2. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Agenda
• Review of Fall 2014 sector decisions
• Overview of REIT sector
• Individual company snapshots
• Proposed direction & Vote
4. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
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.
Transactions
Purchased 40 shares of SPG
Held 20 shares of PSA
Sold 70 shares of NHI
5. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Current Allocation
Company Ticker Holding Value
Public Storage PSA $4,004
Simon Property Group SPG $7,672
Total PSASPG $11,676
Need to Free Up 1%= $3,477
S&P500 Index Vanguard REIT Index
Return YTD +2.50% +3.46%
1 year performance +14.70% +24.94%
Average dividend yield 1.87% 3.45%
REIT Sector Holdings
Public Storage Simon Property Group
6. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
REIT Subsectors
Real Estate Investment Trusts
Super Sector Sector Sub Sector
Equity Reits Industrial
Office
Retail Shopping Centers
Regional Malls
Free Standing
Healthcare Senior Housing
Hospitals/Outpatient Facilities
Residential
Diversified
Lodging/Resorts
Self Storage
Timber
Infrastructure
Mortgage Reits Home Financing
Commercial Financing
7. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
REITs Correlation
• REITs are very correlated to interest rates,
and thus, very correlated with each other.
• SPG and PSA are large portions of VNQ.
9. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Characteristics of REITs
• Earn 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.
12. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Retail REITs
• A 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.
13. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Real Estate Market Cycle
High rent growth
Positive but slow rent growth
Rent growth positive but slowing
Negative rent growth
15. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Catalysts for Retail REITs
• Absorption Outpacing Completions (+)
• Expansion and Renovation (+)
• Cyclical nature of retail stores (+)
• Increased demand for high-quality real estate (+)
• Interest rate increases (–)
16. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Self-Storage REITs
• Self-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.
17. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Catalysts for Storage REITs
• Aging of baby boomers (+)
• Discretionary spending increasing (+/-)
• Housing market growth (+)
• Lack of new supply (+)
• Interest rate increases (-)
19. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Public Storage (NYSE: PSA)
• Primarily acquires, develops, owns, and operates self-
storage facilities in the US and western Europe
– Operates over 2,200 storage locations
– More than 146 million net rentable sq/ft
Key Metrics
Latest Closing Price $200.18
MKT Cap $34.5B
Beta (β) .74
P/FFO 25.09
Dividend Yield 2.8%
Debt/Equity .68%
Return YTD 8.29%
Return since
purchase
17.89%
• PS Business Parks interest adds
another 29 million rentable sq/ft
– Commercial and Industrial spaces
• One of the largest landlords in the
world on a number of tenant basis
20. S&P 500 vs. VNQ REIT vs. PSA
Public Storage
VNQ Index
S&P 500
21. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Cash Flows from Operations
• FFO/share grew $0.45 to $7.98 compared to $7.53 in 2013
Funds From Operations (FFO)
Period Consensus Reported Surprise
Q4 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%
22. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
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 2014
– Increase in their self-storage NOI by $157 million
– PS Business Parks gain on sales of RE at $36.5 million
• Expansion growth in 2014
– Acquired 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/ft
– At year end had 25 newly developed facilities and expansion
projects adding 3.4 million sq/ft at a cost of $411 million
23. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Domestic Presence
Red denotes PS Business Parks locations
24. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Foreign Exposure
• Shurgard is the largest owner and operator of self-storage facilities in
Western Europe
– Shurgard operations account for 6.7% of PSA’s income
• 2014 losses from foreign exchange rates for were $24.1 million
– $7.8 million in Q4
26. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Financing
• No short-term debt (0.68% long-term)
– Able to expand by issuing preferred stock and using cash flows
from operations
• Finance primarily with preferred stock
– No maturity date
– If insolvent don’t have to pay dividends
*May look to short-term debt in the future if needed
27. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
PSA Catalysts
• Falling 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
28. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Corporate Social Responsibility
• Focused 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
29. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
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 Simon’s market cap. Key Metrics
Price $191.81
Market Cap $60.02 B
Beta 0.67
P/FFO 21.5x
Debt/Equity 348.9%
Return YTD 6.09%
Return Since
Purchase
13.46%
30. S&P 500 vs VNQ REIT vs SPG
SPG US Equity
SPX Index
VNQ Index
32. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
SPG Catalysts
• Absorption outpacing completions (+)
– Record occupancy levels and rent increases on signed leases boosted FFO estimates
and share prices so far 2015
– Cost 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
33. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
US/International Exposure
• 93% of property revenues are domestic
– Insulated from geopolitical issues
• Unrivaled access to capital
– Likely to further international expansion in upcoming years
• Attractive to anchor tenants seeking international
operations
– Increased synergies with these companies
Country Number of
Properties
United
States
193
Japan 9
South
Korea
3
Italy 2
Canada 2
Mexico 1
Netherland
s
1
U.K. 1
Austria 1
Malaysia 1
US
International
36. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Save the Whales
• Climate Disclosure Leader 2014
– Awarded position on the A List: The CDP Climate Performance Index
2014 (Sixth year)
• Global Real Estate Sustainability Benchmark
– Sector Leader in Retail for four consecutive years
• Simon’s Highlights
– New Director of Sustainability hired and Sustainability Executive
Committee launched
– Achieved 30% reduction in energy consumption (2003-2013)
– Installed 175 electric vehicle charging stations at 60 properties (2011-
2014)
38. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
Our Proposal
Ticker Original New
SPG $7,672 $4,172
PSA $4,004 $4,004
Total $11,676 $8,176
Trim SPG
Public Storage Simon Property Group
39. Fall 2014 Review
Sector Overview
Company Overviews
Proposals & Vote
If You Dare Disagree
• Senior Housing Properties Trust (SNH)
• Health Care REIT Inc. (HCN)
