SIM Sector Presentation Real Estate March 20, 2018 Drake Tharp | Pooja Shah | Wesley Smith

Table of Contents Section Title 1. Overview 2. Business Analysis 3. Economic Analysis 4. Financial Analysis 5. Valuation Analysis 6. Recommendation 7. Appendix

1. Overview

Overview: Sector Review Summary Sector Breakdown The real estate sector includes mortgage companies, property management companies, and REITs. Each of the companies may have a portfolio of residential, commercial, or industrial properties. The companies involvement may be as a developer or operator. The real estate group is dominated by equity REITs Required to pay out to shareholders at least 90% of their taxable income Attractive investment in a low-interest-rate environment, as investors look for income REAL ESTATE REAL ESTATE COMPANIES REITS Recent Trends REITs: Publicly traded or private company whose primary operation is to buy and own properties -entities that invest in physical property and typically receive rental income from their investments https://www.schwab.com/resource-center/insights/content/real-estate-sector Urbanization – apartments and office markets are strong Department store markets face headwinds Interest rate increases may lead to higher purchase prices for real estate companies, potentially hurting margins New tax reform could help make REITs more attractive due to taxation of passive income Developers Operators

Companies by Market Cap and Assets Overview: Companies Major Players SIM Holdings Companies by Market Cap and Assets S&P 500 Portfolio Real Estate 2.6% Source: Company Filings

Overview: Sector Performance Relative Performance YTD S&P 500 -0.2% Sector Performance TTM YTD -5.8% -9.1% Source: Bloomberg

2. Business Analysis

Business Analysis: Property Types Industrial Retail Office Multifamily Used for industrial purposes Small, medium, large Higher rents and yields generally provided Longer leases Used for a store, shopping center, or service business Higher rents and yields generally provided Longer leases Draining business recently Used for business purposes to produce income Includes single-tenant and larger buildings Broken into class A, B, C buildings Used for multiple separate housing units Strong cash inflows Easier to finance, but generally more expensive

Business Analysis: Property Trends Industrial Retail Positive: increase in inventory space in the U.S. due to consumer demand of faster delivery rates that leads to increased inventory volume1 Negative: FDI, which is traditionally high, may decrease due to heightened global regulatory environment under current administration Positive: shallow-bay buildings will become more popular to satisfy last-mile logistics Negative: e-commerce will encourage brick-and-mortar retailers to consolidate services2 Neutral: pop-up stores with shorter lease terms may increase in number for retailers interested in showcasing a new product or a seasonal offering Neutral: Omnichannel retailing is expected to dominate the industry to meet convenience of click-and-collect Office Multifamily https://www.bisnow.com/toronto/news/industrial/the-top-10-industrial-real-estate-trends-to-look-for-in-2017-69624 https://www.buxtonco.com/blog/2018-retail-and-restaurant-real-estate-trends Demographic tailwind Positive: pro-business spending tax reform may result in increased CAPEX spending for purchases of new or used developments3 Positive: strong U.S. market growth and employment numbers present unique expansion opportunities for previously lower-performing companies and markets Positive: evolution of co-working spaces will increase tenant demand Positive: millennials and empty nesters are pushing urbanization to all-time highs, leading to stronger tenant demand4 Positive: increase in micro-apartments to lower price on luxurious apartment complexes, leading to stronger supply Positive: more transaction activity than any other property sector in the U.S. in 2017 Sources: 1 BISNOW Research; 2 Buxton Company Research; 3 PWC Emerging Trends; 4JLL Research

Business Analysis: Macro Environment Tax Reform Interest Rates2 Decreased mortgage interest deduction caps will likely cause home prices to drop 20% deduction for REIT dividends provides more favorable investment opportunity than corporations First-year depreciation deduction in personal property increases to 100% before 2023 Increased interest expenses hurt real estate market because of large debt portfolios with floating rates Jerome Powell announced 3-4 rate hikes in 2018 Mild correlation between real estate and interest rate movements, but generally inverse Sources: 1 PWC Emerging Markets; 2Bloomberg

Business Analysis: Business Life Cycle Real Estate Market1 Cover Analysis Most real estate markets are in expansion phase, soon to be approaching the hypersupply phase Overall, industry is expected to enjoy a long period of expansion before it hits hypersupply Experts in real estate expect a peak similar to the recent financial crisis around 2024 Sources: 1 Harvard University Cover

Business Analysis: Competitor Landscape Industrial Retail Office Multifamily

Business Analysis: Opportunities and Risks Hotels and apartments are in the best position to take advantage of a growing economy Industrial sector continues to enjoy the largest valuations relative to price of the major property types $170bn of U.S. CMBS loans maturing through the end of 2018 present opportunities for sophisticated investors1 Increased migration to and development of secondary markets, such as Philadelphia, Atlanta, Austin, Dallas, and San Diego The Federal Reserve is expected to increase short-term interest rates Potential black swan events could lead to a major market correction, similar to that in early February 2018 Most real estate lives on debt to the tune of 50% or higher, being a highly-levered asset class Properties with longer-term leases offer more interest rate risk Sources: 1 Ares Market Insights

3. Economic Analysis

Economic Indicators Indicator Correlation Coefficient S&P 500 +0.700 GDP +0.244 US Unemployment -0.374 Fed Funds Rate -0.066 Consumer Confidence +0.303 US Wage and salary +0.330

S&P 500

GDP

US Unemployment

Fed Funds Rate

Consumer Confidence

Us Wage and Salary

4. Financial Analysis

Financial Data - REITs S5REITS index’s current sales and earnings growth rate are lower compared to past.

Sales and Earnings - REITs

S&P 500 Comparison

S&P 500 Comparison

Profit Margin

Operating Margin

Return on Common Equity

S&P 500 Comparison

S5REITS index generated negative cash flow in five of last nine years. Free Cash Flow S5REITS index generated negative cash flow in five of last nine years.

Free Cash Flow Yield S5REITS index has lower free cash flow yield compared to S&P 500 index

Dividend

S5REITS index has higher dividend yield compared to S&P 500 index.

5. Valuation Analysis

Valuation: Absolute Basis High Low Median Current P/E 48.4 44.16 45.3 45.56 P/B 3.41 3.04 3.24 3.14 P/S 7.09 6.26 6.77 6.52 P/EBITDA 15.29 13.76 14.61 14.20

Valuation: Absolute Basis Large fall over the last year due to rate hikes

Valuation: Relative to S & P 500 High Low Median (Avg.) Current P/E 2.41 1.88 2.12 1.90 P/B 1.22 .92 1.06 .93 P/S 3.66 2.74 3.31 2.77 P/EBITDA 1.39 1.18 1.32 1.19

Valuation: Relative to S & P 500 Real Estate: each metric about 5-10% below S & P

Valuation: Sub Sector Performance Retail has done the worst, Some REITS value down 94% Valuation varies by sub industry, however no industry has performed well.

Technical Analysis

Technical Analysis Possible to see resistance because the sector has fallen below lower band of moving averages

6. Recommendation

Recommendation Since we are currently underweight in real estate for the portfolio, we recommend that we stay underweight. Negatives: We believe that interest rates will continue to rise which will undercut companies that are used as bond proxies. Higher interest rates raise the cost of borrowing for commercial and homeowners Online shopping hurts retail space Positives: Growth in economy/corporate tax cut: office space demand Higher wages/lower unemployment: housing/apartment demand, retail demand, increased need for inventory space. Currently the negatives outweigh the positives as real estate demand tends to lag a growing economy.