benets.

Thats not surprising, because REITs,

though traded through the stock mar-ket, give investors access to a dier-

ent asset class.

With longer investment horizons,

though, the correlation between REITs

and stocks declines sharply: just 56.5

percent using 12-month periods, 45.5

percent over 24-month periods, and

32.7 percent over 36-month periods.

(The correlations continue declining

over even longer investment horizons

to 20.0 percent over 48-monthperiods, and an amazing 4.7 percent

over 60-month periods but holding

enough cash to cover such long periods

would damage the returns o even very

wealthy investors.)

For investors who can avoid disrupt-

ing their portolios, then, the diversica-

tion benets o holding both REITs and

non-REIT stocks can be huge. For ex-

ample, the dot-com bubble corresponded

with a period o sotness in the commer-

cial real estate market; as a result, while

stock returns rom March 1997 to March

2000 averaged a stupendous 26 percent

per year, REIT returns were virtually fat.

Over the next three years, however, the

situation reversed, with REITs gaining

47 percent while stocks hemorrhaged 41

percent o their value.

In truth, it would have been di-

cult or even the most prescient and

gutsiest advisor to convince a client

to unload dot-com stocks and sink the

gains into REITs in March 2000. Far

better to have helped your client build

a portolio that was diversied or a

three-year investment horizon and

given her the condence to ride that

asset allocation through the markets

zigs and zags. That approach would

have given your client returns averag-

ing 6.1 percent per year during a very

dicult six-year market period, while

the S&P 500 returned just 3.4 percent

per year ultimately nearly doubling

her wealth.

(The REIT and non-REIT parts

o the stock market continue to move

very dierently. For example, romDecember 2007 to December 2010,

including the liquidity crisis, REITs

gained 8.8 percent per year on average

while stocks were losing 0.4 percent

per year.)

In short, computing correlation co-

ecients using monthly returns data

actually understates the longer-horizon

benets o asset-class diversication

while it overstates the benets o

diversiying across dierent non-REITsegments o the stock market.

Your task, then, is to help your client

develop a level o comort with investing

or the long horizon. She may need to

hold additional cash to cover liquidity

crises beore she can be ully condent

in the markets long-term potential

but once youve made her comortable

with long-term investing, you can bring

the power o diversication ully into

play to maximize her wealth. n


11/16

Offering Size:

300,000,000 shares/$10 per shareCNL Properties Trust is a non-traded real estate investment trust (REIT) that intends to acquire a diverse

mix of assets that have the potential to generate a current return while providing long-term value to

investors. The REIT will focus on acquiring properties primarily in the United States within the healthcare

& senior living, lifestyle, lodging and specialty properties market sectors.

CNL Securities is the managing dealer for this offering. Copies of the prospectus may be obtained by contacting:

CNL Securities

450 South Orange Avenue

Orlando, Florida 32801-3336

www.CNLSecurities.com

Toll free: (866) 650-0650

Distributed by CNL Securities

Member FINRA/SIPC

This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. This sales and advertising literature must be read in

conjunction with the prospectus in order to understand fully all of the implications and risks of the offering of securities to which it relates. The offering is made

only by the prospectus. A copy of the prospectus must be available to you in accordance with this offering.

No offering is made to New York or Maryland residents except by a prospectus led with the Department of Law of the State of New York or the Maryland

Division of Securities, respectively. Neither the Attorney General of the State of New York nor the Maryland Division of Securities have passed on or endorsed

the merits of this offering. Any representation to the contrary is unlawful.

2011 CNL Intellectual Properties, Inc. All Rights Reserved.

CNL Properties Trust Built onExpEriEncE

SM

Scan this barcode with your smartphone

to learn more about CNL Properties Trust.

Standard data charges may apply.

www.CNLPropertiesTrust.com


12/16



Its been a good year or real es-

tate investment trusts (REITs).

According to the

National Association

o Real Estate Trusts

(NAREIT), the FTSE

NAREIT All Equity

REITs Index increased

by 10.62 percent in the

rst hal o 2011 versus

6.02 percent or the S&P

500. For the 12 months

ending June 30, 2011,

the REIT index was up

34.09 percent versus the

S&P 500s 30.69 percent gain.

Longer-term results also avor

REITs. NAREIT reports that the FTSE

NAREIT All Equity REITs Index has

outperormed the S&P 500 over the past

10-, 15-, 20-, 25-, 30- and 35-year pe-

riods ended June 30. Income investors

have beneted rom REITs, as well.

As o June 30, the FTSE NAREIT All

Equity REITs Indexs yield was 3.44

percent compared to 1.92 percent or

the S&P 500.

Research magazine asked two lead-

ing real estate portolio managers or

their outlook on the sector: Thomas

N. Bohjalian, CFA, senior vice presi-

dent and portolio manager or Cohen

& Steers U.S. and global real estate

securities portolios; and Paul Curbo,

CFA, portolio manager and member

o the Real Estate Securi-

ties Portolio Management

and Research Team with

Invesco Real Estate.

Wt is te rgumet

fr REITs s ivest-

met css?

Bi: Investors seek-

ing to diversiy their port-

olios beyond traditional

stocks and bonds would

do well to consider an al-

location to REITs, which are tied to real

assets commercial properties that

generate steady rental streams. Because

o this, the characteristics o this asset

class have been compelling.

Foremost, they oer the potential

or competitive total returns linked to

economic growth and attractive current

income due to REITs minimum pay-

out requirements. REITs are required

to distribute at least 90 percent o their

taxable income to shareholders. And

historically, real estate stocks have ex-

hibited low volatility and low correla-

tions to other asset classes.

Curb: I think rom a long-term per-

spective there are three main reasons or

investment in REITs. One is income, in

that REITs produce airly consistent cash

fow due to the underlying lease structure

o how they receive their income. That

produces a dividend yield o about 3.5

percent, which is relatively attractive

compared to the S&P 500 (under 2 per-

cent). Thus, income would be the rst

point I would make.

The second point would be diversi-

cation or an overall portolio. I you look

at the long-term diversication o REITs

as part o a portolio, the correlation with

the S&P 500 is around 0.54. Its also

a airly low correlation to an aggregate

bond portolio, with a long-term 30-year

correlation o 0.14. I think those overall

portolio diversication benets are help-

ul or most institutions and individuals.

Thirdly, I would say theres the long-

term historical perormance o the asset

class. Over a 20-year period, its deliv-

ered a return o 11.4 percent versus the

S&P 500 at 8.7 percent very competi-

tive historical returns.

Were u tik we re i te

REIT ivestmet cce?

Bi: REITs are in the recovery

and expansion phase o the investment

cycle. Real estate companies or the most

part exited the recapitalization stage o

the cycle in 2010.

Solid Returns &Positive OutlookTwo portolio managers share their outlook on the real-estate sector and explain howthe sector can beneft investors in terms o income, perormance and diversifcation.

By Ed MCCaRThy, CFP

BohjalIan


13/16

S E P T E M B E R 2 0 1 1 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g 11


Today, most property sectors in the

U.S. have bottomed out and turned up-

ward, setting the stage or even more

investment activity and accelerating

internal growth. We expect cash ows

will continue to improve as vacancies

decline and landlords gain the leverage

to charge higher rents.

Id note that, unlike previous com-

mercial real estate cycles, the current

one has been marked by low levels

o new supply. Construction loans

dropped o dramatically during the

credit crisis. This has resulted in ar

less o the problematic oversupply that

currently plagues residential markets

in some countries.

Crb: I would say its a pretty avor-

able point. I think were in the middle

o commercial real estate undamentals

being pretty healthy with demand out-

pacing supply. Also, earnings growth or

these companies is in the high single

digits to low double digits, and dividend

increases are likely to ollow on par or

even better than the earnings growth that

were seeing.I you look at the valuations today, the

stocks are trading at a slight premium to

the underlying asset value o the com-

panies. But given the improvement in

undamentals that were seeing and were

likely to see over the next couple years, I

think that its a airly good time to invest

in REITs. I would say the only caveat

to all this is the overall economy and

all the headwinds that we see in terms

o economic and employment growth.Those also present a headwind or RE-

ITs, as well.

Where are y fnding REIT invest-

ment pprtnities tday, and

why d y like thse sectrs?

Bhjalian:We avor economically

sensitive sectors, including hotels,

regional malls and high-growth urban

oices protected rom new supply.

Among regional mall companies, we

are ocused on geographic locations

with attractive income profles that can

better withstand ination in ood and

gas prices.

We also have a avor-

able view o apartment

landlords. They have

been benefting rom in-

creased demand, strong

pricing power and very

low new supply. Occu-

pancies have been sup-

ported by ewer people

having the confdence to

purchase single-amily

homes. It remains difcult

to obtain a mortgage, and home prices

continue to decline without reaching a

clear bottom making even those with

the means to buy a house reluctant to

leave their apartments.

Crb: One o the main places would be

the apartment space. All the turmoil that

were seeing and the very slow or lack o

recovery in the single-amily housing mar-

ket are really a beneft to the apartment

space. Home-ownership rates have comedown rom their peak they peaked in

2004 at about 69 percent. Today theyre

about 66.4 percent, but theyre still above

their long-term average.

Theres still a movement that were

seeing rom home ownership into rent-

als, which is benefting the apartment

space. That is most acute in the age de-

mographic o individuals in households

under the age o 35, who are the prime

renters or apartments. We see that asa long-term demographic shit that is

benefcial to the space.

In addition, new construction vol-

umes in apartments are quite low by

historical standards. Over the next two

or three years, we see below-average

construction volumes with airly decent

demand levels, which should result in

rent growth that is airly attractive.

I would also say the CBD (central busi-

ness district) ofce market is attractive.

Occupancy today is in line with its histori-

cal average, which you cannot necessarily

say or most sectors in the United States. I

think it entered the down-

turn relatively healthier

than most other asset

classes, and its recovery

has been a bit stronger.

The areas that are

most avorable are the

global gateway markets,

the largest markets in

the country New York,

San Francisco, Los Ange-

les and Washington, D.C.

those are the markets

with the healthiest trends today, and

we think theyre likely to continue to

outperorm.

Has the recessin and the ecn-

mys slw recvery changed yr

investment niverse?

Bhjalian: Remarkably, our invest-

ment universe emerged rom the reces-

sion largely intact. This is attributable

to successul capital raises done by

real estate companies, frst involvingequity oerings and then bond and

preerred security issuance, as well.

This enabled REITs to strengthen their

balance sheets and even make prop-

erty acquisitions on attractive terms.

Crb:I think the slow recovery does

have an impact. Our process o how we

look at sectors and markets begins with

a rent-growth orecast at the market

level. We take into account the dier-entiating characteristics o supply and

demand at that local market level, so

our views are really driven by our bot-

tom up research.

Tenant demand is a bit slower in

this cycle because the job growth is not

there. I talked about secondary retail

as being an area where theres a bit o

challenge. Another area is suburban

ofce, where we just need more job

growth or that sector to perorm. n

CuRBo


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Therealestatemarketisthe

key to the rest o the U.S.

economy and its eventual

recovery. Thus, three years ater the col-

lapse o Lehman Brothers, weak prices o

single-amily homes remain a concern.

In other respects, though, real-estate

investment has been a very good deal.

The FTSE EPRA/NAREIT Real Estate

Investment Index has shown strong re-

turns recently ater sharp declines in

2007-2008, and gains continued through

mid-2011.

Bght Spots

Taking income and price into con-sideration, the index has outperormed

most other asset classes: U.S.-equity

REIT total returns o 11.79 percent were

more than double those o the S&P 500,

3.87 percent, in the rst seven months

o 2011, and signicantly outperormed

the market in July.

A number o sub-sectors o the real

estate market, which REITs allow in-

vestors to ocus on, have done well. The

sel-storage sector had a gain o 19.54percent through July 2011, apartments

improved 19.50 percent, and regional

malls moved up 18.41 percent.

Some REITs are beneting directly

rom the market bust. Shopping malls

anchored by value-oriented retail tenants

are doing well, because in the current

economic climate Americans are con-

cerned with saving money. Multi-amily

dwellings are also beneting, since there

has been a shit toward renting.

Some investment strategies iden-

tiy markets where prices have held up

well. Commercial properties and coops

in Manhattan or houses in and around

Washington, D.C., and Houston, or in-

stance, have been driven up because o

the infux o job-seekers. Even in dis-

tressed areas, there are some good mon-

ey-making ideas such as purchasing

distressed properties at rock-bottom

prices and renting them out.

However, there is a risk that too much

money will pile into too ew investment

opportunities. Bubbles tend to be a se-

rial event because they typically result

rom a particular investor mindset. Beorethe collapse o Lehman in 2008, bubbles

kept popping up one ater the other. The

real estate bubble began to defate in the

nal months o 2007, but stock prices took

o, pushing the Dow Jones industrial av-

erage to an all-time high. As stock prices

began to defate in early 2008, a bubble

emerged in commodities, as oil prices

surpassed $140 per barrel.

The same may be happening in

some select real estate sectors, likecommercial real estate in Manhattan,

which already seems overvalued, and

yet it keeps attracting strong infows o

money rom hedge unds, oreign sover-

eign unds and other investors.

Tunaound Tm

Real estate investment opportuni-

ties will probably continue to emerge,

though residential real estate will not be

able return to health meaning that it

will not start to bring solid, predictable

returns to investors until the current

crisis is overcome.

When will the turnaround occur,

then? The residential real estate sector

is a crucial part o the traditional eco-

nomic model: In a recession, the Federal

Reserve typically lowers interest rates,

which allows amilies who delayed buy-

ing homes to come into the market. The

housing market has a strong multiplier

eect on the rest o the economy, be-

cause buying homes also entails buy-

ing urniture, consumer electronics and

a second car or local commuting, hiring

landscapers, etc. Once existing homesbegin to move, the construction industry

comes back to lie, as well.

Sstmatc Soutons

The government could theoretically

develop a system that would eliminate

the backlog o homes in the market while

at the same time reducing the drain on

its resources (since Fannie Mae losses

end up on the lap o the taxpayer) and

reviving the construction industry.By introducing a gradual tightening

o requirements or energy eciency

or new and resold homes, and giving

homeowners generous tax credits and

subsidized loans to install solar panels

and water management systems, ecient

insulation and smart timers, the govern-

ment could plow some unds into giving

a leg up to domestic high-tech industries

and putting construction workers back

to work. n

By Alexei BAyer

Opportunities & TimingReal-estate investment trusts, some commercial sectors and even certain residential groups have donewell, building hope that the U.S. government may address issues affecting single-family residences.



15/16


To order FacT SheeTS FroM TheSe coMPaNIeS, caLL (800) 458-2700 or uSe The order ForM oN Page 3.

Per share distributions paid by W. P. Carey 20092005 2007 2011*2003200119991/1998 inception, * As of 6/30/2011

Investing for the long run

PRISA, SpainDistribuidora de Televisin Digital (DTS) isthe largest provider of digital pay televisionin Spain and a subsidiary of PRISA, thelargest media company in the Spanish-and Portuguese-speaking world.

www.wpcarey.com

Since inception, W. P. Carey has consistently increaseddistributions by employing a conservative investmentstrategy and focusing on investing for the long run.

We are pleased to share the continuing success of thatapproach with our shareholders.

$0.433

$0.446

$0.498

$0.55

$0.467

$0.425

$0.4175

Past performance is not a guarantee of future results.This material does not constitute an offer to sell or asolicitation to buy any securities described herein.

Founded in 1992, LTC is a self-administered real e state investment trust (REIT) that primarilyinvests in senior housing and long-term care properties through facility lease transactions,mortgage loans, and other investments.

At June 30, 2011, LTC had investments in 89 skilled nursing properties, 102 assisted livingproperties, 14 other senior housing properties, and two schools. These properties are located in30 states. Other senior housing properties consist of independent living properties and properties

providing any combination of skilled nursing, assisted living and/or independent living services.

COMPANY HIGHLIGHTS

Diversified Portfolio of Well-Structured Leases and Loans

Attractive Yield and Well-Protected Monthly Dividend

Conservative Balance Sheet

Strong Management Team

CORPORATE OVERVIEW

Since 2003, LTC has grown its annual dividend from $0.65 to $1.68 per share.LTC currently pays a monthly dividend of $0.14 per share.

LTCPROPERTIES, INC.2829 TOWNSGATEROAD, SUITE 350 | WESTLAKEVILLAGE, CA 91361

805-981-8655 PHONE | 805-981-8663 FAX

DIRECT INQUIRIES TO:

[email protected]

GEOGRAPHIC DIVERSIFICATION

PORTFOLIO SUMMARY

SAFE AND GROWING DIVIDEND

Type of Property

Gross

Investments

% of

Investments

Rental

Income

Interest

Income

% of

Revenues

No. of

Props

No. of

SNF

Beds

No. of

ALF

Units

No. of

ILF

Units

Investment

per Bed/Unit

Skille d Nursing $348,195 47.3% $16,668 $1,776 45.2% 89 10,256 - - $33.95

Assisted Living 308,785 41.9% 16,565 1,306 43.8% 102 - 4,365 - $70.74

Other Senior Housing 67,011 9.1% 3,659 187 9.4% 14 913 330 423 $40.22

Schools 12,170 1.7% 627 - 1.6% 2 - - -

Total $736,161 100.0% $37,519 $3,269 100.0% 207 11,169 4,695 423

Six Months Ended

June 30, 2011

LTC has investments in these 30 states.


16/16

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