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Brett LarsonBrandon KnutsonTaylor Dehlin

Summit Student Investment FundREITs Sector Update

AgendaReview of Fall 2014 sector decisions

Overview of REIT sector

Individual company snapshots

Proposed direction & Vote

Fall 2014 Review

Fall Transaction Review

Why they were purchased/sold:

SPG was purchased because of their growth prospects as well as insulation from interest rates.

PSA was held because it the leader in its industry with no significant competition.

NHI was sold because of its volatility to changes in interest rates.

TransactionsPurchased40 shares of SPGHeld20 shares of PSASold70 shares of NHI

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Current Allocation

CompanyTickerHolding ValuePublic StoragePSA$4,004Simon Property GroupSPG$7,672TotalPSASPG$11,676Need to Free Up1%= $3,477

S&P500 IndexVanguard REIT IndexReturn YTD+2.50%+3.46%1 year performance+14.70%+24.94%Average dividend yield1.87%3.45%

REIT SubsectorsReal Estate Investment TrustsSuper SectorSectorSub SectorEquity Reits IndustrialOfficeRetail Shopping Centers Regional Malls Free StandingHealthcare Senior Housing Hospitals/Outpatient FacilitiesResidentialDiversifiedLodging/ResortsSelf StorageTimberInfrastructureMortgage ReitsHome FinancingCommercial Financing

REITs Correlation

REITs are very correlated to interest rates, and thus, very correlated with each other.SPG and PSA are large portions of VNQ.

REIT Sector Overview

Characteristics of REITsEarn income from renting or operating real estate.

Required to pay out over 90% of income from operations for tax purposes (Not taxed on corporate level).

Value using FFO rather than NI.FFO= NI + Depreciation Income from Sale of Properties

Sensitive to interest rates.

Sensitivity to interest rates

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REITs vs S&P

Retail REITsA retail REIT owns retail real estate and produces income through renting their properties out.

Very sensitive to economic cycles.Buffer to interest rate changes however

Can grow FFO through expansion of properties or increased rent.Common, but not all REITs can grow these ways.

Real Estate Market Cycle

High rent growthPositive but slow rent growthRent growth positive but slowingNegative rent growth

Absorption and Completion (Phase 2)

Units: 1000 Sq. Ft

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Catalysts for Retail REITsAbsorption Outpacing Completions (+)

Expansion and Renovation (+)

Cyclical nature of retail stores (+)

Increased demand for high-quality real estate (+)

Interest rate increases ()

Self-Storage REITsSelf-storage REITs own and operate storage facilities.

Not as sensitive to economic cycles as most REITs.

Can expand FFO through both property expansion and rent increases.

Catalysts for Storage REITsAging of baby boomers (+)

Discretionary spending increasing (+/-)

Housing market growth (+)

Lack of new supply (+)

Interest rate increases (-)

Company Overviews

Public Storage (NYSE: PSA)Primarily acquires, develops, owns, and operates self-storage facilities in the US and western Europe Operates over 2,200 storage locationsMore than 146 million net rentable sq/ft

Key MetricsLatest Closing Price$200.18MKT Cap$34.5BBeta ().74P/FFO25.09Dividend Yield2.8%Debt/Equity.68%Return YTD8.29%Return since purchase17.89%

PS Business Parks interest adds another 29 million rentable sq/ftCommercial and Industrial spaces

One of the largest landlords in the world on a number of tenant basis

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S&P 500 vs. VNQ REIT vs. PSA

Cash Flows from OperationsFFO/share grew $0.45 to $7.98 compared to $7.53 in 2013

Funds From Operations (FFO)PeriodConsensusReportedSurpriseQ4 2014$2.20$2.17-0.05%Q3 2014$2.06$2.08+2.23%Q2 2014$1.96$1.99+0.46%Q1 2014$1.85$1.74-2.81%

Activity in 2014

Revenues grew 10.8% year over year equating $2.2 billion

Net income allocated to shareholders was increased by $63.4 million to $908.2 million for the year end 2014Increase in their self-storage NOI by $157 millionPS Business Parks gain on sales of RE at $36.5 million

Expansion growth in 2014Acquired 44 self-storage in 2014 (3.4 million sq/ft)Completed 6 newly developed facilities (500,000 sq/ft)Expansion projects in 2014 added 600,000 rentable sq/ftAt year end had 25 newly developed facilities and expansion projects adding 3.4 million sq/ft at a cost of $411 million

(Even with the FX losses) 22

Domestic Presence

Red denotes PS Business Parks locations

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Foreign ExposureShurgard is the largest owner and operator of self-storage facilities in Western EuropeShurgard operations account for 6.7% of PSAs income

2014 losses from foreign exchange rates for were $24.1 million$7.8 million in Q4

$482 million in income 6 months 201424

PSA Balance Sheet

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FinancingNo short-term debt (0.68% long-term)Able to expand by issuing preferred stock and using cash flows from operations

Finance primarily with preferred stockNo maturity dateIf insolvent dont have to pay dividends

*May look to short-term debt in the future if needed

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PSA CatalystsFalling Cap Rates (+/-)Increasing prices

Interest Rate increase (-)Make REITs less attractive

Continued endangerment of Baby Boomers species (+)Assets being passed on (increasing need in storage space)

Increase in discretionary spending (+)Increasing need for storage space

Corporate Social ResponsibilityFocused on employing these principles:

Efficient use of lighting technologies Replacing older equipment with energy efficient systems

Efficient plumbing devices and efficient irrigation systems

Recycle and Reuse

Simon Property Group (NYSE: SPG)Simon is a global leader in retail real estate ownership, management and development and a S&P 100 company.Primarily invests in regional malls, Premium Outlets, The Mills, and community/lifestyle centers to create its portfolio.Next closest retail REIT competitor has less than half of Simons market cap.

Key MetricsPrice$191.81Market Cap$60.02 BBeta0.67P/FFO21.5xDebt/Equity348.9%Return YTD6.09%Return Since Purchase13.46%

S&P 500 vs VNQ REIT vs SPG

Earnings Surprises

Funds From Operations (FFO)PeriodConsensusReportedSurpriseQ4 2014$ 2.465$ 2.4700.20%Q3 2014$ 1.856$ 1.9002.37%Q2 2014$ 2.136$ 2.1601.12%Q1 2014$ 2.243$ 2.3806.11%

SPG CatalystsAbsorption outpacing completions (+)Record occupancy levels and rent increases on signed leases boosted FFO estimates and share prices so far 2015Cost of occupancy

M&A Activity (+)Speculations of takeover bid of Macerich, fourth largest mall REIT

Continued increase in demand for high quality real estate (+)Premium Mall Outlet construction: positive outlook for 2015

Cyclical nature of retail stores (+/-)Anchor tenants struggling, but increased consumer spending could combat this

FED Interest rate increases (-)Not a good outlook for REITs market

US/International Exposure93% of property revenues are domesticInsulated from geopolitical issues

Unrivaled access to capitalLikely to further international expansion in upcoming years

Attractive to anchor tenants seeking international operationsIncreased synergies with these companies

CountryNumber of PropertiesUnited States193Japan9South Korea3Italy2Canada2Mexico1Netherlands 1U.K.1Austria1Malaysia1

SPG Balance Sheet

Debt/Equity: 348.88%FFO/Interest Expense: 3.73

Industry leading in Debt to Market Cap (29%), Interest Coverage, Net to EBITDA, Credit Rating34

Relative Valuation

Save the WhalesClimate Disclosure Leader 2014Awarded position on the A List: The CDP Climate Performance Index 2014 (Sixth year)

Global Real Estate Sustainability BenchmarkSector Leader in Retail for four consecutive years

Simons HighlightsNew Director of Sustainability hired and Sustainability Executive Committee launchedAchieved 30% reduction in energy consumption (2003-2013)Installed 175 electric vehicle charging stations at 60 properties (2011-2014)

Proposal & Vote

Our ProposalTickerOriginalNewSPG$7,672$4,172PSA$4,004$4,004Total$11,676$8,176

If You Dare DisagreeSenior Housing Properties Trust (SNH)

Health Care REIT Inc. (HCN)

Vote!