The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial Realty Trust

The Capital Raising Process ♦Recognition of a capital need ♦Review of capital options  Equity (common/preferred)  Debt  Convertibles  Public vs. Private ♦Selection of managers/agents ♦Preparation of offering materials ♦Execution of transaction

Recognition of a Capital Need ♦Capital budgeting is critically important ♦Match funding reduces dilution ♦When Company already needs the money, it is often too late ♦“The Street” smells desperation

Secured Debt Unsecured/Convertible Debt Preferred Stock Common Stock Review of Capital Options Payment Type Interest Pref. Dividends Dividends Claim on Assets Highest Next Highest Mid-Level Residual

Review of Capital Options Capital Raising Alternatives FlexibilityComplexityCost Straight Debt Low Convertible Debt MediumHighMedium Preferred Stock Medium Medium High Common Stock HighLowHigh

Convertible Alternatives ♦Offers equity linkage at lower near-term cost ♦Permits “sale” of common stock in the future at more attractive price ♦Will produce significant shorting activity from hedge fund buyers ♦Convertible debt is STILL debt

Convertible Debt Case Study ♦Issuer:Company X ♦Security:Convertible Senior Notes ♦Issue Size:$300 million ♦Date:June 2004 Interest Rate:4.38% vs. Common Dividend Yield: 7.11% Common Stock Price:$14.05 vs. Conversion Price:$17.84

Review of Capital Options Other Considerations: ♦Public / Private ♦Overnight or extended offering period ♦Number of managers / agents

Selection of Managers / Agents ♦Choice was historically driven principally by relationships, but times have changed ♦Most managers will offer a variety of products, including equity and debt ♦Most managers will now put their own capital at risk ♦Fee-based competition is still limited

Preparation of Offering Materials ♦Not a legal function, but a Company function ♦Particularly important for equity ♦Similar disclosure requirements for both public and private deals ♦Timing can be very tight

Execution of Transaction ♦Distribution of “Red Herrings” ♦Roadshow / Marketing ♦SEC effectiveness, if applicable ♦Closing and payment

Role of the IRO ♦Press Releases ♦Initial inquiries from prospective investors ♦Questions from existing stakeholders ♦Roadshow planning ♦SEC Compliance ♦Pricing and initial trading activity ♦Ongoing monitoring

The Capital Raising Process James T. Ratner EVP Finance and Corporate Strategy American Financial Realty Trust