FIRPTA: Time for Reform

2 FIRPTA: Current Law The Foreign Investment in Real Property Tax Act (“FIRPTA”) subjects any gain realized by a foreign investor on the sale of any stock of a U.S. real property company to a complex U.S. tax regime. Dividends by a U.S. real estate REIT to a foreign shareholder can also be subject to 35% FIRPTA tax, even where ordinary dividends are less Foreign investors in any other non-real estate U.S. company are not subject to any tax on a sale of stock  Real estate holding companies are the only U.S. asset class of companies subjected to FIRPTA’s tax regime

3 FIRPTA: Comparison of U.S. Tax Imposed on Sale of Stock in a U.S. Real Estate Company and any Other U.S. Company by a Foreign Investor Stock in a U.S. Real Estate Company Stock in Any Other U.S. Company Date 1: Stock Purchase$1,000 Date 2: Stock Sale$1,500 Gain$500 U.S. Federal Income Tax Rate under FIRPTA35%0% FIRPTA Tax $175 - Net after-tax proceeds$1,325$1,500

4 Proposed FIRPTA Reform Senate Bill Under current law, foreign shareholders owning 5 percent or less of a publicly-traded REIT are not subject to the extra FIRPTA tax The proposed FIRPTA Reform Senate bill (the “Proposed Bill”) extends the FIRPTA exemption to foreign shareholders owning 10 percent or less of a publicly-traded REIT. The Proposed Bill also clarifies that the 10 percent exemption applies to beneficial owners owning 10 percent or less of a REIT through a publicly-traded foreign investment vehicle recognized as a pass-through entity by the U.S. Treasury in a U.S. tax treaty* The Proposed Bill further clarifies that REIT liquidating distributions and redemptions are treated as sales of the REIT’s stock * These provisions were contained in H.R. 5901, The Real Estate Jobs and Investment Act of 2010, passed by the House of Representatives on July 30, 2010 by a vote of

5 Total market and equity capitalization of global real estate companies:  Estimate of total global high quality commercial RE is ~$19.2 trillion (of which the US has $5.9 trillion or 30.6%), and global listed RE is $1.1 trillion (of which US is $363 billion or 32.8%), which represents ~6% of total global RE (based on "Global Real Estate Analyser," dated November 24th 2009, pg. 76)  ~$577B in equity market capitalization (i.e., not including debt) for global listed RE excluding emerging markets (of which US has $138 billion or 24%), and $758 billion including emerging markets (based on UBS research report "UBS GRE Weekly", pg. 6) Foreign direct investment in real estate:  According to the US Department of Commerce, Bureau of Economic Analysis, foreign direct investment in real estate (on a historical-cost basis) totaled $52 billion at the end of 2008 or only 2.3% of all foreign direct US investment and less than 1.0% of total US high quality commercial RE totaling $5.9 trillion (as noted above) Level of Foreign Investment in U.S. Real Property

6 Global equity real estate funds available to invest:  Global equity dry power of $143 billion with $78 billion have cash for investment in the U.S. as of December 31, 2008 (based on Preqin research report) Sovereign Wealth Funds:  Currently, there are 51 sovereign wealth funds (“SWFs”) with a combined asset base of $3.05 trillion. SWF assets could grow as high as $11 trillion by 2013 (based on E&Y research)  73% of SWFs invest in real estate (based on 2009 Preqin research)  As of July 2008, SWFs invest between % of their investment portfolios in real estate and this is expected to grow to 15% in the future (based on DEGI research) Vast Potential for Increased Equity Investment in U.S. Real Estate Companies

7 Major Foreign Investors in U.S. Real Estate

8 By the end of 2010, about half of all commercial real estate mortgages will be underwater. Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, February 2010 Falling commercial property values result in higher LTV ratios, making it harder for borrowers to refinance under current terms regardless of the soundness of the original financing, the quality of the property, and whether the loan is performing. The Congressional Oversight Panel’s February 2010 report on commercial real estate When commercial properties fail, the result is a downward spiral of economic contraction; job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. The Congressional Oversight Panel’s February 2010 report on commercial real estate The commercial real estate market and the U.S. economy need FIRPTA reform and the infusion of foreign investment that will ensue Commercial Real Estate: In Need of FIRPTA Reform

9 To ensure compliance with Treasury Department regulations, we advise you that, unless otherwise expressly indicated, any federal income tax advice contained in this presentation was not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any tax-related matters addressed herein U.S. Treasury Department Circular 230 Notice