1. 1 1 Finance & Investment Club Real Estate Sector Summer 2012 Real Estate Senior Analyst : Christian Woo

2. 2 Industry Definition – Residential REIT  Companies or Trusts engaged in the acquisition, development, ownership, leasing, management and operation of residential properties including multifamily homes, apartments, manufactured homes and student housing properties  Firms in the Apartment Rental industry derive revenue from renting real estate, so income fluctuates in line with rental rates and occupancy levels. Avalonbay Communities Inc. (NYSE: AVB) Equity Residential (NYSE: EQR) Mid-American Apartment Communities (NYSE: MAA) Apartment Investment and Management Co.. (NYSE: AIV)

3. 3 Apartment Rental in the US Industry Breakdown by Market Cap Financials (100%) Real Estate Real Estate Investment Trusts (20%) Residential REIT $ 610,017 B Market Cap (Billions) $ 5,313 B $ 2,109 B $ 94 B

4. 4 Industry Model (Inputs/Outputs) Purchase residential properties REIT Companies Lease Properties Individuals Revenue 90% is paid out investors Dividends Reinvestment

5. 5 Time Series Analysis

6. 6 Demographic Trends favor Apartment Demand  First wave of almost 80 million strong echo boom generation is just leaving college  Most likely will remain renters by choice for an extended period due to the persistent weakness in the housing market, challenging mortgage underwriting standards, and lower wage growth  Renting provides more flexibility which will be greatly valued in this fragile working environment

7. 7 Homeownership Expected to Stay Low 1)Over the next five years homeownership rates are only projected to increase by 1.5% therefore remaining at very depressed levels and providing this industry with potential for growth. 2)While confidence in the housing market may start to rise as the economy recovers it will be tempered by rising interest rates, as the Fed allows them to rise in the future

8. 8 Slow Economic Growth 1)With unemployment currently at 8.2% and only 80,000 jobs created in the last month (NFP), the situation is moving in the right direction, but at a very slow and discouraging rate. Given the slow pace of recovery and eroded consumer sentiment after the housing bubble it is likely that individuals will be wary of jumping back into homeownership. 2)Home affordability remains challenging in some gateway markets, while stricter lending standards have made obtaining a mortgage more difficult

9. 9 Residential REIT Industry: Positive  Industry Pros  Younger Demographic entering the rental market paired with slow homeownership growth create a potential for increased revenues  A slowly recovering economy will elongate the potential for growth in the rental industry  Risks  With current valuation pricing in robust rental rate growth in the next few years, shares could suffer if growth fails to meet expectations.  If the housing market recovers faster than expected that could negatively impact rental demand.