A Value Menu for McDonald’s · 2014-11-16 · 2 Table of Contents C. McOpCo Financial Analysis 74 B. PF McDonald's Financial Analysis 66 A. Pershing’s Proposal: Assumptions 59

A Value Menu for McDonald’s

Pershing SquareCapital Management

1

DISCLAIMER

Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding McDonald's Corporation ("McDonald's") are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company and its advisors that could lead them to disagree with the approach Pershing is advocating.

The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein.

Pershing manages funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause Pershing to change its position regarding the Company and possibly reduce, dispose of, or change the form of its investment in the Company. Pershing recognizes that the Company has a stock market capitalization of approximately $42bn, and that, accordingly it could be more difficult to exert influence over its Board than has been the case with smaller companies.

2

Table of Contents

C. McOpCo Financial Analysis 74

B. PF McDonald's Financial Analysis 66

A. Pershing’s Proposal: Assumptions 59

Appendix 58

V. Developing a Response to the Company 43

IV. Company Response to Pershing 39

III. Pershing’s Proposal to McDonald's: McOpCo IPO 23

II. Pershing’s View of McDonald's 11

I. Overview of McDonald's 3

I. Overview of McDonald's

4

Pershing’s Involvement with McDonald’s

On September 22nd, Pershing Square Capital Management (“Pershing”) presented a proposal for increasing shareholder value (“the Proposal”) to McDonald’s management

Pershing commends McDonald’s management for its strong operational execution over the past two years

Pershing appreciates the willingness and openness of McDonald’s management to discuss the Proposal

Management has taken our Proposal seriously – our Proposal was presented to McDonald’s Board of Directors

Pershing had a follow-up meeting with McDonald’s management on October 31 when the Company communicated its response to our Proposal

Pershing is pleased to have the opportunity to share the details of our Proposal with the broader investment community

I. Overview of McDonald’s

5

Review of McDonald’s

World’s largest foodservice franchisor and retailer$42 billion equity market value$55 billion in estimated system wide sales32,000 system wide restaurants, globallyServes 50 million customers daily in 119 countries

Everyday 1 out of 14 Americans eats at a McDonald’s

One of the world’s most recognized brands

Consistently named in the top 10 global brands along with Coke and Disney

One of the largest retail property owners in the world

Estimated owned and controlled real estate market value of $46 billion (1)

Estimated 18,000 restaurants where McDonald’s owns land and/or building

Significant free cash flow business

________________________________________________(1) Based on Pershing’s assumptions. See page 64 in the appendix.


6

Historical Financial Performance

McDonald’s Historical Revenue and EBITDA Performance (1)

($ in millions)

Following declines in same-store sales and profitability in 2001 and 2002, Management has improved operations through product innovation, capital discipline and strong execution. As a result, the Company’s profitability has increased.

Same-store Sales Growth 0.6% (1.3%) (2.1%) 2.4% 6.9%


$5,183$4,512$3,997$4,041$4,144

$19,065$17,141

$15,406$14,870$14,243

$0

$5,000

$10,000

$15,000

$20,000

2000 2001 2002 2003 2004

Reve

nue /

EBI

TDA

24.0%

25.5%

27.0%

28.5%

30.0%

EBITDA Margin

EBITDA Revenue EBITDA Margin________________________________________________(1) EBITDA is adjusted for certain non-recurring and non-cash items.

7

Historical Financial Performance (Cont’d)

Historical Pre-Tax Unlevered Free Cash Flow(1) Performance($ in millions)

As a result of the Company’s improved capital allocation, pre-tax unlevered free cash flow has increased from a five-year low of $2.0 billion in 2002 to $3.5 billion in 2004.

_______________________________________________(1) Denotes Adjusted EBITDA – CapEx. Adjusted EBITDA is adjusted for certain non-recurring and non-cash expenses.

$2,199$1,994

$3,205$3,483

$2,134

15.4%14.4%

12.9%

18.7% 18.3%

$0

$1,000

$2,000

$3,000

$4,000

2000A 2001A 2002A 2003A 2004A

EBIT

DA –

CapE

x

10%

14%

18%

22%

26%

Margin (%)

EBITDA – CapEx Margin %


2000 2001 2002 2003 2004

8

Stock Price Performance

McDonald’s Stock Price Performance($ per share)

Although McDonald's stock has rebounded from its 2003 lows, it has been range bound in the low $30s for the past five years and is significantly off of its high of $48 per share reached in 1999.

High of $48.3211/12/99

$10.00

$20.00

$30.00

$40.00

$50.00

11/12/99 07/12/00 03/12/01 11/10/01 07/11/02 03/11/03 11/09/03 07/09/04 03/09/05 11/07/05


9

0

50

100

150

200

250

300

350

11/10/00 06/01/01 12/21/01 07/12/02 01/31/03 08/22/03 03/12/04 10/01/04 04/22/05 11/11/05

McDonald's QSR Comp S&P 500(1)

5-Year Indexed Stock Performance

5-Year Indexed Stock Performance

Over the past five years, McDonald’s has only slightly outperformed the S&P 500 while its QSR peer group has vastly outperformed the index.

________________________________________________(1) Includes YUM and WEN.

QSR

MCDS&P

McDonald's S&P 500 QSR Index5 Year Indexed Performance 2.4% (9.6%) 177.3%


10

1 5 .6 x

2 0 .4 x

1 6 .7 x

0 .0 x

5 .0 x

1 0 .0 x

1 5 .0 x

2 0 .0 x

2 5 .0 x

3 0 -D a y A v e ra g e T ra ilin g W E N Y U M(1 )

8.7x

9.3x

8.9x

7.5x

8.0x

8.5x

9.0x

9.5x

10.0x

30-Day Average Trailing WEN YUM(1)

McDonald’s versus its Peers

________________________________________________(1) McDonald’s stock price is based on a 30-day average trailing price as of 11/11/05.

EV / ’06E EBITDA

P / ‘06E EPS

Despite McDonald’s strong real estate assets, number one QSR market position and leading brand, McDonald’s trades at a discount to its peers.

We believe this discount is due to a fundamental misconception about McDonald’s business.

Long-TermEPS Growth 9% 12% 12%


II. Pershing’s View of McDonald's

12

McDonald’s: How the System Works…II. Pershing’s View of McDonald's

Franchisor: Franchises brand and collects feeOperator: Operates 9,000 McDonald’s restaurantsLandlord: Buys and develops real estate and leases to its franchiseesReal Estate and Franchise estimated pre-tax ROI of 17.5%(1):

Franchise Fee: 4% of restaurant sales

Rent: greater of a minimum rent or a percentage of restaurant sales (current avg. ~9% of sales)

Franchisee bears all maintenance capital costs

________________________________________________

(1) Illustrative return based on Pershing’s assumptions for the cost of land and building and approximate average unit sales in 2004.

Landlord, Franchisor, Restaurant Operator Franchisees

Cost of Land $650kCost of Building 650kTotal Cost $1,300k

Est. Average Unit Sales $1,750kRent as a % of Sales 9.0%Franchise Income as % of sales 4.0%Rental Income $158Franchise Income 70Total Income $228Unlevered Pre Tax ROIC 17.5%

13

A Landlord, Franchisor and Restaurant Operator

McDonald’s controls substantially all of its systemwide real estateEstimated 11,700 restaurants where McDonald’s owns both the land and buildings and 7,000 restaurants where McDonald’s owns only the buildings (1)

Estimated $1.3 billion of income generated from subleasesEstimated real estate value: $46 billion or ~94% of current Enterprise Value (2)

Approximately 32,000 restaurants where McDonald’s receives 4% of unit sales Reported financials have

overstated margins due to a lack of transfer pricing

Currently not charged a franchise fee Currently not charged a market rent

________________________________________________

(1) Assumes that McDonald’s owns the land and buildings of 37% of its system wide units and owns the buildings of 22% of its system wide units.(2) Valuation based on Pershing estimates. See page 64 for more detail on real estate valuation.

Franchisor Restaurant OperatorLandlord

Real Estate and Franchise Business McOpCo


Approximately 9,000 Company-operated restaurants

14

Characteristics of Cash Flow Streams

Franchisor RestaurantsLandlord

Real Estate and Franchise Business

MinimalTriple net leases

LowLimited remodel subsidies as well as corporate capex

HighSignificant maintenance capex

MaintenanceCapital Requirements:

Very Stable / Minimal RiskGenerates the greater of a minimum rent or a % of sales (current average ~ 9%)

Stable / Low RiskLow operating leverageDiverse and global customer base

Medium RiskHigh operating leverageSensitivity to food costs

RiskProfile

70%–90% MarginsSome real estate development expenses

30%–50% Margins 7%–10% Margins (1)

High food, paper and labor costsRentFranchise fee

Typical EBITDA Margin:

Typical average cost of capital:(2)

________________________________________________

(1) Typical margins are illustrative restaurant EBITDA margins and assume the payment of a market rent and franchisee fee, similar to a franchisee.(2) Typical betas are Pershing approximations based on selected companies’ Barra predictive betas. Average cost of capital estimates are illustrative estimates based on average asset betas.

Minimal: 5.75%-6.5%Real estate holding companies typical asset beta: ~.40 Hard asset collateral

Low: 6.5%-7.5%Choice Hotels, Coke and Pepsi – typical asset beta: ~.50-.60Highly leveragable

McOpCo

Medium: 8%-9%Mature QSR typical asset beta: ~.80-.90


15

Adjusting for Market Rent and Franchise Fees

2004 Total EBITDA Adjusted for Market Rent and Franchise Fees

55%

2004 Total EBITDA As Reported

In 2004, McDonald’s company-operated restaurants appeared to contribute 46% of total EBITDA. However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of total EBITDA, with the higher multiple Real Estate and Franchise businesses contributing 78% of total EBITDA.

________________________________________________

Note: The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald’s management has indicated this is a conservative assumption regarding the Real Estate and Franchise business. Analysis excludes $441 mm of non-recurring other net operating expenses.

.

78%

22% McOpCo

Real Estate and Franchise

2004 EBITDA %McOpCo $2.4bn 46%Real Estate and Franchise 2.8bn 54%Total $5.2bn 100%

2004 EBITDA %McOpCo $1.1bn 22%Real Estate and Franchise 4.0bn 78%Total $5.2bn 100%

46%

54%

McOpCo

Real Estateand Franchise


16

Adjusting for Market Rent and Franchise Fees (Cont’d)

2005E Total EBITDA – Capex Adjusted for Market Rent and Franchise Fees

2005E Total EBITDA – CapexAs Reported

Once adjusted for market rent and franchise fees, McOpCo would be contributing only 14% of total EBITDA-Maintenance Capex, with the Real Estate and Franchise business contributing 86% of total EBITDA-Maintenance Capex ,based on FY 2005E projections.

________________________________________________

The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald’s management has indicated this is a conservative assumption regarding the real estate and franchise business. In addition, we note that 2005E maintenance capexincludes certain one-time capital expenditures related to systemwide remodeling program. Please see appendix for full reconciliation

.

'05 EBITDA- Maint. Capex %

McOpCo $1.9bn 47%PF McDonald's 2.2bn 53%Total $4.1bn 100%

'05 EBITDA- Maint. Capex %

McOpCo $0.6bn 14%PF McDonald's 3.5bn 86%Total $4.1bn 100%


53% 47%

McOpCo

Real Estate andFranchise

86%

14%McOpCoReal Estate and

Franchise

17

Reconciling McDonald’s 2004A P&L

Set forth below is a table which reconciles McOpCo’s, the Real Estate and Franchise businesses’ and stand-alone McDonald’s FY 2004A income statements, assuming McOpCo pays a market rent and franchise fee. The analysis demonstrates that the Real Estate and Franchise business contributed approximately 78% of total EBITDA.

________________________________________________

The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald’s management has indicated this is a conservative assumption regarding the real estate and franchise business.Note: Analysis excludes $441 mm of non-recurring other net operating expenses.

.


(U.S. $ in millions)Real Estate 2004

2004 McOpCo and Franchise Inter-Company ConsolidatedIncome Statement P&L P&L Eliminations Sum of Parts

Sales by Company Operated Restaurants $14,224 $14,224 $14,224Rent from Franchise and Affiliate Rest. 3,336 3,336 3,336 Rent From Company Operated Rest. - 1,280 (1,280) - Franchise Fees From Franchise and Affiliate Rest. 1,505 1,505 1,505 Franchise Fees From Company Operated Rest. - 569 (569) - Total Revenue $19,065 $14,224 $6,690 ($1,849) $19,065

Company Operated Expenses: Food and Paper 4,853 4,853 - - 4,853 Compensation & Benefits 3,726 3,726 - - 3,726 Non-Rent Occupancy and Other Expenses (excl. D&A) 2,164 2,164 - - 2,164 Company Operated D&A 774 427 347 774 Company-Operated Rent Expense 583 583 583 (583) 583 Additional Rent Payable to PropCo - 697 - (697) - Franchise Fee Payable to FranCo - 569 - (569) - Total Company Operated Expenses $12,100 $13,019 $930 ($1,849) $12,100

Franchised Restaurant Occupancy Costs 576 - 576 - 576 Franchise PPE D&A 427 427 427 Corporate G&A 1,980 495 1,485 1,980 EBIT 3,982 710 3,272 - 3,982

Depreciation & Amortization 1,201 427 774 - 1,201 EBITDA $5,183 $1,137 $4,046 $0 $5,183% of Total EBITDA 100% 22% 78% 100%

18

Historical EBITDA by Business Type:As Currently Reported

Assuming 75% of G&A is allocated to the Real Estate and Franchise business, an allocation that McDonald’s management indicates is conservative, we indicate below the EBITDA for McOpCo and the Real Estate and Franchise businesses, as depicted in the reported financials. We note that McOpCo has historically appeared to contribute approximately ~45% of consolidated EBITDA.

McDonald’s Consolidated EBITDA($ in millions)

________________________________________________

Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Management has indicated this is a conservative assumption regarding the Real Estate and Franchise business.


~55%

McOpCo~45%

$2,780$2,440$2,156$2,148$2,149

$2,403$2,072$1,841$1,893$1,995

$5,183$4,512

$3,997$4,041$4,144

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

2000 2001 2002 2003 2004

Real Estate and Franchise McOpCo


19

(1.1%) (10.6%) (7.9%) 14.0% 20.4%

0.6% (1.3%) (2.1%) 2.4% 6.9%Same-store sales

Historical EBITDA by Business Type:Adjusted for a Market Rent and Franchise Fee

Despite an economic recession in 2001-2003, significant dips in McDonald’s system wide same-store sales growth and declines in McDonald’s stock prices, the Real Estate and Franchise business has grown every year over the last five years.

McDonald’s Consolidated EBITDA($ in millions)

________________________________________________

Notes:Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A.Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales.

(0.5)% 0.1% 0.9% 12.6% 13.4%RE/Franchise Growth


~80%

McOpCo Growth


$3,138 $3,142 $3,169 $3,568 $4,046

$1,006

$1,137

$900 $828$944

$4,144 $4,041 $3,997$4,512

$5,183

$0.000

$1.000

$2.000

$3.000

$4.000

$5.000

$6.000

2000 2001 2002 2003 2004

Real Estate and Franchise McOpCo

20

$1.5 $1.6 $1.8 $1.9 $2.1 $2.5 $2.6 $2.7 $2.9 $3.2 $3.1 $3.1 $3.2 $3.6 $4.0$0.5 $0.5 $0.6 $0.6 $0.7$0.7 $0.8 $0.8 $1.0 $1.0 $1.0 $0.9 $0.8

$0.9$1.1

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

McOpCo

Real Estate andFranchise

Real Estate and Franchise Business:Stable and Growing

McDonald’s Consolidated EBITDA($ in billions)

(15.6%) 30.5% 28.3% 16.9% 2.6% 54.3% 0.6% 5.2% 60.9% 5.0% (15.7%) (22.1%) (39.3%) 54.4% 29.1%Change in Year-End Stock Price:

2.3% 18.1% (2.2%) 17.0% 14.1% 3.6% 6.3% 18.0% 5.1% (1.1%) (10.6%) (7.9%) 14.0% 20.4%McOpCo EBITDA Growth

Real Estate & Franchise EBITDA Growth: 4.9% 11.7% 8.5% 10.4% 15.3% 4.0% 4.3% 10.1% 7.4% (0.5%) 0.1% 0.9% 12.6% 13.4%

Based on Reported FinancialsBased on Pershing Assumptions

________________________________________________



21

Historical Perspectives on McOpCo

McDonald’s did not historically operate restaurants

The Company initially entered the business of operating restaurants only as a defensive measure

Limited number of restaurants“The idea emerged that we should operate a base of ten or so stores as a company. This would give us a firm base of income in the event the McDonald brothers claimed default on our contract…” (1)

--Ray Kroc / Founder

Expansion of McOpCo units first occurred in the late 1960sVeteran franchisees were approaching retirement and needed liquidityMcDonald’s stock was provided as a tax-free exchange for the restaurants

“Some of our operators had tremendous wealth but no money. And we were using McDonald’s stock that was trading at 25 times earnings to buy restaurants for seven times earnings” (2)

--Fred Turner / Former President and CEO

Turner realized in the mid 70s that owning too many McOpCounits was not in the best interest of the Company

________________________________________________

(1) From Grinding It Out: The Making of McDonald’s, p. 108.(2) From McDonald’s: Behind the Golden Arches, pgs. 288 - 291.


22

Superior Franchisee EconomicsII. Pershing’s View of McDonald's

“Running a McDonald’s is a 363-day-a-year business and an owner/operator, with his personal interests and incentives, can inherently do a better job than a chain manager.” (1)

--Fred Turner / Former President and CEO

Company Operated Franchisee Operated

Structure C-Corporation LLC / Partnership

Taxes Corporate level tax No corporate level tax

Leverage 10% - 30% 75% - 90%

Levered Returns Low teens 40% and higher

General manager Salaried employee/ Owner / Entrepreneurcorporate manager

Illustrative Characteristics of Company Operated versus Franchisee Operated Restaurants (2)

________________________________________________

(1) From McDonald’s: Behind the Golden Arches, pgs. 288 - 291.(2) Illustrative leverage and equity return figures. Not based on company data.

III. Pershing’s Proposal to McDonald's: McOpCo IPO

24

Pershing’s Proposal: McOpCo IPO

Step 1: IPO of 65% McOpCo Step 2: Issue Debt and Pursue Leveraged Self Tender

IPO 65% of McOpCo

IPO generates estimated $3.27bn of after tax proceeds

Assumes a 7x EV/FY’06E EBITDA multiple

Assumes $1.35 bn of Net Debt allocated to McOpCo

Issue $14.7bn of financing secured against PF McDonald’s real estate

Debt financing and IPO proceeds used to

Refinance all of the existing $5 bnof net debt at Pro Forma McDonald’s

Repurchase 316mm shares at $40 per share

Pay $300mm in fees and transaction costs


25

Pershing’s Proposal: McOpCo IPO (cont’d)

McOpCo

At the time of IPO, McOpCo signs market lease and franchise agreements with Pro Forma McDonald’s (“PF McDonald’s”)

Resulting Pro Forma McDonald’s is a world-class real estate and franchise business

McOpCo financials deconsolidated from PF McDonald’s

Leverage is placed only on PropCoFranCo is unlevered, maximizing its credit rating

PropCo FranCo

Pro Forma

IPO 65%


26

McOpCo IPO: A Transformational Transaction

Significant value creation for shareholders

PF McDonald’s would trade at an approximate 37%–52% premium over where it trades today, in the range of approximately $45–50 per share (1)

Creates investor transparency

Deconsolidation provides investors with transparent insight into PF McDonald’s profitability (60% EBITDA margins), attractive FCF profile (35% levered FCF margins) and world-class real estate/franchise assets

Separation of McOpCo highlights the significant value of rental income and franchise fees currently eliminated in consolidation

Enhances management focus and incentives at both entities

Enhances ability to attract and retain top McOpCo management

Allows PF McDonald’s management team to focus on new product innovation, improved marketing efforts, stronger real estate development programs and higher quality franchisee performance monitoring / training

An IPO of McOpCowould have several positive strategic and financial implications for both Pro Forma McDonald’s as well as McOpCo.


________________________________________________(1) Based on recent stock price of $33 per share.

27

TypicalStandalone Pro Forma Mature

$ in millions FY 2006E FY 2006E QSR

Revenue $20,816 $7,393EBITDA 5,594 4,464

EBITDA Margin 26.9% 60.4% 15% - 20%

EBITDA-Capex 4,335 3,739EBITDA-Capex Margin 20.8% 50.6% 7.5% - 12.5%

EBITDA-Maintenance Capex 4,651 4,025EBITDA - Maint. Capex Margin 22.3% 54.4% 10% - 15%

FCF (1) 3,059 2,440FCF Margin 14.7% 33.0% 5% - 10%

A Transformational Transaction (Cont'd)

Improves operating and financial metrics at every levelSignificantly improves PF McDonald’s EBITDA and free cash flow marginsEnhances return on capital and overall capital allocation for the PF McDonald’sImproves ability of PF McDonald’s to pay significant ongoing dividends

________________________________________________

We note that CapEx projections are net of proceeds obtained from store closures.(1) Typical QSR margin based on Wall Street estimates for YUM! Brands and Wendy’s.


28


Will likely lead to improved operating margins at McOpCoSeparation from PF McDonald’s will make margin improvement an imperative

Improves capital structure while maintaining investment grade credit rating

Low-cost secured debt to replace current debt or issued incrementally on current structure

Cheap CMBS structured financing issued at PropCo could judiciously utilize strong real estate collateralCMBS financing is non-recourse to McDonald’s (parent)FranCo remains unlevered and is at least a AA creditPF McDonald’s, the holding company, remains investment grade

Improves alignment with franchisees (1)

Allows for share buybacks of higher return businessSeparation of McOpCo allows for share buybacks to be targeted predominantly at PF McDonald’s, the stronger free cash flow business

An IPO of McOpCowould have several positive strategic and financial implications for both Pro Forma McDonald’s as well as McOpCo.

________________________________________________(1) Will be discussed at length later in the presentation.


29


Allows for a voice in McOpCo through governanceGiven its 35% stake in McOpCo post spin-off, PF McDonald’s will be able to elect several Board seats to the new entityGovernance affords visibility in McOpCo operations, which will help in:

managing the McDonald’s brand extending new products through the franchisee systemremaining in touch with unit-level economics and issues

Supported by highly similar, successful precedent transactions

Coca Cola Company carved-out its owned bottling operations in 1986 in what is widely viewed as one of the most successful restructurings of all timePepsiCo followed suit in a similar transaction in 1999, with unanimous support from the Wall Street research analyst community

Allows for an accelerated McOpCo refranchising program

Increases overall size of PF McDonald’s investor base

Strong potential to attract both dividend / income-focused investors and real estate-focused investors

An IPO of McOpCowould have several positive strategic and financial implications for both McDonald’s as well as McOpCo.


30

Pro FormaTypical Mature

QSR (1)

TypicalReal Estate

C-CorpChoice Hotels

2005E Operating Metrics:EBITDA Margins 60% ~15% - 20% ~70% - 80% 66% 23% 31%EBITDA – CapEx Margins 50% ~7.5 % - 12.5% ~65% - 75% 61% 18% 27%EPS Growth 9% ~10% - 12% NA 16% 11% 9%

Trading Multiples

Adjusted Enterprise Value (2) / CY 2006E EBITDA ~8.5x - 9.5x ~13x - 16x 15.1x 12.3x 12.6xCY 2006E EBITDA – CapEx ~12x - 15x ~17x - 20x 16.0x 15.5x 14.2x

Price /CY 2006E EPS ~15x - 19x NA 24.3x 20.1x 18.8x

CY 2006E FCF (3) ~16x - 20x ~20x - 25x 24.0x 20.8x 18.9x

Leverage MultiplesNet Debt / EBITDA ~0.5x - 1.8x ~5x - 10x 1.7x 0.0x NM Total Debt / Enterprise Value ~7.5% - 20% ~35% - 60% 11% 4% 4%

High Branded Intangible Property

Publicly Traded Comparable Companies

PF McDonald’s operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical mature QSR.

________________________________________________

Stock prices as of 11/11/05. Projections based on Wall Street estimates.(1) Typical mature QSR based on YUM! Brands and Wendy’s.(2) Adjusted for unconsolidated assets.(3) FCF denotes Net Income plus D&A less CapEx.


31

REITs: Typical Trading Multiples

We believe REITs trade in the range of 13x-17x EV/’06E EBITDA, depending on the type of real estate and the businesses the properties support.

________________________________________________Based on Wall Street research estimates at the time of Pershing’s initial Proposal to the Company.

EV / '06E Div. P / '06E P / '06ECompany EBITDA Yield FFO AFFOHealth Care 14.7x 6.3% 12.6x 13.3xIndustrial 16.3x 4.2% 13.9x 17.2xMultifamily 17.0x 4.8% 16.6x 19.4xOffice 15.2x 4.7% 13.8x 19.6xRegional Mall 16.3x 3.8% 14.2x 16.9xSelf Storage 17.5x 3.8% 16.7x 18.3xStrip Center 15.5x 4.5% 14.4x 16.5xTriple Net Lease 13.1x 6.4% 12.8x 13.4x

REIT Industry Total / Wtd. Avg. 15.7x 4.8% 14.4x 16.8x


32

Significant Value Creation for Shareholders

Based on relevant publicly traded comparable companies, including several real estate holding C-Corporations, Pro Forma McDonald’s would trade in the range of 12.5x–13.5x EV/CY ’06E EBITDA. We believe PF McDonald’s would trade at a 37%–52% premium over where it trades today.

________________________________________________(1) Assumes $1.35 bn of net debt allocated to McOpCo and $5.0 bn of net debt allocated to PF McDonald’s. In addition, assumes $9.7 bn of incremental leverage placed on

PF McDonald’s.(2) Represents 35% of the market equity value of McOpCo.(3) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately 316 mm shares at an average price of $40.(4) Assumes a recent stock price of $33.(5) P / FY ’06E FCF multiple adjusted for Pro Forma McDonald’s 35% stake in McOpCo.


$ in millions Low HighEV/'06E EBITDA Multiple Range 12.5x 13.5xEnterprise Value $55,799 $60,263Less: Net Debt (12/31/05E) (1) 14,650 14,650Plus: Remaining Stake in McOpCo (2) 2,097 2,493Equity Value $43,247 $48,106Ending Shares Outstanding (12/31/05E) (3)

957.3 957.3

Price Per Share $45 $50Premium to recent price (4) 36.9% 52.3%Implied P/FY 2006 EPS Multiple 19.9x 22.2xImplied P/FY 2006 FCF Multiple (5) 19.8x 21.9x

Implied FCF / Dividend Yield 5.1% 4.6%

33

McOpCo Valuation Summary and Potential IPO Proceeds

McOpCo would likely be valued at $6.0 billion to $7.1 billion of equity market value or 6.5x–7.5x EV/’06E EBITDA.

________________________________________________(1) See appendix for McOpCo IPO after-tax proceeds schedule.


McOpCo Financial Summary$ in millions

McOpCo Financial Summary FY 2006ECompany operated revenues $15,429Segment EBITDA, pre G&A 1,690

EBITDA Margin, pre G&A 11.0%Assumed G&A for McOpCo 560

Assumed G&A as a Percentage of Total G&A 25.0%EBITDA post G&A $1,130

EBITDA Margins 7.3%Net Income $308EPS $0.24

McOpCo Valuation Summary$ in millions Low HighEV/'06E EBITDA Multiple Range 6.5x 7.5xMcOpCo Enterprise Value $7,343 $8,472Net Debt (12/31/05) 1,350 1,350

Equity Value of McOpCo $5,993 $7,122Ending Shares Outstanding 1,274 1,274

Price per share $4.70 $5.59

Estimated After-Tax IPO Proceeds (1) $3,042 $3,497See appendix for after-tax IPO proceeds schedule

34

Pro Forma McDonald’s: Valuation Summary

The valuation of PF McDonald’s suggests a valuation range of $45–$50 per share. Based on the midpoint of the valuation analysis, PF McDonald’s could be worth $47.50 per share, a 44% premium over where it trades today.

________________________________________________(1) Assumes $1.35 billion of net debt allocated to McOpCo and $5.0 billion of net debt allocated to PF

McDonald’s. In addition, assumes $9.7 billion of incremental leverage placed on PF McDonald’s.(2) Represents 35% of the market equity value of McOpCo.(3) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and

expenses) are used to buy back approximately shares 316 million shares at an average price of $40.(4) Assumes a recent stock price of $33.(5) P / FY ’06E FCF multiple adjusted for Pro Forma McDonald’s 35% stake in McOpCo.(6) Fees and expenses associated with the IPO and financing transactions.


PF McDonald's Summary Financials$ in millions

Financial Summary FY 2006EFranchise Revenue $2,275Real Estate Revenue 5,118

Total Revenue $7,393

Franchise EBITDA, Pre G&A $2,275Real Estate EBITDA, Pre G&A 3,869Less: Allocated G&A 1,680

Assumed G&A as a Percentage of Total G&A 75.0%Total EBITDA $4,464EBITDA Margins 60.4%

Net Income 2,141EPS $2.27

PF McDonald's Valuation$ in millions Low HighEV/'06E EBITDA Multiple Range 12.5x 13.5xEnterprise Value $55,799 $60,263Less: Net Debt (12/31/05E) (1) 14,650 14,650Plus: Remaining Stake in McOpCo (2) 2,097 2,493Equity Value $43,247 $48,106Ending Shares Outstanding (12/31/05E) (3)

957.3 957.3

Price Per Share $45 $50Premium to recent price (4) 36.9% 52.3%Implied P/FY 2006 EPS Multiple 19.9x 22.2xImplied P/FY 2006 FCF Multiple (5) 19.8x 21.9x

Implied FCF / Dividend Yield 5.1% 4.6%Memo:Share Buyback:Incremental Debt Issued $9,685Less Transaction Fees and Expenses (6) ($300)Approximate Cash Received From IPO, after Tax $3,270Total Funds Available for Repurchase $12,654

# of shares repurchased (mm) 316Average price of stock purchased $40

35

Capitalization and Credit Profile of Pro Forma McDonald’s

Set forth below are the sources and uses of proceeds associated with a $14.7 bn issuance of secured collateralized financing (net of cash on hand), or an incremental $9.7 of net debt, based on expected net debt as of FY 2005E. We have assumed a 5% fixed rate for this collateralized financing. After this transaction, Pro Forma McDonald’s would be leveraged approximately 3.5x Total Debt/EBITDA or at a 25% Debt to Enterprise Value ratio. Proceeds from this issuance would be used to repay existing debt, buyback shares and pay financing fees and expenses.

$ in millionsSources

New CMBS Financing (net of cash) $14,650Percentage Loan to Value 44%

Total $14,650

UsesRepay Existing Net Debt at PF McDonald's $4,965Buyback Shares 9,535Fees and Expenses 150

Total $14,650

PF McDonald's Capital StructureFY2005E

Total Net Debt at Stand-alone McDonalds $6,315Less: Net Debt Allocated to McOpCo (1,350)Net Debt at PF McDonalds $4,965Incremental Debt Issued through CMBS 9,685

Total Net Debt $14,650

Total Debt / EBITDA 3.5xNet Debt / EBITDA 3.4xAssumed Corporate Credit Investment GradeTotal Debt / Total Capitalization 24.5%


36

3.5x

11.3x

6.1x

10.2x8.1x

0.0x

3.0x

6.0x

9.0x

12.0x

Brookfield Properties British Land Land Securities Forest City Enterprises

25%

48% 56%35%

59%

0%

25%

50%

75%

100%

Brookfield Properties British Land Land Securities Forest City Enterprises

Comparing PF McDonald’s Credit Stats with Comparable Real Estate Holding C-Corporations

Total Debt / ’05E EBITDA (1)

Debt / Enterprise Value

EBITDA/Interest: 5.8x (2) 2.3x 1.5x 2.5x NA

Rating: BBB BBB NR BB+

Pro Forma

Pro Forma

________________________________________________(1) Based on Wall Street research estimates. Pro Forma McDonald’s EV assumes a valuation multiple of 13x EV/FY’06 EBITDA.(2) Assumes an average 5% fixed rate on PF McDonald’s debt.


37

Credit Ratings of Large Public REITs

A review of large REITs indicates that these businesses support investment grade ratings with a debt to enterprise value of 36% on average, as compared to Pro Forma McDonald’s which would have a debt to enterprise value of 25%.

________________________________________________

Notes:Stock prices as of 11/11/2005. PF McDonald’s EV assumes a valuation multiple of 13x EV/FY’06 EBITDA.Total Debt includes Preferred.


Total Debt/ Moody's Moody's S&P S&PCompany Name Enterprise Value Rating Outlook Rating Outlook

Simon Property Group Inc. 47.2% Baa2 Stable BBB+ StableEquity Office Properties Trust 50.9% Baa3 Stable BBB+ StableVornado Realty Trust 37.4% Baa3 Stable BBB+ StableEquity Residential 38.4% Baa1 Stable BBB+ StablePrologis 31.5% Baa1 Stable BBB+ StableArchstone-Smith Trust 33.5% Baa1 Stable BBB+ StableBoston Properties Inc. 36.0% NR NR BBB+ StableKimco Realty Corp. 25.2% Baa1 Stable A- StableAvalonBay Communities Inc. 27.3% Baa1 Stable BBB+ Stable

Median Total Debt/EV 36%Average Total Debt/EV 36%

PF McDonald's Total Debt/EV 25%

38

Pro Forma McDonald’s Has A Superior Credit Profile to a Typical REITIII. Pershing’s Proposal to McDonald's:

McOpCo IPO

Despite being a C-Corp and lacking the tax advantages of a REIT, PF McDonald’s has several superior credit characteristics

REITs are required to pay 90% of earnings through dividends, whereas Pro Forma McDonald’shas much more credit flexibility

PF McDonald’s has significant brand value to support its cash flows and overall credit

IV. Company Response to Pershing

40

Company Response to PershingIV. Company Response to Pershing

McDonald’s asked its Advisors to help review the Proposal

Goal was to review the proposal to assess 4 critical areas:

Advisors reported back with judgments on

(1) Valuation

(2) Credit Impact

McDonald’s Management reviewed the Proposal to assess

(3) Friction Costs

(4) Governance / Alignment Issues

41

Management Concerns: Friction Costs, Credit Impact and Governance Issues

Friction Costs Credit Impact Alignment Issues

Some friction costs associated with the CMBS financing structure, but not a gating issue

Potential property tax revaluationsLegal costsLarge transaction for CMBS marketMostly driven by CMBS financing

Incremental $9bn of leverage as proposed may put pressure on credit rating

Rating agency consolidation of McOpCoLease commitments viewed as leverage

Separation of McOpCo from PF McDonald’s may cause alignment issues in the system

McDonald’s management stated that, assuming adequate value creation, none of these issues would prevent a restructuring


42

Valuation: Judgments Made by Advisors

Advisors were assigned to review the Proposal

In general, Advisors agreed with Pershing on:McOpCo valuation

Relative allocation of EBITDA between McOpCo and PF McDonald’s

However, their judgment was that PF McDonald’s would not enjoy significant multiple expansion

“PF McDonald’s would trade like a restaurant stock”


V. Developing a Response to the Company

44

Pershing’s Response Regarding Friction Costs and Credit Impact

Friction Costs Credit Impact

Friction costs immaterial in the context of value creation

Friction costs and transaction delays were driven by CMBS financing

Similar transaction could be effected with corporate debt

Stability of PF McDonald’s cash flow stream and robust asset base should allow it to incur additional debt without a material adverse change in rating

YUM’s credit rating is BBB-


45

Franchisee Alignment:“Skin in the Game”V. Developing a Response to the

Company

Franchisor/Franchisee ConflictTop Line (percent of sales) vs. Bottom Line

Some believe this conflict is mitigated by owning and operating units

However, many of the most successful franchisors operate few, if any, units

Historical McDonald’sSubwayDunkin’ DonutsTim Hortons

McDonald’s current “skin in the game” is overstated due to lack of transfer pricing

We believe McOpCo represents ~10% of McDonald’s total value

PF McDonald’s role as landlord, franchisor, 35% shareholder and board member, leaves them with ample skin in the game

46

Franchisee Alignment:Benefits to Franchisees of an independent McOpCo


McOpCo IPO would shift some power to the franchise base—A good thing

Franchisees know what’s best operationallyFranchisees have been the source of most product innovations (i.e. Big Mac, Egg McMuffin, Filet-o-Fish, Apple Pie)Driving force behind current process innovations (call centers at drive-thru) IPO would sharpen focus on being best in class franchisor

Level the playing field: McOpCo should compete on the same basis as franchisees

Pay market rent and franchise feesBe focused on bottom-line profitabilityBe run by equity compensated management

Opportunity for Franchisees to expand unit countHeavy demand among operators to acquire/manage additional unitsMcOpCo should refranchise units better managed by franchisees

47

What It Boils Down To:Valuation of PF McDonald’sV. Developing a Response to the

Company

Although there are some differences in opinion regarding friction costs, leverage and potential

alignment issues, the key disparity between Pershing and the Company’s views was

regarding the Valuation of Pro Forma McDonald’s…

48

PF McDonald’s FY2005E EBITDA pre-G&A Contribution

Pro Forma McDonald’s is Not a Restaurant Company


37%

63%

Real Estate

Brand Royalty

49

Pro Forma TypicalReal Estate

C-CorpChoice Hotels

Typical Mature QSR

2005E Operating Metrics:EBITDA Margins 60% ~70% - 80% 66% 23% 31% ~15% - 20%EBITDA – CapEx Margins 50% ~65% - 75% 61% 18% 27% ~7.5 % - 12.5%EPS Growth 9% NA 16% 11% 9% ~10% - 12%

Trading Multiples

Adjusted Enterprise Value (2) / CY 2006E EBITDA 13.0x ~13x - 16x 15.1x 12.3x 12.6x ~8.5x - 9.5xCY 2006E EBITDA – CapEx 15.5x ~17x - 20x 16.0x 15.5x 14.2x ~12x - 15x

Price /CY 2006E EPS 21.1x NA 24.3x 20.1x 18.8x ~15x - 19x

CY 2006E FCF (3) 20.9x ~20x - 25x 24.0x 20.8x 18.9x ~16x - 20x

Leverage MultiplesNet Debt / EBITDA 3.4x ~5x - 10x 1.7x 0.0x NM ~0.5x - 1.8xTotal Debt / Enterprise Value 24% ~35% - 60% 11% 4% 4% ~7.5% - 20%

Comparable Companies

PF McDonald’s operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical QSR.

High Branded Intangible Property


Assumes PF McDonald’s

price of ~$47.50

________________________________________________

Stock prices as of 11/11/05. Projections based on Wall Street estimates.(1) Typical mature QSR based on YUM! Brands and Wendy’s.(2) Adjusted for unconsolidated assets.(3) FCF denotes Net Income plus D&A less CapEx.

50

McDonald's Stock Price $33.00 $37.00 $41.00 $45.00 $49.00 $53.00 $57.00

McOpCo Share Price (7x EV / EBITDA Multiple) $5.15 $5.15 $5.15 $5.15 $5.15 $5.15 $5.15Implied Pro Forma McDonald's Share Price 27.85 31.85 35.85 39.85 43.85 47.85 51.85

Yield on Pro Forma McDonald's 6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6%

Significant Free Cash Flow Yield / Dividend YieldAssuming No Incremental Debt

At McDonald’s current price of approximately $33 per share, we estimate Pro Forma McDonald’s dividend / FCF yield would be approximately 6.7%. (1)


Memo: Pro Forma McDonald's Free Cash Flow2006E EBITDA $4,464.0Less: Maintenance Capital Expenditures (438.6)Less: Growth Capital Expenditures (285.9)Plus / Less: Decreases / (Increases) in Working Capital 6.2Less: Interest (1) (250.0)Less: Cash Taxes (1,112.7)Free Cash Flow $2,383.0

PFMcDonald's Shares Out (assuming no self-tender) 1,273.7

Free Cash Flow per Share $1.87________________________________________________(1) Assuming PF McDonald’s pays out 100% of its FCF as dividends.(2) Assumes no incremental leverage and an average cost of debt of 5% on the existing $5 bn of net debt at Pro Forma McDonald’s.

51

Based on Reported FinancialsBased on Pershing Assumptions

$1.5 $1.6 $1.8 $1.9 $2.1$2.5 $2.6 $2.7 $2.9 $3.2 $3.1 $3.1 $3.2

$3.6$4.0

$0.0

$1.0

$2.0

$3.0

$4.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Pro Forma McDonald’s:Stable and Growing

Real Estate and Franchise EBITDA($ in billions)

Real Estate & Franchise EBITDA Growth: 4.9% 11.7% 8.5% 10.4% 15.3% 4.0% 4.3% 10.1% 7.4% (0.5%) 0.1% 0.9% 12.6% 13.4%________________________________________________



Pershing believes the best way to think about Pro Forma McDonald’s is as a growing annuity.

52

Which Would You Rather Own: Pro Forma McDonald’s or a Large Retail REIT?V. Developing a Response to the

Company

________________________________________________

Note: Assumes a 7x EV / FY ’06E EBITDA multiple on McOpCo.(1) Retail / REIT dividend yield based on Simon Property Group. Illustrative LT Dividend growth based on Pershing’s estimates.(2) Assumes full payout of free cash flows for PF McDonald’s.(3) Assumes 15% tax rate on PF McDonald’s dividend and a 35% tax rate on the REIT dividend.(4) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15 TypicalMcOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 Large RetailPF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 REIT (1)

Scenario 1: Pre-Tax Yield (2) 6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6% 4.0%No SharebuybackNo Incremental After-Tax Investor Yield (3) 5.7% 5.0% 4.4% 4.0% 3.6% 3.3% 3.1% 2.6% Leverage

Estimated LT Dividend Growth 3% - 4% 3%- 6%

Scenario 2 PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00Proposed Pre-Tax Yield (4) 8.5% 7.9% 6.7% 5.8% 5.1% 4.6% 4.1%Sharebuyback

After-Tax Investor Yield (4) 7.2% 6.7% 5.7% 4.9% 4.3% 3.9% 3.5%

Estimated LT Dividend Growth 3% - 4%

53

McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15McOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 10 YearPF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 Treasury


Estimated LT Dividend Growth 3% - 4% 3% - 4% 0%



Estimated LT Dividend Growth 3% - 4% 3% - 4%

Which Would You Rather Own: Pro Forma McDonald’s or 10-Year U.S. Treasury?V. Developing a Response to the

Company

________________________________________________

Note: Assumes a 7x EV / FY ’06E EBITDA multiple on McOpCo.(1) Assumes full payout of free cash flows for PF McDonald’s.(2) Assumes 15% tax rate on PF McDonald’s dividend and a 35% tax rate on the 10-Year Treasury dividend.(3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

54

McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15McOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 10 YearPF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 TIPS


Estimated LT Dividend Growth 3% - 4% 2.5%



Estimated LT Dividend Growth 3% - 4%

Which Would You Rather Own: Pro Forma McDonald’s or a Treasury Inflation Protected Security (TIPS)?


________________________________________________

Note: Assumes a 7x EV / FY ’06E EBITDA multiple on McOpCo.(1) Assumes full payout of free cash flows for PF McDonald’s.(2) Assumes 15% tax rate on PF McDonald’s dividend and a 35% tax rate on the TIPS dividend.(3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

55

Valuation of McDonald’s as a Growing Annuity

Based on a review of the cost of capital of Real Estate holding corporations and Intangible Property / Franchise businesses like Coca Cola and Choice Hotels, we believe that Pro Forma McDonald’s levered FCF could have a discount rate in the area 7.25% - 7.75%. As such, we believe PF McDonald’s would have a FCF Yield of 4.25% - 5.25%. This implies a midpoint equity valuation range of $48 per share.


________________________________________________(1) Assumes no dividend paid in FCF calculation.(2) Includes the value of PF McDonald’s 35% equity stake in McOpCo (approx. $2 per share). Assumes a 7x EV / FY ’06E EBITDA McOpCo valuation multiple.

Midpoint of PF McDonald’s

Equity Value per Share(2): $48

Low HighEstimated Discount Rate 7.75% 7.25%Implied Perpetuity Growth Rate 2.50% 3.00%Implied FCF Yield 5.25% 4.25%Implied FCF Multiple 19.0x 23.5x

FY'06E Free Cash Flow per Share (1) $2.17 $2.17(Note: FCF Assumes Proposal Scenario)

56

ConclusionsV. Developing a Response to the

Company

McDonald’s is significantly undervalued todayOver 80% of its cash flows comes from real estate income and franchise income

Proposal creates value for several reasonsIncreases shareholder valueImproves management focusIncreases transparencyImproves capital allocationImproves franchise alignment

There are multiple ways to unlock valuePershing’s Initial ProposalVariations on Pershing’s Initial Proposal

57

Next StepsV. Developing a Response to the

Company

Engage constituents regarding proposal

Shareholders

Franchisees

Broad investment community

Incorporate your feedback

Consider revised proposal

58


Q & A

Appendix

A. Pershing’s Proposal: Assumptions

61

McOpCo IPO: General Assumptions

65% of McOpCo shares are IPO’ed in the transaction35% stake retained by PF McDonald’s allows for McOpCo’s business to be deconsolidated

McOpCo is assumed to be essentially a debt free subsidiaryImmediately prior to the IPO, $1.35bn of McDonald’s consolidated FY ’05E net debt is allocated to McOpCo

$1.5 billion of total debt allocated$150mm of cash and cash equivalents allocated

The remaining $5bn of FY ’05E net debt is allocated to PF McDonald’s$5.15bn of total debt$150mm of cash and cash equivalents

McOpCo’s tax basis is assumed to be approximately $1.65 billion Tax basis is equal to $3 billion of initial assumed basis (based on an assessment of net equipment and other property at McDonald’s) less $1.35 billion of allocated net debt

To the extent that the IPO distribution exceeds PF McDonald’s tax basis in McOpCo, then the tax cost for the IPO would be the amount by which the IPO distribution exceeds McDonald's basis multiplied by McDonald’s corporate and state/local tax rate

Pershing has assumed the following structural and tax assumptions with respect to an IPO spin-off of McOpCo.


62

McOpCo IPO: Structural And Tax Observations

Step 1: McOpCo dividends a $4.2bn Note to McDonald’s (parent)

Step 2: IPO of McOpCo and Tax Costs

Step 3: Leveraged Self-Tender at Pro Forma McDonald’s

McOpCo

McOpCo

Equity Markets

FranCo

McOpCo declares and pays a dividend to McDonald’s (parent) in the form of a Note in an amount equal to the anticipated proceeds from an initial public offering of McOpCo

For illustrative purposes, we assume the Note is for $4.2bn, or 65% of the equity market value of McOpCo (assumed to be $6.5bn)

McOpCo undertakes the IPO and uses the proceeds to repay the dividend note.

The tax cost for the IPO would be the amount by which the IPO distribution exceeded McDonald's basis in the McOpCo stock multiplied by McDonald’s corporate and state/local tax rate

Assuming a $4.2bn of IPO distribution, the tax cost would be approximately $1bn

Tax cost equals $4.2 billion of distribution less $1.65 billion of basis multiplied by the tax rate of 38%

As such, after tax proceeds of the McOpCo IPO will be approximately $3.2 billion

PF McDonald’s is organized as a real estate business (“PropCo”) and a franchise business (“FranCo”)

PropCo issues secured financing with proceeds used for

Repaying existing debt at PF McDonald’sBuying back shares

PF McDonald’s performs a self tender using proceeds from:

New CMBS financingsAfter tax proceeds of IPO

IPO of McOpCoShares

$4.2bn Note

$4.2 bn cash received

McOpCo repays $4.2 bn Note to McDonald’s

McDonald’s retains

35% stake

PropCo

Pro Forma

Issues CMBS financing, or $9.7bn of incremental debt

PF McDonald’s performs a leveraged self-tender

No debt at FranCo


63

McOpCo IPO Proceeds

McOpCo IPO After Tax ProceedsLow High Average

Taxes payableMcOpCo Equity Market Value $5,993 $7,122 $6,558

IPO Percentage 65% 65% 65%

Distribution to PF McDonald's $3,895 $4,630 $4,262

Book Basis of McOpCo 3,000 3,000 3,000

Net Debt Allocated to McOpCo (1,350) (1,350) (1,350)

Adjusted Basis in McOpCo 1,650 1,650 1,650

Taxable Gain $2,245 $2,980 $2,612

Tax Rate 38% 38% 38%

Taxes payable $853 $1,132 $993

After Tax Proceeds

Distribution $3,895 $4,630 $4,262

Taxes Payable (853) (1,132) (993)After Tax Distributions $3,042 $3,497 $3,270

Set forth herein is a schedule of the after-tax proceeds from the McOpCoIPO.


64

Collateralized Financing

Assuming PF McDonald’s owns the land and building of 37% of its system wide units and owns the buildings of 22% of its system wide units, then a preliminary valuation of McDonald’s real estate suggests a value of $33 billion.


Avg. Annual Rev. Est. Market Est. Market Est. Est. Rent Cap Total Real$ in million Per Unit Rent % Rent $ # of Units Income Rate Estate Value

Property ValueOwns Land and Building 1.75 9.0% 0.16 11,709 1,844.2 7.0% $26,346Owns Building (Leases Land) 1.75 4.5% 0.08 6,962 548.3 8.0% $6,854

Estimated Property Value $33,200

Est. Rent Est. Est. Rent Cap Total Real$ in million Spread Per Avg unit # of Units Income, Net Rate Estate Value

Leasehold ValueLeaseholds 0.10 12,975 1,322.8 10.0% $13,228

Estimated Leasehold Value $13,228

Total Real Estate Collateral Value $46,428

65

PF McDonald’s: Cost of Capital

We estimated the asset betas of several Real Estate holding C-Corporations and several high branded intellectual property businesses.


Note: Market information as of 11/10/05. Utilized treasury stock method.Sources: Barra, company reports, Factset, and Wall Street Equity research.

High Branded Intangible Property Business Betas(Dollar values in millions)

Adjusted Marginal Total Debt &Equity Cost of Equity Total Preferred Tax Unlevered Preferred /

Company Beta Equity Value Debt Stock Rate Beta TEVCoca Cola Co. 0.49 7.3% $101,776.1 $4,200.0 - 38.0% 0.48 4.2%Pepsico Inc. 0.46 7.2% 99,498.9 4,607.0 41.0 38.0% 0.45 4.7%Choice Hotels 0.86 9.3% 2,285.7 296.7 - 38.0% 0.79 11.7%

Mean 0.60 7.9% $67,853.6 $3,034.6 $13.7 38.0% 0.57 6.8%Median 0.49 7.3% 99,498.9 4,200.0 - 38.0% 0.48 4.7%

Real Estate Business Betas(Dollar values in millions)

Adjusted Marginal Total Debt &Equity Cost of Equity Total Preferred Tax Unlevered Preferred /

Company Beta Equity Value Debt Stock Rate Beta TEVBritish Land 0.62 8.0% $8,913.9 $11,391.1 - 38.0% 0.34 56.8%Brookfield Properties 0.80 9.0% 6,805.9 6,208.0 1,477.0 38.0% 0.45 60.5%Forest City Enterprises 0.66 8.2% 3,863.9 5,566.0 - 38.0% 0.35 59.3%Land Securities 0.55 7.7% 12,279.2 6,484.2 - 38.0% 0.42 34.6%

Mean 0.66 8.2% $7,965.7 $7,412.3 $369.3 38.0% 0.39 52.8%Median 0.64 8.1% 7,859.9 6,346.1 - 38.0% 0.38 58.0%

66

PF McDonald’s: Cost of Capital (Cont’d)

Based on a blended asset beta calculation we determined a range of values for the WACC of PF McDonald’s.


Note: Market information as of 11/10/05. Utilized treasury stock method.Sources: Barra, company reports, Factset, and Wall Street Equity research.

Blended Asset Beta Calculation% Contribution from Blended Average

Asset % Contribution from Asset High Branded UnleveredBeta Real Estate Beta Intellectual Property Asset Beta

Average Real Estate Average High Branded Intellectual PropertyUnlevered Asset Beta 0.38 60.0% Unlevered Asset Beta 0.57 40.0% 0.45

Main Target AssumptionsPreTax Cost of Debt 6.0%Risk-Free Rate 4.6%Equity Risk Premium 5.0%Tax Rate 38.0%

WACC CalculationUnlevered Asset Beta 0.46Releverd Beta 0.56Levered Cost of Equity 7.4%Equity Weight 75.0%

AfterTax Cost of Debt 3.7%Target Debt & Pref. / TEV 25.0%Implied Debt / Equity 33.3%

WACC 6.5%

WACC Sensitivity Analysis

Levered Beta0.45 0.50 0.55 0.60 0.65

Equity Risk 4.0% 5.8% 5.9% 6.1% 6.2% 6.4% Premium 5.0% 6.1% 6.3% 6.5% 6.7% 6.8%

6.0% 6.4% 6.7% 6.9% 7.1% 7.3%7.0% 6.8% 7.0% 7.3% 7.6% 7.8%

Levered Beta0.45 0.50 0.55 0.60 0.65

Debt / TEV 15.0% 6.4% 6.6% 6.8% 7.0% 7.3%20.0% 6.2% 6.4% 6.6% 6.8% 7.0%25.0% 6.1% 6.3% 6.5% 6.7% 6.8%30.0% 5.9% 6.1% 6.3% 6.5% 6.6%35.0% 5.8% 5.9% 6.1% 6.3% 6.4%

B. PF McDonald's Financial Analysis

68

Net Unit GrowthApproximates 1.5% - 2.0% of total franchise system unit growth annually or 1.0% - 1.5% of systemwide unit growth

Revenue drivers:Average systemwide same-store sales CAGR of ~2.5% annuallyRental revenue from franchisees of 9.0% of franchise & affiliated system salesRental revenue from McOpCo of 9.0% of McOpCo salesFranchise revenue from franchisees of 4.0% of franchise & affiliated system salesFranchise revenue from McOpCo of 4.0% of McOpCo sales

Cost drivers:Franchise rental expense based on a historical % of rental revenue from franchiseesMcOpCo rental expense based on a historical % of rental revenue from McOpCoD&A calculated assuming a 20-year useful life for existing net depreciable PP&E of approximately $12.5 billion (excluding land), and a 20-year useful life for depreciable PP&E purchased in the future75% of SG&A allocated to Pro Forma McDonald’s

Net CapEx drivers:All CapEx is net of proceeds received from store closures$1.3 million of CapEx for each new unit where Pro Forma McDonald’s owns the land and the building in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter$650K million of CapEx for each new unit where Pro Forma McDonald’s owns the building but not the land in 2005 and 2006, growing at an inflationary rate of 2.0% thereafterRun-rate maintenance CapEx of approximately $320 million, implying approximately $10K per system wide unit, growing at 2%Allocation of 75% of consolidated McDonald’s corporate CapExConsolidated corporate CapEx held constant at 0.7% of sales

OtherIncremental total debt of $9.7 billion, resulting in total debt of approximately $14.8 billion (net debt of $14.65bn)Free cash used to buy back shares and pay dividends$150 mm minimum cash balanceTax rate of 32%Minimal working capital requirements25% Debt to Cap ratio increasing to 30% in 2008Assumes an illustrative 30% dividend payout ratio to match current consolidated McDonald’s

Pro Forma McDonald’s: Model Key Drivers

Set forth herein are the assumptions for the Pro Forma McDonald’s business.

B. PF McDonald's Financial Analysis

69

2004 McDonald’s P&L As Reported McDonald’sB. PF McDonald's Financial Analysis

Set forth below is table which reconciles McOpCo’s, the Real Estate and Franchise businesses’ and stand-alone McDonald’s FY 2004 income statements, as they are currently reported. The analysis demonstrates how McOpCo is paying neither a market rent nor a franchise fee.

________________________________________________

The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. To the extent that there should be more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at the Real Estate and Franchise business than what is shown here.Note: Analysis excludes $441 mm of non-recurring other net operating expenses.

.

(U.S. $ in millions)Real Estate 2004

2004 McOpCo and Franchise ConsolidatedIncome Statement P&L P&L Sum of Parts

Sales by Company Operated Restaurants $14,224 $14,224 $14,224Rent from Franchise and Affiliate Rest. 3,336 3,336 3,336 Franchise Fees From Franchise and Affiliate Rest. 1,505 1,505 1,505 Total Revenue $19,065 $14,224 $4,841 $19,065

Company Operated Expenses: Food and Paper 4,853 4,853 - 4,853 Compensation & Benefits 3,726 3,726 - 3,726 Occupancy and Other Expenses (excl. D&A) 2,747 2,747 - 2,747 Company Operated D&A 774 427 347 774 Total Company Operated Expenses $12,100 $11,753 $347 $12,100

Franchised Restaurant Occupancy Costs 576 - 576 576 Franchise PPE D&A 427 427 427 Corporate G&A 1,980 495 1,485 1,980 EBIT 3,982 1,976 2,006 3,982

Depreciation & Amortization 1,201 427 774 1,201 EBITDA $5,183 $2,403 $2,780 $5,183% of Total EBITDA 100% 46% 54% 100%

70

2005E P&L ReconciliationB. PF McDonald's Financial Analysis

Set forth below is a table which reconciles McOpCo’s, Pro Forma McDonald’s and standalone McDonald’s FY 2005E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses.

________________________________________________(1) Assumes total PF McDonald’s D&A of approximately $712 million, which is composed of $499 million (or 70%) of franchise PP&E and $214 million (or 30%) of D&A associated with

company-operated units.

(U.S. $ in millions)2005 Pro Forma 2005

Projected McOpCo McDonald's Inter-Company ConsolidatedIncome Statement P&L P&L Eliminations Sum of Parts

Sales by Company Operated Restaurants $15,042 $15,042 $15,042Rent from Franchise and Affiliate Rest. 3,578 3,578 3,578 Rent From Company Operated Rest. - 1,354 (1,354) - Franchise Fees From Franchise and Affiliate Rest. 1,590 1,590 1,590 Franchise Fees From Company Operated Rest. - 602 (602) - Total Revenue $20,211 $15,042 $7,124 ($1,956) $20,211



Depreciation & Amortization 1,288 576 712 - 1,288 EBITDA $5,362 $1,086 $4,277 $0 $5,362% of Total EBITDA 100% 20% 80% 100%Maintenance Capex 1,250 501 749 1,250EBITDA - Maintenance Capex 4,113 585 3,528 4,113% of Total EBITDA - Maintenance Capex 100% 14% 86% 100%

71

2006E P&L ReconciliationB. PF McDonald's Financial Analysis

Set forth below is a table which reconciles McOpCo’s, Pro Forma McDonald’s and standalone McDonald’s FY 2006E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses.

________________________________________________(1) Assumes total PF McDonald’s D&A of approximately $737 million, which is composed of $516 million (or 70%) of franchise PP&E and $221 million (or 30%) of D&A associated with

company-operated units.

(U.S. $ in millions)2006 Pro Forma 2006

Projected McOpCo McDonald's Inter-Company Consolidated(U.S. $ in millions) Income Statement P&L P&L Eliminations Sum of PartsSales by Company Operated Restaurants $15,429 $15,429 $15,429Rent from Franchise and Affiliate Rest. 3,730 - 3,730 - 3,730 Rent From Company Operated Rest. - - 1,389 (1,389) - Franchise Fees From Franchise and Affiliate Rest. 1,658 - 1,658 - 1,658 Franchise Fees From Company Operated Rest. - - 617 (617) - Total Revenue $20,816 $15,429 $7,393 ($2,006) $20,816

Company Operated Expenses: Food and Paper 5,264 5,264 - - 5,264 Compensation & Benefits 4,012 4,012 - - 4,012 Non-Rent Occupancy and Other Expenses (excl. D&A) 2,458 2,458 - - 2,458 Company Operated D&A 808 587 221 - 808 Company-Operated Rent Expense 632 632 632 (632) 632 Additional Rent Payable to PropCo - 756 - (756) - Franchise Fee Payable to FranCo - 617 - (617) - Total Company Operated Expenses $13,174 $14,327 $853 ($2,006) $13,174

Franchised Restaurant Occupancy Costs 617 - 617 - 617 Franchise PPE D&A 516 - 516 - 516 Corporate G&A 2,240 560 1,680 - 2,240 EBIT 4,269 542 3,727 - 4,269

Depreciation & Amortization 1,324 587 737 - 1,324 EBITDA from Operations $5,594 $1,130 $4,464 $0 $5,594% of Total EBITDA 100% 20% 80% 100%Maintenance Capex 943 504 439 943EBITDA - Maintenance Capex 4,651 626 4,025 4,651% of Total EBITDA - Maintenance Capex 100% 13% 87% 100%

72

2006E Net Capital Expenditures ReconciliationB. PF McDonald's Financial Analysis

Set forth herein is a table which demonstrates net capital expenditures by category for McOpCo, PF McDonald’s and the standalone (consolidated) McDonald’s.

Note: Our Free Cash Flows are derived using Net Capital Expenditures, net of proceeds received from closures. We note that the Company typically generates $300 - $400mm of proceeds annually from closings.

2006E Net Capital Expenditures

(U.S. $ in millions)Consolidated Pro FormaMcDonald's McOpCo McDonald's

New Restaurants, Net $316 $30 $286

Existing Restaurants 787 465 322

Corporate/Other 156 39 117

Net Capital Expenditures $1,259 $534 $724

73

PF McDonald’s: Summary Income StatementB. PF McDonald's Financial Analysis

Below are the summary projections for Pro Forma McDonald’s based on the assumptions detailed on page 68.

($ in millions, except per share data)2006 - 2011

2002A 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGRIncome Statement DataRevenue $5,401.0 $6,008.5 $6,690.0 $7,124.1 $7,393.1 $7,676.7 $7,969.9 $8,276.2 $8,596.2 $8,930.9 3.9%

% Growth 11.2% 11.3% 6.5% 3.8% 3.8% 3.8% 3.8% 3.9% 3.9%

EBITDA $3,168.7 $3,568.2 $4,046.0 $4,276.7 $4,464.0 $4,653.4 $4,849.3 $5,054.9 $5,270.8 $5,497.5 4.3%% Margin 58.7% 59.4% 60.5% 60.0% 60.4% 60.6% 60.8% 61.1% 61.3% 61.6%

EBITDA - CapEx 4,046.0 3,312.7 3,739.5 3,909.2 4,085.0 4,258.5 4,440.1 4,630.1 4.4%% Margin 60.5% 46.5% 50.6% 50.9% 51.3% 51.5% 51.7% 51.8%

D&A 774.0 712.3 736.9 768.5 794.5 821.5 849.6 878.8

EBIT $2,492.7 $2,827.4 $3,272.0 $3,564.4 $3,727.0 $3,884.9 $4,054.8 $4,233.4 $4,421.2 $4,618.6 4.4%% Margin 46.2% 47.1% 48.9% 50.0% 50.4% 50.6% 50.9% 51.2% 51.4% 51.7%

Net Interest Expense (736.6) (801.5) (889.7) (932.5) (971.8) (1,012.7)

Equity Income from OpCo 35.0% 107.9 121.9 137.5 151.7 162.4 171.9

Net Income $2,141.4 $2,218.6 $2,289.8 $2,396.3 $2,507.9 $2,623.9 4.1%

EPS $2.27 $2.47 $2.72 $2.97 $3.24 $3.54 9.3%Average Shares Outstanding 945.4 897.8 842.8 806.4 773.3 741.8

74

PF McDonald’s: Summary Cash Flow and Balance SheetB. PF McDonald's Financial Analysis

Below are the summary cash flow projections for Pro Forma McDonald’s based on the assumptions detailed on page 68.

($ in millions, except per share data)2006 - 2011

2002A 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGRCash Flow DataEBITDA $4,464.0 $4,653.4 $4,849.3 $5,054.9 $5,270.8 $5,497.5

less: Cash Taxes (956.9) (986.7) (1,012.8) (1,056.3) (1,103.8) (1,153.9)less: Cash Interest Expense (736.6) (801.5) (889.7) (932.5) (971.8) (1,012.7)less: Dividends (653.2) (676.8) (698.5) (731.0) (765.0) (800.4)less: Change in Working Capital 6.2 6.5 6.7 7.0 7.2 7.5less: Growth CapEx (285.9) (291.6) (297.4) (314.7) (333.5) (354.0)less: Maintenance CapEx (438.6) (452.6) (466.9) (481.7) (497.2) (513.4)plus: After-tax Dividends from McOpCo 0.0 0.0 0.0 0.0 0.0 0.0

Free Cash Flow (post dividends) $1,398.9 $1,450.8 $1,490.7 $1,545.7 $1,606.7 $1,670.6Free Cash Flow (pre dividends) 2,052.1 2,127.6 2,189.2 2,276.7 2,371.7 2,471.0FCF per Share (pre dividends) $2.17 $2.37 $2.60 $2.82 $3.07 $3.33 8.9%Illustrative Stock Price at 20x LTM FCF $43.41 $47.40 $51.95 $56.47 $61.34 $66.63

20Balance Sheet DataCash 150.0 150.0 150.0 150.0 150.0 150.0 150.0Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0Long-Term Debt $14,800.0 14,800.0 17,393.4 18,331.6 19,104.0 19,904.5 20,740.4Total Debt / Capitalization 24.5% 26.8% 30.0% 30.0% 30.0% 30.0% 30.0%

Total Debt / EBITDA 3.5x 3.3x 3.7x 3.8x 3.8x 3.8x 3.8xNet Debt / EBITDA 3.4x 3.3x 3.7x 3.7x 3.7x 3.7x 3.7x

C. McOpCo Financial Analysis

76

Net Unit Growth90 net new owned restaurants in 2005Net unit growth thereafter only in the franchised system. Assumes 200 new gross units and 200 closed units annually.

Revenue drivers:Average same-store sales growthof 2.5% -2.7% annually on a total company basisAverage unit sales of $1.6mm on a global basis in FY 2005

Cost drivers:Food and paper costs held constant at 34.1% of sales, based on historicalsPayroll and employee costs of 26.1% in 2005, stepping down to 25.5% percent by 2011Occupancy and other costs (excluding D&A) held constant at 20.5% of salesD&A calculated as 110% of capex in 2006 trailing to approximately 107% of CapEx by 20154.0% of sales paid to Pro Forma McDonald’s as a franchise fee25% of consolidated SG&A allocated to McOpCo

CapEx drivers:Average maintenance CapEx per unit of approximately $50k in 2005 and 2006, growing at an inflationary rate of 2.0% thereafterAllocation of 25% of consolidated McDonald’s corporate CapExConsolidated corporate CapEx held constant at 0.7% of sales

OtherNo dividendsTotal Debt of $1.5 billion allocated (Net Debt of $1.35bn)Free cash used to pay down debt and then buy back shares$150 mm minimum cash balanceTax rate of 32%Minimal working capital requirements

McOpCo: Model Key Drivers

Set forth herein are the assumptions for the McOpCo business.

C. McOpCo Financial Analysis

77

C. McOpCo Financial AnalysisMcOpCo Summary Income Statement

Set forth below are the summary projections for McOpCo based on the assumptions detailed on page 76.

(U.S. $ in millions)2006 - 2011

2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGRIncome Statement DataRevenue $14,223.8 $15,042.4 $15,428.9 $15,838.3 $16,259.2 $16,692.0 $17,136.9 $17,594.4 2.7%

% Growth 11.2% 5.8% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7%

EBITDA $1,136.7 $1,085.7 $1,129.6 $1,173.3 $1,218.5 $1,265.4 $1,313.9 $1,364.2 3.8%% Margin 8.0% 7.2% 7.3% 7.4% 7.5% 7.6% 7.7% 7.8%

EBITDA - CapEx 1,136.7 562.5 595.6 628.1 662.0 697.3 734.0 772.2 5.3%% Margin 8.0% 3.7% 3.9% 4.0% 4.1% 4.2% 4.3% 4.4%

D&A 427.0 575.5 587.4 599.6 609.3 622.0 635.0 645.2

EBIT $709.7 $510.2 $542.2 $573.6 $609.2 $643.3 $678.9 $718.9 5.8%% Margin 5.0% 3.4% 3.5% 3.6% 3.7% 3.9% 4.0% 4.1%

Net Interest Expense (90.9) (68.5) (43.9) (17.0) 0.2 3.4

Net Income $306.9 $343.5 $384.4 $425.9 $461.8 $491.2 9.9%

EPS $0.24 $0.27 $0.30 $0.33 $0.37 $0.41 11.3%Average Shares Outstanding 1,273.7 1,273.7 1,273.7 1,273.7 1,248.1 1,191.9

78

McOpCo Summary Cash Flow and Balance SheetC. McOpCo Financial Analysis

Set forth below are the summary cash flow projections for McOpCo based on the assumptions detailed on page 76.

2006 - 20112004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGR

Cash Flow DataEBITDA $1,129.6 $1,173.3 $1,218.5 $1,265.4 $1,313.9 $1,364.2

less: Cash Taxes (145.1) (163.9) (184.9) (203.9) (218.3) (231.1)less: Cash Interest Expense (88.7) (61.5) (31.4) (6.1) 3.4 3.4less: Dividends 0.0 0.0 0.0 0.0 0.0 0.0less: Change in Working Capital 6.2 6.5 6.7 7.0 7.2 7.5less: Growth CapEx (30.0) (30.6) (31.2) (31.8) (32.5) (33.1)less: Maintenance CapEx (504.0) (514.5) (525.3) (536.2) (547.4) (558.8)

Free Cash Flow (after dividends) $367.9 $409.3 $452.5 $494.3 $526.3 $552.0 8.5%Free Cash Flow per share (before dividends) $0.29 $0.32 $0.36 $0.39 $0.44 $0.49 11.1%

Balance Sheet DataCash 150.0 150.0 150.0 150.0 150.0 150.0 150.0Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0Long-Term Debt 1,500.0 1,132.1 722.8 270.3 0.0 0.0 0.0

Total Debt / EBITDA 1.4x 1.0x 0.6x 0.2x 0.0x 0.0x 0.0xNet Debt / EBITDA 1.2x 0.9x 0.5x 0.1x -0.1x -0.1x -0.1x

Final Revised Proposal.ppt

Confidential

A Plan to Win / WinJanuary 18, 2006

Pershing SquareCapital Management


2

DISCLAIMER

Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding McDonald's Corporation ("McDonald's” or the “Company”) are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company and its advisors that could lead them to disagree with Pershing’s conclusions or the approach Pershing is advocating.


Pershing manages funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause Pershing to change its position regarding the Company and possibly reduce, dispose of, or change the form of its investment in the Company. Pershing recognizes that the Company has a stock market capitalization in excess of $40bn, and that, accordingly, it could be more difficult to exert influence over its Board than has been the case with smaller companies.


3

AgendaA Revised Proposal for Creating Value at McDonald’s

Background of our involvement

What are our objectives?

Brief review of our Initial Proposal

Our Revised Proposal

Benefits of our Revised Proposal

Company

Franchisees

Shareholders

Q & A


4

Pershing’s Involvement with McDonald’s

September 22, 2005: Pershing Square Capital Management (“Pershing”) presented a proposal for increasing shareholder value (“Initial Proposal”) to McDonald’s management

October 31, 2005: McDonald’s management communicated its response to our Initial Proposal

Management believed that our Initial Proposal (1) would result in potential “frictional costs”; (2) could have an unfavorable credit impact; and (3) could create system issues

McDonald’s believed, based on its advisors’ valuation, that there was not enough value creation to outweigh frictional costs and other concerns

November 15, 2005: Pershing presented the Initial Proposal to the investment community

Since November 15, we have had numerous discussions with shareholders and franchisees from around the world

Today we would like to share our Revised Proposal for Creating Significant Value at McDonald’s which incorporates feedback from McDonald’s management, franchisees and other shareholders

A Revised Proposal for Creating Value at McDonald’s


5

What Are Our Objectives?A Revised Proposal for Creating Value at McDonald’s

In developing our Revised Proposal, our objectives are to:

Improve McOpCo’s operating performance

Strengthen the McDonald’s System

Unlock significant shareholder value

We believe our Revised Proposal will:

Achieve these objectives

Address all of the Company’s concerns regarding ourfirst proposal

Increase McDonald’s share price to $46-$50 per share (before considering any operational benefits)

Minimize execution risk and management distraction


Confidential

Objective 1:Improve McOpCo’s Operating Performance


7

Objective 1: Improve McOpCo’s Operating Performance

McOpCo, as a wholly owned subsidiary, is not achieving its full business and financial potential

McOpCo does not pay a market rent or a franchise fee, unlike a typical franchisee

Adjusting for a market rent and a franchise fee, McOpCo has lower average unit margins than those of an average U.S. franchisee

“Corporate subsidies” in the form of uncharged rent and uncharged franchisee fees have led to McOpCo being run inefficiently over time

Uneconomical capital allocation decisions

Suboptimal pricing policy



8

Objective 1: Improve McOpCo’s Operating Performance (cont’d)

Estimated 4-Wall EBITDA Margins

12.7%

8.8%

14.8%

0%

4%

8%

12%

16%

Avg. U.S. McOpCo Avg. Intl. McOpCo Avg. U.S. Franchise

Estim

ated

4-W

all E

BITD

A Ma

rgin

%

Adjusted for a Market Rent and Franchise Fee

(1)

(1)

(2)

McOpCo’s Estimated Average Unit EBITDA marginsversus

U.S. Franchisees’ Estimated Average Unit EBITDA margins(1)

________________________________________________

Note: See page 57 of the Appendix for Pershing’s detailed assumptions.1) Analysis is based on Pershing’s estimates using 2004 financial data. McDonald’s does not provide average unit data for McOpCo or McDonald’s franchisees in its

public financials. Assumes a market rent of 9% of sales and a franchise fee of 4% of sales. 2) Based on $260k of average EBITDA per franchised store and average revenues per franchised store of approximately $1,760k.



9


McOpCo managers do not have appropriate compensation incentives

No direct equity compensation in McOpCo’s business

No market-based performance measurement system

“Farm Team” mentality whereby the best McOpCo managers are promoted to corporate McDonald’s

If they don’t join corporate McDonald’s, they sometimes leave to become a franchisee

Top restaurant operators need more incentive to stay at McOpCo



10


“Earn the Right to Own”McOpCo’s restaurant portfolio needs to be optimized in order to improve margins and capital allocation


Refranchise select units in mature

markets

Redeploy capital and resources in

emerging markets

McOpCo increases focus

on emerging markets growth

Because of their developed franchise systems, mature markets do not need the same capital or resources as emerging marketse.g., U.S., Canada and U.K.

Capital and freed-up resources from refranchising should be redeployed in fast growing / high return emerging QSR markets

Regions where franchise laws are still in infancy and McDonald’s franchise base is not yet sufficient to drive growthe.g., China and Russia

McOpCo should increase its focus on profitable emerging markets growth

McOpCo


Confidential

Objective 2:Strengthen the McDonald’s System


12

Objective 2: Strengthen the McDonald’s System

(1) Inherent conflict between McDonald’s and the Franchisees: McDonald’s “Top-line” focus versus Franchisees’ “Bottom-line” focus

McDonald’s makes the bulk of its profits from the franchisees’ top line

However, top line same-store sales growth does not always translate into improving franchisees’bottom line

Stock market often rewards McDonald’s for higher same store sales growth even though the franchisees are sometimes pressured to sacrifice margin for discount pricing

(2) McOpCo, with its subsidized economics, magnifies this conflict

McOpCo does not compete on equal footing because it does not pay a market rent or franchisee fee

Suboptimal pricing or capital allocation decisions do not impact McOpCo’s financials as dramatically as those of franchisees

Perception among franchisees is that McOpCo is not held to the same degree of accountability


Pershing spoke with franchisees from around the world. Here’s what they told us:


13

(3) Capital allocation criteria / decision-making process varies between McOpCo and the franchisee community

Low ROIC investments are occasionally forced upon franchisees

McOpCo regional managers often make capital investment decisions they will not have to live with, given their status as salaried employees with limited tenure in any one position

“Made for You” program is an example of a historical capital investment decision that may have been amended or prevented by an arm's-length McOpCo

Hundreds of millions of dollars of capital invested in a kitchen system that is widely considered inefficient

For many franchisees, it has led to decreased profitability, increased wait times and increased staffing requirements

Testing at McOpCo did not reveal the true economic impact of the program

“Made for You” problems could have been prevented if the system had the appropriate “checks and balances”

Strengthening the McDonald’s System: What Franchisees Had to SayA Revised Proposal for Creating Value

at McDonald’s


14

(4) McOpCo undercuts on pricing

McOpCo’s subsidized economics reduce the impact of lower margin product pricing decisions

As such, approximately 27% (1) of the McDonald’s system currently does not price optimally

Reduces the profitability of the entire system

Underpricing at McOpCo pressures franchisees to sacrifice “penny profits” for traffic and sales volume

(5) McDonald’s should retain control of McOpCo

Franchisees generally agreed that control of McOpCo should remain with McDonald’sKeeps the franchisee vote democratic and dispersed


________________________________________________

(1): Based on approximately 8,119 McOpCo restaurants out of 30,516 systemwide McDonald’s restaurants, as of 2004.

Strengthening the McDonald’s System: What Franchisees Had to Say (cont’d)


15

Strengthening the McDonald’s System: What Franchisees Had to Say (cont’d)

(6) Strong interest in owning new units / McOpCo refranchising program

Franchisees have a strong interest in buying McOpCo restaurants

Given McDonald’s exclusivity requirements for franchisees, the only opportunity for franchisees to materially increase their wealth is to own more McDonald’s units

A refranchising program would create an attractive incentive system

Would allow the top quartile performing operators to be rewarded with an opportunity to increase units

McOpCo’s current portfolio of restaurants needs to be rationalized through refranchising,in order to

Increase McOpCo’s profitability

Improve systemwide same-store sales growth

Satisfy considerable franchisee demand



Confidential

Objective 3:Unlock Shareholder Value


17

Objective 3: Unlock Shareholder Value at McDonald’s

McDonald’s controls substantially all of its systemwide real estate

Earns 9% of systemwideunit sales as rent

For real estate it does not own, it pays a rent expense and generates income through subleases

Approximately 32,000 restaurants whereMcDonald’s receives 4% of unit sales

Franchise

Restaurant Operations

Real Estate

Brand McDonald’s McOpCo

Over 8,000 McDonald’s company operated restaurants


Collects a royalty of 13% of systemwide sales


18

Objective 3: Unlock Shareholder Value at McDonald’s (cont’d)

FranchiseReal Estate

Brand McDonald’s


Collects a royalty of 13% of systemwide sales

World-leading brand~ 60% EBITDA Margins (1)

Low maintenance capital requirements~ 55% EBITDA – maintenance capex margins (1)

Low operating leverage / high earnings stabilityHigh ROICLow cost of capital Valuable fixed asset base50 year track recordGlobal and diverse customer base

There are very few businesses in the world with all the

attractive business characteristics of Brand McDonald’s

________________________________________________

(1) Based on Pershing’s estimates. Assumes McOpCo pays a market rent and franchise fee.

.


19


Financial statements are not transparent

McOpCo does not pay an “arm's-length” rent or franchise fee to Brand McDonald’s

As such, reported financials do not make apparent that approximately 80% of McDonald’s EBITDA is derived from the higher multiple Brand McDonald’s

Issuing transparent segment financials for McOpCo and Brand McDonald’s would demonstrate

True profitability of Brand McDonald’s

True operating margins and capital requirements at McOpCo


The first step to unlocking shareholder value is to introduce transparent segment financials.


20


2004 Total EBITDA Adjusted for Market Rent and Franchise Fees

55%

2004 Total EBITDA As Reported

In 2004, McDonald’s company-operated restaurants appeared to contribute 46% of total EBITDA. However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of total EBITDA, with Brand McDonald’s contributing 78% of total EBITDA.

________________________________________________

Note: The analysis assumes that 75% of the total G&A is allocated to Brand McDonald’s business and 25% is allocated to McOpCo. McDonald’s management has indicated this is a conservative assumption regarding Brand McDonald’s. Analysis excludes $441 mm of non-recurring other net operating expenses.

.


46%

54%

McOpCo

Brand McDonald's

2004 EBITDA %McOpCo $2.4bn 46%Brand McDonald's 2.8bn 54%Total $5.2bn 100%

78%

22% McOpCo

Brand McDonald's

2004 EBITDA %McOpCo $1.1bn 22%Brand McDonald's 4.1bn 78%Total $5.2bn 100%


21


McDonald’s is fundamentally Not a restaurant company

Why is it valued as such?_________________________________________(1) FY’05E EBITDA- Maintenance CapEx contribution is based on Pershing’s estimates. CapEx is net of proceeds from restaurant closings. We note that the Company does not provide

EBITDA and Maintenance CapEx allocation by segment.

McDonald’s FY 2005E EBITDA – Maintenance CapEx, Adjusted for a

Market Rent and Franchise Fee(1)


86%

14%McOpCo

Brand McDonald's


22

Objective 3: Unlock Shareholder Value at McDonald’s (cont’d)A Revised Proposal for Creating Value

at McDonald’s

_________________________________________(1) Based on McDonald’s recent stock price of $34 per share.(2) Pre-tax unlevered cash flows calculated as FY’05E EBITDA- Maintenance CapEx. We note that FY’05E EBITDA- Maintenance CapEx contribution is based on Pershing’s

estimates. CapEx is net of proceeds from restaurant closings. The Company does not provide EBITDA and Maintenance CapEx allocation by segment.(3) UBS research report dated 11/10/2005. (4) Goldman Sachs research report dated 11/18/2005. McDonald’s sum-of-the-parts valuation of $44 is before estimated frictional costs.

Lack of transparency had created an undervaluation by the market

McDonald’s currently trades at roughly 8.9x EV/2006E EBITDA(1), despite over 85% of itspre-tax unlevered cash flows being generated by Brand McDonald’s (2)

We believe Brand McDonald’s, valued independently, is worth 12.5x – 13.5x EV/’06E EBITDA

High branded intellectual property/franchise businesses such as Choice Hotels, PepsiCo and Coca-Cola trade in the range of 12x – 19x EV/’06E EBITDA

Real Estate C-Corporations and REITs typically trade in the range of 13x-16x EV/’06E EBITDA

Only when Pershing’s ideas regarding transparency became public did Wall Street analysts begin deriving sum-of-the parts valuations in the mid $40s per share

Recent UBS sum of the parts valuation: $46 per share (3)

Recent Goldman Sachs sum of the parts valuation: $44 per share (4)


Confidential

Review of our Initial Proposal


24

Review of Our Initial Proposal

McOpCo to be organized as an independent entitySigns “arm's-length” rent and franchise agreements with McDonald’s

IPO of 65% of McOpCoMcOpCo is deconsolidated and transparent financials are released to investors

Issue $14.7bn of financing secured against real estateImplies approximately $9.7bn of incremental debt

Use Debt financing and IPO proceeds toRefinance all of the existing net debt (approximately $5bn ) at Brand McDonald’s (1)

Repurchase shares and pay transaction fees and expenses

Our Initial Proposal is available on the internet at http://www.valueinvestingcongress.com/Final-Pres.pdf


________________________________________________(1) Assumes $6.35bn of net debt on

12/31/05 at consolidated McDonald’s of which $1.35 bn of net debt is allocated to McOpCo and $5.0 bn of net debt allocated to Brand McDonald’s.

Step 1:

Step 2:

Step 3:

Step 4:

Our Initial Proposal called for…


25

Mischaracterizations of Our Initial Proposal…

Our Initial Proposal did NOT:

Provide for the sale of any real estate by McDonald’s

Put franchisees in danger of having a new landlord

Involve the creation of a REIT

Require a real estate financing to create significant value

Hinge on a leveraged share buyback as its primary method of value creation

Our Initial Proposal did:

Assume significant value would be unlocked once McOpCo was IPO’ed and investors had access to transparent financials for Brand McDonald’s, demonstrating that it is fundamentally NOT a restaurant company


There have been several mischaracterizations of our Initial Proposal which we believe need to be cleared up.


26

Concerns Regarding Initial Proposal

Frictional Costs

Management

Frictional costs associated with the CMBS financing and

taxes due to the 65% McOpCo IPO

$9.7bn of incremental leverage may put pressure

on credit rating

Brand risk due to a loss of

McOpCo control

Management distraction

Execution risk

Credit Impact

AlignmentIssues

Franchisees

Shareholders

Concerns regarding any potential increase in

borrowing costs

Concerns regarding a potential new

landlord (rent hikes)

McOpCo will compete for new units

Fear of preferential treatment of McOpCo



Confidential



28


Step 1: Issue Transparent Segment Financials

Step 2: IPO 20%of McOpCo

McOpCo creates a separate Board of Directors

At least one Board member appointedfrom the franchisee community

IPO 20% of McOpCo

20% IPO will generate no tax costs given existing tax basis

McDonald’s retains full control of McOpCo

Minimal execution risk

Frictional costs of roughly 5 cents per share (1)

(versus management estimates of $4-$5 per share for the Initial Proposal)


McOpCo signs arm’s-length lease and franchise agreements with McDonald’s Corporation

McDonald’s Corporation requires McOpCo to pay a market rent and franchise fee

McDonald’s Corporation issues transparent segment financials for arm's-length McOpCo and Brand McDonald’s

Continued________________________________________________(1) Assumes IPO transaction fees and expenses of 5% of IPO proceeds.


29

McDonald’s increases its dividend payout to 90% of after-tax free cash flow from roughly 35% of free cash flow currently (1)

Implies a dividend of $1.93 per share in FY 2006E versus 0.67 per share in 2005

At a recent price of $34 per share, implies a new dividend yield of 5.7%,versus current yield of ~ 2%

McDonald’s Corporation initiates incremental share buybacks using existing cash on hand and IPO proceeds

Revised Proposal requires no incremental debt to be issued over total debt position as of 9/30/05

Our Revised Proposal (cont’d)

Step 4: Dividend Increase and Share buybacks


Step 3: Commence McOpCo Refranchising Program

McOpCo commences refranchising 1,000 units in mature markets (U.S., Canada and U.K.) over the next two to three years

Proceeds from refranchising can be redeployed in fast growing, high return emerging markets (China and Russia)

________________________________________________(1) Assumes $843mm of dividends paid in FY2005E. FY2005E dividend payout

ratio based on 9/30/2005 Last Twelve Months after-tax free cash flows, calculated as operating cash flows less cash flows from investing activities.


30

Addressing Concerns Regarding the Initial Proposal

Frictional Costs

ManagementNo CMBS financing

Minimal transaction costs

No taxes

No incremental debt

Transparency improves credit profile

Maintain control of McOpCo

Retain flexibility

Minimal management distraction

Minimal execution risk

Credit Impact

AlignmentIssues

Shareholders

No transfer of property

No rent hikes

No increase in borrowing cost for operators

Preserves highly “democratic”franchisee system

McOpCo will be a net seller of units in mature markets


Franchisees


31

Improving McOpCo’s Operating Performance

Current Issue Benefits of the Revised Proposal McOpCo is not reaching its full business and financial potential

IPO of McOpCo would make margin improvement a key focus

No more corporate subsidies to buttress operating margins

McOpCo management can run its business based on the most appropriate operating strategy

Publicly traded arm’s-length McOpCo would force improved capital allocation decisions and optimal pricing policy

Refranchising and redeploying capital/resources would better position McDonald’s in the most attractive growth markets

Investors will respond well to margin and capital allocation improvement as well as the emerging markets growth story

Managerial focus and incentives

McOpCo’s management can be compensated based on the market performance of its business

McOpCo managerial focus will improve as a result of having greater accountability, increased responsibility, a better performance measuring yardstick via the public markets and more direct incentives



32

Strategic Benefits to the McDonald’s System

McOpCo makes optimal pricing, capital allocation and refranchising decisions

Arm's-length McOpCo’s decision-making criteria on product pricing and capital allocation will be substantially similar to that of the franchisee community

McOpCo, no longer subsidized by Corporate McDonald’s, will review its restaurant portfolio more closely for refranchising rationalization / opportunities

Refranchising program would create an incentive system whereby the best operators would be rewarded with an opportunity to own new units

Poor performing operators will be motivated to improve performance to earn the right to own more restaurants

Franchisees would recognize that the new McOpCo competes on equal footing

McOpCo, required to pay arm's-length rent and franchise fees, would face the same economic consequences as franchisees, thus creating a better aligned system

Improves fairness and accountability throughout the system

Pershing believes that a publicly traded arm's-length McOpCo, which remains controlled by McDonald’s, would strengthen the McDonald’s System.



33

Strategic Benefits to the McDonald’s System (cont’d)

Would increase McDonald’s credibility in the system and allow it to better understand the true impact of new product introductions

Testing products at arm's-length McOpCo would provide McDonald’s with

A better understanding of the true economic impact of its new products on the typical owner/operator’s bottom line

More credibility when communicating impact of new products to franchisees

Franchisee participation on the McOpCo Board will temper any perception that McOpCo receives “preferential treatment” from McDonald’s

80% ownership of McOpCo would preserve McDonald’s “skin in the game”

Bottom-lined focused McOpCo would be influential in endorsing new products



34

Addressing Potential Franchisee QuestionsA Revised Proposal for Creating Value at McDonald’s

Question: Would a publicly traded McOpCo be an aggressive competitor to franchisees, given its need to grow its business for the benefit of its new shareholders?

Answer: No, quite the opposite. We believe a more likely scenario is the following:

McOpCo, no longer supported by corporate subsidies, will price more optimally

Refranchising program will remove McOpCo as a competitor in many key markets

McOpCo’s most attractive growth plan is to focus on emerging markets where the franchise base is still in its infancy, such as China and Russia

Question: Under your Revised Proposal, is there any risk that McDonald’s real estate will be sold or that franchisees will experience unexpected rent hikes?

Answer: No. We have never endorsed the sale of real estate or the creation of a REIT.

We don’t believe it’s the right operational move

We are confident management is not inclined to sell the real estate


35

Addressing Potential Franchisee QuestionsA Revised Proposal for Creating Value at McDonald’s

Question: How will this change a franchisee’s day-to-day interaction with McDonald’s Corporation?

Answer: There will be no changes. A franchisee’s day-to-day interaction with McDonald’s will not be affected by the creation of a publicly traded McOpCo.

However, the franchisee community may find a strong ally in a publicly traded McOpCo

McOpCo’s management will be able to push back on lower margin / low return new products introduced by Corporate McDonald’s

McOpCo will improve the check and balance mechanisms in the system

Testing at McOpCo on new products will be a better benchmark for how a product will perform throughout the system

Many McOpCo stores in the U.S., Canada and U.K. will be up for refranchising

Franchisee representation on McOpCo’s Board will improve McOpCo’s credibility and communication with the system


36

Addressing Potential Company QuestionsA Revised Proposal for Creating Value at McDonald’s

Question: Would a publicly traded McOpCo hinder the current “Farm Team” system or inhibit McDonald’s ability to recruit top McOpCo managers to work at Corporate?

Answer: No. We believe the creation of a publicly traded McOpCo will actually improve the talent pool at both Brand McDonald’s and McOpCo.

Offering direct equity compensation in McOpCo will

Attract “best-in-class” operators

Improve retention

Arm’s-length, publicly traded McOpCo is better training ground than the current wholly owned McOpCo

Better “real world” business discipline for managers, once corporate subsidies are removed

Teaches restaurant operators how to run a public business

With 80% ownership, Brand McDonald’s will still be able to leverage its deep relationship with McOpCo for recruiting purposes


37

Unlocking Shareholder Value

Current Issue Benefits of the Revised Proposal Transparent financials

Separate arm’s-length McOpCo financials would be made available to investors

Transparent segment financials would be made available at McDonald’s, demonstrating the operating cash flows generated by Brand McDonald’s

Dividends and Equity Options

Ability to increase dividends

Reduce option dilution at McDonald’s through the use of McOpCo currency

Valuation

McOpCo IPO would allow Wall Street analysts and the broad investment community to value McDonald’s on a sum-of-the parts basis

Investors would focus more on the value of Brand McDonald’s

A publicly traded McOpCo would increase financial transparency and would allow investors to appropriately value McDonald’s on a sum-of-the-parts basis.



38

Brand TypicalReal Estate

C-CorpChoice Hotels

Typical Mature QSR

(1)

2005E Operating Metrics:EBITDA Margins 60% ~70% - 80% 66% 23% 31% ~15% - 20%EBITDA – CapEx Margins 50% ~65% - 75% 61% 18% 27% ~7.5 % - 12.5%

Long-term EPS Growth (2) 9% NA 16% 11% 9% ~10% - 12%

Business Characteristics:Maint. Capital Requirements Low Low Low Low Low MediumEarnings Stability High High High High High MediumAverage Cost of Capital Low Low Low Low Low MediumFixed Asset Value High High Low Low Low Low

Trading Multiples

Adjusted Enterprise Value (3) / CY 2006E EBITDA 13.0x ~13x - 16x 19.1x 12.2x 12.0x ~8.5x - 9.5xCY 2006E EBITDA – CapEx 15.5x ~17x - 20x 20.3x 15.4x 13.6x ~12x - 15x

Revised Proposal: Allows Investors to Value on a Sum-of-the-Parts BasisA Revised Proposal for Creating Value

at McDonald’s

________________________________________________

Stock prices as of 1/13/2006. Projections based on Wall Street research estimates. Analysis assumes a 7x EV/EBITDA valuation multiple for McOpCo.(1) Typical mature QSR business characteristics based on YUM! Brands and Wendy’s.(2) Brand McDonald’s long-term EPS growth rate is based on the Company’s current dividend payout ratio and assumes excess free cash flow after dividends is used for share buybacks.(3) Adjusted for unconsolidated assets.

Brand McDonald’s operating metrics and business characteristics (100% royalty-based revenues, low cost of capital and high earnings stability) are much closer to high branded intellectual property businesses such as PepsiCo, Coca-Cola or Choice Hotels or a typical Real Estate C-Corporation than they are to a typical QSR. We believe Brand McDonald’s could be worth 12.5x – 13.5x EV/2006E EBITDA.

Based on an approximate$48 sum-of-the-parts value for McDonald’s


39

($ in millions) Adjusting for a Market IPO of 20% of McOpCoAs Reported Rent and Franchise Fee and Transparency Drives Revaluation

EV/'06E EBITDA Enterprise2006E 2006E EV/'06E EBITDA Enterprise Multiple Value

Segment EBITDA EBITDA Multiple Value Low - High Low - High

McOpCo $2,503 $1,130 7.0x $7,908 7.0x 7.0x $7,908 $7,908

Brand McDonald's 3,090 4,464 9.3x 41,675 12.5x 13.5x 55,799 60,263

Total $5,594 5,594 8.9x $49,582 $63,707 $68,171

Recent Stock Price $34.00 Implied Share Price $46 $50Premium to Unaffected Price (1) 45% 57%

Revised Proposal: Allows Investors to Value on a Sum-of-the-Parts Basis

We believe a minority IPO of McOpCo would force a market revaluation of McDonald’s.

________________________________________________Note: Assumes $1.25bn of proceeds from IPO and $1.75bn of existing cash on hand used to repurchase shares. Capital structure assumptions are detailed on page 56 of the Appendix.

Analysis is pro forma for a McOpCo spin-off and McDonald’s share buyback on 12/31/05.(1) Based on 10/31 closing price of $31.60.

Implied multiple,based on a $34

stock price



40

Assuming Transparent Segment Financials

McDonald's Equity Value per ShareBrand McDonald's EV/2006E EBITDA

12.0x 12.5x 13.0x 13.5x 13.5x

McOpCo 6.0x $42.97 $44.86 $46.74 $48.62 $48.62

EV / '06E 6.5x 43.45 45.33 47.21 49.10 49.10

EBITDA 7.0x 43.93 45.81 47.69 49.57 49.57

Multiple 7.5x 44.40 46.28 48.17 50.05 50.05

McDonald’s Sum-of-the-Parts Analysis at Various Multiples

________________________________________________

Note: Assumes 75% of consolidated G&A is allocated to Brand McDonald’s, with the rest allocated to McOpCo. Assumes McDonald’s FY ’05E Net Debt of $8.1bn, Minority Interest in McOpCo of $1.3bn, and FY’05E Diluted Shares Outstanding of 1,186mm, all pro forma for Pershing’s Revised Proposal.

Assuming McOpCo pays a market rent and franchisee fee, we have modeled McOpCo FY ’06E EBITDA of $1.1 billion and Brand McDonald’s FY ’06E EBITDA of $4.5 billion.

Based on these assumptions, we believe McDonald’s stock price would trade in the range of approximately $46 -$50 per share, as a result of a 20% IPO of McOpCo.



41

McDonald’s Free Cash Flow Yield Analysis

________________________________________________

(1) FCF Yield is based on Attributable Free Cash Flow before dividend payments. See Appendix page 54 for a calculation of FY 2006E Attributable Free Cash Flow.

Pershing believes that McDonald’s, pro forma for the McOpCo 20% IPO, would have a 2006E Free Cash Flow yield of 4.3 % - 4.7% at stock price in the range of $46 - $50 per share. We note our Free Cash Flow calculation is based upon our estimates of 2006E After-Tax Levered Operating Cash Flow less Growth and Maintenance Capital Expenditures. (1)


McDonald's 2006E FCF/Dividend Yield at Varous Stock PricesCurrent Projected

Stock Price $34 $46 $47 $48 $49 $50

2006E FCF Yield 6.3% 4.7% 4.6% 4.5% 4.4% 4.3%


42

Minimal Execution RiskA Revised Proposal for Creating Value at McDonald’s

A minority IPO of McOpCo would have minimal execution risk and negligible frictional costs

Simple transaction

Many successful value creating precedent transactions

Minimal management distraction

Frictional costs of roughly 5 cents per share

Preserves current structure’s control of McOpCo

McDonald’s would maintain the flexibility to repurchase minority McOpCo stake

…if desired improvements were not obtained

Minority buyouts are simple and common transactions with minimal transaction costs

McOpCo


43

Further Upside to Our Valuation

Pershing’s valuation is based on the business as it exists today, assuming no further operational improvements.

Pershing believes that creating a publicly traded arm's-length McOpCo will substantially improve both top-line and bottom-line performance of McDonald’s

We believe that McOpCo has EBITDA margins of roughly 7.3% (post corporate allocation) (1)

Based on comparable restaurant businesses, we believe McOpCo is capable of achieving at least 10% EBITDA margins

However, Pershing has assumed no incremental operational improvements as part of its valuation

We also see potential G&A improvement as an additional opportunity

Standalone McDonald’s LTM 9/30/05 G&A per systemwide unit of $68k versus YUM! Brands LTM 9/30/05 G&A per systemwide unit of approximately $35k

We have not included an IPO / potential spin-off of Chipotle as part of our analysis

IPO and potential spin-off of Chipotle will create additional value for investors


________________________________________________

(1) McOpCo EBITDA margins are after adjusting for a market rent and franchise fee and allocating 25% of McDonald’s consolidated G&A to McOpCo.


44

$52$56

$61

$50

$30

$40

$50

$60

Pershing Proposal:

McOpCo 20% IPO and Market Revaluation of

McDonald’s

McOpCo improves

EBITDA margins to 10%

(approx. 275bps improvement)

Improve G&A to YUM! levels of

$35k per systemwide unit

(~$1bn of G&A savings)(2)

Improve G&A to $50k per

systemwide unit (~$500mm of G&A

savings)(2)

Recent: $34

Further Upside to Our Valuation (cont’d)A Revised Proposal for Creating Value at McDonald’s

Pershing Proposal

Upside

We believe our Proposal can potentially increase McDonald’s share price to $50 per share. In addition, we believe McDonald’s strong management team, running a world-leading brand, can

create significant additional value based only on incremental operating improvements.(1)

_______________________________________________

(1) See Appendix page 55 for more detail regarding our assumptions on operating improvements. (2) Total savings denotes consolidated G&A, of which 75% is allocated to Brand McDonald’s and 25% is allocated to McOpCo.

McDonald’s Potential Stock Price


45

A Plan to Win / Win

Addresses concerns of all stakeholders

Creates financial transparency for investors

Will lead to substantial value creation for McDonald’s shareholders

Simple transaction

Minimal execution risk, management distraction and frictional costs

Positions McOpCo to make optimal capital allocation and business execution decisions

Improves the System’s “checks and balances”

Allows McDonald’s maximum control and flexibility regarding future strategic alternatives

Significant upside, given strong Management team

A Revised Proposal for Creating Valueat McDonald’s


Confidential

Q & A


Confidential

Appendix


48

2004 McDonald’s P&L As Reported

Set forth below is a table which reconciles McOpCo’s, Brand McDonald’s and stand-alone McDonald’s FY 2004 income statements, as they are currently reported. The analysis demonstrates how McOpCo is paying neither a market rent nor a franchise fee.

________________________________________________

The analysis assumes that 75% of the total G&A is allocated to the Brand McDonald’s and 25% is allocated to McOpCo. To the extent that there should be more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at Brand McDonald’s than what is shown here.Note: Analysis excludes $441 mm of non-recurring other net operating expenses.

.

Appendix

Brand 20042004 McOpCo McDonald's Consolidated

Income Statement P&L P&L Sum of PartsSales by Company Operated Restaurants $14,224 $14,224 $14,224Rent from Franchise and Affiliate Rest. 3,336 3,336 3,336 Franchise Fees From Franchise and Affiliate Rest. 1,505 1,505 1,505 Total Revenue $19,065 $14,224 $4,841 $19,065

Company Operated Expenses: Food and Paper 4,853 4,853 - 4,853 Compensation & Benefits 3,726 3,726 - 3,726 Occupancy and Other Expenses (excl. D&A) 2,747 2,747 - 2,747 Company Operated D&A 774 427 347 774 Total Company Operated Expenses $12,100 $11,753 $347 $12,100

Franchised Restaurant Occupancy Costs 576 - 576 576 Franchise PPE D&A 427 427 427 Corporate G&A 1,980 495 1,485 1,980 EBIT 3,982 1,976 2,006 3,982

Depreciation & Amortization 1,201 427 774 1,201 EBITDA $5,183 $2,403 $2,780 $5,183% of Total EBITDA 100% 46% 54% 100%


49

Reconciling McDonald’s 2004A P&L

Set forth below is a table which reconciles McOpCo’s, Brand McDonald’s and stand-alone McDonald’s FY 2004A income statements, assuming McOpCo pays a market rent and franchise fee. The analysis demonstrates that the Brand McDonald’s contributed approximately 78% of total EBITDA.

________________________________________________

The analysis assumes that 75% of the total G&A is allocated to Brand McDonald’s and 25% is allocated to McOpCo. McDonald’s management has indicated that this is a conservative assumption regarding the real estate and franchise business.Note: Analysis excludes $441 mm of non-recurring other net operating expenses.

.

Appendix

Brand 20042004 McOpCo McDonald's Inter-Company Consolidated

Income Statement P&L P&L Eliminations Sum of PartsSales by Company Operated Restaurants $14,224 $14,224 $14,224Rent from Franchise and Affiliate Rest. 3,336 3,336 3,336 Rent From Company Operated Rest. - 1,280 (1,280) - Franchise Fees From Franchise and Affiliate Rest. 1,505 1,505 1,505 Franchise Fees From Company Operated Rest. - 569 (569) - Total Revenue $19,065 $14,224 $6,690 ($1,849) $19,065



Depreciation & Amortization 1,201 427 774 - 1,201 EBITDA $5,183 $1,137 $4,046 $0 $5,183% of Total EBITDA 100% 22% 78% 100%


50

Revised Proposal: Preliminary Transaction AssumptionsAppendix

IPO assumptions

20% IPO of McOpCo generates $1.25bn of cash proceeds after expenses (on 12/31/2005)Assumes a 7x EV/’06E EBITDA multiple for McOpCo

No taxes paid given McOpCo’s basis which is assumed to be approx. $1.65bn Tax basis is equal to $3 billion of initial assumed basis (based on an assessment of net equipment and other property at McDonald’s) less $1.35 billion of net debt

Share repurchases

Approximately 7% of the share base repurchased using ~ $1.75bn of expected cash on hand at the end of the year (after paying dividends)~ $1.25bn of IPO proceeds, net of fees

Capital structure post share repurchases

Per management guidance, assumes McDonald’s issues a $3bn term loan to repatriate foreign earningsNo incremental debt issued at McDonald’s over total debt at 9/30/2005 ($8.1bn), excluding a $3bn term loan required to repatriate earningsAssumes FY’05E Net Debt at consolidated McDonald’s of $8.1bn

FY’05E Total Debt of $11.1bn, which includes $3bn of debt required for the repatriation of foreign earningsFY’05E cash balance of $3bn, based on proceeds received from repatriation

Increase dividend payout

Increase dividend payout ratio to 90%

For modeling purposes, we have assumed a 20% IPO of McOpCo and the proposed share repurchases occurred on 12/31/2005. In addition to our IPO assumptions, set forth herein are assumptions regarding share repurchases, capital structure and dividend policy.


51

McOpCo IPO: Mechanics

Step 1: McOpCo dividends a $1.3bn Note to McDonald’s (parent) Step 2: IPO of McOpCo Step 3: Share Repurchases using

Cash on Hand and IPO Proceeds

McOpCo

McOpCo

Equity Markets

McOpCo declares and pays a dividend to McDonald’s (parent) in the form of a Note in an amount equal to the anticipated proceeds from an initial public offering of McOpCo

For illustrative purposes, we assume the Note is for $1.3bn, or 20% of the equity market value of McOpCo (assumed to be $6.6bn)

McOpCo undertakes the IPO and uses the proceeds to repay the dividend note.

Any tax cost for the IPO would be the amount by which the IPO distribution exceeded McDonald's basis in the McOpCo stock multiplied by McDonald’s corporate and state/local tax rate

Assuming a $1.3bn of IPO distribution, there would be no tax cost associated with the IPO

Assume a $1.65 billion of tax basis

No incremental leverage issued

PF McDonald’s repurchases approximately 7% of the fully diluted share base using

Excess cash on handAfter tax proceeds of IPO

IPO of McOpCoShares

$1.3bn Note

$1.3 bn cash received

McOpCo repays $1.3 bn Note to McDonald’s

McDonald’s retains

80% stake

McDonald’s performs a self-tender post the IPO

Equity Markets

Pays$3.0 billion

Repurchases shares

Appendix


52

McOpCo IPO: Proceeds

Given the estimated tax basis in McOpCo, we believe that no taxes would need to paid in an IPO of McOpCo.

Appendix

McOpCo IPO After Tax ProceedsLow High Average

Taxes payableMcOpCo Equity Market Value $5,993 $7,122 $6,558

IPO Percentage 20% 20% 20%

Distribution to PF McDonald's $1,199 $1,424 $1,312

Estimated Book Basis of McOpCo 3,000 3,000 3,000

Net Debt Allocated to McOpCo (1,350) (1,350) (1,350)

Adjusted Basis in McOpCo 1,650 1,650 1,650

Taxable Gain $0 $0 $0

Tax Rate 38% 38% 38%

Taxes payable $0 $0 $0

After Tax Proceeds

Distribution $1,199 $1,424 $1,312Taxes Payable 0 0 0After Tax Distributions $1,199 $1,424 $1,312

Estimated IPO fees (60) (71) (66)

Net Proceeds $1,139 $1,353 $1,246


53

McDonald’s Cash and Debt Schedules:No Incremental Debt Issued Post 9/30/2005

Set forth herein are the schedules for (1) FY 2005E funds available for proposed share buybacks; (2) ’05E Total Debt Balances; and (3) ’05E Cash Balances. We have assumed that no incremental debt would be issued at McOpCo as of 9/30/2005 on top of the estimated $3 billion required to repatriate earnings from foreign territories.

$ in millions

Appendix

Pre-IPO Cash Available to Fund Share Buybacks:Beginning Cash Balances 1/1/2005 $1,380Plus: FY'05E Free Cash Flow Before Dividends and Debt Pay Down 2,351Less: FY'05E Debt Reduction (1,155)Less: FY'05E Dividends (843)

Equals: FY 2005E Cash on Books Available for Share Buybacks $1,733

FY 2005E Total Debt Balance:Beginning Total Debt Balances 1/1/2005 $9,220Less: FY'05E Debt Reduction (1,155)Estimated New Term Loan to Fund Repatriation 3,000

Total Debt FY 2005E $11,065

Post IPO FY 2005E Cash Balance:Beginning Cash Balances 1/1/2005 $1,380Plus: FY'05E Free Cash Flow Before Dividends and Debt Paydown 2,351Less: FY'05E Debt Reduction (1,155)Less: FY'05E Dividends (843)Plus: Estimated IPO Proceeds, net of fees 1,246Less: Share buybacks ($2,979)Plus: Proceeds from Repatriation 3,000

FY 2005E Ending Cash Balance $3,000

FY 2005E Net Debt $8,065


54

McDonald’s 2006E Free Cash FlowAssuming a 20% IPO of McOpCo

Set forth herein is a schedule for 2006E Free Cash Flow based on our estimates.

Attributable free cash flow per share deducts the minority interest free cash flow pertaining to the 20% stake of McOpCo’s no longer owned by McDonald’s. FY2006E shares outstanding is pro forma for the proposed share buyback.

Appendix

2006E Cash Flow Data ($ in mm except per share data)

EBITDA $5,594

less: Cash Taxes (1,186)

less: Cash Interest Expense (563)

less: Growth CapEx (Net of Proceeds from Closings) (316)

less: Maintenance CapEx (943)

less: Change in Working Capital 12

less: Minority Interest Free Cash Flow (74)

Attributable Free Cash Flow Before Financing Activities $2,525

FY 2006E Average Shares Outstanding (mm) 1,176

Attributable Free Cash Flow per Share $2.15

Dividends Paid at 90% of Attributable FCF 2,272

Dividend Paid per Share $1.93


55

Assumptions: Upside Operating ImprovementsAppendix

Set forth herein is a table which details our assumptions regarding potential operating improvements.

Pr Forma Estimated Pro Forma2006E EV/'06E EBITDA Enterprise

Transaction / Assumptions Segment EBITDA Multiple ValueMcOpCo EBITDA Improvement McOpCo $1,554 7.0x $10,878

Brand McDonald's 4,464 13.5x 60,263275bps Total 6,018 $71,141FY 2006E Financial Data:McOpCo Revenue $15,429 Less: FY'05E Net Debt 8,065McOpCo EBITDA $1,130 Less: Minority Interest (Market Value) 1,906 Current EBITDA Margin 7.3% Equals: Market Value of Equity $61,171New Margins 10.1% PF FY'05E Diluted Shares Outstanding (mm) 1,186New McOpCo EBITDA 1,554 Estimated Share Price $52

G & A Savings: Improving to $50k per unit McOpCo $1,679 7.0x $11,753Unit Level Assumption: Brand McDonald's 4,839 13.5x 65,326~50k per unit Total 6,518 $77,078G&A Allocation Assumptions:McOpCo 25.0% Less: FY'05E Net Debt 8,065Brand McDonald's 75.0% Less: Minority Interest (Market Value) 2,081 Savings ($ in mm) Equals: Market Value of Equity $66,933McOpCo $125 PF FY'05E Diluted Shares Outstanding (mm) 1,186Brand McDonald's $375 Estimated Share Price $56

G & A Savings: Improving to YUM! Levels McOpCo $1,804 7.0x $12,628Unit Level Assumption: Brand McDonald's 5,214 13.5x 70,388~35k per unit Total 7,018 $83,016G&A Allocation Assumptions:McOpCo 25.0% Less: FY'05E Net Debt 8,065Brand McDonald's 75.0% Less: Minority Interest (Market Value) 2,256 Savings ($ in mm) Equals: Market Value of Equity $72,696McOpCo $250 PF FY'05E Diluted Shares Outstanding (mm) 1,186Brand McDonald's $750 Estimated Share Price $61


56

Valuation AssumptionsAppendix

Set forth herein is a table which details our sum-of-the-parts valuation.

________________________________________________Note: Assumes $1.25bn of proceeds from IPO and $1.75bn of existing cash on hand used to repurchase shares. Analysis is pro forma for a McOpCo spin-off and McDonald’s share

buyback, as proposed, occurring on 12/31/05.(1) Based on 10/31 closing price of $31.60.

($ in millions) Adjusting for a Market IPO of 20% of McOpCoRent and Franchise Fee and Transparency Drives Revaluation

EV/'06E EBITDA Enterprise2006E EV/'06E EBITDA Enterprise Multiple Value

Segment EBITDA Multiple Value Low - High Low - High

McOpCo $1,130 7.0x $7,908 7.0x 7.0x $7,908 $7,908

Brand McDonald's 4,464 9.3x 41,730 12.5x 13.5x 55,799 60,263

Total 5,594 8.9x $49,638 $63,707 $68,171

Less: FY'05E Net Debt 6,332 8,065 8,065

Less: Minority Interest (Market Value) - 1,312 1,312

Equals: Market Value of Equity $43,306 $54,331 $58,794

PF FY05E Diluted Shares Outstanding 1,274 1,186 1,186

Recent Stock Price Recent Stock Price $34.00 Implied Share Price $46 $50Premium to Unaffected Price (1) 45% 57%


57

($ in thousands)

Avg. Unit Sales $1,912 100.0% $1,494 100.0% $1,762 100.0%

Operating Income Before Rent Expense $433 22.7% $281 18.8% Less: Market Rent & Franchisee Fee 249 13.0% 194 13.0%Operating Income after Rent and Franchise Fee $185 9.7% $87 5.8%Plus: Estimated D&A 57 3.0% 45 3.0%

4-Wall EBITDA (w/ Mkt. Fees) $242 12.7% $132 8.8% $260 14.8%

Avg. Intl. McOpCo Unit Avg. US Franchisee UnitAvg. US McOpCo Unit

Average Unit Level EBITDA MarginsAppendix

Set forth herein is a table which details our assumptions regarding average unit level 4-Wall EBITDA margins for McOpCo and U.S. Franchisees.

________________________________________________

Note: McOpCo estimates based on FY 2004 financial data and assumes 2,002 U.S. McOpCo units and 6,117 International McOpCo units.(1) As presented by Ralph Alvarez, President of McDonald’s North America, at McDonald’s Analyst Meeting at Oak Brook, IL on 9/21/05..

(1)


58

III. Case Studies McDonalds 7 Year Stock Price Performance:January 1999 to present

$10

$15

$20

$25

$30

$35

$40

$45

$50

1/19/99 10/1/99 6/12/00 2/22/01 11/4/01 7/17/02 3/29/03 12/9/03 8/20/04 5/2/05 1/13/06

$4811/12/1999

Don’t Judge a Book By Its CoverNovember 9, 2006

Pershing SquareCapital Management, L.P.

1

Disclaimer

The analysis and conclusions of Pershing Square Capital Management, L.P. ("Pershing") regarding Borders Group, Inc. (“Borders” or the “Company”) are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company that could lead the Company to disagree with Pershing’s conclusions.


Pershing advises funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause such funds to change their positions regarding the Company and possibly increase, reduce, dispose of, or change the form of their investment in the Company.

2

Borders Group

2nd largest U.S. book retailer13% of U.S. retail book market (versus Barnes and Noble at 17% and Amazon at 10%)

2006E Rev of $4.1bn and EBITDA of $235mm

Year-end Enterprise Value of $1.6bn and Equity Value of $1.1bn (1)

EV / ’06 EBITDA: 6.9x

EV / ’06 EBITDA – Maint. Capex: 8.8x

P / ’06 EPS: 27.2xForward estimates based on Pershing estimates.(1) Based on management’s guidance for Net Debt and shares outstanding at year end 2006. Assumes a $21 current stock price for BGP throughout this presentation.

Ticker: BGP

Recent price: $21

Note: BGP fiscal year ends on January 31. Presentation based on a Calendar year.

3

What is Borders?

Superstores Mall Stores International■ Large format

(25,000 sq ft)■ Large selection■ 476 units■ Most profitable segment■ Positive sales trends

■ Waldenbooks■ Small format, mall-based■ Limited selection ■ 600 units■ Negative sales trends

and declining profitability

% LTM Rev. 68% 17% 15%

% LTM EBITDA 92% 5% 3%

■ U.K. and Australia■ 90 units / mix of large /

small format stores■ Declining profitability

% LTM ROA 10% -1% -2%

4

$ 12.50

$ 14.50

$ 16.50

$ 18.50

$ 20.50

$ 22.50

$ 24.50

$ 26.50

$ 28.50

11/5/01 5/5/02 11/5/02 5/5/03 11/5/03 5/5/04 11/5/04 5/5/05 11/5/05 5/5/06 11/5/06

Five Year Stock Price Performance

Borders was trading at approximately $27.50 per share in February 2005 but has since traded down primarily due to weakening margins and same store sales trends

$27.47

Recent price:$21

5

$294$308 $318

$333

$300

8.6% 8.8%8.4%

7.4%

8.5%

$0

$50

$100

$150

$200

$250

$300

$350

2001 2002 2003 2004 20053.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Adjusted EBITDA and Margins ($ in millions)

Borders Historical Financial Performance

In 2005, Borders’ consolidated Adjusted EBITDA margins fell to 7.4% from the previous four-year average of approximately 8.6%

6

Traditional Sentiment on Borders

Unattractive industry“Amazon risk”

Consumer interest in books is declining

Difficult SSS comparisons with Harry Potter

Second place operator behind Barnes and NobleMore exposure to declining Music category

Worse execution (lower working capital turns and sales / sq.ft.)

Low margin, legacy mall stores

Limited free cash flow due to large, recent cap ex initiativesConsolidating distribution centers

Significant store remodel program

Why Do We Like Borders?

8

1. The book superstore industry is misunderstood

“Amazon risk” is largely exaggerated for superstores

Book superstores are valuable franchises

Minimal inventory risk because inventory is returnable at cost

Maintenance capital is significantly less than depreciation because long-lived leasehold improvements are depreciated over initial lease term


9

2. Borders is a mix of high-quality businesses and several low-ROI, money-losing businesses which are in the process of being rationalized

Value of core Superstores business is obscured by declining profitability in the Mall Stores and International Stores

In addition, within the Superstores segment, value is being masked by a declining category as well as several recent management initiatives

Rapid decline of Music sales (music was 22% of sales in 2001, now roughly 11%)

Recent initiatives, including (1) Remodel program, (2) Rewards program, and (3) Distribution center consolidation, have reducedreported Superstores profitability


10

Why Do We Like Borders? (cont’d)

Superstores are healthy, growing and improvingStable EBITDA margins (9.5% - 10+%) with high ROIC

Expected annual square footage growth of ~6%

Remodeling program will reduce Music category exposure

Opportunity to increase working capital turns

Mall and International segments are low ROIC businesses that can be monetized with minimal disruption

Estimated ~$200mm of Net Working Capital on an estimated ~$15mm of EBITDA contribution

Potentially “worth more dead than alive”

New Management is focused on rationalizing business

11

3. Extensive share repurchase program and newly hired CEO should help drive value creation

~$500mm of share repurchases in the past 2.5 years

Common shares outstanding reduced by ~ 20%

Company is repurchasing ~14% of market cap in the second half of 2006

New CEO George Jones joined in July


1. “Misunderstood Industry”

13

“Amazon Risk?”

Superstores have increased share in tandem with Amazon by focusing on selection and quality of experience

Losers have been Independents, Mall stores, Mass Merchants and Book Clubs with limited selection

Other (book clubs, mass merchants)

66%

Superstores 5% Independents

19%

Malls 10%

Superstores 27%

Independents 12%

Malls 1%Internet 12%

U.S. Consumer Book Industry 1993 U.S. Consumer Book Industry 2005

Other (book clubs, mass merchants)

48%

Internet 0%

Source: Borders Group management presentation.

14

Book Superstores are attractive “anchor” tenants

Favorable customer demographic – book buyers are well-educated, high-income customers

Superstores are “Mini Malls” with books as the anchor

High-quality customer experience

Borders ranked #2 in Overall Quality for Retailers in 2006 Harris Poll

Not just a book store: café, community events, meeting place

Customer spends an average of one hour in the store

Opportunity to sell more than books

Barnes and Noble is the second-largest retailer of coffee in U.S.

Borders achieving success with Seattle’s Best and Paperchase

Books Superstores Are Valuable Franchises

15

Gross Margin Stability at Superstores

Best sellers are ubiquitous and extremely price competitive, yet they represent less than 5% of typical superstore sales

Nearly all (~97%) book inventory is returnable to the publishers at cost

Increases gross profit margin stability

Book inventory is non-perishable and generally has limited “fad” risk

16

Industry Maint. Capex is less than Depreciation

Book retailers depreciate store assets over initial lease term ~ typically 10-15 years

Maintenance capital requirements are lower than depreciation expense

Fixed assets (book shelves) last longer than lease terms

Maintenance costs typically limited to paint and carpeting

Reported earnings for Book Retailers understates true cash flow

Maintenance FCF = NI + D&A – Maintenance Capex

Based on Pershing estimates. Assumes a $21 stock price for BGP.

Borders Group ($ in mm) 2006ED&A $130Maintenance Capex 50

Difference 80

Net Income $43

Maintenance FCF (after-tax) $123

Price to Earnings 27.2xPrice to Maint FCF (after-tax) 9.4x

2. High-Quality Businesses Obscured by Money-Losing Businesses

Superstores

Mall Stores

International

18

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2001 2002 2003 2004 2005

Healthy Superstores Obscured by Bad Businesses

Superstores

International

Mall Stores

Adjusted EBITDA Margins

Superstores profitability and stability have been obscured by the Mall and International businesses, which are currently being rationalized

Note: EBITDA Adjusted for non-cash asset impairment associated with store closures.

19

Within Superstores, there is Opportunity…

Superstores performance has also been masked by declining music sales and certain one-time costs in 2006

Company has initiated a Store Remodel Program

Reduce exposure to declining Music sales

Increase high-margin Paperchase and Coffee sales

Newly launched Rewards program and several one-time expenses have created noise in reported 2006 financials, obscuring results

Expenses for consolidating distribution centers, launching rewards program and remodeling store base

Superstores EBITDA could increase by 40+% by 2008 as result of improved product mix, unit growth and elimination of these one-time expenses

Borders Superstores

21

Superstores: “Mini Mall” with several “Tenants”

Books

Café

Paperchase

DVD

Music

“Anchor tenant.” Stable business

Seattle’s Best. “Mini-Starbucks.” High margin + growing

Specialty paper like Kate’s Paperie. High margin + growing

Growth slowing

Deteriorating rapidly

22

Typical store has 25,000 sq. ftUp to 200,000 titles of books, music, movies plus a Cafe

Attractive unit growth476 superstores

Current plan is to grow 30 units / year (~6% annually)

Unit economics:$2.4mm of invested capital ($1.2mm of fixed assets, $1.2mm of NWC)

Average unit sales of $5.7mm

Avg. 4-Wall EBITDA – Maint. Capex contribution of ~$700k

~29% “stabilized” unlevered ROIBased on Pershing estimates.

Superstores: Operating Data

$700$2,400

= 29%

23

Superstores Historical Financials

Over the last five years, the Superstores segment has generated steady Adj. EBITDA margins between 9.6% - 10.3%

($ in millions)

EBITDA adjusted for non-cash asset impairment associated with store closures.

2001 2002 2003 2004 2005Operating Data:Units 363 404 445 462 473

Growth 11.3% 10.1% 3.8% 2.4%

Reported SSS 2.0% -1.2% 1.2% 0.6% 1.1%

Financial DataSales 2,234 2,319 2,470 2,589 2,710

Growth 3.8% 6.5% 4.8% 4.7%

Adj. EBITDA 220 239 242 262 261Margin 9.8% 10.3% 9.8% 10.1% 9.6%Growth 8.5% 1.2% 8.6% -0.6%

24

Music Category Exposure Has Hurt

Excluding Music sales, Superstores same store sales (“SSS”) trends have averaged 1.5% more than average reported comparable sales, based on our estimates

2001 2002 2003 2004 2005Avg.

Reported Superstore SSS 2.0% (1.2%) 1.2% 0.6% 1.1% 0.7%

Estimated Music SSS (4.0%) (8.0%) (11.4%) (12.0%) (12.0%)Music % of Sales 22.0% 17.0% 16.0% 15.0% 11.0%Music Impact on Reported SSS (0.9%) (1.4%) (1.8%) (1.8%) (1.3%)

Avg.Est. Superstore SSS (ex-music) 2.9% 0.2% 3.0% 2.4% 2.4% 2.2%

Difference 0.9% 1.4% 1.8% 1.8% 1.3%

25

Remodeling program will reduce Music category exposure by ~50% and improve Coffee and Paperchase sales

Reducing Music category exposure and replacing with high-margin Paperchase category

Music margins are ~20% versus Paperchase margins of ~50%

Paperchase has higher sales per square foot than Music

Upgrading Café offering to Seattle’s Best Coffee (Starbuck’s subsidiary)

Significant financial benefits in Year 1Estimated storewide 2.6% sales lift

40bps of margin improvement due to mix shift to higher-margin products with minimal maintenance capital requirements

Remodels one year after conversion continue to outperform

Remodeling: Improving the Superstore

26

Remodeling: Attractive Use of Cash Flow

Based on the first year of remodel activity, the New Format Superstores should have over 22% return on remodel cap ex

Old New$ in thousands Format Format CommentaryRevenue $5,700 $5,848Sales Lift (Year 1) 2.6%

Incremental Sales $148Contribution Margin 35.0% Note: 40% current contribution marginProfit on Incremental Sales $52

Margin Benefit from Mix (Year 1) 40 bps Seattle's Best Coffee / Specialty Paper Margin Increase from Mix $23

Combined Margin Benefit $75Remodel Cost (net of W/C reduction of $15k) $335

ROIC (Year 1) 22.5%

Based on Pershing estimates and management guidance.

27

Newly launched Rewards Program has created noise in Superstores financials

What is the Rewards Program?5% of all purchases (triggered at $200 per Rewards customer) arecredited towards a Holiday Spending Account

“Use it or lose it”

What is the impact?Accrual assuming 100% redemption

Launch and accrual expenses have reduced YTD Superstores segment EBITDA compared to prior years

Rewards accruals of $8.4mmAdvertising and payroll for launch of $4.2mmReduced YTD EBITDA by 18%

Rewards Program Creating “Noise” in Financials

28

What will be the impact of Rewards going forward?

Q3 reported earnings will feel the most impactAccrual amount likely to accelerate as larger member base exceeds $200 spending level

Q3 is historically the weakest quarter, usually breakeven to slightly negative earnings

We expect that Q4 will see a positive impact from RewardsWe believe Q4 guidance conservatively assumes high redemption rate and no incremental sales

Prior year test markets showed positive impactComparable sales in test markets were higher – implying incremental sales

Avg. ticket w/ rewards credit was 2x avg. ticket w/o rewards credit

Rewards Program Creating “Noise” in Financials

29

One-Time Costs Expected in 2006E

One time P&L impact of Remodels: YTD $2.5mm

Redundant distribution center costs: YTD $7.8mm

Launch of Rewards:YTD: $4.2mm

Superstores Segment Financials($ in millions)

Based on Pershing estimates.

2005A 2006ESame store sales 1.1% 0.0%

Revenue $2,710 $2,795EBITDA 261 228

Margins 9.6% 8.2%

One time costs:Redundant Distribution Center Costs $10Advertising / G&A for Launch of Rewards 5Impact of Remodels 5Total $20

Pro Forma EBITDA $249Pro Forma Margins 8.9%

30

What Could Superstores EBITDA be in 2008?

$180

$200

$220

$240

$260

$280

$300

$320

$340

Superstores 2006E

EBITDA

One-time expenses in

2006 of ~$20mm

Remodeling & SSS leverage: 100bps margin

increase

2% comps and 30 new

units annually

EBIT

DA $ i

n m

illion

s

$228 8.2%

EBITDA Margin

$249 8.9%

$2898.9%

$322 9.9%

Margin41%

increase

Assuming 2% comps and the Company’s unit growth plan, if EBITDA margins were to improve 100bps by 2008 (returning to 5-year average levels), EBITDA could increase by 41% from “reported” levels

Avg. 5 year margins: 9.9%

31

Working Capital Opportunity

Potential for $130mm of cash flow generation (or ~12% of the current equity market value) through working capital improvements at Superstores over the next 2 years

Net Working Capital at Superstores currently at ~$550M

Company can reduce working capital by 10-15% near term and 30-40% in the long term

Consolidating distribution centers and new merchandising system

Increasing “face outs” / decreasing stock

Current Superstores inventory turns of ~1.7x

We have assumed Superstores segment achieves inventory turns equal to 2.2x, a discount to Barnes and Nobles at ~2.4x

Equals approximately ~$130mm of free cash flow generation

Mall Stores

33

Obsolete Format: Mall stores have difficulty competing with Mass Merchants on price and with book superstores on selection / “experience”

~600 Waldenbooks stores

Typical store has 3,000 sq. ft and 30,000 titles

Best sellers are a higher % of sales

Weak margins / deteriorating business

2006E Revenues of $615mm and EBITDA of $5m

Seasonal Calendar Kiosk business is the main EBITDA contributor

Barnes and Noble has exited nearly all mall locations…

Mall Stores: Obsolete Format

34

Mall Stores: Deteriorating Business

$23

$44

$61$61$67

7.2%

3.0%

7.4% 7.5%

5.6%

$0

$10

$20

$30

$40

$50

$60

$70

$80

2001 2002 2003 2004 20050.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Mall segment Adjusted EBITDA margins in 2005 were 3%, having fallen ~60% since 2003

Adjusted EBITDAMargins

AdjustedEBITDA($ in millions)

Note: EBITDA Adjusted for non-cash asset impairment associated with store closures.

35

Mall Stores: Rationalization Plan

410 Mall Stores (~70% of total) have leases expiring in 2006

Management says that 200 are profitable, 200 are marginal, and 200 are losing money

Plan to close unprofitable stores as leases expire

Remaining stores negotiate rent reductions with 1-year renewals

36

Mall Stores: “Worth More Dead than Alive”

Assuming $150,000 of Net Working Capital on average per Waldenbooks store, we believe there is $90mm of total Net Working Capital trapped in the Mall segment

Waldenbooks Total Units 600 Net Working Capital per store ($000) $150kTotal Net Working Capital ($ in mm) $90mm

2006E EBITDA ~$5mm

InternationalU.K. Australia

38

U.K. stores

37 Borders Superstores

31 Books, Etc. (small format)

90 Paperchase

Australia / New Zealand: 18 Superstores

2005 EBITDA margins of 4.3%

Significantly lower than 2005 Superstore margins of 9.6%

We estimate International 2006E EBITDA margins of 1.5% (assuming revenue of $650mm and EBITDA $10mm)

International Stores

39

International May Be Sold if Not Fixed Soon

Management has indicated it would sell the International business (franchising) if it can’t be fixed in a timely manner

International Segment has seen dramatic deterioration

UK Business is struggling

Books, Etc. (small format) stores are obsolete and have negative EBITDA

UK Superstores challenged, contributing <$10mm of EBITDA

Aus/NZ business is healthy, contributing ~$10mm of EBITDA

Management sees no synergy to operating international markets, has ceased additional development

40

International: Worth More Dead than Alive?

Based on our assumptions, we believe there is approximately $110mm of Net Working Capital in the International Stores

NWC / # of Net WorkingStore Units Capital (mm)

UK Superstores $2.2mm 37 $80

Books, Etc. (small format) $285k 31 9

Australia / NZ Superstores $900k 18 16

Other (Puerto Rico, Singapore, etc…) $1.2mm 4 5Total (in mm) $110

2006E International Stores EBITDA (mm) ~$10

3. Other Factors:Share Repurchase Activity and New CEO

42

7873

65

55

0

10

20

30

40

50

60

70

80

90

2004 2005 2006 2007E

Borders common share outstanding

Strong Share Repurchase Focus

Borders management guidance implies ~55mm common shares outstanding by January 2007. This is an approximate 30% reduction from its common share count in March 2004 of 78mm.

March March March January

43

New CEO: Focused on Returns

New CEO, George Jones

Joined in July

Purchased ~$1mm of stock

Retail merchandising and operations expertise (Target, Warner Bros., Saks)

Renewed sense of urgency

Fixing / rationalizing the business

Emphasis on returns

Valuation

45

Valuation Assumptions

We believe our valuation assumptions are conservative

No EV / EBITDA multiple expansion

Mall and International Segments value based on NWC

The least these segments are worth

Upside at International segment -- it was generating $40mm of EBITDA in 2004 (versus ~$10mm in 2006E)

Reduced share repurchase rateCurrent rate of ~$250mm/year

We assume $80mm/year (proceeds from Superstores net working capital improvements and FCF after capex)

No incremental leverage to fund share repurchases

46

Borders Group: What’s It Worth?

With no multiple expansion, Borders could be worth $36 in the next 18 months, a 72% premium to the current price (of $21).

Segment Methodology Commentary ValueSuperstores 7.0x '08E EBITDA of $322 Assumes no multiple expansion $2,257

Mall Stores Value of Net Working Capital The least it's worth 90

International Value of Net Working Capital The least it's worth 110

Unallocated G&A 7.0x '08E EBITDA of ($25) ($175)

Enterprise Value $2,282Less: Net Debt expected at Year End 2006 (450)Equals: Equity Value $1,832

FD shares outstanding expected at year end 2006 55Less: Shares repurchased using $130mm from NWC improvement at Superstores, net of options (1) (4)

Equals: FD shares outstanding 51

Share price $36.17Premium to current price 72.2%

(1) Assumes $130mm of proceeds from Net Working Capital improvement and $30mm of FCF generated between 2007 – 2008 used to repurchase shares at $30 per share. Fully diluted calculation based on the treasury stock method and assumes ~7mm of options outstanding by FYE 2008.

$ in millions, except per share data

47

Trading Multiples at Target Valuation

At a $36 share price (adjusting for ~$4 of equity value ascribed to the NWC at the Mall and International Stores), Borders would trade at 7x ’08E EBITDA, 7.5x ’08E EBITDAR and approximately 11x ’08E Maintenance Free Cash Flow

BGP Trading Multiple 2008E

EV / EBITDA 7.0 x

EV / (EBITDA - Maint Capex) 8.4 x

Adj EV / EBITDAR 7.5 x

Price / Earnings 14.7 x

Price / Maint Free Cash Flow 10.9 x

48

Recent LBO Leverage Levels

At a $36 price, Borders would trade at 7.5x ’08E EBITDAR, only a slight premium to 6.8x, the average of total leverage levels used in several recent retail LBO transactions

Purchase Total LeveragePrice Adj. Debt/

Transaction: EV / EBITDA EBITDARLinens 'n Things 7.7 x 6.2 x Burlington Coat Factory 7.4 x 6.5 x The Sports Authority 7.7 x 6.8 x Michael's Stores 11.0 x 7.8 x

Average 8.5 x 6.8 x

Concluding Thoughts

50

Borders is similar to other investments where we have had success

Value of high-quality segment obscured by performance of low-return segments

Traditional sentiment on the Company is “negative”or neutral at best

Market is more focused on consolidated same store sales rather than the underlying business quality

New CEO is focused on making changes to fix the business

Concluding Thoughts

51

Concluding Thoughts…

Investment requires a long-term view…

Near-term performance impacted by current business structure and initiatives (Rewards, Remodeling, etc…)

Near-term risk is somewhat mitigated by an upcoming slate of strong book releases

We believe it will take time for management to realize full opportunity

A TIP for Target Shareholders

Pershing Square Capital Management, L.P.

October 29, 2008

DisclaimerThe information contained in this presentation (the “Information”) is based on publicly available information about Target Corporation (“Target”). None of Pershing Square Capital Management, L.P., its affiliates and any of their respective officers, directors and employees (collectively, “Pershing”), nor any representative of Pershing, has independently verified any of the Information. Pershing recognizes that there may be confidential or otherwise non-public information in Target’s possession that could lead others to disagree with Pershing’s conclusions. The sole purpose of presenting the Information is to inform analysts and shareholders about the transaction described in this presentation (the “Transaction”). This presentation does not constitute an offer or a solicitation of any kind.

Neither Pershing nor any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the Information or any other written or oral communication made in connection with this presentation or the Transaction. The Information includes certain forward-looking statements, estimates and projections with respect to the anticipated future financial, operating and stock market performance of Target in the absence of the Transaction and the two public companies that may result if the Transaction is completed. Such statements, estimates and projections may prove to be substantially inaccurate, reflect significant assumptions and judgments that may prove to be substantially inaccurate, and are subject to significant uncertainties and contingencies beyond Pershing’s control, including those described under the caption “Risk Factors” in Target’s filings with the Securities and Exchange Commission as well as general economic, credit, capital and stock market conditions, competitive pressures, geopolitical conditions, inflation, interest rate fluctuations, regulatory and tax matters and other factors.

Pershing and its representatives expressly disclaim any and all liability relating to or resulting from the use of the Information or any errors therein or omissions therefrom, including under applicable securities laws. The Information does not purport to include all information that may be material with respect to the Transaction or Target. Thus, shareholders and others should conduct their own independent investigation and analysis of Target, the Transaction and the Information.

The Information is not intended to provide the basis for fully evaluating, and should not be considered a recommendation with respect to, the Transaction, Target, the securities of Target or any other matter. Except where otherwise indicated, the Information speaks as of the date hereof. Neither Pershing nor any of its representatives undertakes any obligation to correct, update or revise the Information or to otherwise provide any additional materials.

The preparation and distribution of this presentation should not be taken as any form of commitment on the part of Pershing to take any action in connection with the Transaction.

Pershing is in the business of buying and selling securities. It has, and may in the future, buy, sell or change the form of its position in Target for any or no reason.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any discussion of U.S. tax matters contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such discussion of tax matters is written in connection with the promotion or marketing of the matters addressed; and (iii) you should seek advice from an independent advisor.

1

Pershing’s Investment in Target

2

Pershing initiated its investment in Target (“Company”) in April 2007

We currently have beneficial ownership of slightly less than 10% of the Company

Since May 2008, we have been discussing a potential Transaction with Target management

Pershing has improved its initial Transaction to address issues raised by the Company. Today, we are presenting this revised Transaction to the Company, its shareholders, and members of the investment community

3

Pershing’s Relationship with Target

Since our first meeting with management in the summer of 2007, Pershing has enjoyed a very constructive relationship with Target

We view Target’s management as the best in the Retail Industry

We appreciate management’s willingness to listen to and evaluate ideas proposed by shareholders

Our goal is to work with management and other shareholders to find the best strategic and value-maximizing outcome for the Company, its employees, and its shareholders

Why Are We Going Public?

4

Given the materiality of the Transaction, Pershing thought it would be beneficial to share the idea publicly with Target stakeholders and the investment community

The Transaction is important enough to warrant “testing” with shareholders

We think the insights gained by sharing the Transaction publiclywill be of tremendous benefit to Target as well as other stakeholders

Target is currently evaluating the Transaction

By going public with our presentation in advance of Target’s decision regarding the Transaction, shareholders and the investment community can provide their input on the Transaction’s merits

5

Significant Preparation and Analysis

To assist in preparing this presentation, Pershing retained UBS Investment Bank (“UBS”) and Sullivan & Cromwell LLP (“S&C”) as financial and legal advisors

Pershing and its advisors’ analyses are based on publicly available information

UBS has provided financial advisory services

S&C has provided legal, structural, and tax advisory services

Note: All financials in this presentation are based on Calendar Year

6

Agenda

Objectives

The Transaction

Transaction Rationale

Valuation

Appendix

■ Detailed Valuation Analysis

■ Credit Rating Analysis

■ Structural and Legal Considerations

Objectives

8

Target: Retail and Real Estate Operations

Real Estate OperationsRetail Operations■ Iconic U.S. retail brand

■ Best-in-class operator with distinctive merchandising strategy

■ 1,685 stores in 48 states

■ Best management team in the retail industry

■ Attractive growth profile, driven by mid-to-high single-digit square footage growth and market share gains

■ Recently sold an undivided interest in credit card receivables

■ High-quality owned real estate in attractive suburban and urban locations

■ Significant value embedded in real estate, not accounted for in public market valuation

■ Owns ~95% of its retail buildings and ~85% of the land under its retail locations

■ Owns ~84% of its distribution centers (“DCs”) and ~81% of the land under its DCs

■ Facilities Management Services comprising hundreds of employees responsible for property maintenance

34% 34%

58% 63%

68%

87% 87% 92% 95%

0

10

20

30

40

50

60

70

80

90

100

% U

nits

Ow

ned

(Bui

ldin

gs)1

Significant Real Estate Ownership

Target owns the highest percentage of its real estate compared to other big box retailers

% DCs owned(3): 84% ND 2% 84% 76% 55% 89% 54% ND85% 79% ND ND 55% ND 35% ND 27%% owned units/land(2):

“ND” represents Not Disclosed(1) Represents % owned stores (includes owned stores on leased land)(2) Represents % owned stores on owned land only(3) Represents % owned DCs (includes owned DCs on leased land) 9

$ in billions 2008EExisting Retail EBITDA $6.3Less: Additional Rent (2.5)Equals: PF Retail EBITDA $3.8

Implied EV of '08E EBITDAPro Forma Target Corp 7.0x $26.9

What if Target Were to Rent its Real Estate?

Target Real Estate Co Pro Forma Target Corp

Target’s resulting EBITDA after rent expense would be $3.8bn

10

(1) Implied cap rate of 8.5% on 35mm square feet of distribution facilities, valued at $50 per square foot (2) Assumes for illustrative purposes that the remaining 53% interest in credit card receivables is sold to an Investment Partner for $4.4bn and that Target retains $150mm of credit card income

Assuming that Target were to rent all of its owned store locations at an estimated market rent of 4.25% of store sales (or approximately $13/sq. ft.) and its owned distribution facilities at $4.25/sq. ft., Target would pay an additional rent of $2.5bn in 2008

(1)

(2)

$ in billions 2008ETarget Retail Sales $64.9Implied Retail Rent as % of Sales 4.25%Percentage of Owned Real Estate 85%

Retail Rental Income $2.4Dist. Facilities Rental Income 0.2Real Estate 4-Wall EBITDA $2.5

$39 Billion of Real Estate Replacement Value

11

Assuming that on average, a new store costs $26mm to zone, develop and build or approximately $197/sq. ft. (1) and that each Distribution Facility costs $70mm or approximately $50/sq. ft. (1), the replacement cost of Target’s owned real estate (excluding the value of its buildings on ground leased land and its existing leases) is approximately $39bn

(1) Based on average store size of 132k square feet, and DCs & WHs size of 1.4mm square feet(2) Analysis excludes the value of owned buildings on third-party ground leased land; assumes cost of a Target store of $26mm ($13mm building and $13mm land) and cost of distribution facility and warehouse of $70mm ($50mm building and $20mm land)(3) Assumes 1,438 stores, and 25 distribution facilities and warehouses on owned land in 2008E

Replacement Value of Owned Land and Buildings (2), (3)

2008E Retail Real Estate:2008E Estimated Owned Value / Total Value

Total Sq. Ft. (mm) % Owned Sq. Ft. (mm) Sq. Ft. ($bn)222 85% 189 $197 $37.4

2008E DCs and WHs:2008E Estimated Owned Value / Total Value

Total Sq. Ft. (mm) % Owned Sq. Ft. (mm) Sq. Ft. ($bn)44 81% 35 $50 $1.8

Total Real Estate Replacement Value ($bn) $39.1Implied Cap Rate @ $2.5bn of Estimated Market Rent 6.4%

Market Assigns Little Value to Target’s Real Estate

12

(1) Based on 2008 Q2 company filings and a 20-day trading average stock price as of 10/24/08(2) Assumes for illustrative purposes that the remaining 53% interest in credit card receivables is sold to an Investment Partner for $4.4bn and that Target retains $150mm of credit card income

Assuming Target were to rent its owned real estate and using a 7.0x ’08E EBITDA multiple on the pro forma retail business, the 20-day trading average stock price of $40 implies only $13bn of value for Target’s owned real estate, a significant discount to book and replacement value

$ in billionsCurrent TGT Enterprise Value @ $40/Share $48.3 (1)

Less : PF Target Corp (26.9) (2)

Less : Credit Card Receivables (8.0) Equals : Implied Real Estate Value $13.4

Gross Book Value of Land and Buildings $25.2 (1)

Discount to Gross Book Value 47%

Replacement Value of Owned Real Estate $39.1Discount to Replacement Value 66%

13

Objectives

Retain complete control of its buildings and its brand

Retain 100% flexibility with respect to its construction, remodeling, and relocation plans

Improve the Company’s free cash flow and access to capital

Increase the Company’s ROIC and lower its cost of capital

Maintain an investment grade credit rating

Increase the Company’s EPS growth rate

Minimize tax leakage and friction costs

In considering alternatives for the Company, Pershing Square’s objective was to eliminate the stock market’s ascribed discount to the intrinsic value of Target’s real estate and allow the Company to:

Value destruction due to tax leakage, both at the corporate and shareholder levels

In the course of our work, we reviewed several structures:

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Several Alternatives Were Reviewed

Transaction Alternatives

2. Taxable Spin-off of all owned land and buildings

3. Large sale-leaseback transaction

1. Tax-Free Spin-off of all owned land and buildings

Value destruction due to tax leakage at the corporate level

Transaction execution may be difficult

Difficult to maintain sufficient control over buildings and achieve tax-free status

Lease life (including fixed rate renewals) limited to 75% of the useful life of the buildings

Gating Items

Pershing concluded that the above alternatives were not optimal,given the Company’s strategy and objectives

Pershing has identified a Transaction which will achieve all of the stated objectives

The Transaction is consistent with the way Target owns some of its real estate today

The Transaction will create tremendous shareholder value

15

The Transaction

The Transaction

Tax-free spin of Target Inflation Protected REIT (or “TIP REIT”) as Groundlessor and Facility Manager

Pre–SpinTARGET

Shareholders

TARGET

New Target Corp owns its buildings on 75-year ground leases

Outsources Facilities Management Services

Continues to maintain properties

Leases back land to Target Corp through a Master Lease for a 75-year term

Elects REIT status at the time of spin-off

Becomes Target Corp’s outsourced facilities management provider

Becomes Target’s exclusive land developer for the first two years

After two years, becomes Target Corp’s Preferred Vendor for land procurement

Post–SpinTARGET

Shareholders

Ground Leases

LandFacilities

Mgmt.Services

Target Inflation Protected REIT

ExistingRetail

Business

OwnedBuildings 1

TARGET Corp

(1) Includes third-party ground leases

17

Solving a Retailer’s Real Estate Dilemma

TIP REIT

Question: How can a Retailer unlock the value of its real estate without losing control of its buildings?

Answer: Tax-free spin-off of an active business that ground leases the land back to the Retailer

Retailer retains ownership of its buildings and 100% control with respect to its construction, remodeling, and relocation plans

Retailer becomes a 75-year ground lessee for its owned properties on attractive terms with no financial covenants

Retailer gets an unlevered business partner (a land-only REIT) that can more efficiently finance future land development

18

Land under Stores and DCs

Facilities Mgmt.Services

Unlocking Immense Real Estate Value

$40/Share (1) Inflation Protected Treasury Securities (TIPS) (3)

Large Cap REITs (1)

Target’s Market Valuation (1)

2009E EV / EBITDA

Inflation Protected Securities / REIT Market Valuations

2009E EV / EBITDA

6.0x 33.3x15.7xRecent “Big Box” Ground

Lease (2)

17.0x

REITs, private market ground leases, and inflation-protected securities all trade at much higher valuation multiples than Target’s multiple, at only 6.0x ‘09E EV/EBITDA, based on a 20-day trading average stock price of $40

The Transaction creates immense and instant value because 22% of Target’s current EBITDA will be valued at a significantly higher multiple than where Target trades today

19

(1) Based on a 20-day trading average as of 10/24/08(2) Based on mid-point precedent cap rate of 5.9%(3) Based on current 20-year TIP yield of 3.0%

Execution is Not Impacted by the Current Markets

Given the global credit markets today, the only strategic transactions that can take place are those that do not require access to capital:

Spin-offs

Stock-for-stock mergers / acquisitions

Acquisitions by cash-rich acquirors

The Transaction is structured as a spin-off where each current shareholder will receive pro rata shares in TIP REIT

No equity or debt capital is required to spin off TIP REIT

Target does not need access to the capital markets to consummate this Transaction

20

Transaction Plan: How Would it Happen?

Step 1: The existing company (“Target Corp”) forms a new subsidiary (“TIP REIT”) and transfers to it the Facilities Management Services business, the owned land under the stores, and the owned land under the distribution facilities

Transaction DescriptionAsset Contribution

75-year

Master LeaseTarget Corp

LandFacilities

ManagementServices

TIP REIT

Target Corp

TIP REITLandFacilities

ManagementServices

Land LeaseStep 2: TIP REIT leases the land back to Target Corp through a Master Lease for a 75-year term

1

2

21

Transaction Plan (cont’d)Transaction DescriptionSpin-off and REIT Election

E&P Purge

Step 3: Target Corp spins off TIP REIT to its shareholders pro rata and tax-free

Step 4: TIP REIT elects REIT status effective immediately

Simultaneously, TIP REIT drops the Facilities Management Services business into a new corporation, a taxable REIT subsidiary (TRS)

Step 5: TIP REIT pays a taxable dividend (at the 15% dividend tax rate to non-corporate taxpayers) to shareholders equal to its allocated portion of Target’s $16bn of retained Earnings and Profits (“E&P”), estimated to be $8bn based on the implied mid-point valuation of TIP REIT/Target Corp

20% of the dividend ($1.6bn) may be paid in cash with the remaining paid in TIP REIT common stock

This cash dividend can be deferred until the end of the calendar year in which the REIT election occurs

3

4

TargetCorp

Land

TIP REIT

Shareholders

Tax-FreeSpin-off

Facilities Mgmt Services

(TRS)

5

Shareholders

Land

TargetCorpTIP REIT

75-year Lease

$8bn Taxable Dividend

(E&P Purge)


(TRS)

22

Illustrative Master Lease Term Sheet

Lessee

Lessor

Leased Property

Term

Rate

Financial Covenants

Maintenance of Buildings

Lease Structure

The lease is intended to be treated as a lease for tax purposes; lessor will be treated as the ownerNote: The lease is assumed to be treated as an operating lease for accounting purposes

Target Corp

TIP REIT

Land in fee under stores and distribution centers

75-year term

None

Flat dollar amounts per year with annual increasesFor this Transaction we have assumed annual increases based on CPI increases

Target Corp will have the right to re-model or tear down and rebuild stores as it sees fit

Preferred Vendor

Agreement

For the first 2 years post-Transaction, TIP REIT will be Target Corp’s exclusive land developerThereafter, TIP REIT will become Target Corp’s preferred vendor for future land procurement / development needs

23

Sublease Target Corp may sublease one or more sites but no sublease would release Target Corp from its obligations under the lease

Ongoing Relationships

TIP REIT will provide Facilities Management Services to Target Corp under a long-term agreement

Arm’s-length termsTIP REIT expected to continue to perform Facilities Management Services for third parties after the spin-off

Target Corp agrees to use TIP REIT as its land procurement developer for the first two years after the spin-off on agreed-upon terms

Creates a contractual 2-year development pipeline for TIP REIT and a funding sourcefor Target Corp

Afterwards, Target Corp will grant TIP REIT preferred vendor status for Target Corp’s land procurement needs on market terms for future Target stores

Under this Preferred Vendor Agreement, it is anticipated that TIP REIT will be Target Corp’s land procurement developer in the future

After the spin-off, TIP REIT and Target Corp may also share overlapping board members The number of overlapping board members would comprise a minority of each boardThere may be restrictions on the duration of the overlap

Post separation, Target Corp and TIP REIT will continue to be closely aligned, but on an arm’s-length basis

24

25

Transaction Assumptions

Lease Terms’09E rent/square foot on land for stores — $7/sq. ft.; equals to 7% of $100/sq. ft.’09E rent/square foot on land for distribution centers and warehouses — $1.25/sq. ft.Rental rate grows based on CPI (assumes CPI = 2.5%)

Credit Card Business

(Both Transaction and Standalone)

Target sells 53% remaining interest of credit card portfolio$4.4bn of proceeds used to pay down debt (including all securitized debt)Elimination of $3.6bn JPMorgan financing

Target retains $150mm of pre-tax earnings stream from its credit card business in partnershiptransaction

Capital Structure

After reducing $4.4bn of debt from the sale of the remaining 53% interest of CC business (and accordingly eliminating the JPMorgan credit card liability), we have assumed all existing debt stays at Target CorpFlexibility to re-allocate debt between Target Corp and TIP REIT

Capital Expenditures

Target Corp funds all maintenance capex as well as all building developmentTIP REIT funds all new Target store land procurement, development and improvement costs ($100/sq. ft.)

Facilities Management

Services

Assumes $125mm of ’09E internal Facilities Management Services expense at Target CorpAssumes TIP REIT receives $144mm in revenues from Target Corp and third parties, expenses $125mm of costs and earns $19mm in EBIT, implying a 13% EBIT margin in 2009E

Dividends 100% of AFFO distributed at TIP REITResults in total dividends to shareholders of $1.86/share in PF2009E vs. current $0.60/share

The following transaction assumptions were used for an illustrative 01/01/09 transaction:

TIP REIT G&A Assumes $20mm of G&A allocated to TIP REIT and incremental $15mm of standalone costs in ’08E

2009E 2009E 2009E 2009E

Target Corp TIP REIT "Combined" Target Standalone

($mm, except per share)

EBITDA $5,172 $1,427 $6,599 (1) $6,614

D&A 1,884 56 1,940 1,940

EBIT 3,288 1,372 4,659 4,674

Taxes 1,004 7 1,011 1,528

EPS $2.23 $1.79 (2) $4.02 $3.40

Selected 2009E Income Statement Data

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22% of total EBITDA to TIP REIT

Minimal D&A at TIP REIT and no maintenance capex

TIP REIT pays almost no taxes

18% EPS accretion from tax efficiencies and improved free cash flow

Based on the assumptions provided, the Transaction would result in $1.4bn EBITDA in 2009E to TIP REIT

(1) Includes incremental $15mm of standalone costs at TIP REIT(2) Normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution

27

2009E Detailed Income Statement Data

The table below sets forth the Income Statements for the two entities2009E 2009E Intercompany 2009E

($mm) Target Corp TIP REIT Adjustments "Combined"

P&L Data:Retail Revenue $68,249 – – $68,249Rental Revenue – 1,444 (1,444) – Facilities Management Revenue 1 – 144 (144) – Total Revenue $68,249 $1,587 ($1,587) $68,249

COGS (47,777) – – (47,777)Gross Margin 20,472 1,587 (1,587) 20,472 Gross Margin (%) 30.0% 100.0% 30.0%

Less: Existing Rent Expense (173) – – (173)Less: Incremental Ground Lease Expense payable to TIP REIT 2 (1,444) – 1,444 – Less: SG&A (excluding rent expense) (13,814) (20) – (13,834)Less: Incremental Standalone Cost 3 – (15) – (15)Less: Facilities Management Expense 1 (19) (125) 144 – Plus: Credit Card EBITDA 4 150 – – 150Equals: EBITDA $5,172 $1,427 – $6,599 % of Total 78.4% 21.6% 100.0%

Less: Depreciation and Amortization (1,884) (56) – (1,940)Equals: EBIT $3,288 $1,372 – $4,659 % of Total 70.6% 29.4% 100.0%

(1) Reflects payment to TIP REIT of $144mm less assumed expense of $125mm(2) Assumes rent of $7.00/sq. ft. on store land and $1.25/sq. ft. on DCs and WHs land for CY 2009E(3) Incremental standalone cost of TIP REIT(4) Assumes the sale of the remaining 53% interest on credit card receivables on 01/01/09, with Target retaining $150mm of credit card EBITDA

$3.92

$2.68

$1.86

$0

$1

$2

$3

$4

$5

$6

Target Target "Combined"

Mai

nten

ance

FC

F/Sh

are

TIP REIT

Target Corp

$4.54

Target Standalone

16%

2009E Maintenance Free Cash Flows

28

The Transaction achieves significant cash flow savings given the tax-efficient structure for owning land

2009E Maintenance Free Cash Flow per Share (1)

(1) Includes cost of store remodeling; normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution

2009E 2009E 2009E 2009E($mm, except per share data) Target Corp 1 TIP REIT "Combined" Standalone 1

Cash Flow Data:EBITDA $5,172 $1,427 $6,599 $6,614Less: Maintenance Capex (1,714) – (1,714) (1,714)Less: Interest Expense 2 (673) (76) (748) (694)Less: Taxes 3 (1,004) (7) (1,011) (1,528)Plus: Change in Net Working Capital 79 – 79 79Plus: Other 73 – 73 73Equals: Maintenance Free Cash Flow $1,933 $1,344 $3,278 $2,830Weighted Average Shares Outstanding 722 722 721Maintenance FCF/Share $2.68 $1.86 $4.54 $3.92

Maintenance FCF/share accretion ($)

Maintenance FCF/share accretion (%)

(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09 with Target retaining $150mm of credit card EBITDA(2) Assumes interest rate on debt of 6.2% at Target Corp and 7.0% at TIP REIT; normalized to exclude $112mm of incremental interest expense due to CY2009 cash E&P distribution(3) Assumes tax rate of 38% for Target Corp and TIP REIT Facilities Management Services business

29

Detailed 2009E Maintenance Free Cash Flows

The Transaction achieves significant cash flow savings given the tax-efficient structure for owning land

$0.62

16%

$0

$20

$40

$60

$80

Target (20-Day Avg. Price) ¹ Target REIT Spin-Off ² 12-Month Price Target ²

$/Sh

are

TIP REIT

Target CorpTarget

Standalone

74%

$40

$70

$38

$32 $42

$42

$83

TIP REIT

Target Corp

Valuation Summary

30

Based on the assumptions provided and using the mid-point of the valuation analysis, this Transaction would result in total combined value of $70 per share for Target shareholders (74% premium to the 20-day average trading price) and $83 per share twelve months later

For illustrative purposes, assumes Transaction occurs on 01/01/09(1) Based on a 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis

Even ignoring valuation benefits, there are important strategic reasons to consummate the Transaction…

31


33


Target Corp retains control over its buildings and brand

Improves Target’s access to capital and decreases its capital needs

Creates a non-cash currency for tax-efficient real estate acquisitions

Improves management focus on core operations

Tax-free spin-off

Optimizes ownership of land

Increases total free cash flow

Improves store-level ROIC and Target’s EPS growth rate

Maintains investment grade credit ratings profile

Increases total dividends from $0.60/share today to $1.86/share in 2009E (1)

Enormous value creation

(1) Excludes $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution

34

Retains Control Over its Buildings and Brand

Target Corp maintains control over its real estate construction, remodeling, and relocation efforts

All economic benefits of construction / remodeling of stores stay with Target Corp

Ground lease provides Target Corp with a high degree of control and flexibility

75-year lease term with the ability to relocate and subleaseLease term flexibility on a store-by-store basis

Contingent rent eliminates GAAP straight-line rent leveling requirements

Unique landlord / tenant relationship benefits both TIP REIT and Target CorpTIP REIT and Target Corp have a mutual vested interest in maintaining the strong viability of the Target brand and retail business

Flexible lease structure will allow Target Corp to retain control of its brand and stores

Improves Overall Access to Capital

Simple, predictable businessHigh margins and strong cash flowsUnlevered balance sheet75-year leaseNo transaction incomeInflation-protected income streamTremendous securityNo maintenance capital requirementsNo currency or commodity riskHigh-quality, in-demand tenantDiversified real estate geography

35

Today, only the most stable and unlevered businesses can freely access the debt and equity capital markets. TIP REIT will be one of the most stable companies in the world today

TIP REIT

TIP REIT will have better and cheaper access to the capital markets than any retailer. As such, Target will have a stable strategic and financial partner to fund future growth

Decreases Target Corp’s Capital Needs

Today, on average, it costs Target approximately $100/sq. ft. toprocure and develop land for its stores. In 2009, this is expected to amount to roughly 50% of growth capital or $1.1bn

Outsourcing these capital requirements to TIP REIT would increase Target Corp’s cash flows and decrease its need for growth capital

36(1) Depreciable asset

LandCost of raw landPermits / ZoningProfessional fees (title search,legal, engineering, appraisal, etc…)Surveying and environmental assessmentsReal estate taxes

Land ImprovementsLand excavation (fill, grading)DrainageDemolition costs of existing propertiesSewage systems (1)

Parking lots (1)

Lights (1)

Fencing (1)

Sidewalks (1)

Landscaping (1)

2009E 2009E 2009E 2009E($mm, except per share data) Target Corp (1) TIP REIT "Combined" Standalone (1)

Maintenance Free Cash Flow $1,933 $1,344 $3,278 $2,830

Less: New Building Development/Other Capex (1,112) – (1,112) (1,112)

Less: New Land Development Capex – (1,079) (1,079) (1,079)

Equals: Free Cash Flow after Total Capex $821 $266 $1,087 $639

(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09 with Target retaining $150mm of credit card EBITDA in '09E

37

Decreases Target Corp’s Capital Needs (cont’d)

The Transaction enables Target Corp to generate more free cash flow after growth capex than Target today. As such, Target Corp will not need to access the capital markets because TIP REIT will providefuture growth capital and taxes will be reduced

Target Corp would have approximately $200mm of

incremental FCF after growth capex versus Target Standalone

as a result of not funding new land development and reduced taxes

Creates Currency for Tax Efficient Acquisitions

An UPREIT owns some or all of its assets through an Operating Partnership (“OP”) and can make acquisitions by exchanging OP units for real property

OP units are convertible, on a one-for-one basis, into TIP REIT shares

Utilization of an UPREIT structure would provide TIP REIT with an attractive acquisition currency that allows selling landowners to access liquidity, diversification, and yield without triggering tax

38

Creates Currency for Tax Efficient Acquisitions

To TIP REIT:OP units are an attractive acquisition currency in transactions with landowners who typically have a very low basis in their properties

OP units do not require any capital market access

TIP REIT may be able to acquire land from current Target landowners who historically would not sell for tax reasons

To Land Owners:Defers tax on sale of land to OP

Conversion right gives seller liquidity

OP unit represents a diversified real estate investment

Structure allows a diverse group of property owners to manage individual tax, liquidity, and other needs

39

There are several benefits to an UPREIT structure

40

Improves Management Focus

Target’s core competency is retailing (i.e. merchandising, branding, marketing, and designing a unique shopping experience)

Management will increase focus on Target’s core competencies and outsource certain other functions:

Facilities management (lawn care, parking lot maintenance, etc.)

Land development, planning, and zoning

Environmental planning

Target Corp can better focus on retailing while TIP REIT can focus on facilities management and land acquisitions

Management will be able to focus on retail operations

41

Tax-free Spin-off

ApplicationRequirements

Parent must have control of SpinCo immediately prior to the distribution

Control means 80% of total voting power and 80% of the number of shares of each class of non-voting stock

Business Purpose

Active Trade or Business

Both Parent and SpinCo must each be engaged in an active trade or business immediately after the spin-off

The business must also have been conducted throughout the 5-year period ending on the date of the spin-off

Device

The spin-off cannot be principally used as a device for the distribution of earnings and profits

Distribution of Control

The spin-off must be motivated by a non-tax corporate business purpose

Non-tax business purpose for separation, widely-held ownership of Target Corp and TIP REIT, and absence of plan by shareholders to sell stake in either company evidence that transaction is not a deviceLeases are structured to ensure TIP REIT is treated as tax owner of land

Target Corp will have control of 100% of TIP REIT prior to spin-off

Improved access to capital and capital allocationImproved currency for future real estate acquisitionsImproved management focus on retail operationsEnhanced equity-based management compensationLeases are structured to ensure TIP REIT is treated as tax owner of land

Facilities Management Services business is an active trade or business that has been conducted by Target Corp, in addition to its retail business, for the past five years

TIP REIT expected to continue to offer Facilities Management Services to customers other than Target Corp

The Transaction satisfies all of the requirements for a tax-free spin-off

Optimizes Land Ownership: Depreciation Considerations

Raw land (and the majority of the capitalized costs associated with land procurement / development) cannot be depreciated

Unlike buildings, which are depreciable and remain at Target Corp, land development has minimal offsetting tax deductibility

However, ground rent is tax deductible

As such, long-term ground leases are a more tax-efficient way for a tax-paying entity to control real estate than outright land ownership

Unless it is in the business of land speculation, there is no distinct strategic advantage for a retailer to own land versus a very long-term, covenant-free ground lease

On the other hand, a REIT should own land since (1) it is not a tax-paying entity and does not get any benefits from depreciation and (2) it is in the business of owning real estate

42

Optimizes Land Ownership: REIT Conversion

ApplicationREIT Requirements

Ownership

Asset Test

At least 75% of assets must be comprised of real estate, cash or cash items and Government securitiesREIT can conduct non-real estate related activities through a taxable REIT subsidiary (TRS). TRS shares could be up to 25% of the gross asset value of all the REIT’s assets

Income Test

At least 75% of REIT’s gross income must consist of rents, gain from disposition of real property and income from other REITsRents from related parties are disqualified under the income test (parties are related if there is a 10% or greater ownership by vote or value of the tenant by the REIT)At least 95% of gross income must consist of (i) income that satisfies the 75% income test and (ii) dividends and interest from any source

Distribution Requirements

In the year of election, REIT must distribute C-Corp earnings and profits by end of taxable yearAt least 90% of REIT taxable income must be distributed annually (undistributed income would remain subject to corporate-level tax)

REIT must have 100 or more shareholders Five or fewer individual shareholders may hold no more than 50%

Land satisfies the asset testThe Facilities Management Services business will be placed in a TRS and its income will be taxed at the corporate levelThe value of TIP REIT’s TRS shares will be less than 25% of the total value of TIP REIT

Rental income from leases will satisfy the 75% income test; rental income and dividends will satisfy the 95% income testNew 9.9% TIP REIT ownership restriction will ensure that rents from Target Corp are not related-party rents

TIP REIT will make a taxable distribution of stock and cash by December 31 of year of spin-off to purge retained Earnings and ProfitsTIP REIT will distribute ≥ 100% of its REIT taxable income

TIP REIT will be widely held by the publicRestrictions will be placed on the ownership of TIP REIT shares to ensure no single shareholder may own > 9.9% of its shares

The Transaction satisfies all the requirements of a REIT conversion, thus optimizing the ownership of land for Target shareholders

43

Differential2009E Maintenance FCF/Share 1 $2.68 $1.86 $4.54 $3.92 $0.62

2009E EPS 1 $2.23 $1.79 $4.02 $3.40 $0.62

44

Increases Total FCF via REIT Conversion

Most D&A remains at tax-paying entity (Target Corp)

Ground lease expense at Target Corp is tax deductible

REIT does not pay taxes

TARGET Standalone

TARGETCorp

TIPREIT 2

Using Target’s ’09 P/E multiple of 11.8x (based on $40/share), the incremental earnings accretion from this Transaction creates $7 per share of value ignoring other valuation benefits

(1) Assumes sale of remaining 53% interest on credit card business is sold in both Standalone and Transaction scenarios(2) Normalized to exclude $112mm (approximately $0.16/share) of incremental interest expense due to CY2009 cash E&P distribution

The Transaction allows for greater free cash flow generation forTarget’s shareholders than the Standalone company provides

TARGET“Combined”

45

Improves Store-level ROIC at Target Corp

Assuming the average store real estate costs $26mm, of which $13mm is allocated to the land and $13mm to the building, store-level return on investment increases from 23.0% to 39.8%

(1) Assumes $0.9mm of ground lease rent expense, based on $7/sq. ft. lease cost and 131k of store square footage, on average

Owned Store Level Operating Data and Assumptions ($mm)

Standalone 2007A

Pro Forma 2007A

Retail Sales per Avg. Store $40 $40

Estimated Four-Wall Operating Costs 34 35 Ground Lease Expense per Avg. Store -- 1(1)

Estimated Four-Wall EBIT per Avg. Store $6 $5 Margin (%) 15.0% 13.0%

New Land Capex $13 -- New Building Capex 13 13 Total Investment $26 $13 Estimated Returns on Investment (%) 23.0% 39.8%

Earnings per Share ($)'09-'13CAGR

2008 2009 2010 2011 2012 2013 (%)

PF Target Corp 1 $2.23 $2.67 $3.20 $3.70 $4.27

EPS Growth (%) 19.5% 20.2% 15.5% 15.3%

Target Standalone 1, 2 $3.29 $3.40 $3.90 $4.57 $5.18 $5.89

EPS Growth (%) 3.5% 14.8% 17.0% 13.4% 13.8%

Memo: Operating Assumptions:Same-store sales 0.5% 3.3% 3.5% 3.5% 3.5%Sq. ft. growth 4.7% 4.1% 6.0% 6.5% 7.0%

Gross Margin 30.0% 30.1% 30.2% 30.2% 30.2%SG&A as % of sales 20.2% 20.1% 20.0% 20.0% 20.0%

(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt(2) Assumes Target Standalone maintains existing dividend policy

17.6%

14.7%

46

Increases Target Corp’s EPS Growth Rate

Because of its higher ROIC, improved free cash flow profile, and more efficient capital structure, Target Corp’s EPS growth will exceed that of Target Standalone

8.0%8.0%9.0%9.0%

10.0%10.0%11.0%

12.0%12.0%12.0%12.9%13.0%

13.5%14.0%14.0%

14.5%14.7%(1),(2),(3)

15.0%16.0%

17.6%(1),(2),(3)

0

3

6

9

12

15

18

21

WholeFoods

Kohl's CVS Lowe's Staples Walgreens TJX Costco Safeway HomeDepot

Best Buy Wal-Mart Sears BJ's Kroger JCPenney

Average(4) = 11.9%

47

Long-term EPS Growth (%)

Pro forma for the Transaction, Target Corp’s long-term EPS growth rate would be at the top of its peer group

Corp Standalone

Increases Target Corp’s EPS Growth Rate (cont’d)

SUPERVALU Macy’s

(1) Represents 2009–2013 EPS CAGR(2) Assumes additional future share buyback at a constant forward P/E of 16.0x(3) Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt(4) Excludes TargetSource: FactSet and Company filings for Retailers, excluding Target

Target Corp Target Combined"De-consolidated View" "Consolidated View"

PF 2008E Credit Metrics:Lease Adj. Debt/EBITDAR 3.6x 2.4xDebt/EBITDA 2.3x 2.3xEBITDAR/(Interest + Rent) 3.2x 7.3xEBITDA/(Interest) 9.7x 8.8x

Expected Rating Mid - High BBB/Baa A- / A3

48

Maintains Investment Grade Credit Ratings

To be conservative, we have assumed that the agencies will take a “De-consolidated View” and Target will maintain solid investment grade ratings in the Mid - High BBB/Baa category (versus A+/A2 rating today)

Post-transaction, we believe Target Corp will be rated investment grade, either in the Mid - High BBB or Low A categories, depending on whether the rating agencies take a “De-consolidated” or “Consolidated” view. A “Consolidated”view would assess the credit profile of the Target system, effectively cancelling TIP REIT’s rent payments, leading to a higher rating. This is similar to how the agencies rate Coca Cola and its bottlers

"Combined"Consol. Rating

Target TIP Intercompany Angencies($mm) Corp REIT Adjustments ViewBalance Sheet Data:8/2/08 Debt $19,655 – – $19,655Less: Debt Paydown with H2 '08 Cash Flow 1 (200) – – (200)Less: Debt Paydown from Excess Cash – – – 0CY2008E Debt 19,455 – – $19,455Less: Debt Paydown from Credit Card Proceeds (4,400) – – (4,400)Less: Elimination of JPMorgan Financing (3,600) – – (3,600)Plus: Debt Issued for E&P Distribution at TIP REIT 2 – 1,600 – 1,600Plus: Debt Issued to Fund Land Development at TIP REIT 3 – 1,322 – 1,322Less: Debt Paydown – – – PF2008E Ending Debt $11,455 $2,922 – $14,377Plus: Lease Adjusted Debt (8x 2008E Total Lease Expense) 12,309 – (10,956) 1,353PF2008E Lease Adj. Total Debt $23,764 $2,922 ($10,956) $15,730

PF 2008E Credit Metrics:Debt / EBITDA 2.3x 2.2x – 2.3xLease Adj. Total Debt / EBITDAR 3.6x 2.2x – 2.4xEBITDAR / (Interest+Rent) 3.2x 6.6x – 7.3x

(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt(2) $1.6bn of debt issued to fund E&P dividend, which must be paid by December 31 of the year REIT status is elected(3) Assumes that 1st year land acquisitions financed solely with debt

Pro Forma 2008E Balance Sheets

The table below sets forth the Balance Sheets for the two entities

49

Target Corp: Deleveraging to an “A” Ratings Profile after 2 Years

TIP REIT will be required to fund land capex for the first two years after the spin-off. Thereafter, TIP REIT will be Target Corp’s land developer through its Preferred Vendor Agreement. As such, Target Corp will generate significant free cash flow and will likely deleverage to an A-/A3 ratings profile after two years

Despite temporarily having a lower credit rating than today, (1) Target Corp will not need access to capital because it will be significantly free cash flow positive after growth capex and (2) it will be able to deleverage back to an “A”category credit rating in a short time frame

50

PF 2008E 2009E 2010E 2011E

($bn, except where noted)End of Year Debt Balance 11.5 10.8 9.6 8.3

Lease Adj. Debt 12.3 12.9 13.8 15.0

End of Year Adj. Debt Balance 23.8 23.8 23.4 23.3

EBITDAR 6.5 6.8 7.5 8.4

Target Corp Adj. Debt/EBITDAR 3.6x 3.5x 3.1x 2.8x

Expected Ratings Profile Mid - High BBB/Baa Mid - High BBB/Baa High BBB/Baa A- / A3

Target Corp: Bondholders’ Perspective

51

The Transaction allows for meaningful debt paydown by 2011E of $7.8bn. Of this amount, $4.4bn comes from selling the remaining 53% interest in credit card receivables and $3.2bn from free cash flow after operating and investing activities

Target Corp Balance Sheet Data

($bn) Debt Cash Comments

August 2, 2008 Debt $16.1 $1.5 Debt excludes JP Morgan GAAP liability of $3.6bn

Less: Credit Card Proceeds (4.4) Sale of 53% interest of credit card receivables for $4.4bn

Less: Debt Paydown from H2 '08E (0.2) Assumes $1bn of stock buyback

CY2008E Debt 11.5 0.5 (1)

Less: Debt Paydown in '09E (0.6) 0.7 (1) 78% of Free Cash Flow generated



CY2011E Debt $8.3 $0.8 (1)

(1) Assumes a minimum cash balance of 1% of sales

What’s Better: Debt or a TIP REIT Master Lease?

52

Debt TIP REIT Master Lease

Liquidity Risk Yes None

Financial Covenants Many covenants None

Holders Unrelated investors Strategic partner /“Friendly landlord”

Market access? Currently difficult to access Spin-off will obviaterequiring access

Duration 30 year maximum 75 years

Target’s cost 7.3% for 10-year bond 7%(20-day average cost) (Rent / cost sq. ft.)

TIP REIT’s Master Lease is much more attractive than long-term debt

Strong Similarities with a Credit Card Partnership

Credit Card Partnership

TIP REITSpin-off

Control

Taxable Gains

Use of Proceeds

Improved AccessTo Capital

Capital Allocation

Target can control its credit card business without the need to own receivables

Target can control its buildings and retailing strategy without the need to own land

Receivables ownership is transferred to a party with a lower cost of capital

Land (and land improvements) ownership is transferred to a party with a lower cost of capital

Primarily to return capital to shareholders (via buyback)

Return capital to shareholders (via spin-off of TIP REIT)

Minimal NoneCredit Card Partner funds future receivables growth

TIP REIT funds future land procurement and development

ROIC CC ROIC improves significantly Store-level ROIC nearly doubles

53

$0

$20

$40

$60

$80


$/Sh

are

TIP REIT

Target CorpTarget

Standalone

74%

$40

$70

$38

$32 $42

$42

$83

TIP REIT

Target Corp

Valuation Summary

54

For illustrative purposes, assumes Transaction occurs on 01/01/09(1) Based on 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis

Equity Value ($bn) $29 $23 Equity Value ($bn) $30Enterprise Value ($bn) $40 $34 Enterprise Value ($bn) $40 '09E EV/EBITDA 6.0x 6.5x '10E EV/EBITDA 7.0x '09E P/E 11.8x 14.2x '10E P/E 15.6x Equity Value ($bn) $27.5 Equity Value ($bn) $30 Enterprise Value ($bn) $27.5 Enterprise Value ($bn) $31 ‘09E Dividend Yield 4.9% ‘10E Dividend Yield 4.7% Cap Rate 5.3% Cap Rate 5.0% '09E P/AFFO 20.5x '10E P/AFFO 21.4x '09E EV/EBITDA 19.3x '10E EV/EBITDA 20.3x

Targ

etC

orp

TIP

REI

T

$40/share $7/share$17/share

$70/share

0

20

40

60

80

100

Target StandaloneValue/Share (Assuming

20-Day Avg. PriceMultiples)

Incremental EarningsGeneration

TIP REIT MultipleExpansion

Target Corp MultipleExpansion

Pro Forma Value/Share

$5/share

(1) Normalized to exclude $112mm of incremental interest expense due to CY2009 cash E&P distributions(2) Implied P/E multiple of 21.3x based on the mid-point of today’s estimated market value of $27.5bn, implying a 20.5x 2009E AFFO multiple, 4.9% dividend yield and 5.3% cap rate

Sources of Value

The main sources of value creation are incremental earnings generation via the REIT structure and multiple expansion at TIP REIT and Target Corp

55

$/Sha

re

MultipleIncremental EPS Generation Multiple Expansion Valuation Expansion

"Target Combined" 2009E EPS $4.02 Target Corp 2009E EPS $2.23 $2.23Target Standalone 2009E EPS $3.40 Implied P/E Multiple 14.2x 2.4xDifference $0.62 Target Corp ($/share) $32 $5

Target Current EPS Multiple 11.8x TIP REIT 2009E EPS (1) $1.79 $1.79Implied P/E Multiple (2) 21.3x 9.6x

Value Creation from Incremental EPS ($/share) $7 TIP REIT ($/share) $38 $17

$109

$97

$83

$70

$50

$60

$70

$80

$90

$100

$110

Today 1 Year 2 Year 3 Year

$/S

hare

Hypothetical Value Creation over Time (1)

The implied hypothetical future value per share post-transaction for Target shareholders is $109 in three years

56

Post-TransactionHypothetical Valuation

(1) Future values post 1-year are based on constant multiples(2) Excludes one-time dividend from E&P distribution

TRANSACTIONTarget Corp - Hypothetical Value/Share $32 $42 $50 $58TIP REIT - Hypothetical Value/Share $38 $40 $43 $45TIP REIT - Cumulative Dividend (2) $0 $2 $4 $6Total Hypothetical Value/Share ($) $70 $83 $97 $109

Valuation: Potential Questions and Answers

Potential Questions

What’s so special about TIP REIT?

Why are TIPS the best comparable security to TIP REIT?

Why is TIP REIT more valuable than a private ground lease?

Why is TIP REIT unlike any existing REIT today?

Why would this Transaction improve Target Corp’s valuation?

Why is this Transaction ideally suited for Target?

What are the risks?

Other potential questions

58

What’s So Special About TIP REIT?

60

TIP REIT Investment Highlights

“Land-only” structure is extremely secure■ $39bn of “Lease Security”, including $20bn of unencumbered buildings

Long-term lease provides bond-like stability and inflation-protection■ 75-year, inflation-protected “Master Lease” with Target Corp

Significant growth opportunity■ Formal arrangement with Target Corp provides long-term growth pipeline

High quality locations and superb tenant profile

De minimis maintenance capex allows for strong FCF generation

Tremendous size and scale – a “must-own” REIT

Ground leases are the most secure form of real estate investmentIn the event of a default on a ground lease, the building and improvements revert to the landowner

As such, in the event of tenant default, a landowner can re-lease the land and the building at significantly lower rent than market and still maintain its current lease payments

61

“Land-only” Structure is Tremendously Secure

TIP REIT’s land-only leases are the most secure form of real estate investment

Because it will lose its building in the event of default, a tenant is highly motivated to make its ground lease payments. The unencumbered building acts as collateral, making the ground lease extremely secure

Ground lessor leases land at

$7 / sq. ft.

Ground lessor re-leases land AND buildingat $13/sq. ft.

$7 sq. ft.Rent

$13 sq. ft.Rent

Event of default

Today

Illustrative Example: Significant cushion for rents to fall in the event of default

62

$39 Billion of “Lease Security”

Although the buildings are not pledged as security, they will revert to the landowner upon a ground lease default. As such, illustratively, we define TIP REIT’s “Lease Security” as the value of the land and unencumbered buildings. Based on replacement cost, this “Lease Security” is valued at $39bn

Total “Lease Security”: $39bn Unencumbered “Collateral”: $20bn (3)

(1) Analysis excludes the value of owned buildings on third-party ground leased land; assumes cost of a Target store of $26mm ($13mm building and $13mm land) and cost of DC and WH of $70mm ($50mm building and $20mm land)(2) Assumes 1,438 stores, and 25 DCs and WHs on owned land in 2008E(3) Although the buildings are not pledged as security, the effective result is that they act like “collateral” in the event of tenant default

Replacement Value of Owned Land and Buildings (1), (2) Value of Buildings Only (on the Owned Land) (1)

2008E Retail Real Estate: Retail Buildings - 1,438 Stores in '08E:

2008E Estimated Owned Value / Total Value Estimated Replacement Cost per Square Foot $99Total Sq. Ft. (mm) % Owned Sq. Ft. (mm) Sq. Ft. ($bn) 2008E Owned Square Feet (mm) 189

222 85% 189 $197 37.4 Value of Owned Store Buildings ($bn) $18.7

2008E DCs and WHs: DC and WH Buildings - 25 DCs and WHs in '08E:

2008E Estimated Owned Value / Total Value Estimated Replacement Cost per Square Foot $36Total Sq. Ft. (mm) % Owned Sq. Ft. (mm) Sq. Ft. ($bn) 2008E Owned Square Feet (mm) 35

44 81% 35 $50 1.8 Value of Owned DC and WH Buildings ($bn) $1.3

Total Real Estate Replacement Value ($bn) $39.1 Total Value of Buildings on Owned Land ($bn) $19.9

63

Unencumbered Assets Provide Significant Coverage

Based on our illustrative definition of “Lease Security,” if TIP REIT trades at a dividend yield of 4.9%, its “Lease Security” would still be worth 142% of the enterprise value of TIP REIT. No other REIT in the world today has this level of asset coverage in the event of a tenant default

(1) Based on the implied mid-point of valuation

$ in billions

"Lease Security"Value of Land and Unencumbered Buildings $39.1

TIP REIT Enterprise Value at 4.9% Dividend Yield $27.5 (1)

Illustrative Asset Coverage"Lease Security" / EV 142%

64

Benefits of a Master Lease

Under a master lease, all of the sites will be subject to a single lease agreement

The master lease provides for an aggregate amount due for all of the sites

Under the master lease, a failure to pay full rent due on a single site will cause all of the leases covered by the master lease to be in default

TIP REIT’s rights under the master lease require Target Corp to satisfy its lease obligations under all events

As the tenant, Target Corp must continue making lease payments to maintain ownership of all buildings and other improvements

A Master Lease has a number of structural advantages that will enhance the stability and security of TIP REIT

65

Long-term Lease Provides Bond-like Stability

Given its long-term lease arrangement and its land-only structure, TIP REIT’s risk profile will be similar to that of a long-term, senior secured, highly-rated, and inflation-protected bond

75-year Master Lease

Long-term lease

100% occupancy

Highly rated, high-quality tenant in Target

Inflation protection

Extremely low probability of lease default

Land-only REIT structure

$39bn of “lease security” or 142% asset coverage at a 4.9% dividend yieldEffectively “over collateralized” by $20bn of buildings

Highly-rated

Senior Secured

Inflation-protected

Bond

TIP REITRisk profile:

Long-term

TIP REIT’s Preferred Vendor Agreement with Target Corp will provide it with a strong pipeline of land development opportunities

Target Corp believes that in the U.S. alone it can double its store count to more than 3,000 stores

Significant square footage growth at TIP REIT will translate into strong NOI growth

2009E – 2013E retail square footage CAGR of 6.8%

2009E – 2013E top-line CAGR of 9.3%

2009E – 2013E NOI CAGR of 9.3%

66

Significant Growth Opportunity

In addition to its incredibly stable and secure cash flows, TIP REIT has strong growth prospects, given its initial 2-year exclusive right as Target Corp’s land developer and its formal Preferred Vendor Agreement with Target Corp thereafter

67

High Quality Locations and Superb Tenant

TIP REIT’s high quality locations and strong tenant profile will support its premium valuation

Attractive urban / suburban locations with strong demographicsGeographically diversified portfolio of approximately 1,438 stores (1) in 48 statesMultiple opportunities for alternative use of land sitesAbility to attract shadow development, enhancing value of ground leases as sites evolve into in-fill locations

Strong tenant in Target CorpLeading brand, market share winner and “in demand” tenantInvestment grade tenant with strong financial outlookStrong focus on maintaining and improving buildings100% occupancy for 75 yearsLow store churn rate

(1) Represents 2008E Target Corp stores on TIP REIT land

(1) Represents non-financial companies in the S&P 500 with market caps greater than $20bn(2) Based on 2009E dividends

Rank Company Market Cap.

($mm) 55 Home Depot 31,439

56 Devon Energy 30,851

57 Lockheed Martin 30,382

58 Union Pacific 29,674

59 Colgate-Palmolive 28,291

60 American Express 27,898

61 UnitedHealth Group 27,896

62 TIP REIT 27,500

63 Burlington Northern Santa Fe 27,386

64 Southern Co. 26,656

65 E.I. DuPont de Nemours & Co. 26,466

Rank Company Dividend Yield (%) 1 Pfizer 7.72 Verizon Communications 7.3 3 Dow Chemical 7.0 4 Bristol-Myers Squibb 7.0 5 General Electric 7.0 6 Altria Group 6.7 7 AT&T 6.5 8 Carnival 6.0 9 Eli Lilly 5.9 10 E.I. DuPont de Nemours 5.6 11 Merck 5.6 12 Philip Morris International 5.3 13 Caterpillar 5.0 14 TIP REIT (2) 4.9 15 Home Depot 4.9 16 Southern Co. 4.9

68

Large Market Cap — Must Own Yield Stock

TIP REIT will be the 62nd largest company in the S&P 500

Given its market cap, TIP REIT will be owned by S&P 500 index funds, large cap funds, real estate index funds, yield-oriented investors, and investors seeking inflation-protected assets

S&P 100 Non-Financials Ranked by Dividend Yield (1)S&P 500 Ranked by Market Cap

Why are Treasury Inflation Protected Securities (“TIPS”) the Best Comparable Security to TIP REIT?

70

How is TIP REIT Similar to TIPS?

TIP REIT has many of the same features of Treasury Inflation Protected Securities (TIPS). However, TIP REIT has the added benefit of a growth platform and no “Phantom tax”

20-Year TIPSTIP REITExtremely low probability of default

Backed by highly-rated Target Corp$39bn of “Lease Security” or ~140% TIP REIT’s EV at 4.9% dividend yield

Backed by federal government

Inflation protection Payment based on CPI adjusted principal

Rent income adjusted for CPI

Long-term duration with required payments

75-year lease termREIT dividend payment required by law

20 yearsInterest payment required by law

Liquidity $28bn market cap Over $450bn market (1)

Growth platform

“Phantom tax”Yes No

No Yes (tax on inflation adj. principal)

(1) Size of total TIPS market

71

TIP REIT Can Be Valued As Two Entities

TIP REIT stock can be valued as two entities: (1) an Inflation-Protected Secured Bond that is nearly identical to TIPS and (2) a Land Developer with a stable growth platform

TIP REITTIP-like Security Land Developer

Cash flows generated as the Preferred Land Developer of new Target stores

Exclusive right to be Target’s land developer for the first two years post Transaction

Preferred Land Developer after two years

Attractive 6% – 8% square footage growth for the foreseeable future

Provide Facilities Management services as part of land developer platform

Cash flows from the rental income generated by the existing, “static” ground lease portfolio

Nearly identical to TIPS, given stability, security and the long-term, inflation-adjusted nature of the Master Lease

Inflation-linked rents based on the same CPI measure as used for TIPS

Semi-annual dividend payments on the same date as TIPS interest payments

Highly liquid

72

TIP REIT: (1) Valuing the TIP-like Security

TIP REIT: TIP-like Security

The TIP-like Security should trade at a small spread to TIPS of 165 – 215 bps

Rate / Yield Spread to TIPS

165 bps — 215 bps

3.0%

165 bps — 215 bps

4.65% — 5.15%

20-year TIP Yield Today

Current TGT Unsecured CDS @ 190bps ± 25 bps 1.65% — 2.15%

—

The current TIPS yield of 3.0% implies an expected 20-year inflation rate of only 1.4%. If the expected 20-year inflation rate increased to 2.0% and the 20-year Treasury rate remained constant, then the 20-year TIPS would yield 2.4% and TIP REIT would yield 4.05% – 4.55%. The higher the inflation rate, the more valuable TIP REIT will be

TIP REIT: (1) Valuing the TIP-like Security (cont’d)

Importantly, we believe our TIPS-based valuation analysis conservatively measures TIP REIT’s credit risk

73

In the preceding analysis, we use Target’s unsecured CDS spreads as the measure of credit risk under the TIP REIT Master Lease.

We believe this is conservative because while TIP REIT has Target’s (unsecured) credit, it also has $20bn of unencumbered buildings that would revert to TIP REIT in the event of tenant default.

We estimate that Target’s ground lease credit risk should be materially lower than Target’s unsecured CDS spread

74

TIP REIT: (2) Valuing the Land Developer

TIP REIT’s land development opportunity can be valued based on its growth platform value

Growth Platform Valuation

Based on 20-year DCF analysis

Implied valuation at 4.65% – 5.15% cap rate and 10.5% – 12.5% discount rate2029E terminal NOI: $2,560mmValuation range of $0.0bn – $2.3bn

(1) Based on 2029E NOI of $2,560mm and 4.65% cap rate

TerminalValue (1)

2009 2010 2011 2012 2013 ... 2029Incremental Rental Revenues $74 $145 $257 $391 $551After-tax Facilities Management Income 12 12 14 15 17G&A Expense (20) (21) (21) (22) (22)Total Capex (1,079) (1,008) (1,582) (1,863) (2,190)Free Cash Flow from Platform ($1,013) ($872) ($1,332) ($1,478) ($1,644)Terminal Value $55,047Discount Rate 12.5% 10.5%Terminal Cap Rate 5.15% 4.65%Present Value of Platform – $2,293

Platform Value

75

Valuation: TIP REIT in Total

TIP-like Security

Land Developer

Equity Value (1) Implied Cap Rate (2)

Total TIP REIT

$38/share 4.9%

(1) At mid-point valuation(2) Implied yield calculated based on NOI / Implied value

$2/share

$40/share 5.1%

Based on “TIPS”-based valuation of TIP REIT, the implied TIP REIT valuation is $29bn, or $40/share today

Valuation

2008E Existing dividends: $1,354mm

Dividend yield: 4.65% – 5.15%

Valuation: $26bn – $29bn

2029E NOI: $2,560mm

Terminal cap rate: 4.65% – 5.15%

Discount rate on 20-yr DCF: 10.5% – 12.5%

Valuation: $0.0bn – $2.3bn

2009E NOI of $1,462mm

Valuation: $26bn – $31bn or $36/share – $44/share

TIP REIT

Target Corp

$70

$38

$32

Conservative Approach to Valuation

Our mid-point valuation price for TIP REIT of $38 (1) implies a 4.9% dividend yield for the TIPS-like security and (2) excludes the value of the Land Developer

TIP REIT Spin-offEquity Value / Share

76

Using a “TIPS”-based valuation analysis, our mid-point valuation price of $38/share excludes the value of TIP REIT’s development platform

TIP REIT Presents an Attractive Arbitrage

Long: TIP REIT @ $38 (mid-point of valuation analysis) –implies a ~490 bps dividend yield

Short: TIPS @ 300 bps yield

= Spread: 190 bps

Value: (1) Keep the 190 bps spread (nearly risk-free, given the security offered by $20bn of unencumbered buildings), or hedge Target unsecured risk with CDS

(2) Get the Land Developer for free, worth $2/share

77

How is this Trade Possible?

78

This arbitrage trade is feasible for several reasons:

The TIPS market is highly liquid

TIP REIT would be a highly liquid security with an initial market capitalization of approximately $28 billion

TIPS trade, even in the current low liquidity environment, approximately $1 – $2 billion per day

Normal volume is typically $3 – $5 billion or more per day

TIPS are readily borrowable and easily shortable

TIP REIT would pay semi-annual dividends on the exact same day that TIPS pay interest payments (Jan 15th and July 15th )

High Demand for Inflation-Protected Securities

79

Pensions, endowments, retirement funds

Income-oriented institutional funds

Retail / individual investorsTIP REIT solves the “phantom tax” problem for individual investors

Depository institutions

Arbitrage / hedge funds

Insurance companies

Strong international demand generated by recent European pension reforms requiring returns linked to inflation

There is a strong demand for liquid, inflation-protected, income-oriented securities that offer higher yields than TIPS

Why is TIP REIT More Valuable than a Private Ground Lease?

Building Lot Total LeaseSize Size Lease Term with

Transaction Tenant Location (Sq. Ft.) (Acres) Cap Rate Term Options OptionsFor Sale Lowe's Princeton, WV 116,000 14.16 6.61% 20 Years 6, Five-Year 50 YearsFor Sale Kohl's Selinsgrove, PA 68,416 4.47 6.25% 20 Years 8, Five-Year 60 YearsFor Sale Lowe's Derby, CT 152,890 13.10 5.50% 20 Years 8, Five-Year 60 YearsFor Sale Lowe's Eugene, OR 137,933 12.30 6.25% 20 Years na naFor Sale Wal-Mart Albuquerque, NM 40,000 5.15 5.50% 20 Years 15, Five-Year 95 YearsFor Sale Kohl's Fort Gratiot, MI 89,008 14.75 5.75% 20 Years 4, Five-Year 40 YearsSold Target Fairlawn, OH 99,402 5.28 6.00% 20 Years 6, Five-Year 50 YearsSold - March 27, 2008 Lowe's Whitehall, PA 166,609 14.24 6.05% 20 Years na naSold - March 23, 2008 Home Depot Austell, GA 130,948 14.46 5.75% 20 Years na naSold - October 2007 Kohl's Reno, NV 94,213 9.09 6.10% na na naSold - September 2007 Lowe's Escondido, CA 178,712 11.27 6.00% 20 Years 6, Five-Year 50 YearsSold - July 2007 Lowe's Sayre, PA 111,371 12.50 6.25% 20 Years 8, Five-Year 60 Years

Mean 6.00%Median 6.03%High 6.61%Low 5.50%

81

Ground Leases Typically Trade from 5.50% to 6.25%

Precedent private ground lease transactions support cap rates ofapproximately 5.50% – 6.25% for a typical ground lease with no development pipeline

Source: LoopNet and other public filings

Why is TIP REIT Better than a Private Ground Lease?

82

TIP REIT offers better value to investors than a typical privateground lease

TIP REIT has several qualities which make it more attractive than a private ground lease

Large cap, liquid public ownership

75-year Master Lease term (longer than most private ground leases)

1,438 retail properties (1) in 48 states

Inflation-protected rental stream with annual adjustments

Best-in-class retail tenant

Geographic diversity

Unlike a static ground lease, TIP REIT also has growth, given its dependable new store growth pipeline

Given the above factors, TIP REIT will trade at a lower cap rate than an individual private ground lease


Why is TIP REIT Unlike Any Existing REIT Today?

84

Leverage None High: 63% Debt-to-TMCAverage: 47% Debt-to-TMC

TIP REIT Large Cap REITs

NoneHigh – REITs have borrowed at low rates and are facing much higher rates and refinancing risk for debt maturities

None / 100% rental income Sometimes

None / 75-year lease Yes, typically 10% or more of leases up for renewal annually

Re-leasing Risk

None Yes, typically 8% of EBITDAMaintenanceCapital

Preferred vendor arrangement No preferred arrangementGrowth

$20bn of unencumbered buildings, given “land-only” structure None. Owns both land buildings“Lease Security”

TransactionIncome

RefinancingRisk / EarningsPressure

TIP REIT: Unlike Any Existing REIT Today

(1) By equity market value(2) Source: Wall Street research; 2008E maintenance Capex / EBITDA

85

TIP REIT: No Maintenance Capital Requirements

TIP REIT’s “land-only” structure maximizes cash flow. Unlike large cap real estate companies that spend on average 8% of EBITDA to maintain depreciable properties, TIP REIT requires virtually no maintenance capital

Given TIP REIT’s de minimis maintenance capital requirements, TIP REIT’s free cash flow should be compared to a real estate investment trust’s AFFO, not the “FFO” metric

10 Largest REITs (1) Maint. Capex / EBITDA (2)

1 TIP REIT 0.0%2 Simon Property Group 8.7%3 Public Storage 5.5%4 Vornado Realty Trust 13.4%6 Boston Properties 11.8%5 Equity Residential 6.9%7 HCP, Inc. 6.9%8 Kimco Realty Corporation 6.7%9 ProLogis 8.5%

10 AvalonBay Communities 5.7%Average (Excluding TIP REIT) 8.2%

86

TIP REIT: Tremendous Size and Scale

TIP REIT owns land under 225mm square feet of buildings (1), including 35mm sq. ft. of distribution facilities. TIP REIT would have a larger equity market capitalization than any real estate company in the U.S. today

Given its size and scale, TIP REIT will be a “must own” stock for any real estate equity investor

(1) Represents 2008E Target Corp stores, distribution facilities and warehouses on TIP REIT land (2) By equity market value; based on a 20-day trading average as of 10/24/08(3) Based on company filings as of Q2 2008A

Equity Total OwnedMarket GLA (3)

10 Largest REITs (2) Value ($mm) (mm)1 TIP REIT (1) 27,500 2252 Simon Property Group 20,836 1603 Public Storage 13,891 1254 Vornado Realty Trust 13,023 816 Boston Properties 10,679 415 Equity Residential 10,479 na 7 HCP, Inc. 8,450 na 8 Kimco Realty Corporation 7,451 749 ProLogis 7,170 487

10 AvalonBay Communities 6,106 na

87

TIP REIT versus Triple Net Lease REITs

TIP REIT is a much more stable, faster growing and higher quality business than any Triple Net Lease REIT

Lease Typeand Terms

Land-only Master LeaseHighly secure given unencumbered buildings worth $20bn75-year lease term

Fee simple individual leasesNo “over-collateralization” and often unmarketable specialty use properties~13-year avg. remaining lease term (1)

Individual leases have re-leasing risk

TIP REIT Triple Net Lease REIT

Asset Quality High quality / Multiple alternative uses Mixed quality / Limited alternative use

Tenant Quality Generally below investment grade credit and deteriorating

Unproven, often specialty retail

Size and Scale Largest market equity cap Small equity market cap

Investment grade credit and improvingLeading GM Retailer

Growth Preferred Vendor Agreement with a fast-growing, leading retailer

Limited growth / no formal arrangement

(1) Extension option detail not disclosed in company filings

Leases:

Leased Property Land-only Land and Building Land and Building Land and Building

Lease Type Master Lease Individual Leases Individual Leases Individual Leases

Unencumbered Assets of the Tenants

1,438 Stores and 25 Distribution Facilities (1) None None None

Effective “Over-collateralization” $20 billion of Buildings None None None

Avg. Remaining Lease Terms (Yrs) 75.0 13.0 (3) 13.0 (3) 13.0 (3), (4)

Estimated Lease Turnover (‘08–’17) 0.0% 34.8% (4) 45.6% (4) 35.4% (4)

Size:

Equity Market Value ($mm) (2) $27,500.0 $2,405.5 $1,523.3 $1,428.9

Enterprise Value ($mm) (2) $27,500.0 $4,183.6 $2,714.5 $2,934.4

Gross Leasable Area (mm sq. ft.) 225 (1) 19 11 9 (4)

Leverage:

(Net Debt + Preferred) / EV 8.6% (5) 42.5% 43.8% 50.7%

Growth Opportunity:

Preferred Vendor Agreement Yes No No No Source: Company filings (1) Represents 2008E Target Corp stores, distribution facilities and warehouses on TIP REIT land (2) Triple net lease REITs are based on a 20-day trading average stock price as of 10/24/08 (3) Extension option detail not disclosed in company filings (4) Based on 2007A (5) Based on 2009E

Side-by-Side Comparison with Triple Net Lease REITs

88

TIP REIT@ $38/share

Five Leading Tenants: (23% of Revenues) (1) Five Leading Tenants: (32% of Gross Assets) (1) Buffets

♦ Filed for bankruptcy in January 2008 ♦ Buffets restaurants have limited

alternative use

The Pantry ♦ Convenience store operator with

bankruptcy concerns ♦ Junk credit with bonds Caa1 rated by

Moody’s trading at 14.5% Kerasotes ShowPlace Theatres

♦ Mid-west movie theatre chain ♦ Junk credit rated B1 / B- ♦ Real estate has poor alternative use

Circle K (Susser Holdings) ♦ Struggling owner of convenience stores ♦ Susser is B+ rated by S&P with a negative

outlook ♦ Senior Unsecured Debt is B3 rated by

Moody’s

The Pantry ♦ Convenience store operator with

bankruptcy concerns ♦ Junk credit with bonds Caa1 rated by

Moody’s trading at 14.5%

Kerasotes ShowPlace Theatres ♦ Mid-west movie theatre chain ♦ Junk credit rated B1 / B- ♦ Real estate has poor alternative use

La Petite Academy ♦ Child care/learning center operator ♦ Operate 570+ education centers in 36

states

Mister Car Wash ♦ Conveyor car wash chain started in

Houston, TX ♦ Portfolio of 60 car washes, 24 lube shop,

and 3 convenience stores Children’s World

♦ Child care/learning center operator ♦ Mostly operating in the Mid-west

Road Ranger ♦ Private Mid-west convenience store

operator ♦ Portfolio of 73 locations in seven states

Triple Net Lease REIT Tenants: A Closer Look

89

Leading tenants for triple net lease REITs are predominantly junk credits with some in bankruptcy; real estate has limited alternative uses

Movie theatre REIT with AMC Entertainment representing over 50% of gross leasable area

AMC has ~6.4x rent adjusted leverage and its bonds trade at a 14.1% yield

The movie theatre industry is highly competitive, very consumer sensitive and suffering secular pressures from at-home-entertainment

Movie theatres have limited alternative uses

(1) Source: Wall Street research

'09E Dividend Yield 4.9%Cap Rate 5.3%

19.3x15.7x

12.7x

6.0x

TIP REIT Large Cap REITAverage

Triple Net LeaseREIT Average

TargetStandalone

2009

E E

BIT

DA

(x)

REIT Multiples

90

TIP REIT will trade at a significant premium to any REIT because of its stability, security, and certain growth

2009E EV/EBITDA

Note: Target Standalone, Large Cap REITs, and Triple Net Lease REITs stock prices based on 20-day trading average as of 10/24/08

TIP REIT’s only commonality with other REITs is its Tax-Exempt structure

91

Why Would this Transaction Improve Target Corp’s Valuation?

93

Improves Store-level ROIC at Target Corp

Assuming the average store real estate costs $26mm, of which $13mm is allocated to the land and $13mm to the building, we believe store level return on investment would increase from 23.0% to 39.8%

(1) Assumes $0.9mm of ground lease rent expense, based on $7/sq. ft. lease cost and 131k of store square footage, on average

Owned Store Level Operating Data and Assumptions ($mm)

Standalone 2007A

Pro Forma 2007A

Retail Sales per Avg. Store $40 $40

Estimated Four-Wall Operating Costs 34 35 Ground Lease Expense per Avg. Store -- 1(1)

Estimated Four-Wall EBIT per Avg. Store $6 $5 Margin (%) 15.0% 13.0%

New Land Capex $13 -- New Building Capex 13 13 Total Investment $26 $13 Estimated Returns on Investment (%) 23.0% 39.8%

Earnings per Share ($)'09-'13CAGR

2008 2009 2010 2011 2012 2013 (%)

PF Target Corp 1 $2.23 $2.67 $3.20 $3.70 $4.27

EPS Growth (%) 19.5% 20.2% 15.5% 15.3%

Target Standalone 1, 2 $3.29 $3.40 $3.90 $4.57 $5.18 $5.89

EPS Growth (%) 3.5% 14.8% 17.0% 13.4% 13.8%

Memo: Operating Assumptions:Same-store sales 0.5% 3.3% 3.5% 3.5% 3.5%Sq. ft. growth 4.7% 4.1% 6.0% 6.5% 7.0%

Gross Margin 30.0% 30.1% 30.2% 30.2% 30.2%SG&A as % of sales 20.2% 20.1% 20.0% 20.0% 20.0%

(1) Assumes remaining 53% interest of credit card business sold for $4.4bn on 01/01/09 and all proceeds used to pay down debt(2) Assumes Target Standalone maintains existing dividend policy

17.6%

14.7%

94

Increases Target Corp’s EPS Growth Rate

Because of its higher ROIC, improved free cash flow profile, and more efficient capital structure, Target Corp’s EPS growth will exceed that of Target Standalone

8.0%8.0%9.0%9.0%

10.0%10.0%11.0%

12.0%12.0%12.0%12.9%13.0%

13.5%14.0%14.0%

14.5%14.7%(1),(2),(3)

15.0%16.0%

17.6%(1),(2),(3)

0

3

6

9

12

15

18

21

WholeFoods

Kohl's CVS Lowe's Staples Walgreens TJX Costco Safeway HomeDepot

Best Buy Wal-Mart Sears BJ's Kroger JCPenney

Average(4) = 11.9%

95

Long-term EPS Growth (%)

Pro forma for the Transaction, Target Corp’s long-term EPS growth rate would be at the top of its peer group

Corp Standalone

Increases Target Corp’s EPS Growth Rate (cont’d)

SUPERVALU Macy’s

(1) Represents 2009–2013 EPS CAGR(2) Assumes additional future share buyback at a constant forward P/E of 16.0x(3) Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt(4) Excludes TargetSource: FactSet and Company filings for Retailers, excluding Target

Multiple Expansion at Target Corp

Target Corp will trade at a higher multiple than current Target Standalone due to a powerful combination of improved ROIC and EPS growth

ROIC and EPS Growth – key value drivers with a direct impact on multiples

Improving both metrics concurrently is a powerful value creatingcombination which should lead to multiple expansion

More efficient cash generation results in higher ROIC at virtually same level of risk, resulting in substantial economic value added

Increased returns and more efficient cash flow generation allow for additional share buybacks that foster EPS growth

“Growth does indeed drive multiples, but only when combined with a healthy return on invested capital.” (Tim Koller et. al, McKinsey & Co.)

96

Why is this Transaction Ideally Suited for Target?

“Land-only” REIT Spin-off is Value Maximizing for Retailers Meeting Certain Criteria

Retailer Criteria:

High Land Ownership

Strong Square FootageGrowth Opportunity in the U.S.

Retailers that own most of their land and buildings are ideally suited for a “Land-only” REIT spin-off

To create the most value from a “Land-only” REIT spin-off, a retailer must meet certain criteria including very high land ownership, predominantly U.S.-based real estate and retail sales, strong square footage growth in the U.S., and low valuation multiples. Target meets ALL of these criteria

98

Predominantly U.S. Real Estate and U.S. Retail Sales

Low EV / EBITDA Multiple Relative to REITs

Commentary: Application to Target:Target owns more of its store land and buildings than any other big box retailer in the U.S.

Retailers with strong growth opportunities in the U.S. can provide a dependable development pipeline for the “Land-only”REIT, enhancing the REIT’s value

Target is one of the fastest growing U.S. big box retailers in the country with mid-to-high single digit expected sq. ft. long-term growth for the foreseeable future

International real estate is not well suited for a tax-free REIT spin-off, given regulatory issues and tax complications

Target’s real estate is exclusively based in the U.S. Target’s EBITDA is generated exclusively from U.S.-based sales

Retailers trading at low EV / EBITDA multiples can release the greatest value from the “Land-only” REIT spin-off

Target trades at 6.0x ’09E EBITDA versus large cap REITs at 15.7x EBITDA and TIP REIT at 19.3x EBITDA

Strong, Stable Retail Operations with Attractive Credit Profile

Retailers with strong and stable operations will be a high-quality tenant

Target is a market share winner with leading retail operations, stable FCF and strong management

High Quality, Stable Tenant

Target is ideally suited as a tenant for TIP REIT because of its high business quality and stable operations, even during a recession

High Business QualityBest management team in the retail industry

Leading brand and strong marketing capabilities

Best-in-class merchandisers

Quality suburban and urban in-fill locations

Solid infrastructure, leading-edge retailing systems

~10% EBITDAR margins

Stable Cash Flows Even TodayDiscount retailer with prices within approximately 1% – 3% of Wal-Mart on comparable goods

Beneficiary of trade down

Nearly 40% of sales are consumables / non-discretionary

Less fashion risk than a department store

Less cyclicality than a home improvement retailer

Higher margins than grocery stores and warehouse clubs

99

Target: Beneficiary of Trade Down

Consider the $1,235 patent-leather satchel with golden hardware designed by Anya Hindmarch. Mary Hall, a marketing manager at I.B.M. in Redondo Beach, Calif., heard its siren call. Then she went to Target to purchase a similarly shiny purse, made out of polyvinyl chloride, by the same designer. Price: $49.99. “In the current economy, I thought I would reform,” Ms. Hall said. Welcome to “recession chic” and its personification, the “recessionista,” the new name for the style maven on a budget.

New York Times, 10/24/2008

Indeed, many diehard Nordstrom fans came prepared to open up their purses for $545 Moschino shoes and $1,495 Valentino handbags. Kim Calloway, a 38-year-old senior accountant, arrived at 7:50 a.m. and walked out with $1,200 worth of jeans, cosmetics and skin care products, noting that she hasn't cut back on her spending. "I probably should, but I probably won't," she said. Others, warier about the economy, came more for the spectacle. Charlene Stone, 49, of Wexford, an affluent suburb, didn't buy anything but enjoyed looking. Lately, she has been shopping more at discounter Target for her daughter's clothes. "I'm about the bargains," she said.

Wall Street Journal, 10/25/2008

100

101

What if TGT’s Valuation Normalizes to Historical Levels?

Last 5 year average

@ $40 (1) TIP REIT@ 38/share

Large Cap REITs (1)

Target’s EV / Forward EBITDA Multiple REIT Forward EV / EBITDA Multiple

8.2x 6.0x 19.3x 15.7x

When reviewing Target’s historical EV / EBITDA multiples, on average, Target has not been afforded the valuation levels of a typical Large Cap REIT or the expected valuation multiple of TIP REIT

Even if Target’s valuation multiples normalized over the next 12 – 18 months to historical levels, Target’s Standalone valuation multiples would never reach the expected EV/EBITDA multiples of TIP REIT

TIP REIT does not pay taxes and has no maintenance capital requirements

Importantly, with 22% of Target’s existing EBITDA representing the ground lease rents available to TIP REIT, the separation of TIP REIT would allow for significant shareholder value creation for Target shareholders

(1) Based on a 20-day trading average as of 10/24/08

What are the Risks?

Potential Concerns: Credit Ratings

Concern Mitigating Factor

Long-termCredit Rating

Target Corp’s rating could be temporarily lowered to a mid-to-high BBB category

First two years of land development capital will be contractually funded by TIP REIT. Thereafter, TIP REIT will be the preferred land developer

The Transaction’s tax efficiencies improve free cash flow at Target Corp (ground lease is expensed while land is not depreciable)

As such, Target Corp will not need access to long-term capital because it will generate $2bn of FCF after all capex in the first two years alone

Cash flow will be primarily used to de-lever to an “A” category rating after two years

103

Potential Concerns: Credit Ratings / Inflation

Concern Mitigating Factor

Short-term Credit Rating

Target’s commercial paper ratings could be temporarily lowered to A2 / P2 category

Based on the current TIPS yield, Target can hedge 20-year inflation risk at ~140bps

104

Inflation-adjusted Rent

In periods of high inflation, ground rent expense could increase

$2bn untapped line of credit which expires in April 2012

Is the value creation worth the higher cost of short–term financing using the line of credit?Line of credit financing cost L+14bpsEst. A1 commercial paper cost L-175bpsApproximate Spread 190bps

$ in millions, except per share data:

Short-term working capital needs $1,500

Months / year 3

Est. Incremental costs (pre tax) 1.9%

Estimated annual cost (after tax) $4.4

Estimated annual cost/share $0.006

105

Pros and Cons of this Transaction

Instantly and meaningfully accretive on all key measures (EPS, FCF/share)

Improves ROIC and EPS growth at Target Corp

Reduces taxes by ~$520mm in ’09E

More than triples dividends: $0.60/share today to $1.86/share in ’09E

Improves capital access and decreases the need for growth capital at Target Corp

Increases the stock price from $40/share to $70/share today

⌧ Temporarily lowers Target Corp’s ratings from A+ / A2 to Mid - HighBBB/Baa

Mitigating Factors:

Target Corp remains investment grade

Target Corp can pay down debt and regain an “A” category credit rating profile in two years

Pros Cons

We believe the Pros of doing this Transaction far outweigh the Cons of having a temporarily lower rating. Post-Transaction, the Company will have improved access to capital and lower capital needs. As such, credit ratings will be less material to Target Corp going forward

Another way to pose the question:

Would you pursue this Transaction if it were a Strategic Acquisition?

106

107

What If this Were an Acquisition?

⌧ Temporarily lowers Target Corp’s ratings from A+ / A2 to Mid - HighBBB/Baa

Mitigating Factors:

Target Corp remains investment grade

Target Corp can pay down debt and achieve a higher credit rating in two years

Acquisition Rationale Acquisition Risks

It is common for a company to pursue an acquisition that greatlyincreases shareholder value and temporarily lowers ratings to anacceptable investment grade level

Instantly and meaningfully accretive on all key measures (EPS, FCF/share)

Improves ROIC and EPS growth at Target Corp

Reduces taxes by ~$520mm in ’09E

More than triples dividends: $0.60/share today to $1.86/share in ‘09


Increases the stock price from $40/share to $70/share today

108

Mitigating Risk

In the highly unlikely event that a recombination of Target’s real estate with its retail operation would become desirable at some point in the future, an unwind the structure can be effectuated:

Post REIT Spin-off: An unwind of the structure could be accomplished with an agreed-upon tax-free merger by the two companies

However, if in the future, unforeseen circumstances dictate otherwise, TIP REIT could be collapsed back into the current structure

Other Potential Questions

What is the Governance Structure of TIP REIT?

110

TIP REIT would be incorporated where most REITs are incorporated: Maryland

Jurisdiction: We believe Maryland is the most favorable jurisdiction for TIP REIT

Ownership Restrictions: The certificate of incorporation of TIP REIT would include a customary 9.9% actual and constructive ownershiplimit and other provisions customary for REITs to assure compliance with REIT ownership and related-party rent rules

Other Governance Provisions: Similar to Target Corp’s existing governance rules except as the Board may otherwise determine in connection with the Transaction

Will Consents Be Needed?

Minnesota Corporate Statute Requiring Shareholder Vote for Transfer of All or Substantially All Assets

The Transaction meets Minnesota’s safe harbor for not being a transfer of “all or substantially all assets” and therefore does not trigger shareholder vote

Bond Indenture Covenants

Covenant restricting transfer of assets substantially as an entirety:The Transaction – which only involves Target’s land – is not a transfer of assets “substantially as an entirety” and therefore does not breach this covenant

Covenant restricting sale (or transfer) and leaseback of an “Operating Property” with an entity other than a restricted subsidiary:

The transfer/leaseback is with an entity that at the time of the transfer/leaseback is a restricted subsidiary and it is therefore exempt from this covenant (the subsequent spin off is permitted since the indenture does not include any dividend stopper)In addition, none of the land parcels being transferred is an Operating Property subject to this covenant since none has a net book value greater than 0.35% of Consolidated Net Tangible AssetsAlso, if the Board designates subsidiaries currently holding land to be unrestricted subsidiaries as permitted by the indenture, the covenant will not apply to a transfer / leaseback by those subsidiaries

No other indenture issues identified111

No Shareholder or Bondholder consents are needed

Q & A

Appendix

Detailed Valuation Analysis

$0

$20

$40

$60

$80


$/Sh

are

TIP REIT

Target CorpTarget

Standalone

74%

$40

$70

$38

$32 $42

$42

$83

TIP REIT

Target Corp

Valuation Summary

115

For illustrative purposes, assumes Transaction occurs on 01/01/09(1) Based on 20-day trading average as of 10/24/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis

Equity Value ($bn) $29 $23 Equity Value ($bn) $30Enterprise Value ($bn) $40 $34 Enterprise Value ($bn) $40 '09E EV/EBITDA 6.0x 6.5x '10E EV/EBITDA 7.0x '09E P/E 11.8x 14.2x '10E P/E 15.6x Equity Value ($bn) $27.5 Equity Value ($bn) $30 Enterprise Value ($bn) $27.5 Enterprise Value ($bn) $31 ‘09E Dividend Yield 4.9% ‘10E Dividend Yield 4.7% Cap Rate 5.3% Cap Rate 5.0% '09E P/AFFO 20.5x '10E P/AFFO 21.4x '09E EV/EBITDA 19.3x '10E EV/EBITDA 20.3x

Targ

etC

orp

TIP

REI

T

Valuation Analysis – TIP REIT

TIP REIT Summary of Valuation Analysis: Today

117

Various methodologies imply a TIP REIT reference range of $25 – $30bn, or $35 – $42/share today

Valuation Range($25bn – $30bn)

Net Asset – 4.65% – 5.15% Dividend Yield on Existing Ground LeaseValue – Dividend Yield Based on Sum of CDS Spread and TIPS Yield(TIPS) – CY2008 Existing Dividends: $1,354mm

– 20-year DCF Analysis of Platform– 10.50% – 12.50% Discount Rate on Platform

Net Asset – 5.50% – 6.25% Cap Rate on Existing Ground LeaseValue – Cap Rate Range Based on Precedent Transactions

(Precedents) – CY2009 Existing NOI: $1,354mm– 20-year DCF Analysis of Platform– 10.50% – 12.50% Discount Rate on Platform

Discounted – 8.0% – 10.0% WACCCash Flow – 4.65% – 5.15% Terminal Cap Rate

Equity Value ($bn)Implied Multiples: ($mm) $25.0 $27.5 $30.0 CY2009 AFFO 1,344 18.6x 20.5x 22.3x CY2009 EBITDA 1,427 17.5x 19.3x 21.0x CY2009 Div. Yield 1,344 5.4% 4.9% 4.5% Cap Rate 1,462 5.8% 5.3% 4.9%

21.7

27.8

31.4

25.8

33.6

26.3

15.0 20.0 25.0 30.0 35.0 40.0

118

TIP REIT Summary Income Statement

(1) Normalized to exclude incremental interest expense due to CY2009 cash E&P distribution

Pro Forma Calendar Year, CAGR($mm, except as noted) CY2008 2009 2010 2011 2012 2013 '09 - '13

Gross TIP REIT Revenues from Ground-leased Store Land 1,325 1,398 1,501 1,645 1,811 2,004 9.4%Gross TIP REIT Revenues from Ground-leased DCs & WHs Land 44 46 48 51 55 59 6.3%

Total Gross TIP REIT Revenues 1,369 1,444 1,549 1,696 1,866 2,063 9.3%

Total TIP REIT Net Rental Revenues 1,369 1,444 1,549 1,696 1,866 2,063 9.3%% of Target Corp Retail Sales 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%

Plus: Facilities Management Income 144 144 155 170 187 207 Less: Facilities Management Expense (125) (125) (134) (147) (162) (180)

Net Facilities Management Income 19 19 20 22 24 27 9.5%

Net Operating Income 1,388 1,462 1,569 1,718 1,890 2,090 9.3%

Less: G&A Expense (20) (20) (21) (21) (22) (22) Less: Incremental G&A Cost (15) (15) (15) (16) (16) (17)

EBITDA 1,353 1,427 1,533 1,681 1,853 2,051 9.5%

Less: Depreciation & Amortization (42) (56) (68) (88) (111) (139) Less: Interest Expense (205) (188) (221) (316) (428) (559) Less: Taxes on Facilities Mgmt. Income 38% (7) (7) (8) (8) (9) (10)

Net Income 1,099 1,177 1,235 1,268 1,304 1,342 3.3%

Normalized Net Income (1) 1,211 1,289 1,331 1,364 1,400 1,438 2.8%

Ending Shares Outstanding 721.9 721.9 721.9 721.9 721.9 721.9 Earnings per Share $1.52 $1.63 $1.71 $1.76 $1.81 $1.86 3.3%

Normalized Earnings per Share (1) $1.68 $1.79 $1.84 $1.89 $1.94 $1.99 2.8%% AFFO

Dividends on Common 100.0% 1,141 1,232 1,304 1,356 1,415 1,481 4.7%Special Dividends - 1,600 - - - -

Normalized Dividends (1) 1,253 1,344 1,400 1,452 1,511 1,577 4.1%

Normalized Dividends per Share (1) $1.74 $1.86 $1.94 $2.01 $2.09 $2.18 4.1%

119

TIP REIT Summary Balance Sheet/CF Statement

Calendar Year,($mm, except as noted) 2009 2010 2011 2012 2013EBITDA 1,427 1,533 1,681 1,853 2,051 Less: Interest Expense (188) (221) (316) (428) (559) Less: Taxes on Facilities Mgmt. Income (7) (8) (8) (9) (10) Less: Development Capex (1,079) (1,008) (1,582) (1,863) (2,190) Total Free Cash Flow 154 295 (226) (447) (709)

Total Cash 3 3 3 3 3 Total Debt 2,682 3,690 5,272 7,135 9,325

Total Debt / EBITDA 1.9x 2.4x 3.1x 3.9x 4.5x

EBITDA / Interest Expense 7.6x 6.9x 5.3x 4.3x 3.7x

Total Debt / Total Real Estate Value 11.1% 14.2% 18.6% 22.9% 27.0%

Ending Shares Outstanding 722 722 722 722 722

120

TIP REIT Valuation Matrix

Set forth below is a valuation matrix that demonstrates TIP REIT’s trading multiples at various values within the reference range

Value per Share($mm) $34.50 $36.50 $38.09 $40.50 $42.50

Shares O/S

EQUITY VALUE 721.9 24,907 26,351 27,500 29,238 30,682

Multiples of: Metrics

CY 2009 FFO (1) 1,344 18.5x 19.6x 20.5x 21.7x 22.8x

CY 2010 FFO (1) 1,400 17.8x 18.8x 19.6x 20.9x 21.9x

CY 2011 FFO (1) 1,452 17.1x 18.1x 18.9x 20.1x 21.1x

CY 2009 AFFO (1) 1,344 18.5x 19.6x 20.5x 21.7x 22.8x

CY 2010 AFFO (1) 1,400 17.8x 18.8x 19.6x 20.9x 21.9x

CY 2011 AFFO (1) 1,452 17.1x 18.1x 18.9x 20.1x 21.1x

Dividend Yield Assuming Payout Ratio of:

80% of CY 2009 AFFO 1,076 4.3% 4.1% 3.9% 3.7% 3.5%

90% of CY 2009 AFFO 1,210 4.9% 4.6% 4.4% 4.1% 3.9%

100% of CY 2009 AFFO 1,344 5.4% 5.1% 4.9% 4.6% 4.4%

Implied Value: Implied Value of Land / Blended Sq. Ft. 225 $111 $117 $122 $130 $137

(1) Normalized to exclude incremental interest expense due to CY2009 cash E&P distributions

121

TIP REIT NAV (TIPS) Analysis

Existing Lease Valuation

Inflation-indexed rent growth allows for a “TIPS-like” risk/return

Dividend yield range based on theoretical analysis:TIPS yield of 3.00% + Target unsecured CDS of 1.65% – 2.15% = Total yield of 4.65% – 5.15%

Implied valuation at 4.65% – 5.15% dividend yield range2008E dividend: $1,354mmValuation range of $26bn – $29bn

Platform Valuation



The implied TIP REIT valuation range on TIPS-based NAV analysis is $26 –$31bn, or $36 – $44/share today

122

TIP REIT NAV (TIPS) Analysis (cont’d)

The implied TIP REIT valuation range on TIPS-based NAV analysis is $26 –$31bn, or $36 – $44/share today

($mm, except per share data) 2008

Rental Revenues - Store Land $1,325Rental Revenues - DCs & WHs Land 44Incremental Standalone Costs (15)Rental Revenues from Existing Ground Lease $1,354Dividend Yield 5.15% 4.65%

+ Present Value of Existing Ground Lease $26,300 $29,128TerminalValue (1)


––Existing Ground Lease $26,300 $29,128Platform Value – 2,293Implied Enterprise Value $26,300 $31,421Net Debt – – Implied Equity Value $26,300 $31,421Value per Share $36 $44


Existing Ground Lease

Platform Value

Total TIP REIT Value

123

TIP REIT NAV (Ground Lease Precedents) Analysis

Existing Lease Valuation

Cap rate range based on ground lease precedents: 5.50% – 6.25%

Implied valuation at 5.50% – 6.25% cap rate range2009E NOI: $1,354mmValuation range of $22bn – $25bn

Platform Valuation



The implied TIP REIT valuation range on Ground Lease Precedents-based NAV analysis is $22 – $26bn, or $30 – $36/share today

124

TIP REIT NAV (Ground Lease Precedents) Analysis (cont’d)

($mm, except per share data) 2009

Rental Revenues - Store Land $1,325Rental Revenues - DCs & WHs Land 44Incremental Standalone Costs (15)Rental Revenues from Existing Ground Lease $1,354Cap Rate 6.25% 5.50%

+ Present Value of Existing Ground Lease $21,671 $24,626TerminalValue (1)


––Existing Ground Lease $21,671 $24,626Platform Value – 1,138Implied Enterprise Value $21,671 $25,764Net Debt – – Implied Equity Value $21,671 $25,764Value per Share $30 $36


Existing Ground Lease

Platform Value

Total TIP REIT Value

The implied TIP REIT valuation range on Ground Lease Precedents-based NAV analysis is $22 – $26bn, or $30 – $36/share today

125

TIP REIT DCF Analysis

The implied TIP REIT valuation range based on DCF analysis is $28 – $34bn, or $39 – $47/share today

Projected Calendar Year, CAGR($mm) 2009 2010 2011 2012 2013 '09 - '13Rent (Cash) - Store Land 1,398 1,501 1,645 1,811 2,004 9.4%Rent (Cash) - DCs & WHs Land 46 48 51 55 59 6.3%Net Facilities Management Income 19 20 22 24 27 9.5%Less: G&A Expense (35) (36) (37) (38) (39) 2.5%EBITDA 1,427 1,533 1,681 1,853 2,051 9.5%

Less: Taxes on Facilities Mgmt. Income (7) (8) (8) (9) (10) 9.5%Less: Development Capex (1,079) (1,008) (1,582) (1,863) (2,190) 19.4%Less: Maintenance Capex - - - - - na UNLEVERED FREE CASH FLOWS 341 517 91 (19) (149) na

ILLUSTRATIVE VALUATION($ in millions, except per share amounts)Terminal NOI - Store Land ¹ 2,209 TerminalTerminal Cap Rate - Store Land 4.9% Store Discount RateTerminal Value - Store Land 45,072 Cap Rate 8.00% 9.00% 10.00%

5.15% 30,450 29,107 27,836 Terminal NOI - DCs & WHs Land ² 65 4.90% 31,939 30,529 29,195 Terminal Cap Rate - DCs & WHs Land 8.5% 4.65% 33,588 32,104 30,700 Terminal Value - DCs & WHs Land 764

Present Value of TV 29,791 Sum of Discounted Cash Flows (2009-2013) ³ 739 TerminalImplied Enterprise Value 30,529 Store Discount RateLess: Debt (01/01/09) - Cap Rate 8.00% 9.00% 10.00%Plus: Cash (01/01/09) - 5.15% 2.6 3.6 4.5 Implied Equity Value 30,529 4.90% 2.9 3.8 4.7

4.65% 3.1 4.1 5.0

(1) Assumes store land 2014E NOI growth equal to 9.4%: NOI includes store related net facilities management income(2) Assumes DCs & WHs land 2014E NOI growth equal to 6.3% NOI includes DCs & WHs related net facilities management income(3) Assumes mid-year convention(4) Normalized to exclude impact of development Capex in exit year

Implied Equity Value

Implied Perpetuity Growth Rate (%) ⁴

TIP REIT Valuation—12-Month Price Target

126

Various methodologies imply a TIP REIT reference range of $27.5 – $32.5bn, or $38 – $45/share 12 months from today

Valuation Range($27.5bn – $32.5bn)

Net Asset – 4.65% – 5.15% Dividend Yield on Existing Ground LeaseValue – Dividend Yield Based on Sum of CDS Spread and TIPS Yield(TIPS) – CY2009 Existing Dividends: $1,429mm

– 20-year DCF Analysis of Platform– 10.50% – 12.50% Discount Rate on Platform– Includes normalized dividends of $1,344mm in CY2009

Net Asset – 5.50% – 6.25% Cap Rate on Existing Ground LeaseValue – Cap Rate Range Based on Precedent Transactions

(Precedents) – CY2010 Existing NOI: $1,464mm– 20-year DCF Analysis of Platform– 10.50% – 12.50% Discount Rate on Platform– Includes normalized dividends of $1,344mm in CY2009

Discounted – 8.0% – 10.0% WACCCash Flow – 4.65% – 5.15% Terminal Cap Rate

– Includes normalized dividends of $1,344mm in CY2009

Equity Value ($bn)Implied Multiples: ($mm) $27.5 $30.0 $32.5 CY2010 AFFO 1,400 19.6x 21.4x 23.2x CY2010 EBITDA 1,533 18.6x 20.3x 21.9x CY2010 Div. Yield 1,400 5.1% 4.7% 4.3% Cap Rate 1,569 5.5% 5.0% 4.7%

23.7

31.2

33.3

28.0

37.4

28.0

17.5 22.5 27.5 32.5 37.5 42.5

Valuation Analysis – Target Corp

Trading Data – – 5.5–7.5x EBITDARetailers 1 – CY2009 EBITDA: $5,172mm

(EV/EBITDA) – Current Multiple is 6.0x

Trading Data – – 11.0–14.5x EPSRetailers 1 – CY2009 EPS: $2.23

(P/E) – Current Multiple is 11.8x

Trading Data – – 5 Year P/E of 15.9x and 5 Year EV/EBITDA of 8.2xTarget 5 Year Historical – CY2009 EPS: $2.23 and CY2009 EBITDA: $5,172mm

(P/E and EV/EBITDA) – Current P/E is 11.8x and current EV/EBITDA is 6.0x

Discounted – 9.0–11.0% WACCCash Flow – 6.0–7.0x Terminal EBITDA Multiple

($bn)

Equity Value 20.3 22.8 25.3Enterprise Value 31.3 33.8 36.3Share Price ($/Share) $28 $32 $35

'09 P/E 12.6x 14.2x 15.7x'10 P/E 10.6x 11.8x 13.1x

'09 PEG 0.7x 0.8x 0.9x'10 PEG 0.6x 0.7x 0.7x

'09 EV/EBITDA 6.0x 6.5x 7.0x(1) Based on 20-day average as of October 24, 2008 '10 EV/EBITDA 5.4x 5.9x 6.3x

17.7

25.6

26.4

27.8

23.4

31.5

35.4

17.5

15.0 25.0 35.0

Target Corp Summary Valuation Analysis: Today

Valuation Range($20.3bn–$25.3bn)

Equity Value ($bn)

128

The implied valuation range for Target Corp based on several methodologies outlined below is $20.3 – $25.3bn, or $28 – $35/share today

129

Target Corp Summary Income Statement

Projected Calendar Year, CAGR($mm) PF2008 2009E 2010E 2011E 2012E 2013E '09-'13Retail Sales 64,892 68,249 73,356 80,479 88,710 98,241 9.5%

Retail Sales Growth(%) 5.6% 5.2% 7.5% 9.7% 10.2% 10.7%

COGS (45,459) (47,777) (51,279) (56,177) (61,919) (68,563)Gross Margin (%) 29.9% 30.0% 30.1% 30.2% 30.2% 30.2%

SG&A (13,038) (13,814) (14,740) (16,093) (17,739) (19,646)SG&A as % of Sales 20.1% 20.2% 20.1% 20.0% 20.0% 20.0%

Retail EBITDAR 6,395 6,657 7,337 8,208 9,051 10,033Retail EBITDAR Margin (%) 9.9% 9.8% 10.0% 10.2% 10.2% 10.2%

Credit EBITDAR 143 150 161 177 195 216Incremental Facility Management Services Expense (19) (19) (20) (22) (24) (27) EBITDAR 6,519 6,789 7,478 8,363 9,221 10,222 10.8%

EBITDAR Margin (%) 10.0% 9.9% 10.2% 10.4% 10.4% 10.4%

Current Rent Expense 169 173 178 182 187 191Additional Rent Expense 1,369 1,444 1,549 1,696 1,866 2,063Pro Forma EBITDA 4,980 5,172 5,751 6,485 7,169 7,968 11.4%

EBITDA Margin (%) 7.7% 7.6% 7.8% 8.1% 8.1% 8.1%

Depreciation & Amortization 1,765 1,884 2,017 2,199 2,410 2,654Net Interest (Income) / Expense 515 673 611 531 509 623Income Tax Provision 1,037 1,004 1,199 1,441 1,632 1,802Net Income 1,663 1,611 1,924 2,312 2,618 2,890 15.7%

Net Income Margin (%) 2.6% 2.4% 2.6% 2.9% 3.0% 2.9%

Weighted Average Shares Outstanding 766 722 722 722 707 677Earnings per Share ($) $2.17 $2.23 $2.67 $3.20 $3.70 $4.27 17.6%

130

Target Corp Summary Balance Sheet/CF Statement

Significant Free Cash Flow generation allows Target Corp to de-leverage to 2.8x Lease Adj. Debt/EBITDAR

Projected Calendar Year,($mm) PF2008 2009E 2010E 2011E 2012E 2013EEBITDA 4,980 5,172 5,751 6,485 7,169 7,968Less: Interest Expense (515) (673) (611) (531) (509) (623)Less: Taxes (1,037) (1,004) (1,199) (1,441) (1,632) (1,802)Plus: Decrease in Net Working Capital 79 79 120 167 193 224Plus: Other 73 73 73 73 73 73Less: Maintenance Capex (1,714) (1,714) (1,827) (1,785) (1,968) (2,179)Maintenance Free Cash Flow 1,866 1,933 2,307 2,967 3,327 3,662Less: Growth Capex (1,112) (1,112) (1,023) (1,615) (1,902) (2,237)Total Free Cash Flow 754 821 1,284 1,352 1,424 1,425

Total Cash 500 682 734 805 887 982Total Debt 11,455 10,817 9,584 8,303 8,938 10,078

Lease Adj. Debt/EBITDAR 3.6x 3.5x 3.1x 2.8x 2.8x 2.8xDebt/EBITDA 2.3x 2.1x 1.7x 1.3x 1.2x 1.3xEBITDAR/(Interest+Rent) 3.2x 3.0x 3.2x 3.5x 3.6x 3.6xEBITDA/Interest 9.7x 7.7x 9.4x 12.2x 14.1x 12.8x

Ending Shares Outstanding 722 722 722 722 693 662Weighted Average Shares Outstanding 766 722 722 722 707 677

Value per ShareValuation Range ($mm) $28.00 $30.00 $31.58 $33.00 $35.00

Shares O/S

EQUITY VALUE 721.9 20,214 21,658 22,800 23,824 25,268

Net Debt (1/1/09) 10,955 10,955 10,955 10,955 10,955

ENTERPRISE VALUE 31,169 32,613 33,755 34,779 36,223

Multiples of: Metrics

CY 2008 EBITDA 4,980 6.3x 6.5x 6.8x 7.0x 7.3x

CY 2009 EBITDA 5,172 6.0x 6.3x 6.5x 6.7x 7.0x

CY 2010 EBITDA 5,751 5.4x 5.7x 5.9x 6.0x 6.3x

CY 2008 Earnings $2.17 12.9x 13.8x 14.5x 15.2x 16.1x



CY 2009 PEG 17.6% 0.7x 0.8x 0.8x 0.8x 0.9x

CY 2010 PEG 17.6% 0.6x 0.6x 0.7x 0.7x 0.7x

131

Target Corp Valuation Matrix

Set forth below is a valuation matrix that demonstrates Target Corp’s trading multiples at various stock prices

Trading Data For Other Retailers (1)

132

(1) As of October 24, 2008(2) Assumes 20-day average stock price, except for Target Corp (3) Assumes sale of credit card business for $4.4bn on 1/1/09 and uses proceeds to pay down debt(4) Implied multiples from midpoint of Target Corp valuation ($20.3bn–$25.3bn)(5) Represents 2009–2013 EPS CAGR(6) Excludes Target

EV/CY08E EV/CY09E EV/CY10E P/E Ratio PEG Ratio

Company name

Stock Price(2)

($)

% of 52wk High

Equity Value ($mm)

EV ($mm)

Sales(x)

EBITDA (x)

Sales (x)

EBITDA (x)

Sales(x)

EBITDA (x)

CY09E (x)

CY10E (x)

CY09E (x)

CY10E (x)

IBES LTG (%)

Total Debt/CY08E

EBITDA (x)

Adj. Debt/CY08E EBITDAR (x)

Target Standalone(3) 39.98 – 28,863 39,818 0.61 6.3 0.58 6.0 0.54 5.5 11.8 10.2 0.8 0.7 14.7(5) 1.8 2.0 Target Corp(4) 31.58 – 22,800 33,755 0.52 6.8 0.49 6.5 0.46 5.9 14.2 11.8 0.8 0.7 17.6(5) 2.3 3.6

Discounters Wal-Mart 54.91 86.0 216,168 255,900 0.63 8.4 0.58 7.8 0.55 7.4 14.4 13.0 1.3 1.2 11.0 1.5 1.8 Mean/Median 0.63 8.4 0.58 7.8 0.55 7.4 14.4 13.0 1.3 1.2 11.0 1.5 1.8 Supermarkets Kroger 26.08 84.2 17,196 24,618 0.32 6.2 0.30 5.8 0.28 5.6 12.3 11.2 1.4 1.2 9.0 1.9 2.8 Safeway 22.39 62.2 9,617 15,105 0.34 4.9 0.33 4.8 0.32 4.7 9.3 8.8 0.8 0.7 12.0 1.9 2.7 SUPERVALU 18.32 42.3 3,879 12,755 0.28 4.8 0.28 4.8 0.28 4.7 6.5 6.1 0.8 0.8 8.0 3.4 4.0 Whole Foods 15.67 30.7 2,198 3,013 0.37 5.8 0.34 5.2 0.31 4.9 14.1 11.2 0.9 0.7 16.0 1.6 3.4 Mean 0.33 5.4 0.31 5.2 0.30 5.0 10.6 9.3 1.0 0.9 11.3 2.2 3.2 Median 0.33 5.4 0.32 5.0 0.30 4.8 10.8 10.0 0.8 0.7 10.5 1.9 3.1 Department Stores Macy's 12.31 36.5 5,176 14,260 0.57 5.0 0.58 5.3 0.58 5.3 9.8 9.1 1.2 1.1 8.0 3.7 4.0 Kohl's 35.31 60.8 10,769 12,545 0.75 5.8 0.72 5.7 0.69 5.4 11.3 10.3 0.8 0.7 15.0 1.0 2.1 Sears 70.38 50.5 8,897 11,581 0.24 6.4 0.25 7.2 0.25 7.3 32.4 43.9 3.2 4.4 10.0 2.1 4.0 JCPenney 25.45 44.3 5,652 7,249 0.38 3.9 0.39 4.1 0.37 3.9 8.8 7.4 1.0 0.8 9.0 2.0 2.8 Mean 0.48 5.3 0.49 5.6 0.47 5.5 15.6 17.7 1.5 1.8 10.5 2.2 3.2 Median 0.47 5.4 0.48 5.5 0.48 5.4 10.5 9.7 1.1 1.0 9.5 2.1 3.4 Other Large Cap Retailers CVS 30.13 68.0 43,682 52,640 0.61 7.2 0.57 6.4 0.52 5.7 10.6 9.4 0.7 0.7 14.5 1.3 2.5 Home Depot 21.59 67.8 36,678 47,282 0.65 6.5 0.66 6.7 0.64 6.0 13.2 11.1 1.1 0.9 12.0 1.6 2.3 Lowe's 19.85 69.7 29,089 33,699 0.69 6.1 0.68 6.1 0.64 5.5 13.6 11.5 1.0 0.9 14.0 1.0 1.4 Walgreens 25.63 63.4 25,369 26,346 0.43 6.0 0.40 5.5 0.37 5.0 10.6 9.5 0.8 0.7 13.5 0.3 2.4 Costco 57.95 77.0 25,310 24,463 0.33 9.2 0.30 8.4 0.28 8.0 17.8 15.9 1.4 1.2 12.9 0.9 1.3 Staples 18.08 68.0 12,936 17,200 0.72 8.2 0.61 7.1 0.58 6.5 11.5 9.7 0.8 0.7 14.0 2.1 3.5 Best Buy 28.42 52.7 11,718 14,589 0.32 5.1 0.29 4.8 0.26 4.5 9.0 8.0 0.8 0.7 12.0 0.9 2.4 TJX 27.43 73.1 11,686 12,023 0.61 6.1 0.59 5.9 0.55 5.5 11.5 10.2 0.9 0.8 13.0 0.4 2.8 BJ's 35.16 79.4 2,108 1,994 0.20 6.2 0.18 6.0 0.17 5.7 15.4 13.9 1.5 1.4 10.0 0.0 2.5 Mean 0.51 6.7 0.47 6.3 0.45 5.8 12.6 11.0 1.0 0.9 12.9 1.0 2.3 Median 0.61 6.2 0.57 6.1 0.52 5.7 11.5 10.2 0.9 0.8 13.0 0.9 2.4

Mean(6) 0.47 6.2 0.45 6.0 0.42 5.6 12.9 12.2 1.1 1.1 11.9 1.5 2.7 Median(6) 0.41 6.1 0.39 5.9 0.37 5.5 11.5 10.2 0.9 0.8 12.0 1.5 2.6 High(6) 0.75 9.2 0.72 8.4 0.69 8.0 32.4 43.9 3.2 4.4 16.0 3.7 4.0 Low(6) 0.20 3.9 0.18 4.1 0.17 3.9 6.5 6.1 0.7 0.7 8.0 0.0 1.3

133

Implied Valuation Based on Other Retailers

The implied Target Corp valuation range based on other publicly traded retailers is $18 – $28bn, or $24 – $39/share today

2009E 2009EMultiple Metric ($mm) Multiple Range Implied Value ($bn)

EV/EBITDA 5,172 5.5x – 7.5x 17.5 – 27.8

P/E $2.23 11.0x – 14.5x 17.7 – 23.4

Implied Reference Range

32.4

17.815.4 14.4 13.2 12.3 11.5 10.6 9.8 9.3 9.0 8.8

6.5

11.8(3) 11.5 11.314.2(2)

13.610.6

14.1

0

5

10

15

20

25

30

35

Sears Costco BJ's Wal-Mart WholeFoods

Lowe's HomeDepot

Kroger Staples TJX Kohl's CVS Walgreens Macy's Safeway Best Buy JCPenney

Average(4) = 12.9

8.4 7.87.2 7.1 6.7 6.4 6.1 6.0 5.9 5.5 5.3 5.2 4.8 4.8 4.8

4.1

6.0(3) 5.8 5.76.5(2)

0

4

8

12

Costco Wal-Mart Sears Staples HomeDepot

CVS Lowe's BJ's TJX Kroger Kohl's Walgreens Macy's WholeFoods

Best Buy Safeway

Average(4) = 6.0

134

Target Corp Comparable Companies-Trading Multiples(1)

2009E EV/EBITDA Multiples (x)

2009E P/E Multiples (x)

(1) As of October 24, 2008(2) Implied multiple from midpoint of Target Corp valuation ($20.3bn–$25.3bn)(3) Represents fiscal year ending January(4) Excludes Target

Standalone

Target is currently trading near the midpoint of its peer group

Corp

StandaloneCorp

SUPERVALU

SUPERVALU

JCPenney

Projected Calendar Year,($mm) 2009E 2010E 2011E 2012E 2013EEBITDA 1 5,172 5,751 6,485 7,169 7,968 Less: Depreciation and Amortization (1,884) (2,017) (2,199) (2,410) (2,654) EBIT 3,288 3,735 4,285 4,759 5,314 Less: Taxes @ 38% (1,262) (1,434) (1,645) (1,827) (2,041) After-Tax EBIT 2,025 2,301 2,640 2,931 3,274 Plus: Depreciation and Amortization 1,884 2,017 2,199 2,410 2,654 Less: Net Capital Expenditures (2,826) (2,850) (3,400) (3,870) (4,416) Plus: Decrease in Working Capital 79 120 167 193 224 UNLEVERED FREE CASH FLOWS 1,162 1,588 1,606 1,665 1,736

ILLUSTRATIVE VALUATION($ in millions, except per share amounts)Terminal EBITDA 2 8,824 Terminal Discount RateTerminal EV/EBITDA Multiple 6.5x Multiple 9.00% 10.00% 11.00% Terminal Value 57,357 6.0x 29,668 27,993 26,404 Present Value of TV 3 35,614 6.5x 32,536 30,732 29,022 Sum of Discounted Cash Flows (2009-2013) 3 6,073 7.0x 35,403 33,472 31,641 Implied Enterprise Value 41,687 Less: Debt (1/1/09) 4 (11,455) Plus: Cash (1/1/09) 4 500 Implied Equity Value 30,732 Terminal Discount Rate

Multiple 9.00% 10.00% 11.00%6.0x 2.4 3.3 4.2 6.5x 2.9 3.8 4.7

Notes: 7.0x 3.3 4.2 5.1 1 Assumes sale of remaining 53% interest on credit card receivables for $4.4bn; ongoing royalty stream of $150mm2 Assumes 2014E EBITDA growth equal to 2013E growth3 Assumes mid-year convention4 Assumes $4.4bn of proceeds from sale of remaining 53% interest on credit card receivables used to pay down debt 5 Assumes capital expenditures equal to depreciation and amortization in perpetuity

Implied Equity Value

Implied Perpetuity Growth Rate (%) 5

135

Target Corp Discounted Cash Flow Analysis

The implied Target Corp valuation range based on DCF analysis is $26 – $35bn, or $37 – $49/share today

Trading Data – – 6.0–8.0x EBITDARetailers – CY2010 EBITDA: $5,751mm

(EV/EBITDA) – Current Multiple is 6.0x

Trading Data – – 13.0–16.0x EPSRetailers – CY2010 EPS: $2.67

(P/E) – Current Multiple is 11.8x

Trading Data – – 5 Year P/E of 15.9x and 5 Year EV/EBITDA of 8.2xTarget 5 Year Historical – CY2010 EPS: $2.67 and CY2010 EBITDA: $5,751mm

(P/E and EV/EBITDA) – Current P/E is 11.8x and current EV/EBITDA is 6.0x

Discounted – 9.0–11.0% WACCCash Flow – 6.5–7.5x Terminal EBITDA Multiple

($bn)

Equity Value 27.5 30.0 32.5Enterprise Value 37.6 40.1 42.6Share Price ($/Share) $38 $42 $45

'10 P/E 14.3x 15.6x 16.9x

'10 PEG 0.8x 0.9x 1.0x

'10 EV/EBITDA 6.5x 7.0x 7.4x

25.0

30.6

33.0

35.9

30.8

37.0

42.3

24.4

22.0 27.0 32.0 37.0 42.0

Target Corp—12-Month Price Target

Valuation Range($27.5bn–$32.5bn)

Equity Value ($bn)

136

The implied valuation range for Target Corp based on several methodologies outlined below is $27.5 – $32.5bn, or $38 – $45/share 12 months from today

Credit Rating Analysis

138

Maintains Investment Grade Credit Rating

Target Corp and TIP REIT will have integrated, mutually dependent business modelsVast majority of TIP REIT revenues will be based on Target Corp land leases for many yearsLease arrangements and large size of land portfolio lead to high correlation of credit quality between TIP REIT and Target Corp TIP REIT will also provide facility management services to Target Corp

Target Corp and TIP REIT will be separate legal entities with common public ownership at the onset; shareholder base expected to diverge over time due to differing business profiles of the two entities

Based on this structure, we believe that the Rating Agencies will adopt one of either two possible analytical approaches for their analysis of Target Corp and TIP REIT:

a ‘Consolidated’ analysis of the combined group/system, or

a ‘De-consolidated’ analysis of the two separate entities on a standalone basis, but with some linkageA ‘Consolidated’ approach is supported by the integrated, economically inter-twined business relationship between Target Corp as lessor and TIP REIT as landownerA ‘De-consolidated’ approach is supported by the fact that the companies will be separate legal entities with no common ownership, except for shareholders initiallyAgencies may not unanimously take the same analytical approach when assessing Target Corp and TIP REIT profile

Leading to potential for one or more agency taking a ‘consolidated’ approach and another taking a ‘de-consolidated’ approach

We believe the Rating Agencies will adopt one of two possible analytical approaches when assessing the credit profiles of the ‘new’ Target Corp and TIP REIT – ‘Consolidated’ vs. ‘De-consolidated’

139

Maintains Investment Grade Credit Rating (cont’d)

Regardless of the analytical approach adopted by the Agencies, we believe that Target Corp will maintain Investment Grade credit ratings

Under a ‘Consolidated’ methodology, Agencies are expected:

To review metrics of the consolidated group where lease payments between Target Corp and TIP REIT are expected to ‘cancel out’

To assign the consolidated group’s rating to both Target Corp and TIP REIT

Under a ‘De-consolidated’ methodology, Agencies are expected:

To review Target Corp and TIP REIT independently

To assign independent ratings to both Target Corp and TIP REIT, although we anticipate that there will be some ratings linkage between the two

Regardless of the analytical approach, we believe:Target Corp will maintain solid Investment Grade credit ratings

Between Mid-High BBB/Baa to A-/A3TIP REIT will achieve Investment Grade credit ratings

Under any scenario, we anticipate that Target Corp will generate significant free cash flows with ability to deleverage to credit metrics supportive of stronger Investment Grade ratings over the near to intermediate term

Structural and Legal Considerations

Land Development / Procurement

Immediately after spin-off, TIP REIT enters into a two-year exclusive agreement to develop land for Target Corp

Afterwards, Target Corp will have a Preferred Vendor Agreement with TIP REIT

It is anticipated that TIP REIT will act as the land procurement developer for Target Corp

Target Corp will notify TIP REIT when it identifies a place to build a store and will inquire about TIP REIT’s interest in providing land procurement development services for the specified area (assembling, clearing and entitling one or more parcels of land)

If TIP REIT expresses interest, the parties will discuss terms over a standard period (e.g. 10+ days); upon reaching terms, TIP REIT will commence land procurement development services

If TIP REIT decides not to pursue the opportunity offered by Target Corp, or the parties do not agree upon terms within the specified standard period, Target Corp may secure the services of another party or undertake the land procurement development services on its own

Set forth below is an illustrative example of how Target Corp and TIP REIT can work together on future land procurement

141

Land Development / Procurement (cont’d)

Target Corp will have the right to purchase land for the store directly, but in that case Target Corp must notify TIP REIT to determine whether TIP REIT wishes to purchase the land from Target Corp and lease it back to Target Corp

If TIP REIT expresses interest and agrees on market terms within the specified standard period, TIP REIT will purchase the land from Target Corp, clear and entitle it and lease it back to Target Corp on the agreed terms

Target Corp will be under no obligation to accept any terms if it determines in good faith that doing so would not be in the best interest of Target Corp and its shareholders

The agreement will contain customary confidentiality and standstill provisions that will prevent TIP REIT from misusing the information that Target Corp is looking to build a particular site

After the fifth anniversary of the spin-off, either TIP REIT or Target Corp may terminate the Preferred Vendor Agreement

Store development: Target Corp will retain its store development function and will be solely responsible for developing its owned stores

142

143

Property Transfer Taxes

Transfer of property to TIP REIT may be subject to property transfer tax

Tax imposed at the state and local level in jurisdictions where property is located

Rate of tax will vary among the jurisdictions

Transfer may qualify for an exemption in some jurisdictions whereby beneficial ownership of property is deemed unchanged

In some states such as California, the transfer may trigger a reassessment of the property value which would impose higher ongoing property taxes

Supporting Data

145

Store–level ROICP&L Data: ($mm)

Standalone 2007A

Pro Forma 2007A

Retail Sales $61,471 $61,471 Retail Gross Margin 19,576 19,576 Retail EBIT $4,213 $4,213 Plus: Advertising (50% of Consolidated) 598 598 Plus: Buying Group Expense and Occupancy Expense 1,321 1,321 Less: Incremental Ground Lease Rent (Stores) -- (1,235) (1) Less: Incremental Ground Lease Rent (DCs & WHs) -- (46) (2) Plus: Estimated Corporate G&A 615 615 % of Revenues 1.0% 1.0% Plus: Estimated Distribution Center Costs 2,459 2,505 % of Revenues 4.0% 4.1% Estimated Four-Wall Retail EBIT $9,040 $7,970

Store Level Operating Data and Assumptions: ($mm)

Standalone 2007A

Pro Forma 2007A

Retail Sales per Avg. Store $39.9 $39.9 Memo: Avg. # of Stores 1,540 1,540 Estimated Four-Wall Operating Costs per Avg. Store $33.9 $34.7 Ground Lease Expense per Avg. Store -- 1 Estimated Four-Wall EBIT per Avg. Store $6.0 $5.2 Margin 15.0% 13.0% New Land Capex $13 -- New Building Capex 13 13 Total Investment $26 $13 Est. Pre-Tax Unlevered Returns on Investment 23.0% 39.8%

(1) Assumes $1.2bn of ground lease rent expense from stores, based on $7/sq. ft. lease cost, 131k of square footage per store and 1,350 stores, on average; implying a cap rate of 7.0%(2) Assumes $46mm of ground lease rent expense from DCs & WHs, based on $1.25/sq. ft. lease cost, 1.4mm of square footage per DC & WH and 26 DCs & WHs, on average

Triple Net Lease REIT Tenants: Detailed Review

146

% of Adj. Debt/ LTM EBITDA/ LTM EBIT/ Yield ³ Tenant Revenue Industry Moody's / S&P ¹ LTM EBITDAR ² (x) Interest (x) ² Interest (x) ² (%) Commentary

Buffets 6 Restaurant WR / NR 9.8 0.8 0.3 In default ♦ March 31, 2008: Buffets auditor raises "going concern" doubt

♦ January 22, 2008: Buffets files for bankruptcy

Kerasotes ShowPlace Theatres 5 Movie Theater B1/ B- na na na na ♦ Moody’s does not expect Kerasotes to become free cash flow positive until after 2009

The Pantry (NASDAQ: PTRY)

4 Convenience Store WR / B+ 6.5 4 2.4 1.2 14.5 ♦ July 17, 2008: Moody's downgrades Pantry's Corporate Family Rating to B2 and assigned a negative rating outlook.

♦ April 9, 2008: Merrill Lynch reduces its investment rating on The Pantry to “Sell”

La Petite Academy 4 Education Services WR/NR na na na na ♦ June 26, 2008: Morgan Stanley Private Equity acquires a 60% stake in Learning Care Group Inc., the parent company of La Petite Academy

Children's World 4 Education Services na / na na na na na ♦ na

% of Adj. Debt/ LTM EBITDA/ LTM EBIT/ Yield ³ Tenant Gross Assets Industry Moody's / S&P ¹ LTM EBITDAR (x) Interest (x) Interest (x) (%) Commentary

The Pantry (NASDAQ: PTRY) 11 Convenience Store WR / B+ 6.5 4 2.4 1.2 14.5 ♦ See above

Circle K – Susser Holdings (NASDAQ: SUSS) 9 Convenience Store B3 / B+ 6.1 2.7 1.4 14.3 ♦ August 6, 2008: Susser reports earnings; Free Cash Flow for Susser Holdings deteriorates 19.1%

Kerasotes ShowPlace Theatres 5 Movie Theater B1/ B- na na na na ♦ See above

Mister Car Wash 4 Conveyor Car Wash na / na na na na na

Road Ranger 4 Convenience Store na / na na na na na

% of Total Adj. Debt/ LTM EBITDA/ LTM EBIT/ Yield ³ Tenant GLA Industry Moody's / S&P ¹ LTM EBITDAR (x) Interest (x) Interest (x) (%) Commentary

AMC Entertainment 51 Movie Theater WR / NR 6.4 2.6 0.9 14.1

Regal (NYSE: RGC) 7 Movie Theater B2 / BB- 5.7 4.3 2.7 10.7

Rave Motion Pictures 6 Movie Theater na / na na na na na

Consolidated Theaters 5 5 Movie Theater na / na na na na na

Muvico 3 5 Movie Theater na / na na na na na

♦ Real industry revenue is expected to decline at an average annual rate of 1.8% over the next 5 years

♦ The industry is in a mature phase of its development, as witnessed by the recent significant operator site and screen consolidation process associated with the filing for Chapter 11 Bankruptcy protection by most major operators in the early 2000s.

Source: Company filings and Wall Street research (1) Bloomberg as of October 24, 2008 (2) Company filings (3) Yield to Maturity of the most liquid security with the largest outstanding amount based on Interactive Data (4) Rent Expense as of last fiscal year reported (5) Wall Street research as of May 5, 2008

146

Model – Standalone

148

Standalone Model – Income StatementStatus Status

Quo Quo Credit Card Pro Forma Calendar Year, CAGR($mm) CY2007 CY2008 Adj. CY2008 2009 2010 2011 2012 2013 '09 - '13Retail Sales 61,471 64,892 64,892 68,249 73,356 80,479 88,710 98,241 9.5%

Base Sales Growth (%) 5.2% 7.5% 9.7% 10.2% 10.7%Credit Revenue 1,896 2,078 (1,936) 143 150 161 177 195 216 9.5%

Credit Sales Growth 5.2% 7.5% 9.7% 10.2% 10.7%Total Revenue 63,367 66,970 65,034 68,399 73,517 80,655 88,905 98,457 9.5%

Total Revenue Growth 5.2% 7.5% 9.7% 10.2% 10.7%

COGS 42,929 45,459 45,459 47,777 51,279 56,177 61,919 68,563% of Retail Sales 69.8% 70.1% 70.1% 70.0% 69.9% 69.8% 69.8% 69.8%

SG&A (excluding D&A and Rent Expense) 12,392 13,058 13,058 13,834 14,761 16,115 17,761 19,668% of Retail Sales 20.2% 20.1% 20.1% 20.3% 20.1% 20.0% 20.0% 20.0%

Credit Expenses 950 1,460 (1,460) - - - - - - % of Credit Revenue 50.1% 70.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Retail EBITDAR 6,150 6,375 6,375 6,637 7,316 8,187 9,029 10,011 10.8%Retail EBITDAR Margin (%) 10.0% 9.8% 9.8% 9.7% 10.0% 10.2% 10.2% 10.2%

Credit EBITDAR 946 619 (476) 143 150 161 177 195 216 9.5%Credit EBITDAR Margin (%) 49.9% 29.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

EBITDAR 7,096 6,993 6,517 6,787 7,478 8,364 9,224 10,227 10.8%EBITDAR Margin (%) 11.2% 10.4% 10.0% 9.9% 10.2% 10.4% 10.4% 10.4%

Rent Expense 165 169 169 173 178 182 187 191EBITDA 6,931 6,824 6,348 6,614 7,300 8,182 9,038 10,036 11.0%

EBITDA Margin (%) 10.9% 10.2% 9.8% 9.7% 9.9% 10.1% 10.2% 10.2%

Depreciation & Amortization 1,659 1,807 1,807 1,940 2,085 2,288 2,522 2,793% of Retail Sales 2.7% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8%

Operating Income 5,272 5,017 4,541 4,674 5,215 5,894 6,516 7,243 11.6%

Net Interest (Income) / Expense 647 995 555 694 722 798 897 1,003Income Tax Provision 1,776 1,483 1,469 1,528 1,725 1,957 2,158 2,396

Tax Rate (%) 38% 37% 37% 38% 38% 38% 38% 38%Net Income 2,849 2,539 2,517 2,452 2,767 3,139 3,461 3,844 11.9%

Net Income Margin (%) 4.5% 3.8% 3.9% 3.6% 3.8% 3.9% 3.9% 3.9%

Current Diluted Shares Outstanding 882.6 819.0 819.0 721.9 720.4 697.3 677.3 659.1Shares Repurchase (63.7) (97) (97.0) (1.6) (23.1) (20.0) (18.2) (14.0)Share Repurchase from Options 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Shares Outstanding 819.0 721.9 721.9 720.4 697.3 677.3 659.1 645.2Weighted Average Shares Outstanding 850.8 765.9 765.9 721.1 708.8 687.3 668.2 652.2

Earnings per Share ($) $3.33 $3.32 $3.29 $3.40 $3.90 $4.57 $5.18 $5.89 6.71 14.7%

149

Standalone Model – Balance Sheet

Status Status

Quo Quo Pro Forma Calendar Year,

($mm) CY2007 CY2008 Adj. CY2008 2009 2010 2011 2012 2013

Cash & Equivalents 2,450 500 0 500 607 653 716 790 874

Trade Receivables 8,054 8,383 (8,383) - - - - - -

Other Current Assets 8,402 9,232 9,232 9,710 10,436 11,450 12,621 13,977

Property, Plant & Equipment, gross 31,982 35,734 35,734 39,639 43,497 48,479 54,212 60,817

Accumulated Depreciation (7,887) (9,350) (9,350) (11,290) (13,375) (15,663) (18,185) (20,977)

Property, Plant & Equipment, net 24,095 26,384 26,384 28,348 30,122 32,816 36,027 39,840

Other Non-Current Assets 1,559 1,368 1,368 1,368 1,368 1,368 1,368 1,368

Total Assets 44,560 45,867 37,484 40,033 42,579 46,350 50,805 56,059

Debt 17,090 19,455 (8,000) 11,455 11,455 12,455 13,955 15,705 17,455

Other Current Liabilities 9,818 10,757 10,757 11,313 12,160 13,340 14,705 16,285

Other Non-Current Liabilities 2,345 2,392 2,392 2,392 2,392 2,392 2,392 2,392

Total Liabilities 29,253 32,604 24,604 25,160 27,007 29,687 32,802 36,132

Total Equity 15,307 13,264 (383) 12,880 14,873 15,572 16,663 18,004 19,927

Total Equity & Liabilities 44,560 45,867 37,484 40,033 42,579 46,350 50,805 56,059

150

Standalone Model – Cash Flow Statement

Calendar Year,($mm) 2009 2010 2011 2012 2013EBITDA 6,614 7,300 8,182 9,038 10,036

less: Interest Expense (694) (722) (798) (897) (1,003)

less: Taxes (1,528) (1,725) (1,957) (2,158) (2,396)

Share-based Compensation 73 73 73 73 73

less: Increase in Net Working Capital 79 120 167 193 224

less: Increase Funding of CC Growth 0 0 0 0 0

Cash Flow from Operating Activities 4,544 5,045 5,667 6,249 6,933

Capital Expenditures (3,905) (3,858) (4,982) (5,732) (6,605)

Cash Flow from Investing Activities (3,905) (3,858) (4,982) (5,732) (6,605)

Issuance of Debt 0 1,000 1,500 1,750 1,750

Repayment of Debt 0 0 0 0 0

Issuance of Equity / (Buy Back) (99) (1,688) (1,654) (1,713) (1,498)

Issuance of Dividends to Common (433) (454) (467) (481) (496)

Cash Flow from Financing Activities (532) (1,142) (621) (444) (243)

Beginning Cash Balance 500 607 653 716 790

Change in Cash 107 45 63 73 85

Ending Cash Balance 607 653 716 790 874

Average Cash Balance 554 630 685 753 832

Interest Income 3.0% 17 19 21 23 25

151

Standalone Model – Build-ups and Credit Metrics

StatusQuo Pro Forma Calendar Year,

Sales Buildup CY2007 CY2008 2009 2010 2011 2012 2013Square Feet (mm) 208 222 232 241 256 273 292

$ / Sq. Ft. 296 293 294 304 314 325 337

Retail Sales 61,471 64,892 68,249 73,356 80,479 88,710 98,241

Implied Retail Sales Growth (%) 5.6% 5.2% 7.5% 9.7% 10.2% 10.7%

Sq. Footage Growth (%) 6.6% 4.7% 4.1% 6.0% 6.5% 7.0%

SSS Growth (%) (0.9%) 0.5% 3.3% 3.5% 3.5% 3.5%

CapEx Buildup 2007 2008 2009 2010 2011 2012 2013Total System CapEx 4,369 4,112 3,905 3,858 4,982 5,732 6,605

CapEx as % of Retail Sales 7.1% 6.3% 5.7% 5.3% 6.2% 6.5% 6.7%

Status StatusQuo Quo Pro Forma

Credit Metrics CY2007 CY2008 CY2008Lease Adjusted Debt 8 x 1,320 1,353 1,353 1,387 1,421 1,457 1,493 1,531

Actual Debt 17,090 19,455 11,455 11,455 12,455 13,955 15,705 17,455

Total Lease Adjusted Debt 18,410 20,808 12,808 12,842 13,876 15,412 17,198 18,986

Total Lease Adjusted Debt/EBITDAR 2.6 x 3.0 x 2.0 x 1.9 x 1.9 x 1.8 x 1.9 x 1.9 x

Total Debt / EBITDA 2.5 x 2.9 x 1.8 x 1.7 x 1.7 x 1.7 x 1.7 x 1.7 x

EBITDAR / (Interest + Rent) 8.7 x 6.0 x 9.0 x 7.8 x 8.3 x 8.5 x 8.5 x 8.6 x

EBITDA / Interest 10.7 x 6.9 x 11.4 x 9.5 x 10.1 x 10.3 x 10.1 x 10.0 x

Model – TIP REIT

153

TIP REIT Model – Income StatementPro Forma Calendar Year, CAGR

($mm, except as noted) CY2008 2009 2010 2011 2012 2013 '09 - '13Gross TIP REIT Revenues from Ground-leased Store Land 1,325 1,398 1,501 1,645 1,811 2,004 9.4%Gross TIP REIT Revenues from Ground-leased DCs & WHs Land 44 46 48 51 55 59 6.3%

Total Gross TIP REIT Revenues 1,369 1,444 1,549 1,696 1,866 2,063 9.3%

Total TIP REIT Net Rental Revenues 1,369 1,444 1,549 1,696 1,866 2,063 9.3%% of Target Corp Retail Sales 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%


Net Facilities Management Income 19 19 20 22 24 27 9.5%

Net Operating Income 1,388 1,462 1,569 1,718 1,890 2,090 9.3%

Less: G&A Expense (20) (20) (21) (21) (22) (22) Less: Incremental G&A Cost (15) (15) (15) (16) (16) (17)

EBITDA 1,353 1,427 1,533 1,681 1,853 2,051 9.5%

Less: Depreciation & Amortization (42) (56) (68) (88) (111) (139) Less: Interest Expense (205) (188) (221) (316) (428) (559) Less: Taxes on Facilities Mgmt. Income 38% (7) (7) (8) (8) (9) (10)

Net Income 1,099 1,177 1,235 1,268 1,304 1,342 3.3%

Normalized Net Income (1) 1,211 1,289 1,331 1,364 1,400 1,438 2.8%

Ending Shares Outstanding 721.9 721.9 721.9 721.9 721.9 721.9 Earnings per Share $1.52 $1.63 $1.71 $1.76 $1.81 $1.86 3.3%

Normalized Earnings per Share (1) $1.68 $1.79 $1.84 $1.89 $1.94 $1.99 2.8%% AFFO

Dividends on Common 100.0% 1,141 1,232 1,304 1,356 1,415 1,481 4.7%Special Dividends - 1,600 - - - -

Normalized Dividends (1) 1,253 1,344 1,400 1,452 1,511 1,577 4.1%

Normalized Dividends per Share (1) $1.74 $1.86 $1.94 $2.01 $2.09 $2.18 4.1%


154

TIP REIT Model – Balance Sheet

Pro Forma Calendar Year, CAGR($mm, except as noted) CY2008 2009 2010 2011 2012 2013 '09 - '13Real Estate:

Gross Existing Properties - Land & Improvements 12,228 12,228 12,228 12,228 12,228 12,228 Maintenance Capex - - - - - Development Properties - Land & Improvements 1,079 2,087 3,669 5,532 7,722 Accumulated Depreciation (846) (901) (970) (1,058) (1,169) (1,308)

Net Real Estate Asset 11,382 12,405 13,345 14,839 16,590 18,641

Cash - 3 3 3 3 3

Total Assets 11,382 12,408 13,348 14,842 16,593 18,644 10.7%

Debt:Revolver - 3 3 3 3 3 New Debt - 2,679 3,687 5,269 7,132 9,322

Total Debt - 2,682 3,690 5,272 7,135 9,325

Common Equity 11,382 11,382 11,382 11,382 11,382 11,382 Retained Earnings (Deficit) (1,656) (1,724) (1,812) (1,924) (2,063) Total Equity 11,382 9,727 9,658 9,570 9,459 9,320

Total Liabilities & Equity 11,382 12,408 13,348 14,842 16,593 18,644 10.7%

155

TIP REIT Model – Cash Flow Statement

Calendar Year, CAGR($mm, except as noted) 2009 2010 2011 2012 2013 '09 - '13Cash Flow from Operating Activities:

EBITDA 1,353 1,427 1,533 1,681 1,853 2,051 Less: Interest Expense (205) (188) (221) (316) (428) (559) Less: Taxes on Facilities Mgmt. Income (7) (7) (8) (8) (9) (10)

Net Cash Flow from Operating Activities 1,141 1,232 1,304 1,356 1,415 1,481 4.7%

Cash Flow from Investing Activities:Development Capex (1,079) (1,008) (1,582) (1,863) (2,190) Maintenance Capex - - - - -

Net Cash Flow from Investing Activities (1,079) (1,008) (1,582) (1,863) (2,190) 19.4%

Cash Flow from Financing Activities:Debt Financing:Increase (Decrease) in Revolver 3 - - - - Increase (Decrease) in New Debt 2,679 1,008 1,582 1,863 2,190 Equity Financing:Increase (Decrease) in Common Equity - - - - - Dividends on Common (1,141) (1,232) (1,304) (1,356) (1,415) (1,481) Special Dividends (1,600) - - - -

Net Cash Flow from Financing Activities (151) (295) 226 447 709

Beginning Cash Balance - 3 3 3 3 Net Change in Cash 3 - - - - Ending Cash Balance - 3 3 3 3 3

156

TIP REIT Model – Rent Build-upPro Forma Calendar Year, CAGR

Assumptions ($mm, except as noted): CY2008 2009 2010 2011 2012 2013 '09 - '13Total Combined Stores - Sq. Ft. Count

Owned Stores 1,438 189 200 209 224 240 259 Combined (Ground-leased) Stores 172 23 23 23 23 23 23 Third-party Leased Stores 73 10 10 10 10 10 10

Total Combined Stores Square Footage 222 232 241 256 273 292 5.9%Total Combined Stores Square Footage Growth 4.7% 4.1% 6.0% 6.5% 7.0%

TIP REIT Stores - Sq. Ft. CountOwned Stores 1,438 Yes 189 200 209 224 240 259

Total TIP REIT Stores Square Footage 189 200 209 224 240 259 6.8%Total TIP REIT Stores Square Footage Growth 5.4% 4.8% 6.9% 7.4% 7.9%

Total Combined DCs & WHs - Sq. Ft. CountOwned DCs & WHs 25 35 37 37 39 41 43 Combined (Ground-leased) DCs & WHs 1 1 1 1 1 1 1 Third-party Leased DCs & WHs 5 7 7 7 7 7 7

Total Combined DCs & WHs Square Footage 44 45 46 47 49 51 3.1%Total DCs & WHs Sq. Ft. vs. Total Combined Stores Sq. Ft. 19.7% 19.5% 19.0% 18.5% 18.0% 17.5%

TIP REIT DCs & WHs - Sq. Ft. CountOwned DCs & WHs 25 Yes 35 37 37 39 41 43

Total TIP REIT DCs & WHs Square Footage 35 37 37 39 41 43 3.7%Total TIP REIT DCs & WHs Square Footage Growth 4.4% 1.8% 3.9% 4.4% 4.9%

Rent / Square Foot - Store Land $7.00 $7.00 $7.18 $7.35 $7.54 $7.73CPI Growth 2.5% 2.5% 2.5% 2.5% 2.5%

Average Growth 2.5% 2.5% 2.5% 2.5% 2.5%

TIP REIT Revenues from Ground-leased Land 1,325 1,398 1,501 1,645 1,811 2,004 9.4%

Rent / Square Foot - DCs & WHs Land $1.25 $1.25 $1.28 $1.31 $1.35 $1.38CPI Growth 2.5% 2.5% 2.5% 2.5% 2.5%

Average Growth 2.5% 2.5% 2.5% 2.5% 2.5%

TIP REIT Revenues from Ground-leased DCs & WHs 44 46 48 51 55 59 6.3%

Total TIP REIT Gross Revenues 1,369 1,444 1,549 1,696 1,866 2,063 9.3%

157

TIP REIT Model – FFO & AFFO Reconciliations, Credit Statistics and Implied Metrics


Pro Forma Calendar Year, CAGRFFO & AFFO Reconciliations: CY2008 2009 2010 2011 2012 2013 '09 - '13Net Income 1,099 1,177 1,235 1,268 1,304 1,342

Plus: Depreciation & Amortization 42 56 68 88 111 139 Funds from Operations 1,141 1,232 1,304 1,356 1,415 1,481 4.7%

Ending Shares Outstanding 721.9 721.9 721.9 721.9 721.9 721.9 FFO / Share $1.58 $1.71 $1.81 $1.88 $1.96 $2.05 4.7%

Less: Maintenance Capex - - - - - - Adjusted Funds from Operations 1,141 1,232 1,304 1,356 1,415 1,481 4.7%

Normalized AFFO (1) 1,253 1,344 1,400 1,452 1,511 1,577 4.1%

Credit Statistics:Coverage:

EBITDA / Interest Expense 7.6x 6.9x 5.3x 4.3x 3.7x(EBITDA - Maintenance Capex) / Interest Expense 7.6x 6.9x 5.3x 4.3x 3.7x

Leverage:Total Debt / EBITDA 1.9x 2.4x 3.1x 3.9x 4.5x

Capitalization:Total Debt / Total Real Estate Value 11.1% 14.2% 18.6% 22.9% 27.0%(NOI capped at 6.0% and 8.5% for store land and DCs & WHs land, respectively)

Implied Metrics:Incremental Stores Square Footage 10 10 14 17 19

SuperTarget Stores 50.0% 5 5 7 8 10 Implied New Combined SuperTarget Stores 0.177 Sq. Ft. / SuperTarget 29 27 41 47 54

% of Total New Stores Built 41.4% 41.5% 41.4% 41.2% 41.2%Combined Total Number of SuperTarget Stores 239 268 295 336 383 437

General Merchandise Stores 50.0% 5 5 7 8 10 Implied New Combined GM Stores 0.124 Sq. Ft. / GM 41 38 58 67 77

% of Total New Stores Built 58.6% 58.5% 58.6% 58.8% 58.8%Combined Total Number of General Merchandise Stores 1,444 1,485 1,523 1,581 1,648 1,725 Total Implied New Stores 70 65 99 114 131 Cumulative Combined Total Implied Stores 1,683 1,753 1,818 1,917 2,031 2,162

Incremental DCs & WHs Square Footage 2 1 1 2 2 Implied Combined New DCs & WHs 1.408 1 0 1 1 1

Total Implied New DCs & WHs 1 0 1 1 1Cumulative Combined Total Implied DCs & WHs 31 32 33 34 35 36

158

TIP REIT Model – Capex Schedule

Calendar Year, CAGR($mm, except as noted) 2009 2010 2011 2012 2013 '09 - '13Total Combined Expenditures 3,905 3,858 4,982 5,732 6,605

Maintenance / Retail Capital Expenditures 1,714 1,827 1,785 1,968 2,179 6.2%Target Corp - Store Buildings 1,714 1,827 1,785 1,968 2,179 TIP REIT - - - - -

Development Capital Expenditures 2,191 2,031 3,198 3,765 4,426 19.2%Target Corp Building - Store and DCs & WHs 71.4% 1,112 1,023 1,615 1,902 2,237 TIP REIT Land - Store and DCs & WHs 28.6% 1,079 1,008 1,582 1,863 2,190 Target Corp - Other 0.0% - - - - -

TIP REIT Land - Store 1,056 999 1,560 1,836 2,158 Store Land Cost per Square Foot $102.50 $105.06 $107.69 $110.38 $113.14

TIP REIT Land - DCs & WHs 22 10 22 26 31 DCs & WHs Land Cost per Square Foot $14.00 $14.35 $14.71 $15.08 $15.45 $15.84

TIP REIT Land - Store Yes 1,056 999 1,560 1,836 2,158 TIP REIT Land - DCs & WHs Yes 22 10 22 26 31

Total Development Capex 1,079 1,008 1,582 1,863 2,190 19.4%

Development Financing Sources:Debt Financing 100% 1,079 1,008 1,582 1,863 2,190 Equity Financing 0% - - - - -

Model – Target Corp

160

Target Corp Model – Income StatementStatus

Quo REIT Credit Card Pro Forma Calendar Year, CAGR($mm) CY2008 Adj. Adj. CY2008 2009 2010 2011 2012 2013 '09 - '13Retail Sales 64,892 64,892 68,249 73,356 80,479 88,710 98,241 9.5%

Base Sales Growth (%) 5.2% 7.5% 9.7% 10.2% 10.7%Credit Revenue 2,078 (1,936) 143 150 161 177 195 216 9.5%

Credit Sales Growth na 5.2% 7.5% 9.7% 10.2% 10.7%Total Revenue 66,970 65,034 68,399 73,517 80,655 88,905 98,457 9.5%


COGS 45,459 45,459 47,777 51,279 56,177 61,919 68,563% of Retail Sales 70.1% 70.1% 70.0% 69.9% 69.8% 69.8% 69.8%

SG&A (excluding D&A and Rent Expense) 13,058 (20) 13,038 13,814 14,740 16,093 17,739 19,646% of Retail Sales 20.1% 20.1% 20.2% 20.1% 20.0% 20.0% 20.0%

Credit Expenses 1,460 (1,460) - - - - - - % of Credit Revenue 70.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Retail EBITDAR 6,375 6,395 6,657 7,337 8,208 9,051 10,033 10.8%Retail EBITDAR Margin (%) 9.8% 9.9% 9.8% 10.0% 10.2% 10.2% 10.2%

Credit EBITDAR 619 (476) 143 150 161 177 195 216 9.5%Credit EBITDAR Margin (%) 29.8% na na na na na na

EBITDAR (Pre-spin) 6,993 6,537 6,807 7,498 8,385 9,246 10,249 10.8%EBITDAR Margin (%) 10.4% 10.1% 10.0% 10.2% 10.4% 10.4% 10.4%

Current Embedded Facility Management Costs (125) (125) (125) (134) (147) (162) (180)External Facility Mgmt. Payments to TIP REIT 144 144 144 155 170 187 207

Current Rent Expense 169 169 173 178 182 187 191Additional Rent Expense 1,369 1,444 1,549 1,696 1,866 2,063Pro Forma EBITDA (Post-spin) 6,824 4,980 5,172 5,751 6,485 7,169 7,968 11.4%

EBITDA Margin (%) 10.2% 7.7% 7.6% 7.8% 8.0% 8.1% 8.1%

Depreciation & Amortization 1,807 (42) 1,765 1,884 2,017 2,199 2,410 2,654% of Retail Sales 2.7% 2.7% 2.7% 2.7% 2.7% 2.7%

Operating Income 5,017 3,215 3,288 3,735 4,285 4,759 5,314 12.8%

Net Interest (Income) / Expense 995 515 673 611 531 509 623Income Tax Provision 1,483 1,037 1,004 1,199 1,441 1,632 1,802

Tax Rate (%) 37% 38% 38% 38% 38% 38% 38%Net Income 2,539 1,663 1,611 1,924 2,312 2,618 2,890 15.7%

Net Income Margin (%) 3.8% 2.6% 2.4% 2.6% 2.9% 2.9% 2.9%

Current Diluted Shares Outstanding 819.0 721.9 721.9 721.9 721.9 693.0Shares Repurchase (97.0) 0.0 0.0 0.0 (29.0) (31.4)

Total Shares Outstanding 721.9 721.9 721.9 721.9 693.0 661.6Weighted Average Shares Outstanding 765.9 721.9 721.9 721.9 707.5 677.3

Earnings per Share ($) $2.17 $2.23 $2.67 $3.20 $3.70 $4.27 4.92 17.6%

161

Target Corp Model – Balance Sheet

Status

Quo REIT Credit Card Pro Forma Calendar Year,

($mm) CY2008 Adj. Adj. CY2008 2009 2010 2011 2012 2013

Cash & Equivalents 500 0 500 682 734 805 887 982

Trade Receivables 8,383 (8,383) - - - - - -

Other Current Assets 9,232 9,232 9,710 10,436 11,450 12,621 13,977

Property, Plant & Equipment, gross 35,734 (12,228) 23,506 26,332 29,182 32,582 36,452 40,868

Accumulated Depreciation (9,350) 846 (8,505) (10,389) (12,406) (14,605) (17,015) (19,669)

Property, Plant & Equipment, net 26,384 (11,382) 15,001 15,943 16,776 17,977 19,437 21,199

Other Non-Current Assets 1,368 1,368 1,368 1,368 1,368 1,368 1,368

Total Assets 45,867 26,101 27,703 29,314 31,599 34,312 37,526

Debt 19,455 0 (8,000) 11,455 10,817 9,584 8,303 8,938 10,078

Other Current Liabilities 10,757 10,757 11,313 12,160 13,340 14,705 16,285

Other Non-Current Liabilities 2,392 2,392 2,392 2,392 2,392 2,392 2,392

Total Liabilities 32,604 24,604 24,522 24,135 24,035 26,035 28,755

Total Equity 13,264 (11,382) (383) 1,498 3,182 5,179 7,564 8,278 8,771

Total Equity & Liabilities 45,867 26,101 27,703 29,314 31,599 34,312 37,526

162

Target Corp Model – Cash Flow Statement

Calendar Year,($mm) 2009 2010 2011 2012 2013EBITDA 4,980 5,172 5,751 6,485 7,169 7,968

less: Interest Expense (515) (673) (611) (531) (509) (623)

less: Taxes (1,037) (1,004) (1,199) (1,441) (1,632) (1,802)

Share-based Compensation 73 73 73 73 73 73

less: Increase in Net Working Capital 79 120 167 193 224

less: Increase Funding of CC Growth 0 0 0 0 0 0

Cash Flow from Operating Activities 3,501 3,647 4,134 4,752 5,294 5,841

Capital Expenditures (2,826) (2,850) (3,400) (3,870) (4,416)

Cash Flow from Investing Activities (2,826) (2,850) (3,400) (3,870) (4,416)

Issuance of Debt 0 0 0 1,977 2,470

Repayment of Debt (638) (1,233) (1,281) (1,342) (1,330)

Issuance of Equity / (Buy Back) 0 0 0 (1,977) (2,470)

Issuance of Dividends to Common 0 0 0 0 0 0

Cash Flow from Financing Activities (638) (1,233) (1,281) (1,342) (1,330)

Beginning Cash Balance 500 682 734 805 887

Change in Cash 182 51 71 82 95

Ending Cash Balance 682 734 805 887 982

Average Cash Balance 591 708 769 846 935

Interest Income 3.0% 18 21 23 25 28

163

Target Corp Model – Build-ups and Credit MetricsPro Forma Calendar Year,

Sales Buildup CY2008 2009 2010 2011 2012 2013Square Feet (mm) 222 232 241 256 273 292$ / Sq. Ft. 293 294 304 314 325 337Retail Sales 64,892 68,249 73,356 80,479 88,710 98,241

Implied Retail Sales Growth (%) 5.2% 7.5% 9.7% 10.2% 10.7%Sq. Footage Growth (%) 4.7% 4.1% 6.0% 6.5% 7.0%SSS Growth (%) 0.5% 3.3% 3.5% 3.5% 3.5%

CapEx Buildup 2008 2009 2010 2011 2012 2013Total System CapEx 4,112 3,905 3,858 4,982 5,732 6,605

CapEx as % of Retail Sales 6.3% 5.7% 5.3% 6.2% 6.5% 6.7%

Maintenance/Retail CapEx 1,514 1,627 1,785 1,968 2,179Additional Cap Ex 200 200TOTAL Maintenance/Retail CapEx % of total 35.0% 1,439 1,714 1,827 1,785 1,968 2,179 – Target Corp 1,714 1,827 1,785 1,968 2,179 – TIP REIT (Existing DC & WH) 0 0 0 0 0

Development CapEx % of total 65.0% 2,191 2,031 3,198 3,765 4,426

Buildings (Tgt Corp) % of Development 50% 1,112 1,023 1,615 1,902 2,237 Land % of Development 50% 1,079 1,008 1,582 1,863 2,190 – Target Corp 0 0 0 0 0 – TIP REIT 1,079 1,008 1,582 1,863 2,190 Other (Target Corp) % of Development 0% 0 0 0 0 0

Facilities Management Business ($mm)Total Current Costs 125 125 134 147 162 180Growth % 0.0% 7.5% 9.7% 10.2% 10.7%

Markup to TIP REIT 15% 15% 15% 15% 15% 15%Facilities Management Revenue to TIP REIT 144 144 155 170 187 207

Credit MetricsLease Adjusted Debt 8 x 1,353 12,309 12,935 13,811 15,024 16,421 18,033Actual Debt 19,455 11,455 10,817 9,584 8,303 8,938 10,078Total Lease Adjusted Debt 20,808 23,764 23,752 23,394 23,327 25,359 28,111

Total Lease Adjusted Debt/EBITDAR 3.0 x 3.6 x 3.5 x 3.1 x 2.8 x 2.8 x 2.8 xTotal Debt / EBITDA 2.9 x 2.3 x 2.1 x 1.7 x 1.3 x 1.2 x 1.3 x

EBITDAR / (Interest + Rent) 6.0 x 3.2 x 3.0 x 3.2 x 3.5 x 3.6 x 3.6 xEBITDA / Interest 6.9 x 9.7 x 7.7 x 9.4 x 12.2 x 14.1 x 12.8 x

Target:A Revised Transaction


November 19, 2008

DisclaimerThe information contained in this presentation (the “Information”) is based on publicly available information about Target Corporation (“Target”). None of Pershing Square Capital Management, L.P., its affiliates and any of their respective officers, directors and employees (collectively, “Pershing”), nor any representative of Pershing, has independently verified any of the Information. Pershing recognizes that there may be confidential or otherwise non-public information in Target’s possession that could lead others to disagree with Pershing’s conclusions. The sole purpose of presenting the Information is to inform interested parties about the transaction described in this presentation (the “Transaction”). This presentation does not constitute an offer or a solicitation of any kind.

Neither Pershing nor any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the Information or any other written or oral communication made in connection with this presentation or the Transaction. The Information includes certain forward-looking statements, estimates and projections with respect to the anticipated future financial, operating and stock market performance of Target in the absence of the Transaction and the two public companies that may result if the Transaction is completed. Such statements, estimates and projections may prove to be substantially inaccurate, reflect significant assumptions and judgments that may prove to be substantially inaccurate, and are subject to significant uncertainties and contingencies beyond Pershing’s control, including those described under the caption “Risk Factors” in Target’s filings with the Securities and Exchange Commission as well as general economic, credit, capital and stock market conditions, competitive pressures, geopolitical conditions, inflation, interest rate fluctuations, regulatory and tax matters and other factors.

Pershing and its representatives expressly disclaim any and all liability relating to or resulting from the use of the Information or any errors therein or omissions therefrom, including under applicable securities laws. The Information does not purport to include all information that may be material with respect to the Transaction or Target. Thus, shareholders and others should conduct their own independent investigation and analysis of Target, the Transaction and the Information.

The Information is not intended to provide the basis for fully evaluating, and should not be considered a recommendation with respect to, the Transaction, Target, the securities of Target or any other matter. Except where otherwise indicated, the Information speaks as of the date hereof. Neither Pershing nor any of its representatives undertakes any obligation to correct, update or revise the Information or to otherwise provide any additional materials.

The preparation and distribution of this presentation should not be taken as any form of commitment on the part of Pershing to take any action in connection with the Transaction.

Pershing is in the business of buying and selling securities. It has, and may in the future, buy, sell or change the form of its position in Target for any or no reason.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any discussion of U.S. tax matters contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such discussion of tax matters is written in connection with the promotion or marketing of the matters addressed; and (iii) you should seek advice from an independent advisor.

1

2

Recent Events

On October 29, 2008, Pershing presented “A TIP for Target Shareholders,” which detailed a potential Transaction (“October 29th Transaction”) that would create long-term value for Target Corporation and its shareholders

After the presentation, Target expressed concerns regarding the October 29th Transaction

Since then, Pershing has met with Target, members of its Board, as well as Retail and Real Estate investors

We have received valuable feedback from these meetings

Today, we will present a Revised Transaction that addresses Target’s concerns, incorporates feedback from the investment community, and creates great value for Target shareholders

3

Agenda

Review of the October 29th Transaction

Target’s Concerns

A Revised Transaction

Benefits of the Revised Transaction

Appendix

Review of the October 29th

Transaction

Updating Our Model

Reduced Q4 ’08E same-store-sales expectations to negative 5%

Lowered capital expenditures in 2009 by approximately $1bn

Slowed square footage growth in 2010E

Halted share buybacks in Q4 2008 and for the full year 2009

Used a 20-day average stock price of $37 per share for Target

We have updated our model to reflect Q3 2008 results as well as revised guidance provided by Target management on its earnings call on Monday, November 17, 2008

The analyses provided in this presentation reflect the updated model

5

6

Objectives

Retain complete control of its buildings and its brand

Retain 100% flexibility with respect to its construction, remodeling, and relocation plans

Improve the Company’s free cash flow and access to capital

Increase the Company’s ROIC and lower its cost of capital

Maintain an investment grade credit rating

Increase the Company’s EPS growth rate

Minimize tax leakage and friction costs

In reviewing alternatives for Target, Pershing Square’s objective was to eliminate the stock market’s ascribed discount to the intrinsic value of Target’s real estate and allow the Company to:

October 29th Transaction

Tax-free spin of Target Inflation Protected REIT (or “TIP REIT”) as Groundlessor and Facility Manager

Pre–SpinTARGET

Shareholders

TARGET





Elects REIT status at the time of spin-off


Becomes Target’s exclusive land developer for the first two years

After two years, becomes Target Corp’s Preferred Vendor for land procurement

Post–SpinTARGET

Shareholders

Ground Leases

LandFacilities

Mgmt.Services


ExistingRetail

Business

OwnedBuildings 1

TARGET Corp


7

Unlocking Immense Real Estate Value

$37/Share (1) Inflation Protected Treasury Securities (TIPS) (3)

Large Cap REITs (1)


2009E EV / EBITDA

Inflation Protected Securities / REIT Market Valuations

2009E EV / EBITDA

5.8x 35.7x14.5xRecent “Big Box” Ground

Lease (2)

17.0x

REITs, private market ground leases, and inflation-protected securities all trade at much higher valuation multiples than Target’s multiple, at only 5.8x ‘09E EV/EBITDA, based on a 20-day trading average stock price of $37

The Transaction creates immense and instant value because 22% of Target’s current EBITDA will be valued at a significantly higher multiple than where Target trades today

8

Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDA (1) Based on a 20-day trading average as of 11/14/08(2) Based on mid-point precedent cap rate of 5.9%(3) Based on current 20-year TIP yield of 2.8% as of 11/14/08

$0

$20

$40

$60

$80

Target (20-Day Avg. Price) ¹ TIP REIT Spin-Off ² 12-Month Price Target ²

$/Sh

are

TIP REIT

Target CorpTarget

Standalone

81%

$37

$67

$36

$31 $41

$39

$80

TIP REIT

Target Corp

Valuation Summary

9

Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bnFor illustrative purposes, assumes Spin-off Transaction occurs on 01/01/09(1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis

Equity Value ($bn) $28 $24 Equity Value ($bn) $31Enterprise Value ($bn) $37 $33 Enterprise Value ($bn) $39 '09E EV/EBITDA 5.8x 6.5x '10E EV/EBITDA 7.0x '09E P/E 11.4x 14.7x '10E P/E 16.1x Equity Value ($bn) $27 Equity Value ($bn) $29 Enterprise Value ($bn) $27 Enterprise Value ($bn) $30 ‘09E Dividend Yield 5.0% ‘10E Dividend Yield 4.8% Cap Rate 5.4% Cap Rate 5.1% '09E P/AFFO 20.0x '10E P/AFFO 21.0x '09E EV/EBITDA 19.1x '10E EV/EBITDA 20.1x

Targ

etC

orp

TIP

REI

T

Even ignoring valuation benefits, there are important strategic reasons to consummate the Transaction…

10

11

Benefits of the October 29th Transaction

1. Allows Target Corp to retain control over its buildings and brand

2. Improves Target’s overall access to capital

There is risk to Target’s status quo. Retailers’ access to capital has been called into question

TIP REIT is one of the most stable companies in the world

TIP REIT is better able to access capital for future land acquisitions thanTarget today, given TIP REIT’s immense security, stability, and unleveraged balance sheet

TIP REIT can use non-cash currency (OP units) for tax-efficient real estate acquisitions

2009E 2009E Net Incremental($mm, except per share data) Standalone (1) Target Corp (1) Cash Flow

Memo: Incremental Rent Expense – 1,433

Cash Flow Impact on Key Affected MetricsIncremental After-Tax Rent Expense – 888 (888)Dividends Paid 483 – 483Land Development Capex 890 – 890Net Impact to Cash Flow $1,373 $888 $484

12

Benefits of the October 29th Transaction (cont’d)

3. Increases free cash flow at Target Corp by nearly $500mm, thereby decreasing Target’s capital needs

After-tax rent expense of ~$890mm is offset by land development capex of ~$890mm, which is funded by TIP REIT

TIP REIT pays all of Target’s 2009E dividends of 64 cents/share as well as an incremental $1.15/share to Target shareholders

(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with Target retaining $150mm of credit card EBITDA in ’09E

13


4. Maintains an investment grade credit ratings profile

5. Provides a clear path back to an “A” category credit rating

6. Creates over $510mm of tax savings in the first year post transaction

Optimizes ownership of land, a non-depreciable asset, through a REIT structure

PF 2008E (1) 2009E 2010E 2011E

($bn, except where noted)

Target Corp Adj. Debt/EBITDAR 3.4x 3.2x 2.8x 2.8x

Expected Ratings Profile Mid - High BBB/Baa Mid - High BBB/Baa A- / A3 A- / A3

(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with proceeds used to pay down debt

14


7. Increases total dividends for Target’s current shareholders from $0.64/share to $1.79/share in 2009E (1)

8. Improves store-level ROIC and increases Target’s EPS growth rate

9. Achieves a tax-free spin-off

10. Creates enormous shareholder value, potentially increasing Target’s stock price from $37 to $67 per share

(1) Excludes $112mm (approximately $0.15/share) of incremental interest expense due to CY2009 cash E&P distribution

15

TIP REIT Investment Highlights

“Land-only” structure is extremely secure■ $39bn of “Lease Security”, including $20bn of unencumbered buildings

Long-term lease provides bond-like stability and inflation-protection■ 75-year, inflation-protected “Master Lease” with Target Corp

Significant growth opportunity■ Formal arrangement with Target Corp provides long-term growth pipeline

High quality locations and superb tenant profile

De minimis maintenance capex allows for strong FCF generation

Tremendous size and scale – a “must-own” yield stock

(1) As of November 14, 2008(2) Represents non-financial companies in the S&P 500 with market caps greater than $20bn(3) Based on 2009E dividends

Rank Company Dividend Yield (%) 1 Altria Group 7.92 Pfizer 7.9 3 General Electric 7.7 4 Bristol-Myers Squibb 6.3 5 Verizon Communications 6.1 6 E.I. DuPont de Nemours 6.0 7 Eli Lilly 5.9 8 AT&T 5.8 9 Philip Morris International 5.6

10 Merck 5.6 11 TIP REIT (3) 5.0 12 Southern Co. 4.8 13 Caterpillar 4.5 14 Home Depot 4.4 15 Dominion Resources 4.3

16

Large, Liquid, “Must-Own” Yield Stock

TIP REIT will be the 58th largest company in the S&P 500

Given its market cap, TIP REIT will be owned by S&P 500 index funds, large cap funds, real estate index funds, yield-oriented investors, and investors seeking inflation-protected assets

S&P 100 Non-Financials Ranked by Dividend Yield (2)S&P 500 Ranked by Market Cap (1)

Rank Company Market Cap (1)

($mm) 50 Time Warner 32,821

51 Colgate-Palmolive 31,323

52 Devon Energy 30,960

53 Boeing 30,129

54 Union Pacific 29,160

55 Lockheed Martin 28,948

56 Southern 27,273

57 Burlington Northern Santa Fe 27,257

58 TIP REIT 27,000

59 Celgene 26,965

60 Lowe’s 26,689

17

Leverage None High: 54% Debt-to-TMCAverage: 44% Debt-to-TMC

TIP REIT Large Cap REITs

NoneHigh – REITs have borrowed at low rates and are facing much higher rates and refinancing risk for debt maturities

None / 100% rental income Sometimes

None / 75-year lease Yes, typically 10% or more of leases up for renewal annually

Re-leasing Risk

None Yes, typically 8% of EBITDAMaintenanceCapital

Preferred vendor arrangement No preferred arrangementGrowth

$20bn of unencumbered buildings, given “land-only” structure None. Owns both land buildings“Lease Security”

TransactionIncome

RefinancingRisk / EarningsPressure

TIP REIT: Unlike Any Existing REIT Today

18

How is TIP REIT Similar to TIPS?

TIP REIT has many of the same features of Treasury Inflation Protected Securities (TIPS). However, TIP REIT has the added benefit of a growth platform and no “Phantom tax”

20-Year TIPSTIP REITExtremely low probability of default

Backed by highly-rated Target Corp$39bn of “Lease Security” or 145% TIP REIT’s EV at 5.0% dividend yield

Backed by federal government

Inflation protection Payment based on CPI adjusted principal

Rent income adjusted for CPI

Long-term duration with required payments

75-year lease termREIT dividend payment required by law

20 yearsInterest payment required by law

Liquidity $27bn market cap Over $450bn market (1)

Growth platform

“Phantom tax”Yes No

No Yes (tax on inflation adj. principal)

(1) Size of total TIPS market

Feedback from REIT Investors

Since the October 29th presentation, Pershing Square has met or held calls with several of the largest REIT investors and received valuable feedback regarding TIP REIT

Appreciation of the security and stability offered by land-only structure

Agreement on a valuation premium for land-only REIT (versus a land and building REIT)

Strong interest in an unlevered REIT

Desire for more large cap, liquid REITs

Interest in an independent TIP REIT Board and management

Valuation benefits of an “A” category credit rating at Target

Feedback from REIT investors

19

Interest from a Broad Group of Investors

In addition, Pershing Square has received strong interest in TIPREIT from a broad category of large investor groups beyond traditional REIT investors

Pensions

Endowments

Income-oriented funds

20

These investors are seeking security, stability, long-term inflation-protection, and a higher yield than that offered by TIPS

Target’s Concerns Regarding the October 29th Transaction

22

Target’s Concerns

Target expressed the following concerns regarding the October 29th Transaction:

Concern Management’s Commentary 1. Valuation

“The validity of assumptions supporting Pershing Square's market valuation of Target and the separate REIT entity”

2. Reduction in Target’s financial flexibility and inflation risk

“The reduction in Target's financial flexibility due to the conveyance of valuable assets to the REIT and the large expense obligation created by the proposed lease payments which are subject to annual increase”

3. Credit ratings, borrowing costs, and liquidity

“The adverse impact that the company believes the proposed structure would have on Target's debt ratings, borrowing costs and liquidity, exacerbated by current market conditions”

23

Target’s Concerns (cont’d)

Target expressed the following concerns regarding the October 29th Transaction:

Concern Management’s Commentary

4. Frictional costs and operational risks

“The frictional costs and operational risks, including tax implications, of executing Pershing Square's ideas”

5. Management diversion

“The risk of diverting management's focus away from core business operations over an extended time period to execute such a complex transaction, particularly in the current environment”

A Revised Transaction

25

Revised Transaction: <20% IPO of TIP REIT

Step 1: Formation of Target Inflation-Protected Real Estate Investment Trust

Step 2: Primary IPO of <20% of TIP REIT shares

Target contributes land and Facilities Management Services to a new subsidiary (“TIP REIT”) (1)

TIP REIT leases the land back to Target Corp through a Master Lease for a 75-year term (2)

At the time of the IPO, TIP REIT will elect REIT status (3)

IPO does not trigger any capital gains taxes

Target retains >80% interest in TIP REIT

Immediate valuation benefits: Allows investors to value Target on a sum-of-the-parts basis

Credit ratings impact:Target Corp will maintain its A+/A2 credit rating

(1) TIP REIT assumes a portion of Target liabilities. This could include a portion of Target’s debt(2) TIP REIT will lease land to Target Corp (i.e. the parent company)(3) Non-REIT assets (e.g., the Facilities Management Services) will be placed in a taxable REIT subsidiary (TRS)

26

Post IPO: Pay Down ~$9bn of Debt

Step 3: Sale of the remaining 53% interest in Target’s Credit Card Receivables

Step 4: Pay down ~$9bn of Target debt using all of the credit card proceeds, a portion of the IPO proceeds, and free cash flow

At an opportune time (either pre- or post-IPO), Target sells remaining 53% interest in its credit card receivables

For this analysis, we have assumed $4.4bn of proceeds from the sale

$1.6bn of cash proceeds from the IPO is left on TIP REIT’s balance sheet

(1) Assumes TIP REIT funds land development capital expenditures of approximately $0.9bn post-IPO using debt

$ in billionsGross Receivables CY 2008E $9.0Allowance (0.8)Net Receivables CY 2008E $8.2

53% Interest at Net Book Value $4.4

($bn)

Paydown using Proceeds from Credit Card SaleSecuritized Debt $1.9Unsecured Debt 2.5Total $4.4

Paydown using IPO Proceeds 3.0Paydown using Free Cash Flow (1) 1.8

Total Debt Paydown $9.2

Post IPO: Spin-off TIP REIT and Purge E&P

Step 5: Spin-off of remaining interest in TIP REIT to Target shareholders

Step 6: TIP REIT purges retained Earnings and Profits

Immediately prior to spin-off, Target enters into an inflation-swap agreement to hedge inflation (alternative is to buy swaption today)

Target’s >80% interest in TIP REIT is distributed tax-free to shareholders

Post spin-off, Target maintains its “A” category credit rating

By December 31 of the calendar year of spin-off, TIP REIT pays a $1.6bn cash E&P dividend to TIP REIT shareholders

Note: Cash E&P dividend could be materially lower than $1.6bn

The REIT industry group has requested the Treasury Department to issue a rule allowing low-cash stock-cash dividends

If granted, this rule would reduce the cash portion of TIP REIT’sE&P dividend to as little as $400mm

27

TIP REIT IPO Proceeds

Assuming a 19.9% IPO of TIP REIT at a 15% IPO discount, the IPO would generate roughly $5.1bn in gross proceeds. After frictional costs and expenses, IPO proceeds of $3.0bn will be paid to retire Target debt and $1.6bn will remain at TIP REIT

28

(1) Calculation based on allocating and subsequently paying down $3.0bn of debt(2) Calculation based on adding net proceeds of $4.6bn to captive TIP REIT equity value of $24.0bn; assumes cash balance of $1.6bn at TIP REIT upon IPO(3) Assumes a 19.9% IPO of TIP REIT at a 15% IPO discount; net of paying $500mm after-tax frictional costs and fees, IPO proceeds are $4.6bn(4) Assumes approximately $350mm of after-tax frictional costs and $150mm of IPO fees

$ in billionsTIP REIT Equity Value $27.0

Implied 2009E Dividend Yield 5.0%

Captive TIP REIT Equity Value $24.0 (1)

Discount 15% 20.4New Issuance 19.9% 25.5

TIP REIT Post-IPO Equity Value $28.6 (2)

TIP REIT Gross IPO Proceeds $5.1 (3)

Use of IPO Proceeds:Retire Target Debt $3.0Cash Remaining at TIP REIT 1.6 Pay Frictional Costs and Fees 0.5 (4)

Total IPO Proceeds $5.1

Sources and Uses of Cash at Target Corp

29

Proceeds from the IPO and the sale of the remaining interest in the credit card receivables can be used to pay down debt

(1) Reflects cash flow generated after working capital, capex, and dividends; assumes maintenance of $500mm minimum cash balance; assumes TIP REIT funds land development capital expenditures of approximately $0.9bn by issuing debt during the first year post-IPO

Cash Sources ($bn) Cash Uses ($bn)

IPO Proceeds to Retire Target Debt $3.0 Paydown of Securitized Debt $1.9

Credit Card Sale Proceeds 4.4 Paydown of Unsecured Debt 7.3

1-Yr Cash Flow Generated at Target Corp (1) 1.8

Total Cash Sources $9.2 Total Cash Uses (Debt Paydown) $9.2

Target Pro FormaStandalone Target Corp

($bn) 2008E Adjustments Post Spin-off

JPMorgan GAAP Liability $3.6 ($3.6) -Credit Card Securitized Debt 1.9 (1.9) -Unsecured Debt 12.3 (7.3) 5.0Ending Debt $17.8 ($12.8) $5.0Plus: Lease Adjusted Debt (8x Total Lease Expense) 1.4 13.6Ending Lease Adj. Debt $19.2 $18.7

Lease Adj. Total Debt / EBITDAR 2.8x 2.6x

Expected Ratings Profile "A" Category "A" Category

Memo: Rent Expense 0.2 1.7

Post Spin-off: Target Corp Credit Ratings

30

Post Spin-off, Target Corp will maintain an “A” category credit ratings profile

$9.2bn of Total Debt Paydown

(1) Based on $14.8bn of unsecured debt as of Q3 ’08A, reduced in 4Q ’08E by $2.5bn through debt pay down with free cash flow and cash on balance sheet (while maintaining $500mm minimum cash balance)(2) Based on 2008E EBITDAR for Target Standalone of $6.9bn and 2008E Rent Expense of $0.2bn(3) Based on 2010E EBITDAR for Target Corp post spin-off of $7.3bn and 2010E Rent Expense of $1.7bn

(2) (3)

(2) (3)

(1)

Illustrative Timeline

2009CY 2010CY

Q1 Q2 Q3 Q4 Jan – Nov Dec

Step 1: TIP REIT Formation

Contribute Land & Facilities Management Services to TIP REIT

Execute 75-year Master Lease with Target Corp

Step 2: TIP REIT IPO

TIP REIT elects REIT status

Primary IPO of <20% of TIP REIT shares

Step 3: Sale of 53% Interest in CC Receivables

Step 4: Debt Paydown

Step 5: Spin-off of TIP REIT

Target enters into inflation-swap agreement

Tax-free spin-off of remaining >80% interest in TIP REIT

Step 6: TIP REIT E&P Purge

31

$0

$20

$40

$60

$80

Target (20-Day Avg. Price) ¹ TIP REIT IPO ² 12-Month Future Price /TIP REIT Spin-Off ²

$/Sh

are

TIP REIT(Captive)

Target CorpTarget Standalone

77%

$37

$65

$30

$35 $46

$33

$79

TIP REIT

Target Corp

Valuation Analysis

32

Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDAFor illustrative purposes, assumes 19.9% REIT IPO occurs on 01/01/09 and full REIT Spin-off occurs on 01/01/10(1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis (3) Based on Adjusted Equity Value excluding cash balance of $1.6bn reserved for E&P distribution in 2010E

Equity Value ($bn) $28 $26 Equity Value ($bn) $35Enterprise Value ($bn) $37 $33 Enterprise Value ($bn) $39 '09E EV/EBITDA 5.8x 6.5x '10E EV/EBITDA 7.0x '09E P/E 11.4x 15.1x '10E P/E 16.8x Equity Value ($bn) $29 Equity Value ($bn) $31 Enterprise Value ($bn) $27 Enterprise Value ($bn) $30 ‘09E Dividend Yield (3) 5.0% ‘10E Dividend Yield (3) 4.8% Cap Rate 5.4% Cap Rate 5.1% '09E P/AFFO (3) 20.0x '10E P/AFFO (3) 21.0x '09E EV/EBITDA 19.1x '10E EV/EBITDA 20.1x

Targ

etC

orp

TIP

REI

T

Tremendous Upside at Various Assumptions

At any plausible valuation of TIP REIT and Target Corp, the Transaction results in a significant premium to the stock price of $37 / per share

33

TIP REIT ‘09E Dividend Yield

Targ

et C

orp

EV/ ’0

9E E

BITD

A

Value/Share ($)

Premium to $37 stock price (%)

TIP REIT ‘09E Dividend Yield

Targ

et C

orp

EV/ ’0

9E E

BITD

A

7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5%6.0x $52 $54 $55 $57 $59 $62 $656.5x 56 57 59 61 63 65 697.0x 59 60 62 64 66 68 727.5x 62 64 65 67 69 72 758.0x 66 67 69 70 73 75 78

7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5%6.0x 41% 45% 49% 54% 60% 67% 76%6.5x 51% 55% 59% 64% 70% 77% 85%7.0x 59% 63% 67% 72% 78% 85% 94%7.5x 68% 72% 76% 81% 87% 94% 103%8.0x 77% 81% 85% 90% 96% 103% 112%

Benefits of the Revised Transaction

Advantages of a Minority IPO of TIP REIT

35

Immediate value creation for Target shareholders

Force a market revaluation of TargetEnable investors to value Target based on a sum-of-the-parts basis, using the public valuation of TIP REIT

Immediately improves Target’s access to capital through TIP REIT

Increases Target’s liquidity, given ~$5bn of IPO proceeds

<20% IPO is a tax-free transaction

Maintains Target’s current “A” category credit rating

Provides funds for debt paydown

Preserves an “unwind” mechanism in the form of a buyback of the public minority stake of TIP REIT

A <20% IPO of TIP REIT would have several important advantages

Advantages of a Minority IPO of TIP REIT (cont’d)

36

Offers flexibility as to when Target:

Sells remaining interest in credit card receivables

Completes TIP REIT spin-off

Pays an E&P dividend ($1.6bn of cash in the calendar year of TIPREIT spin-off)

While maintaining control of TIP REIT, Target has the opportunity to:

“Test” the valuation of TIP REIT

Fine tune the relationship between Target / TIP REIT on land development issues

A Minority IPO would offer Target significant control and flexibility in executing the Revised Transaction

Pros and Cons of the Revised Transaction

Meaningfully accretive on all key measures (EPS, FCF/share)

Maintains “A” category credit rating

More than doubles dividends: $0.64/share today to $1.49 (1) share in 2010


Reduces taxes by over $510mm

Improves Target’s ROIC and EPS growth

Increases the total stock price from $37/share to $79/share by 2010

⌧ Dilution: <20% IPO of TIP REIT results in some dilution to Target shareholders, versus the October 29th Transaction proposal, equivalent to ~$1.50 per share in total value (2)

⌧ Delay of certain benefits: Certain benefits such as reduced taxes and increased dividends won’t be fully achieved until the spin-off is complete

Mitigating Factors:

In the context of total value creation from Target’s $37 stock price, the dilution is minimal

Despite the longer transaction plan, the increased flexibility afforded to Target will significantly reduce execution risks

Pros Cons

Assuming the spin-off of the remaining >80% interest in TIP REIT occurs in 2010, the Revised Transaction offers many pros and few cons

37

(1) Assumes a 19.9% IPO which increases TIP REIT’s shares outstanding to approximately 940mm shares from 755mm shares pre-IPO(2) Assumes a 15% IPO discount and a 19.9% IPO

Addressing Management’s Concerns

Concern Benefits of the Revised Transaction

1) Valuation Under any plausible valuation of TIP REIT, the Revised Transaction offers tremendous upside to Target’s stock price of $37

At Target’s current stock price of $37 and EV / ’09E EBITDA multiple of 5.8x, the implied dividend yield of TIP REIT is an improbable 16%

IPO provides a seasoning period for TIP REIT

An IPO would give the investment community several quarters to value TIP REIT before it is spun off, effectively seasoning the market and attracting long-term investors

Potential “unwind” mechanism

Should the Company not be satisfied with TIP REIT’s Transaction, Target can repurchase TIP REIT’s public minority stake, effectively “unwinding”the structure

38

Targ

et C

orp

EV/’0

9E E

BITD

A

TIP REIT ’09E Dividend Yield

Total Stock Price at Various ’09E Dividend Yields and ’09E Multiples

7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5%

6.0x $52 $54 $55 $57 $59 $62 $65

6.5x 56 57 59 61 63 65 69

7.0x 59 60 62 64 66 68 72

7.5x 62 64 65 67 69 72 75

8.0x 66 67 69 70 73 75 78

Addressing Management’s Concerns (cont’d)


2) Reduction inTarget’s financialflexibility andinflation risk

Target pays down ~$9bn of debt, eliminating significant interest expense obligations

<20% IPO of TIP REIT provides the Company with the proceeds and flexibility to deleverage before the spin-off of the remaining interest in TIP REIT

Ground lease is more attractive than debtTIP REIT ground lease is, in many ways, more attractive than Target’s debt given the 75-year term, the lack of financial covenants, and the lack of refinancing risk

Inflation risk can be hedged out cheaplyTarget can lock in 20-year inflation protection today at ~250 bps per year, which implies an annual after-tax cost of approximately $0.03/share

39



3) Credit ratings,borrowing costs,and liquidity

Target will maintain its “A” category credit ratings at all times

Post spin-off of TIP REIT, Target Corp will maintain its “A” category credit rating as a result of deleveraging

Borrowing costs will not be impacted by the Revised Transaction

The Revised Transaction offers several key credit benefits:

Target’s liquidity is significantly increased given IPO proceeds

Target’s access to and cost of capital is improved by the formation of TIP REIT

40



41

4) Frictional costsand operationalrisks

After-tax frictional costs are small in light of total value creation of $28-plus dollars per share

Main frictional costs are professional fees (investment banking, legal, and accounting) and property taxes

After-tax frictional costs will likely be less than $1 per share

Operational risks are mitigated by the Revised Transaction given:

The presence of an “unwind” mechanism

The ability to “test drive” the Target / TIP REIT relationship during the IPO period

Tax-free nature of spin-off



42

5) Managementdiversion

The formation of TIP REIT will require a modest amount of retail operating management’s time

Predominantly third-party legal and accounting work

CFO, EVP of Property Dev., and GC oversight required

Other members of senior operating management largely uninvolved

The Transaction is akin to placing a master ground lease on Target’s stores. It will be completely transparent and seamless to Target’s core business

IPO and eventual spin-off of TIP REIT will not distract Target’s core business teams:

Merchandising / purchasingMarketingRegional and store-levelIT / systems / administration

Vast majority of Target’s team

members will be uninvolved

Risk of the Status Quo

In today’s world, even the best retailers may lose access to capital

The TIP REIT IPO transaction would immediately increase Target’s access to capital

TIP REIT will have strong access to the debt and equity capital markets, far better than any retailer

TIP REIT will be able to issue OP units for tax-efficient land acquisitions

This Transaction will best position Target to benefit from a weak competitive environment

Given potential retailer bankruptcies, Target can use the liquidity provided by TIP REIT to acquire real estate that might be for sale at substantial discounts in the next 12-18 months

The risk of the status quo is that Target may lose access to capital and not be able take advantage of the current environment

43

Why Is Now the Time?

44

Formation of TIP REIT and the issuance of pro forma financials will take several months

Predominantly legal (lease structuring) and accounting work

Search for a management team and new board of directors for TIP REIT

To achieve a TIP REIT IPO in Q3 2009, the Company will need to authorize work on this Revised Transaction in the beginning of 2009

In 2009, there could be opportunities for Target to benefit from a weak competitive landscape

TIP REIT needs to be in place for the Company to best do so

The Transaction requires several months of planning before an IPO is achievable. To complete an IPO even a year from now, workon this Revised Transaction will need to begin shortly

Fast Forward: 2010E and Beyond

For investors with a longer-term view, the Revised Transaction offers explosive potential upside in 2010E and beyond

A turn in the economy would lead to

Improved retail sales

Heightened inflation expectations

Potentially explosive earnings growth at Target Corp, particularly given recent expense reductions

Increased demand for TIP REIT, given inflation-protected income stream

45

46

Pershing’s Relationship with Target

Pershing has been in discussions with Target since May 2008 about a potential real estate transaction

We appreciate Target’s candid feedback and respect the Company’s concerns

Throughout this process, we have continually improved upon the transaction in an effort to create an outcome that satisfies Target’s strategic goals and concerns

We believe our Revised Transaction addresses all of Target’s concerns and achieves enormous value creation

Questions and Answers

Appendix

The Revised Transaction

Tax-free IPO and spin of Target Inflation Protected REIT (or “TIP REIT”) as Groundlessor and Facility Manager

Pre–Transaction

TARGET Shareholders

TARGET





Elects REIT status at the time of IPO


Becomes Target Corp’s Preferred Vendor for land procurement

Post–Transaction

TARGET Shareholders

Ground Leases

LandFacilities

Mgmt.Services


ExistingRetail

Business

OwnedBuildings 1

TARGET Corp


49

>80%

PublicShareholders

<20%

Revised Transaction: Steps 1 - 2

50

Step 1a: The existing company (“Target Corp”) forms a new subsidiary (“TIP REIT”) and transfers to it the Facilities Management Services business, the owned land under the stores, and the owned land under the distribution facilities

TIP REIT will assume a portion of Target’s liabilities

Transaction Description

Step 2: IPO / REIT Election

Step 1b: TIP REIT leases the land back to Target Corp (i.e. the parent company) through a Master Lease for a 75-year term

Step1: Formation of TIP REIT

Target Corp

TIP REITLandFacilities

ManagementServices

1a

75-year

Master Lease

Target Corp

LandFacilities

ManagementServices

TIP REIT

1b

Step 2a: After some period of time, TIP REIT offers up to 19.9% of its shares in a primary IPO for cash

Cash proceeds could be retained for corporate business purposes or used to reduce TIP REIT debt

Step 2b: TIP REIT elects REIT status effective immediately

Simultaneously, TIP REIT drops the Facilities Management Services business into a new corporation, a taxable REIT subsidiary (TRS)

Target Corp

Land

TIP REIT

Public

FacilitiesMgmt Services

(TRS)

<20% of TIP REITShares

Cash2a

2b

Revised Transaction: Steps 3 - 6

51

6

Transaction DescriptionStep 5: Spin-off

Step 6: E&P Purge

Step 3: Target Corp sells the remaining 53% interest in the credit card receivables business to an Investment PartnerStep 4: Target Corp pays down debt using proceeds from the credit card receivables and the TIP REIT pays down assumed debt using proceeds from the TIP REIT IPOStep 5: Target Corp spins off its remaining >80.1% interest in TIP REIT to its shareholders pro rata and tax-free

Step 6: TIP REIT pays a taxable dividend (at the dividend tax rate to non-corporate taxpayers) to shareholders equal to its allocated portion of Target’s $16bn of retained Earnings and Profits (“E&P”), estimated to be $8bn based on the implied mid-point valuation of TIP REIT/Target Corp

20% of the dividend ($1.6bn) may be paid in cash with the remaining paid in TIP REIT common stockThis cash dividend can be deferred until the end of the calendar year in which the spin-off occurs

5

Land

TIP REIT

TargetShareholders

Tax-freeSpin-off

of TIP REIT shares held

by Target


(TRS)

TargetCorp

TIP REITShareholders

TargetCorpTIP REIT

75-year Lease

$8bn Taxable Dividend

(E&P Purge)

LandFacilities Mgmt

Services(TRS)

<20% >80%

TargetShareholders

TIP REITShareholders

<20%>80%

Why are Treasury Inflation Protected Securities (“TIPS”) the Best Comparable Security to TIP REIT?

53

TIP REIT: (1) Valuing the TIP-like Security

TIP REIT: TIP-like Security

The TIP-like Security should trade at a small spread to TIPS of 195 – 245 bps

Rate / Yield Spread to TIPS

195 bps — 245 bps

2.8%

195 bps — 245 bps

4.75% — 5.25%

20-year TIP Yield Today

Current TGT Unsecured CDS @ ~220bps ± 25 bps 1.95% — 2.45%

—

The current TIPS yield of 2.8% implies an expected 20-year inflation rate of only 1.6%. If the expected 20-year inflation rate increased to 2.0% and the 20-year Treasury rate remained constant, then the 20-year TIPS would yield 2.4% and TIP REIT would yield 4.35% – 4.85%. The higher the inflation rate, the more valuable TIP REIT will be

54

TIP REIT: (2) Valuing the Land Developer

TIP REIT’s land development opportunity can be valued based on its growth platform value

Growth Platform Valuation




TerminalValue (1)

2009 2010 2011 2012 2013 ... 2029Incremental Rental Revenues $62 $122 $233 $366 $524After-tax Facilities Management Income 12 12 14 15 17G&A Expense (20) (21) (21) (22) (22)Total Capex (890) (830) (1,539) (1,801) (2,117)Free Cash Flow from Platform ($836) ($716) ($1,313) ($1,442) ($1,599)Terminal Value $52,694Discount Rate 12.5% 10.5%Terminal Cap Rate 5.25% 4.75%Present Value of Platform – $2,387

Platform Value

55

Valuation: TIP REIT in Total

TIP-like Security

Land Developer

Equity Value (1) Implied Cap Rate (2)

Total TIP REIT

$36/share 5.0%

(1) At mid-point valuation(2) Implied yield calculated based on NOI / Implied value

$2/share

$38/share 5.1%

Based on “TIPS”-based valuation of TIP REIT, the implied TIP REIT valuation is $28bn, or $38/share today

Valuation

2008E Existing dividends: $1,356mm

Dividend yield: 4.75% – 5.25%

Valuation: $26bn – $29bn

2029E NOI: $2,503mm

Terminal cap rate:4.75% – 5.25%

Discount rate on 20-yr DCF: 10.5% – 12.5%

Valuation: $0.0bn – $2.4bn

2009E NOI of $1,452mm

Valuation: $26bn – $31bn or $34/share – $41/share

TIP REIT

Target Corp

$67

$36

$31

Conservative Approach to Valuation

Our mid-point valuation price (pre-IPO) for TIP REIT of $36 (1) implies a 5.0% dividend yield for the TIPS-like security and (2) excludes the value of the Land Developer

TIP REIT Spin-offEquity Value / Share

56

Using a “TIPS”-based valuation analysis, our mid-point valuation price of $36/share excludes the value of TIP REIT’s development platform

Why is TIP REIT More Valuable than a Private Ground Lease?

Building Lot Total LeaseSize Size Lease Term with

Transaction Tenant Location (Sq. Ft.) (Acres) Cap Rate Term Options OptionsFor Sale Lowe's Princeton, WV 116,000 14.16 6.61% 20 Years 6, Five-Year 50 YearsFor Sale Kohl's Selinsgrove, PA 68,416 4.47 6.25% 20 Years 8, Five-Year 60 YearsFor Sale Lowe's Derby, CT 152,890 13.10 5.50% 20 Years 8, Five-Year 60 YearsFor Sale Lowe's Eugene, OR 137,933 12.30 6.25% 20 Years na naFor Sale Wal-Mart Albuquerque, NM 40,000 5.15 5.50% 20 Years 15, Five-Year 95 YearsFor Sale Kohl's Fort Gratiot, MI 89,008 14.75 5.75% 20 Years 4, Five-Year 40 YearsSold Target Fairlawn, OH 99,402 5.28 6.00% 20 Years 6, Five-Year 50 YearsSold - March 27, 2008 Lowe's Whitehall, PA 166,609 14.24 6.05% 20 Years na naSold - March 23, 2008 Home Depot Austell, GA 130,948 14.46 5.75% 20 Years na naSold - October 2007 Kohl's Reno, NV 94,213 9.09 6.10% na na naSold - September 2007 Lowe's Escondido, CA 178,712 11.27 6.00% 20 Years 6, Five-Year 50 YearsSold - July 2007 Lowe's Sayre, PA 111,371 12.50 6.25% 20 Years 8, Five-Year 60 Years

Mean 6.00%Median 6.03%High 6.61%Low 5.50%

58

Ground Leases Typically Trade from 5.50% to 6.25%

Precedent private ground lease transactions support cap rates ofapproximately 5.50% – 6.25% for a typical ground lease with no development pipeline

Source: LoopNet and other public filings

Why is TIP REIT Better than a Private Ground Lease?

59

TIP REIT offers better value to investors than a typical privateground lease

TIP REIT has several qualities which make it more attractive than a private ground lease

Large cap, liquid public ownership

75-year Master Lease term (longer than most private ground leases)

1,435 retail properties (1) in 48 states

Inflation-protected rental stream with annual adjustments

Best-in-class retail tenant

Geographic diversity

Unlike a static ground lease, TIP REIT also has growth, given its dependable new store growth pipeline

Given the above factors, TIP REIT will trade at a lower cap rate than an individual private ground lease


Revised Transaction:Financial Models

Key Revised Assumptions in Models

61

We have updated our model to reflect Q3 2008 results as well as new guidance provided by Target management on its earnings call on Monday, November 17, 2008

Consolidated Model

Assume TIP REIT is captive and fully consolidated with the retailer for accounting purposesFor illustrative purposes, financials show full consolidation of the captive REIT throughout the entire projection period (such consolidation would cease upon full spin-off on 1/1/10)

TIP REIT Model

$1.6bn of cash E&P distribution now funded with proceeds from the 19.9% IPO of TIP REIT instead of additional debt

Target Corp Model

Adjustments to opening balance sheet reflect de-consolidation of TIP REIT from Consolidated Model

For illustrative purposes, we have assumed the sale of remaining 53% interest in the credit card business and the 19.9% IPO of TIP REIT occurring 1/1/09, to be followed by a full spin-off of TIP REIT on 1/1/10

Model – Consolidated

63

Consolidated Model – Income Statement

Status StatusQuo Quo Credit Card 20% IPO Pro Forma Calendar Year, CAGR

($mm) CY2007 CY2008 Adj. TIP REIT CY2008 2009 2010 2011 2012 2013 '09 - '13Retail Sales 61,471 63,720 63,720 66,600 71,171 78,082 86,068 95,316 9.4%

Base Sales Growth (%) 4.5% 6.9% 9.7% 10.2% 10.7%Credit Revenue 1,896 2,087 (1,944) 144 150 160 176 194 215 9.4%

Credit Sales Growth 4.5% 6.9% 9.7% 10.2% 10.7%Total Revenue 63,367 65,807 63,863 66,750 71,331 78,258 86,262 95,530 9.4%


COGS 42,929 44,531 44,531 46,544 49,632 54,373 60,075 66,521% of Retail Sales 69.8% 69.9% 69.9% 69.9% 69.7% 69.6% 69.8% 69.8%

SG&A (excluding D&A and Rent Expense) 12,392 12,899 15 12,914 13,596 14,423 15,744 17,352 19,213% of Retail Sales 20.2% 20.2% 20.3% 20.4% 20.3% 20.2% 20.2% 20.2%

Credit Expenses 950 1,520 (1,520) - - - - - - % of Credit Revenue 50.1% 72.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Retail EBITDAR 6,150 6,290 6,275 6,460 7,117 7,965 8,641 9,582 10.4%Retail EBITDAR Margin (%) 10.0% 9.9% 9.8% 9.7% 10.0% 10.2% 10.0% 10.1%

Credit EBITDAR 946 567 (424) 144 150 160 176 194 215 9.4%Credit EBITDAR Margin (%) 49.9% 27.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

EBITDAR 7,096 6,857 6,418 6,610 7,277 8,140 8,834 9,796 10.3%EBITDAR Margin (%) 11.2% 10.4% 10.1% 9.9% 10.2% 10.4% 10.2% 10.3%

Rent Expense 165 169 169 173 178 182 187 191EBITDA 6,931 6,688 6,249 6,436 7,099 7,958 8,648 9,605 10.5%

EBITDA Margin (%) 10.9% 10.2% 9.8% 9.6% 10.0% 10.2% 10.0% 10.1%

Depreciation & Amortization 1,659 1,819 1,819 1,940 2,073 2,274 2,507 2,776% of Retail Sales 2.7% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

Operating Income 5,272 4,870 4,431 4,496 5,026 5,684 6,141 6,829 11.0%

Net Interest (Income) / Expense 647 942 (440) (232) 270 333 352 422 469 515Income Tax Provision 1,776 1,545 1,519 1,469 1,659 1,879 2,032 2,272

Tax Rate (%) 38% 39% 36% 35% 35% 36% 36% 36%Minority Interest Expense 259 259 257 266 273 280 289Net Income 2,849 2,383 2,383 2,438 2,750 3,110 3,360 3,753 11.4%

Net Income Margin (%) 4.5% 3.6% 3.7% 3.7% 3.9% 4.0% 3.9% 3.9%

Current Diluted Shares Outstanding 882.6 819.0 819.0 754.7 754.7 702.1 688.3 678.3Shares Repurchase (63.7) (64) (64.3) 0.0 (52.5) (13.8) (10.0) (7.2)Share Repurchase from Options 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Shares Outstanding 819.0 754.7 754.7 754.7 702.1 688.3 678.3 671.1Weighted Average Shares Outstanding 850.8 773.7 773.7 754.7 728.4 695.2 683.3 674.7

Earnings per Share ($) $3.33 $3.08 $3.08 $3.23 $3.78 $4.47 $4.92 $5.56 6.29 14.6%

64

Consolidated Model – Balance Sheet

Status StatusQuo Quo Credit Card 20% IPO Pro Forma Calendar Year,

($mm) CY2007 CY2008 Adj. TIP REIT CY2008 2009 2010 2011 2012 2013Cash & Equivalents 2,450 500 0 1,600 2,100 2,100 500 500 500 500Trade Receivables 8,054 8,249 (8,249) - - - - - - Other Current Assets 8,402 8,903 8,903 9,305 9,944 10,909 12,025 13,317

Property, Plant & Equipment, gross 31,982 35,316 35,316 38,427 41,510 46,271 51,715 57,993Accumulated Depreciation (7,887) (9,265) (9,265) (11,205) (13,278) (15,552) (18,059) (20,836)Property, Plant & Equipment, net 24,095 26,051 26,051 27,223 28,233 30,719 33,656 37,157

Other Non-Current Assets 1,559 1,277 1,277 1,277 1,277 1,277 1,277 1,277Total Assets 44,560 44,980 38,331 39,905 39,953 43,405 47,458 52,251

Debt 17,090 17,811 (8,000) (2,974) 6,837 5,925 6,675 7,425 8,175 8,925 Other Current Liabilities 9,818 10,373 10,373 10,842 11,586 12,711 14,011 15,516Other Non-Current Liabilities 2,345 2,521 2,521 2,521 2,521 2,521 2,521 2,521Total Liabilities 29,253 30,705 19,731 19,288 20,782 22,657 24,707 26,963

Minority Interest 0 0 4,574 4,574 4,563 4,550 4,533 4,511 4,485Total Equity 15,307 14,275 (249) 14,026 16,054 14,622 16,215 18,239 20,804

Total Equity & Liabilities 44,560 44,980 38,331 39,905 39,953 43,405 47,458 52,251

65

Consolidated Model – Cash Flow Statement

Pro Forma Calendar Year,($mm) CY2008 2009 2010 2011 2012 2013EBITDA 6,688 6,436 7,099 7,958 8,648 9,605less: Interest Expense (270) (333) (352) (422) (469) (515)less: Taxes (1,545) (1,469) (1,659) (1,879) (2,032) (2,272)less: Dividends Paid to Minorities (268) (268) (279) (289) (302) (315)Share-based Compensation 73 73 73 73 73 73less: Increase in Net Working Capital 54 66 105 159 184 213less: Increase Funding of CC Growth 0 0 0 0 0 0Cash Flow from Operating Activities 4,733 4,506 4,988 5,600 6,103 6,789

Capital Expenditures (3,820) (3,111) (3,083) (4,761) (5,444) (6,277)Cash Flow from Investing Activities (3,820) (3,111) (3,083) (4,761) (5,444) (6,277)

Issuance of Debt 0 750 750 750 750Repayment of Debt (912) (0) 0 0 0Issuance of Equity / (Buy Back) 0 (3,760) (1,089) (890) (722)Issuance of Dividends to Common (483) (495) (501) (519) (540)Cash Flow from Financing Activities (1,395) (3,505) (839) (659) (512)

Beginning Cash Balance 2,100 2,100 500 500 500Change in Cash 0 (1,600) 0 0 0Ending Cash Balance 2,100 500 500 500 500

Average Cash Balance 2,100 1,300 500 500 500Interest Income 3.0% 63 39 15 15 15

66

Consolidated Model – Build-ups and Credit Metrics

StatusQuo Pro Forma Calendar Year,

Sales Buildup CY2007 CY2008 2009 2010 2011 2012 2013Square Feet (mm) 208 222 231 239 254 270 289$ / Sq. Ft. 296 286 288 297 308 318 330Retail Sales 61,471 63,720 66,600 71,171 78,082 86,068 95,316

Implied Retail Sales Growth (%) 3.7% 4.5% 6.9% 9.7% 10.2% 10.7%Sq. Footage Growth (%) 7.0% 4.0% 3.5% 6.0% 6.5% 7.0%SSS Growth (%) (3.1%) 0.5% 3.3% 3.5% 3.5% 3.5%

CapEx Buildup 2007 2008 2009 2010 2011 2012 2013Total System CapEx 4,369 3,820 3,111 3,083 4,761 5,444 6,277

CapEx as % of Retail Sales 7.1% 6.0% 4.7% 4.3% 6.1% 6.3% 6.6%

Status StatusQuo Quo Pro Forma

Credit Metrics CY2007 CY2008 CY2008Lease Adjusted Debt 8 x 1,320 1,353 1,353 1,387 1,421 1,457 1,493 1,531Actual Debt 17,090 17,811 6,837 5,925 6,675 7,425 8,175 8,925Total Lease Adjusted Debt 18,410 19,164 8,190 7,312 8,097 8,882 9,669 10,456

Total Lease Adjusted Debt/EBITDAR 2.6 x 2.8 x 1.3 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 xTotal Debt / EBITDA 2.5 x 2.7 x 1.1 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x

EBITDAR / (Interest + Rent) 8.7 x 6.2 x 14.6 x 13.1 x 13.7 x 13.5 x 13.5 x 13.9 xEBITDA / Interest 10.7 x 7.1 x 23.2 x 19.3 x 20.2 x 18.9 x 18.5 x 18.6 x

67

Consolidated Model – Tax Adjustments

Pro Forma Calendar Year,($mm) CY2008 2009 2010 2011 2012 2013Profit Before Taxes 4,161 4,164 4,674 5,262 5,672 6,313Tax Rate (%) 39% 38% 38% 38% 38% 38%Taxes 1,636 1,582 1,776 1,999 2,155 2,399

Less: State Tax Savings (16) (16) (16) (16) (17) (17) Less: Tax Adj. for Public REIT Shareholders (102) (98) (101) (104) (106) (110) Less: Facilities Mgmt Tax Adj. (0) (0) (0) (0) (0) (0) Net Consolidated Taxes 1,519 1,469 1,659 1,879 2,032 2,272

Adjustment Calculations:

State Tax Savings:Total REIT Net Income 1,303 1,292 1,334 1,370 1,408 1,450 Net Income to Other Shareholders 259 257 266 273 280 289 Net Income to Target 1,044 1,035 1,069 1,097 1,128 1,161 Assumed Tax Rate (150bps less than current rate) 38% 37% 37% 37% 37% 37%Total State Tax Savings (16) (16) (16) (16) (17) (17)

Facilities Management Adjustments:Facilities Mgmt Income 19 19 20 22 24 27 Facilities Mgmt Taxes 7 7 8 8 9 10 Minority Interest on Taxes (1) (1) (2) (2) (2) (2) Target Share of Facilities Mgmt Income 10 10 11 12 13 15 Adjustment for Dividend Received Deduction 12% 11% 11% 11% 11% 11%Incremental Facilities Mgmt Adj. 1 1 1 1 2 2 Total Facilities Management Tax Adj. (0) (0) (0) (0) (0) (0)

Model – TIP REIT

69

TIP REIT Model – Income Statement

(1) Normalized to exclude incremental interest expense due to CY2010 cash E&P distribution(2) $1.6bn of proceeds from a 19.9% IPO of TIP REIT used to pay cash E&P distribution in CY 2010

Pro Forma Calendar Year,($mm, except as noted) CY2008 2009 2010 2011 2012 2013

Gross TIP REIT Revenues from Ground-leased Store Land 1,327 1,389 1,482 1,625 1,789 1,980 Gross TIP REIT Revenues from Ground-leased DCs & WHs Land 44 44 45 49 52 56

Total Gross TIP REIT Revenues 1,371 1,433 1,527 1,673 1,842 2,037

Total TIP REIT Net Rental Revenues 1,371 1,433 1,527 1,673 1,842 2,037 % of Target Corp Retail Sales 2.2% 2.2% 2.1% 2.1% 2.1% 2.1%


Net Facilities Management Income 19 19 20 22 24 27

Net Operating Income 1,389 1,452 1,547 1,695 1,866 2,063

Less: G&A Expense (20) (20) (21) (21) (22) (22) Less: Incremental Standalone Cost (15) (15) (15) (16) (16) (17)

EBITDA 1,354 1,417 1,511 1,659 1,828 2,025

Less: Depreciation & Amortization (44) (55) (66) (85) (108) (134) Less: Interest Expense - (62) (103) (196) (304) (431) Less: Taxes on Facilities Mgmt. Income 38% (7) (7) (8) (8) (9) (10)

Net Income 1,303 1,292 1,334 1,370 1,408 1,450

Normalized Net Income (1) 1,303 1,292 1,334 1,370 1,408 1,450

Ending Shares Outstanding 942.1 942.1 942.1 942.1 942.1 942.1 Earnings per Share $1.38 $1.37 $1.42 $1.45 $1.49 $1.54

Normalized Earnings per Share (1) $1.38 $1.37 $1.42 $1.45 $1.49 $1.54% AFFO

Dividends on Common 100.0% 1,347 1,347 1,400 1,455 1,515 1,584 Special Dividends (2) - - - - - -

Normalized Dividends (1) 1,347 1,347 1,400 1,455 1,515 1,584

Normalized Dividends per Share (1) $1.43 $1.43 $1.49 $1.54 $1.61 $1.68

70

TIP REIT Model – Balance Sheet

Pro Forma Calendar Year,($mm, except as noted) CY2008 2009 2010 2011 2012 2013Real Estate:

Gross Existing Properties - Land & Improvements 11,833 11,833 11,833 11,833 11,833 11,833 Maintenance Capex - - - - - Development Properties - Land & Improvements 890 1,720 3,258 5,059 7,176 Accumulated Depreciation (885) (941) (1,007) (1,092) (1,199) (1,333)

Net Real Estate Asset 10,948 11,782 12,546 14,000 15,693 17,677

Cash - 3 3 3 3 3

Total Assets 10,948 11,785 12,549 14,003 15,696 17,680

Debt:Revolver - 3 3 3 3 3 New Debt - 890 1,720 3,258 5,059 7,176

Total Debt - 893 1,723 3,261 5,062 7,179

Common Equity 10,948 10,948 10,948 10,948 10,948 10,948 Retained Earnings (Deficit) (55) (121) (206) (314) (448) Total Equity 10,948 10,892 10,827 10,742 10,634 10,500

Total Liabilities & Equity 10,948 11,785 12,549 14,003 15,696 17,680

71

TIP REIT Model – Cash Flow Statement

Calendar Year,($mm, except as noted) 2009 2010 2011 2012 2013Cash Flow from Operating Activities:

EBITDA 1,353 1,417 1,511 1,659 1,828 2,025 Less: Interest Expense (205) (62) (103) (196) (304) (431) Less: Taxes on Facilities Mgmt. Income (7) (7) (8) (8) (9) (10)

Net Cash Flow from Operating Activities 1,141 1,347 1,400 1,455 1,515 1,584

Cash Flow from Investing Activities:Development Capex (890) (830) (1,539) (1,801) (2,117) Maintenance Capex - - - - -

Net Cash Flow from Investing Activities (890) (830) (1,539) (1,801) (2,117)

Cash Flow from Financing Activities:Debt Financing:Increase (Decrease) in Revolver 3 - - - - Increase (Decrease) in New Debt 890 830 1,539 1,801 2,117 Equity Financing:Increase (Decrease) in Common Equity - - - - - Dividends on Common (1,141) (1,347) (1,400) (1,455) (1,515) (1,584) Special Dividends - - - - -

Net Cash Flow from Financing Activities (455) (570) 84 285 533

Beginning Cash Balance - 3 3 3 3 Net Change in Cash 3 - - - - Ending Cash Balance - 3 3 3 3 3

72

TIP REIT Model – Rent Build-upPro Forma Calendar Year, CAGR

Assumptions ($mm, except as noted): CY2008 2009 2010 2011 2012 2013 '09 - '13Total Combined Stores - Sq. Ft. Count

Owned Stores 1,435 190 198 207 221 237 256 Combined (Ground-leased) Stores 176 23 23 23 23 23 23 Third-party Leased Stores 73 10 10 10 10 10 10

Total Combined Stores Square Footage 222 231 239 254 270 289 5.7%Total Combined Stores Square Footage Growth 4.0% 3.5% 6.0% 6.5% 7.0%

TIP REIT Stores - Sq. Ft. CountOwned Stores 1,435 Yes 190 198 207 221 237 256

Total TIP REIT Stores Square Footage 190 198 207 221 237 256 6.6%Total TIP REIT Stores Square Footage Growth 4.7% 4.1% 7.0% 7.5% 8.0%

Total Combined DCs & WHs - Sq. Ft. CountOwned DCs & WHs 25 35 35 35 37 39 41 Combined (Ground-leased) DCs & WHs 1 1 1 1 1 1 1 Third-party Leased DCs & WHs 5 7 7 7 7 7 7

Total Combined DCs & WHs Square Footage 44 44 44 46 47 49 3.0%Total DCs & WHs Sq. Ft. vs. Total Combined Stores Sq. Ft. 19.6% 18.9% 18.2% 18.0% 17.5% 17.0%

TIP REIT DCs & WHs - Sq. Ft. CountOwned DCs & WHs 25 Yes 35 35 35 37 39 41

Total TIP REIT DCs & WHs Square Footage 35 35 35 37 39 41 3.7%Total TIP REIT DCs & WHs Square Footage Growth 0.0% 0.0% 5.7% 4.3% 4.8%

Rent / Square Foot - Store Land $7.00 $7.00 $7.18 $7.35 $7.54 $7.73CPI Growth 2.5% 2.5% 2.5% 2.5% 2.5%

Average Growth 2.5% 2.5% 2.5% 2.5% 2.5%

TIP REIT Revenues from Ground-leased Land 1,327 1,389 1,482 1,625 1,789 1,980 9.3%

Rent / Square Foot - DCs & WHs Land $1.25 $1.25 $1.28 $1.31 $1.35 $1.38CPI Growth 2.5% 2.5% 2.5% 2.5% 2.5%

Average Growth 2.5% 2.5% 2.5% 2.5% 2.5%

TIP REIT Revenues from Ground-leased DCs & WHs 44 44 45 49 52 56 6.3%

Total TIP REIT Gross Revenues 1,371 1,433 1,527 1,673 1,842 2,037 9.2%

73

TIP REIT Model – FFO & AFFO Reconciliations, Credit Statistics and Implied Metrics


Pro Forma Calendar Year,FFO & AFFO Reconciliations: CY2008 2009 2010 2011 2012 2013Net Income 1,303 1,292 1,334 1,370 1,408 1,450

Plus: Depreciation & Amortization 44 55 66 85 108 134 Funds from Operations 1,347 1,347 1,400 1,455 1,515 1,584

Ending Shares Outstanding 942.1 942.1 942.1 942.1 942.1 942.1 FFO / Share $1.43 $1.43 $1.49 $1.54 $1.61 $1.68

Less: Maintenance Capex - - - - - - Adjusted Funds from Operations 1,347 1,347 1,400 1,455 1,515 1,584

Normalized AFFO (1) 1,347 1,347 1,400 1,455 1,515 1,584

Credit Statistics:Coverage:

EBITDA / Interest Expense 22.7x 14.6x 8.5x 6.0x 4.7x(EBITDA - Maintenance Capex) / Interest Expense 22.7x 14.6x 8.5x 6.0x 4.7x

Leverage:Total Debt / EBITDA 0.6x 1.1x 2.0x 2.8x 3.5x

Capitalization:Total Debt / Total Real Estate Value 3.7% 6.7% 11.6% 16.4% 21.1%(NOI capped at 6.0% and 8.5% for store land and DCs & WHs land, respectively)

Implied Metrics:Incremental Stores Square Footage 9 8 14 16 19

SuperTarget Stores 50.0% 4 4 7 8 9 Implied New Combined SuperTarget Stores 0.177 Sq. Ft. / SuperTarget 25 23 41 47 54

% of Total New Stores Built 41.0% 41.8% 41.4% 41.6% 41.5%Combined Total Number of SuperTarget Stores 239 264 287 328 375 429

General Merchandise Stores 50.0% 4 4 7 8 9 Implied New Combined GM Stores 0.125 Sq. Ft. / GM 36 32 58 66 76

% of Total New Stores Built 59.0% 58.2% 58.6% 58.4% 58.5%Combined Total Number of General Merchandise Stores 1,445 1,481 1,513 1,571 1,637 1,713 Total Implied New Stores 61 55 99 113 130 Cumulative Combined Total Implied Stores 1,684 1,745 1,800 1,899 2,012 2,142

Incremental DCs & WHs Square Footage - - 2 2 2 Implied Combined New DCs & WHs 1.408 0 0 1 1 1

Total Implied New DCs & WHs 0 0 1 1 1Cumulative Combined Total Implied DCs & WHs 31 31 31 32 34 35

74

TIP REIT Model – Capex Schedule

Calendar Year,($mm, except as noted) 2009 2010 2011 2012 2013Total Combined Expenditures 3,111 3,083 4,761 5,444 6,277

Maintenance / Retail Capital Expenditures 1,332 1,423 1,638 1,806 2,000 Target Corp - Store Buildings 1,332 1,423 1,638 1,806 2,000 TIP REIT - - - - -

Development Capital Expenditures 1,779 1,660 3,122 3,638 4,278 Target Corp Building - Store and DCs & WHs 71.4% 890 830 1,583 1,837 2,160 TIP REIT Land - Store and DCs & WHs 28.6% 890 830 1,539 1,801 2,117 Target Corp - Other - - - - -

TIP REIT Land - Store 890 830 1,509 1,776 2,088 Store Land Cost per Square Foot $100.00 $102.50 $105.06 $107.69 $110.38

TIP REIT Land - DCs & WHs - - 30 24 29 DCs & WHs Land Cost per Square Foot $14.00 $14.00 $14.35 $14.71 $15.08 $15.45

TIP REIT Land - Store Yes 890 830 1,509 1,776 2,088 TIP REIT Land - DCs & WHs Yes - - 30 24 29

Total Development Capex 890 830 1,539 1,801 2,117

Development Financing Sources:Debt Financing 100% 890 830 1,539 1,801 2,117 Equity Financing 0% - - - - -

Model – Target Corp

76

Target Corp Model – Income StatementStatus

Quo REIT Pro Forma Calendar Year, CAGR($mm) CY2009 Adj. CY2009 2010 2011 2012 2013 '09 - '13Retail Sales 66,600 66,600 71,171 78,082 86,068 95,316 9.4%

Base Sales Growth (%) 6.9% 9.7% 10.2% 10.7%Credit Revenue 150 150 160 176 194 215 9.4%

Credit Sales Growth na 6.9% 9.7% 10.2% 10.7%Total Revenue 66,750 66,750 71,331 78,258 86,262 95,530 9.4%

Total Revenue Growth 6.9% 9.7% 10.2% 10.7%

COGS 46,544 46,544 49,632 54,373 60,075 66,521% of Retail Sales 69.9% 69.9% 69.7% 69.6% 69.8% 69.8%

SG&A (excluding D&A and Rent Expense) 13,596 (35) 13,561 14,387 15,708 17,314 19,175% of Retail Sales 20.4% 20.4% 20.2% 20.1% 20.1% 20.1%

Credit Expenses - - - - - - % of Credit Revenue 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Retail EBITDAR 6,460 6,495 7,153 8,001 8,678 9,620 10.3%Retail EBITDAR Margin (%) 9.7% 9.8% 10.0% 10.2% 10.1% 10.1%

Credit EBITDAR 150 150 160 176 194 215 9.4%Credit EBITDAR Margin (%) 100.0% na na na na na

EBITDAR (Pre-spin) 6,610 6,645 7,313 8,177 8,872 9,835 10.3%EBITDAR Margin (%) 9.9% 10.0% 10.3% 10.4% 10.3% 10.3%

Current Embedded Facility Management Costs (125) (125) (134) (147) (162) (179)External Facility Mgmt. Payments to TIP REIT 144 144 154 169 186 206

Current Rent Expense 173 173 178 182 187 191Additional Rent Expense 1,433 1,527 1,673 1,842 2,037Pro Forma EBITDA (Post-spin) 6,436 5,020 5,588 6,300 6,819 7,580 10.9%

EBITDA Margin (%) 9.6% 7.5% 7.8% 8.0% 7.9% 7.9%

Depreciation & Amortization 1,940 (55) 1,885 2,007 2,189 2,400 2,642% of Retail Sales 2.8% 2.8% 2.8% 2.8% 2.8%

Operating Income 4,496 3,135 3,581 4,110 4,420 4,938 12.0%

Net Interest (Income) / Expense 333 (31) 302 330 346 463 555Income Tax Provision 1,469 1,077 1,235 1,430 1,504 1,665

Tax Rate (%) 35% 38% 38% 38% 38% 38%Minority Interest 257 (257) 0 0 0 0 0Net Income 2,438 1,757 2,015 2,334 2,453 2,717 11.5%

Net Income Margin (%) 3.7% 2.6% 2.8% 3.0% 2.8% 2.8%

Current Diluted Shares Outstanding 754.7 754.7 726.2 683.8 657.0Shares Repurchase 0.0 (28.5) (42.4) (26.8) (29.3)Share Repurchase from Options 0.0 0.0 0.0 0.0 0.0

Total Shares Outstanding 754.7 726.2 683.8 657.0 627.7Weighted Average Shares Outstanding 754.7 740.4 705.0 670.4 642.3

Earnings per Share ($) $2.33 $2.72 $3.31 $3.66 $4.23 16.1%

77

Target Corp Model – Balance Sheet

StatusQuo REIT Pro Forma Calendar Year,

($mm) CY2009 Adj. CY2009 2010 2011 2012 2013Cash & Equivalents 2,100 (1,600) 500 500 500 500 500Trade Receivables - - - - - - Other Current Assets 9,305 9,305 9,944 10,909 12,025 13,317

Property, Plant & Equipment, gross 38,427 (12,723) 25,704 27,958 31,179 34,823 38,983Accumulated Depreciation (11,205) 941 (10,264) (12,271) (14,461) (16,860) (19,503)Property, Plant & Equipment, net 27,223 (11,782) 15,440 15,686 16,719 17,962 19,480

Other Non-Current Assets 1,277 1,277 1,277 1,277 1,277 1,277Total Assets 39,905 26,523 27,407 29,405 31,765 34,574

Debt 5,925 (890) 5,036 4,595 5,544 5,892 6,697 Other Current Liabilities 10,842 10,842 11,586 12,711 14,011 15,516Other Non-Current Liabilities 2,521 2,521 2,521 2,521 2,521 2,521Total Liabilities 19,288 18,398 18,702 20,776 22,424 24,735

Minority Interest 4,563 (4,563) 0 0 0 0 0Total Equity 16,054 (7,930) 8,124 8,705 8,629 9,340 9,840

Total Equity & Liabilities 39,905 26,523 27,407 29,405 31,765 34,574

78

Target Corp Model – Cash Flow Statement

Calendar Year,($mm) 2010 2011 2012 2013EBITDA 5,020 5,588 6,300 6,819 7,580less: Interest Expense (302) (330) (346) (463) (555)less: Taxes (1,077) (1,235) (1,430) (1,504) (1,665)Share-based Compensation 73 73 73 73 73less: Increase in Net Working Capital 105 159 184 213less: Increase Funding of CC Growth 0 0 0 0 0Cash Flow from Operating Activities 3,714 4,201 4,756 5,110 5,646

Capital Expenditures (2,253) (3,222) (3,643) (4,160)Cash Flow from Investing Activities (2,253) (3,222) (3,643) (4,160)

Issuance of Debt 1,507 2,483 1,815 2,291Repayment of Debt (1,948) (1,534) (1,467) (1,486)Issuance of Equity / (Buy Back) (1,507) (2,483) (1,815) (2,291)Issuance of Dividends to Common 0 0 0 0 0Cash Flow from Financing Activities (1,948) (1,534) (1,467) (1,486)

Beginning Cash Balance 500 500 500 500Change in Cash 0 0 0 0Ending Cash Balance 500 500 500 500

Average Cash Balance 500 500 500 500Interest Income 3.0% 15 15 15 15

79

Target Corp Model – Build-ups and Credit MetricsPro Forma Calendar Year,

Sales Buildup CY2009 2010 2011 2012 2013Square Feet (mm) 231 239 254 270 289$ / Sq. Ft. 288 297 308 318 330Retail Sales 66,600 71,171 78,082 86,068 95,316

Implied Retail Sales Growth (%) 6.9% 9.7% 10.2% 10.7%Sq. Footage Growth (%) 3.5% 6.0% 6.5% 7.0%SSS Growth (%) 3.3% 3.5% 3.5% 3.5%

CapEx Buildup 2009 2010 2011 2012 2013Total System CapEx 3,111 3,083 4,761 5,444 6,277

CapEx as % of Retail Sales 4.7% 4.3% 6.1% 6.3% 6.6%

Maintenance/Retail CapEx 1,332 1,423 1,638 1,806 2,000Additional Cap Ex 0.0 0.0TOTAL Maintenance/Retail CapEx % of total 35.0% 1,332 1,423 1,638 1,806 2,000 – Target Corp 1,423 1,638 1,806 2,000 – TIP REIT (Existing DC & WH) 0 0 0 0

Development CapEx % of total 65.0% 1,779 1,660 3,122 3,638 4,278

Buildings (Tgt Corp) % of Development 50% 890 830 1,583 1,837 2,160 Land % of Development 50% 890 830 1,539 1,801 2,117 – Target Corp 0 0 0 0 0 – TIP REIT 890 830 1,539 1,801 2,117 Other (Target Corp) % of Development 0% 0 0 0 0 0

Facilities Management Business ($mm)Total Current Costs 125 134 147 162 179Growth % 6.9% 9.7% 10.2% 10.7%

Markup to TIP REIT 15% 15% 15% 15% 15%Facilities Management Revenue to TIP REIT 144 154 169 186 206

Credit MetricsLease Adjusted Debt 8 x 1,387 12,851 13,637 14,844 16,228 17,823Actual Debt 5,925 5,036 4,595 5,544 5,892 6,697Total Lease Adjusted Debt 7,312 17,887 18,232 20,388 22,120 24,520

Total Lease Adjusted Debt/EBITDAR 1.1 x 2.7 x 2.5 x 2.5 x 2.5 x 2.5 xTotal Debt / EBITDA 0.9 x 1.0 x 0.8 x 0.9 x 0.9 x 0.9 x

EBITDAR / (Interest + Rent) 13.1 x 3.5 x 3.6 x 3.7 x 3.6 x 3.5 xEBITDA / Interest 19.3 x 16.6 x 16.9 x 18.2 x 14.7 x 13.7 x

The Nominees for Shareholder Choice

May 11, 2009


In connection with the 2009 Annual Meeting of Shareholders of Target Corporation (“Target”), Pershing Square Capital Management, L.P. and certain of its affiliates (collectively, “Pershing Square”) filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission (the “SEC”) on May 1, 2009 containing information about the solicitation of proxies for use at the 2009 Annual Meeting of Shareholders of Target. The definitive proxy statement and the GOLD proxy card were first disseminated to shareholders of Target on or about May 2, 2009.

SHAREHOLDERS OF TARGET ARE URGED TO READ THE PROXY STATEMENT CAREFULLY BECAUSE IT CONTAINS IMPORTANT INFORMATION. The definitive proxy statement and other relevant documents relating to the solicitation of proxies by Pershing Square are available at no charge on the SEC’s website at http://www.sec.gov. Shareholders can also obtain free copies of the definitive proxy statement and other relevant documents at www.TGTtownhall.com or by calling Pershing Square’s proxy solicitor, D. F. King & Co., Inc., at 1 (800) 290-6427.

Pershing Square and certain of its members and employees and Michael L. Ashner, James L. Donald, Ronald J. Gilson and Richard W. Vague (collectively, the “Participants”) are deemed to be participants in the solicitation of proxies with respect to Pershing Square’s nominees. Detailed information regarding the names, affiliations and interests of the Participants, including by security ownership or otherwise, is available in Pershing Square’s definitive proxy statement.

This presentation contains forward-looking statements. All statements contained in this presentation that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words “anticipate,” “believe,” “expect,”“estimate,” “plan,” and similar expressions are generally intended to identify forward-looking statements. These statements are based on current expectations of Pershing Square and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Pershing Square does not assume any obligation to update any forward-looking statements contained in this presentation.

This presentation is for general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice on the merits of any investment decision. The views expressed herein represent the opinions of Pershing Square, which opinions may change at any time and are based on publicly available information with respect to Target. Certain financial information and data used herein have been derived or obtained from filings made with the Securities and Exchange Commission (“SEC”) by Target or other companies that Pershing Square considers comparable or relevant.

Disclaimer

1

Pershing Square has not sought or obtained consent from any third party to the use of previously published information as proxy soliciting material. Any such statements or information should not be viewed as indicating the support of such third party for the views expressed herein. No warranty is made that data or information, whether derived or obtained from filings made with the SEC or from any third party, are accurate. Neither Pershing Square nor any of its affiliates shall be responsible or have any liability for any misinformation contained in any SEC filing or third party report. Pershing Square disclaims any obligation to update theinformation contained herein.

This presentation does not recommend the purchase or sale of any security. Under no circumstances is this presentation to be used or considered an offer to sell or a solicitation of an offer to buy any security. There is no assurance or guarantee with respect to the prices at which any securities of Target will trade. Pershing Square and its affiliates currently hold a substantial amount of common stock and options of Target and may in the future take such actions with respect to its investments in Target as it deemsappropriate including, without limitation, purchasing additional shares of Target common stock or related financial instruments or selling some or all of its beneficial and economic holdings, engaging in any hedging or similar transaction with respect to suchholdings and/or otherwise changing its intention with respect to its investments in Target. Pershing Square may also change its beneficial or economic holdings depending on additions or redemptions of capital. Pershing Square is in the business of trading —buying and selling — securities and other financial instruments. Consequently, Pershing Square’s beneficial ownership of Target common stock and options will vary over time depending on various factors, with or without regard to Pershing Square’s views of Target’s business, prospects or valuation (including the market price of Target common stock), including without limitation, other investment opportunities available to Pershing Square, concentration of positions in the portfolios managed by Pershing Square, conditions in the securities market and general economic and industry conditions.

Disclaimer (cont’d)

2

3

Agenda

Situation Overview

Why Board Change is Warranted


Food Retailing: Jim DonaldCredit Cards: Richard VagueReal Estate: Michael AshnerShareholder Value: Bill AckmanCorporate Governance: Ron Gilson

Target’s Board: Avoiding the Real Issues

Corporate Elections and Shareholder Choice

Situation Overview

Pershing Square

5

Pershing Square is a long-term Target shareholder

Pershing Square initiated its investment in Target in April 2007

We are the third largest beneficial owner of Target

We have ownership of 7.8% of Target

~$1 billion of common stock (3.3% of the company)

~$280 million in stock options (4.5% of the company)(1)

Target is the largest investment in Pershing Square’s portfolio

(1) Unless and until these options are exercised, the underlying shares do not carry voting rights.

April 2007: Pershing Square becomes a Target shareholder

August 2007: Pershing Square, in its first meeting with Target management, proposes that Target pursue a credit card partnership transaction to minimize credit risk, eliminate funding risk, and increase Target’s valuation

September 2007: Target announces a review of ownership alternatives for its credit card receivables and an analysis of its capital structure

December 2008: Pershing Square, in two separate presentations to Target, emphasizes the importance of credit risk transfer in any contemplated partnership transaction

May 2008: Target announces a sale of a 47% interest in it receivables, but retains credit risk

MISTAKE: Board elects not to transfer credit risk in the transaction, primarily to retain underwriting controlTarget share repurchase program is principally funded with debt, despite credit risk and funding risk remaining on its balance sheet

Pershing’s Background with Target

Credit Card Business Real Estate AssetsRetail Business

6

May 2008: Pershing Square meets with management to discuss value creation opportunities regarding Target’s real estate

Pershing Square proposes a spin-off of a land-only REIT to Target shareholders

Transaction would preserve Target’s flexibility in controlling its buildings/brand and allow the market to appropriately value the company’s ~200 million square feet of real estate

Management agrees that the transaction is worthy of further exploration

July 2008: Pershing Square meets with Target and Goldman Sachs to discuss real estate transaction

September 2008: Board raises concerns regarding Pershing Square’s real estate proposal, primarily with respect to credit ratings impact and valuation assumptions

Pershing’s Background with Target (cont’d)

7


8

Fall 2008: Pershing Square encourages Target to halt buyback program due to credit market conditions

October 2008: Pershing Square seeks shareholder input by publicly presenting “A TIP for Target Shareholders”

Immediately after the presentation, Target issues a press release expressing concerns

November 2008: Pershing Square presents “A Revised Transaction” which addresses Target’s concerns regarding credit ratings and valuation

Within 48 hours of Pershing’s presentation, board rejects the Revised Transaction without seeking rating agency review

Pershing defers discussion of the Revised Transaction until 2009 to allow Target to focus on its business

February 2009: Pershing Square meets with Target and Goldman Sachs to discuss the assumptions behind the board’s decision

Pershing Square learns that the board restricted Goldman Sachs to the narrow task of evaluating Pershing Square’s proposal, rather than fully investigating all potential value creating alternatives for real estate

Pershing Square concludes that the Revised Transaction was not adequately explored by the board or its advisors

February 2009: Pershing Square requests one board seat and one additional independent director

March 2009: Pershing Square presents, in total, four candidates – Bill Ackman and three independent nominees

Board rejects all four candidates, three without explanation

Board did not even meet with two of them (Richard Vague, Michael Ashner)


9

10

Situation Overview

On March 17, 2009, Pershing Square announces the nomination of five independent directors for the open seats on Target’s board

We did so principally because we believe that the incumbent Target board has:

Suboptimal composition

Made significant strategic mistakes that have destroyed shareholder value

Performed key corporate governance duties poorly

Our goal in this election:

Improve Target’s board and help make Target a stronger, more profitable, and more valuable company

Why Board Change is Warranted

Why Board Change is Warranted in Our View

Board’s Suboptimal Composition

⌧ Lacks senior operating experience in key business lines and assets (1)

⌧ Lacks significant shareholder representation

⌧ Average tenure of independents nearly a decade

⌧ 12 incumbent directors serve on 18 other boards (including Citi, Wells Fargo and Goldman)

Board’s Mistakes in Assessing Strategic

Transactions

Board’s Faulty Corporate

Governance

⌧ Board did not exit the credit card business before meeting Pershing Square

⌧ The board-approved credit card transaction structure was a mistake that we believe cost shareholders dearly

⌧ Board did not authorize a full review of all real estate ownership alternatives for maximizing shareholder value

(1) Pershing Square defines senior operating experience as experience in a specific line of business with the director having served as the CEO of a company in that business for a meaningful period of time during his or her career. Pershing Square’s view is not only based on the length of time served by a specific director in the relevant business line, but also on the extent, nature and specialization of each director’s service and the principal responsibilities during that service.

12

⌧ Board lacks a fair and open nominating process

⌧ Compensation plan fails to foster a culture of equity ownership

⌧ Board rejected the request for Universal Proxy thereby limiting shareholder choice

⌧ Interlocking directorships and affiliate transactions

Board Lacks Sufficient Relevant Experience

Credit Card Business

Real Estate AssetsOver 200 million sq ft of

retail real estate

Retail Business

Target’s Current Board

NO Retail senior operating experience

NO Real Estate senior operating experience

NO Credit Card senior operating experience

13

Our view of

Issued shares Total beneficialbeneficially owned ownership

Austin 2,388 48,487Darden 2,901 35,781Dillon 0 3,058Johnson 11,116 97,135Kovacevich 61,569 128,671Minnick 886 9,446Mulcahy 7,114 29,536Rice 0 3,058Sanger 27,683 120,699Tamke 10,334 86,300Trujillo 38,025 124,181Steinhafel 429,424 1,309,840Total Board 591,440 1,996,192% of common shares outstanding 0.08% 0.27%

Total Independent Directors 162,016 686,352% of common shares outstanding 0.02% 0.09%

Common Shares Outstanding 752,672,699

Board Lacks Significant Shareholder Representation

Target’s board lacks significant shareholder representation, owning less than 0.3% of the company. Independent directors own only 0.02%of the company in common stock

Board Members

14Source: Target proxy

Board Member Current Occupation (Title)

Years on Board

Mary Dillon Executive Vice President and Global Chief Marketing Officer of McDonald’s Corporation

2

Richard Kovacevich Chairman of the Board of Wells Fargo & Company

13 Solomon Trujillo CEO of Telstra Corporation Limited, an Australian

telecommunications company

15

George Tamke Partner with Clayton, Dubilier & Rice, Inc., a private investment firm

10 Calvin Darden Chairman of the Atlanta Beltline, Inc., an urban revitalization project

for the City of Atlanta

6

Anne Mulcahy CEO and Chairman of the Board of Xerox Corp., a document management company

12

Stephen Sanger Retired. Previously, CEO and Chairman of the Board of General Mills, Inc

13

Roxanne Austin President of Austin Investment Advisors, a private investment and consulting firm

7

James Johnson Vice Chairman of Perseus, LLC, a merchant banking private equity firm

13

Mary Minnick Partner of Lion Capital, a private investment firm

4 Derica Rice Senior Vice President and CFO of Eli Lilly and Company

2

Average Tenure of Nearly a DecadeIn

cum

bent

Nom

inee

s

15

The average tenure of the independent directors is approximately 9 years. The average tenure of the incumbent nominees is approximately 10 years

$322

$930

3.7%

12.8%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2007A 2008A0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Board’s Strategic Mistake: Credit Card

16

Target’s board decided not to transfer credit risk in a credit card transaction, despite Pershing Square’s repeated requests. In 2008, Target’s credit card operating profits fell 65% predominantly due to increased credit risk and bad debt expense

Cre

dit C

ard

EBIT

Credit C

ard EBIT as a %

of average receivables

65% drop

Source: Company filings

$ in millions

Board Lacks Initiative: Real Estate

Target owns over 200 million square feet of high-quality retail real estate

We believe that Target’s real estate has a replacement cost of nearly $40 billion (based on management’s estimates of the current average cost to build its stores and distribution facilities)

Despite this immense value, Target’s board has been unwilling to examine alternatives to unlock real estate value

Notably, the board assigned its advisors the narrow task of onlyevaluating Pershing Square’s TIP REIT spin-off structure

Board would not authorize Goldman Sachs to explore alternative real estate value creation opportunities

17

Is Target’s board nomination process fair, open, and thorough?

Governance: Faulty Nomination Process

18

In our view, the board nomination process is insular, conflicted, and unreceptive to shareholder input

⌧ Nominating Committee Chair Sanger received over $1.25 million in fees and equity compensation since 2003 from incumbent nominee Kovacevich’scompany, Wells Fargo

⌧ Nominating Committee Chair Sanger also serves on Wells Fargo’s compensation committee

⌧ Independent nominees Ashner and Vague were never interviewed

⌧ Nomination Committee Chair Sanger would not give an explanation for the rejection of the nominees

Conflict

Request for a Universal Proxy card: Rejected

Board is Attempting to Limit Choice

19

Pershing Square will pay the expense

Target’s Reasons

Too expensive

Liability concerns

Feasibility confirmed by Broadridge, consent of parties is all that is neededCan be implemented at any time

Reality

Shareholders have expressed disappointment with Target’s position.Target and its nominees should consent to have all nominees named on one proxy card. Even now, this can still be achieved. Shareholders should press this issue with Target

Request to name Target Nominees on Gold card: Ignored

Technology barrier

Too Late

Causes delay and confusion Mitigates confusion and allows shareholders to choose the best nominees from both slates

No liability to Target or its nominees

Board Does Not Foster an Ownership Culture

Last Five Years of Activity in Target Stock (1)

Executive Management Board (2)

Total OpenMarketPurchases

Total Sales

Total

$3.8 mm

$(428.5) mm

$3.8 mm$0.0 mm

(1) Based on the trailing five years prior to the announcement of Pershing Square’s nomination of the Nominees for Shareholder Choice on 3/17/2009.(2) Includes only non-employee directors.

$(419.7) mm $(8.8) mm

We believe that Target’s compensation plan does not foster an ownership culture at Target, as senior management and the board have sold $429 million of stock in the last five years

How can we be sure that Target’s board and managers are truly focused on creating long-term shareholder value if they sell so much stock?

20

Key Duties Pershing’s Grade Commentary Hiring / firing management

Good Strong management team

Assessing strategic transactions

Poor Credit card transaction structure approved by the board was a mistake

Board did not authorize a full review of Target’s real estate ownership alternatives

Board’s decision to sell Mervyn’s and Marshall Fields took years of prodding by the investment community

Nominating directors

Poor Independent directors have an average tenure of nearly a decade

Board lacks non-executives with CEO-level retail, credit card, and real estate experience

Board refused to interview two of Pershing’s nominees Board refused a request for universal proxy

Executive compensation

Poor Board has not fostered an ownership culture, as witnessed by $429 million of Target stock sales by executive management in the last five years

Advising management on existing strategies

N/A We question whether this board has sufficient expertise to advise management on running a retail and credit card company

Grading the Board: Key Duties

21

22

We believe that Target’s suboptimal board has contributed to the company’s material underperformance during this recession

38.39

58.39

78.39

98.39

118.39

138.39

Underperformance Relative to Wal-Mart

Target

Down 51%

Wal-Mart

Up 11%

23

From the beginning of the fourth quarter of 2007 to the day prior to our announcement of our proposed slate, Target stock declined by 51%. Over the same period, the stock of Wal-Mart, Target’s principal competitor, appreciated 11%, a ~62 percentage point outperformance

Stock price returns

Measured on a 10-year trailing basis ending on the day prior to the announcement of the Nominees for Shareholder Choice, Wal-Mart’s stock price outperformed Target’s stock price by approximately 18%.

Target

Wal-MartUS

24Source: Company filings

Underperformance in Same Store Sales Growth

Year-over-Year Growth Rate of Quarterly Same Store Sales

We believe that Target’s substantial negative returns to its shareholders are reflective of its operating underperformance compared with Wal-Mart

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

4Q07 1Q08 2Q08 3Q08 4Q08

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

4Q07 1Q08 2Q08 3Q08 4Q08

Wal-Mart

Target

Year-over-Year Growth Rate of Reported Quarterly EPS from Continuing Operations


Underperformance in Earnings Per Share Growth

Since Q4 2007, Target’s earnings per share growth has been significantly less than Wal-Mart’s earnings per share growth

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

7.4%

7.6%

2005 2006 2007 2008

Target Retail Profitability Should Be Higher

Target6.3%

2008 Retail EBIT margin

Wal-MartUS7.3%


Retail EBIT Margins

Even before the recession, Target’s retail margins have been deteriorating while Wal-Mart’s margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods


2006 –2007: Why were Target’s retail margins weaker even during the

strong economy?

Wal-Mart’s Board Has Deep, Relevant Experience

Real EstateWal-Mart owns a lower percentage

of its stores than Target

Retail Business

Current Board

Allen Questrom, former CEO of JCPenney, Neiman Marcus, Federated Department Stores

Roger Corbett, retired CEO of Woolworths, Australia’s leading retail company

Arne Sorenson, EVP and CFO of Marriott International

We note that Wal-Mart partnered with a financial institution for its store credit card years ago. It does not own credit card receivables and has none of the material risks associated with these assets

27

Is Target’s Board Too Insular?

⌧ Chose board members without relevant senior operating experience in Target’s key business lines and assets

⌧ Rejected significant shareholder representation

⌧ Continually re-elects its own members, despite the lack of relevant senior operating experience

⌧ Ignored major shareholder regarding credit risk

⌧ Refused to authorize full review of alternatives for real estate ownership

⌧ Rejected major shareholder’s request to join the board without explanation

⌧ Refused to interview leading executives Richard Vague or MichaelAshner in its nominating process

28

Pershing Square’s observations of Target’s incumbent board:

77 76 68 17 00

500

1,000

1,500

2,000

2,500

3,000

Retailing is a Constantly Evolving Industry

We believe that a key role of an independent board is to bring an outside perspective to challenge strategies that might have worked in the past but will likely need to evolve over time – contrary to Target’s board’s apparent instinct to maintain the status quo

2,601

239 185 12855

0

500

1,000

1,500

2,000

2,500

3,000

Competitive Landscape — 1993 Competitive Landscape — Today

Number of supercenters Number of supercenters

29

30

In our view, the Nominees for Shareholder Choice will bring much needed “new life” to Target’s insular incumbent board

The Nominees for Shareholder Choice offer deep and relevant experience, major stock ownership, and fresh perspectives

Time for Board Change

Introducing the Nominees for Shareholder Choice

Gold Proxy Card


32

(1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.

Nominee for Shareholder Choice

Significant Relevant Experience

Commentary

•

Jim Donald Food Retailing

• 30 years of grocery experience • Former CEO of Starbucks and Pathmark • Oversaw the development and growth of Wal-Mart’s SuperCenter

business •

Richard Vague Credit Cards • Leading credit card operating executive • Former CEO and co-founder of First USA, the largest VISA credit

card issuer before it was sold to Bank One (now JPMorgan Chase) •

Michael Ashner Real Estate • Established real estate CEO and investor • Currently manages over 20 million sq ft of commercial real estate • Has acquired more than $12 billion of real estate in 45 states

•

Bill Ackman Shareholder Value

• Founder of Pershing Square • Owner of a 7.8% stake in Target (1) • Track record for creating value in consumer and retail businesses

•

Ron Gilson Corporate Governance

• World-renowned expert in the field of corporate governance • Professor of Law and Business at both Stanford Law School and

Columbia University School of Law

33

Nominees Are Entirely Independent

Jim Donald, Richard Vague, Michael Ashner, and Ron Gilson are independent nominees with no commercial relationships with Target or Pershing Square

Each is a highly regarded leader in his area of expertise

Each has his own unique perspective, background, and ideas

Pershing Square has no agreements, understandings, or arrangements with the Nominees for Shareholder Choice, other than they have agreed, if elected, to serve on the board (1)

The Nominees for Shareholder Choice have only one common goal: to help oversee the management of Target for the purpose of creating long-term value for all stakeholders

The Nominees for Shareholder Choice are entirely independent andhave no preconceived agenda other than to maximize shareholder value

If elected, the Nominees for Shareholder Choice will represent the interests of all shareholders using their own independent business judgment

(1) Other than customary indemnifications and expense reimbursement arrangements.

Comparison of Slates

The Incumbent Nominees


34

⌧ Lack senior operating experience in key business lines and assets

⌧ Beneficially own less than 0.05% of the company

⌧ Are accountable for strategic mistakes

⌧ Three out of four incumbent nominees have served for at least a decade

CEO-level operating experience in:RetailCredit cardsReal Estate

Corporate governance expertise

Beneficially own 7.8% of the company (1)

Offer fresh perspectives while preserving board continuity

Entirely independent

(1) Consisting of 3.3% in shares (approximately $1bn in market value) and 4.5% in stock-settled call options (approximately $280mm in market value).

Food Retailing: Jim Donald

Food Retailing is A Critical Growth Initiative

Food retailing represents a critical strategic growth initiative for Target.

We and the company believe that an expanded food presence can help Target increase the frequency of visits from its customers and generate higher and more predictable sales

36

Food: Critical Strategic Growth Initiative

37

“We continue to focus on food as a priority . . . [W]e’venearly doubled our commitment to food over a five to seven-year timeframe.”

Gregg Steinhafel, CEOTarget 2Q’07 Earnings Call, 8/21/07

“We also continue to invest in our food offering in recognition of its importance in driving greater frequency, increasing guest loyalty, and making Target a preferred shopping destination.”

Gregg Steinhafel, CEOTarget 4Q’08 Earnings Call, 2/24/09

2,601

239 185 12855

0

500

1,000

1,500

2,000

2,500

3,000

77 76 68 17 00

500

1,000

1,500

2,000

2,500

3,000

Target: Slow to Innovate with Grocery/Superstores

Competitive Landscape — 1993 Competitive Landscape — Today

Wal-Mart was not always the dominant player in the supercenter / grocery space, but eventually emerged as a clear segment leader

Number of supercenters Number of supercenters

Did Target miss an important opportunity

in food?

38

Increasing Food Could Help Sales Significantly

Target

Wal-MartUS

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

4Q07 1Q08 2Q08 3Q08 4Q08


In our view, Target’s more limited food offering partially explains why Target’s same-store-sales growth rate has been considerably weaker than Wal-Mart’s in every quarter since Q4 2007

Year-over-Year Growth Rate of Quarterly Same Store Sales

We Believe Target Needs A Retailer on its Board

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

7.4%

7.6%

2005 2006 2007 2008

Target6.3%


Wal-MartUS7.3%


Retail EBIT Margins

Even before the recession, Target’s retail margins have been deteriorating while Wal-Mart’s margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods


2006 –2007: Why were Target’s retail margins weaker even during the

strong economy?

Why Wasn’t Target More Profitable in the Boom Times?

37.0%

63.0%

ConsumablesConsumables

Non-Consumables

Non-Consumables

59%

41%

Consumables: Typically lower margin goodsNon-consumables (e.g., apparel, home furnishings): Typically higher margin goods

Source: Company filings. For Wal-Mart, consumables incorporate “grocery” and “health & wellness” categories. Includes Wal-Mart US only. For Target, consumables defined as consumables and commodities.

% of 2008 Sales

41

Opportunities to Make Target More Profitable

Given the differences in profitability between Target and Wal-Mart, we believe there are opportunities to improve Target’s retail margins.

Having an experienced retail operator on the board can only help Target become a more profitable company in our view

42

Jim Donald: Food Retailing Leader

Jim Donald served as the CEO of Starbucks Corporation from April 2005 until January 2008. He joined Starbucks in October 2002 as President, North America. Jim served as Chairman, President and CEO of Pathmark Stores, Inc. from 1996 until joining Starbucks in 2005. Jim served as President and Manager of Safeway Inc.’s 130-store Eastern Division from 1994 to 1996. He was responsible for a $2.5 billion business, comprised of 10,000 employees working at 130 stores and two distribution centers. From 1991 until joining Safeway in 1994, Jim was an executive at Wal-Mart Stores, Inc, were he worked on the development and expansion of the Wal-Mart Super Center, supervising all merchandising, distribution, store design and real estate operations. Jim began his career in 1971 as a trainee with Publix Super Markets, Inc. He joined Albertson’s in 1976 and quickly rose through its managerial ranks in the Florida, Alabama and Texas divisions. He was head of Albertson’s operations in Phoenix, Arizona.

Jim Donald

43

Nominee for Shareholder

Choice

Compare Jim Donald with Mary Dillon

Jim DonaldNominee for Shareholder Choice

Mary DillonTarget Incumbent Nominee

EVP and Global Chief Marketing Officer for McDonald’s

Is fast-food marketing experience highly relevant to Target?

Ms. Dillon is not a grocery store operator

Without Ms. Dillon, the board will continue to have marketing expertise – Mary Minnick, Coca Cola’s former President of Marketing

Target does business with McDonald’s

Leading Food Retailing Operating Executive

Over 30-years of food retailing experience

Former CEO Of Pathmark and Starbucks

Oversaw the development of Wal-Mart’s SuperCenters

Helped build out Wal-Mart’s grocery business


44

Credit Cards: Richard Vague

46

“We have consistent performance ... and we're enjoying double-digit growth rates," Scovanner said. "No one else in the credit-card arena has those attributes. For the life of me, I don't understand why those attributes in combination would cause anyone to want to get into an active mode of analyzing a sale.”

Doug Scovanner, CFOStar Tribune, July 15, 2007

Target Initially Resisted a Transaction for its Receivables

47

Pershing Square Urged Target to Transfer Credit Risk

From August through December 2007, in multiple calls and meetings, Pershing Square endeavored to convince Target to transfer the credit and funding risks associated with its credit card operation to apartnering financial institution

In May, 2008, Target sold a 47% interest in its credit card receivables to JPMorgan Chase

Target elected, however, to retain substantially all of the credit risk and more than half of the funding risks associated with this business segment because of its insistence on retaining underwriting control

We believe this decision was ill-advised, and shareholders have suffered as a result

We Believe Target Made Poor Underwriting Decisions

“Average receivables grew 19.6% over last year, faster than our pace of sales primarily due to changing the product features for yet another group of our higher credit quality Target card accounts to become higher limit Target Visa accounts.”

Doug Scovanner, CFOQ3’07 conference call, 11/20/2007

48

In the summer of 2007, Target converted a large portion of its private label Target card accounts (typically lower FICO score customers with lower credit limits) to Target VISA accounts, thereby giving lower quality credit customers significantly higher credit limits and lower rates. We believe this was a mistake

$322

$930

3.7%

12.8%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2007A 2008A0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

The Results: Significant Profit Declines

49

In our view, as a result of poor underwriting decisions and exposure to credit risk, Target’s credit card operating profits declined 65% in 2008

Cre

dit C

ard

EBIT

Credit C

ard EBIT as a %

of average receivables

65% drop

$ in millions

5.3%5.7%

7.2%

9.3%

3.9%

3.3%

5.9%

5.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2005 2006 2007 2008

Underperforming Relative to Credit Card Peers

50

Target

Credit Card Competitor

Average (JPM, BAC, AXP,

COF, DFS)

In 2008, Target’s net write-offs as a % of average receivables increased to 9.3% from 5.9% the year prior. This compares to 5.7% for Target’s credit card competitors in 2008

~360 bps spread

Net Write-offs as a % of Average Receivables


5.6%

7.3%8.4%

14.4%

3.5%

4.5%

6.1%6.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2005 2006 2007 2008

Underperforming Relative to Credit Card Peers

51

In 2008, Target’s bad debt expense as a % of average receivables increased to 14.4% from 6.6% the year prior. This compares to 7.3% for Target’s credit card competitors

Target

Credit Card Competitor

Average (JPM, BAC, AXP,

COF, DFS)

Bad Debt Expense as a % of Average Receivables

~710 bps spread


Richard Vague: Leading Credit Card Executive

Richard Vague has served as CEO and co-founder of Energy Plus Holdings LLC, a Philadelphia-based, progressive, independent Energy Service Company (ESCO) since 2007. From December 2004 until 2007, Richard served as the Chairman and CEO of Barclays Bank Delaware, a financial institution and credit card issuer. From 2000 until its sale to Barclays PLC in 2004, Richard was CEO of Juniper Financial, a direct consumer credit card bank that he co-founded. From 1984 until 2000, Richard was President and then CEO and Chairman of First USA and Chairman of Paymentech, the merchant processing subsidiary of First USA.

Richard co-founded First USA which grew from a start-up to the single largest Visa credit card issuer in the United States when it was sold to Bank One (now JPMorgan Chase) in 1997.

Richard Vague

52


Choice

Veteran credit card industry executive

Co-founder of First USA, serving as its CEO until it was sold to Bank One (now JPMorgan Chase)

Founded and sold Juniper Financial

Valuable operating experience can assist Target achieve recovery in its credit card business

Strong transaction experience and relationships can help Target structure a risk-reducing transaction in the future


Compare Richard Vague with Richard Kovacevich

Richard Vague Nominee for Shareholder Choice

Richard KovacevichTarget Incumbent Nominee

Chairman of Wells Fargo & Company

Voted to retain the credit risk associated with Target’s credit card business

We believe this decision ultimately led to dramatic profit declines for Target last year

Given the financial crisis, does Mr. Kovacevich have the time to devote to being a Target director?

Target does business with Wells Fargo

53

Real Estate: Michael Ashner

34% 34%

58% 61% 68%

87% 87% 92% 96%

0

10

20

30

40

50

60

70

80

90

100

% U

nits

Ow

ned

(Bui

ldin

gs)1

Target: Significant Real Estate Ownership

Target owns the highest percentage of its real estate compared to other big box retailers

% DCs owned(3): 82% ND 2%(4) 84% 71% 90% 52% 54% ND86% 79% ND ND 55% 36% ND ND 27%% owned units/land(2):

Represents data from latest 10-K filing“ND” represents Not Disclosed(1) Represents % owned stores (includes owned stores on leased land)(2) Represents % owned stores on owned land only(3) Represents % owned DCs (includes owned DCs on leased land)(4) Represents % owned DCs on a square footage basis 55

56

Target: A Leading Owner of Retail Real Estate in the US

Target currently owns approximately 213 million square feet of retail square footage (1), more than any other publicly traded retail real estate company in the U.S. today based on our estimates

(1) Includes owned and combined retail square footage. Excludes leased retail square footage and owned distribution centers square footage (2) Based on the latest company filings(3) Includes consolidated and unconsolidated GLA for the company(4) Based on U.S. properties square footage which the company owns. Excludes international properties square footage(5) Includes square footage of properties which the company owns or has a majority and minority ownership interest(6) Based on pro rata share of GLA in shopping center portfolio(7) Includes total square footage of the anchors (whether owned or leased by the anchor) and mall stores. Excludes future expansion areas(8) Based on actual pro rata ownership of joint venture assets and excluding developments and redevelopments in process and scheduled to commence in 2009(9) Based on wholly-owned and pro rata share of co-investment partnerships. Represents GLA including anchor-owned stores(10) Based on retail GLA owned by the company(11) Includes owned GLA on consolidated and unconsolidated properties

Estimated Total OwnedGLA (sq. ft.) (2)

(mm)

1 Target Corporation 213 (1)

2 General Growth Properties 168 (3)

3 Simon Property Group 153 (4)

4 The Macerich Company 76 (5)

5 Kimco Realty Corporation 74 (6)

6 CBL & Associates Properties 73 (7)

7 Developers Diversified Realty Corporation 67 (8)

8 Regency Centers Corporation 37 (9)

9 Weingarten Realty Investors 34 (10)

10 Pennsylvania Real Estate Investment Trust 26 (11)

The Market Does Not Appreciate Target’s Real Estate

$40/Share(1) Large Cap REITs (1)


2009E EV / EBITDA

Real Estate Companies and Private Ground Lease Valuations

2009E EV / EBITDA

7.2x 14.3xRecent “Big Box” Ground

Lease (2)

17.0x

Real estate companies trade at substantially higher multiples ofEBITDA compared to Target or other retailers

57

Pershing Square believes that there may be more efficient ways for Target to structure its real estate business in order to highlight its strong value. Pershing Square, however, does not currently have any specific plans or proposals with respect to Target’s real estate

Note: Target valuation excludes the net book value of the credit card receivables and the operating profit associated with such receivables in order to better compare Target with real estate companies which do not have credit card segments.(1) Based on current stock price as of 05/01/09. Large cap REITs multiples are based on Wall Street consensus estimates.(2) Based on mid-point precedent cap rate of 5.9%.

Questions to Ask

Given the stock market’s discounted valuation of Target’s vast real estate holdings, shouldn’t the board be willing to investigate opportunities to create value?

Pershing Square made several suggestions to Target, including a tax-free 19.9% REIT IPO, which Pershing Square believed would

Improve Target’s access to the capital markets

Maintain its strong investment grade credit ratings

Allow Target to maintain control over its buildings and brand

Highlight the value of Target’s greater than 200 million sq ft of real estate

Pershing Square’s past suggestions may not have been the perfect solution, but why was Target’s board unwilling to explore other real estate strategic alternatives?

58

Michael Ashner: Experienced Real Estate Executive

Michael Ashner has served as the CEO of Winthrop Realty Trust, Inc. since December 31, 2003 and Chairman of the board of directors since April 2004. Michael served as the Executive Chairman of Lexington Realty Trust, a REIT from December 31, 2006 through March 2008. He has also served as the Chairman, President and CEO of Winthrop Realty Partners, L.P. (a real estate investment and management company) since 1996. Michael has served as the Managing Director of AP-USX LLC, which owns a 2.4 million square foot office tower, since 1998. Since 1981, Michael has been the President and principal shareholder of Exeter Capital Corporation, a privately held realestate investment banking firm.

Michael manages over 20 million square feet of commercial real estate and has acquired more than $12 billion of real estate in 45 states, including more than 85,000 apartment units, 50 million square feet of office, retail and industrial space, and 10,000 hotel rooms.

Michael Ashner

59


Choice

Compare Michael Ashner with Solomon Trujillo

Michael Ashner Nominee for Shareholder Choice

Solomon TrujilloTarget Incumbent Nominee

CEO of Telestra Corporation an Australian telecom company

We do not believe that Mr. Trujillo’s Australian telecommunications background brings relevant expertise to a US retail company

Why has Mr. Trujillo been on Target’s board since 1994 or 15 years?

CEO and Chairman of Winthrop Property Trust

Chairman and CEO of Winthrop Realty Partners, L.P.

Manages more than 20 million square feet of commercial real estate, including over 11 million square feet owned by Michael and his affiliates


60

Shareholder Value: Bill Ackman

Board Lacks Significant Shareholder Representation

62

Target’s incumbent board beneficially owns less than 0.3% of Target. By contrast, Pershing Square beneficially owns 7.8% of Target


Pershing Square Target’s BoardOwns ~0.3% of Target in common stock and options comprised of:

~0.1% in common stock

~0.2% in stock options

Independent directors own less than 0.1% in common stock and options

Pershing Square beneficially owns 7.8% in common stock and options comprised of:

~$1 billion of common stock, equal to 3.3% ownership

~$280 million in stock options, equal to 4.5% ownership

Third largest beneficial owner

Fourth largest common stock holder

William Ackman: Leading Shareholder

Bill Ackman is the founder and managing member of the general partner of Pershing Square Capital Management, L.P.,an investment adviser founded in 2003 and registered with the SEC. Pershing Square is a concentrated research-intensive fundamental value investor in long and occasionally short investments in the public markets, typically focusing on large-cap and mid-cap companies. Bill has significant experience investing in multi-billion dollar retail and consumer companies.

Pershing Square is the third largest beneficial shareholder of Target with 7.8% of the company, including approximately $1 billion in common stock (3.3% of the company) and $280 million in stock options (4.5% of the company) based on recent market prices.

Bill Ackman

63


Choice

Founder of Pershing Square, a public equity investment firm

Pershing Square beneficially owns 7.8% in common stock and options (1)

Represents the third largest beneficial owner of Target

Significant investment experience in multi-billion dollar retail and consumer companies

Compare Bill Ackman with George Tamke

Bill AckmanNominee for Shareholder Choice

George TamkeTarget Incumbent Nominee

Partner at Clayton, Dubilier & Rice, a leveraged buyout firm

Owns 0.01% of Target in common stock and options

Serves on the boards of Culligan(Chairman), ServiceMaster (Chairman) and Hertz – all Clayton, Dubilier & Rice portfolio companies

How does Mr. Tamke allocate his time?

Target purchases products and services from “several companies”that are controlled by Clayton, Dubilier & Rice

64

(1) Consisting of 3.3% in shares (approximately $1bn in market value) and 4.5% in stock-settled call options (approximately $280mm in market value).

Pershing Square: Track Record of Success

In our view, Pershing Square has established a track record of creating shareholder value in retail, consumer, and other businesses

65

Canada

Corporate Governance: Ron Gilson

Ron Gilson: Corporate Governance Authority

Ron Gilson is the Meyers Professor of Law and Business, Stanford Law School (1979 to present) and the Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present).

Ron is a fellow of the American Academy of Arts and Sciences and the European Corporate Governance Institute. Ron has served on the board of directors of certain of the American Century Mutual Funds, managing over $26 billion in assets, since1995 and has been the Chairman of the board of directors since 2005.

Ron Gilson is one of our country’s preeminent thinkers on corporate governance. We believe that, if elected, Ron’s extensive academic and real world experience as an independent board chair would ensure fair process, fair dealing, and diligent care for the benefit of all shareholders.

67

Ron Gilson


Choice



We believe the Real Issue of this election is that Target’s board is suboptimal

Lacks significant relevant senior operating experience

Lacks significant shareholder representation

Has made expensive mistakes in assessing strategic transactions

Has failed on key governance duties

In our view, Target’s board has not addressed this issue satisfactorily

Instead, the board, its advisors, and PR team have publicly made what we believe to be misleading statements to dissuade investors from focusing on the CORE ISSUES

69

“Favoring Risk Taking”

Pershing Square’s sizeable derivative position creates an incentive for risk taking

Target is Pershing Square’s largest investment

Pershing Square owns $1 billion in common stock and $280 million in stock options

Unlike the incumbent board, Pershing Square paid cash for its stock options and can extend the life of its options

Target’s management and the board have a greater percentage of their ownership in derivatives than Pershing Square

Pershing Square has been a major buyer of Target shares in recent years unlike members of senior management

Gregg Steinhafel, had not purchased one share of stock during the last five years until 3/18/09 – one day after we nominated directors for the board

Board and executive management have sold $429 million of stock in the last five years

Target’s misleading stance: The ACTUAL FACTS:

70

“Risky Agenda”

Target’s misleading stance:

Pershing Square has launched a proxy contest to push its real estate agenda

The ACTUAL FACTS:

The Nominees for Shareholder Choice are entirely independent

There is no “Bill Ackman slate”

The independent nominees have no pre-conceived real estate agenda

Even if all of the Nominees for Shareholder Choice are elected, two-thirds of Target’s current board will remain, providing board room continuity

Bill Ackman supports exploration of real estate ideas – if you don’t want Target to explore real estate alternatives, don’t vote for him. You can still vote for Jim Donald, Richard Vague, Michael Ashner, and Ronald Gilson

This election is not about “Bill Ackman” but rather about choosing board members with the most relevant experience

“Bill Ackman’s slate of nominees…”

71

Credit Ratings and Risk

Since our first meeting with management, Pershing Square has urged Target to decrease credit risk

Instead, Target’s board chose to maintain credit exposure to the credit card business

Fall 2008, Pershing Square encouraged Target to halt buyback program

In Pershing Square’s view, Target can be an enormously valuable company without the need to over-leverage its business

Pershing Square believes that positioning the company so that it can increase its access to capital may allow it to take advantage ofdistressed real estate opportunities that could result from the current shakeout in the retail industry

Bill Ackman, if elected, does not intend to support any action that will impair Target’s credit ratings

72

“Hasty Selection”

Questions to Ask Target:

Why are the current independent board members the most qualified to serve on the board of Target, a retail and credit card company?

Why does Target’s board continue to nominate its own members and not conduct a professional search for new directors with senior operating experience?

Hasty selection of candidates by Pershing Square is inconsistent with a professional search required by good corporate governance

The Nominees for Shareholder Choice are leaders in food retailing, credit cards, real estate, shareholder value, and corporate governance

The credibility, independence, experience, reputation, and integrity of the Nominees for Shareholder Choice speak for themselves

Target’s misleading stance: Our Response:

73

Target Says:

“We do not believe that Pershing Square's nominees would add value to the Board.”

- Target spokesperson

“Ackman campaign for Target like prize fight”Reuters, 4/18/2009

74

Really?

75


Nominee for Shareholder Choice

Significant Relevant Experience

Commentary

•



business •




•



•




Corporate Elections and Shareholder Choice

Pershing Square Offers Shareholder’s a Choice

In this election, you can choose to vote for:

The Nominees for Shareholder Choice, or

Target’s incumbent slate, or

Nominees from each of the two slates

Had Pershing Square not nominated a slate, shareholders would have no viable alternative other than to elect the incumbent nominees

Pershing Square is bringing shareholders an important choice at the Annual Meeting

77

78

How We Think about Voting

How to ChooseConsiderations

Should shareholders be forced to simply choose from competing slates?Should shareholders have the option of choosing the best nominees from all available candidates?

Maintaining Continuity

Incumbent Nominees

vs. Shareholder Nominees

Which candidates have the fewest commercial ties to Target?Is it possible that only incumbents are the best candidates?Are any incumbents accountable for underperformance?

How Should Elections

Work?

This contest is not a change of controlAt least 2/3rds of the incumbent directors will remain on the boardBoard continuity is preservedBoth slates support management continuity

Shareholder choice is good for Target and good for corporate governanceSupport efforts to simplify the voting process and ensure that each vote is counted

Choose continuity and fresh perspectivesChoose the best nominees with the most relevant experience

This is an election is about choosing the best directors for Target

Choose candidates with no conflicting economic interestsChoose fresh perspectivesChoose the best nominees with the most relevant experience

Vote for the Nominees for Shareholder Choice

79

GOLD PROXY CARD


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business •




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•




The Buck’s Rebound Begins HereMay 27, 2009


1

Disclaimer

The analysis and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") regarding General Growth Properties, Inc. and its affiliates (collectively, “GGP” or the “Company”) are based on publicly available information. Pershing Square recognizes that there may be confidential or otherwise non-public information in the possession of the Company that could lead the Company to disagree with Pershing Square’s conclusions.

The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein.

Pershing Square advises funds that are in the business of trading - buying and selling - public securities. Pershing Square owns GGP equity, total return swaps, and GGP unsecured debt. It is possible that there will be developments in the future that cause such funds to change their positions regarding the Company and possibly increase, reduce, dispose of, or change the form of their investment in the Company.

2

Agenda

Why We Like General Growth Properties

A Brief History

Not Your Typical Bankruptcy

GGP’s Assets Are Greater Than Its Liabilities

Why Do We Like GGP?

Ala Moana

4

What is GGP?

GGP REITIncludes Retail & Office Properties

GGMIGeneral Growth Management Inc.

MPCMaster Planned Communities

■ Over 200 regional malls (>160mm sq ft) (1) / outdoor shopping centers

■ Over 30 grocery-anchored shopping centers

■ Office properties in Arizona, Nevada and near Maryland / Washington D.C.

■ 1.3bn mall visits per year■ >24,000 tenants■ >3,700 employees (2)

■ Provides management, leasing and marketing services

■ Over 60% of revenue derived from third party (non-GGP) malls

■ Manages many of GGP’sJV malls

■ Develops and sells land for residential and commercial use

■ Land located near Maryland / Washington D.C., Summerlin, NV and Houston, TX

■ ~18,000 saleable acres

________________________________________________(1) Includes anchor GLA and the Company’s pro rata share of JV malls.(2) >400,000 employees including retail tenants.

5

Diverse Footprint

GGP is geographically well-diversified with malls in 44 states. The Company also has interests in joint ventures in Brazil and Turkey

6

Diverse Tenant Base

GGP has over 24,000 tenants, with its largest tenant accounting for only 2.7% of revenue as of March 31, 2009

________________________________________________

Source: GGP Q1’09 operating supplement.

Memo:Market Cap

$11.8bn4.0bn2.4bn1.8bn5.0bn3.0bn

PrivatePrivatePrivate

6.0bn

7

High Quality Assets

GGP’s portfolio consists of many of the best malls in America

Other Examples:

Faneuil Hall Marketplace

South Street Seaport

Ward Centers (Honolulu, HI)

Not Included

Green Street assigns an ‘A’ grade to 73 malls in GGP’s portfolio

________________________________________________

Source: Green Street.

8

High Quality Assets (Cont’d)

“Indicative of the strength within our portfolio is the performance of our 50 most productive United States centers. These properties generated average sales per square foot of approximately $648. Not only dothese 50 centers produce tremendous sales per square foot, they also represent approximately 50% of our total mall NOI. This is one more example of the quality of our portfolio, and quality will be more important than ever as we move forward in 2008 and 2009.”

–John Bucksbaum, Chairman and Former CEO, July 31, 2008

Because the NOI from GGP’s highest quality malls should be valued at materially lower cap rates than its lower quality malls, a substantial majority of GGP’s equity value is in the Company’s best assets

9

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E

Apartment Office

Industrial

Mall

Why We Like Malls

Relative to other real estate asset classes, malls have historically generated the most stable cash flow

Weighted-Average Same-Store NOI Growth Across Various Property Types

________________________________________________

Source: Green Street. Sector data represents weighted average of companies in coverage universe during the period in question.

10

Long Term Leases

GGP’s business is far less cyclical than that of the retail industry because its revenues are insulated by long-term leases which are structurally senior claims

GGP Lease Expiration Schedule (1)

5.9%

9.9%8.8%

10.1%

8.1% 8.2%9.0%

9.7%10.2%

11.7%

8.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After

More than 75% of GGP’s leases do not expire until

2012 or later

$36.83 $41.07 $47.78 $53.07 $56.24 $56.04 $64.70 $67.47 $70.16 $74.81 $61.75Rent & Recov.Per Sq Ft

________________________________________________

Source: GGP Q1’09 operating supplement. Expiration includes Company’s pro rata share of its unconsolidated segment.(1) Excludes leases on anchors of 30,000 square feet or more and tenants paying percentage rent in lieu of base minimum rent. Excludes all international operations which combined represent ~1% of segment basis real

estate property NOI. Also excludes community centers. Percentage is weighted based on rent per square foot..

11

Embedded Growth

11

GGP’s long term lease-based revenue model offers embedded growth in good times and mitigates revenue declines in bad times

$37

$41

$48

$53

$56 $56

$65

$67

$70

$75

$62

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

$75.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 After

GGP Rent & Recoverable Per Sq Ft Expiration Schedule (1)

Average:$56

EmbeddedGrowth

Opportunity

________________________________________________

Source: GGP Q1’09 operating supplement. Expirations include company’s pro rata share of its unconsolidated segment.(1) Data includes significant proportion of short-term leases on inline spaces that are leased for one year. Rents and recoverable common area costs related to these short-term leases are typically much lower than those

related to long-term leases. Any inferences the reader may draw regarding future rent spreads should be made in light of this difference between shrort- and long-term leases..

12

Inflation-Protected

12

Approximately 82% of GGP’s debt is fixed rate

________________________________________________

Source: Q1’09 operating supplement.

13

Why Do We Like GGP?

13

EmbeddedGrowth Opportunity

High QualityBusiness

DiversifiedGeographical Footprint

High QualityAssets

Inflation-ProtectedStable Cash Flows

DiverseTenant Mix

A Brief History

Town and Country Center Cedar Rapids, 1954

15

$0

$10

$20

$30

$40

$50

$60

$70

April-1993:GGP goes public on the NYSE resulting in net cash proceeds of ~$383mm

The Rise of GGP: 1954 – 2007

1954:Brothers Martin & Matthew Bucksbaumfound GGP and open Town & Country Shopping Center in Cedar Rapids, IA

1960:GGP opens Duck Creek Plaza, one of the first malls to have a department store anchor

April-2007:GGP achieves a market cap of ~$20bn

August-2004:Rouse acquisition

GGP paid ~$4bn in dividends

GGP refinanced or paid down ~$32bn of debt

Until Q1’09, GGP never defaulted on a mortgage

During its time as a Public Company

1954 1960 1993 1995 1997 1999 2001 2003 2005 2007

16

The Fall of GGP: 2008 – Current

$0

$10

$20

$30

$40

$50

Jan-08 Apr-08 Jul-08 Oct-08 Feb-09 May-09

March 28, 2008:GGP raises $822mm in a stock offering priced at $36 per share, implying a market cap of ~$12bn.

~$100mm is purchased by an affiliate of the Bucksbaum family

June-July, 2008:The CMBS new issuance market grinds to a halt

September 15, 2008:Lehman Brothers declares bankruptcy. Market cap: ~$9bn

November 12, 2008:GGP market cap hits ~$100mm

November 28, 2008:$900mm of GGP debt comes due

April 16, 2008:GGP voluntarily files for bankruptcy

17

$74

$57$47

$67

$51

$78

$93

$169

$203

$230

$16

$0$0

$50

$100

$150

$200

$250

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The Problem

Over the past decade, GGP was a significant issuer of CMBS with ~$15bn of CMBS debt. In mid-2008, the CMBS market shut down

________________________________________________

Source: Bank of America equity research.

U.S. CMBS New Issuance Market ($ in billions)

No market exists for refinancing

GGP’s ~$15bn of CMBS debt

18

The Problem (Cont’d)

GGP’s bankruptcy is the result of the unprecedented disruption in the credit markets coinciding with large near-term debt maturities

________________________________________________

Source: GGP Q1’09 operating supplement.

Despite the turmoil in the credit markets, GGP’s operating performance remains strong

20

91.2%90.9% 90.8%

90.5%90.2% 90.1%

88.9%

83.8%

83.0%

84.0%

85.0%

86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

Glimcher General Growth Simon PropertyGroup

Taubman Macerich Westfield CBL Pennsylvania REIT

Occupancy as of Q1’09

GGP’s occupancy ranks among the top of its peer group

Glimcher occupancy benefitted in Q1’09 from the signing of temporary tenants to one year leases that had previously been excluded from the occupancy calculation. Occupancy was 90.6% as of Q3’07

________________________________________________

Note: Occupancy is defined as percent of mall shop and freestanding GLA leased.(1) SPG figures are for regional malls only.(2) CBL figures are for stabilized regional malls only (excludes new developments and redevelopments).

21

Trailing Twelve Month Cash NOI

As of Q1’09, GGP’s trailing twelve month cash NOI grew 1.4% on a year over year basis. Adjusting for lease termination income, cash NOI grew 2.4%

TTM Cash NOI ($ in millions)

6.6% 4.0% 5.0% 7.2% 9.2% 12.6% 12.7% 9.7% 5.3% 1.4% Cash NOIGrowth (YoY)

5.7% 5.1% 5.7% 7.6% 9.1% 10.8% 10.9% 8.5% 5.1% 2.4% Adj. Cash NOIGrowth (YoY)

Excl. Termination Income

________________________________________________

Note: NOI figures exclude management fee income and NOI associated with the MPC segment.Cash NOI adjusts for non-cash items such as straight-line rent, lease mark to market adjustments (FAS 141), non-cash ground rent expense and real estate tax stabilization.

$2,211 $2,211 $2,255 $2,328$2,489 $2,542 $2,554 $2,542 $2,524

$2,413

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

$2,750

Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09

Not Your Typical Bankruptcy

Water Tower Place

Unlike most bankruptcies where equity holders lose most, if not all, of their value, we believe GGP’sbankruptcy provides the ideal opportunity for a fair and equitable restructuring of the Company that preserves value for all constituents: secured lenders, unsecured lenders, employees, and equity holders

24

A Little Personal History

$0

$10

$20

$30

$40

$50

$60

$70

$80

May-92 Jan-93 Oct-93 Jul-94 Apr-95 Dec-95

While in bankruptcy, Alexanders’ stock price appreciated 358%

May 12, 1992:Alexanders files a voluntarypetition for bankruptcy

September 21, 1993:Alexanders’ Plan of Reorganization is confirmed

March 1, 1995:Alexanders emerges from bankruptcy

25

Amerco Bankruptcy

While in bankruptcy, Amerco’s stock price appreciated 456%

$0

$10

$20

$30

$40

$50

$60

$70

$80

Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05

June 20, 2003:Amerco files a voluntary petition for bankruptcy

February 2, 2004:Amerco’s Plan of Reorganization is confirmed

March 15, 2004:Amerco emerges from bankruptcy

26

Why Did Amerco File for Bankruptcy?

Amerco filed for bankruptcy as the result of a liquidity issue that arose even though the underlying business was solvent

Following Enron in late 2002, Amerco’s auditors advised the company that’s its financial results would have to be restated

The restatement, which involved the consolidation of an off balance-sheet financing subsidiary (SAC Holdings), resulted in a material decrease in reported net worth and an increase in reported leverage ratios. The restatement also required a time-consuming restatement of prior periods’results that led to the delayed filing of quarterly reports with the SEC

As this situation was developing, Amerco was attempting to negotiate and replace its revolving credit facility and complete a $275mm bond offering

Ultimately, Amerco was unable to complete the bond offering, and, as a result, it did not have sufficient funds to meet maturing debt obligations, which led to cross-defaults and an acceleration of substantially all of the Company’s other outstanding debt instruments

27

Why Did Amerco Shareholders Retain Value?

Analyst Question: “How can there be any value left for shareholders under your plan when in almost every bankruptcy stockholders receive no recovery? Have creditors signed on to your plan for a full recovery?”

Answer: “Well, quite simply, Amerco has more assets than liabilities. Real estate appraisals showed the market value of Amerco’sunencumbered owned real estate is $550 million higher than stated book value. Two of four major creditor groups have agreed to our plan and we’re working with the remaining persons to get agreement to our plan.”

Joe Shoen, Amerco CEO, Q4’03 Conference Call Transcript

28

(b) (2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:

(A) With respect to a class of secured claims, the plan provides–(i)(I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claim

(B) With respect to a class of unsecured claims–(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim

Bankruptcy 101

§ 1129. Confirmation of plan

________________________________________________

Source: U.S. Bankruptcy Code, Title 11, Chapter 11, Subchapter II.

Creditors are entitled to a “fair and equitable” plan of reorganization

29

Bankruptcy 101 (Cont’d)

A “fair and equitable” plan only entitles creditors to recover 100% of the amount of their claims. When a debtor’s asset value exceeds the amount of its liabilities, equity holders are entitled to the residual value

“Although many of the factors interpreting ‘fair and equitable’ are specified in paragraph (2), others, which were explicated in thedescription of section 1129(b) in the House report, were omitted from the House amendment to avoid statutory complexity and because they would undoubtedly be found by a court to be fundamental to “fair and equitable” treatment of a dissenting class. For example, a dissenting class should be assured that no senior class receives more than 100 percent of the amount of its claims.”

Congressional Record – HouseRegarding the Bankruptcy Reform Act of 1978

H.R. 7330, 95th Cong., 1st Sess. 201 September 28, 1978

30

GGP Reminds Us of Amerco

Year Founded

Reason for Filing?

High Quality Business?

Assets Worth MoreThan Liabilities?

Cash Flow BeforeDebt Maturities

Stability of Cash Flows

Insider Owns Large% of Company?

Shareholder Advocate

1945Extrinsic Factors

Created Liquidity Crisis

Yes

Yes(Post-Filing TBV: >$350mm)

Positive

Medium

Yes

Joe Shoen (CEO)

TypicalBankruptcy

1954Extrinsic Factors

Created Liquidity Crisis

Yes

Yes(Post-Filing TBV: >$1bn)*

Positive

High

Yes

Pershing Square

N / A

Insolvency

No

No(Post-Filing TBV: Negative)

Negative

Low

No

None________________________________________________

* We believe that Tangible Book Value materially understates the fair market value of GGP’s equity.

31

Historical Bankruptcy Analysis

We looked at 150 bankruptcies over the past decade to see if we could find any other examples of public companies entering bankruptcy with (i) positive cash flow before debt maturities and (ii) asset values in excess of liabilities.Our analysis was limited to U.S.-based non-financial companies with asset values in excess of $1bn. We could only find four bankruptcies that fit the bill

What Happened To Equity Holders?

________________________________________________

Note: Bankruptcies since 1999 in excess of $1bn as provided by Web BRD (Bankruptcy Research Database).Post-filing tangible book value used as a proxy for asset value in excess of liabilities.Asbestos liability bankruptcies excluded from the analysis.

Shareholders retained 100% of post-reorg equityStock appreciated 456% during bankruptcy; increased from $4 to $105 trough-to-peakCreditors repaid in full

Shareholders received warrants in ~30% of thepost-reorg equityPersonal recourse management loans largely forgiven

Shareholders retained 100% of post-reorg equityStock appreciated 358% in bankruptcy; increased from $13 to $467 trough-to-peakCreditors repaid in full

To be determined

ShareholderAdvocate?

Joe Shoen

Mgmt

Steve Roth

Pershing Square

32

Incentives of Various Constituencies in a Typical Bankruptcy

Post-reorganization equity is often underpriced as a result of the incentives of the various constituencies in a bankruptcy process

Liquidate? Valuation Rationale

SecuredCreditors

UnsecuredCreditors

Management

Full recovery of claimLoan to ownEliminate unsecured leverage

Desire to be fulcrum securityAim to receive 100% of post-reorganization equity

“Hit with your eyes closed”POR projectionsLow-struck optionsMinimize post-reorg leverage

Depends

No

No

Low

>Secured ; <Equity

Conservative

Given the incentives of the various parties involved in a typical bankruptcy, equity holders require a shareholder advocate to protect their interests

Given the incentives of the various constituencies in bankruptcy, what is the best way for GGP to reorgan-ize that preserves value for secured lenders, unsecured lenders, employ-ees, and equity holders?

34

A Simple Solution

A seven-year extension of GGP’s secured and unsecured loans at their existing interest rates would provide the Company with sufficient time to use cash flow from operations to delever its balance sheet. With a seven-year extension, we believe the Company would be able to repay existing creditors in full

Benefits of this Approach:

Secured and unsecured lenders receive 100% of the present value of their claims

Prevents the liquidation of assets at “fire-sale” prices

Preserves value for equity holders

GGP platform remains intact

Preserves jobs

35

Deleveraging Analysis Assumptions

All Debt maturities extended seven years at current interest rates

Cash NOI projections per Green Street Same Store Mall NOI Projections (1)

GGMI income declines / grows at 2x Cash NOI

GGP suspends its cash dividend payment to common shareholders through year-end 2009

10% cash / 90% stock thereafter

GGP maintains Future Development Spending as outlined in the Company’s Q1’09 supplement

GGP maintenance capex, tenant allowances and restructuring costs as outlined in the Company’s 2009-2010 Cash Flow Forecast

Maintenance capex and TAs in forecast are increased by ~20% to account for unconsolidated segment outlays

________________________________________________(1) See Mall REITs: May 2009 Update, page 6. Note that Simon is guiding for same store regional mall NOI to be up 0% to 1% in 2009e.

Note that this method is conservative in that it does not account for NOI generated by future development spending projects.

36

(US$ in millions, except per unit data) Seven Year Period2008a 2009e 2010e 2011e 2012e 2013e 2014e 2015e Total

Cash Flow Available for Debt RepurchaseCash NOI (excl MPC) $2,542 $2,481 $2,412 $2,390 $2,411 $2,462 $2,536 $2,612Growth 5.3% (2.4%) (2.8%) (0.9%) 0.9% 2.1% 3.0% 3.0%

Plus / Less: MPCs (1) 73 (38) 15 25 50 75 75Plus: Fee income 98 92 91 92 96 102 108Less: Overhead from recurring ops (2) (269) (272) (274) (277) (280) (283) (286)Less: Restructuring / Strategic costs (180) (112) - - - - - Less: Maint Capex / TAs (156) (197) (200) (200) (205) (205) (210)Less: Development capex (183) (99) (138) (138) (140) (140) (145)Less: Other (incl income taxes, pfd distributions) (50) (28) (30) (30) (30) (30) (30)Less: Pro Forma Interest expense 6.04% (1,698) (1,693) (1,687) (1,676) (1,662) (1,642) (1,616)Less: Cash dividend (10% cash) - (16) (6) (6) (15) (29) (47)

Cash Flow Available for Debt Repurchase $115 $48 $160 $202 $277 $385 $462 $1,648

Illustrative Equity ValuePropco Enterprise Value (@ 7.5% cap rate) $33,082 $32,155 $31,866 $32,153 $32,828 $33,813 $34,827Plus: Cash / GGMI / Dvlpmt Pipeline / MPC (3) 3,119 3,119 3,119 3,119 3,119 3,119 3,119 Less: Total Debt (EOP) (28,059) (28,011) (27,851) (27,649) (27,372) (26,987) (26,525)

Illustrative Equity Value $8,141 $7,263 $7,134 $7,623 $8,575 $9,944 $11,420Per Share $25.47 $22.73 $22.32 $23.85 $26.83 $31.12 $35.74

Seven-year maturity extensions coupled with a reduced cash dividend would allow GGP to delever its balance sheet and create a substantial equity cushion

________________________________________________(1) Assumes proceeds from ~$90mm sale of Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company.(2) Represents annualized Q1’09 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves. (3) See valuation section for details.

Illustrative Deleveraging Analysis

SubstantialEquity

Cushion

37



Plus / Less: MPCs (1) 73 (38) 15 25 50 75 75Plus: Fee income 98 92 91 92 96 102 108Less: Overhead from recurring ops (2) (269) (272) (274) (277) (280) (283) (286)Less: Restructuring / Strategic costs (180) (112) - - - - - Less: Maint Capex / TAs (156) (197) (200) (200) (205) (205) (210)Less: Development capex (183) (99) (138) (138) (140) (140) (145)Less: Other (incl income taxes, pfd distributions) (50) (28) (35) (35) (35) (35) (35)Less: Pro Forma Interest expense (3) 6.45% (1,392) (1,392) (1,392) (1,392) (1,392) (1,392) (1,392)

Cash Flow Available for Dividend $421 $366 $457 $487 $557 $658 $728 $3,673Cash Dividend Yield 2.9% 2.7% 3.4% 3.6% 3.9% 4.3% 4.4%


Illustrative Equity Value $14,613 $13,686 $13,397 $13,684 $14,359 $15,344 $16,358Per Share (Adj for dilution from debt conversion) $25.12 $22.22 $21.31 $22.21 $24.32 $27.40 $30.58 Average% of Equity Required for Unsecureds to get 100% of Claim 45.1% 48.1% 49.2% 48.1% 45.9% 42.9% 40.3% 45.6%

Illustrative Deleveraging Analysis: Unsecured Debt Converts into Equity

Alternatively, 100% of GGP’s unsecured lenders could be converted into equity. Under this scenario, GGP would be able to pay a meaningful cash dividend

In this scenario, Unsecureds

would require ~45% of post-reorg equity to be made-whole

________________________________________________

Note: Assumes $6.6bn of GGP’s unsecured debt converts fully into equity.(1) Assumes proceeds from ~$90mm sale of Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company.(2) Represents annualized Q1’09 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves.(3) Assumes weighted average interest expense of unsecured debt is 4.7%.(4) See valuation section for details.

Using conservative assumptions, GGP would be able to pay a

4.4% dividend yield by year 7

What if our “Simple Solution” cannot be achieved consensually?

The Bankruptcy Code offers the ability for debtors to “cram down”creditors so long as each class of creditor receives the present value of their claims

If a creditor is not paid in cash or property upon emergence, it must receive future payments, the present value of which equals its bankruptcy claim

“Plans that invoke the cram down power often provide for installment payments over a period of years rather than a single payment. In such circumstances, the amount of each installment must be calibrated to ensure that, over time, the creditor receives disbursements whose total present value equals or exceeds that of the allowed claim.”

– Opinion of Justice Stevens, Till v. SCS Credit Corp

What interest rate must the debtor pay over time on its obligations to its creditors in a cram down?

41

The Till Precedent

In the case of Till v. SCS Credit Corp. (2004), the U.S. Supreme Court established a precedent upon which to adjust interest rates in the bankruptcy context:

If an “efficient” market exists for the debt, then the court may apply the “market rate,” which is the rate that the market will bear for the proposed loan

Absent an efficient market, the court is to apply a “formula approach” involving setting the rate at the prevailing prime rate plus a “risk adjustment” rategenerally between 1% and 3%

GGP falls into this category

If There is an Efficient Market:

Absent an Efficient Market:

42

The Logic of Till

“Thus, unlike the coerced loan, presumptive contract rate, and cost of funds approaches, the formula approach entails a straightforward, familiar, and objective inquiry, and minimizes the need for potentially costly additional evidentiary proceedings. Moreover, the resulting ‘prime-plus’ rate of interest depends only on the state of financial markets, the circumstances of the bankruptcy estate, and the characteristics of the loan, not on the creditor’s circumstances or its prior interactions with the debtor. For these reasons, the prime-plus rate best comports with the purposes of the Bankruptcy Code.”

Opinion of Justice StevensSupreme Court of the United States

Till v. SCS Credit CorpMay 17, 2004

43

The Progeny of Till

Since the Supreme Court ruling in 2004, Till has been applied innumerous bankruptcy proceedings

Cases: Rate: Source:In re Bivens Prime + 2.25% 317 B.R. 755, 769 (Bankr.N.D.Ill.2004)

In re Cachu Prime + 0.5% 321 B.R. 716, 725 (Bankr.E.D.Cal.2004)

In re Cantwell Prime + 1.0% 336 B.R. 688, 45 (Bankr.D.N.J.2006)

In re Flores Prime + 1.0% Not Reported in B.R. (Bankr.D.N.J.2006)

In re Harken Prime + 3.0% Not Reported in B.R. (Bankr.N.D.Iowa.2004)

In re Pokrzywinski Prime + 1.5% 311 B.R. 846, 850-51 (Bankr.E.D.Wis.2004)

In re Prussia Associates Prime + 1.5% 322 B.R. 572, 44 (Bankr.E.D.Pa.2005)

________________________________________________

Note: The above list is not meant to be comprehensive.

44

In re Prussia Associates

The Bankruptcy Court’s ruling in the case of Prussia Associates, a limited partnership that owns and operates one hotel in King of Prussia, PA, shows that even if an efficient market is deemed to exist, the Court might still opt for a “prime-plus” formula approach

“The Court is constrained, therefore, to conclude that, although this case presented an occasion upon which it indeed made sense to inquire as to what the relevant market rate of interest might be, the totality of the evidence presented did not permit a sufficiently informed conclusion to be drawn. Put differently, this case demonstrates that the mere existence of an efficient market does not guarantee that the short-comings of the coerced loan approach to rate setting, as described in Till, will automatically be overcome. The Court will thus fall back upon Till, and the formula approach, as the preferred means for setting the interest rate herein.”

Opinion of Judge RaslavichUnited States Bankruptcy Court, E.D. Pennsylvania

In re Prussia AssociatesApril 5, 2005

45

In re Prussia Associates (Cont’d)

“The prime rate as of today is 5.75%. This rate, therefore, will be the applicable base rate. The risk premium, per Till, will normally fluctuate between 1% and 3%. The appropriate size of the adjustment, per Till, will depend on factors such as the circumstances of the estate, the nature of the security and the duration and feasibility of the reorganization plan. The creditor bears the burden of proof on this issue. In this instance, [the Creditor] has raised certain legitimate questions as to the feasibility of the Debtor’s plan; however it has done little to overcome the evidence which indicates both that the Debtor’s operations are improving apace, and that the value of Fremont’s collateral is appreciating steadily. The Court thus views the risks attendant to the proposed loan as neither negligible nor extreme. Based upon this, the Court will require the addition of a 1.5% risk premium to the aforesaid prime rate for the recast [Creditor] loan.”

Opinion of Judge RaslavichUnited States Bankruptcy Court, E.D. Pennsylvania

In re Prussia AssociatesApril 5, 2005

The Court ruled that the appropriate mortgage rate should be set at Prime + 1.5% (7.25%), despite the Creditor’s contention that the “market rate” was 9.72%

We note that GGP is a

higher quality, lower risk

business than Prussia

Associates, which owns

one hotel, the Valley Forge

Hilton

46

What Factors Will the Court Consider in Determining the Appropriate Risk Adjustment Spread for GGP?

Based on these precedents, we believe the court could confirm a plan at a rate that is lower than GGP’s current weighted average interest rate

“The appropriate size of [the] risk adjustment depends, of course, on such factors as the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan”

– Opinion of Justice Stevens, Till v. SCS Credit Corp

Circumstances of the Estate

Nature of the Security

Duration and Feasibility of

POR

Cash flow in excess of interest expenseNOI has increased since the issuance of >95% of GGP’s outstanding loansIn the process of deleveragingCutting costs, lowering development spending and reducing cash dividend

OversecuredEquivalent in value to the present value of the creditors’ claim

Seven years, though debt paydownbegins day oneHighly feasible PORNegiligible risk of nonpayment

Prime-plus0.5% 1.0%

Appropriate Risk-Adjustment Rate:

47

The Prime Rate May be Sufficient

In light of GGP’s highly diversified, high quality portfolio, in a reorganizationwhere the unsecured debt converts to equity, the court may deem the Prime rate plus 0% to be a sufficient rate of interest on GGP’s secured debt

Footnote 18:

“We note that, if the court could somehow be certain a debtor would complete his plan, the prime rate would be adequate to compensate any secured creditors forced to accept cram down loans”

– Opinion of Justice Stevens, Till v. SCS Credit Corp.

What If GGP’s Debt Were Re-Priced to Till-Mandated Rates?

49



Plus / Less: MPCs (1) 73 (38) 15 25 50 75 75Plus: Fee income 98 92 91 92 96 102 108Less: Overhead from recurring ops (2) (269) (272) (274) (277) (280) (283) (286)Less: Restructuring / Strategic costs (180) (112) - - - - - Less: Maint Capex / TAs (156) (197) (200) (200) (205) (205) (210)Less: Development capex (183) (99) (138) (138) (140) (140) (145)Less: Other (incl income taxes, pfd distributions) (50) (28) (35) (35) (35) (35) (35)Less: Pro Forma Interest expense (3) (1,161) (1,134) (1,107) (1,076) (1,042) (1,002) (958)Less: Cash dividend (10% cash) - (126) (120) (124) (137) (155) (177)

Cash Flow Available for Debt Repurchase $652 $498 $622 $679 $770 $893 $985 $5,099


Illustrative Equity Value $8,679 $8,251 $8,583 $9,548 $10,993 $12,871 $14,871Per Share $27.16 $25.82 $26.86 $29.88 $34.40 $40.28 $46.53

Illustrative Deleveraging Analysis: Prime [3.25%] + 0.75% for Secured; Prime + 1.50% for Unsecured

A plan that sets GGP’s secured debt and unsecured debt to Prime + 0.75% and Prime + 1.50%, respectively, would allow for substantial deleveraging and further increase the probability of a highly successful reorganization

________________________________________________(1) Assumes proceeds from ~$90mm sale of Bridgeland improve cash flow in 2009e. Aside from Bridgeland adjustment, cash flows based on 2009-2010 Cash Flow Forecast filed by the Company.(2) Represents annualized Q1’09 overhead expense. Adjusts for seasonality and $38mm of restructuring costs included in overhead line items. Ignores the potential for incremental cost saves.(3) Sets secured debt interest rate at Prime + 0.75% (4.00%) and unsecured debt interest rate at Prime + 1.50% (4.75%).(4) See valuation section for details.

50

GGP is not the exception – many REITs have the same problem

A liquidation will lead to a windfall for the secured creditors

It will destroy the GGP franchise

A liquidation will put downward pressure on real estate values impairing other borrowers’ ability to refinance

Nearly all REITs and other leveraged real estate owners will likely suffer the same fate if GGP is forced to liquidate

What’s the Alternative?

________________________________________________

Source: Green Street estimates (5/14/09).

Valuation

The Grand Canal Shoppes

Because creditors are not entitled to get more than 100% of their claim, valuation will play an important role in determining the extent to which GGP equity holders receive value in the bankruptcy process

53

Simon is the Best Comp for GGP REIT

Based on size, similarity of portfolio quality and relevant operating metrics, Simon represents the best comp for GGP

________________________________________________

Source: Green Street (May 14, 2009).

Note that ~20% of Simon’s GLA relates to the Mills portfolio. These properties have lower occupancy and rent per square foot than traditional regional malls and deserve a lower valuation than typical GGP assets

54

Simon Trades at an 8.4% Cap Rate

($ in millions, except per share data)

Share Price (as of 5/26/09) $51.32Shares & Units (1) 343

Market Cap $17,598

Pro Rata for JVs: (2)Plus: Total Debt (3) 24,172 Plus: Preferred Debt 276 Plus: Other Liabilities 1,983 Less: Cash (4) (2,847) Less: Other Assets (5) (2,285) Less: Development Pipeline (6) (256)

TEV 38,641

Less: Mgmt Business (7) (423) Value of Simon's REIT 38,218

LTM Cash NOI (8) $3,211Implied Cap Rate 8.4%

(1) Includes 23mm share issuance on 5/12. Includes diluted shares as detailed on pg. 8 of Simon's operating supplement. (2) Numbers as reported in pro-rata balance sheet.(3) Includes $600mm senior note issuance on 5/12.(4) Includes proceeds from 23mm share issuance and $600mm senior note issuance, net of 3% fees.(5) Excludes goodwill.(6) Applies 25% discount to Simon's share of U.S. CIP (page 41 of operating supplement).(7) Applies 25% EBIT margin to LTM fee income of $130mm and a 13.0x EBIT multiple.(8) Excludes mgmt income. Adjusts for non-cash revenue items such as straight-line rent and FAS 141.

NOI calculation deducts interest income and land sale gains from other revenue to be apples to apples with GGP.

55

Simon Debt Maturity Schedule

With ~$11bn of debt maturities coming due by 2012, we note that Simon has meaningful liquidity risk. We believe that Simon’s current valuation reflects a downward adjustment for liquidity risk and the likelihood of future equity dilution

________________________________________________

Source: Green Street (May 14, 2009).

56

Value of GGP REIT

Note that GGP’s 2006 Loan Agreement uses

a 6.75% Retail Cap Rate in its calculation of Capitalization Value for covenant purposes

($ in millions, except per share data) Low High

LTM Cash NOI (1) $2,524 $2,524Cap Rate 8.5% 7.5%

Implied Value of GGP's REIT $29,689 $33,647

Pro Rata for JVs: (2)Less: Total Debt (3) (28,174) (28,174) Less: Preferred Debt (121) (121) Less: Other Liabilities (4) (1,585) (1,585) Plus: Cash (5) 722 722 Plus: Other Assets (6) 1,777 1,777 Plus: Development Pipeline (7) 603 603

Implied Equity Value 2,911 6,870

Per Share $9.11 $21.50

Simon’s cap rate suggests the value of GGP REIT, not including GGMI and MPC, is somewhere between $9 and $22 per share.

(1) Excludes mgmt income. Adjusts for non-cash revenue items such as straight-line rent, FAS 141, and non- cash ground rent expense.(2) Applies 50% share to condensed balance sheet of unconsolidated real estate affiliates in 10-Q.(3) Includes $400mm DIP loan.(4) Excludes book value of deferred tax liabilities as these mostly relate to MPC. These are taken into account when valuing the MPC segment.(5) Includes $400mm DIP proceeds.(6) Excludes goodwill.(7) 40% discount to book value.

We believe the market assigns ≥100bp risk premium for Simon’s

refinancing risk

57

Why 7.5% 8.5% is a Conservative Cap Rate Range

Assuming that (i) GGP’s ‘A’ caliber assets deserve a 7.0% cap rate and (ii) 75% of GGP’s NOI is derived from ‘A’ assets, GGP’s ‘A’ assets alone are worth more than its liabilities

GGP’s top 50 assets generate 50% of NOI (see pg. 8)

We estimate GGP has >80 ‘A’ caliber assets(see pg. 7)

Therefore, we assume ~75% of GGP’s NOI is derived from ‘A’ assets

Assumptions:Illustrative Analysis: GGP’s ‘A’ AssetsAlone are Greater than its Liabilities

________________________________________________(1) See page 56 for details.

($ in millions)

LTM Cash NOI (1) $2,524% of NOI from 'A' assets 75.0%

LTM Cash NOI - 'A' assets 1,893

Illustrative Cap Rate - 'A' assets 7.0% Asset Value - 'A' Assets $27,038

Less: Total Debt (1) (28,174) Less: Preferred Debt (121) Less: Other Liabilities (1) (1,585) Plus: Cash (1) 722 Plus: Other Assets (1) 1,777 Plus: Development Pipeline (1) 603

Net Asset Value - 'A' Assets $260

This analysis suggests GGP’s ‘A’ mall assets alone validate GGP’scurrent market cap.

When buying the equity at ~$1.19, one is

getting the following for free:

>130 non ‘A’ malls

>30 grocery-anchored strip centers

GGMI

MPC

Hidden Asset Value

58

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Jan-86

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Apartment Office Industrial Mall

Historical Mall Cap Rates

Since 1986, Malls have traded at an average cap rate of 7.6%, and this average was achieved in much higher long-term interest rate markets

Historical Cap Rate Across Various Property Types

________________________________________________

Source: Green Street. Cap rates are weighted by (% NOI from primary property type times market cap). Data from January, 1986 through February, 2009.

MallAverage:

7.6%

59

Value of GGMI

GGMI is one of the few national platforms capable of providing management and leasing services to regional retail centers.We estimate its value to be between $1 and $2 per share

CB Richard Ellis trades at

~15x NTM EBIT

________________________________________________(1) Pershing Square estimate.

($ in millions, except per share data)Low High

LTM Management Income & other fees $100 $100

EBIT Margin (1) 25.0% 35.0%

LTM EBIT $25 $35

Multiple 13.0x 17.0x

Value of GGMI $326 $596Per Share $1.02 $1.87

GGMI likely deserves a higher multiple given that CB Richard Ellis’s fee stream is more transaction driven

60

Value of MPC

We estimate the net value of GGP’s MPC segment to be anywhere between $0.27 and $6.72 per share

________________________________________________

Note: Does not reflect impact of Contingent Stock Agreement, which could, in certain circumstances, create meaningful dilution.(1) Represents management’s valuation of the gross assets as of 12/31/07. Source: page 22 of Q3’08 operating supplement.(2) Low case trues up 3/31/09 net book value of Bridgeland as a % of management’s 12/31/07 gross value estimate. High case represents Bridgeland net book value as of 3/31/09.(3) Assumes Bridgeland is divested for $90mm, net of 3% transaction fees.(4) Pershing Square estimate. The present value of the tax liability will depend on the operating performance of the segment.

As of 12/31/07, management estimated the gross value of these

assets to be $3.3bn, more than $10 per share

This segment generated ~$150mm of net cash

flow in 2005 and ~$190mm in 2006

($ in millions, except per share data)Low High

Estimated Value Per ShareGross Value of MPC as of 12/31/07 (1) $3,280 $3,280Less: Estimated Bridgeland Portion (2) (721) (392)

Gross Value of MPC as of 12/31/07 excl. Bridgeland 2,559 2,888Memo: Net Book Value (as of 3/31/09) 1,391 1,391

Haircut 100.0% 20.0%Adj. Gross Value of MPC - 2,311

Plus: Estimated Proceeds from Sale of Bridgeland, net (3) 87 87Less: Present Value of Deferred Tax Liability (4) - (250)

Net Value of MPC $87 $2,148Per Share $0.27 $6.72

61

Hidden Asset Value: Las Vegas

“Fashion Show is a little bit of a different situation. The income there continues to grow very significantly, well ahead of our comp NOI average, and we expect that to continue. There are other things that we've been telling people for years that we're trying to get done there, including getting a certain portion of the project land in the Northeast corner under control, where we might be able to do additional development of that site, given its highly lucrative location right on the strip. So we wanted that flexibility.”

–Bernie Freibaum, Former CFO of GGP, Q1’08 earnings transcript

GGP’s Las Vegas assets have option value as future development sites

62

Hidden Asset Value: Victoria Ward

GGP recently received zoning approval to transform 60 acres of land in the heart of Honolulu into a vibrant and diverse neighborhood of residences, shops, entertainment and offices

The plan clears a path for GGP to bring to the oceanfront neighborhood as many as:* 4,300 residential units, many of them in towers aligned to preserve mountain and ocean views* 5 million square feet of retail shopping, restaurants and entertainment* 4 million square feet of offices and other commercial space* 700,000 square feet of industrial uses* 14 acres of open space, parks and public facilities

63

Hidden Asset Value: Park West

In 2007, GGP spent $105mm developing its Park West property in Peoria, AZ. Based on the recent photograph below, we estimate that this property has the potential to generate substantially more NOI. There are likely other properties like Park West that are currently under-earning in GGP’s portfolio

64

Hidden Asset Value: Non-Recourse Financing

Relative to other REITs, GGP’s capital structure consists of a high amount of non-recourse mortgage debt

The substantial majority of GGP’s ~$22bn of secured financing is non-recourse

GGP’s liabilities are one of its most valuable assets. Non-recourse debt gives the Company a put option at the mortgage amount on properties worth substantially less than their associated mortgage

65

GGP’s Assets are Greater than its Liabilities

Value Per Share Low High

GGP REIT $9.11 $21.50GGMI 1.02 1.87 MPC 0.27 6.72 Hidden Asset Value ? ?

Value Per Share $10.40 $30.08Premium to Current (as of 5/26/09) 774% 2428%

66

What’s the Downside?

Using our most conservative assumptions, and assuming the conversion of all unsecured debt into equity at the cap rate implied by GGP equity’s current fair market value of $380mm, equity need only retain 5.5% of the post-reorganization company to break even at today’s stock price

Conservative Assumptions:

Cap rate of 9.4% based on the current market cap of $380mm

GGMI is worth $1.02 per share

MPC is worth $0.27 per share

No value assigned to hidden asset value opportunities

________________________________________________

Note: Current implied market cap based on $1.19 stock price as of 5/26/09.

Illustrative Stock Price at Various Cap Rates and Post-Reorganization Ownership Levels:

Does theCap Rate Unsecured

Ownership 7.5% 8.0% 8.5% 9.0% 9.4% 10.0% Convert?

5.5% $2.37 $2.01 $1.69 $1.41 $1.19 $0.93 Yes10.0% 4.34 3.68 3.10 2.58 2.18 1.71 Yes20.0% 8.68 7.36 6.20 5.17 4.36 3.42 Yes30.0% 13.02 11.04 9.30 7.75 6.54 5.12 Yes40.0% 17.36 14.73 12.40 10.34 8.72 6.83 Yes50.0% 21.70 18.41 15.51 12.92 10.90 8.54 Yes60.0% 26.04 22.09 18.61 15.51 13.08 10.25 Yes

100.0% 22.79 16.21 10.40 5.24 1.19 (3.53) No

67

Conclusion

GGP equity offers an enormous potential reward for the risk taken

High quality, recession-resistant assets

Principal risks are bankruptcy court outcome and a further severe economic decline

We believe bankruptcy law precedent and public policy will lead to a favorable outcome for shareholders

Inflation is the friend of the leveraged mall company

The nuisance value of the equity is meaningfully greater than zero

“O” No!October 6, 2009


DisclaimerThe analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein.

Funds managed by Pershing Square and its affiliates own investments in real estate investment trust including long investments (e.g., General Growth Properties, Inc.) as well as short investments (e.g., Realty Income Corporation). With respect to short investments, such investments may include, without limitation, credit-default swaps, equity put options and short sales of common stock.

Pershing Square manages funds that are in the business of trading - buying and selling – securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding the companies discussed in this presentation. Pershing Square may buy, sell, cover or otherwise change the form of its investment regarding such companies for any or no reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

1

We Are Short Realty Income

Realty Income (“O”) is a Triple-Net-Lease REIT Owns standalone retail properties which it triple-net-

leases to middle-market retailers

Provides sale / leaseback financing to below investment grade and unrated businesses

Capitalization: Enterprise value: $4.3 billion

Equity market value: $2.7 billion

Total Debt (and preferred) / Enterprise value: ~40%

Recent valuation multiples: ‘09E Cap rate: 7.3% (2)

Annualized current dividend yield: 6.8%

Ticker: “O”

Stock price: $25 (1)

2

1) Based on a five-day average price of $25.34 for the period 9/28/09 – 10/2/09.

2) Cap rate based on 2009E Cash NOI of $316mm.

Realty Income: Business Review

Owns 2,338 predominantly free-standing retail properties

Single-tenant, typically specialty-use properties

19mm rentable sq ft in total

Average rentable space per property is ~8,100 sq ft

Lease term typically 15 - 20 years

Top 15 tenants account for ~53% of rental revenues

Tenants: Typically leased to regional or local retailers

Many large tenants have junk credit ratings Many smaller tenants are unrated and compete in struggling sectors of the

retail industry

Average remaining lease term is ~11.6 years Occupancy rate is currently very high at 97%

We believe a decline in occupancy is likely as tenant quality deteriorates…

3Source: 6/30/09 10-Q.

Realty Income: Specialty-Use Properties

Spring Hill, FLFormer Day Care Center5,371 sq ft

Wichita, KSFormer Restaurant3,129 sq ft

Alexandria, LAFormer Mexican Restaurant5,858 sq ft

Richmond, INFormer Audio / Video Store6,449 sq ft

Hurst, TXFormer Video Rental Store7,366 sq ft

Tucker, GAFormer Auto Repair Shop24,132 sq ft

Below are properties listed on Realty Income’s website(www.realtyincome.com) as for sale

4

$ in mm except per share and sq ft dataRecent share price $25

Fully diluted shares (1) 105Market Value of Equity $2,668

Net Debt and Preferred $1,645

Enterprise Value 4,313Rentable Square Feet (mm) 19Enterprise Value / Sq Ft $227

2009ECash NOI Cap Rate (2) 7.3%

EV / EBITDA 14.6x

Price / Recurring FFO 14.1xYield 7.1%

Price / Recurring AFFO (3) 14.4xYield 6.9%

Dividend yield (4) 6.8%

Capitalization and Trading Multiples

5

Capitalization Trading Multiples

Realty Income trades at a 2009E Cap Rate of 7.3%, an AFFO multiple of 14.4x, and a dividend yield of approximately 6.8%, implying a valuation of $227 / rentable sq ft

1) Based on the treasury stock method using all options outstanding. Includes all unvested restricted stock.2) 2009E Cash NOI ($316mm) is based on estimates for recurring NOI adjusted for straight line rents.3) Recurring AFFO = Estimated recurring net income + D&A –recurring capital expenditures – straight line rent adjustment. 4) 2009E dividend yield annualized for current monthly dividend.

The “Monthly Dividend Company”

Realty Income pays a dividend every month. It aggressively markets itself to retail investors as the “Monthly Dividend Company.”

6

Realty Income’s stated business purpose is to maintain and grow its monthly dividend…

7

The First 9 Pages of the Annual Report…

Cover Page 2 Page 3

8

First 9 Pages of the Annual Report (Cont’d)…

Page 4 Page 5 Page 6

9

First 9 Pages of the Annual Report (Cont’d)…

Page 7 Page 8 Page 9

10

Short Thesis: Investment Highlights

Short Thesis: Investment Highlights

Poor tenant quality

High concentration of discretionary retail tenants (casual dining restaurants, movie theaters, day care centers, etc…)

Junk or unrated credits, many with bankruptcy potential

Properties often have limited alternative use and high re-leasing risk

Unlike prime shopping center locations, Realty Income’s standalone locationsgenerally lack anchor tenants to drive traffic and assist in re-leasing

O’s profitability is levered to occupancy

We believe the current 97% occupancy rate will decline due to tenant deterioration

Realty Income is responsible for all expenses (taxes, insurance) and capital expenditures associated with a vacant property until it is re-leased

A decrease in occupancy could materially impact NOI12

Balance sheet assets doubled from 1/1/05 – 12/31/07 O was a leveraged lender to private equity during the real estate and credit

bubbles

Dividend coverage is minimal If O misses its dividend, the Company’s reason for being is in question

O trades at a substantial–and we believe unjustified–premium to private market valuations Asking prices for properties similar to O’s are at a 10%-11% cap rate We don’t believe that O shareholders are being paid appropriately for tenant risk

We believe that the “monthly dividend” marketing tactic has created demand for O stock from retail investors who may not value the company appropriately

At a 9.5% Cap Rate and a 7.5% decline in NOI, Realty Income would have a stock price of ~$14 (down ~46%)

Investment Highlights (cont’d)

13

Tenants: O Does Not Disclose Its Tenants

14

Unlike many other REITs, Realty Income does not disclose its tenants Simon Property Group, for example, discloses tenants representing as little

as 0.2% of its minimum rental income

Limited transparency as to: Names of tenants

Credit of tenants

Average credit rating of total tenant pool

Individual tenant contribution to revenue

Analysts and investors have asked for more tenant disclosure, but the Company has refused

QUESTION: Why?

ANSWER: We believe that O’s tenant quality is poor and the company is concerned about the impact of transparency on its stock price

Tenants: O Does Not Disclose Its Tenants

Analyst: “I was just wondering if the RV dealer, Camping World, that's at that 1.2 times, 1.22 times [EBITDAR-to-rent coverage] at the low end, if they're one of the ones that only discloses annually? I was just surprised to see that that 1.22 didn't move.”

Company Representative: “Right. We do not discuss the individual business of tenants, so I wouldn't comment to that.”

Analyst: “Okay.”

Company Representative: “And we never referred to them as that tenant.”

Analyst: “The other thing is Rite Aid announced that they're seeking rent relief on 500 stores earlier this quarter -- or I guess in the second quarter. Of the 24 Rite Aids that are in your portfolio, do you have any exposure? I mean it's obviously not their whole -- their entire store base. It's just a fraction of their system. I'm just wondering if you have any exposure to that.”

Company Representative: “Yes, it's not our policy to comment on our individual tenants and what they're doing. We could sit here all day. We have 118 tenants. And a lot of times on these calls, people get mentioned who aren't our tenants, so that's the policy we'll maintain.”

Q1 2009 Earnings Call Q2 2009 Earnings Call

15

Tenants: Discretionary Consumer Risk

16

Although Realty Income does not disclose its tenants, it provides tenant industry information

Realty Income As ofTenant Industries 6/30/09Restaurants 21%

Convenience stores 17%

Theaters 9%

Child care 8%

Automotive tire services 7%

Health and fitness 6%

Automotive service 5%

Drug stores 4%

Motor vehicle dealerships 3%

Sporting goods 2%

Home improvement 2%

Other 16%

Total 100%

The vast majority of its tenants are discretionary, regional retailers

Nearly 40% are restaurants (predominantly casual dining restaurants) and convenience stores

Source: 6/30/09 10-Q

Largest Tenants Are Poor Credits

17

Sources for tenants: Compiled using Wall Street Research, O’s filings, O’s website, various press reports and O’s earnings conference calls.1) Source: Moody’s, April 2009. Based on Moody’s estimates post emergence from bankruptcy.2) Source: Company filings, LTM ended June 2009. Capitalized operating rents calculated at 8x rent expense.3) Based on Learning Care Group (parent company) S&P corporate ratings, leverage estimate for LTM ended June 2009.4) Source: S&P, leverage estimate for LTM ended June 2009.5) Source: Moody’s, leverage estimate for LTM ended June 2009.6) Based on Citi sell-side report entitled, “Realty Income Corp (O): Non-Investment Grade Tenant Credit Weakness and Margin Pressure Add Risk,” dated 8/1/08.

We list below some of Realty Income’s largest tenants that we have been able to identify. They are all junk credits with high leverage

Estimated ~20% of Realty

Income’srevenues (6)

Tenant

Description

Credit Rating

Commentary

Buffets (owns Ryan’s Grill Buffet Bakery)

Casual dining / steak-buffet restaurants

Junk: Caa1 Adj. Debt / EBITDAR: 6.5x (1)

Emerged from bankruptcy in 2009

Pantry Regional convenience store operator (Southeast US)

Junk: B+ Adj. Debt / EBITDAR: 5.0x (2)

Bonds trade at 9.75% yield

La Petite Academy (Learning Care Group)

Day care operator Junk: B- Adj. Debt/ EBITDAR: 7.4x (3) Morgan Stanley

Private Equity LBO

Kerasotes Showplace Theatres

Movie theatre chain Junk: B- Adj. Debt/ EBITDAR: 5.9x (4)

Knowledge Learning Corp. (Children’s World)

Day care operator Junk: B1 Adj. Debt/ EBITDAR: 4.7x (5)

Other Major Tenants Are Also a Major Concern…

18

Source for Adj. Debt / EBITDAR: Company filings (capitalized operating rents calculated at 8x rent expense) and recent credit rating agency reports.Sources for tenants: Compiled using Wall Street Research, O filings, O’s website, various press reports and O’s earnings conference calls.1) We define a major tenant as renting 10 or more Realty Income properties OR involved in a sale/leaseback transaction with O for $30m or greater.

Other major tenants are mostly regional discretionary retailers, including several 2005-2007 vintage LBOs. Some tenants have already filed Chapter 11 and we believe many could be forced to liquidate

Realty Income major

tenants(1)

Listed in no particular order Tenant

Description

Leverage / Commentary

NPC International Casual dining restaurants

Largest Pizza Hut franchisee

Adj. Debt / EBITDAR: 5.7x

Merrill Lynch PE LBO (2006)

Midas Retail automotive services

Adj. Debt/ EBITDAR: 5.8x

Big 10 Tires Tire retailer Filed for Chapter 11 (4/2/09)

Friendly’s Casual dining / ice cream distributor

Sun Capital LBO (2007)

Rite Aid Drug store chain Adj. Debt/ EBITDAR: 9.6x

Bonds trade between 10 - 13%+ yield

Pier 1 Imports Specialty retailer of home furnishings

LTM EBITDA is negative

Sports Authority Specialty apparel retailer

Leonard Green LBO (2006)

Mezz. Loan implied yield of ~18%

Circle K Convenience store operator

O provided $100.5m of sale-leaseback financing for Alimentation Couche-Tard acquisition of Circle K

If a Tenant Files for Bankruptcy…

Tenant bankruptcy filings raise a number of issues:

Tenants in Chapter 11 could choose to reject their lease(s)

Vacant properties have re-leasing risk, typically require significant capital investment and brokerage commissions, and may be re-leased at materially lower rents

Tenants armed with market and/or bankruptcy leverage will likely seek to renegotiate rents

19

Balance Sheet Doubled from 1/1/05 – 12/31/07

20

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Realty Income Total Assets

During the peak of the real estate and credit bubbles, Realty Income’s assets more than doubled from $1.4bn to $3.1bn as the company became a financing source for LBOs and corporate M&A

1/1/05

–12/3

1/07

Cred

it Bub

ble Realty Income provided financing for the following LBOs:

Note: Realty Income entered into a sale/leaseback transaction with Friendly’s in October 2007, shortly after the August 2007 LBO of Friendly’s by Sun Capital.

$1.4bn

$3.1bn

Year Financing Amount

Transaction

LBO Firm

2006 $350mm $860mm LBO of Ryan’s Restaurants (acquired by Buffets)

Caxton-Iseman Capital (owner of Buffets)

2007 Undisclosed amount Sale/LB for 160 restaurants

~$340mm LBO of Friendly’s Restaurants

Sun Capital

Decline in Recurring 2009E NOI (1)

0.0% -2.5% -5.0% -7.5% -10.0%

Recurring AFFO/share (2) $1.76 $1.76 $1.68 $1.61 $1.53 $1.46

Current annualized dividend $1.71 $1.71 $1.71 $1.71 $1.71

Dividend coverage 103% 98% 94% 89% 85%

Required Dividend Decrease NA -2% -6% -11% -15%

Dividend Coverage is Minimal

21

Dividend coverage is minimal. Small declines in NOI will stress the company’s ability to maintain its dividend

Minimal roomfor error

1) Calculation of AFFO assumes $21mm of G&A expenses, $3mm of capex and straight line rent adjustments, and $86mm of interest expense.2) Recurring AFFO = Recurring Net Income + D&A – Cap Ex – straight line rent adjustment.

What Could Happen If…?

Despite having no debt maturities until 2013, Realty Income could face significant problems if its tenants continue to go bankrupt Even a small decline in NOI could prevent the company from funding

its current dividend from operating cash flow

Liquidity from O’s current revolver may be at risk if there are sufficient asset writedowns or sufficient reductions in FFO(1) (2)

Asset writedowns could be caused by tenant bankruptcies and / or declines in real estate values

Current cash on hand represents only about 2.5 months of dividends

O may need to reduce its cash dividend which we expect would adversely impact its stock price Many retail shareholders own the stock for its monthly dividend

We believe that O’s stock price depends on its ability to maintain its monthly dividend

22

1) Dividends and Other Restricted Payments covenant: Per the Credit Agreement (5/15/08), quarterly dividends and share repurchases may not exceed 95% of FFO plus preferred dividends for each of the trailing four quarters.2) Minimum Tangible Net Worth covenant: Per the Credit Agreement (5/15/08), we estimate that O must maintain a Tangible Net Worth of ~$1.3bn and that Tangible Net Worth is currently ~$1.6bn (as of 6/30/09) implying that O has an approximate $0.3bn cushion under that credit facility. O’s Net PPE is approximately $2.8bn.

O’s Business Model and its Stock Price

1. Performance and creditworthiness of its existing tenant portfolio

2. Ability to issue equity at a valuation materially higher than private market values

We believe that Realty Income’s ability to grow its dividend is a function of several factors including:

We believe that if Realty Income’s stock price were to decline meaningfully, its business model could be in jeopardy

23

Equity Offerings: “Ceiling on Valuation”

24

Since 2005, Realty Income has issued equity to the public five times at an average price of $25 and at ranges from $23.79 - $26.82

Average price of equity

offerings: $25.15

Given O’s recent stock price of ~$25, we would not be surprised if Realty Income issues equity soon, based on this history

Denotes equity offering

Properties Offered for Sale at a 11% Cap Rate

25

Current asking prices for some Ryan’s restaurants (one of O’s largest tenants) is an 11% cap rate. In comparison, Realty Income trades at a 7.3% cap rate

Source: All listings with Colliers International.

Tenant Location Sq Ft Price / SqFt Cap Rate Ryan’s Grill Buffet Bakery Indianapolis, IN 9,601 $178 11%

Ryan’s Grill Buffet Bakery Millington, TN 9,752 $176 11%

Ryan’s Grill Buffet Bakery Springfield, MO 11,557 $148 11%

Ryan’s Grill Buffet Bakery Simpsonville, SC 10,607 $161 11%

Ryan’s Grill Buffet Bakery Gastonia, NC 10,164 $169 11%

Ryan’s Grill Buffet Bakery Oak Ridge, TN 10,403 $165 11%

Ryan’s Grill Buffet Bakery Seymour, IN 12,331 $139 11%

Ryan’s Grill Buffet Bakery Foley, AL 10,996 $156 11%

Ryan’s Grill Buffet Bakery Gardendale, AL 11,066 $155 11%

Unwarranted Premium to Private Market Value

Knowledge Learning Corp., a large tenant of O’s, lists properties for sale on its website at $115/sq ft, on average. In comparison, Realty Income trades at $227/sq ft, a 97% premium

Not oneproperty is offered for sale at or above

O’s valuation

26

Source: www.knowledgelearning.com/xls/Real-Estate-Listings.xls

City State Bldg Size(sq ft) Land Size Listing Price Price/ Bldg Sq Ft

Waterford CT 6,054 1 Acre $299,000 $49Decatur GA 6,400 48,351 $700,000 $109Jonesboro GA 4,631 39,204 $440,000 $95Snellville GA 6,365 1.3 Acres $650,000 $102Beverly MA 4,335 23,990 $460,000 $106Hattiesburg MS 4,625 22,000 $500,000 $108Glassboro NJ 4,982 105,850 $990,000 $199Lawrenceville NJ 4,739 96,703 $990,000 $209Desoto TX 14,588 61,021 $850,000 $58Garland TX 8,724 56,327 $925,000 $106Houston TX 7,380 20,892 $500,000 $68Sterling VA 5,130 0.75 Acres $995,000 $194Kennewick WA 7,243 31,947 $1,200,000 $166West Allis WI 4,860 0.25 Acres $250,000 $51Temecula CA 6,206 34,788 $870,000 $140Farmington Hills MI 8,880 71,743 $735,000 $83Indianapolis IN 9,166 58,065 $900,000 $98Sugarland TX 6,182 33,149 $925,000 $150Lebanon PA 6,312 23,225 $600,000 $95

Avg Listing Price / Sq Ft $115

Realty Income ValuationEnterprise Value / Sq Ft $227Premium 97%

Management’s View on Private Market Valuations

27

“In talking about cap rates -- I mentioned this last quarter, but I think it really is worthwhile saying -- and that is if you look back on the 40 years that we've been doing this and kind of follow cap rates, from 2005 to 2008, we were buying kind of in the 8.4% to 8.7% cap rate range, and in those years bought about $1.5 billion worth of property. And I'd probably estimate that we were 75 to 100 basis points in cap rate above where the one-off market was, which was really a function of buying in bulk and you get a better price and a better cap rate.”

“From 2003 to 2004, the caps were around 9.5, and if you go back to when we went public in '94 and take it to 2003, I went back and looked, and the cap rates from during that period were always between 10 and 11. And then going back and looking at transactions going all the way back before '94, cap rates were pretty much always up 11% or so.”

“So I really think that kind of the 7 and 8 caps that you saw at retail and even some of the 9 caps on the institutional transaction, like a lot of assets in many different areas, were a function of the abundant and cheap financing that was out there, and it shouldn't be too surprising to see cap rates moving up again.”

--Tom Lewis, Realty Income, CEO

Q2 2009 Conference Call

If private market cap rates today for Realty Income-type properties are between 10% - 11%, then why should Realty Income trade at a 7.3% cap rate?

Why is a ~40% premium to NAV justified?

28

RE Index Versus Realty Income Since 1/1/2008

29

Despite its tenant exposure, Realty income has outperformed the U.S. real estate index (1) by ~35% since January 1, 2008

1) As measured by iShares Dow Jones Real Estate Index Fund

Insider Ownership and Selling

30

Realty Income does not foster an ownership culture

Despite restricted stock grants, insiders own less than 1.5% of the company

The top three executives (CEO, COO, CFO) own less than 1% of the company despite having an average tenure at the company of 18 years

CEO, COO and CFO have not made an open market stock purchase in over six years

Material insider selling

On August 3, 2009, CEO Tom Lewis sold ~20% of his holdings at $23.69, below today’s stock price

On the same day, COO Gary Malino sold ~9% of his holdings

Insider Ownership and Selling

31

Are Insiders and Shareholders playing on an even field?

Why should Management be permitted to sell stock knowing the identity of all tenants and their creditworthiness while shareholders are kept in the dark?

We believe that the SEC should immediately require Realty Income to disclose to all shareholders a list of its tenants andfinancial information sufficient to assess their creditworthiness

We believe that there is no competitive or other business reasonwhy Realty Income should not be required to do so

“Short” Sensitivity Analysis

Stock price return (from $25) at various cap rates and decline rates in 2009E Cash NOI

Stock price at various cap rates and decline rates in 2009E Cash NOI

Cap

rate

Cap

rate

32

Assuming 2009E recurring Cash NOI of $316mm, if NOI drops only 5% to 10% and O’s cap rate increases to 9.5% to 10.5%, Realty Income’s stock price could decline ~43% to ~60% from recent prices

Decline in 2009E Cash NOI$17.93 -2.5% -5.0% -7.5% -10.0% -12.5%

8.5% $19 $18 $17 $16 $159.0% $17 $16 $15 $14 $149.5% $15 $14 $14 $13 $12

10.0% $14 $13 $12 $11 $1110.5% $12 $12 $11 $10 $911.0% $11 $10 $10 $9 $8

Decline in 2009E Cash NOI-2.5% -5.0% -7.5% -10.0% -12.5%

8.5% -26% -29% -33% -36% -40%9.0% -33% -37% -40% -43% -46%9.5% -40% -43% -46% -49% -53%

10.0% -46% -49% -52% -55% -58%10.5% -52% -54% -57% -60% -63%11.0% -57% -59% -62% -65% -67%

Management is compensated with restricted stock, no options are granted In 2001, Realty Income discontinued the practice of granting stock options in favor

of only granting stock awards

O’s 2008 10-K: “We believe that stock awards are a more appropriate incentive to our executive officers given the focus of our business on monthly dividends”

Vesting program for restricted stock is highly unusual Based on age rather than years of service New program approved in August 2008

Executive Title AgeThomas A. Lewis CEO, Vice Chairman 56Gary M. Malino COO 51Paul M. Meurer CFO 43Michael R. Pfeiffer General Counsel 48Richard G. Collins EVP, Portfolio Management 60Robert J. Israel SVP, Research 49Laura S. King SVP, Assistant GC 47Michael K. Press SVP, Head of Acquisitions 35

How is Management Compensated?

33

Employee Vesting Age at Grant Date period55 and below 5 years56 4 years57 3 years58 2 years59 1 year60 and above Immediate

Conclusion

We believe that Realty Income’s current shareholders are not being sufficiently compensated for the company’s tenant risk Shareholders and investors should demand transparency from O’s management

regarding its tenants

If tenant deterioration continues… Realty Income’s cash flow may not be sufficient to pay its current dividend

We believe that the SEC should require Reality Income to disclose its tenants because without this information it is nearly impossible to value the company and its associated risks

At $25 and a 7.3% cap rate, we believe there is little downside to the short ~40% premium to current private market valuations

Company has historically issued stock at these levels

“Ceiling on valuation”

34

Prisons’ Dilemma

October 20, 2009


Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.


Funds managed by Pershing Square and its affiliates have invested in common stock and total return swaps on Corrections Corporation of America (“CXW”). Pershing Square manages funds that are in the business of trading – buying and selling – securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding CXW. Pershing Square may buy, sell, cover or otherwise change the form of its investment in CXW for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

Corrections Corporation of America

Ticker: “CXW”

Stock price: $24.50 (1)

1) All financials in this presentation assume a share price of $24.50.

Corrections Corp owns and operates private prisons

Owns the land and building at most of its facilities

Largest private prison company

Fifth largest prison manager behind California, the Bureau of Prisons, Texas and Florida

Capitalization: Enterprise value: $4.1 billion

Equity market value: $2.9 billion

Recent valuation multiples:’09e Cap rate: 12.2%

’09e P / Free Cash Flow Per Share: 13.3x

2

Overview of CXW

ManagedFacilities

Owned & ManagedFacilities

■ CXW operates facilities on the government’s behalf, but does not own the underlying property

■ 20 managed facilities■ 25,916 beds■ ~14% Facility EBITDA margin■ Subject to higher competition

■ CXW owns the land and building for the vast majority of its owned & managed facilities

■ 44 owned & managed facilities■ 61,054 beds■ ~35% Facility EBITDA margin■ High-multiple, high-margin business

________________________________________________

Note: Facility EBITDA is before G&A.

3

~90% of Facility EBITDA

CXW operates its business in two segments: Owned & Managed Facilities and Managed Facilities

~10% of Facility EBITDA

4

Strong National Footprint

________________________________________________

Source: CXW investor presentation, Aug. 2009.

5

Tenants Unlikely to Default

Alaska

Arizona

Hawaii

Kentucky

Minnesota

Oklahoma

Vermont

Other States

________________________________________________


CXW provides services under management contracts to all three federal agencies, 19 state agencies, the District of Columbia and multiple local agencies

6

Market Leader

~12,000 ~7,000 ~2,000 NA NA

Spare Capacity (includes development projects not yet completed)

________________________________________________

Source: Company filings and Pershing Square estimates.

He who has the beds gets the

prisoners

CXW is the clear leader in privatized prisons, controlling approximately 46% of the private prison and jail beds in the U.S.

________________________________________________


7

Large and Under-penetrated Market

________________________________________________

Source: Bureau of Justice Statistic: Prison Inmates at Midyear 2008, CXW investor presentation, Aug. 2009.

CXW addresses a total U.S. market that exceeds $65bn, of which only ~8% is outsourced. Privatized beds have grown from nearly 11,000 in 1990 to over 185,000 today (17% CAGR)

8

Supply / Demand Imbalance

________________________________________________


Across the state of California, facilities are running at 170% of designed capacity

Public-sector correctional systems are currently operating at, or in excess of, design capacity

9

Competitive Advantage: State vs. Private

________________________________________________


CXW has historically outperformed the public sector in safety and security

~1.5 yrs

<$70k

~$16k

New

Competitive Advantage: State vs. Private (Cont’d)

Lead Time for Prison Build

Cost to Build / Bed

Annual OpEx / Inmate (1)

Average Age of Facility

5 to 8 yrs

~$100-$150k

$24k

Old

State / Federal Private

________________________________________________(1) Source: 2007 Pew Charitable Trusts report – “Public Safety, Public Spending – Forecasting America’s Prison Population 2007 – 2011.” Annual Operating

Cost per Inmate for the year 2005. States vary widely; for instance, California had a $34k annual operating cost per inmate in 2005.

As a private company, CXW has cost and efficiency advantages compared with its largest competitor

10

11

Increasing Market Penetration

Because of constraints in new public prison construction, private prison operators were able to capture 49% of the incremental growth in U.S. inmate populations in 2007

12

Historical Prison Population Growth

Historically, inmate populations in the U.S. have grown regardless of economic factors

13

Prison Populations Expected to Rise

14

Federal Demand Drives Growth

Federal demand alone could fill CXW’s ~12,000 bed inventory over the coming years

The Federal Bureau of Prisons (“BOP”) is currently operating at 137% of rated capacity, with a stated desire to operate closer to 115%

The BOP projects that between 2008 and 2011 its population will grow by ~19,000 inmates, with just over 12,000 new beds planned for development by 2012

The United States Marshals Service (“USMS”) has a population of about 60,000-65,000 and has grown 8%-10% per annum over the last five years

Since 1994, Immigration and Customs Enforcement (“ICE”) detainee populations have grown by over 300% to ~35,000

________________________________________________(1) Based on 172,827 inmates in BOP facilities as of 9/26/09. Source: BOP website.

Assumes the shift from 137% to 115% takes place over the next three years.(2) The BOP projects its inmate population will grow by ~19,000 inmates from 2008 to 2011

but has only planned the development of ~12,000 beds.(3) Assumes ~5% growth of USMS / ICE inmate populations over the next three years.(4) Includes 2,572 beds not yet developed. Source: CXW investor presentation, Aug. 2009.

Federal Demand Drivers BedsBOP: Shift from 137% to 115% capacity (1) 28,000BOP: Undeveloped growth (2) 7,000 USMS / ICE (3) 15,000

Incremental Federal Demand 50,000

CXW inventory (as of 8/1/09) (4) 11,979 Incr. Federal Demand as % of Inventory 417%Capture Rate Required to Fill Inventory 24%

15

State Demand Drives Growth

“Of the 19 state customers that CCA does business with, we are currently estimating that those states will have an incremental growth that will be twice as much as their funded plan capacity by 2013.”

– Damon Hininger, CEO, Q1 Earnings Call

State prison populations are projected to increase by more than 90,000 over the next three years. If CXW can capture ~13% of this demand, it could achieve 100% occupancy

Supply / Demand Imbalance Drives Growth

Potential upside to our

estimates

We estimate CXW’s owned beds represent

>40% of the industry’s spare

capacity

If private prisons can capture just 25% of the incremental growth in the U.S. inmate population, CXW should achieve >98% occupancy in its Owned & Managed business by 2012. Private prison operators captured 49% of the growth in 2007 as state budget pressures have postponed new prison construction

16

(1) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics. Excludes juvenile, jail and ICE population.Source ('08-'12): In 2007, Pew Charitable Trust estimated there will be an incremental 153,000 prisoners by YE 2011.This analysis assumes an incremental 140,000 prisoners by YE 2012.

(2) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics. Excludes juvenile, jail and ICE population.Assumes 35% private capture rate in 2008 and 25% private capture rate going forward.

(Beds in thousands) Potential Growth Opportunity2004a 2005a 2006a 2007a 2008a 2009e 2010e 2011e 2012e

Market Analysis

Total Inmate Population (MM) (1) 1,546 1,580 1,627 1,655 1,677 1,701 1,726 1,760 1,795Growth 2.1% 2.2% 3.0% 1.7% 1.3% 1.4% 1.5% 1.9% 2.0%

Private Inmate Pop'n (000s) (2) 107 114 126 139 147 153 159 168 177Growth 5.0% 6.8% 10.7% 10.7% 5.6% 4.1% 4.2% 5.3% 5.2%% Private 6.9% 7.2% 7.7% 8.4% 8.8% 9.0% 9.2% 9.5% 9.8%

Incremental Private InmatesIncremental Total Inmates 32 33 48 27 22 24 26 34 35Private Capture Rate (2) 16.1% 21.6% 25.5% 49.1% 35.0% 25.0% 25.0% 25.0% 25.0%

Incremental Private Inmates 5 7 12 13 8 6 6 8 9

CXW Capture Rate (Owned only) 27.7% 18.5% 33.6% 33.4% 43.6% 40.0% 40.0% 40.0% 40.0%

Incremental CXW Beds (Owned) 1.4 1.3 4.1 4.5 3.4 2.4 2.6 3.4 3.5Occupancy (Owned) 90.3% 88.3% 93.9% 98.6% 94.5% 87.5% 89.8% 93.2% 98.7%

Memo: Pershing Square ForecastIncremental CXW Beds (Owned) 1.4 1.3 4.1 4.5 3.4 1.9 2.0 3.3 2.5Occupancy (Owned) 90.3% 88.3% 93.9% 98.6% 94.5% 86.6% 88.0% 91.5% 95.5%

17

Near-Term Catalysts: Post-Recession Growth

Increased crime during times of economic weakness and high U.S. recidivism rates drive post-recessionary inmate population growth

Of 300,000 prisoners released from 15 states in 1994, 67.5% were re-arrested for a new offense within three years (1)

Inmate populations have historically grown at an accelerated rate after recessions

18

Near-Term Catalysts: Increased Occupancy Drives EBITDA

________________________________________________


At current margins, CXW management estimates its inventory of existing beds could generate an additional ~$100mm of EBITDA

19

Near-Term Catalysts: Operating Leverage

Management derives its ~$100mm estimate by applying CXW’s Q2’09 margin to the lease-up of its existing inventory; however, approximately 84% of the costs in CXW’s Owned & Managed Facilities segment are fixed

Implies ~$100mm of incremental EBITDA

Implies ~$230mm of incremental EBITDA

________________________________________________

Source: CXW Q2’09 financial supplement. See page 33 of the CXW investor presentation for details of the assumptions used to derive management’s ~$100mm estimate.(1) The vast majority of CXW’s fixed expense is labor. Also includes utilities, property taxes, insurance, repairs & maintenance and other similar expenses.(2) Includes legal, medical, food, welfare and other similar expenses.(3) This analysis is illustrative. We note that there will be some amount of incremental fixed expense associated with the ramp-up of CXW’s inventory as staffing requirements increase with occupancy.

We further note that some of the beds in CXW’s inventory have not yet been developed, and therefore do not yet have associated fixed expenses.

CXW Facilities (Owned-only) Q2'09

Revenue per man-day $66.88Less: Fixed expense per man-day (1) (32.74) Less: Variable expense per man-day (2) (10.68)

Facility EBITDA per Man-Day $23.46Margin 35.1%

Contribution Margin Analysis: (3)Revenue per man-day $66.88Less: Variable expense per man-day (10.68)

Facility EBITDA per Incremental Man-Day $56.20Contribution Margin 84.0%

While this contribution margin analysis implies $230mm of incremental EBITDA, we believe the actual number will be somewhere between $100mm and $230mm

Near-Term Catalysts: Stock Buyback

Quarter Ended,Q108a Q208a Q308a Q408a Q109a Q209a Q309e Q409e

WASO 126.1 126.5 126.5 126.1 120.6 115.7 117.3 117.3Growth (YoY) (4.4%) (8.6%) (7.3%) (7.0%)

CXW’s repurchase of 10.7 million shares in Q4 ’08 – Q2 ’09 (~8.5% of total shares) provides a tailwind for NTM free cash flow per share growth

20

Recent Share Repurchases

Per Timeframe Shares (mm) Amount (mm) Share

November through December 31 1.1 $16.6 $15.09January through February 1.4 21.4 $15.29February through May 8.2 87.0 $10.61

Total 10.7 $125.0 $11.68

Memo: Remaining Buyback Authorization $25.0

Strong Free Cash Flow Generation

Because prisons are made of concrete and steel, depreciation expense meaningfully exceeds maintenance capex. As a result, CXW’s free cash flow per share is substantially greater than earnings per share

21________________________________________________


$0.40$0.53

$0.61

$0.86

$1.07$1.20

$0.59 $0.64

$0.84

$1.06

$1.40

$1.73

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

2003a 2004a 2005a 2006a 2007a 2008a

Diluted EPS Normalized FCFPS

22

Strong Balance Sheet

As of Q2’09, CXW’s interest coverage ratio was 5.4x. Its next debt maturity is not until 2012. Its cash interest expense is less than 6%, and more than 80% of its debt is fixed rate

________________________________________________


23

High Returns on Capital

________________________________________________


24

Culture of Equity Ownership

Board and management own more than 6 million shares of CXW (1)

________________________________________________

Source: CXW March 31, 2009 proxy and Bloomberg.(1) Includes shares that could be purchased upon exercise of stock options at March 1, 2009 or within 60 days thereafter.(2) William Rusak was succeeded by Brian Collins on September 14, 2009.(3) Based on 117,681,012 shares outstanding as of March 1, 2009. Deems shares that could be purchased upon exercise of stock options as shares outstanding.

Total BeneficialName of Beneficial Owner Title Ownership (1)William F. Andrews Director 525,523John D. Ferguson Chairman 1,711,455Donna M. Alvarado Director 50,916Lucius E. Burch, III Director 1,282,934John D. Correnti Director 83,124Dennis W. DeConcini Director 5,500John R. Horne Director 100,166C. Michael Jacobi Director 97,700Thurgood Marshall, Jr. Director 72,998Charles L. Overby Director 47,284John R. Prann, Jr. Director 87,232Joseph V. Russell Director 352,410Henri L. Wedell Director 1,377,920Damon Hininger Chief Executive Officer 20,489Todd J. Mullenger Chief Financial Officer 134,072G.A. Puryear, IV General Counsel 159,295Richard P. Seiter Chief Corrections Officer 144,742William K. Rusak (2) Chief of Human Resources 91,984

All Directors & Exexutive Officers as a Group 6,453,308Percent of Common Stock Beneficially Owned (3) 5.4%

Valuation

26

CXW Capitalization and Multiples

CXW trades for ~13x free cash flow per share or at an implied cap rate of 12.2%

________________________________________________(1) Applies an 8.0x multiple to Facility EBITDA from the management business.(2) NOI is defined as Facility EBITDA from CXW’s Owned & Managed segment (“owned only”).(3) Assumes a 38% cash tax rate. Assumes CXW uses future free cash flow to repurchase shares at

a premium to market.

(US$ in mm, except per share data)Capitalization

Share Price $24.50FDSO 117

Market Cap $2,873

Plus: Debt 1,212Less: Cash & Equivalents (28)

TEV $4,057

Cap Rate AnalysisTEV $4,057Less: Mgmt Business (1) (400)

PropCo TEV $3,657

2009e NOI (owned only) (2) 445 Cap Rate 12.2%

Summary Financials2008a 2009e 2010e 2011e 2012e

Avg Occupied Beds (owned only) 51,005 52,868 54,889 58,218 60,763Avg Total Beds (owned only) 53,990 61,043 62,340 63,626 63,626

Occupancy (owned only) 94.5% 86.6% 88.0% 91.5% 95.5%

Revenue $1,599 $1,650 $1,723 $1,828 $1,932Growth 8.1% 3.2% 4.4% 6.1% 5.7%

NOI (owned only) (2) 431 445 467 514 571Margin 27.0% 27.0% 27.1% 28.1% 29.6%

EBITDA 395 402 419 462 518Margin 24.7% 24.3% 24.3% 25.3% 26.8%

EBITDA - Maint Capex 359 362 372 414 470Margin 22.5% 22.0% 21.6% 22.7% 24.3%

Normalized FCFPS (3) $1.73 $1.84 $1.95 $2.34 $2.90Growth 23.6% 6.4% 5.9% 19.9% 23.8%

Trading Multiples2008a 2009e 2010e 2011e 2012e

TEV / EBITDA 10.3x 10.1x 9.7x 8.8x 7.8xTEV / EBITDA - Maint Capex 11.3x 11.2x 10.9x 9.8x 8.6x

Implied Cap Rate 11.8% 12.2% 12.7% 14.0% 15.6%P / Normalized FCFPS 14.2x 13.3x 12.6x 10.5x 8.5x

$0

$5

$10

$15

$20

$25

$30

$35

Jan-07 Jul-07 Feb-08 Sep-08 Mar-09 Oct-09$35,000

$45,000

$55,000

$65,000

$75,000

$85,000

$95,000

$105,000

StockPrice

TEV / Bed

27

Historical Stock Chart

46,681 48,933 50,909 53,464 59,184 61,054

Owned & Managed Available Beds

$24.50

125.3 125.6 126.1 126.5 120.6 115.7

Weighted Average Shares Outstanding

28

Opportunity for Multiple Expansion

________________________________________________

Source: Capital IQ, Pershing Square estimates.

5x

8x

11x

14x

Jan-07 Jul-07 Feb-08 Sep-08 Mar-09 Oct-09

TEV / Forward EBITDA

9.8x

Pre-Lehman Average:

11.5x

85.9% 87.1% 88.9% 89.8% 89.6% 90.1%

Owned & Managed as % of Facility EBITDA (TTM)

CXW’s earnings quality has improved since 2007 as its Owned & Managedsegment now accounts for more than 90% of Facility EBITDA

Real Estate

Government

Secular

~2%

None

High

Local Monopoly

Oligopoly

Low

Principal Asset

Primary Tenant

Growth Opportunity

Maint Capex as % of Revenue

Tenant Allowances

Return on New Development

Competition for Existing Units

Competition for New Construction

Cyclicality

Key Attributes of Corrections Corp

CXW has credit-worthy tenants, requires limited

maintenance capex, and enjoys excellent

competitive dynamics – all

features of a high quality real estate

business

29

Government

~2%Supply / demand imbalance

provides secular tailwind

None

Low

Oligopoly

Local Monopoly

Government

~3.5%Aging baby boomers

provide secular tailwind

Minimal

Low

Medium

Health Care REITs are the Best Comp

Primary Tenant

Maint Capex as % of Revenue (2)

Growth

Tenant Allowances

Cyclicality

Competition for New Builds

Competition for Existing Units

Cap Rate

TypicalHealth Care REIT (1)

________________________________________________

Source: Green Street research and Pershing Square estimates.(1) We define typical health care REITs to include senior housing, skilled nursing, MOBs, hospitals and life sciences.(2) Maintenance capex is low for health care REITs due to the triple-net leases associated with senior housing, skilled nursing and hospitals.

Senior Housing: HighMOBs / Hospitals: Local MonopolySkilled Nursing / Life Sciences: Medium

>12% ~7%

30

31

Illustrative Sum-Of-The-Parts Valuation

CXW is composed of two businesses: an operating company (“OpCo”) and a real estate company (“PropCo”)

Illustrative OpCo / PropCo Financials

($ in millions)2010e 2011e 2012e

OpCoCXW Revenue (owned-only) $1,349 $1,449 $1,543Rent as % of Revenue 25.0% 25.0% 25.0%

Illustrative Rent 337 362 386Per Bed $5,411 $5,692 $6,062

CXW EBITDA 419 462 518Less: Rent (337) (362) (386)

PF EBITDA $82 $100 $132PF Margin 4.7% 5.5% 6.8%

PropCoRental Revenue $337 $362 $386

NOI $337 $362 $386Margin 100.0% 100.0% 100.0%

Less: Cash expenses (10) (10) (10) AFFO 327 352 376 Margin 97.0% 97.2% 97.4%

Illustrative Sum-Of-The-Parts Valuation (Cont’d)

32

An OpCo / PropCo analysis suggests the stock could be worth between $40 and $54 per share

($ in millions)

OpCo Valuation:2012e PF EBITDA $132 $132Multiple 8.0x 8.0x

OpCo Value $1,057 $1,057

PropCo Valuation:2012e NOI $386 $386Cap Rate 8.0% 6.0%

PropCo Value $4,822 $6,429Memo: Dividend yield 7.8% 5.8%

Total Value $5,878 $7,485Per Share $40 $54

CXW used to be a REIT…

IPO’d in July-97 at $21 per share and immediately traded up to $29

Upon its formation, CCA Prison Realty Trust purchased 9 correctional facilities from Old CCA for $308mm. It then leased the facilities to Old CCA pursuant to long-term, non-cancellable triple-net leases with built-in rent escalators

Within five months of its IPO, CCA Prison Realty Trust used the remaining proceeds from its IPO and its revolver to purchase three additional facilities from Old CCA

By December-97, CCA Prison Realty Trust’s stock had moved up to the $40s, trading at a ~5% cap rate and a ~4% dividend yield

CCA Prison Realty Trust was a Huge Success

From 1997 through 1999, CXW operated as two separate companies: CCA Prison Realty Trust (a REIT), and Old CCA (the operating company)

33

$0

$10

$20

$30

$40

$50

$60

$70

$80

Jan-99 Feb-01 Mar-03 May-05 Jun-07 Jul-09

CXW used to be a REIT… (Cont’d)

New Prison Realty saddled itself with debt to fund new prison builds

Before the new prisons had been completed and could generate revenue, OpCo’soperating fundamentals began to decline and occupancy fell

OpCo struggled to maintain profitability and rental payments to New Prison Realty soon had to be deferred

As a result, New Prison Realty’s stock price declined precipitously, limiting its ability to raise liquidity. This was further exacerbated by a shareholder lawsuit stemming from the fall in the stock price

By the Summer of 2000, CXW was on the verge of default and had to raise dilutive capital to restructure and avoid bankruptcy

New Prison Realty was not a Success

On January 1, 1999, Old CCA and CCA Prison Realty Trust merged to form an even larger REIT, “New Prison Realty.” In order for New Prison Realty to qualify as a REIT, it had to spin off its management business (“OpCo”)

34

35

Why Did New Prison Realty Fail?

It had too much leverage

It had an overly aggressive development plan

Its tenant, OpCo, was also over-leveraged (1)

New Prison Realty did not fail because it was a REIT, it failed because:

________________________________________________(1) “The rates on the Operating Company leases were set with the intention that the public stockholders of New Prison Realty would receive as much of the benefit as possible from owning and

operating the correctional and detention facilities…. In fact, the Operating Company lease rates were set so that Operating Company was projected to lose money for the first several years of its existence.” Source: CXW 2002 10-K.

36

NOLs

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2001a 2002a 2003a 2004a 2005a 2006a 2007a 2008a 2009e 2010e

Total: $149mm Total: $165mm

Going forward, CXW expects to be a 38% cash tax payer9.4% 2.4% 3.4% 20.4% 8.2% 24.1% 22.5% 37.6% 38.0%Cash Tax Rate

CXW has not been a large taxpayer for the last eight years because of substantial NOLs that are now exhausted

25.7% 26.0%

19.7% 19.9%18.4%

14.1%

11.9%10.6% 10.1% 9.3%

0%

5%

10%

15%

20%

25%

30%

2001a 2002a 2003a 2004a 2005a 2006a 2007a 2008a 2009e 2010e37

Owned vs. Managed

Managed EBITDA as a % of Facility EBITDA

Since 2000, CXW has increasingly shifted away from a business focused on the management of prisons toward a business focused on the ownership of prisons

38

“The other thing I would point out is before we'd even sell stock, that there's a lot of value in these assets. I hear people talking to me about regional malls selling at six cap rates or parking garages selling at five cap rates or 20 times cash flow and you think about -- or highways selling at 50 times cash flow, you think about prisons as infrastructure or some type of real estate asset, I think these could be even sold and harvested in some fashion to avoid selling stock in the future. So there are a number of things that we could do to finance our growth, but just with respect to cash flow and leverage, we could go quite a ways.”

– Irving Lingo, Former-CFO of Corrections Corp, Q2’06 Earnings Call

Management Gets It

39

Conclusions

High QualityBusiness at a Substantial Discount to

Intrinsic ValueStrong Balance Sheet

Secular Growth Opportunity

Attractive ROC /Low Cost of Capital

Several Near-Term Catalysts

Market Leader / Competitive Advantage

Stable Free Cash Flow in Excess of EPS

Strong Management

If You Wait For The Robins,Spring Will Be Over*

December 7, 2009


1

Disclaimer



Funds managed by Pershing Square and its affiliates have invested in long and short positions of certain mall REITs, including long positions in General Growth Properties Inc. Pershing Square manages funds that are in the business of actively trading – buying and selling – securities and financial instruments. Pershing Square may currently or in the future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy, sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

________________________________________________

* Warren E. Buffett, “Buy American. I am,” New York Times (10/16/08).

2

At the Beginning of 2009, The World was a Very Different Place for Mall REITs

The U.S. economy was on the verge of a depression

The U.S. consumer had hit the wall

Credit markets were closed

Mall REIT balance sheets were dangerously leveraged

Cap rates increased and transactions stopped as bid-ask spreads widened

Bankruptcy risk and tenant “right-sizing” initiatives were expected to result in massive store closures

Rent relief was a serious concern

Tenant sales were expected to fall off a cliff

SinceThen…

The U.S. Economy has Recovered

4

The Recession is “Very Likely Over”

________________________________________________

Source: Bureau of Economic Analysis (11/24/09).

GDP grew 2.8% in Q3 and Federal Reserve Chairman Bernanke said the recession is “very likely over”

Real GDP (% Change)

1.5%

(2.7%)

(5.4%)

(6.4%)

(0.7%)

2.8%

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

Q2’08 Q3’08 Q4’08 Q1’09 Q2’09 Q3’09

5

9.4%

9.7%9.8%

10.2%

10.0%

8.5%

9.0%

9.5%

10.0%

10.5%

July August September October November

Unemployment Down in November

________________________________________________

Source: Bureau of Labor Statistics (12/4/09).

The U.S. unemployment rate improved 20bps in November

U.S. Unemployment Rate

6

Housing Market Showing Signs of Recovery

________________________________________________

Source: Census Bureau, Haver Analytics, Barclays Capital (November 2009).

New home inventories are falling sharply and are projected to continue to do so

The U.S. Consumer is Beginning to Bounce Back

8

Consumer Confidence Improving

________________________________________________

Source: University of Michigan / Bloomberg. Most recent data point available as of 11/25/09.

The University of Michigan Survey of Consumer Confidence Sentiment Index has improved since the beginning of the year

University of Michigan Consumer Confidence Index (Trailing Three Month Average)

74.9

64.0

60.261.1

59.2

63.7

67.5

70.5

50.0

55.0

60.0

65.0

70.0

75.0

80.0

Dec-Feb2008

Mar-May2008

Jun-Aug2008

Sept-Nov2008

Dec-Feb2009

Mar-May2009

Jun-Aug2009

Sept-Nov2009

The Credit Markets Have Improved

10

Financial Markets Normalizing

________________________________________________

Source: FRB, FDIC, Haver Analytics, Barclays Capital (November 2009).

Overnight bank lending markets have stabilized and debt issuance is beginning to pick up

11

Stock Market has Rebounded

________________________________________________

Source: Capital IQ (as of 12/4/09).

The S&P 500 is up over 60% since March

600

700

800

900

1000

1100

1200

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Dec-09

S&P 500 Index (YTD)

1,106

12

REIT Stocks have Rebounded

The IYR REIT Index has doubled since March

$45

20

25

30

35

40

45

50


IYR REIT Index (YTD)

________________________________________________


13

REIT CDS Spreads Tightening

REIT CDS spreads have meaningfully compressed year-to-date

________________________________________________

Source: Credit Suisse equity research (December 4, 2009).

14

________________________________________________

Source: Goldman Sachs Global Investment Research (December 2, 2009). Includes AMB Property Corp (AMB), ProLogis(PLD), Boston Properties (BXP), DDR Corp (DDR), Vornado (VNO), Brandywine Realty (BDN), Kimco (KIM), Avalonbay (AVB), Alexandria Real Estate (ARE), Ventas (VTR) and Simon Property Group (SPG).

Over the past three months, REITs have been able to issue large amounts of low-cost debt

Closed on October 8, 2009

$400mm loan

Five year term

Blended interest of 4.225%

DDR TALF Deal

“Based on secondary market trading, if Simon were to issue debt today, an issuance of five year unsecured debt could potentially be completed at a cost of 5% or less”

– Credit Suisse Equity Research, December 4, 2009

REIT Cost of Debt Improving

Mall REIT Balance Sheets Have Strengthened

16

REITs Have Raised over $18bn of Equity YTD

REITs have raised equity capital equivalent to approximately 10% of the market cap of the entire industry

________________________________________________

Source: Goldman Sachs Global Investment Research (December 2, 2009).

17

Mall REITs have Delevered

Mall REIT leverage ratios have decreased meaningfully since May

59.1%

56.7% 57.0% 56.9%57.3%

54.9%

53.7%

52.2%

47.5%

50.0%

52.5%

55.0%

57.5%

60.0%

62.5%

May June July August September October November December

Mall REIT Leverage Ratio (total liabilities net of cash as a % of current value of assets) (1)

________________________________________________

Source: Green Street Real Estate Securities Monthly.(1) Total liabilities (including preferred shares) net of cash as a % of current value of assets. Mall average includes CBL, GGP, Glimcher, Macerich, PREIT, Simon, Tanger, Taubman and Westfield.

Cap Rates Have Declined Substantially

19

Mall REIT Cap Rates Have Declined and Should Decline Further Based on Historical Precedent

Although mall REIT cap rates have come in from their double-digit highs, they still trade at a wide spread to corporate Baa yields

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Jan-05

Mar-05

May-05

Jul-0

5Sep

-05Nov-0

5Ja

n-06Mar

-06May

-06Ju

l-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-0

7Sep

-07Nov-0

7Ja

n-08Mar

-08May

-08Ju

l-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-0

9Sep

-09Nov-0

9

Mall Implied Cap RateBaa

Mall Implied Cap Rate vs. Baa Yields

7.8%

6.3%

________________________________________________

Source: Green Street (as of November 2009).

Store Closure Fears were Overblown

21

White Knights

Although there have been some tenant bankruptcies year-to-date, white knight buyers have minimized store liquidations

Selected Bankruptcies White Knight

Comments

Eddie Bauer Jun-09

Golden Gate Aug-09

In July, CCMP bid $202mm for Eddie Bauer w/ plan to liquidate 121 of 371 stores

In August, Golden Gate beat out CCMP w/ $286mm bid

Golden Gate plans to keep “the substantial majority” of the company’s stores open

Ritz Camera Feb-09

David Ritz Jul-09

David Ritz and RCI Acquisition LLC beat out three liquidators at auction

Ritz will attempt to keep all the remaining 375 stores open, though some closures still expected

Filene’s May-09

Vornado / Syms Jun-09

In May, Crown Acquisition bid $22mm for Filene’s w/ plan to liquidate 8 stores

In June, a joint venture formed by Syms and Vornado beat out Crown w/ a $62.4mm bid

Vornado / Syms plan to operate Filene’s remaining 22 outlets and re-open a location in Boston

J. Jill Out of court

Golden Gate Jun-09

At the beginning of 2009, Talbots had been considering winding down its J. Jill concept

In June, Golden Gate acquired the J. Jill retail chain for $75mm

Golden Gate plans to keep open 204 of the existing 279 locations open

Store closures that have arisen in bankruptcy have tended to be in low-quality, underperforming locations

22

Liquidations Could Be Good For Malls

Retailers with successful concepts are acquiring leases from liquidating retailers, allowing malls to refresh their product offerings with concepts that should drive increased traffic

Selected Liquidations

Strategic Acquirer(s)

Comments

Gottschalks Jan-09

Forever 21 Jun-09

Gottschalks auctioned to liquidation company, Great American Group

13 retail spaces sold to Forever 21 on June 10, 2009

Joe’s Sports Mar-09

Dick’s Sporting Goods Jul-09

Joe’s Sports sold to liquidator Gordon Brothers for $61mm

6 retail spaces sold to Dick’s Sporting Goods in July, which will be opened by year-end

Mervyn’s Jul-08

Forever 21 / Kohls Dec-08

In December, Kohls and Forever 21 acquired 46 Mervyn’s leases for $6.25mm

Forever 21 primarily focused on Mervyn’s mall-based locations

Speculation that Forever 21 has acquired additional Mervyn’s spaces since December

23

Many Mall-Based Tenants Expanded in 2009

Although there have been some “right-sizing” initiatives in 2009, many mall-based tenants actually expanded certain concepts

________________________________________________

Source: Company filings, earnings transcripts, investor presentations, company press releases. In some cases, stores were counted from the store locator on the companies’ websites. This analysis is not meant to be comprehensive and is limited by its inability to get information for private or international based tenants (i.e. Forever 21, Luxottica, etc…) as well as many public companies.

(1) Where available, attempted to limit store count to U.S., mall-based locations; however, many store counts include international stores or non mall-based locations.(2) Beginning of Year 2009. Most store data is as of January 31, 2009.(3) Most store data is as of October 31, 2009 or November 2009.

Stores (1)

Company Concept BOY (2) Current (3)

Abercrombie & Fitch abercrombie 212 213 Hollister 515 522 Gilly Hicks 14 16

Aeropostale Aeropostale U.S. 874 894 P.S. - 11

American Eagle Aerie 116 137 Bebe 2b bebe 32 33 Bed, Bath & Beyond buybuy BABY 15 25

CTS 52 57 Harmon Face Values 40 42

Charlotte Russe Charlotte Russe 495 501 Cheesecake Factory Cheesecake Factory 145 146 Chico's WH|BM 344 347

Soma 71 76 Children's Place Children's Place 917 950 Coach Coach N.A. (excl factory) 324 340 Coldwater Creek Coldwater Creek 348 356 Dick's Sporting Goods Dick's Sporting Goods 384 420 Dressbarn Dressbarn 834 846

Maurices 697 741

Subtotal 20 6,429 6,673

24

Many Mall-Based Tenants Expanded in 2009 (Cont’d)

________________________________________________



Stores (1)


Foot Locker CCS - 2 Gamestop Gamestop U.S. 4,331 4,425 Genesco Journeys 1,012 1,022

Johnston & Murphy 157 162 GNC GNC N.A. (excl franchise) 2,774 2,806 Guess Guess N.A. 425 433 Gymboree Gymboree U.S. 583 594

Crazy 8 38 62 Janie & Jack 115 120

H&M H&M USA 169 175 hhgregg hhgregg 108 128 J Crew J Crew (excl outlets) 211 243

Crewcuts 6 9 Madewell 12 17

JC Penney JC Penney 1,093 1,109 Liz Claiborne Juicy Couture U.S. (excl outlets) 62 65 Lululemon Athletica Luluemon 113 119 LVMH Sephora 898 963 New York & Co New York & Co 589 592 Nordstrom Nordstrom full-line 109 112

Subtotal 20 12,805 13,158

25

Many Mall-Based Tenants Expanded in 2009 (Cont’d)

________________________________________________



Stores (1)


Payless Stride Rite 355 360 Restoration Hardware Restoration Hardware (excl outlets) 101 109 Rue21 Rue21 449 537 Stage Stores Bealls, Palais Royal, Peebles, Goody's 739 751 Talbots Talbots 587 589 The Buckle The Buckle 387 405 The Gap Banana Republic N.A. 573 582 The Limited Victoria's Secret 1,043 1,046

Henri Bendel 5 9 Tiffany & Co Tiffany U.S. 76 78 Urban Outfitters Urban Outfitters 142 151

Anthropologie 121 133 Free People 30 34

VF Corp VF-operated retail stores 698 733 Wet Seal Wet Seal 409 420 Williams-Sonoma West Elm 36 40

Williams-Sonoma Home 10 11 Zumiez Zumiez 343 378

Subtotal 18 6,104 6,366

Total 58 25,338 26,197

26

92.2% 92.5% 92.6% 92.5%

90.9% 91.0%91.4%

85.0%

87.5%

90.0%

92.5%

95.0%

97.5%

100.0%

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

Mall Occupancy is Stable

In Q3’09, occupancy was up 40bps sequentially

Occupancy is stable despite deterioration in lower-quality malls

Mall REIT Occupancy (GGP & Simon) (1)

________________________________________________(1) Average of Simon and GGP. Simon data excludes regional Mills malls.

27

Survival of the Largest

Comparing the occupancy performance of Simon & GGP to that of smaller mall REITs shows the benefit of scale in leasing negotiations

Large Mall REIT Occupancy vs. Small Mall REIT Occupancy (1)

________________________________________________(1) Average regional mall occupancy. Excludes anchors.

Glimcher is excluded from the analysis as its occupancy includes temporary tenants that are excluded from other mall REIT reported occupancy metrics.

2.4% 2.7% 2.7% 2.7% 3.3% 3.4% 3.6%Difference

91.4%91.0%90.9%

92.5%92.6%92.5%92.2%

87.8%87.6%87.5%

89.8%89.9%89.8%89.8%

85.0%

87.5%

90.0%

92.5%

95.0%

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

Large Mall REITs (GGP & Simon)

Small Mall REITs(TCO, PEI, MAC)

28

Bad Debt Expense

Mall REIT provisions for doubtful accounts have not increased materially

TTM Provision for Doubtful Accounts as a % of TTM Revenue (GGP & Simon) (1)

________________________________________________(1) Average of Simon and GGP. GGP data only includes revenue from the mall segment

(i.e. excluding MPCs and GGMI).

0.47% 0.47%

0.32%0.41%

0.30% 0.33%

0.46% 0.47%

0.61%

0.80%0.87% 0.82%

0.00%

0.50%

1.00%

1.50%

2.00%

Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

Tenants Are Much Better Capitalized

30

60%70%80%90%

100%110%120%130%140%150%160%170%180%


S&P 500 Mall REIT Tenant Index

30

Mall REIT tenant stock prices have outperformed the S&P 500 by more than 30% year-to-date

________________________________________________

Source: Capital IQ. Stock price data through December 4, 2009.(1) Market cap weighted average index of GGP’s publicly traded top 10 tenants (Gap, Limited, Abercrombie, Foot Locker, American Eagle, JC Penney, Macy’s and Genesco).

(1)

+50%

+19%

Tenant Stock Price Performance

3131

On average, tenants have improved their net debt positions more than 30% since the same period last year

________________________________________________

Source: Capital IQ. Net debt data is most recent as of December 4, 2009.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

Tenants have Delevered(Top Ten & Selected Anchor Tenants)

($ in millions) Net (Debt) / CashTenants Selected Concepts Last Year Current Improvement

Top Ten Tenants (1)

The Gap Gap, Old Navy, Banana Republic $1,367 $2,398 75% Limited Brands Victoria's Secret, Bath & Body Works (2,520) (1,912) 24% Abercrombie & Fitch Abercrombie, Hollister, Ruehl 158 472 198% Foot Locker Foot Locker, Champs Sports 272 300 10% American Eagle American Eagle, Aerie, M+O 269 466 73% Express Express NA NA NAJCPenney Company JC Penney (1,881) (1,263) 33% Forever 21 4 Love, Forever 21, Gadzooks NA NA NAMacy's Macy's, Bloomingdale's (9,534) (8,221) 14% Genesco Journeys, Underground Station, Lids (120) (5) 95%

Subtotal ($11,989) ($7,765) 35% Selected Anchor TenantsBon-Ton Stores Bon-Ton ($1,306) ($1,212) 7% Dillard's Dillard's (1,393) (900) 35% Nordstrom Nordstrom, Nordstrom Rack (2,674) (2,131) 20% Saks Incorporated Saks, Off Fifth (629) (512) 19% Sears Holdings Sears (3,475) (2,450) 29%

Subtotal ($9,477) ($7,205) 24%

32

($ in millions) Net (Debt) / CashTenants Selected Concepts Last Year Current Improvement

Selected In-line TenantsAnntaylor Anntaylor, Anntaylor Loft $73 $136 87% Aeropostale Aeropostale, P.S. kids 107 286 166% Bebe Stores Bebe, Bebe Sport, 2b bebe 120 201 68% Borders Borders, Waldenbooks (487) (375) 23% The Buckle The Buckle 118 94 (21%) Chico's Fas Chico's, Soma, WH | BM 256 423 65% Claire's Stores Claire's, Icing (2,382) (2,364) 1% The Children's Place The Children's Place 101 102 1% Coach Coach 407 970 138% Hot Topic Hot Topic, Torrid 60 91 52% Liz Claiborne Juicy Couture, Kate Spade, Lucky Brand (924) (803) 13% Pacfic Sunwear Stores D.E.M.O., Pacsun (38) 16 141% RadioShack Radioshack 63 169 170% Tiffany & Co. Tiffany & Co. (661) (378) 43% Wet Seal Wet Seal, Arden B 125 141 13% Zales Corporation Zales, Piercing Pagoda (329) (442) (34%) Zumiez Zumiez 62 82 33%

Subtotal ($3,329) ($1,652) 50%

Total ($24,795) ($16,622) 33%

32

On average, tenants have improved their net debt positions more than 30% since the same period last year

________________________________________________

Source: Capital IQ. Net debt data is most recent as of December 4, 2009.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

Tenants have Delevered (Cont’d)(Selected In-line Tenants)

3333

At the beginning of 2009, Bon-Ton was perceived to be on the verge of bankruptcy. Today, it’s stock has increased more than 10 times. In November, it secured a 3.5 year extension on its $750mm credit facility

Case Study: Bon-Ton

$0

$2

$4

$6

$8

$10

$12

$14

$16

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09

$13

Bon-Ton Stock Price Performance (YTD)

________________________________________________


3434

Like Bon-Ton, many feared Claire’s would seek bankruptcy protection. Year-to-date, its debt has traded up more than 4 times

Case Study: Claire’s

________________________________________________

Source: Bloomberg.

3535

Zales’ net debt increased YoY primarily as the result of accelerating its payment of vendor merchandise receipts into Fiscal Q1. Going forward, its liquidity should benefit from the recently passed Business Assistance Act of 2009, which extends the period for which companies can carry-back NOLs

Case Study: Zales

“The recently-enacted Business Assistance Act of 2009, which extended the carry-back period for net operating losses from two to five years, is expected to provide a significant cash refund and tax benefit to us in fiscal 2010.”

– Matt Appel, CFO of Zales Corp., November 24, 2009

We expect many other retailers will benefit from the Business Assistance Act

Rent Relief Has Been Minimal

3737

Simon expects to lose less than 2bps of total revenue as the result of rent relief concessions in 2009

Rent Relief Less of an Issue than Originally Anticipated

“Our 2009 rent relief total will be under $10 million, as in the $7 million to $8 million range. But as I think we said on the call last quarter, we hadn’t seen much of it year-to-date. So it’s a little back-end weighted, and as you look at the impact of average base rent it could have a nominal impact. But it’s a small number in the context of the size of our income statements.”

– Steve Sterrett, CFO of Simon Property Group, October 30, 2009

Tenant Sales are Down, but Inventoriesare Down Even More While Retailer CashFlows Have Improved Materially

39

A New Paradigm: Sales vs. Cash Flow

Old Paradigm:Focus on Sales

From 2003 to 2007, retailers achieved high sales with bloated cost structures. Driven by Wall Street’s insatiable demand for same-store sales growth, retailers overspent to achieve high rates of same-store sales growth

Even though mall REITs derive a small percentage of NOI from overage rent, retail real estate investors and landlords have focused disproportionately on tenant sales

New Paradigm:Focus on Cash Flow

In 2009, retailers have used the economic crisis to re-shape their cost structures and improve inventory management to generate more cash flow at meaningfully lower sales levels

Retailer focus has shifted from growing sales to improving profit margins and increasing cash flow

As same-store sales again begin to increase, retailer profitability should accelerate

40

($ in millions) Inventory Memo:Tenants Last Year Current Decrease Nov SSS

Top Ten Tenants (1)

The Gap $2,224 $1,999 (10%) 0% Limited Brands 1,648 1,426 (13%) 3% Abercrombie & Fitch 505 347 (31%) (17%) Foot Locker 1,262 1,228 (3%) NAAmerican Eagle 422 425 1% (2%) Express NA NA NA NAJCPenney Company 4,471 4,018 (10%) (6%) Forever 21 NA NA NA NAMacy's 7,161 6,622 (8%) (6%) Genesco 380 360 (5%) NA

Subtotal / Wtd Avg $18,072 $16,425 (9%) (5%) Selected Anchor TenantsBon-Ton Stores $979 $901 (8%) (6%) Dillard's 2,243 1,752 (22%) (11%) Nordstrom 1,278 1,193 (7%) 2% Saks Incorporated 1,016 799 (21%) (26%) Sears Holdings 11,364 10,805 (5%) NA

Subtotal / Wtd Avg $49,152 $44,876 (9%) (9%)

40

Comparing November same-store sales to October inventory levels partially explains why tenant sales were down in November

________________________________________________

Source: Capital IQ. inventory data is most recent as of December 4, 2009.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

It’s Hard to Increase Sales when there is Less on the Shelves(Top Ten & Selected Anchor Tenants)

Inventories have declined more than same-store sales

41

($ in millions) Inventory Memo:Tenants Last Year Current Decrease Nov SSSSelected In-line TenantsAnntaylor $275 $211 (23%) NAAeropostale 207 222 7% 7% Bebe Stores 49 37 (26%) NABorders 1,257 1,157 (8%) NAThe Buckle 118 118 0% 1% Chico's Fas 187 160 (15%) NAClaire's Stores 149 139 (7%) NAThe Children's Place 233 251 8% (13%) Coach 402 338 (16%) NAHot Topic 95 91 (3%) (10%) Liz Claiborne 549 410 (25%) NAPacfic Sunwear Stores 234 168 (28%) NARadioShack 681 737 8% NATiffany & Co. 1,639 1,542 (6%) NAWet Seal 41 40 (3%) (5%) Zales Corporation 985 902 (8%) NAZumiez 82 76 (7%) (9%)

Subtotal / Wtd Avg $7,181 $6,599 (8%) (4%)

Total $74,406 $67,900 (9%) (6%)

41

Comparing November same-store sales to October inventory levels partially explains why tenant sales were down in November

________________________________________________

Source: Capital IQ. inventory data is most recent as of December 4, 2009.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

Inventories have declined more than same-store sales

It’s Hard to Increase Sales when there is Less on the Shelves(Selected In-line Tenants)

42

($ in millions) Cash Flow from Operations InventoryTenants Q3'08 Q3'09 Improvement Decrease

Top Ten Tenants (1)

The Gap $272 $432 59% (10%) Limited Brands (244) (114) 53% (13%) Abercrombie & Fitch NA NA NA (31%) Foot Locker NA NA NA (3%) American Eagle 76 65 (15%) 1% Express NA NA NA NAJCPenney Company (189) (30) 84% (10%) Forever 21 NA NA NA NAMacy's (275) (52) 81% (8%) Genesco NA NA NA (5%)

Subtotal ($361) $301 183% (9%) Selected Anchor TenantsBon-Ton Stores NA NA NA (8%) Dillard's (69) 78 214% (22%) Nordstrom 83 104 25% (7%) Saks Incorporated NA NA NA (21%) Sears Holdings (962) (35) 96% (5%)

Subtotal ($1,697) $430 125% (9%)

42

Tenant cash flows have gone from materially negative to materially positive. This is all the more impressive given that Q3 is usually cash flow negative for retailers as they prepare for the holidays

________________________________________________

Source: Capital IQ. Most Q3 periods ended in October.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

Lower Inventory = Higher Cash Flow(Top Ten & Selected Anchor Tenants)

Inventory declines, coupled with cost reduction measures, has resulted in materially higher tenant cash flows

43

($ in millions) Cash Flow from Operations InventoryTenants Q3'08 Q3'09 Improvement DecreaseSelected In-line TenantsAnntaylor ($1) $8 715% (23%) Aeropostale NA NA NA 7% Bebe Stores 15 (10) (168%) (26%) Borders NM NM NM (8%) The Buckle NA NA NA 0% Chico's Fas 1 56 3893% (15%) Claire's Stores NA NA NA (7%) The Children's Place 61 79 29% 8% Coach 77 241 214% (16%) Hot Topic 14 17 22% (3%) Liz Claiborne (121) (101) 17% (25%) Pacfic Sunwear Stores (7) (7) (5%) (28%) RadioShack 54 (20) (137%) 8% Tiffany & Co. 1 99 8909% (6%) Wet Seal 10 7 (36%) (3%) Zales Corporation NA NA NA (8%) Zumiez NA NA NA (7%)

Subtotal $104 $369 253% (8%)

Total ($1,953) $1,100 156% (9%)

43

Tenant cash flows have gone from materially negative to materially positive. This is all the more impressive given that Q3 is usually cash flow negative for retailers as they prepare for the holidays

________________________________________________

Source: Capital IQ. Most Q3 periods ended in October.(1) GGP’s top ten tenants as disclosed in its quarterly operating supplement.

Lower Inventory = Higher Cash Flow (Cont’d)(Selected In-line Tenants)

Inventory declines, coupled with cost reduction measures, has resulted in materially higher tenant cash flows

Which is better for the landlord,tenant sales growth or tenantcash flow growth?

45

Simon Property Group’s Point of View

“The retailers that we are dealing with are certainly focused on sales, but they are far more focused today on profitability and cash flow, which leads to capital allocation for new stores or remodeled stores upon renewal. What we faced in 2009 was, most retailers saying we are preserving our cash because we are unsure about our line [ofcredit]. And we are insecure about our ability to finance. Now that they have better cash margins and better cash on deposit, we are now hearing that they are allocating money for new open-to-buys. And I think David gave you a list in his comments of those stores that are looking at that. So I think it is going to be less correlated with sales and more correlated with profitability and cash flow generation.”

– Rick Sokolov, COO of Simon Property Group, October 30, 2009

46

On the sales side, I want to talk about sales and talk about our leasing activity and our leasing spread. As you know in the fourth quarter of last year, sales were off in general around 15% give or take, for most of the major mall owners including ourselves. That was a disastrous comp sales decrease from a retailer's viewpoint. Because it was totally unexpected from the retailer's viewpoint. As a result of that, it put the retailers into a freeze mode, not only into a freeze mode, they even got into a cutback mode, because it was totally unexpected. Over the course of this year, the retailers made major changes in their cost structure, major changes in their inventory levels and major changes in their business plan. Made plans for their businesses to be down roughly 10 to 15%.

In February this year, we told you that we anticipated that for the first three quarters of this year, that we anticipated double digit sales declines, and at the time, frankly, that was not a very thrilling prospect. In fact, we've had double digit sales declines, off 12% in the first quarter, 11% in the second quarter, 9% in the third. But we're seeing a moderation in the decreases, but more importantly, and I said this on the last call, is that you have to be careful about the comp sales, because this year the difference between the first three quarters of this year and the fourth quarter of last year is that our retailers planned to have their sales be off at this level. This was their business plan. They are meeting their business plan.

They are maintaining their margins. So being off 10% when you plan to be off 10% and you keep your margin is a significantly different situation than being off 15% when it wasn't your plan and your margins were decimated. As a consequence of that, it's put our retailers into a mood where they're willing to talk about new leasing and we're able to look at beginning to have some pickup in store growth. The moods of the retailers, and you've heard this on the other conference calls with our peers, is improving dramatically. They went from being in a freeze mode in the fourth quarter of last year, to things began to fall out in the second quarter of this year around ICSC. Now we're really having positive conversations with our retailers about how they can grow their business and how we can grow our business together.

– Art Coppola, Chairman & CEO of Macerich, November 5, 2009

Macerich’s Point of View

Summary

48


The U.S. economy was on the verge of a depression


Credit markets were closed

Mall REIT balance sheets were dangerously leveraged




Tenant sales were expected to fall off a cliff

SinceThen…

49

The U.S. economy has recovered

The U.S. consumer is beginning to bounce back

The credit markets have improved

Mall REIT balance sheets have strengthened

Cap rates have declined substantially

Store closure fears were overblown

Tenants are much better capitalized

Rent relief has been minimal

Tenant sales are down, but inventories are down even more while retailer cash flows have improved materially

The World has Improved Dramatically

Why We Are Optimistic About the Next Five Years

51

We Performed a Bottoms Up Analysis to Inform Our Outlook for Mall REITs

Using public information we analyzed:

Store expansion plans for 2010 and beyond

New concepts either currently being rolled out or upcoming

Revenue forecasts

Profit forecasts

Source of data for our analysis:Evaluated tenant websites, public filings, earnings transcripts, investor presentations and press releases; mall REIT earnings transcripts; industry trade publications and news articles to develop a sense of tenant expansions and new concepts on tap for 2010 and beyond

Gathered consensus equity research estimates for tenant revenue and EBITDA projections through 2010 and 2011

52

Expansions / New Concepts

________________________________________________

Note: This list is not meant to be comprehensive. It is based off publicly disclosed expansion / new concept plans. Some of these tenants are also considering selectively closing stores as well.

Though there will continue to be store closures in 2010, there will be store openings as well. More than half the companies we reviewed were either planning to add new stores or roll out new concepts

Aeropostale A'gaci American EagleRolling out 25-30 PS Kids new concept in '10 Growing store counts (per Simon) Plans to expand 77kids pop-up concept to a 25 Aeropostale stores in 2010 permanent brick & mortar store in 2010Apple Bebe Bed Bath & Beyond20-25 domestic stores in 2010 6 new stores in 2010 Expects to continue to add buybuy Baby

Expanding 2b bebe & PH8 concepts locationsBest Buy The Buckle Build-A-BearSees Best Buy Mobile as a growth vehicle Continues to expand and has added 18 Sees potential for 350 stores in N.A.

going forward stores YTDCalifornia Pizza Kitchen Charlotte Russe Cheesecake FactoryGrowing store counts (per Simon) On track to open 20 stores in F2009 Testing Grand Lux and Rock Pan Asian

Already signed 11 leases for 2010 Kitchen conceptsChico's The Children's Place CJ Banks40 new stores in 2010 Rolling out new Tech II store format Will opportunistically pursue storeExpanding Soma concept expansions in 2010, incl jewelry conceptCoach Coldwater Creek Cotton On20 new stores in N.A. in 2010 Sees opportunity to grow store base when Australian retailer looking to expand store

margins improve base from 600 to the 1,000s

53

Expansions / New Concepts (Cont’d)

________________________________________________


Dave & Buster's Destination Maternity Dick's Sporting GoodsGrowing store counts (per Simon) 12 to 17 stores in 2010 Sees potential for 800 stores nationwide

Opening new multi-brand store concept (~420 in Oct-09)Dressbarn Five Below Footlocker15 Dressbarn stores in 2010 Aggressive growth plan -- 100+ stores in Plans to build out its CCS new concept in35 Maurices in 2010 the next 3 years 2010Forever 21 Gamestop GenescoRapid expansion in 2009 300 US stores in 2010 60 to 70 stores in 2010, incl recentlyRolling out Faith21 line acquired Sports Fanatic conceptGNC Guess GymboreeTesting new prototype store 60 accessory stores in 2010 (new concept) Goal of opening a minimum of 50 Crazy 8Plans to open more domestic stores in stores next year

2010 than 2009 (>30)H&M hhgregg J CrewFlagged US as market where it plans to At least 45 new stores in 2010 Considering rollout of Madewell concept

grow the most in 2010Jones Apparel Group Jos A Bank LimitedRolling out 6 Shoe Woo test stores by end Accelerating expansion plan to open 30 to 40 Expanding Henri Bendel in US

of F2009 stores in 2010

54

Expansions / New Concepts (Cont’d)

________________________________________________


Liz Claiborne Lululemon MattelRolling out LCNY new concept Sees potential for over 300 stores in N.A. Expects to open more American Girl stores

(119 in Oct-09) stores over timeMichael Kors Microsoft NordstromGrowing store counts (per Simon) Rolling out retail store to compete with Apple 3 full-line stores in 2010

(new concept) 15 Rack stores in 2010Pandora Jewelry Payless Red RobinHas expanded to 10 US stores since Growing Sperry TopSider stores (per Simon) Growing store counts (per Simon)

opening first store in NC in 2007 Looking to expand Stride Rite in 2010Restoration Hardware Rue21 Saks (Off Fifth)Rolling out Baby & Child concept Sees opportunity to grow store base from Growing store counts (per Simon)

527 to >1,000 in 5 yrsRolling out Rue21! larger box concept

Sephora Stage Stores TargetPursuing expansions in US, France and Increase from ~750 to 1,000 stores by Looking to grow store base, but they are

China 2014 constrained by new shopping center dvlpmtLooking to move into existing malls

Tiffany TJ Maxx Urban OutfittersObjective to open 14 stores (net) in F2009 Growing store counts (per Simon) 50 new stores next yearExperimenting w/ new, smaller conceptVF Corp Wet Seal Williams SonomaSelectively opening stores Sees opportunity to nearly double its US Rolling out PBteen conceptExpects to open 80 stores in F2009 store base (~400 stores)

5555

The current environment has set the stage for tenants with value-focused concepts, which are performing well in today’s market, to expand and replace underperforming tenants. This mall “refresh”creates a virtuous cycle

Store Expansions / New Concepts Create a Virtuous Cycle for Mall REITs and their Tenants

Increased Mall

Occupancy

Higher Tenant

Cash Flows

Tenant Expansions /

New Concepts

Higher MallTraffic

Start Here

5656

Supply Constraints Enhance Virtuous Cycle

________________________________________________

Source: Goldman Sachs equity research November 2009.

“And frankly, when you look at the capital situation today, the construction in the retail sector is at a 20-year low. We certainly anticipate it will remain there, and the lack of new supply can only hopefully help the demand side for the existing product.”

– Rick Sokolov, COO of Simon Property Group, December 4, 2009

5757

Low Store Build-out Costs Enhance Virtuous Cycle

“A lot of contractors out there, you have a lot of architect firms, you have a lot of vendors that are doing fixtures, a lot of them are very aggressive right now and doing deals. So if you’re going to grow and open up stores, there’s an opportunity to really drive down your build-out costs there .”

– John Smith, SVP of Development, Collective Brands, October 6, 2009

58

Nordstrom Q3’09 Earnings Call

“We experienced an improving sales trend in each month of the quarter and generated increases in year-over-year transactions in the months of September and October”

Macy’s Q3’09 Earnings Release

“Given the difficult economic climate, we had an excellent quarter. Our business improved progressively each month during the period and we are entering the holiday season confident in our locally focused organizational structure and the high caliber of our talent”

Bon-Ton Q3’09 Earnings Call

“Our comparable store sales turned positive in the month of October with a 3.1% increase as compared with last year, a good month following improvements in sales trends in August and September”

Though tenant sales are down year-to-date, sales momentum is starting to build

Positive Tenant Sales Momentum

59

Positive sales momentum has culminated in rising consensus revenue estimates for mall-based retailers. Wall Street is now forecasting 2.6% and 3.5% revenue growth in 2010 and 2011, respectively

Wall Street Anticipates Tenant Revenue Growth

________________________________________________

Source: Capital IQ consensus estimates as of December 5, 2009. (1) Based on GGP’s top ten tenants as disclosed in its quarterly operating supplement. An analysis of other publicly traded mall-based

retailers results in similar growth expectations.(2) Consensus revenue growth weighted average is weighted by each tenant as a % of GGP’s revenue (as disclosed in GGP’s quarterly

operating supplement).

($ in millions) Weight Consensus Revenue Estimates (CY) Consensus Revenue GrowthTenants Selected Concepts Factor (2) 2008a 2009e 2010e 2011e 2009e 2010e 2011e

Top Ten Tenants (1)

The Gap Gap, Old Navy, Banana Republic 2.9% $14,526 $14,149 $14,324 $14,672 (2.6%) 1.2% 2.4% Limited Brands Victoria's Secret, Bath & Body Works 2.6% 9,043 8,528 8,612 8,799 (5.7%) 1.0% 2.2% Abercrombie & Fitch Abercrombie, Hollister, Ruehl 2.3% 3,450 3,002 3,235 3,533 (13.0%) 7.8% 9.2% Foot Locker, Inc. Foot Locker, Champs Sports, Footaction 2.3% 5,237 4,796 4,803 4,842 (8.4%) 0.1% 0.8% American Eagle American Eagle, Aerie, M+O 1.5% 2,989 2,956 3,093 3,238 (1.1%) 4.7% 4.7% Express Express 1.3% NA NA NA NA NA NA NAJCPenney Company JC Penney 1.3% 18,846 17,583 17,760 18,115 (6.7%) 1.0% 2.0% Forever 21 4 Love, Forever 21, Gadzooks 1.2% NA NA NA NA NA NA NA Macy's Macy's, Bloomingdale's, Lord & Taylor 1.1% 24,892 23,448 23,838 23,908 (5.8%) 1.7% 0.3% Genesco Journeys, Underground Station, Lids 1.1% 1,552 1,563 1,621 1,726 0.7% 3.7% 6.5%

Total / Wtd Avg 17.6% $80,534 $76,024 $77,286 $78,834 (5.8%) 2.6% 3.5%

60

($ in millions) Weight Consensus EBITDA Estimates (CY) Consensus EBITDA Margin CommentsTenants Selected Concepts Factor (2) 2008a 2009e 2010e 2011e 2008a 2009e 2010e 2011e '10e Margin > '08a?

Top Ten Tenants (1)

The Gap Gap, Old Navy, Banana Republic 2.9% $2,116 $2,280 $2,399 $2,382 14.6% 16.1% 16.8% 16.2% YesLimited Brands Victoria's Secret, Bath & Body Works 2.6% 1,061 1,099 1,182 1,279 11.7% 12.9% 13.7% 14.5% YesAbercrombie & Fitch Abercrombie, Hollister, Ruehl 2.3% 695 349 477 594 20.2% 11.6% 14.7% 16.8% NoFoot Locker, Inc. Foot Locker, Champs Sports, Footaction 2.3% 286 252 269 311 5.5% 5.3% 5.6% 6.4% YesAmerican Eagle American Eagle, Aerie, M+O 1.5% 440 392 486 551 14.7% 13.3% 15.7% 17.0% YesExpress Express 1.3% NA NA NA NA NA NA NA NA NAJCPenney Company JC Penney 1.3% 1,604 1,156 1,355 1,494 8.5% 6.6% 7.6% 8.2% NoForever 21 4 Love, Forever 21, Gadzooks 1.2% NA NA NA NA NA NA NA NA NAMacy's Macy's, Bloomingdale's, Lord & Taylor 1.1% 2,680 2,481 2,722 2,851 10.8% 10.6% 11.4% 11.9% YesGenesco Journeys, Underground Station, Lids 1.1% 113 123 135 145 7.3% 7.9% 8.3% 8.4% Yes

Total / Wtd Avg 17.6% $8,995 $8,132 $9,026 $9,608 12.2% 11.1% 12.4% 13.0% Yes

Wall Street Anticipates Tenant Margin Expansion

________________________________________________

Source: Capital IQ consensus estimates as of December 5, 2009. (1) Based on GGP’s top ten tenants as disclosed in its quarterly operating supplement. An analysis of other publicly traded mall-based

retailers results in similar margin expectations.(2) Consensus EBITDA margin weighted average is weighted by each tenant as a % of GGP’s revenue (as disclosed in GGP’s quarterly

operating supplement).

Cost cutting and inventory management initiatives will help tenant margins expand despite lower 2009 sales

6161

2009e Holiday Same-Store Comps

Citigroup performed a bottoms-up analysis to project 2009e holiday same-store sales of positive 2.5 percent

6262

Mall Traffic Trending Up

Citigroup also anticipates improving Holiday 2009 mall traffic

63

October 2008 – June 2009:No material mall transactions that we have been able to identify

July 2009:Vintage Real Estate acquires regional mall, South Bay Pavilion, for $50mm

July 2009:Macerich sells a 49% interest in Queens Center in NY to Cadillac Fairview for $150mm in cash plus $168mm in property level debt

September 2009:Macerich sells a 75% interest in its Flatiron Crossing Mall in CO for $116mm in cash plus $136mm of assumed debt to private equity firm, GI Partners

October 2009:Heitman pays $168mm in cash and assumes $167mm of property level debt to acquire a 49.9% interest in Macerich’s Freehold Raceway Mall in NJ and Chandler Fashion Center in AZ

November 2009:Blackstone acquires a 60% interest in two of Glimcher’s best malls – Lloyd Center and WestShore Plaza –for $62mm in cash and $130mm in assumed debt

November / December 2009:Simon Property Group hires advisers to evaluate a potential acquisition of GGPThe Wall Street Journal announces Brookfield has acquired $1bn of GGP’s unsecured debt

63

Growing Strategic Interest in Malls

6464

Mall REITs are Still Cheap

All of the principal drivers of mall valuations are favorable in the current economic environment

Principal Drivers of Mall Valuation Current Environment 1. Occupancy

Store liquidations have been less than anticipated Many retailers are planning expansions in 2010 New mall construction is on hold Economics of new store openings are attractive

2. Risk-Free Rate

10-yr Treasury yield of 3.4%; 10-yr TIPS yield 1.3%; other inflation protected assets trade at very low yields

Corporate BBBs yield ~6% Mall cap rates are estimated to be ~7 to 8%

3. Tenant Creditworthiness

Tenant stock prices are up over 50% year-to-date Tenant cash flows have improved and margins are

projected to expand Tenant balance sheets have strengthened

Which would you rather own?

1) A 10-yr Treasury at a 3.4% yield2) A 10-yr TIP at a 1.3% yield, or3) Shares in a mall REIT at a 7.5%,

7.0%, or even 6.0% cap rate

66

What are the Characteristics of the Ideal Mall REIT Best Positioned to Perform in the Current Environment?

LiabilitiesAssets

■ Secured, non-recourse debta portfolio of options is more valuable than an option on a portfolio

■ Fixed-rate debtprovides a hedge against inflation

■ Low interest rates

■ Long-dated maturities

■ A healthy amount of leverageprovides upside for return on equity

■ Good liabilities are an asset

■ Established national platformprovides leverage when dealing with tenants who are looking to expand or reposition stores

■ High-quality malls, B+ to A+

■ Established tenant relationships

■ Low in-place occupancy costs

■ Diverse footprint

■ Lease-up / redevelopment opportunities

6767

Conclusion

During one of the worst recessions in over 50 years, mall REITs and their tenants have proven to be highly resilient

Consumer spending does not need to return to 2007 levels for mall REITs and their tenants to outperform

Store closures of underperforming tenants is a long-term positive for the mall industry

Tenant cash flows and balance sheets have massively improved over the last twelve months

Many opportunistic retailers have substantial growth plans. Retailers on the sidelines are just like those investors who didn’t buy stocks in the spring

General Growth Properties“Fool’s Gold”

We Think Current Equity Investors Will Be Disappointed in the Company’s

Reorganization

December 14, 2009 Hovde Capital Advisors LLC

Table of Contents

• Thesis (p.3)

• The Demise of Malls in America (p.4‐11)

• The Beginning of the End (p.12‐14)

• Valuation Analysis (p.15‐31)

• Commercial Real Estate Valuation (p.32‐35)

• Potential Roadblocks (p.36)

• Disclosures (p.37‐38)

December 14, 2009 Hovde Capital Advisors LLC 2

Our Thesis• Due to highly leveraged acquisitions near the peak of the cycle, a decline in

the overall economy, and insufficient capital spending, we believe the assets of General Growth no longer support the current capital structure.

• In our view: ‐‐ the company’s cash flows are insufficient to service the debt and pay for maintenance capital at its malls; and ‐‐ the bankruptcy is not just the result of a liquidity problem; it is a cash flow and loan‐to‐value problem.

• We believe the value of the assets no longer exceed the value of the debt, in contrast to several recent analyses.

• Despite recent upward move in the GGWPQ share price, we believe current equity investors are likely to be left with little in the restructured entity.

NOTE: THAT FUNDS ADVISED BY HOVDE CAPITAL ADVISORS, LLC AND ONE OF ITS PRINCIPALS HAVE SHORT POSITIONS IN GGWPQ. SEE ADDITIONAL IMPORTANT DISCLOSURES AT PAGES 26 AND 27.

December 14, 2009 3Hovde Capital Advisors LLC

The Demise of Malls in America

Structural Change in Retail Consumption and Distribution


Consumers Are Saving More and Spending Less


‐4

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0

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1952

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Percen

tage

Personal Savings Rate (% of Disposable Income)

Source: U.S. Bureau of Economic Analysis.

Consumers Have Less Access to Credit


Source: Federal Reserve.

Consumers Have Less Home Equity Available to Support Spending


Source: Federal Reserve.

Consumers Are Focused on Value• Given lower levels of discretionary income and higher savings rates, we

believe consumers are seeking more value in their consumption habits.• This is evident in the outperformance of discount retailers versus broader

retail sales. These retailers tend to be discounters and in non‐mall locations, typically stand alone or located in strip centers and power centers.

• In our view, outlets are also likely to gain share, which we think is demonstrated in the recently announced acquisition of Prime Outlets by Simon Properties Group (NYSE:SPG). The outlet business offers consumers better value, offers retailers lower occupancy costs, and provides landlords with better margins.

• Online shopping has experienced tremendous growth in share of retail spending as consumers seek value and efficiency.

• These trends do not bode well for mall fundamentals since neither are mall based.


Non‐Mall Retailers Are Seeing Improving Performance

December 14, 2009 Hovde Capital Advisors LLC 9Source: Bloomberg.

Same-Store Retail Sales (% Chg.)Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08

Non-Mall Average 1.2 2.8 1.4 (0.9) (4.0) (4.4) (1.8) (1.7) (2.7) (3.4) (8.5) (4.8)

BJ's Wholesale Club Inc 1.0 3.7 5.5 2.2 1.8 2.7 4.0 (4.9) 8.5 8.2 7.6 5.9

Cato Corp/The 2.0 - 6.0 5.0 (3.0) (3.0) (3.0) 11.0 6.0 8.0 (10.0) (2.0)

Costco Wholesale Corp 2.0 4.0 4.0 2.0 (1.0) 1.0 1.0 - 4.0 4.0 5.0 2.0

Kohl's Corp 3.3 1.4 5.5 0.2 0.4 (5.6) (0.4) (6.2) (4.3) (1.6) (13.4) (1.4)

Nordstrom: Rack Stores 3.3 5.9 - 3.8 (0.5) 0.6 2.2 4.4 0.1 (0.6) (2.2) (1.8)

Old Navy North Amer 6.0 14.0 13.0 4.0 (8.0) (7.0) 3.0 1.0 - (13.0) (34.0) (16.0)

Rite Aid Corp (0.8) (0.5) (0.3) (1.9) (0.6) (0.6) 0.6 1.8 (0.7) (0.9) 1.0 (0.2)

Ross Stores Inc 8.0 9.0 8.0 6.0 4.0 1.0 4.0 6.0 3.0 1.0 (2.0) -

Stage Stores Inc (12.5) (0.1) (5.6) (9.5) (11.9) (12.6) (7.2) (1.5) (15.0) (8.6) (13.1) (4.9)

Stein Mart Inc (7.2) (4.9) (5.4) (8.9) (5.5) (8.0) 0.2 (12.3) (1.4) (12.2) (16.7) (8.5)

Target Corp (1.5) (0.1) (1.7) (2.9) (6.5) (6.2) (6.1) 0.3 (6.3) (4.1) (3.3) (4.1)

TJX Cos Inc 8.0 10.0 7.0 5.0 4.0 4.0 5.0 3.0 2.0 - (4.0) -

Walgreen Co 3.9 (6.2) (17.6) (16.6) (25.5) (23.0) (27.0) (24.6) (31.2) (24.2) (25.8) (31.2)

Mall‐Based Retailers are Performing Poorly

We Believe This Is Likely to Lead to Retail Bankruptcies and Store Closings

December 14, 2009 Hovde Capital Advisors LLC 10Source: Bloomberg.

Same-Store Retail Sales (% Chg.)

Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08

Mall-based Average (6.7) (2.6) (3.8) (9.3) (10.5) (10.6) (10.1) (6.1) (11.6) (8.3) (10.6) (8.6)Abercrombie & Fitch Co (17.0) (15.0) (18.0) (29.0) (28.0) (32.0) (28.0) (22.0) (34.0) (30.0) (20.0) (24.0)

Aeropostale Inc 7.0 3.0 19.0 9.0 6.0 12.0 19.0 20.0 3.0 11.0 11.0 12.0

American Eagle Outfitters Inc (2.0) (5.0) - (7.0) (11.0) (11.0) (7.0) (5.0) (16.0) (7.0) (22.0) (17.0)

Banana Republic N. Amer (4.0) 5.0 (12.0) (8.0) (7.0) (20.0) (14.0) (8.0) (16.0) (16.0) (22.0) (15.0)

Bon-Ton Stores Inc/The (6.0) 3.1 (4.8) (5.1) (9.8) (8.0) (12.1) (5.1) (11.2) (8.5) (8.2) (5.8)

Buckle Inc/The 1.4 4.3 5.1 3.6 2.8 9.6 13.4 18.2 14.7 21.0 14.7 13.5

Childrens Place Retail Stores Inc/The (13.0) (2.0) 4.0 (8.0) (4.0) (12.0) (9.0) 5.0 (2.0) - (11.0) -

Destination Maternity Corp (11.6) (5.2) (7.0) (10.6) (8.3) (10.7) (5.4) (1.2) (7.6) (3.5) 5.1 (6.9)

Dillard's Inc (11.0) (8.0) (6.0) (12.0) (12.0) (14.0) (12.0) (6.0) (19.0) (13.0) (12.0) (5.0)

Gap North America (4.0) (6.0) (8.0) (7.0) (9.0) (10.0) (11.0) (10.0) (14.0) (12.0) (18.0) (12.0)

HOT Topic Inc (11.7) (2.6) (4.0) (8.1) (8.5) (7.9) (6.4) 3.1 7.1 10.8 6.0 4.3

JC Penney Co Inc (5.9) (4.5) (1.4) (7.9) (12.3) (8.2) (8.2) (6.6) (7.2) (8.8) (16.4) (8.1)

Ltd Brands Inc 3.0 (4.0) 1.0 (4.0) (7.0) (12.0) (7.0) (6.0) (9.0) (7.0) (9.0) (10.0)

Macy's Inc (6.1) (0.8) (2.3) (8.1) (10.7) (8.9) (9.1) (9.1) (9.2) (8.5) (4.5) (4.0)

Neiman Marcus Group (5.9) (6.0) (16.9) (19.6) (27.3) (20.8) (23.3) (22.5) (29.9) (20.9) (24.4) (27.5)

Nordstrom: Full-line Stores (0.6) 3.7 (3.9) (12.9) (7.8) (13.6) (16.7) (13.4) (16.9) (19.7) (18.1) (12.8)

Saks Inc (26.1) 0.7 (11.6) (19.6) (16.3) (4.4) (26.6) (32.0) (23.6) (26.0) (23.7) (19.8)

Wet Seal Inc/The (5.0) (1.3) (4.5) (11.2) (12.1) (11.1) (8.4) (2.2) (12.5) (6.6) (14.7) (12.5)

Zumiez Inc (8.5) (8.9) (0.8) (12.1) (16.8) (19.3) (20.7) (13.8) (17.9) (13.4) (14.8) (12.3)

Online Sales Are Gaining ShareEstimated Quarterly U.S. Retail E‐commerce Sales as a Percent of Total

Quarterly Retail Sales:4th Quarter 1999 2nd Quarter 2009

Percent of Total


Source: U.S. Census Bureau.

The Rouse Company Acquired November 2004

The Beginning of the End


The Rouse Company Acquisition

• Purchase price: $14.3 billion.• Portfolio of 37 regional malls (and various office assets) and

$2 billion of land and lots, mostly in Summerlin (Las Vegas) – reports from market participants as noted on the next page suggest land prices in this market have fallen dramatically, and, in some cases, the land has an implied value of zero or even negative values.

• Capitalization rate of 5.3% ‐ implies over $4 billion destruction of estimated asset value at today’s market prices, assuming an 8% cap rate.

• $400 million of goodwill – not only do we believe it was purchased at near‐peak values, it was overvalued when they bought it!


Source: Rouse Company SEC filings.

The Rouse Company Acquisition

• Las Vegas land is now worth materially less than in 2004. We think there is little value in the master planned community assets of General Growth.

• “…finished lots are trading at a discount and the underlying land at many

nonprime locations for residential development has virtually no value in

today’s distressed market, Cherney says. There is more pain to come in this

Vegas land market. The fundamentals of supply and demand are alive and well

and will ensure further declines into 2009. This washout is far from over.” ‐

Craig Cherney, director of Western operations of Philadelphia‐based American Land Fund as quoted in the

Las Vegas Sun, March 1, 2009.


Valuation Analysis


Widely Relied Upon Analysis Is Outdated

• We believe many investors/speculators have relied upon a Pershing Square Capital LP analysis of the company issued in May 2009, which used data from 2008. We are of the opinion that this very dated analysis is flawed based on the deterioration in financial performance at General Growth since 2008.

• The company’s actual cash flow (see p.19) is now more than 20% below 2008 levels, and rents on new leases are down 33% versus current in‐place rents as of the third quarter.

• We view the 7.5% capitalization rate assumption as far too optimistic relative to private market transaction values. Macerich (NYSE:MAC) recently sold comparable and higher quality mall assets at cap rates higher than 8% (after factoring in preferred returns to investors).*

• Bottom line: we believe the assets are worth less than the liabilities.


*Source: Macerich press releases on September 3, 2009 and October 1st 2009; Macerich conference call November 5th, 2009.

Leverage is a Significant Valuation Factor

• Pershing Square uses Simon Properties Group (NYSE:SPG) as a comparable in their analysis without giving consideration to leverage. Simon is moderately leveraged, with debt to EBITDA of 6x, and is an investment grade rated credit. General Growth’s leverage is in excess of 16x and would still be in excess of 12x even if all of the unsecured debt was converted to equity.

• There are no comparably leveraged public companies in the mall sector, but those that are more highly leveraged trade at a significant discount to those with less leverage. Clearly companies with less leverage trade at premium valuations as shown on the following page.


Source: General Growth third quarter 2009 supplemental package; Simon Property Group third quarter 2009 supplemental package.

Leverage Is a Significant Valuation Factor

Average of analyst estimates from ISI and Deutsche Bank as of 12/4/09; General Growth third quarter 2009 supplemental package.

Leverage and Valuation Comparison

Implied Leverage Cap Rate (Debt/EBITDA)Average Average

CBL & Associates 9.3% 8.9xMacerich 8.3% 8.2xSimon Property Group 7.3% 6.8xAverage 8.3% 8.0x

General Growth Properties ? 16.5x


Cash Flows Have Collapsed

This is the starting point for Pershing Square’s analysis.

This is the reality of today (‐27% yr/yr).


Source: Third quarter 2009 General Growth supplemental package.

Rents Are Rolling Down DramaticallyNew lease rates are 33% lower than in‐place rents. This is not good for the NOI outlook.



NOI Sensitivity Drives Valuation

• The decline in NOI since 2008 drives a decline in enterprise value of $3.8‐$4.3 billion under the Pershing Square valuation framework.

• Applying Q3 annualized NOI to the Pershing Square valuation analysis, the implied equity value per share of the company today is NEGATIVE $5.03 at an 8.5% cap rate and +$5.73 at a 7.5% cap rate.


Source: “The Buck’s Rebound Begins Here” dated May 27, 2009 – Pershing Capital Management, L.P. (p. 56) and Hovde Capital Advisors LLC analysis (see page 30).

Recent Comparable Transactions Indicate Cap Rates Are Higher

• *Macerich’s (NYSE: MAC) sale of JV interest in Queens Center (NYC, NY) to Cadillac Fairview Corporation at a “low 7% cap” – per company management.

• This mall generates $876/square foot in sales versus General Growth’s $409/square foot.


*Source: Macerich press release July 30, 2009; Macerich conference call November 5th, 2009; third quarter 2009 General Growth supplemental package.


• *Macerich’s (NYSE: MAC) sale of JV interests in malls to Heitman and GI Partners at a “less than 100 basis points over the 7.5% cap rate on average.” – per Arthur Coppola (11/5/09 conference call). Thus we infer the effective implied cap rate is in the 8.0%‐8.5% range.

• These malls generate $443‐$500/square foot in sales versus General Growth’s $409/square foot.


*Source: Macerich press releases on September 3, 2009 and October 1st, 2009; Macerich conference call November 5th, 2009.


• The recently announced acquisition of Prime Outlets by Simon Property Group (NYSE:SPG) was estimated to be priced at an 8.0%‐8.4% cap rate on in‐place NOI based on some Wall Street estimates.(1)

• These malls generate $370/square foot in sales versus General Growth’s $409/square foot, however, outlet malls generally tend to generate slightly higher NOI margins than regional mall format in our view.


(1) Deutsche Bank estimate 8.4% (report dated 12/8/09, titled “SPG Acquiring Prime Outlets.”) Sandler O’Neil estimates ~8% cap rate (report dated 12/8/09, titled “SPG: Stocking Up Before the Holidays; SPG to Acquire Prime Outlets.”

What Is the Appropriate Cap Rate?

• Based on recent comparable transactions, the use of a cap rate below 8% seems disconnected with reality in our view.

• We would argue a cap rate in the 8.5% range or higher would be more appropriate for the General Growth portfolio, given the below average productivity of its malls* and the fact that it is experiencing significant declines in new rents that in our opinion will drive lower revenues and NOI for some period of time.


* Source: based on Q3-09 disclosures from Macerich and Simon Properties Group.

Interest Coverage Is Unsustainable(This is cash flow problem, not just a liquidity problem)

Interest coverage has fallen to

minimal levels (1.17x) – this is before capital expenditures.



Amortizing Secured Debt Will Further Reduce Debt Service Capacity

• Recent agreement with $9.7 billion of secured creditors requires that interest‐only debt now amortizes principal on a 30 year schedule.

• This will add over $300 million of annual debt service initially, which steps up over time, i.e. increasing amortization.

• By our estimates, this will initially drive the company’s debt service coverage ratio to 1.0x or below based on the company’s trailing 12‐month EBITDA as of 9/09.

• Based on the company’s projections, debt service coverage for the properties secured by these loans will be 1.0x in 2010, before considering mandatory principal paydowns and other cash costs.


Source: US_ACTIVE:\43244255\04\47658.0008, debtor’s plan filed 12/1/09; third quarter 2009 General Growth supplemental package.

Creditors Will Take the Cash

• Cash ($2/share) will likely be paid out to creditors in the form of fees and reimbursement of legal expenses.

• According to documents recently filed in bankruptcy court, General Growth will be forced to pay $423.2 million in extension fees, servicer fees and expenses, catch‐up amortization payments, accrued interest, the funding of certain escrows and other expenses.

• This is only related to the agreement on $9.7 billion of secured loans, so we believe the cost to secure agreements to restructure the remaining $12 billion of debt will likely cost significantly more if the costs are comparable to this agreement.

• Given our view that the cash costs of the restructurings will likely exceed the company’s current cash position, we believe additional claims will likely be settled in equity ownership, suggesting little if any recovery for common shareholders.


Source: US_ACTIVE:\43244255\04\47658.0008, Exhibit 3, filed 12/7/09.

ValuationPershing Square’s Analysis Uses Dated NOI

This is from 2008

This is Q3 annualized NOI, and rents are rolling down sharply (‐33%), which will drive lower NOI.

Pershing Square Analysis Framework

More Realistic Scenario($ in millions, except per share data) Low High

LTM Cash NOI $ 2,524 $ 2,524 $ 2,200 (1) $ 2,200 (1) Cap Rate 8.5% 7.5% 8.5% 7.5%

Implied Value of GGP's REIT 29,694 33,653 25,882 29,333

Pro Rata for JVs:

Less: Total Debt (28,174) (28,174) (28,174) (28,174)

Less: Preferred Debt (121) (121) (121) (121)

Less: Other Liabilities (1,585) (1,585) (1,585) (1,585)

Plus: Cash 722 722 0 0

Plus: Other Assets 1,777 1,777 1,777 1,777

Plus: Development Pipeline 603 603 603 603

Implied Equity Value $ 2,916 $ 6,875 $ (1,618) $ 1,833

Per Share $ 9.11 $ 21.50 $ (5.06) $ 5.73

Cash will be paid to

creditors in fees and

recovery of legal expenses.

(1) See calculation of NOI on the page 30.


Source: “The Buck’s Rebound Begins Here” dated May 27, 2009 – Pershing Square Capital Management, L.P. (p. 56) and Hovde Capital Advisors LLC analysis.

Calculation of Today’s NOI

Net Operating Income Calculation (as of Q3-09)(figures in 000s)

Consolidated & JV Share NOI (as reported) $ 585,203 Less: lease termination fees $ 3,859 Less: above/below-market rents $ 3,121 Less: straight lined rents $ 11,478 Less: tenant allowances & leasing costs $ 16,620 Less: capital expenditures $ 3,362 Plus: non-cash ground rent expense $ 1,823 Total NOI $ 548,586

Total Annualized NOI (x4) $ 2,194,344



ValuationAssumes unsecured debt would require a moderate discount to convert, although it is questionable in our view whether there will be any value for existing shareholders

given that we believe the value of the debt exceeds that of the assets.

Best Case Realistic Case


Best Case - Assuming Conversion($ in millions, except per share data) Conversion Price Range $5-$8

Annualized Cash NOI (1) $ 2,200 $ 2,200 $ 2,200 $ 2,200 Cap Rate 7.5% 7.5% 7.5% 7.5%

Implied Value of GGP's REIT 29,333 29,333 29,333 29,333

Pro Rata for JVs:

Less: Total Debt (21,174) (21,174) (21,174) (21,174)

Less: Preferred Debt (121) (121) (121) (121)

Less: Other Liabilities (1,585) (1,585) (1,585) (1,585)Plus: Cash (2) - - - -

Plus: Other Assets 1,777 1,777 1,777 1,777

Plus: Development Pipeline 603 603 603 603

Implied Equity Value $ 8,833 $ 8,833 $ 8,833 $ 8,833

Per Share $ 5.14 $ 5.94 $ 6.69 $ 7.39

(1) See calculation on page 24.(2) Assumes cash is paid out to creditors in forbearance fees and reimbursement of legal expenses.

Assumed conversion price: $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 3.00 $ 4.00 $ 5.00 $ 6.00

Realistic Scenario - Assuming ConversionConversion Price Range $3-$6

$ 2,200 $ 2,200 $ 2,200 $ 2,200 8.5% 8.5% 8.5% 8.5%

25,882 25,882 25,882 25,882

(21,174) (21,174) (21,174) (21,174)

(121) (121) (121) (121)

(1,585) (1,585) (1,585) (1,585)

- - - -

1,777 1,777 1,777 1,777

603 603 603 603

$ 5,382 $ 5,382 $ 5,382 $ 5,382

$ 2.03 $ 2.60 $ 3.13 $ 3.62

Commercial Real Estate Valuation Analysis


Commercial Real Estate Values Have Dropped 43% Since the Peak


Source: Moodys/REAL Commercial Property Index, Real Capital Analytics.

Capitalization Rates Have Moved Significantly Higher Since the Peak


5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

Jan‐01

Apr‐01

Jul‐0

1

Oct‐01

Jan‐02

Apr‐02

Jul‐0

2

Oct‐02

Jan‐03

Apr‐03

Jul‐0

3

Oct‐03

Jan‐04

Apr‐04

Jul‐0

4

Oct‐04

Jan‐05

Apr‐05

Jul‐0

5

Oct‐05

Jan‐06

Apr‐06

Jul‐0

6

Oct‐06

Jan‐07

Apr‐07

Jul‐0

7

Oct‐07

Jan‐08

Apr‐08

Jul‐0

8

Oct‐08

Jan‐09

Apr‐09

Jul‐0

9

Oct‐09

Capitalization Rates

Apartment Industrial Office ‐ CBD Office ‐ Sub Strip All Core

Source: Real Capital Analytics.

2009 Mall Transaction Data


2009 Regional Mall Transactions

Retail - Regional Malls | North America | Us

Type Property Name sq ft Year Built Price in $ $/sq ft

Retail West Oaks Mall 1,083,573 1984 15,000,000 14

Retail Lloyd Center 1,229,140 1959 171,851,210 140

Retail Westshore Plaza 1,059,612 1967 148,148,790 140

Retail Bridgewater Falls 650,000 2005 43,750,000 67

Retail Chandler Fashion Center 1,325,379 2001 296,079,278 223

Retail Freehold Raceway Mall 1,666,812 1990 372,352,733 223

Retail New Orleans Centre Mall 668,000 1988 24,243,791 36

Retail Cupertino Square 476,000 1975 64,000,000 134

Retail FlatIron Crossing 722,855 2000 347,333,000 481

Retail Queens Center 966,499 1990 306,117,000 317

Retail Kohl's 83,281 1984 17,250,000 207

Retail South Bay Pavilion 370,000 1973 49,751,333 134

Retail Colonie Center Mall 633,000 1966 16,400,000 26

Retail Westland Fair Shopping Center (portion) 387,000 1963 25,505,000 66

Retail Cincinnati Mall 1,442,339 2004 35,450,000 25

Average $ 149

Source: Real Capital Analytics.

Potential Roadblocks

• Objections to the company’s plan of emergence related to assets securing $9.7 billion of loans have been filed recently by secured creditors who hold mechanics liens, tax liens, claims relating to rent claw backs, and claims securing surety bonds.

• Such creditors include:– Apple

– Dillard’s

– Lewisville (TX) Independent School District

– Pima County (AZ)

– Travelers Casualty and Surety Company


Source: United States Bankruptcy Court for the Southern District of New York.

Disclosures

• Funds advised by Hovde Capital Advisors, LLC and one of its principals have established short positions in the common stock of General Growth Properties (OTC: GGWPQ) and in the common stock of Macerich (NYSE: MAC). One of the principals has established a short position in Saks (NYSE: SKS). Their positions in these stocks and others may change without further notice.

• Neither the funds advised by or any affiliates of Hovde Capital Advisors, LLC hold positions in any other companies mentioned in this document other than those mentioned above.


Disclosures Continued

• The opinions and views express in this document and the analysis set forth therein may change and Hovde Capital Advisors, LLC is not undertaking to update its opinions, views or analysis.

• Although the factual information contained in this document is believed to be accurate, Hovde Capital Advisors, LLC does not warrant its accuracy or completeness.

• This document is not intended to be, and should not be construed as, investment advice or a recommendation to buy or to sell any security.


GGP Part IIMay 26, 2010


1

Disclaimer


The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein.

Pershing Square manages funds that are in the business of actively trading – buying and selling –securities and financial instruments. In particular, funds managed by Pershing Square and its affiliates have invested in long and short positions of certain mall REITs, including long debt and equity positions in General Growth Properties Inc. and other commitments to recapitalize that company. Pershing Square may currently or in the future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy, sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

2


At Last Year’s Ira Sohn Conference, We Delivered a 67-page Presentation on General Growth Entitled:

2

The Buck’s Rebound Begins HereMay 27, 2009

3

On Page 34 of The Buck’s Rebound Begins Here, We Proposed the Following Solution for GGP to Address Its Bankruptcy

A seven-year extension of GGP’s secured and unsecured loans at their existing interest rates would provide the Company with sufficient time to use cash flow from operations to delever its balance sheet. With a seven-year extension, we believe the Company would be able to repay existing creditors in full

Benefits of this Approach:

Secured and unsecured lenders receive 100% of the present value of their claims

Prevents the liquidation of assets at “fire-sale” prices

Preserves value for equity holders

GGP platform remains intact

Preserves jobs________________________________________________

Source: See page 34 of “The Buck’s Rebound Begins Here,” May 27, 2009.

4

All of GGP’s property-level debtors have consensually agreed to extend $15bn of secured debt

The weighted average contract interest rate for these loans is 5.07%, which is lower than the original interest rate

The weighted average duration of the loans is 6.5 years from January 1, 2010

GGP has avoided a “fire-sale” of its assets

Equity value has been enhanced

While we suggested a maturity extension of GGP’s unsecured debt, the vast majority of it will be repaid at emergence

4

GGP’s Bankruptcy has Progressed Largely as We Expected

(1)

(1)

________________________________________________(1) Source: GGP Press Release (4/29/10).

55

GGP has Secured a Commitment for Enough Capital to Repay its Unsecured Creditors in Full at Par Plus Accrued

________________________________________________(1) Source: GGP Press Release (5/3/10).

6

The Buck Has Rebounded

Though GGP’s stock price has risen more than 1000% over the past year, its TEV has only increased 12%. This compares to Simon Property Group (“SPG” or “Simon”) whose TEV has risen 29% over the same period

$14

GGP Stock Price Performance

________________________________________________


GGP traded at$1.19 as of lastyear’s Ira SohnConference

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Jan-09 Apr-09 Jul-09 Oct-09 Feb-10 May-10

A Little Context…

8


The U.S. economy was in a serious recession


Mall REITs had limited access to capital




Tenant sales were expected to continuously decline

SinceThen…

9

U.S. Economy Recovering

________________________________________________

Source: Bureau of Economic Analysis (5/27/10).

U.S. Real GDP growth has been positive the past three quarters

Real GDP (% Change)

Q2’08 Q3’08 Q4’08 Q1’09 Q2’09 Q3’09 Q4’09 Q1’10

1.5%

(2.7%)

(5.4%)

(6.4%)

(0.7%)

2.2%

5.6%

3.0%

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

10

The Housing Market is Showing Signs of Improvement

________________________________________________

Source: Bloomberg (as of 5/28/10).

The ABX AAA 06-2 Index, which tracks pricing on a basket of 2006 vintage subprime loans, has marched upward over the past year

Markit ABX.HE.AAA 06-2 Index

11

Consumer Confidence is Up

________________________________________________

Source: University of Michigan / Bloomberg. Most recent data point available as of 5/28/10.

The University of Michigan Survey of Consumer Confidence Sentiment Index has improved since the beginning of 2009

University of Michigan Consumer Confidence Index (Trailing Three Month Average)

61.1

59.2

63.7

67.5

70.5

73.5 73.1

50.0

55.0

60.0

65.0

70.0

75.0

Sept-Nov2008

Dec-Feb2009

Mar-May2009

Jun-Aug2009

Sept-Nov2009

Dec-Feb2010

Mar-May2010

12

Personal Savings Rate Reverting

After peaking in May 2009, the U.S. personal savings rate has reverted to near its 10-yr average

U.S. Personal Saving as a Percentage of Disposable Personal Income

________________________________________________

Source: Bloomberg / Bureau of Economic Analysis (as of 5/28/10). Most recent data point as of Apr-10.

3.6%Average:

2.8%

LTM

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10

13

Mall Traffic Improving

Consumers are returning to malls as evidenced by positive mall traffic trends year-to-date in 2010

________________________________________________

Source: Jefferies equity research (4/22/10).

1414

Retail Construction Remains at a 20-Year Low

________________________________________________

Source: Goldman Sachs equity research November 2009.

“And frankly, when you look at the capital situation today, the construction in the retail sector is at a 20-year low. We certainly anticipate it will remain there, and the lack of new supply can only hopefully help the demand side for the existing product.”

– Rick Sokolov, COO of Simon Property Group, December 4, 2009

15

Mall REITs Have Regained Access to Capital

________________________________________________

Source: The Wall Street Journal, 4/15/10.

On March 25, 2009, Simon announced the completion of the issuance of $650 million of 10.35% senior notes due 2019

On January 19, 2010, Simon announced the sale of $2.25bn of senior unsecured notes, including:

$400mm of 4.20% notes due 2015 yielding 4.25%

$1.25bn of 5.65% notes yielding 5.70%

Macerich Issues Biggest Share Offer On Record – WSJ 4/15/10

Macerich raised $1.23bn in equity at a ~7.0% cap rate, more than 25%of its market cap, representing the largest secondary stock offering by a REIT on record

The 30mm share sale was 62% over-subscribed relative to the original 18.5mm anticipated share sale announcement on April 14th

Simon Debt Issuances

Macerich Equity Issuance

16

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Jan-05

Mar-05

May-05

Jul-0

5Sep

-05Nov-0

5Ja

n-06Mar

-06May

-06Ju

l-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-0

7Sep

-07Nov-0

7Ja

n-08Mar

-08May

-08Ju

l-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-0

9Sep

-09Nov-0

9Ja

n-10Mar

-10May

-10

Mall Implied Cap RateBaa

Mall REIT Cap Rates Have Declined and Should Decline Further Based on Historical Precedent

Although Mall REIT cap rates have come in from their double-digit highs, mall REITs still trade at a discount to corporate Baa yields

Mall Implied Cap Rate vs. Baa Yields

6.4%

6.1%

________________________________________________

Source: Green Street (as of 5/1/10). Most recent available.

17

Tenant Bankruptcies Have Decreased

________________________________________________

Source: Taubman quarterly financial supplements.

Taubman’s reported tenant bankruptcies dropped to 0% in Q1’10

Taubman Reported Tenant Bankruptcy Filings as a % of Total Tenants

0.1%

1.0%

1.1%

0.9%

1.1%

0.8%

0.0%0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10

18

Tenant CDS Spreads Have Narrowed

Mall tenant CDS spreads have narrowed approximately 400 basis points from peak levels seen in 2009

139bps

GGP Top 10 Tenants CDS Basket

________________________________________________

Note: Represents an equal-weighted basket of CDS prices for GGP’s top 10 tenants (where CDS pricing is available), which include Gap, Limited, JC Penney and Macy’s.Source: Bloomberg (5/28/10).

0bps

100bps

200bps

300bps

400bps

500bps

600bps

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

1919

Simon expects to lose less than 2bps of total revenue as the result of rent relief concessions in 2009

Rent Relief Less of an Issue than Originally Anticipated

“Our 2009 rent relief total will be under $10 million, as in the $7 million to $8 million range. But as I think we said on the call last quarter, we hadn’t seen much of it year-to-date. So it’s a little back-end weighted, and as you look at the impact of average base rent it could have a nominal impact. But it’s a small number in the context of the size of our income statements.”

– Steve Sterrett, CFO of Simon Property Group, October 30, 2009

20

Mall Leasing Activity Picking Up Substantially

“Retail leasing activity increased significantly in the first quarter of 2010, with total in-line and outparcel tenant leasing deals covering 1.36 million square feet signed, an increase of 21% over the same period of last year. Within total deals, the number of new lease deals grew 84%, representing new deal square footage of approximately 284 thousand square feet. Although rents remain below 2007 peak levels, they have stabilized. As sales continue their upward trend, the Company expects lease rates to reflect those increases over time.”

– GGP Q1’10 Operating Supplement

21

Tenant Sales Growing Quickly

________________________________________________

Source: “Why the Sad Face Mall Sector?” Credit Suisse equity research (4/26/10).

Anchor tenant same store sales have turned from negative in late 2008 and 2009 to materially positive so far in 2010

22

Mall REIT Comp Tenant Sales Growth Positive in Q1’10

7.5%

6.6%

5.3%

3.4%

0.0%

2.0%

4.0%

6.0%

8.0%

Based on Westfield’s U.S. portfolio only.

“On a quarterly basis, comparable tenant sales rose a healthy 7.5% year-over-year, with momentum picking up over the course of the quarter. January 2010 comparable sales increased 2.5% year-over-year, with February and March showing accelerating increases of 6.0% and 10.0%, respectively.”

– GGP Q1’10 Operating Supplement

23

The U.S. economy has recovered

The U.S. consumer is bouncing back

Mall traffic is increasing

Demand for mall REIT debt and equity capital is high

Cap rates have declined substantially

Store closure fears were overblown

Tenants are much better capitalized

Rent relief has been minimal

Tenant sales have returned to growth

The World has Improved Dramatically

24

■ Ownership or management of approximately 200 regional malls

■ Community / strip retail centers■ Office properties■ GGMI■ 13 underperforming malls (“Special

Consideration Properties” or “SCPs”) assumed to be transferred to lenders

What Will GGP Look Like When It Emerges?

GGOPF GGP■ Master Planned Communities (“MPC”)■ Development assets

(i.e. Victoria Ward, South St Seaport)■ Non-income producing assets

(i.e. Fashion Show air rights)■ Other assets

24

Estimated Value: ~$15

GGP will emerge as two separate companies: General Growth Properties (“PF GGP”) and General Growth Opportunities (“GGO”)

Estimated Value: ~$5

PF GGP

26

Why is PF GGP a Good Investment?

Low RiskPF GGP will emerge with much less debt, but similar NOIPF GGP will be a portfolio of approx. 200 regional malls and other assets~80% of its financing will be single-property, non-recourse debtRemoval of SCPs, settlement of Hughes claim, and elimination of deferred tax liabilities

High QualityApproximately 100 of PF GGP’s malls are high-quality, “mini-monopolies”within their respective marketsA disproportionate share of PF GGP’s NOI is generated by its top assetsEvents of the past two years have further confirmed that high quality mall assets are recession-resistant

Recent Underperformance Creates Future UpsideTwo years of financial distress have caused GGP to underperform its peer groupInvestors get the benefit of a turnaround opportunity without the risk

27

Why is PF GGP a Good Investment? (Cont’d)

Over the past twelve months, the credit quality of the “bonds”has improved as tenant credit quality has strengthened and their CDS spreads have narrowed

Leasing up the mall adds new “bonds” and incremental cash flow to the portfolio with minimal capital investment

The “bonds” represent a diverse group of retailers, restaurants and entertainment concepts, and if a tenant defaults, it can be replaced at little cost

Malls have a 50-year track record of stability and strong performance

This “bond” portfolio is inflation-protected due to percentage rent and the rollover of 10-15% of leases per annum

A mall is like a trust which holds a portfolio of bonds

28

The Value of Non-Recourse Debt

Non-recourse financing creates material value for all real estate portfolios, but mall portfolios in particular

The reason is that B minus and lower malls have potential catastrophic risk. For example, a mall might lose key anchor tenants, or be disintermediated by a better located mall, which could cause a mall to lose 80% or more of its value

If such events were to destroy the value of a mall, the exposure to an investor with non-recourse financing is limited to its equity in the mall because the property can be “sold” to the lender for the mortgage amount

If a mall is a portfolio of bonds, then a mall REIT is a portfolio of portfolios of bonds

On the other hand, a mall REIT primarily financed with unsecured, recourse debt (i.e. Simon or Westfield) is analogous to an investor’s portfolio with margin debt, where the failure of a portion of the portfolio can destroy large amounts, if not 100%, of the equity value

29

Illustrative Example: Non-Recourse Financed Mall Portfolio

Imagine a portfolio of three malls, each worth $100 and each with a 60% LTV non-recourse mortgage

$100$60

$100$60

$100$60

Total Mall Value$300

Total Debt$180

Total Equity$120- =

Leverage60%

$40

$40

$40

$60

$60

$60

$40$40$40

30

Illustrative Example: Non-Recourse Financed Mall Portfolio (Cont’d)

$100$60

$100$60

$0


Total Debt$120

Total Equity$80- =

$40

$40

$60

$60

$40$40

Now assume one of the malls suffers catastrophic risk. One-third of the equity value is lost, and leverage remains the same

Leverage60%

31

Illustrative Example: Recourse Financed Mall Portfolio

Imagine the same portfolio of malls financed with unsecured, recourse debt

$100

$100

$100


Total Debt$180

Total Equity$120- =

Leverage60%

$180

$120

$180

$120

32

Illustrative Example: Recourse Financed Mall Portfolio (Cont’d)

$100

$100


Total Debt$180

Total Equity$20- =

$180 $180

$20

$0

Leverage90%

If one of the malls dies, equity value is nearly wiped out. Given the covenants associated with recourse debt, the destruction of value would likely be even more severe

33

PF GGP Operating Metrics

The disposition of Special Consideration Properties (SCPs) and GGO assets materially enhances PF GGP’s operating metrics

TTMTenant Occup.

GLA (4) Sales PSF Occup. Cost

GGP (1) 65.3 $411 90.5% 14.6%

Less: SCPs / Highland (2) 3.9 250 82.5% 18.0%Less: GGO Malls (3) 2.0 325 82.5% 17.0%

PF GGP 59.4 $424 91.3% 14.3%

(1) Source: GGP Q1'10 supplement pgs. 31-32.(2) See appendix for details.(3) Includes Victoria Ward, Landmark Mall, Rio West, South Street Seaport, Redlands Mall, Riverwalk Marketplace, Park West and Cottonwood Mall.

See Exhibit E docket #4874 for full list of GGO assets. Source for tenant sales, occupancy and occupancy cost: Pershing Square estimates.(4) Mall and freestanding gross leasable area (excludes anchors). Units in millions of sq ft.

34

PF GGP Debt

PF GGP’s leverage will be meaningfully reduced upon emergence

(1) Source: Q1'10 supplement pg 2. See appendix for details.(2) As of 9/30/09, the last time GGP published its interest coverage ratio in its operating supplement.(3) See appendix for details.(4) Paid down Apr-10.(5) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).(6) Assumed to be paid down as part of PF GGP's emergence.(7) Assumed to be issued as part of PF GGP's emergence.

PF GGP Debt Buildup ($ in mms)

Total GGP Debt (3/31/10) (1) $27,506Interest coverage ratio (2) 1.2x

Less: SCPs debt (3) (948)Less: GGO debt (3) (506)Less: Stonestown mezz (4) (57) Less: Highland (5) (32) Less: TopCo unsecured debt (6) (6,373) Less: DIP (6) (400) Plus: New Debt (7) 1,500

PF GGP Debt (3/31/10) $20,691

Less: Additional amortization through 9/30/10e (3) (212) PF GGP Debt (9/30/10e) $20,478Interest coverage ratio (3) 2.0x

35

PF GGP Cash NOI

Despite the dispositions of SCPs and GGO assets, PF GGP’s net operating income will be relatively unaffected

(1) Source: GGP operating supplements. See appendix for detail.(2) One-time revenue/expense impacts arising due to the bankruptcy. These are non-recurring items.

Assumes 2009 and LTM are equal. Source: GGP Q4'09 operating supplement pg 7.(3) One-time additional property upkeep costs. This reflects "catch-up" R&M spend.

Assumes 2009 and LTM are equal. Source: GGP Q4'09 operating supplement pg 7.(4) Represents drag to GGP NOI from PF GGP development projects. Source: Pershing Square estimate.(5) Represents LTM cash NOI attributable to the SCP malls and GGO assets that are assumed

to not be included in PF GGP cash NOI post-emergence. Excludes MPC NOI.Source: Pershing Square estimate.

PF GGP Adj Cash NOI Buildup ($ in mms)

LTM GGP Cash NOI (1) $2,360

Plus: Bankruptcy claims revenue/expense impact (2) 25Plus: One-time R&M spend (3) 16Plus: Real estate tax expense from dvlpmt projects (4) 5Less: SCPs / GGO / Highland LTM cash NOI (5) (115)

LTM PF GGP Adj Cash NOI $2,290

36

PF GGP Shares Outstanding / Market Cap

36

At $15 per share, PF GGP would emerge with a ~$16bn market cap

(1) Includes OP Units and options. Source: Q1'10 operating supplement, pg 27.(2) Assumes full clawback of 190mm Pershing Square and Fairholme shares.(3) Assumes GGP sells 65mm Liquidity Equity Issuances shares.(4) Represents the share-equivalent amount of 120mm warrants at various PF GGP share prices.(5) Black-Scholes warrant valuation. Assumes 20 vol, 60mm warrants at $10.50 strike, 60mm

warrants at $10.75 strike, and 7-yr duration.

(units in mms, except per share data) Illustrative PF GGP FDSO @ Various Share Prices$10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00

Current FDSO (1) 324 324 324 324 324 324 324BPF minimum commitment 440 440 440 440 440 440 440Clawback shares (2) 190 190 190 190 190 190 190Liquidity Equity Issuances (3) 65 65 65 65 65 65 65

PF GGP FDSO (excl warrants) 1,019 1,019 1,019 1,019 1,019 1,019 1,019

Warrants (share equivalent) (4) 31 36 41 45 50 53 57 PF GGP FDSO (incl warrants) 1,051 1,056 1,060 1,065 1,069 1,073 1,076PF GGP Market Cap $10,506 $11,612 $12,725 $13,843 $14,965 $16,090 $17,219

Memo: Warrant TranslationFair Value of warrants (5) $312 $399 $492 $590 $693 $799 $908Divided by: Share Price 10.00 11.00 12.00 13.00 14.00 15.00 16.00

Warrants (share equivalent) 31 36 41 45 50 53 57

37

PF GGP Would Be the Second Largest U.S. REIT

37

Top 5 REITs in the IYR REIT Index by Rank (as of 5/28/10)

At $15 per share, PF GGP would be the second largest REIT in the index

________________________________________________

Source: Market cap data from Green Street Real Estate Securities Monthly (as of 6/1/10).

REIT % of IYR Mkt Cap

1. Simon Property Group 8.7% $29,987

PF GGP 0.0% 16,090

2. Vornado 5.0% 15,016

3. Equity Residential 4.4% 13,297

4. Public Storage 4.3% 15,456

5. Boston Properties 3.8% 12,341

15. Macerich 1.9% 5,782

38

PF GGP Will Be A “Must-Own” REIT Stock

38

Shareholder overlap among public REITs is extremely high due to a large, dedicated REIT investor universe

Dedicated REIT investors closely track REIT indexes

As a result of GGP’s bankruptcy, it was removed from REIT indexes

When PF GGP emerges from bankruptcy, it will once again be added to the real estate indexes. This will make it a “must-own” equity

39

Simon Crossholdings Analysis

39

There is enormous shareholder overlap among the top five REITs in the IYR. On average, the same 25 holders own ~60% of the top five REITs, yet they currently own less than 1% of GGP. In order to obtain similar ownership of PF GGP, they must buy 60% or $9bn of PF GGP

Equity Public Boston(units in millions) Simon Vornado Residential Storage Properties Macerich GGP

Top 25 Holders Shares Value Shares Value Shares Value Shares Value Shares Value Shares Value Shares ValueThe Vanguard Group 25 $2,120 14 $1,073 24 $1,068 11 $1,034 12 $922 9 $364 - - BlackRock 20 1,668 13 975 22 977 11 969 11 833 9 359 0 0 Cohen & Steers 17 1,464 6 444 11 476 8 680 4 336 6 229 - - State Street Global Advisors 13 1,117 8 579 13 555 6 559 6 481 3 130 0 2 Fidelity Investments 11 965 7 524 8 341 6 505 4 286 6 224 0 5 Stichting Pensioenfonds 9 789 6 489 12 519 5 490 5 400 2 68 - - ING Investment Mgmt 9 761 7 567 8 332 2 149 2 145 12 496 - - Morgan Stanley Inv Mgmt 8 660 5 392 17 734 3 288 4 299 1 30 0 0 Invesco 8 657 5 358 7 311 3 316 4 290 4 163 0 0 PGGM 10 852 4 280 5 225 2 194 3 213 3 128 - - LaSalle Investment Mgmt 6 529 5 343 6 251 3 311 3 213 1 21 - - Old Mutual Asset Mgmt 4 346 5 393 7 312 3 285 3 200 3 115 1 17 RREEF 7 547 1 99 3 150 3 317 4 335 2 96 - - AEW Capital Mgmt 5 416 3 211 6 285 2 212 3 236 3 108 - - T. Rowe Price Group 5 387 3 192 3 149 1 132 2 155 2 97 - - Security Capital Research 3 266 1 98 6 254 2 185 3 231 2 76 - - Frank Russell 4 325 2 154 4 168 2 180 2 125 2 64 - - STB Asset Mgmt 4 310 2 189 3 139 2 160 2 171 0 3 - - Northern Trust 3 291 2 152 3 150 2 146 2 129 1 31 - - Principal Global Investors 4 328 1 108 2 102 2 159 2 151 1 27 2 24 Dimensional Fund Advisors 3 265 2 152 3 134 2 168 2 116 1 40 0 0 Goldman Sachs Asset Mgmt 5 436 1 66 0 14 1 118 2 178 0 3 0 6 TIAA-CREF 3 250 2 133 2 106 2 148 2 127 1 51 0 3 Nikko Asset Mgmt 3 241 2 159 3 118 1 130 2 137 0 16 - - Adelante Capital Mgmt 3 218 2 126 3 142 1 126 2 117 1 31 - -

Top 25 Holders 193 $16,209 109 $8,255 182 $8,010 88 $7,961 90 $6,826 74 $2,971 4 $57% of Mkt Cap (1) 66% 60% 64% 52% 65% 57% 0%

________________________________________________

Source: Capital IQ as of 5/21/10. (1) % of market cap is based on Capital IQ market cap estimates, which tend to rely solely on basic shares outstanding.

% of GGP market cap is based on PF GGP market cap at $15 per share.

40

Not Your Typical Public Offering

40

PF GGP’s emergence from bankruptcy will be tantamount to an initial public offering (IPO)

Unlike traditional IPOs where buyers have all the leverage, PF GGP’s equity is already fully committed pre-offering. As a result, rather than be a forced seller, PF GGP can achieve a high value execution

Under the terms of the Brookfield, Fairholme, and Pershing Square agreement, PF GGO can sell up to 255 million shares at prices of $10.50 or greater (1)

________________________________________________(1) Assumes full clawback of 190mm Pershing Square and Fairholme shares.

Assumes GGP sells full amount of 65mm Liquidity Equity Issuances shares.

41

PF GGP IPO Supply / Demand Dynamic

41

SupplyDemand

Anticipated PF GGP IPO Supply

Clawback shares (2) 190Liquidity Equity Issuances (3) 65

PF GGP IPO Share Supply 255

PF GGP share price 15.00$

Anticipated Supply $3,825

(1) Based on Simon Crossholdings Analysis.(2) Assumes full clawback of 190mm Pershing Square and Fairholme shares.(3) Assumes GGP sells 65mm Liquidity Equity Issuances shares.

($ and shares in millions)

Anticipated Demand fromthe Dedicated REIT Universe

PF GGP Market Cap (@$15) 16,090$

Top 25 REIT Investorsaverage % of Mkt Cap (1) 60.0%

Anticipated Demand $9,654

42

Illustrative PF GGP Valuation at Various Share Prices

42

At $15 per share, PF GGP would trade at a 6.6% cap rate, in linewith comparable mall REITs

(1) Target Net Debt as of the original Cornerstone Investment Agreement. Target Net Debt is an estimate of GGP's net debt as of 9/30/10e.Target Net Debt includes PF GGP and GGO liabilities. In addition, Target Net Debt includes non-debt liabilities, such as accrued interest andPermitted Claims (i.e. the KEIP), among other things. Therefore, Target Net Debt includes the Company's estimate of bankruptcy "exit costs."Furthermore, Target Net Debt includes the following: $1.5bn of New Debt, debt associated with GGP's international subsidiaries, and preferred stock.Source: pg 75 of docket #4874. See appendix for details.

(2) SCP debt needs to be removed from Target Net Debt to arrive at an estimate of PF GGP debt upon emergence (assumed to be 9/30/10e).This assumes GGP "hands back the keys" on SCP malls. This is a Pershing Square assumption as the outcome is TBD. Source: pg 17 of Q1'10 10-Q.See appendix for details.

(3) Debt associated with properties going to GGO needs to be removed from Target Net Debt to arrive at an estimate of PF GGP debt.GGO debt includes debt associated with Victoria Ward, GGP's headquarters leasehold, the Bridgelands MPC and GGP's pro rata share of theWoodlands MPC debt. Debt estimate is derived from GGP's public filings and may not exactly reconcile to GGP's 9/30/10e estimate of such debt.See appendix for details.

(4) Brazil debt included in Target Net Debt is $110.4mm (Source: Cornerstone Investment Agreement.) GGP's share of this debt as of 3/31/10 was $95.2mm. Source: Q1'10 supplement pg 2.

(5) See Excess Sources appendix page for details. Excess Sources are treated as cash and offset Target Net Debt. Bankruptcy "exit costs"are excluded from uses in the Excess Sources calculation because they are included as Permitted Claims in Target Net Debt.Excess Sources will likely be higher than presented, to the extent GGO's IPO Participation is greater than permitted liabilities.

(6) Includes GGP's other liabilities that are not accounted for as part of Target Net Debt. See appendix for details.(7) See appendix for details. Excludes goodwill.(8) Applies 25% EBIT margin assumption to LTM management income of $80mm. Applies 7.5x

multiple to implied LTM EBIT. Source for LTM fee income: GGP operating supplements.(9) PF GGP development assets including Christiana Mall, Fashion Place, St Louis Galleria. Source: Q1'10 operating supplement.(10) 9/30/10e PF GGP debt less $500mm of Proportionally Consolidated Unrestricted Cash.

(units in mms, except per share data) Illustrative PF GGP Cap Rate @ Various Share Prices Memo:$10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 $9.00

Price $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 $9.00PF GGP FDSO (incl warrants) 1,051 1,056 1,060 1,065 1,069 1,073 1,076 1,045

Market Cap $10,506 $11,612 $12,725 $13,843 $14,965 $16,090 $17,219 $9,408

Target Net Debt (1) $22,971 $22,971 $22,971 $22,971 $22,971 $22,971 $22,971 $22,971Less: SCPs debt (2) (948) (948) (948) (948) (948) (948) (948) (948)Less: GGO debt (3) (506) (506) (506) (506) (506) (506) (506) (506)Less: Highland debt (32) (32) (32) (32) (32) (32) (32) (32)Less: Brazil adjustment (4) (15) (15) (15) (15) (15) (15) (15) (15)Less: Excess Sources (5) (1,678) (1,729) (1,780) (1,831) (1,882) (1,933) (1,984) (1,678)Plus: Other liabilities (6) 1,345 1,345 1,345 1,345 1,345 1,345 1,345 1,345Less: Other assets (7) (1,686) (1,686) (1,686) (1,686) (1,686) (1,686) (1,686) (1,686)

TEV $29,957 $31,012 $32,074 $33,141 $34,212 $35,287 $36,364 $28,859

Less: GGMI (8) (151) (151) (151) (151) (151) (151) (151) (151)Less: Development assets (9) (183) (183) (183) (183) (183) (183) (183) (183)

Adj TEV $29,623 $30,678 $31,740 $32,807 $33,878 $34,953 $36,030 $28,525

PF GGP LTM Adj Cash NOI 2,290 2,290 2,290 2,290 2,290 2,290 2,290 2,290 Cap Rate 7.7% 7.5% 7.2% 7.0% 6.8% 6.6% 6.4% 8.0%

Net Debt / TEV (10) 66.7% 64.4% 62.3% 60.3% 58.4% 56.6% 54.9% 69.2%

43

GGP Currently Trades at a Meaningful Cap Rate Spread to Simon

43

At a $14 share price, PF GGP trades at an 8.0% implied cap rate net of GGO(1)

________________________________________________

Source: “Why the Sad Face Mall Sector?” Credit Suisse equity research (4/26/10). (1) See previous page for details.

44

PF GGP Will Have An Industry Leading Balance Sheet

Interest Rate

Debt duration

Non-Recourse

Leverage Ratio

5.21%

5.3 yrs

78%

57%

5.50%

5.2 yrs

< 52%

50%

NA

7.0 yrs

< 20%

49%

5.49%

3.2 yrs

< 89%

53%

Although PF GGP will have slightly more leverage than its peers on an absolute basis, it will have a long-dated, laddered debt maturity profile. We believe a reasonable amount of non-recourse leverage, especially if the debt is high-quality, is more of an asset than a liability

Pro Forma(1) (2) (3) (4)

(5)

(1) See appendix for PF GGP balance sheet details. PF GGP Leverage Ratio represents Net Debt / Adj TEV at $15 per share.(2) Source: Simon operating supplements. Assumes 100% of mortgage debt is non-recourse. Most likely, some of

this debt is recourse but disclosure is unavailable.(3) Source: Westfield financial results. Data as of Q4'09 if Q1'10 data is unavailable.(4) Source: Macerich operating supplements. Adjusted to reflect April 25, 2010 paydown of $690mm line of credit and

April 7, 2010 paydown of $24mm Carmel Plaza loan. Adjusted to reflect refinancing and extension of Vintage Faire Mall loan.Assumes 100% of mortgage debt is non-recourse. Most likely, some of this debt is recourse but disclosure is unavailable.

(5) Source: Green Street Real Estate Securities Monthly (as of 6/1/10).

45

PF GGP Will Have Industry Leading Operating Metrics

Sales per Sq Ft

Occupancy

Occup. Cost

Tenants SalesGrowth (Q1’10)

Cap Rate

$424

91.3%

14.3%

7.5%

8.0%

PF GGP will have the added benefit of near-term growth as it refocuses on its operations post-emergence and corrects for the under-performance that resulted from its bankruptcy

Pro Forma(1) (2) (3)

$420

91.0%

15.1%

6.6%

6.6%

$400

92.1%

17.0%

5.3%

6.0%

$416

91.2%

14.2%

3.4%

7.0%(5)

(4)

(1) Simon malls only. Includes regional mall portfolio, the Mills, Mills regional malls, and malls included in Other Properties (excl Highland Mall).Source: Simon operating supplements and 10-K. See later pages for Simon Malls operating metrics details.

(2) Based on Westfield's U.S. mall portfolio only. Data as of Q4'09 if unavailable in Q1'10 financial results. Source: Westfield financial results.(3) Source: Macerich operating supplements.(4) Source for Macerich / Westfield: "U.S. Mall REITs May '10 Update" Green Street 5/19/10. See PF GGP Operating Metrics for PF GGP

occupancy cost details. See appendix for details on Simon's occupancy cost.(5) Source for Macerich / Westfield: Green Street Real Estate Securities Monthly (as of 6/1/10). PF GGP cap rate based on implied share price

of $9 net of GGO. See appendix for details on Simon's cap rate.

46

Aliansce

Sales per Sq Ft

Occupancy

Occup. Cost

Tenants SalesGrowth (Q1’10)

Cap Rate

$540

98.0%

13.4%

16.5%

~11%

(1) (2) (2)

$420

91.0%

15.1%

6.6%

6.6%

$400

92.1%

17.0%

5.3%

6.0%

$416

91.2%

14.2%

3.4%

7.0%

GGP owns 35% of Aliansce, a Brazilian mall developer, which went public in January. Pershing Square is the second largest owner with roughly 14% of the total shares outstanding

(2)

(1) Source: Aliansce Q1'10 financial results and Pershing Square estimates.(2) See previous page for details.

47

A Word On Simon’s Reported Operating Metrics

47

Beginning in Q1’10, Simon consolidated its Premium Outlets segment into its Regional Malls segment. This caused its newly reported Regional Malls segment’s occupancy and sales per square foot to appear to increase meaningfully

________________________________________________

Source: Simon operating supplements.

48

A Word On Simon’s Reported Operating Metrics (Cont’d)

48

We note that Simon’s Regional Mall portfolio excludes several regional malls in The Mills and Mills Regional Malls segments

In our view, these assets should be included in Simon’s Regional Malls portfolio

Simon has also transferred certain of its underperforming malls into its Other Properties segment

For example, Highland Mall, a joint venture between Simon and GGP that was 51% occupied as of 12/31/09, was recently transferred back to the lender

Highland Mall was included in Simon’s Regional Mall portfolio as of 12/31/08, but showed up in its Other Properties segment as of 12/31/09. This further served to increase Simon’s reported Regional Mall occupancy and sales per square foot as of Q1’10

49

A Word On Simon’s Reported Operating Metrics (Cont’d)

49

We believe the most appropriate way to compare Simon and PF GGP is to look at Simon’s true regional mall portfolio, which excludes its outlets, but includes its Mills malls and the underperforming malls included in its Other Properties segment

(GLA in millions) Simon Property Group (1)Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10

Regional MallsOccupancy (2) 92.4% 90.8% 90.9% 91.4% 92.1% 91.6%Sales per Sq Ft (2) $470 $455 $442 $438 $433 $440Owned GLA (excl anchors) 59.6 59.6 59.7 60.3 60.1 60.1

The MillsOccupancy 94.5% 89.7% 90.9% 92.4% 93.9% 93.3%Sales per Sq Ft $372 $373 $369 $369 $369 $372Owned GLA (excl anchors) 20.3 20.3 20.2 20.2 20.2 20.2

Mills Regional MallsOccupancy 87.4% 87.4% 88.4% 88.9% 89.3% 87.4%Sales per Sq Ft $418 $410 $397 $388 $380 $410Owned GLA (excl anchors) 8.6 8.6 8.6 8.6 8.6 8.7

Other Properties Malls (excl Highland Mall) (3)Occupancy 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%Sales per Sq Ft (4) $250 $250 $250 $250 $250 $250Owned GLA (excl anchors) 0.8 0.8 0.8 0.8 0.8 0.8

Simon MallsOccupancy 91.8% 89.7% 90.1% 90.8% 91.7% 91.0%Sales per Sq Ft $441 $430 $419 $416 $412 $420Owned GLA (excl anchors) 89.3 89.3 89.3 89.9 89.7 89.8

(1) Source: Simon operating supplements.(2) Q1'10 data not available in Simon filings. Source: Pershing Square estimates.(3) Includes Mall at the Source, Nanuet Mall and Palm Beach Mall (at share).(4) Data not available. Source: Pershing Square estimates.

As of 6/1/10, TangerFactory Outlet Centers, the best comp for Simon’s Premium Outlets segment, was trading at a higher cap rate than Simon*

* Tanger traded at a 6.9% implied cap rate as of 6/1/10.Source: Green Street Real Estate Securities Monthly (as of 6/1/10).

GGO

51

What is General Growth Opportunities?

GGO’s portfolio features some of the best real estate development assets in the country. We believe GGO will have the balance sheet and the intellectual and operating capital to take full advantage of these opportunities

General Growth Opportunities (Select Assets)

MPC Development Non-Income/Other

■ Summerlin■ Columbia■ Woodlands■ Bridgeland

■ Victoria Ward■ South St. Seaport■ Summerlin Center■ Landmark Mall■ Park West

■ Fashion Show■ Princeton Land■ 110 N. Wacker

52

GGO IPO Participation

Under the terms of the fully executed Cornerstone Investment Agreement, GGO will retain 80% of every dollar PF GGP raises above $10 per share, up to the value of the ~$300mm deferred tax liabilities and the Hughes claim. This IPO Participation allows GGO to benefit from a successful PF GGP capital raise

(1) Assume 65mm Shares

GGO IPO Participation at a $15/share GGP Offering($ in millions, except per share data)

GGP Shares Issued

Total Proceeds

Proceeds above $10

GGO % Share

GGO $ Share

Clawback Shares 190 2,850$ 950$ 80% 760$ Liquidity Shares (1) 65 975 325 80% 260

255 3,825$ 1,275$ 1,020$

Sensitivity of GGO IPO Participation to GGP Offer Price

GGP Offer Price 10.00$ 11.00$ 12.00$ 13.00$ 14.00$ 15.00$ 16.00$ GGO IPO Participation -$ 204$ 408$ 612$ 816$ 1,020$ 1,224$

53

GGO IPO Participation (Cont.)

GGO’s use of proceeds from the PF GGP share offering is limited to satisfying permitted liabilities. We believe that cash from a PF GGP capital raise even at prices meaningfully lower than $15 per share is more than sufficient to satisfy these claims

The face value of the note is equal to overruns above a conservative projection of bankruptcy exit costs

At $15 per share, the GGO IPO Participation will be

~$1bn, substantially more than enough to satisfy

these permitted liabilities

Permitted Use of IPO Participation($ in millions, except per share data)

Promissory Note (1) -$

Deferred Tax Liabilities (2) 304$

Hughes Heirs' Claim XPermitted Liabilities $304 + X

(1) Projected bankrupcty exit costs, "Permitted Claims", are $650mm per Pershing Square assumptions(2) Source: Cornerstone Investment Agreement

54

Hughes Claim

GGP can settle the claim in bankruptcy at an estimation hearing

Settlement is based on a 12/31/09 valuation of Summerlin MPC

We expect the company to settle this claim at a reasonable number

Post settlement, GGO will have 100% ownership of Summerlin(from 50%)

55

GGO Share Count

A $250 million share backstop at $5.00 per share strengthens GGO’sbalance sheet

(1) Includes OP Units and options. Source: Q1'10 operating supplement, pg 27.(2) Assumes only the backstop rights are exercised. Includes 2.5mm share backstop consideration.(3) Black-Scholes warrant valuation. Assumes 20 vol, 80mm warrants at $5.00 strike.

Share Count (millions):Current GGO FDSO (1) 324Rights Offering Backstop Shares (2) 53PF GGO FDSO (excl warrants) 377

Warrants (share equivalent) (3) 23

GGO FDSO (incl warrants) 400

56

GGO Capital Structure (Cont.)

GGO will have a strong balance sheet. 100% of GGO’s debt is property level and non-recourse. $250mm of balance sheet cash ensures GGO has ample liquidity to fund value creation opportunities

(1) See Appendix(2) Excludes property level cash balances because data is unavailable

GGO Capital Structure($ in millions, except per share data)

Price 5.00$ Shares (mm) 400Equity Value 2,000

Non-Recourse, Property Specific Debt (1) 506Permitted Liabilities, net of GGO IPO Participation -Cash (2) (250)Net Debt 256

Enterprise Value 2,256$

57

MPC Portfolio

MPC Portfolio

Bridgeland Summerlin WoodlandsMaryland, MPCs

■ 11,400 acres outside of Houston, TX

■ Collection of properties between DC and Baltimore

■ 22,500 acre community west of Las Vegas

■ Successful JV MPC near Houston, TX

58

Development Asset: Victoria Ward

GGP recently received zoning approval to transform 60 acres of land in the heart of Honolulu into a vibrant and diverse neighborhood of residences, shops, entertainment and offices

The plan clears a path for GGP to bring to the oceanfront neighborhood as many as:

4,300 residential units, many of them in towers aligned to preserve mountain and ocean views

5 million square feet of retail shopping, restaurants and entertainment

4 million square feet of offices and other commercial space

700,000 square feet of industrial uses

14 acres of open space, parks and public facilities

59

Development Asset: Victoria Ward (Cont’d)

1.43 acres of land sold for $26mm ($18mm / acre) here in June-07 (1)

________________________________________________(1) See appendix for details.

60

Development Asset: South St. Seaport

Before the market turned, GGP was exploring a billion dollar redevelopment of South St. Seaport

Highlights of the development include:

400,000 square feet of retail space

A 286 room hotel and a smaller 163 room boutique

103 residential units

Nearly 5 acres of open space

61

Development Asset: South St. Seaport (Cont’d)

62

Non-Income Producing Asset: Fashion Show Air Rights

GGO owns the air rights above the Fashion Show Mall in Las Vegas

¹Source: "Vegas Land Values Soaring Sky High", Glenn Haussman, Hotel Interactive, 5/25/2007

This 48 acre, three-story property is located across from the Wynn and Encore, the most lucrative part of the Las Vegas Strip

In 2007, nearby North Vegas Strip land sold for $34mm/acre¹

Fashion Show’s location is within walking distance of 75% of the city’s more than 150,000 hotel rooms

Located adjacent to Fashion Show is The Venetian, The Palazzo, and Sands Expo Center – the largest hotel convention complex in the world

63

The North Vegas Strip

Fashion ShowWynn

Encore

Venetian

Palazzo

Caesars

Conclusion

6565

GGP Trades at a Meaningful Discount to Intrinsic Value

At a $14 GGP share price, you are buying GGO for negative $1

GGP Valuation

PF GGP ~$15

GGO ~$5

Combined ~$20

GGP Share Price ~$14

Implied Return atEmergence by Year-end 43%

Over the years, people have accused me of talking my book.

For my best investment idea…

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6868

And one more thing…

We have accumulated ~150mm shares of Citigroup during the past several weeks…

Appendix

7070

SCPs / Highland Mall

(1) Source: Exhibit C, docket #3660.Source for debt balance / interest rate / duration: 5/12/10 8-K.

(2) Source for malls: Q1 10-Q pg. 21-22. Data presented pro rata (i.e. if GGP owns 50%, 50% of the GLA is shown).Source for debt balance / interest rate / duration: Q3'08 supplement.Source for subtotal debt balance (as of 3/31/10): Q1 10-Q, pg 22.

(3) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).Source for debt detail: Simon Q1'10 supplement.Source for occupancy: Simon 10-K.Source for duration: Q3'08 operating supplement.

(4) Source: Pershing Square estimates.Note: Occupancy costs are higher at underperforming malls because sales are low but rents are locked in.

(5) Mall and freestanding gross leasable area (excludes anchor space).

(units in millions, except per unit data) Balance Sheet Data Operating Metrics (4)Interest Duration Sales Occup

GLA (5) Debt Rate (yrs) PSF Occup CostConsolidated Properties (1)Eagle Ridge Mall 0.2 $47 5.41% 5.5Oviedo Marketplace 0.3 51 5.12% 3.8Grand Traverse Mall 0.3 84 5.02% 3.8Country Hills Plaza 0.1 13 6.04% 6.2Moreno Valley Mall 0.3 86 5.96% 3.8Lakeview Square 0.3 41 5.81% 5.9Northgate Mall 0.3 44 5.88% 6.4Bay City Mall 0.2 24 5.30% 3.8Mall St. Vincent 0.2 49 6.30% 4.3Southland Center 0.3 107 4.97% 3.8Chapel Hills Mall 0.4 114 5.04% 3.8Chico Mall 0.2 56 4.74% 3.8Piedmont Mall 0.2 33 5.98% 6.4

Subtotal 3.3 $750 5.38% 4.3

Unconsolidated Properties (2)Silver City 0.2 66 4.95% 1.2Montclair 0.3 134 5.88% 1.5

Subtotal 0.5 $198 5.57% 1.4

SCPs 3.7 $948 5.42% 3.7

Highland Mall (3) 0.2 32 6.83% 1.3 51.1%

SCPs / Highland 3.9 $980 5.47% 3.6 $250 82.5% 18.0%

7171

GGP Debt Detail – GGO

Note: Most recent debt balance reported assumed to be 3/31/10 balance.True balance is actually less as amortization has occurred since mostrecent reported debt balance.

Note: All GGO debt sits at the property-level and is non-recourse.Note: Excludes debt which may arise to the extent there is a GGO Promissory Note.

We believe the amount of this note will be $0.

Debt($ in 000s) Debt BalanceGGO Debt Balance as of: SourceVictoria Ward Cmbd $213,889 3/31/10 5/12/10 8-K110 N. Wacker 45,943 9/30/08 Q3'08 suppBridgelands MPC 29,812 12/31/09 10-KWoodlands MPC 216,343 9/30/08 Q3'08 supp

GGO Debt $505,987

7272

GGP Debt Detail – Debtor Entities

Source: GGP 5/12/10 8-K.Note: Entities with no debt will be unencumbered upon emergence.(1) Represents an SCP mall.(2) Paid down in April-10.

($ in 000s) Debt Debt Debt DebtDebtor Entities: 3/31/10 Debtor Entities: 3/31/10 Debtor Entities: 3/31/10 Debtor Entities: 3/31/1010 Columbia Corporate Center - Corporate Pointe #2 4,458 Mayfair Cmbd (offices included) 274,932 Sooner Cmbd 59,87310000 Chrlston/ 9901/21 Cvngton 21,772 Corporate Pointe #3 4,458 Mondawmin Mall Cmbd 84,689 Southlake Cmbd 99,79910000 Covington Cross - Country Hill Plaza 13,352 (1) Moreno Valley Mall Cmbd 86,432 (1) Southland Center Cmbd 106,940 (1)

10190 Covington Cross - Crossing Business Center #6 - Neighborhood Stores - Southland Cmbd 79,3251160/80 Town Center Drive 8,320 Crossing Business Center #7 - Newgate Mall Cmbd 40,207 Southwest Plaza Cmbd 96,1871201/41 Town Center Drive - Crossroads (MN) Cmbd 82,754 Newpark Mall 67,143 Spring Hill Cmbd 68,0881251/81 Town Center Drive - Deerbrook Mall 71,202 North Plains Mall Cmbd 10,656 Staten Island Mall 278,6721551 Hillshire Drive - Division Crossing 5,114 North Point Mall Cmbd 212,567 Steeplegate Mall Cmbd 76,5051635 Village Center Circle - Eagle Ridge Cmbd 46,942 (1) North Star Mall 228,174 Stonestown Mezz 57,400 (2)

1645 Village Center Circle - Eastridge (WY) Cmbd 38,497 North Town Cmbd 114,976 Stonestown Notes A/B 215,60020 Columbia Corporate Center - Eastridge Mall Cmbd 169,620 Northgate Cmbd 44,440 (1) The Boulevard Cmbd 105,34530 Columbia Corporate Center - Eden Prarie Cmbd 78,311 Northridge Fashion Ctr Cmbd 124,232 The Crossroads (MI) Cmbd 39,07440 Columbia Corporate Center - Faneuil Hall Marketplace Cmbd 92,788 Oakwood Center Cmbd 95,000 The Gallery at Harborplace Cmbd 78,51250 Columbia Corporate Center - Fashion Place Cmbd 142,255 Oakwood Cmbd 75,772 The Maine Mall Cmbd 212,59760 Columbia Corporate Center - Fashion Show Cmbd 645,918 Oglethorpe Cmbd 138,994 The Palazzo 249,6239950/80 Covington Cross - Foothills Mall Cmbd 50,758 Orem Plaza Center Street 2,386 The Shoppes at Fallen Timbers Cmbd 42,401Ala-Moana - Total 1,482,189 Fort Union 2,670 Orem Plaza State Street 1,477 The Woodland Mall 239,268Animas Valley Cmbd 35,054 Four Seasons Cmbd 97,950 Oviedo Marketplace Cmbd 51,066 (1) Three Rivers Cmbd 21,132Apache Cmbd - Fox River Cmbd 194,400 Owings Mills 53,281 Towneast Cmbd 102,775Arizona Center Cmbd - Gateway Cmbd 39,148 Oxmoor Cmbd 56,128 TRS-Fallbrook Cmbd 84,820Augusta Mall Cmbd 174,422 Gateway Crossing Shopping Ctr 14,931 Park City Center Cmbd 146,522 TRS-Grand Canal Shoppes Cmbd 386,487Austin Bluffs Plaza 2,219 Gateway Overlook 54,877 Park Place Cmbd 173,397 Tucson Mall 118,674Bay City Mall Cmbd 23,745 (1) Glenbrook Square Cmbd 174,262 Peachtree Cmbd 88,121 Tysons Galleria Cmbd 254,194Bayshore Cmbd 30,473 Grand Teton Cmbd 48,795 Pecanland Mall 56,159 University Crossing 11,147Beachwood Place Cmbd 240,164 Grand Traverse Cmbd 83,919 (1) Piedmont Cmbd 33,478 (1) Valley Hills Cmbd 55,775Bellis Fair Cmbd 59,826 Greenwood Cmbd 43,952 Pierre Bossier Cmbd 40,382 Valley Plaza Cmbd 93,129Birchwood Cmbd 44,308 Halsey Crossing 2,503 Pine Ridge Cmbd 25,956 Victoria Ward Center 57,175Boise Towne Plaza 10,704 Harborplace Cmbd 49,884 Pioneer Place Cmbd 156,764 Victoria Ward Village/Gateway/Indust 88,214Boise Towne Square 69,489 Hulen Mall Cmbd 111,085 Prince Kuhio Plaza 36,885 Victoria Ward Warehouse/Plaza 68,500Brass Mill Cmbd 120,142 Jordan Town Creek Cmbd 182,227 Providence Place Cmbd 381,691 Village of Cross Keys Cmbd 10,257Burlington Town Center Cmbd 31,406 Knollwood Mall Cmbd 39,332 Red Cliffs Mall Cmbd 24,669 Visalia Cmbd 40,253Cache Valley Cmbd 28,043 Lakeside Mall Cmbd 176,810 Regency Square Cmbd 91,588 Vista Commons - Capital Cmbd 19,975 Lakeview Square Cmbd 40,771 (1) Ridgedale Center Cmbd 175,127 Vista Ridge Mall Cmbd 78,869Chapel Hills Cmbd 113,785 (1) Lansing Cmbd 23,081 Ridgley Building - Washington Park Mall Cmbd 11,893Chico Mall Cmbd 55,913 (1) Lincolnshire Commons 27,939 River Hills Cmbd 79,831 West Valley Cmbd 54,543Chula Vista Center Cmbd - Lynnhaven Cmbd 233,105 River Pointe Plaza 3,696 Westwood Mall 24,117Collin Creek Combine 65,884 Mall at Sierra Vista Cmbd 23,556 Riverside Plaza 5,290 White Marsh Mall Cmbd 186,800Colony Square Cmbd 25,239 Mall of Louisiana 235,174 Rivertown Cmbd 115,948 White Mountain Cmbd 10,656Columbia Center-C.A. Building - Mall of Louisiana Power Center - Rogue Valley Cmbd 25,966 Willowbrook Cmbd 155,974Columbia Center-Exhibit Bldg - Mall of the Bluffs Cmbd 35,951 Saint Louis Galleria 233,390 Woodbridge Center Cmbd 203,884Columbia Mall Cmbd 89,807 Mall St. Mathews Cmbd 142,008 Salem Center Cmbd 41,728 Woodlands Village 6,758 Columbiana Centre Cmbd 105,441 Mall St. Vincent Cmbd 49,000 (1) Sikes Senter Cmbd 60,395Coronado Center Cmbd 166,028 Market Place Cmbd 105,773 Silver Lake Cmbd 18,228 Debtor Entity Debt $14,712,876

7373

GGP Debt Detail – Non-Debtor Entities


Debt($ in 000s) Debt BalanceNon-Debtor Entities: Balance as of: Source110 N. Wacker (headquarters) $45,943 9/30/08 Q3'08 suppBaybrook Cmbd 168,570 12/31/09 10-KBayside Marketplace Cmbd 84,103 12/31/09 10-KCoastland Center Cmbd 117,006 12/31/09 10-KCoral Ridge Cmbd 88,250 12/31/09 10-KCumberland Cmbd 103,862 12/31/09 10-KGovernor's Square Cmbd 74,368 12/31/09 10-KLakeland Square Mall Cmbd 53,675 12/31/09 10-KMeadows Cmbd 101,463 12/31/09 10-KOak View Cmbd 83,292 12/31/09 10-KParamus Park Cmbd 102,855 12/31/09 10-KPembroke Lakes Mall Cmbd 126,924 12/31/09 10-KThe Mall in Columbia Cmbd 400,000 12/31/09 10-KThe Parks at Arlington Cmbd 174,517 12/31/09 10-KThe Shoppes @ Buckland Hills Cmbd 161,319 12/31/09 10-KWest Oaks Mall 68,301 12/31/09 10-K10450 W. Charleston LLC 4,756 9/30/08 Q3'08 suppSenate Plaza 12,084 9/30/08 Q3'08 supp70 Columbia Corporate Center 19,676 9/30/08 Q3'08 supp

Non-Debtor Entity Debt $1,990,964

7474

GGP Debt Detail – Joint Ventures (at share)


(1) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).(2) Represents an SCP mall.(3) Represents a Joint Venture mall included in GGP's "Consolidated Debt" disclosure.

Debt Debt($ in 000s) Debt Balance Debt BalanceJoint Ventures (at share): Balance as of: Source Joint Ventures (at share): Balance as of: SourceAlderwood Mall Cmbd $145,783 9/30/08 Q3'08 supp Provo Towne Centre Cmbd 43,302 9/30/08 Q3'08 supp (3)

Altamonte Mall Cmbd 75,000 9/30/08 Q3'08 supp Quail Springs Mall 37,409 9/30/08 Q3'08 suppArrowhead Towne Center 25,820 9/30/08 Q3'08 supp Riverchase Galleria Cmbd 152,500 9/30/08 Q3'08 suppBridgewater Commons 47,754 9/30/08 Q3'08 supp Silver City Galleria Cmbd 65,528 9/30/08 Q3'08 supp (2)

Carolina Place Cmbd 80,281 9/30/08 Q3'08 supp Spokane Valley Cmbd 41,052 9/30/08 Q3'08 supp (3)

Christiana Mall 56,838 9/30/08 Q3'08 supp Stonebriar Centre Cmbd 84,405 9/30/08 Q3'08 suppClackamas Town Center Cmbd 100,000 9/30/08 Q3'08 supp Superstition Springs Center 22,498 9/30/08 Q3'08 suppFirst Colony Mall Cmbd 95,149 9/30/08 Q3'08 supp The Oaks Mall Cmbd 52,020 9/30/08 Q3'08 suppFlorence Mall Cmbd 68,786 9/30/08 Q3'08 supp The Shops at La Cantera Cmbd 129,402 9/30/08 Q3'08 supp (3)

Galleria Tyler Cmbd 125,000 9/30/08 Q3'08 supp The Streets at Southpoint 242,881 9/30/08 Q3'08 supp (3)

Glendale Galleria Cmbd 191,317 9/30/08 Q3'08 supp Towson Town Center Cmbd 44,760 9/30/08 Q3'08 suppHighland Mall Cmbd 31,990 3/31/10 Simon Q1'10 supp (1) Village of Merrick Park Total 76,034 9/30/08 Q3'08 suppKenwood Towne Centre Cmbd 168,095 9/30/08 Q3'08 supp Water Tower Place Cmbd 89,514 9/30/08 Q3'08 suppMizner Park Total - 3/31/10 Paid down Westlake Center Cmbd 68,119 9/30/08 Q3'08 supp (3)

Montclair Place Cmbd 133,825 9/30/08 Q3'08 supp (2) Westroads Mall Cmbd 45,518 9/30/08 Q3'08 suppNatick Mall Cmbd 175,000 9/30/08 Q3'08 supp Whalers Village Cmbd 64,893 9/30/08 Q3'08 suppNatick West 70,000 9/30/08 Q3'08 supp Willowbrook Mall 46,003 9/30/08 Q3'08 suppNorthbrook Court Cmbd 42,513 9/30/08 Q3'08 supp Owings Mills-One Corporate Ctr 4,119 9/30/08 Q3'08 suppOakbrook Center Cmbd 103,010 9/30/08 Q3'08 supp Center Pointe Plaza 6,846 9/30/08 Q3'08 suppPark Meadows Cmbd 126,000 9/30/08 Q3'08 supp Lake Mead Blvd & Buffalo 2,947 9/30/08 Q3'08 suppPerimeter Mall Cmbd - 3/31/10 Paid down Trails Village Center 8,073 9/30/08 Q3'08 suppPinnacle Hills Promenade / West 70,000 9/30/08 Q3'08 supp

Joint Venture Debt $3,259,984

7575

GGP Debt Detail – Other Debt


Debt($ in 000s) Debt BalanceOther Debt Balance as of: SourceBridgelands MPC $29,812 12/31/09 10-KWoodlands MPC 216,343 9/30/08 Q3'08 suppHomart I 245,115 3/31/10 5/12/10 8-KIvanhoe Capital 93,713 3/31/10 5/12/10 8-KTurkey 57,221 9/30/08 Q3'08 suppDIP 400,000 3/31/10 5/12/10 8-K

Unsecured Debt:Exchangeable debt 1,550,000 3/31/10 5/12/10 8-KRouse debt 2,245,000 3/31/10 5/12/10 8-KRevolver 590,000 3/31/10 5/12/10 8-KSenior term loan 1,987,500 3/31/10 5/12/10 8-K

TopCo Unsecured Debt 6,372,500

TRUPS 206,200 3/31/10 5/12/10 8-K

Other Debt $7,620,904

7676

GGP Debt Detail – 3/31/10 Reconciliation

Note: Excludes mark-to-market debt discounts which would make the reported debt balance lower.Excludes GGP's share of Brazil debt ($95.2mm as of 3/31/10). GGP has no obligations for furthercontributions to its Brazilian subsidiary, Aliansce.

(1) Represents amortization that has occurred since the most recent reported date of GGP's debt.For example, much of GGP's JV debt, reported as of 9/30/08, amortizes each month.Data for which specific debt has been amortized, and in what amounts, is unavailable.

(2) Source: GGP Q1'10 operating supplement, pg 2.

($ in 000s) DebtTotal GGP Debt Balance

Debtor entity debt $14,712,876Non-Debtor entity debt 1,990,964Joint Venture debt 3,259,984Other debt 7,620,904

Subtotal 27,584,728

Less: Amortization (1) (78,406)

Total GGP Debt (3/31/10) (2) $27,506,322

7777

PF GGP Debt Detail

(1) Source: Q1'10 supplement pg 2. See appendix for details.(2) As of 9/30/09, the last time GGP published its interest coverage ratio in its operating supplement.(3) See appendix for details.(4) Paid down Apr-10.(5) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).(6) Assumed to be paid down as part of PF GGP's emergence.(7) Assumed to be issued as part of PF GGP's emergence.

PF GGP Debt Buildup ($ in mms)

Total GGP Debt (3/31/10) (1) $27,506Interest coverage ratio (2) 1.2x

Less: SCPs debt (3) (948)Less: GGO debt (3) (506)Less: Stonestown mezz (4) (57) Less: Highland (5) (32) Less: TopCo unsecured debt (6) (6,373) Less: DIP (6) (400) Plus: New Debt (7) 1,500

PF GGP Debt (3/31/10) $20,691

Less: Additional amortization through 9/30/10e (3) (212) PF GGP Debt (9/30/10e) $20,478Interest coverage ratio (3) 2.0x

7878

PF GGP Debt Detail – Interest / Duration / Non-Recourse

($ in millions) Cash Duration Non- Pct Non-PF GGP Debt Detail Amt Interest (Years) Recourse Recourse

Debtor entities (1) $14,618 5.07% 6.3 $11,718 80.2%Plus: Oakwood (2) 95 2.75% 4.2 - - Less: Consolidated SCPs (3) (750) 5.38% 4.3 (710) 94.7%Less: Victoria Ward (4) (214) 5.24% 4.9 (214) 100.0%Less: Stonestown mezz (5) (57) 5.79% 3.8 (57) 100.0%

PF GGP Confirmed Debtors 13,692 5.03% 6.4 10,737 78.4%

Non-debtor consolidated debt (6) 2,530 5.68% 3.1 2,530 100.0%Less: 110 N Wacker (4) (46) 5.14% 0.5 (46) 100.0%Less: Bridgeland (4) (30) 6.50% 14.8 (30) 100.0%

PF GGP Non-Debtors 2,455 5.68% 3.0 2,455 100.0%

JV Debt (excl Consolidated JVs) (7) 2,946 5.61% 2.1 2,946 100.0%Less: Woodlands (4) (216) 5.69% 3.5 (216) 100.0%Less: Highland (8) (32) 6.92% 1.3 (32) 100.0% Less: JV SCPs (Silver City / Montclair) (198) 5.57% 1.4 (198) 100.0%

PF GGP Pro Rata JV Debt 2,499 5.59% 2.0 2,499 100.0%

Homart / Ivanhoe (9) 339 5.89% 2.8 339 100.0%TRUPs (9) 206 1.70% 26.0 - - New Debt (10) 1,500 5.75% 3.0 - -

PF GGP Debt (3/31/10) $20,691 5.21% 5.3 $16,029 77.5%

PF GGP LTM Adj Cash NOI (11) $2,300Plus: LTM GGMI income (12) 80Plus: LTM interest income 7Less: Overhead (13) (260)

PF GGP LTM EBITDA $2,127

PF GGP Cash Interest 1,078 PF GGP Interest Coverage 2.0x

(1) Includes all Secured Assset Loans, excluding Oakwood, Homart and Ivanhoe. Source: 5/12/10 8-K.Cash interest / duration as provided in GGP's 4/29/10 press release.Amount that is non-recourse deducts $2.9bn. Source: Q1'10 10-Q pg 29.

(2) Interest rate assumed to be L+225. Source: docket #5225 and 5206.(3) Assumes $40mm is recourse to GGP.(4) This debt will be going to GGO.(5) Paid down Apr-10.(6) See Non-Debtor Consolidated Debt appendix page for details.(7) See JV Debt (excluding Consolidated JVs) appendix page for details.(8) On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).

Interest rate / duration assumptions from Q3'08 operating supplement.(9) Source: 5/12/10 8-K.(10) Assumes new debt issued at 5.75% cash interest with 3 year duration.

This debt will be issued at market rates. Note Simon issued 5-yr notes in Jan-10 yielding 4.25%.(11) See PF GGP Cash NOI slide for details.(12) LTM GGMI income as of 3/31/10. Source: operating supplements, see "Management fees and

other corporate revenues."(13) Source: 2009 Annual Letter to Shareholders. Note "over the coming months, [GGP] intend[s]

to introduce many other innovations to improve the efficiency and effectiveness of the Company."

7979

GGP Debt Detail – Non-Debtor Consolidated Debt

Source: Interest rates per the Q3'08 GGP operating supplement. Many of these interest rates, especially to theextent loans have been refinanced or are floating, may have changed since 9/30/08.

Source: Maturities per the Q3'08 operating supplement.(1) For loans with maturity dates preceding 3/31/10, we have assumed they were refinanced with 1/1/14 maturity dates

and with 5.75% interest rates. Source: Pershing Square assumption.(2) Source: Q3'08 operating supplement. Reported as "Houston Land Notes." The current interest rate is likely

lower to the extent this debt is floating. Maturity date assumption is the midpoint of 2017-2033.(3) Represents amortization that has occurred since the most recent reported date of GGP's debt.(4) Source: Q1'10 supplement pg. 29.(5) Source: 5/12/10 8-K.

($ in 000s) Debt DurationNon-Debtor Consolidated Debt Balance Interest Maturity (Yrs)110 N. Wacker (headquarters) 45,943 5.14% 10/11/10 0.5Baybrook Cmbd 168,570 5.75% 1/1/14 3.8 (1)

Bayside Marketplace Cmbd 84,103 6.00% 7/1/14 4.3Coastland Center Cmbd 117,006 5.75% 1/1/14 3.8Coral Ridge Cmbd 88,250 5.75% 1/1/14 3.8 (1)

Cumberland Cmbd 103,862 5.75% 1/1/14 3.8 (1)

Governor's Square Cmbd 74,368 5.75% 1/1/14 3.8 (1)

Lakeland Square Mall Cmbd 53,675 5.24% 10/1/13 3.5Meadows Cmbd 101,463 5.54% 8/1/13 3.3Oak View Cmbd 83,292 5.75% 1/1/14 3.8 (1)

Paramus Park Cmbd 102,855 4.97% 10/1/15 5.5Pembroke Lakes Mall Cmbd 126,924 5.06% 4/11/13 3.0The Mall in Columbia Cmbd 400,000 5.87% 10/1/12 2.5The Parks at Arlington Cmbd 174,517 5.75% 1/1/14 3.8 (1)

The Shoppes @ Buckland Hills Cmbd 161,319 5.01% 7/2/12 2.3West Oaks Mall 68,301 5.36% 8/1/13 3.310450 W. Charleston LLC 4,756 6.84% 12/31/18 8.8Senate Plaza 12,084 5.79% 7/1/13 3.370 Columbia Corporate Center 19,676 10.15% 10/1/10 0.5

Bridgelands MPC (2) 29,812 6.50% 1/1/25 14.8

Consolidated JV DebtProvo Towne Centre Cmbd 43,302 5.91% 4/5/12 2.0Spokane Valley Cmbd 41,052 5.91% 4/5/12 2.0The Shops at La Cantera Cmbd 129,402 5.29% 6/7/10 0.2The Streets at Southpoint 242,881 5.45% 4/6/12 2.0Westlake Center Cmbd 68,119 8.00% 2/1/11 0.8

Non-Debtor Consolidated Debt 2,545,532 5.68% 4/18/13 3.1

Less: Amortization (3) (15,163)

Non-Debtor Consolidated Debt (3/31/10) 2,530,369 5.68% 4/18/13 3.1

Memo: Alternative BuildupConsolidated Debt (3/31/10) (4) 24,560,733 Less: Total Debtor Debt (3/31/10) (5) (22,030,364)

Non-Debtor Consolidated Debt (3/31/10) 2,530,369

8080

GGP Debt Detail – Joint Venture Debt (excluding Consolidated JVs)

($ in 000s)Joint Venture Debt Debt Duration Joint Venture Debt Debt Duration(Excl Consolidated JVs) Balance Interest Maturity (Yrs) (Excl Consolidated JVs) Balance Interest Maturity (Yrs)Alderwood Mall Cmbd 145,783 5.03% 7/6/10 0.3 Quail Springs Mall 37,409 6.87% 6/5/15 5.2Altamonte Mall Cmbd 75,000 5.19% 2/1/13 2.8 Riverchase Galleria Cmbd 152,500 5.78% 10/3/11 1.5Arrowhead Towne Center 25,820 6.92% 10/3/11 1.5 Silver City Galleria Cmbd 65,528 4.95% 6/10/11 1.2 (2)

Bridgewater Commons 47,754 5.27% 1/2/13 2.8 Stonebriar Centre Cmbd 84,405 5.30% 12/11/12 2.7Carolina Place Cmbd (1) 80,281 4.60% 1/11/14 3.8 Superstition Springs Center 22,498 3.45% 9/9/11 1.4Christiana Mall 56,838 4.61% 8/2/10 0.3 The Oaks Mall Cmbd 52,020 5.87% 12/3/12 2.7Clackamas Town Center Cmbd 100,000 6.35% 10/5/12 2.5 Towson Town Center Cmbd 44,760 5.75% 1/1/14 3.8 (3)

First Colony Mall Cmbd 95,149 5.68% 10/3/11 1.5 Village of Merrick Park Total 76,034 5.94% 8/8/11 1.4Florence Mall Cmbd 68,786 5.04% 9/10/12 2.4 Water Tower Place Cmbd 89,514 5.04% 9/1/10 0.4Galleria Tyler Cmbd 125,000 5.46% 10/11/11 1.5 Westroads Mall Cmbd 45,518 5.83% 12/3/12 2.7Glendale Galleria Cmbd 191,317 5.01% 10/1/12 2.5 Whalers Village Cmbd 64,893 5.63% 11/8/10 0.6Highland Mall Cmbd 31,990 6.92% 7/8/11 1.3 (2) Willowbrook Mall 46,003 7.00% 4/1/11 1.0Kenwood Towne Centre Cmbd 168,095 5.58% 12/1/10 0.7 Owings Mills-One Corporate Ctr 4,119 8.50% 12/1/11 1.7Mizner Park Total - - - - Center Pointe Plaza 6,846 6.38% 1/2/17 6.8Montclair Place Cmbd 133,825 5.88% 9/12/11 1.5 (2) Lake Mead Blvd & Buffalo 2,947 7.30% 7/15/23 13.3Natick Mall Cmbd 175,000 5.74% 10/7/11 1.5 Trails Village Center 8,073 8.24% 7/10/23 13.3Natick West 70,000 5.82% 10/7/11 1.5 Woodlands MPC 216,343 5.69% 10/9/13 3.5 (3)

Northbrook Court Cmbd 42,513 7.17% 9/1/11 1.4 Turkey 57,221 6.72% 1/1/18 7.8 Oakbrook Center Cmbd 103,010 5.12% 10/1/12 2.5 Joint Venture Debt 3,008,792 5.61% 4/27/12 2.1Park Meadows Cmbd 126,000 6.00% 7/5/12 2.3Perimeter Mall Cmbd - - - - Less: Amortization (4) (63,203) Pinnacle Hills Promenade / West 70,000 5.84% 12/8/11 1.7

Joint Venture Debt (3/31/10) (5) 2,945,589 5.61% 4/27/12 2.1

Source: Interest rates per the Q3'08 GGP operating supplement. Many of these interest rates, especially to theextent loans have been refinanced or are floating, may have changed since 9/30/08.

Source: Maturities per the Q3'08 operating supplement.(1) GGP extended this loan at 4.5975% in Jan-10. Source: 1/25/10 press release.(2) Represents an SCP mall. On 5/3/10 the property owned by the Highland JV was transferred to the lender (Source: 10-Q pg 40).(3) For loans with maturity dates preceding 3/31/10, we have assumed they were refinanced with 1/1/14 maturity dates

and with 5.75% interest rates. Source: Pershing Square assumption.(4) Represents amortization that has occurred since the most recent reported date of GGP's debt.(5) Source: Q1'10 supplement pg. 29.

8181

PF GGP Debt Detail – 9/30/10e Reconciliation

Target Net Debt Reconciliation ($ in mms)

Target Net Debt (9/30/10e) (1) $22,971Plus: Proportionally Consolidated Unrestricted Cash (2) 500Less: Permitted Claims (3) (650)Less: Accrued interest (4) (625)Less: Bridgelands/Woodlands (5) (246)Less: Brazil (6) (110)Less: Pfd stock (7) (121)Less: SCP debt / Highland (5) (980)Less: Other GGO debt (5) (260)

PF GGP Debt (9/30/10e) $20,478

PF GGP Debt (3/31/10) (8) 20,691

Additional Amortization Through 9/30/10e ($212)

(1) Target Net Debt as of the original Cornerstone Investment Agreement. Target Net Debt is an estimate of GGP's net debt as of 9/30/10e.Target Net Debt includes PF GGP and GGO liabilities. In addition, Target Net Debt includes non-debt liabilities, such as accrued interest andPermitted Claims (i.e. the KEIP), among other things. Therefore, Target Net Debt includes the Company's estimate of bankruptcy "exit costs."Furthermore, Target Net Debt includes the following: $1.5bn of New Debt, debt associated with GGP's international subsidiaries, and preferred stock.Source: pg 75 of docket #4874.

(2) Source: Original Cornerstone Investment Agreement.(3) Represents Pershing Square's estimate of bankruptcy "exit costs," including the KEIP, transaction costs, etc.

Pershing Square estimates this $650mm estimate could be more than $200mm too high.(4) Includes accrued interest on unsecured debt, DIP loan, Homart/Ivanhoe, TRUPs, pfd stock, and secured debt. Pershing Square estimate.(5) As of 3/31/10. Projected 9/30/10e balances included in Target Net Debt may differ than 3/31/10 actual debt balances due to interim amortization.(6) Per the Cornerstone Investment Agreement. GGP's share of this debt as of 3/31/10 was $95.2mm. Source: Q1'10 supplement pg 2.(7) Source: Q1'10 supplement pg 2.(8) See appendix for details.

8282

PF GGP Cap Rate Detail – Excess Sources

($ in mms, except per share data) Illustrative PF GGP Equity Raise Price$10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00

Emergence SourcesNew Debt (1) $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500BPF (pre-clawback) (2) 4,400 4,400 4,400 4,400 4,400 4,400 4,400Clawback (3) 1,900 1,938 1,976 2,014 2,052 2,090 2,128Liquidity Equity Issuances (4) 650 663 676 689 702 715 728

Emergence Sources 8,450 8,501 8,552 8,603 8,654 8,705 8,756

Emergence UsesTopCo unsecured debt (5) 6,373 6,373 6,373 6,373 6,373 6,373 6,373DIP loan (5) 400 400 400 400 400 400 400

Emergence Uses 6,773 6,773 6,773 6,773 6,773 6,773 6,773

Excess Sources $1,678 $1,729 $1,780 $1,831 $1,882 $1,933 $1,984

(1) New Debt is included as a source of funds because the corresponding liability is included in Target Net Debt.The estimated fee to raise the New Debt is also included as a Permitted Claim in the Target Net Debt amount.

(2) Represents PF GGP's sale of 440mm shares to BPF at $10 per share. (250mm to B, 190mm to PF).(3) Subject to the 80/20 GGO IPO Participation, PF GGP is entitled to keep 20% of excess proceeds raised above $10.

To the extent GGO's 80% IPO Participation exceeds permitted liabilities, PF GGP will be entitled to keep more cashthan presented above.

(4) Assumes GGP sells 65mm Liquidity Equity Issuances shares. GGP is entitled to keep 20% of excess proceedsraised above $10.

(5) TopCo unsecured debt, which includes GGP's convert, Rouse debt, term loan, and revolver, and the DIP loan are treated asuses of funds because they are excluded from Target Net Debt as part of the Reinstatement Adjustment Amount.

8383

PF GGP Cap Rate Detail – Other Assets / Other Liabilities

PF GGP Other Liabilities (as of 3/31/10) ($ in mms)

Consolidated other liabilities (1) $1,774Plus: Unconsolidated other liabilities (2) 219Less: Hughes participation payable (3) (69)Less: Accrued interest accounted for in Target Net Debt (4) (383)Less: Professional fees incl in other liabilities (5) (18)Less: Accrued KEIP incl in other liabilities (6) (79)Less: Other "Exit Costs" incl in other liabilities (7) (100)

PF GGP Adjusted Other Liabilities $1,345

PF GGP Other Assets (as of 3/31/10) ($ in mms)

Accounts & notes receivable, net (1) $506Deferred expenses, net (1) 384Prepaid expenses & other assets (1) 796

PF GGP Other Assets $1,686

Note: Excludes goodwill of $199.7mm as of 3/31/10.(1) Includes unconsolidated other assets at 50% share. Source: pgs 3 and 23 of Q1'10 10-Q.

(1) Source: GGP Q1 10-Q pg 34.(2) Assumes pro rata GGP share of unsonsolidated other liabilities is 50%. Source: 10-Q pg 23.(3) Excluded from other liabilities as we assume this liability will be covered by the GGO IPO Participation.

Source: 10-Q pg 34.(4) Target Net Debt includes accrued and unpaid interest on GGP's unsecured debt, pfd stock, partner loans,

DIP loan, and certain mortgage notes. As of 3/31/10, GGP had $450mm of accrued interestincluded in other liabilities (Source: 10-Q pg 34). The vast majority of this is included in the Target Net Debtamount and therefore needs to be adjusted to avoid double-counting. Pershing Square estimates at least85% of this amount needs to be deducted as it likely relates to accrued interest included in Target Net Debt.

(5) Target Net Debt includes professional fees associated with GGP's bankruptcy. As a result, any amountof professional fees included in other liabilities need to be deducted. Source: 10-Q pg 12.

(6) Target Net Debt includes GGP's ultimate KEIP payment, which was estimated to be $165mm as of3/31/10. As of 3/31/10, $79mm of the KEIP had been accrued as a liability. Source: 10-Q pg 12.

(7) Includes pre-petition vendor liabilities and mechanics' liens that should be covered by the $650mmPermitted Claims cushion in Target Net Debt. Source: Pershing Square estimate.

8484

GGP Detail – LTM Cash NOI

($ in millions) GGP Cash Net Operating Income (1)2Q09a 3Q09a 4Q09a 1Q10a LTM

Minimum rents $596 $584 $605 $593Tenant recoveries 263 257 248 254Overage rents 7 12 30 12Other 35 32 48 27

Total Property Revenues $901 $884 $931 $885

Less: Real estate taxes (81) (82) (81) (85)Less: Repairs & maintenance (58) (65) (82) (41)Less: Marketing (8) (9) (16) (9)Less: Other property operating costs (127) (136) (138) (157)Less: Provision for doubtful accounts (11) (7) (7) (8)

NOI $616 $585 $607 $586

Less: Straight-line rent adj. (13) (11) 1 (13)Less: FAS 141 adj. (lease mark to mkt) (4) (3) (2) (1)Plus: Non-cash ground rent expense 2 2 2 2Plus: Real estate tax stabilisation adj. 1 1 1 1

GGP Cash NOI $602 $573 $609 $575 $2,360

(1) Source: GGP operating supplements.

8585

Simon Cap Rate Detail – LTM Cash NOI

Source: Simon operating supplements.(1) Simon includes interest income in other revenue. This needs to be backed out to create an apples to apples

comparison with GGP.(2) Simon does not disclose the amount of interest income and gains on land sales from its unconsolidated

segment. Assumes the ratio of interest income and gains on land sales in other revenue is similar to theratio of consolidated other income to total share. For example, Q1'10 reported consolidated interest incomewas $7.714mm. Multiplying this by 1.302x results in assumed total share interest income of $10.047mm.

(3) Source: See Footnotes to Reconciliation of Consolidated Net Income to FFO in Simon's operating supplementsfor straight-line rent and FAS 141 adjustments.

($ in millions) 4Q08a 1Q09a 2Q09a 3Q09a 4Q09a 1Q10a LTMMinimum rent $807 $746 $754 $754 $806 $758Overage rent 63 21 26 33 58 26Tenant reimbursements 393 345 345 356 376 342Other income 92 68 56 57 92 80 Less: Interest income (1) (2) (15) (9) (9) (10) (13) (10) Less: Gains on land sales (2) (5) (0) (3) (0) (19) (2)

Total Revenue $1,334 $1,171 $1,168 $1,191 $1,300 $1,194

Less: Property operating costs (172) (161) (168) (180) (164) (157)Less: Real estate taxes (106) (112) (106) (99) (108) (114)Less: Repairs & maintenance (47) (33) (30) (29) (43) (34)Less: Advertising & promotion (42) (24) (25) (29) (39) (25)Less: Provision for credit losses (10) (17) (9) (0) (2) 3 Less: Other (41) (35) (40) (36) (44) (35)

NOI $916 $789 $791 $817 $901 $830

Less: Straight-line rent adj. (3) (9) (11) (7) (8) (6) (5) Less: FAS 141 adj. (lease mark to mkt) (3) (9) (7) (13) (6) (6) (5)

Cash NOI $899 $772 $770 $803 $889 $821 $3,284

Memo: Other incomeConsolidated portion 62 45 35 36 71 56 Total share 92 68 56 57 92 80 Ratio 32.2% 33.6% 37.7% 35.8% 22.9% 30.2%

8686

Simon Cap Rate Detail – Cap Rate Buildup

(1) Includes Series I preferred shares and options (Source: Simon Q1'10 operating supplement).(2) As reported in Simon's pro rata balance sheet (Source: Simon Q1'10 operating supplement).(3) Excludes $20mm of goodwill (Source: Simon 2009 10-K).(4) Simon's share of U.S. CIP (page 36 of Q1'10 operating supplement).(5) Applies 25% EBIT margin to LTM fee income of $122mm and a 7.5x EBIT multiple.(6) See Simon LTM Cash NOI appendix page for details.

(units in millions, except per share data)Share Price (as of 5/28/10) $85.03Shares & Units (1) 352

Market Cap $29,906

Pro Rata for JVs: (2)Plus: Total Debt 24,250 Plus: Preferred Debt 126 Plus: Other Liabilities 1,845 Less: Cash (3,609) Less: Other Assets (3) (2,445) Less: Development Pipeline (4) (35)

TEV $50,038

Less: Mgmt Business (5) (229) Value of Simon's REIT $49,809

LTM Cash NOI (6) $3,284Implied Cap Rate 6.6%

8787

Simon Occupancy Cost Detail

Occup. Cost Buildup Memo:GGP (1) Simon GGPQ4'07 Q4'09 Q4'09

Rent per sq ft $35.32 (2) $40.04 (5) NARecoverable common area costs per sq ft 9.58 13.58 NA

Rent & recoverable common area costs per sq ft $44.90 (3) $53.62 $47.09 (8)

Rent & recoverable common area costs PSF / rent PSF 1.27x 1.34x (6) NA

Reported Tenant Sales per Square Foot $444 (3) $433 (5) $393 (8)

Rent & recoverable common area costs / tenant sales 10.1% 12.4% 12.0%

Occupancy Cost 12.5% (3) 15.1% 14.6% (8)

Adjustment Factor (4) 1.24x 1.22x (7) 1.22x

Note: Unlike GGP, Simon does not disclose occupancy cost data. The exercise above uses historical reportedGGP data to attempt to back into Simon's implied Regional Malls occupancy cost. Actual data may vary.

(1) Represents Consolidated Portfolio (i.e. excl unconsolidated). This is done because GGP does not discloserent per sq ft metrics on a pro rata basis.

(2) GGP used to report rent per sq ft instead of rent & recoverable common area costs per sq foot before Q1'07.Represents GGP Q4'06 consolidated rent per sq ft of $34.29 with assumed 3% YoY growth (same as Q4'06 reported growth).Source: GGP Q4'06 operating supplement.

(3) Source: GGP Q4'07 operating supplement.(4) Represents the ratio of Occupancy Cost to rent & recoverable common area costs / tenant sales.(5) Source: Simon Q4'09 operating supplement.(6) Assumes Simon's ratio of rent and recoverable common area costs PSF / rent PSF is 1.34x based on GGP's

historical ratio of 1.27x. Simon derives approximately 5% more of its revenue from tenant reimbursements than GGP. (7) Based on GGP's adjustment factor as of Q4'09.(8) Source: GGP Q4'09 operating supplement.

8888

GGO Detail – Victoria Ward Comp

Wait to Rate:

How To Save The Rating Agencies

(and the Capital Markets)May 26, 2010


1

Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in

this presentation are based on publicly available information. Pershing Square recognizes that there may be

confidential information in the possession of the companies discussed in the presentation that could lead

these companies to disagree with Pershing Square’s conclusions. This presentation and the information

contained herein is not a recommendation or solicitation to buy or sell any securities.

The analyses provided may include certain statements, estimates and projections prepared with respect to,

among other things, the historical and anticipated operating performance of the companies, access to capital

markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various

assumptions by Pershing Square concerning anticipated results that are inherently subject to significant

economic, competitive, and other uncertainties and contingencies and have been included solely for

illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of

such statements, estimates or projections or with respect to any other materials herein. Actual results may

vary materially from the estimates and projected results contained herein.

Funds managed by Pershing Square and its affiliates have invested in long and short positions in various

securities and financial instruments. Pershing Square manages funds that are in the business of actively

trading – buying and selling – securities and financial instruments. Pershing Square may currently or in the

future change its position regarding any of the securities it owns. Pershing Square reserves the right to buy,

sell, cover or otherwise change the form of its investment in any company for any reason. Pershing Square

hereby disclaims any duty to provide any updates or changes to the analyses contained here including,

without limitation, the manner or type of any Pershing Square investment.

2

The Context

Where they have failedWhat they do well

■ Rating agencies overstated the

ratings of structured finance

securities and bond insurers

like MBI, ABK, FNM, FRE and

AIG

■ Rating agencies are generally

good at rating the debts of

corporate issuers

Various proposals have been floated to address the problem. As currently

proposed, we believe that none will succeed as comprehensive reform

Rating agencies were material contributors to the credit crisis as

their inaccurate ratings allowed for the issuance of trillions of

dollars of securities and derivatives which generated trillions of

dollars of losses globally

3

What Are the Principal Problems?

Problems are caused by corrupting incentives at the original

issuance of a security or derivative by an issuer

� Investors – Overly relied on ratings rather than their own due diligence and are often subject to ratings-based investment limitations

� Issuers/Banks – Are incentivized to get highest ratings with highest yielding (riskiest) assets

� NRSROs – Are conflicted by how they are paid; without high ratings, agencies do not earn fees on new issue transactions

� “Success Fee” model leads to competition and grade inflation among NRSROs for new issuers and new product ratings

4

What Are the Principal Problems? (Cont’d)

Regulators and investors with ratings-based mandates have been ill-

served by the NRSROs before and throughout the credit crisis

� Rating agencies have failed to meet expectations:

� Act as Underwriters – in substance, have acted as part of the underwriting team for new issues

� Are Slow to Downgrade – are incentivized to keep ratings stable so new issues can continue to be sold and rated

� Are Loath to Pass Judgment on Themselves – did initially forbear from downgrading financial guarantors (e.g., MBI, ABK, FNM, FRE, AIG), as simultaneous downgrades would be triggered on thousands of othersecurities, putting NRSROs in the uncomfortable position of questioning their own prior ratings

5

How Do You Solve These Problems?

Make a new law

“New Issue Ratings Moratorium. Prior to the date 60 days after the issuance of

a new fixed income security, it shall be unlawful for any NRSRO to:

(1) Have any contact with issuers, sponsors, servicers, trustees or underwriters of

such security during such period,

(2) Comment publicly on, or issue ratings regarding, any such security, or

(3) Otherwise participate in the structuring, underwriting, offering or sale of such

securities during such period.

Notwithstanding the foregoing, NRSROs shall at all times be permitted to:

(a) Conduct due diligence based solely on publicly available information of the

issuer or otherwise related to the security in respect of future ratings for such

issuer or security, and

(b) At all times broadly publish their ratings standards, procedures and

methodologies.”

Our suggested rider to the Restoring American Financial Stability Act of 2010

6

How Do You Solve These Problems? (Cont’d)

� Allow Non-NRSROs to Publish During New Issue Moratorium – Firms can (1) apply to be qualified as NRSROs and be subject to the new issue ratings moratorium or (2) choose to be non-NRSROs and compete for business from investors during the moratorium on the basis of the quality of their research

� Creates incentive for the development of an “Investor Pays” model for non-NRSRO rating agencies who will seek to fill the ratings void left by the New Issue Ratings Moratorium on NRSROs

� Insist on NRSRO Accountability – The SEC should be required to revoke a ratings agency’s NRSRO status if it consistently underperforms its peers

� While the SEC currently has the power to revoke NRSRO status, it has failed to exercise that power likely because of the lack of credible alternatives to NRSROs

� Bright line rules requiring the exercise of that power after material consistent underperformance could address the breakdown caused by the SEC’s past regulatory forbearance

Buyside analysts will develop into credible alternatives and even new NRSROs

7

How Do You Solve These Problems? (Cont’d)

Make a new lawRepealing NRSRO legal exemptions will mitigate undue reliance on ratings

� Re-Thinking Reg FD – The SEC should repeal the NRSRO exemption from fair disclosure rules that currently allow rating agencies access to issuers’ material non-public information

� Investors justified their over-reliance on ratings in large part on account of NRSRO information advantages. Repeal of the SEC’s Reg FD exemption would reduce reliance premised on information asymmetries

� Prospectus Delivery Requirements – Each issuer that seeks an NRSRO rating should be required to include in its bond offering prospectus all information that a reasonable investor would need to form an investment decision

� Any information that could reasonably be expected to impact ratings should be viewed – by definition – as material and therefore should be disclosed in prospectuses and in on-going public disclosures

� Improved disclosure requirements would improve the accuracy of fundamental analysis and level the playing field among market participants

8

What Are the Impacts of Our Proposed Changes?

Old Paradigm:

� Investors – overly relied on ratings and

performed inadequate due diligence

� Issuers/Banks – structured deals to

minimally achieve desired ratings

thresholds through negotiations with rating

agencies

� NRSROs – monopolized ratings, became

an essential participant in underwriting

process which was corrupted by the

success fee payment scheme

� Investor Pay Research – “Investor Pays”

ratings model is virtually nonexistent

New Paradigm:

� Investors – will need to do their own due

diligence and will benefit from truly

independent ratings/research

� Issuers/Banks – ratings opinion

uncertainty will force them to “under-

promise and over-deliver” creating

margins of safety above ratings targets

� NRSROs – will “call ‘em like they see

‘em” and will be completely removed from

the structuring and underwriting process

� Investor Pay Research – creates

opportunity for “Investor Pays” ratings

and research to develop as non-NRSRO

analysts will be permitted to publish pre-

offering and during the blackout period

9

How Should Ratings Agencies Be Compensated?

� New Fee Arrangements – Ratings fees should be “set aside” and paid over time by issuers to NRSROs and failure to pay fees would be deemed an “Event of Default” for issuers

�Base Fee – a minimum fee will be paid in quarterly increments over the life of the bond to those NRSROs that pre-commit to rate a new bond after the 60-day moratorium and to continue to update those ratings over the bond’s life

�Ranking Fee – a portion of the remaining set aside will be paid in annual increments based on investor-determined annual rankings of each NRSRO

�Performance Fee – the remaining set aside will be paid in annual increments to the NRSROs based on the performance of the bond relative to the ratings designated by each participating NRSRO

10

What Are the Impacts of Our Proposed Changes?

Old Paradigm:

� Investors – had no impact on NRSRO

compensation

� Issuers/Banks – had the ability to

manipulate the process through NRSRO

compensation to achieve desired ratings

� NRSROs – received full, upfront

payments which were unrelated to the

ratings performance for that issue

� Investor Pay Research – “Investor Pays”

ratings model is virtually nonexistent

New Paradigm:

� Investors – will help allocate ratings fees,

closer to an “Investor Pays” model

� Issuers/Banks – will have no ability to

set compensation or even choose which

NRSROs will rate a bond

� NRSROs – will be paid over time, with a

large percentage of compensation based

on performance; material consistent

underperformance assures loss of

NRSRO status

� Investor Pay Research – will create

market opportunity which will improve

independent research for buyside

investors

11

Conclusion

� The steps toward regaining confidence are deceptively simple:

� Exclude the NRSRO rating agencies from the initial offering and underwriting process

� Create incentives for fundamental research and valuation analysis by investors

� Create the market opportunity for “Investor Pays” research and ratings to develop

� Create a payment regime that focuses on NRSRO performance and the quality of their ratings over time and aligns their interest with investors

� Failure to address fundamental flaws in the legacy ratings system is not an option

The combination of increased buyside due diligence coupled with mitigation of conflicts of interest and a new payment scheme can restore the integrity of ratings

Not for Public Distribution

How To Make A Fortune*November 3, 2010


* My compliance team cautions you that this is a tongue in cheek title

1


Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, historical and anticipated performance of certain assets, and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates orprojections or with respect to any other materials herein.

This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.

Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained in this presentation.

2


What We Look for in Our Investments

Low valuation

Forced Sellers

Attractive capital structure

Favorable long-term supply dynamics

Favorable long-term demand dynamics

Out-of-favor

3


We Believe We’ve Identified an Investment with:

A low valuationLowest valuation in at least a generation

Forced sellersA large number of distressed transactions

Extremely attractive financing availableHigh LTV, low-rate, fixed-rate, long-dated, non-recourse debt, pre-payable without penalty

Favorable long-term supply dynamicsShort-term oversupplied market, but long-term supply is controlled

Favorable long-term demand dynamicsDemographically driven demand growth

Out-of-favorCurrently, this is a somewhat shunned asset class


So… How Can You Make A Fortune?

5


The American Dream - On Sale


What Happened?

7


Freely Available

Credit

Relaxed lending standards

Financial “innovation”

CDO Demand

What Happened in the Credit Markets?

More Leverage /

More Buyers

Increasing Asset Values

Decreasing Defaults

Source: “Who’s Holding the Bag?,” PSCM, May 2007

8


Leverage Increased

Source: Standard & Poor’s, and “Who’s Holding the Bag?,” PSCM, May 2007

The second lien market allowed borrowers to layer additional leverage

Total Second Lien & Piggyback Second Lien Issuance

9


Financial “Innovation”

The popularity of Interest Only and Negative Amortization loans grew rapidly

Source: Loan Performance, Credit Suisse

2%1%

4%6%

25%

29%

23%

0%

5%

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003 2004 2005 2006

IO and Neg. Amortization Originations (% of dollar volume)

10


The ABS Market Provided Liquidity for Originators

Source: Thompson Financial, Deutsche Bank, “Who’s Holding the Bag?,” PSCM, May 2007

Sub-prime and Second-lien ABS Issuance Volume

Facilitated by Rating Agencies and Bond Insurers

11


Asset Values Went Up

Between January 2001 and June 2006 home prices rose at a 13% CAGR

50

70

90

110

130

150

170

190

210

230

250

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Source: Case-Shiller Home Price Indices

Home Price Appreciation (Case-Shiller 10-City Index)


Valuation

13


50

70

90

110

130

150

170

190

210

230

250

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Asset Values Have Declined Meaningfully

Home prices are down 28% nationwide

Home Price Appreciation (Case-Shiller 10-City Index)

Source: Case-Shiller Home Price Indices

14


109117

122127

134

117

134 130 133 137

125 126 127 128124 120

109 110

128

150

170178

60

80

100

120

140

160

180

200

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Housing is More Affordable Today

Falling home prices and lower interest rates dramatically improved affordability¹. Median family income is now 78% higher than what is required to qualify for a loan to purchase the median price single family home using 80% loan-to-value, fixed-rate financing

Source: National Association of Realtors¹Affordability = Median Income/Qualifying Income

NAR National Housing Affordability Index – Fixed Rate Composite

15


Cheap Compared to Renting

The breakeven appreciation rate for rental equivalent value is the best since the 1970s

Source: Beracha and Johnson, “Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise?”Assumptions in appendix

Housing as a hedge: Home ownership with fixed-rate financing protects buyers from asset and rent inflation


Forced Sellers

17


Foreclosures and Short Sales

Nationwide, ~30% of sellers are in or are approaching foreclosure

Distressed Sales (% of total re-sales)

Source: Deutsche Bank, “Whither the distressed inventory flood”

Long-term the foreclosure crisis is good for housing. Over-priced and over-leveraged homes will be transitioned to new, stable owners at more reasonable prices and on more favorable financing terms

18


Short Sales

Short sale transactions are increasing

Number of Short Sales Per Month

Source: HUD, Core Logic

19


Distressed Sales are an Opportunity for Buyers

REO sales tend to be priced below the broader market

Houston REO vs. Overall Pricing ($ thousand)


20


A Sellers’ Race to the Bottom in Vegas

Buyers benefit when conventional sellers compete with distressed sales. Las Vegas is an extreme example, where distressed and non-distressed sale prices have nearly converged

Las Vegas REO vs. Overall Pricing ($ thousand)



Financing

22


3%

5%

7%

9%

11%

13%

15%

17%

19%

1973 1977 1982 1987 1992 1997 2002 2007

Mortgage Rates are Very Low

Mortgage rates have fallen to historically low levels. Fixed 30-year rates are now below 4.5% for the first time in the history of the Freddie Mac lender survey

30-Year Fixed-Rate 80% LTV Mortgage

Source: Freddie Mac

23


What Makes a Home Mortgage So Attractive?

Low Fixed Rate – 4.43% APR

Long Term – 30-Year Amortization

High LTV – 80% (97% for FHA loans)

Non-Recourse – Loans are explicitly or effectively non-recourse

Adequate Financing Available – $417k to $730k, depending on location

No Prepayment Penalties – Creates refinancing optionality

Tax Deductible Interest – More valuable with coming tax increases

Typical Conforming Mortgage Term Sheet

No other business or investor can get financing on such favorable terms

24


The Mortgage Market Benefits from Government Support

Support from the federal government provides qualified borrowers with access to credit on favorable terms

GSE and FHA mortgages are now >90% of the origination market

The target Fed Funds rate is 0%

The Fed has purchased more than one trillion dollars of MortgageBacked Securities

FHA high LTV refinancing programs are helping distressed borrowers

25


What Are the True Economics of Home Ownership?

Our Assumptions:Conventional Loan Transaction CostsDown Payment 20% Closing Costs (% of Purchase Price) 2%Mortgage 30yr Fixed Rate Selling Fees (% of Sale Price) 6%Interest Rate 4.40%

Annual FeesFHA Loan Property Taxes (% of Home Value) 1.50%Down Payment 3.5% Maint. + Insurance (% of Home Value) 2.00%Mortgage 30yr Fixed Rate Annual expenses grow with home appreciationInterest Rate 4.25%Upfront Mtge Insurance (Financed) 1.00% Tax RateAnnual Mtge Insur. Premium (First 5yrs) 0.90% Income Tax Rate 25%

RentImplied rent grows with home appreciation

Holding Period10 Years

26


Conventional FHA

Home Price 187,998$ 187,998$ Equivalent Monthly Rent 1,300 1,300 Owner's Monthly Out of Pocket 1,072 1,362 Downpayment + Closing Costs 41,360 10,406 LTV 80% 96.5%

What Are the True Economics of Home Ownership? (cont.)

After a small down payment, a buyer’s monthly after-tax cost of carry is at or below the monthly rental expense

Average Two Bedroom Home in Baltimore:

Source: Trulia - home price and rent expense data

27


The Benefits of Low-Cost, High-LTV Financing

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions

Conventional 80% Financing

If the borrower has the opportunity to refinance at better rates, returns would be even higher

IRR Assuming 10yr HoldAnnual Appreciation

Residual Return

Current Return Total

Multiple of Equity

1% 3.8% 6.6% 10.4% 2.7x2% 6.9% 6.8% 13.7% 3.6x3% 9.5% 7.0% 16.5% 4.6x4% 11.8% 7.3% 19.1% 5.7x5% 14.0% 7.5% 21.5% 7.0x6% 15.9% 7.8% 23.7% 8.4x

28


The Benefits of Low-Cost, High-LTV Financing (Cont’d)

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions

FHA 96.5% Financing

If the borrower has the opportunity to refinance at better rates, returns would be even higher

IRR Assuming 10yr HoldAnnual Appreciation

Residual Return

Current Return Total

Multiple of Equity

1% 16.3% 0.4% 16.7% 5x2% 20.5% 1.7% 22.2% 7x3% 24.0% 2.8% 26.8% 11x4% 27.0% 3.8% 30.8% 15x5% 29.7% 4.7% 34.4% 19x6% 32.1% 5.6% 37.7% 25x


Favorable Long-Term Demand Dynamics

30


Household Formation Trends

Household Formation has been positive, with some degree of cyclicality, since at least the 1970s. Household growth will likely accelerate as the recovery gains traction

Annual Household Formation (% growth)

Source: US Census Bureau

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

Household growth is cyclically depressed

31


60

61

62

63

64

65

66

67

68

69

70

1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Homeownership Rates have Normalized

Homeownership rates have declined to pre-bubble levels. While ownership is above pre-2000 rates, higher affordability and an aging population should support an ownership rate near today’s level

Source: US Census

Homeownership (% of households)

32


The Number of Owner Households Will Rebound

Accelerating household formation and a stabilization of the homeownership rate should lead to growth in owner households

Source: US Census Bureau, BLS, Maximus Advisors

(Household Formation x Homeownership Rate) + [Number of Households x (Change in Homeownership Rate)]Change in Owner Households =

33


Long-Term Demand for Housing

Source: Joint Center for Housing Studies, Harvard University, “Updated 2010-2020 Household and New Home Demand Projections”¹Applies 66% to all figures excluding: Vacant Rental (0%) and Second Homes (100%)

Projected Long-Term Demand for New Housing Units (single and multi-family)

Household Formation

Growth needed to maintain constant vacancy rate

LT Annual Single Family Home Demand 1,101 1,253 X Homeownership Rate Assumed: 66%¹


Favorable Long-Term Supply Dynamics

35


0

2

4

6

8

10

12

14

20112010200920082007200620052004200320022001

Mon

ths

of S

uppl

y (6

Mon

th L

ead)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Hom

e Pr

ices

(YoY

%, I

nver

ted)

Temporarily Elevated Inventory Levels

In the short-term, for-sale homes and shadow inventory will weigh on home prices. This provides an opportunity to buy a long-term investment at an attractive valuation in a market facing short-term distress

Source: US Census Bureau

Change in Home Prices vs. Months of Inventory

Supply

Price

36


New Supply Growth Will be Slow

Builders have sharply reduced their construction capacity, increasing lead times when the market does recover

Sources: Deustche Bank, “Builder Community Analysis”¹Toll Brothers Management

Community Counts for Public Builders

It can take three to seven years to get land permitted in many of the more desirable markets¹

37


0

500

1,000

1,500

2,000

2,500

3,000

1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Housing Starts are Now Below Long-Term Demand Growth

Housing starts have fallen sharply and are now lower than at any time in at least the past 50 years. Starts today are less than half of average long-term demand

Seasonally Adjusted Housing Starts (thousands)

Source: Chart: US Census Bureau¹Joint Center for Housing Studies, Harvard University, “Updated 2010-2020 Household and New Home Demand Projections”

Projected LT Demand:

1.1-1.25mm new single family

homes per year

New Supply Growth Will be

Slow

InventoryDepletion


Out-of-favor

39


“The U.S. housing market is headed for a complete and total nightmare”

- Business Insider, August 2010

“So even at 89 cents a share, it still looks pretty bleak out there for General Growth Shareholders”

- Businessweek, April 2009

Everybody Else is Afraid

The best investments we have made are the ones no one else would touch

“Now They Tell Us: Experts say housing is a lousy investment and it always will be”

- Yahoo Finance, August 2010


Concluding Thoughts

41


Why Now?

Interest rates won’t stay this low forever

New monetary easing increases the risk of inflation

Even with the current inventory levels, at today’s valuations, it is unlikely we will see another substantial decline in prices

Forced selling may abate as lenders’ balance sheets improve

Generally, there is more liquidity on the way down than on the way up

An economic recovery could cause housing to recover faster than many people think

42


The Housing Purchase is One of the Most Emotional Investment Decisions a Family Can Make

Increase inBuyer

Confidence

Decision toPurchase

HousingPrices

Increase

Once a family is able to purchase a home, the decision is based on psychological factors:

Confidence in the, and one’s, future

The fear of missing the opportunity to buy at the bottom

These psychological factors have self-reinforcing qualities that are similar to the forces that drive financial markets

Catalyst

43


An Institutionally Under-Owned Asset Class

Institutional investors have almost no exposure to single-family home rental properties (“SFHRPs”) as an asset class

Low valuation, high current yield and long-term appreciation potential make SFHRPs an intelligent investment for institutional investors

Despite these investment characteristics, we are unaware of any large pools of capital that have been raised to pursue this opportunity. This will change

44


The SFHRP Investment Opportunity Is Best Understood By Analogy

For the vast majority of the 20th century, timber was never considered an institutional asset class

Led by forward thinking investors, institutional investments in timberland emerged in the USA in the 1980s

With the advent of timber institutional management organizations (TIMOs) and timber REITs, institutional timberland investments have grown significantly

DANA Limited estimated that institutional investors had invested ~$50bn in timberlands as of early 2008

In 2007, the first timber ETF launched

The same features that attracted institutional investors to timber: current yield, inflation-protection, portfolio diversification, demand for “hard assets,” and the ability to create long-term tax-deferred gains, also apply to SFHRPs

45


Potential Institutional Investment Demand is Material

If global institutions and private wealth funds allocated approximately 1% of their assets under management to SFHRPs, it would absorb the entire U.S. for-sale inventory of single-family homes

* Source: IFSL, US Census Bureau

Median Priced Single Family Home $172,000U.S. For-Sale Inventory of Single-Family Homes 3,970,000

U.S. For-Sale Housing Inventory ($Tn) $0.7

Global Institutional & Private Wealth AUM ($Tn)* $64.3

U.S. For-Sale Inventory as % of Global AUM 1.1%


Appendix

47


Appendix – Buy vs. Rent Assumptions:

Source: Beracha and Johnson, “Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise?”

Home Buyer's Assumptions Renter's AssumptionsDown Payment 20% Down Payment seeds investment portfolioMortgage 30yr Fixed Rate Diff between mtge and rent is investedClosing Costs 2% Portfolio is made of stocks and bondsHolding Period 8 Years Rent Growth Same as home appreciationSelling Fees 6% Income Tax Rate 25%Income Tax Rate 25% Capital Gains 20%Capital Gains 20%Property Taxes - Annual 1.50%Maint. + Insur - Annual 2.00%Annual expenses grow with appreciation

Linked to Win

September 14, 2011


The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of instruments of state, governments and other interested parties discussed in the presentation that could lead those constituents and other market participants to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation to buy or sell any securities, currencies or other investment instruments. All investments involve risk, including the loss of principal.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, historical and anticipated events, access to and changes in capital markets and the values of currencies, assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant political, regulatory, economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations or warranties, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actual results may vary materially from the estimates and projected results contained herein.

Funds managed by Pershing Square and its affiliates own U.S. dollars, Hong Kong dollars and options on the Hong Kong dollar. Pershing Square manages funds that are in the business of trading - buying and selling –securities and other financial instruments. It is likely that there will be developments in the future that cause Pershing Square to change its position regarding such investments. Pershing Square may buy, sell, cover or otherwise change the form of these investments for any or no reason. Pershing Square hereby disclaims any duty to any recipient hereof or to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

Disclaimer

Structure of the Presentation

I. The Context

II. The History

III. The Current State of Play

IV. Our Prediction of What is Likely to Happen

V. The Investment Opportunity

VI. Why Now?

I. The Context

4

The US Economy TodayThe US Economy Today

5

Real GDP Growth (%QoQ – Annualized, Seasonally Adj. )

U.S. economic growth remains sluggishU.S. economic growth remains sluggish

GDP Growth – U.S.

________________________________________________

Source: Bloomberg.

GDP – U.S.

6

U.S. GDP is still below the Q4 ’07 peakU.S. GDP is still below the Q4 ’07 peak

Annualized Real GDP (Billion USD, 2005 Dollars)

Still below Q4 ’07 peak

________________________________________________

Source: Bloomberg.

Unemployment – U.S.

7

Unemployment in the U.S. remains stubbornly high at over 9%Unemployment in the U.S. remains stubbornly high at over 9%

Unemployment Rate (%)

________________________________________________

Source: Bloomberg.

Inflation – U.S.

8

Inflation has picked up, but seems to have leveled off and is forecast to decrease Inflation has picked up, but seems to have leveled off and is forecast to decrease

Consumer Price Index Growth (YoY) Median Bloomberg Forecast:

2011 +3.0%

2012 +2.1%

________________________________________________

Source: Bloomberg.

Home Prices – U.S.

9

U.S. Home Prices are down 32% from peak and have not recoveredU.S. Home Prices are down 32% from peak and have not recovered

Home Price Index (Case Shiller Home Price 10-City Index)

-32% from peak

________________________________________________

Source: Bloomberg.

U.S. Monetary Policy Today

10

To combat persistent weakness in the U.S. economy, the Federal Reserve has reduced short-term rates to zero and enacted two rounds of quantitative easing

To combat persistent weakness in the U.S. economy, the Federal Reserve has reduced short-term rates to zero and enacted two rounds of quantitative easing

Real GDP (YoY%)

Unemployment

Home Prices (YoY%)

CPI (YoY%)

+1.5%

9.1%

-3.8%

3.6%

Accommodative Monetary Policy

• Near 0% Short-Term Interest Rates through mid-2013

• Multiple Rounds of Quantitative Easing

• Near 0% Short-Term Interest Rates through mid-2013

• Multiple Rounds of Quantitative Easing

Economic Weakness

________________________________________________

Source: Based on the latest available Bloomberg data.

U.S. Monetary Policy Will Remain Extremely Accommodative:

11

“The committee currently anticipates that economic conditions –including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013” - Federal Reserve statement, August 2011

“The committee currently anticipates that economic conditions –including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013” - Federal Reserve statement, August 2011

________________________________________________

Source: Press, Release August 9, 2011 – Board of Governors of the Federal Reserve System (http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm).

12

Compare with Economy XCompare with Economy X

Real GDP Growth (YoY)

Economy X has recovered strongly from the global recessionEconomy X has recovered strongly from the global recession

GDP Growth – Economy X

________________________________________________

Source: Bloomberg.

GDP – Economy X

14

Economy X GDP is well above its peakEconomy X GDP is well above its peak

LTM Real GDP (Billion Local Currency)

________________________________________________

Source: Based on Bloomberg data (Cumulative Last 4Q’s).

Unemployment – Economy X

15

Unemployment is 3.4% and back to pre-recession lows Unemployment is 3.4% and back to pre-recession lows

Unemployment Rate (%)

________________________________________________

Source: Bloomberg.

Home Prices – Economy X

16

Since January 2006, home prices are up ~90%Since January 2006, home prices are up ~90%

Home Price Index

________________________________________________

Source: “Centaline Property Centa-City Leading HK Index” - Bloomberg.

Inflation – Economy X

17

Inflation is accelerating and is now nearly 6% Inflation is accelerating and is now nearly 6%

Underlying Consumer Price Index Growth (YoY)

________________________________________________

Source: “Monthly Report on the Consumer Price Index” - Census and Statistics Department, Hong Kong SAR Government. (http://www.censtatd.gov.hk/products_and_services/products/publications/statistical_report/prices_household_expenditure/index_cd_B1060001_dt_detail.jsp).

Economy X’s Monetary Policy Mirrors the US’s

18

Despite surging growth and inflation, Economy X’s monetary policy mirrors that of the United States with a near-zero interest-rate policy and large amounts of money printing

Despite surging growth and inflation, Economy X’s monetary policy mirrors that of the United States with a near-zero interest-rate policy and large amounts of money printing

Real GDP (YoY%)

Unemployment %

Home Prices (YoY%)

CPI (YoY%)

Economy X U.S.

+5.1% +1.5%

3.4% 9.1%

+18.5% -3.8%

+5.8% +3.6%

________________________________________________

Source: Based on the latest available Bloomberg data. Press Release, August 22, 2011 – Census and Statistics Department, Hong Kong SAR Government (http://www.censtatd.gov.hk/press_release/press_releases_on_statistics/index.jsp?sID=2798&sSUBID=19062&displayMode=D).

19

Who is Economy X?Who is Economy X?

Why would Economy X have the same monetary policy as the United States?

Why would Economy X have the same monetary policy as the United States?

Economy X = Hong KongEconomy X = Hong Kong

The Hong Kong Dollar’s (HKD) peg to the U.S. Dollar (USD) forces Hong Kong to import the U.S.’s ultra-accommodative monetary policy, despite its much stronger economy

The Hong Kong Dollar’s (HKD) peg to the U.S. Dollar (USD) forces Hong Kong to import the U.S.’s ultra-accommodative monetary policy, despite its much stronger economy

Why Does Hong Kong share U.S. monetary policy?

II. The History

The Hong Kong Dollar Over Time

22

Hong Kong has implemented several different currency regimes, demonstrating a pattern of change and adaptation during times of stressHong Kong has implemented several different currency regimes, demonstrating a pattern of change and adaptation during times of stress

Sterling PegSterling Peg Dollar PegDollar Peg

HKD/USD (inverted)

Free Floating Free Floating

HK

D S

treng

th

’98 W

eak S

ide

Com

mitm

ent

’98 W

eak S

ide

Com

mitm

ent

’05 S

trong

Sid

e Co

mm

itmen

t’05

Stro

ng S

ide

Com

mitm

ent

________________________________________________

Source: “Hong Kong’s Linked Exchange Rate System” – Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).

7.75 to 7.85 Band7.75 to 7.85 Band

Sterling Link Adopted (1935)

23

By 1935, facing a dramatic rise in the price of silver and a shrinking money supply, Hong Kong abandoned silver as backing for its currency

HK replaced the silver link with a Sterling-based currency board

At the time, HK was a British colony and Sterling was a major reserve currency

Denomination of Foreign Currency Reserves 1950-1982

The Sterling Peg (1935-1972)

Sterling’s role as an international reserve currency was displaced by the USD after WWIISterling’s role as an international reserve currency was displaced by the USD after WWII

Sterling

________________________________________________

Source: “The Decline of Sterling: Managing the Retreat of an International Currency, 1945-1992” - Catherine R. Schenk, p.23.

Sterling Link Abandoned (1972)

25

In 1949 and in 1967, Sterling was devalued. Shortly after the 1967 devaluation, the HKD was revalued by 10% against Sterling to preserve its purchasing power

In 1949 and in 1967, Sterling was devalued. Shortly after the 1967 devaluation, the HKD was revalued by 10% against Sterling to preserve its purchasing power

HKD/USD (inverted)

HK

D S

treng

th

1967 14% Sterling devaluation –

Countered by +10% HKD revaluation



________________________________________________

Source: “Hong Kong’s Linked Exchange Rate System” - Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).

Sterling Link Abandoned (1972)

26

In 1971, Nixon gave up the gold standard and devalued the USD. In 1972, Sterling broke its USD peg. Two weeks later HK announced a USD linkIn 1971, Nixon gave up the gold standard and devalued the USD. In 1972, Sterling broke its USD peg. Two weeks later HK announced a USD link

HKD/USD (inverted)

HK

D S

treng

th





1971 USD devaluation1971 USD

devaluation

________________________________________________

Source: “Hong Kong’s Linked Exchange Rate System” - Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).

Sterling ends USD peg and two weeks later HKD is pegged

to USD

Sterling ends USD peg and two weeks later HKD is pegged

to USD

First Dollar Link (1972-1974)

27

In February 1973, with the US struggling with inflation and Vietnam war debt, USD was devalued against gold by 10%

HK responded to this USD devaluation and adjusted its currency to maintain HKD’s price relative to gold, implying a 10% revaluation against USD

Finally, in November 1974, without a reliable anchor, HK discarded the USD link and floated its currency

The Float (1974-1983)

28

Until 1982, the Float worked reasonably well despite HK’s lacking a formal central bank. The commercial banks were made responsible for managing the system, leaving the HKD vulnerable to a crisis

Until 1982, the Float worked reasonably well despite HK’s lacking a formal central bank. The commercial banks were made responsible for managing the system, leaving the HKD vulnerable to a crisis

HKD/USD

HK

D W

eakn

ess

________________________________________________

Source: Bloomberg.

The Float Ends in Crisis (1983)

29

In September 1983, negotiations over the UK’s agreement to transfer control of HK to the Mainland sparked a crisis of confidence in the HKD, leading to bank runs and food shortages. A rapid decline in the HKD ensued

In September 1983, negotiations over the UK’s agreement to transfer control of HK to the Mainland sparked a crisis of confidence in the HKD, leading to bank runs and food shortages. A rapid decline in the HKD ensued

29

HKD/USD

HK

D W

eakn

ess

Black Saturday (9/24/1983) HKD hits an all time low: 9.60

________________________________________________

Source: Bloomberg.

The Float Ends in Crisis (1983) Cont.

30________________________________________________

Source: “Hong Kong SAR’s Monetary and Rate Challenges” - Catherine Schenk, p149-50.30

Fear Grips Hong KongFear Grips Hong KongPanic Overwhelms the StreetsPanic Overwhelms the Streets

The Dollar Link (1983 – Present)

31

To stem the panic, authorities adopted a currency board and a USD peg. While the initial workings of the currency board were basic, the strength of the USD and the simplicity of the currency board made it credible

To stem the panic, authorities adopted a currency board and a USD peg. While the initial workings of the currency board were basic, the strength of the USD and the simplicity of the currency board made it credible

HKD/USD

Floating Rate

Resumption of the USD peg, this time at 7.80 HKD/USD

HK

D W

eakn

ess

’98 Weak Side Intervention Commitment

’98 Weak Side Intervention Commitment

’05 Strong Side Intervention Commitment

’05 Strong Side Intervention Commitment

Creation of 7.75 to 7.85 BandCreation of 7.75 to 7.85 Band

________________________________________________

Source: Bloomberg.

32

Why Did HK Choose the USD as an Anchor in 1983?

“The crucial factor is that there should be confidence that the anchor currency will be managed responsibly by its central bank.”

- Tony Latter, Former HKMA Deputy Chief Executive and co-architect of the peg

“The crucial factor is that there should be confidence that the anchor currency will be managed responsibly by its central bank.”

- Tony Latter, Former HKMA Deputy Chief Executive and co-architect of the peg

US monetary policy established tremendous credibility in the Volcker era

There was no other viable anchor – Precious metals had been discredited and Sterling was a secondary currency

The US was a major HK trading partner

The USD was commonly used in international trade and finance

________________________________________________

Source: “Hong Kong’s Money: The History, Logic and Operation of the Currency Peg” - Tony Latter, p.56.

33

This publically available HK government policy memo details the HK government’s thinking at the time:This publically available HK government policy memo details the HK government’s thinking at the time:

How do we know what the HK government was thinking when the peg was introduced in 1983?

________________________________________________

Source: “Stabilization of the Exchange Rate” (http://www.sktsang.com/ArchiveI/1983.pdf).

We will get back to this memo later in the presentation…

34

HK Has Been Responsive to Change

Event: Silver appreciation (1935)

Response: Sterling Peg

Event: Sterling devaluation (1967, 1972)

Response: Revaluation; Switch to USD Peg

Event: USD devaluation (1973, 1974)

Response: Revaluation; HKD Float

Event: HKD Crisis (1983)

Response: USD Peg

III. The Current State of Play

Hong Kong

36

Population: 7.1mm

GDP by Sector: Finance 26%, Trade 27%, Public Administration 18%, Transportation 9%

Economic Freedom: Ranked #1 for 17 consecutive years by the Heritage Foundation

History:

•British colonial rule (1842-1997)

•Reversion to Chinese sovereignty (1997)

•“One Country, Two Systems” (1997-2047)

•Harmonization with the Mainland (2047 - Onward)

________________________________________________

Source: “Hong Kong Yearbook 2010” - Information Service Department, Hong Kong SAR Government, p.49 (http://www.yearbook.gov.hk/2010/en/index.html).Picture - (http://www.expatify.com/hong-kong/navigating-the-residential-neighborhoods-of-hong-kong.html).

Hong Kong’s real GDP has grown 21x over the last 50 years. This success is a product of its unique location and successful economic policyHong Kong’s real GDP has grown 21x over the last 50 years. This success is a product of its unique location and successful economic policy

The Hong Kong Economic Miracle

Real GDP ($HKD mm, 2005 dollars)

________________________________________________

Source: “National Income and Balance of Payments” - Census and Statistics Department, Hong Kong SAR Government, Table 32.

The Basic Law, HK’s constitution, allows for a broad range of currency regimes

Consequently, unlike many currency boards, the HKD system can be quickly and easily amended

Any change would be made through an administrative process involving the Financial Secretary, the Chief Executive, and the Monetary Authority (HKMA), with likely consultation with Mainland authorities

HK’s Currency Regime is Tremendously Flexible

39

The Linked Exchange Rate System (LERS)The Linked Exchange Rate System (LERS)

The LERS

Since 1983, the LERS has kept the HKD pegged to the USD at a rate of ~7.80 HKD/USD

The HKMA has established a 7.75 to 7.85 HKD/USD trading band for the currency

The price of the HKD is kept within the trading band through a series of arbitrage and automatic intervention mechanisms

How the LERS System Works

Capital Inflow

Market Participants Buy HKD

Upward Pressure On Exchange Rate

Currency Board Sells HKD at 7.75

Monetary Base Expands

Interest Rates Fall

Downward Pressure On Exchange Rate Back Towards 7.80 HKD/USD

Strong Side Defense:7.75 HKD/USD

Strong Side Defense:7.75 HKD/USD

Capital Outflow

Market Participants Sell HKD

Downward Pressure On Exchange Rate

Currency Board Buys HKD at 7.85

Monetary Base Contracts

Interest Rates Rise

Upward Pressure On Exchange Rate Back Towards 7.80 HKD/USD

Weak Side Defense:7.85 HKD/USD

Weak Side Defense:7.85 HKD/USD

A Lot Has Changed Since 1983…

43

America’s trade deficit has grown enormously since 1983. Funding such deficits requires large corresponding capital inflowsAmerica’s trade deficit has grown enormously since 1983. Funding such deficits requires large corresponding capital inflows

America’s Trade Deficit

Trade Deficit as of GDP (%)

Sustainable limit¹

________________________________________________

Source: Bloomberg.¹ “Estimates of Fundamental Equilibrium Exchange Rates” - Peterson Institute for International Economics, p.3.

44

Hong Kong’s large trade surplus reflects its position as a global trading and financial services center, as well as the relative cheapness of its currency Hong Kong’s large trade surplus reflects its position as a global trading and financial services center, as well as the relative cheapness of its currency

Hong Kong’s Trade Surplus

Trade Surplus/ Deficit(% of GDP)

________________________________________________

Source: “National Income and Balance of Payments” - Census and Statistics Department, Hong Kong SAR Government, Table 42.

45

The U.S. has suffered from decades of chronic deficitsThe U.S. has suffered from decades of chronic deficits

America’s Debt Crisis

Deficit/GDP (%)

________________________________________________

Source: Bloomberg.

46

America’s fiscal position has worsened considerably since 1983. S&P recently downgraded the U.S., citing poor leadership from Washington in solving the U.S.’s serious budget problems

America’s fiscal position has worsened considerably since 1983. S&P recently downgraded the U.S., citing poor leadership from Washington in solving the U.S.’s serious budget problems

America’s Debt Crisis – The US is No Longer AAA

Debt/GDP (%)

________________________________________________

Source: Bloomberg.Treasury Direct (http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm).

47

Hong Kong has a history of budget surplusesHong Kong has a history of budget surpluses

Hong Kong’s Fiscal Health is Solid

HK Surplus (% of GDP)

________________________________________________

Source: Surplus - “Public Account, Money and Finance” - Census and Statistics Department, Hong Kong SAR Government, Table 192.Nominal GDP - “National Income and Balance of Payments” - Census and Statistics Department, Hong Kong SAR Government, Table 32.

48

HK has built a USD $77bn foreign currency fiscal reserve, or $294bn (~126% of trailing GDP) including the funds backing the currency board and other assetsHK has built a USD $77bn foreign currency fiscal reserve, or $294bn (~126% of trailing GDP) including the funds backing the currency board and other assets

HK’s Fiscal Health is Strong – 2010 S&P AAA Upgrade

Foreign Currency Assets (% of GDP)

________________________________________________

Source: Foreign Currency Assets - Bloomberg (Adjusted for HKD).Nominal GDP - “National Income and Balance of Payments” - Census and Statistics Department, Hong Kong SAR Government, Table 32.

Evolving American Monetary Policy

49

Since the recent financial crisis, the Federal Reserve has struggled to stimulate the US economy, resorting to massive quantitative easing and promises of extended ultra-low interest rates

Since the recent financial crisis, the Federal Reserve has struggled to stimulate the US economy, resorting to massive quantitative easing and promises of extended ultra-low interest rates

Fed Balance Sheet (Billion) Fed Funds (%)

QE II

________________________________________________

Source: Bloomberg.

Persistent US Dollar Weakness

50

Accommodative monetary policy, a weak economy and large fiscal and trade deficits have driven the USD lower and the HKD with itAccommodative monetary policy, a weak economy and large fiscal and trade deficits have driven the USD lower and the HKD with it

Trade-Weighted Nominal USD Index

Down 49% since Oct. 1983

________________________________________________

Source: “Nominal Major Currency Index” - Board of Governors of the Federal Reserve System (http://www.federalreserve.gov/releases/h10/summary/default.htm).

51

“The success of a currency board arrangement, and its acceptability to local people and businesses, depend to a considerable extent on the anchor currency being reasonably stable.”

- Tony Latter, Former HKMA deputy chief executive and co-architect of the peg

“The success of a currency board arrangement, and its acceptability to local people and businesses, depend to a considerable extent on the anchor currency being reasonably stable.”

- Tony Latter, Former HKMA deputy chief executive and co-architect of the peg

________________________________________________

Source: “Hands On, Hands Off?: The Nature and Process of Economic Policy in Hong Kong” - Tony Latter, p.75.

52

Links with China are growingLinks with China are growing

Hong Kong’s trade with America has fallen as a percentage of total trade, while trade with China is booming Hong Kong’s trade with America has fallen as a percentage of total trade, while trade with China is booming

53

% of Hong Kong’s Total Trade

Trade Links with China are Growing

________________________________________________

Source: “External Trade“ - Census and Statistics Department, Hong Kong SAR Government, Table 60.

54

China’s increasing liberalization of the RMB market, especially via expanded usage in trade settlement, has led to a rapid increase in RMB deposits in Hong Kong, further deepening HK’s economic ties with the Mainland

China’s increasing liberalization of the RMB market, especially via expanded usage in trade settlement, has led to a rapid increase in RMB deposits in Hong Kong, further deepening HK’s economic ties with the Mainland

Monetary Links with Beijing are Growing

RMB Deposits (Billion in RMB) RMB Deposits (as % of Total HKD Deposits )

________________________________________________

Source: Bloomberg.¹RBS, June 22, 2011

~20% of all HK bank assets are now on

the Mainland¹

55

The USD Peg Has Materially Reduced the Market Value of the HKD

The USD Peg Has Materially Reduced the Market Value of the HKD

56

HKD – Trade-Weighted Value

Dragged down by a weak USD, the HKD has lost ~35% of its value on a real (inflation-adjusted) trade-weighted basis over the last ten yearsDragged down by a weak USD, the HKD has lost ~35% of its value on a real (inflation-adjusted) trade-weighted basis over the last ten years

China Begins Revaluation

Real Effective Exchange Rate (Trade Weighted)

________________________________________________

Source: “BIS Real Effective Exchange Rates” - Bank of International Settlements, Broad Index (http://www.bis.org/statistics/eer/index.htm).

57

HKD’s trade-weighted value will continue to fall as China, HK’s largest trading partner, steadily strengthens its own undervalued currency. The Yuan’s strengthening recently accelerated after the July U.S. credit downgrade

HKD’s trade-weighted value will continue to fall as China, HK’s largest trading partner, steadily strengthens its own undervalued currency. The Yuan’s strengthening recently accelerated after the July U.S. credit downgrade

Yuan Strengthening Pressures HKD Lower

Yuan and HKD/USD

The RMB has appreciated by 30% since 2005 and officials have indicated that it will continue to appreciate¹

________________________________________________

Source: Bloomberg.¹ “China will stick to gradual appreciation of Yuan: Wen” - Economic Times (http://articles.economictimes.indiatimes.com/2011-03-15/news/28691614_1_wen-jiabao-growth-rate-exchange-rate).

HK

D W

eakn

ess

Valuation Summary

58

Economist models and changes in trade-weighted real exchange rates indicate that the HKD is materially undervalued relative to a basket of its trading partners

Economist models and changes in trade-weighted real exchange rates indicate that the HKD is materially undervalued relative to a basket of its trading partners

% Undervalued:% Undervalued = (7.80/Fair Value) -1

________________________________________________

Source: “Economic Research: GS DEER” - Goldman Sachs, Q2 2011 Trade Weighted Misalignment. “Currency valuation from a macro perspective” - Barclays Capital, June 14, 2011, p.3.“Estimates of Fundamental Equilibrium Exchange” – Peterson Institute for International Economics, Real Effective Exchange Rate, May 2011.

Model % Undervalued (Multi‐Lateral)Decline in Real Trade-Weighted Value - Last 10yrs 54%Goldman Sachs DEER Model 26%Barclays PPP Model 33%Undervaluation 26% ‐ 54%

A Lot Has Changed Since 1983...

________________________________________________

Source: Bloomberg.

A Lot Has Changed Since 1983… (Cont.)

________________________________________________

Source: Bloomberg.

At the time the peg was introduced, the HK government recognized the risks of tying HK’s monetary policy to that of the US

61

“[D]omestic interest rates and domestic inflation will be substantially influenced by the behavior of the economy to whose currency it is tied (the USA in this case). It was, in essence, the potential effect of such ties upon the Hong Kong economy which led to the abandonment of the sterling link in 1972 and then the US dollar link in 1974.”- Hong Kong government policy memo, 1983

“[D]omestic interest rates and domestic inflation will be substantially influenced by the behavior of the economy to whose currency it is tied (the USA in this case). It was, in essence, the potential effect of such ties upon the Hong Kong economy which led to the abandonment of the sterling link in 1972 and then the US dollar link in 1974.”- Hong Kong government policy memo, 1983

________________________________________________


But in the midst of crisis, the government had no other choice

Impact of the Peg on HK

63

Consumer price inflation in Hong Kong is acceleratingConsumer price inflation in Hong Kong is accelerating

Inflation – A growing concern

Underlying Inflation (% YoY)

The HKMA recently increased its 2011 inflation expectation to 5.5% from 4.5%

________________________________________________

Source: “Monthly Report on the Consumer Price Index” - Census and Statistics Department, Hong Kong SAR Government.

64

HK Residential Price Index (Centaline Property Centa-City Leading Hong Kong Index)

Prices in Hong Kong’s residential real estate market are soaringPrices in Hong Kong’s residential real estate market are soaring

Asset Bubbles Building - Residential Real Estate

________________________________________________

Source: Bloomberg.

222% Increase

65________________________________________________

Source: “Hong Kong Property” - Citi, May 2011, p.51.

HK Residential Price to Income Ratio

Residential valuations are approaching Pre-Asian Financial Crisis levelsResidential valuations are approaching Pre-Asian Financial Crisis levels

Asset Bubbles Building - Residential Real Estate

66

HK Commercial Price Index

Prices in Hong Kong’s commercial real estate market are increasing rapidlyPrices in Hong Kong’s commercial real estate market are increasing rapidly

Asset Bubbles Building - Commercial Real Estate

Class A office market stats:

Vacancy Rate: ~2%

Rent (% yoy): ~+18%

Cap Rates: ~3%

________________________________________________

Source: “Half-Yearly Monetary and Financial Stability Report - March 2011” - Hong Kong Economy, HK Commercial Price Index , p. 38 (http://www.hkeconomy.gov.hk/en/reports/index.htm).1 CBRE Data – Prepared for Pershing Square.

How the USD Link Contributes to Inflation

How Does the Peg Cause Inflation

The USD peg and the vastly divergent US and HK economies impact the HK economy through various channels

Rapid Expansion of the Monetary Base

Imported Low Short-Term Rates

Diminished Purchasing Power

69

Rapid Expansion of the Monetary BaseRapid Expansion of the Monetary Base

In 2008 and 2009, attracted by its safe-haven status and undervaluation, investors flooded into HKD, pushing the rate to 7.75 and forcing the HKMA to print money to defend the strong side of the band

In 2008 and 2009, attracted by its safe-haven status and undervaluation, investors flooded into HKD, pushing the rate to 7.75 and forcing the HKMA to print money to defend the strong side of the band

The Monetary Costs of Intervention

70

HKD/USD

Weak-side Intervention Level

Strong-side Intervention LevelStrong-side Intervention

HK

D W

eakn

ess

________________________________________________

Source: Bloomberg.

71

Monetary Base (HKD million)

As a result of strong side intervention, HK’s Monetary Base increased HKD $671bn or ~200% over two years. HK has effectively no control over the size of its Monetary Base

As a result of strong side intervention, HK’s Monetary Base increased HKD $671bn or ~200% over two years. HK has effectively no control over the size of its Monetary Base

The Monetary Costs of Intervention (Cont.)

Strong-side Intervention

________________________________________________

Source: “Monthly Statistical Bulletin - Table 1.1” - Hong Kong Monetary Authority, September 5, 2011 (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).

72________________________________________________

Source: “Overheating Emerging Markets: Temperature Gauge” - The Economist (http://www.economist.com/blogs/dailychart/2011/06/overheating-emerging-markets-0).

Private Credit Growth less Nominal GDP Growth – 12 Months

Growth in base money supply has contributed to HK having one of the fastest rates of credit growth in the worldGrowth in base money supply has contributed to HK having one of the fastest rates of credit growth in the world

Rapid Credit Growth

Same figure for the US: -3%

The Strong Side Defense Risks Further Money Printing

The HKD’s widely recognized undervaluation increases the likelihood that the HKMA will need to print more money to keep the HKD within the band

With short-term interest rates already near zero, rates can’t fall any further to discourage investors from holding the HKD

74

Imported Low Short-Term Interest RatesImported Low Short-Term Interest Rates

Arbitrageurs take advantage of the peg and keep Hong Kong short-term rates (HIBOR) in line with LIBOR, irrespective of the suitability of such rates for Hong Kong

Arbitrageurs take advantage of the peg and keep Hong Kong short-term rates (HIBOR) in line with LIBOR, irrespective of the suitability of such rates for Hong Kong

75

1-Month HIBOR and LIBOR Rates

Tied to U.S. Short-Term Interest Rates

Home mortgage rates in HK today are only ~2%

________________________________________________

Source: Bloomberg.

Interest-rate parity with the US means Hong Kong suffers frequently from inappropriately high and low real interest ratesInterest-rate parity with the US means Hong Kong suffers frequently from inappropriately high and low real interest rates

76

High Negative Real Interest Rates Today

Real Interest Rates (1-Month HIBOR less Underlying CPI)

+10% real interest rates post the Asian Financial

crisis retarded Hong Kong’s recovery

High negative real interest rates have contributed Hong Kong’s current and prior asset bubbles

________________________________________________

Source: Bloomberg.“Monthly Report on the Consumer Price Index” - Census and Statistics Department, Hong Kong SAR Government, Underlying Inflation.

77

Diminished Purchasing PowerDiminished Purchasing Power

Unable to revalue higher, Hong Kong’s weak currency has led to a large increase in the cost of imports, particularly in the critical food sectorUnable to revalue higher, Hong Kong’s weak currency has led to a large increase in the cost of imports, particularly in the critical food sector

78

Rising Cost of Imports

Unit Cost of Imports

Hong Kong imports 90% of its food, mainly from China

HK

D W

eakness

Trade-Weighted HKD Inverted

________________________________________________

Source: “Nominal Effective Exchange Rate” – Bloomberg.“External Trade “ - Census and Statistics Department, Hong Kong SAR Government, Table 76.

Partly attracted to HK by the cheap HKD, visitors from the Mainland are flocking to HK, pressuring local prices upwardPartly attracted to HK by the cheap HKD, visitors from the Mainland are flocking to HK, pressuring local prices upward

79

Mainland Tourists Flocking to HK

Mainland visitors (% YoY)

Mainland visits in 2011 is on pace for ~27mm, ~4x the population of HK

________________________________________________

Source: “Half - Yearly Economic Report” - Hong Kong SAR Government, p.111 (http://www.hkeconomy.gov.hk/en/pdf/er_11q2.pdf).

80

HK Residential Price Index

Mainland Chinese home buyers are taking advantage of an undervalued HKD. 30% to 40% of luxury new home sales are to Mainland buyers Mainland Chinese home buyers are taking advantage of an undervalued HKD. 30% to 40% of luxury new home sales are to Mainland buyers

Home Price Inflation Rises with HKD Undervaluation

Trade Weighted HKD Inverted

HK

D W

eakness

________________________________________________

Source: Bloomberg.

Consumer Price Inflation Rises with HKD Undervaluation

81

Underlying CPI Index (YoY)

There is a direct correlation between weak HKD and HK inflationThere is a direct correlation between weak HKD and HK inflation

Trade Weighted HKD Inverted

HK

D W

eakness

________________________________________________

Source: Bloomberg.“Monthly Report on the Consumer Price Index” - Census and Statistics Department, Hong Kong SAR Government, Underlying Inflation .

HK’s Inflation Problem Will Likely Get Worse

82

Near zero US short-term interest rates for two years or more

Despite high inflation, the HKD is still undervalued by ~30%

HKD’s undervaluation will only worsen as the RMB appreciates

Broad money supply (M2) has not yet grown to reflect the full impact of the massive 2008/2009 Monetary Base expansion

Undervaluation increases the risk that the HKMA will need to print more HKD to keep the currency within the band

The HKMA estimates that HK has no spare resource capacity to absorb further demand growth¹

________________________________________________

Source: ¹ “Half - Yearly Monetary and Financial Stability Report” - Hong Kong Monetary Authority, March 2010, p.33.

83

Emerging-Market Overheating Index

The Economist ranks HK near the top of its list of emerging-markets at risk of overheating The Economist ranks HK near the top of its list of emerging-markets at risk of overheating

Significant Risk of Overheating

Countries were measured across six different economic

indicators of overheating

Inflation

GDP Growth

Employment

Credit

Interest

Current Account

________________________________________________

Source: “Overheating Emerging Markets: Temperature Gauge” - The Economist (http://www.economist.com/blogs/dailychart/2011/06/overheating-emerging-markets-0).

Growing Social Risks

Social Consequences of Inflation

85

The ElderlyThe Elderly

The Poor The Poor

The RichThe Rich

The Middle Class, “Sandwich Class”The Middle Class, “Sandwich Class”

Value of their savings is eroded by inflation

Low interest rates reduce fixed income investment returns

Do not have the savings to absorb price shocks

Priced out of first time home ownership but too well-off to be comfortable in public housing

While some rich get richer speculating on real estate with low-cost credit, their global purchasing power deteriorates

Hong Kong’s Wealth Gap

86________________________________________________

Source: Pictures - Zoe Li, William McCallum, Christopher DeWolf (http://jmsc.hku.hk/hkstories/content/view/659/8786/) and (http://www.lcscapes.com/HK-VerticalHousing/LC-HK_VerticalHousing.html).

Hong Kong’s rich-poor gap is Asia’s widest according to UN dataHong Kong’s rich-poor gap is Asia’s widest according to UN data

20.0

25.0

30.0

35.0

40.0

45.0

Japan

Norw

ay

Czech

Republic

Germ

any

France

Sw

itzerland

Australia

United

Kingdom

Italy New

Zealand

United

States

Hong K

ongBeijing Has Taken Notice of HK’s Inequality

87

In 2009, Chinese Premier Wen Jiabao called on the Chief Executive of Hong Kong to address “deep rooted contradictions in Hong Kong” in reference to Hong Kong’s persistent and troubling wealth gap.

In 2009, Chinese Premier Wen Jiabao called on the Chief Executive of Hong Kong to address “deep rooted contradictions in Hong Kong” in reference to Hong Kong’s persistent and troubling wealth gap.

More Inequality

Gini Coefficient (2007)

The Gini Coefficient is a Measure of Wealth Inequality

________________________________________________

Source: “Human Development Report 2009” - United Nation Development Programme, p.195 (http://hdr.undp.org/en/contacts/about/undp/).

Flat Real Wages

88

Gains from economic growth have not been evenly spread. Average wages have been flat for many years despite very low unemployment and strong productivity growth

Gains from economic growth have not been evenly spread. Average wages have been flat for many years despite very low unemployment and strong productivity growth

Real Wages in Hong Kong – Indexed to 2003 = 100

________________________________________________

Source: “Real Wages” - Bloomberg.“Census and Statistics Department” Hong Kong SAR Government, Productivity Index, table 103.

Housing Affordability is Squeezing the Middle Class

89

HK is one of the least affordable places in the world. With the home ownership rate at only ~53%, home price appreciation only benefits a small percentage of the population

HK is one of the least affordable places in the world. With the home ownership rate at only ~53%, home price appreciation only benefits a small percentage of the population

Housing Affordability Index – (Median Home Price/Median Annual Household Income)

0

2

4

6

8

10

12

Hon

g K

ong

Syd

ney

Van

couv

er

Hon

olul

u

San

Fran

cisc

o

Lond

on

San

Die

go

New

Yor

k

Los

Ang

eles

Mon

treal

Toro

nto

NYC Housing is nearly twice as Affordable as

Hong Kong’s

________________________________________________

Source: “7th Annual Demographic International Housing Affordability Survey: 2011” - Performance Urban Planning, p.10.

Apartment Rents Are Among the Highest in the World

90

World’s 20 most expensive locations to rent a two bedroom apartment

In 2010, Hong Kong was the third most expensive market for two bedroom rental apartments, up from ninth place in 2009In 2010, Hong Kong was the third most expensive market for two bedroom rental apartments, up from ninth place in 2009

Luxury rents in Hong Kong are up 23% YoY

________________________________________________

Source: “15% Rental Increase Makes Singapore 5th Most Expensive Locations Globally” - ECA International (http://www.eca-international.com/news/press_releases/show_press_release?ArticleID=7309).

91

“Housing is of course a social and an economic issue. However, if dealt with inappropriately, it will also become a political issue.”

-Wang GuangyaDirector of Hong Kong and Macau Affairs Office of the State Council of the People’s Republic of China

“Housing is of course a social and an economic issue. However, if dealt with inappropriately, it will also become a political issue.”

-Wang GuangyaDirector of Hong Kong and Macau Affairs Office of the State Council of the People’s Republic of China

A high-level Beijing official has expressed concern that the housing situation may become politically destabilizing:

________________________________________________

Source: “Wang Guangya Talking About Housing Market When Visiting HK: Housing Issues May Become a Political Issue if Inappropriately Deal With” – June 15, 2011 (translation).

92

Social Unrest – Pressure for Change

“Inflation, particularly in the price of food and housing; lack of democracy; public austerity followed by handouts, followed by howling protests, followed—some hope—by a change in government” –The Economist, May 2011

“Inflation, particularly in the price of food and housing; lack of democracy; public austerity followed by handouts, followed by howling protests, followed—some hope—by a change in government” –The Economist, May 2011

Tens of thousands of people are not satisfied with the level of political freedom

in Hong Kong on July 1st, 2010

Tens of thousands of people are not satisfied with the level of political freedom

in Hong Kong on July 1st, 2010

10,000 people protested against inflation (prices of food and housing) in March

2011

10,000 people protested against inflation (prices of food and housing) in March

2011

Several organizations protested against the

dominance of property developers and high prices in

May 2011

Several organizations protested against the

dominance of property developers and high prices in

May 2011

________________________________________________

Source: Picture - BBC (http://www.bbc.co.uk/news/10480116).Picture - The Economist (http://www.economist.com/blogs/banyan/2011/03/protests_hong_kong).Picture - Macau Daily Times (http://www.macaudailytimes.com.mo/china/25180-residents-protest-high-property-prices.html).

More…Social Unrest

93

This year, 218,000 people, the most since the massive 2003 civil liberty protests, marched in Hong Kong's annual July 1st rallyThis year, 218,000 people, the most since the massive 2003 civil liberty protests, marched in Hong Kong's annual July 1st rally

“They aren’t happy with the fact that they do not see an improvement in living standards, despite the good economic statistics.” – Bloomberg July 1st , 2011

“They aren’t happy with the fact that they do not see an improvement in living standards, despite the good economic statistics.” – Bloomberg July 1st , 2011

________________________________________________

Source: Pictures - Seattle Pi (http://www.seattlepi.com/news/article/Marchers-vent-anger-on-Hong-Kong-prices-policies-1448544.php).

Unpopular Government

94

Despite a surging economy and 3.4% unemployment, the Chief Executive of Hong Kong has a lower approval rating than President ObamaDespite a surging economy and 3.4% unemployment, the Chief Executive of Hong Kong has a lower approval rating than President Obama

Source: Bloomberg.University of Hong Kong (http://hkupop.hku.hk/english/popexpress/ce2005/vote/poll/datatables.html). Gallup (http://www.gallup.com/poll/149114/obama-close-race-against-romney-perry-bachmann-paul.aspx).

% Who Would Vote Yes for the Current Chief Executive?

24% Approval

Rating

75% Approval

Rating

Trade-Weighted Nominal HKD

95

The Call for Change is Growing Louder

Major business publications, prominent investors, local politicians, and economists have all recently questioned the suitability of the pegMajor business publications, prominent investors, local politicians, and economists have all recently questioned the suitability of the peg

“Hong Kong Faces Heat on Dollar Peg”– Financial Times, November 2010“Hong Kong Faces Heat on Dollar Peg”– Financial Times, November 2010

Recent Headlines

“Hong Kong Should End Peg to U.S. Dollar, Deutsche Bank Says” –Bloomberg, November 2010

“Hong Kong Should End Peg to U.S. Dollar, Deutsche Bank Says” –Bloomberg, November 2010

“The Peg will be History” – The Standard, January 2010“The Peg will be History” – The Standard, January 2010

________________________________________________

Source: Picture - Hong Kong Business (http://hongkongbusiness.hk/).

96

“A link to a basket of currencies or ‘no link at all’ is ‘more desirable’”¹– Marc Faber – March 2011“A link to a basket of currencies or ‘no link at all’ is ‘more desirable’”¹– Marc Faber – March 2011

“Continuous appreciation of the Renminbi means diminishing purchasing power of the Hong Kong dollar…The problem cannot be tackled unless we abolish the linked rate in Hong Kong.”²– The Honourable Chan Kin-Por, Legislative Council Member & Chief Executive of Munich Re Hong Kong – January 2011

“Continuous appreciation of the Renminbi means diminishing purchasing power of the Hong Kong dollar…The problem cannot be tackled unless we abolish the linked rate in Hong Kong.”²– The Honourable Chan Kin-Por, Legislative Council Member & Chief Executive of Munich Re Hong Kong – January 2011

“I think it’s a case of a frog boiling in water…It could happen sooner than people think given the rapid rise in circulation of the currency [RMB]”³ – Peter Redward, Barclays Economist – October 2010

“I think it’s a case of a frog boiling in water…It could happen sooner than people think given the rapid rise in circulation of the currency [RMB]”³ – Peter Redward, Barclays Economist – October 2010

“The merits of reform are high and the cost of the relevant option is low.”4 – James Grant – May 2011“The merits of reform are high and the cost of the relevant option is low.”4 – James Grant – May 2011

InvestorInvestor

AnalystAnalyst

EconomistEconomist

PoliticianPolitician

Diverse Voices are Calling for Change

Source: ¹“It’s time to end the HK$ peg” - Hong Kong Business, March 10, 2011. ² Legislative Council Transcript of January 6, 2011 meeting.³“Hong Kong May have to revalue in 2 years, Barclays says” - Bloomberg Businessweek, October 26, 2010. 4 Grant’s Interest Rate Observer, May 2011.

Fiscal and Regulatory Measures Have Been Inadequate

Housing – Efforts have failed to reduce prices meaningfully

LTV caps on new mortgages

Transaction tax on homes sold soon after purchase

Home Supply – Increased land sales

Introduction of a Minimum Wage

Rent Relief

Utility Subsidy

Cash Handouts

HK has implemented a series of unsuccessful “macro-prudential” reforms to deal with its inflation and wealth gap problems. These efforts do not address the underlying cause of the problems and in some cases are actually inflationary (e.g. cash handouts)

HK has implemented a series of unsuccessful “macro-prudential” reforms to deal with its inflation and wealth gap problems. These efforts do not address the underlying cause of the problems and in some cases are actually inflationary (e.g. cash handouts)

98

HK Residential Price Index

For example, the prevalence of cash buyers has reduced the impact of mortgage LTV capsFor example, the prevalence of cash buyers has reduced the impact of mortgage LTV caps

Real Estate Market Intervention is Not Working

________________________________________________

Source: Bloomberg.“Hong Kong Property” – Morgan Stanley, September 2, 2011, p.19.“Asian Economics Analyst” – Goldman Sachs, June 23, 2011, p.4.

IV. Our Prediction of What is Likely to Happen

Reminder

100

The history demonstrates that Hong Kong has modified its exchange rate system to address major economic changesThe history demonstrates that Hong Kong has modified its exchange rate system to address major economic changes

Sterling PegSterling Peg Dollar PegDollar Peg

HKD/USD (inverted)

Free Floating Free Floating

HK

D S

treng

th

’98 W

eak S

ide

Com

mitm

ent

’98 W

eak S

ide

Com

mitm

ent

’05 S

trong

Sid

e Co

mm

itmen

t’05

Stro

ng S

ide

Com

mitm

ent

________________________________________________

Source: “Hong Kong’s Linked Exchange Rate System” – Hong Kong Monetary Authority, p.34 (http://www.info.gov.hk/hkma/eng/public/hkmalin/index.htm).

7.75 to 7.85 Band7.75 to 7.85 Band

101

The only effective way to mitigate inflation and a potential real estate bubble is to allow the HKD to appreciateThe only effective way to mitigate inflation and a potential real estate bubble is to allow the HKD to appreciate

There are Four Principal Revaluation Alternatives

1. Allow the HKD to float

2. Repeg the HKD to a trade-weighted basket

3. Repeg the HKD to the RMB

4. Keep the USD peg, but revalue to an appropriate exchange rate

103

Alternative One – Float

Full monetary independence The exchange rate would absorb economic shocks

Large trade flows make it difficult for the monetary authority to manage money supplyA floating exchange rate could be volatileHK had a bad experience when it allowed its currency to float between 1974 and 1983

Cons:

Pros:

104

Alternative Two – Peg to a Trade-Weighted Basket

Monetary policy would more closely match that of its trading partnersReduces HK’s real exchange rate volatilitySingapore has successfully used this approach

A basket is less transparent and more complicated than the PegThe average interest rates of HK’s trade partners is low today, which would mean continued low HK ratesA basket introduces more discretion as trade weights can be adjusted and are subjective, increasing the risk of politicizing monetary policy

Cons:

Pros:

Alt. Three – A Direct or Basket RMB Link is Inevitable

HK’s deepening economic ties with the Mainland make a direct or basket RMB link the widely understood best long-term solution to solving the pressures of the USD link

While the HKMA has said that it does not support an RMB link now, it has laid out preconditions, which we believe will likely be met in the coming years

The biggest impediment to an RMB peg today is the lack of capital account convertibility of the RMB

But we believe full capital account convertibility is inevitable and coming soon…But we believe full capital account convertibility is inevitable and coming soon…

106

“I should say it is quite possible for China to realise yuan convertibility by 2015.”

– Li Daokui, People’s Bank of China (PBOC) Monetary Policy Committee, September 2011

“I should say it is quite possible for China to realise yuan convertibility by 2015.”

– Li Daokui, People’s Bank of China (PBOC) Monetary Policy Committee, September 2011

________________________________________________

Source: “Yuan Will Be Fully Convertible by 2015, Chinese Officials Tell EU Chamber” – Bloomberg, September 8, 2011 (http://www.bloomberg.com/news/2011-09-08/yuan-to-be-fully-convertible-by-2015-eu-chamber.html).“China Yuan Likely Convertible by 2015” – Thompson Reuters – September 9, 2011.

The RMB is rapidly internationalizing in the current account and full convertibility is possible by 2015:

107

The extremely divergent economic characteristics of HK and the US make the status quo unsustainable, destructive, and a distortion to the HK economy

The extremely divergent economic characteristics of HK and the US make the status quo unsustainable, destructive, and a distortion to the HK economy

The HKD will likely be pegged to the RMB or to an RMB-led basket within the coming years. All that is needed is an interim solution…

The HKD will likely be pegged to the RMB or to an RMB-led basket within the coming years. All that is needed is an interim solution…

108

We believe the HK government will repeg the HKD at a stronger exchange rate to the USD while leaving the LERS intact

We believe the HK government will repeg the HKD at a stronger exchange rate to the USD while leaving the LERS intact

Contemporaneous with this revaluation, we believe the HKMA may indicate that the HKD will eventually be pegged to the RMB or to an RMB-led basket when the RMB is fully convertible

Contemporaneous with this revaluation, we believe the HKMA may indicate that the HKD will eventually be pegged to the RMB or to an RMB-led basket when the RMB is fully convertible

Why Does This Make Sense?

The current LERS is simple, transparent, and credible so a continuation of the current system makes sense

A revaluation can be achieved quickly

Only an interim solution is needed because the RMB will be convertible in coming years

No other interim change will be necessary

110

How much should the HKD be allowed to appreciate?How much should the HKD be allowed to appreciate?

Considerations

The exchange rate should be adjusted sufficiently to quell speculation about further appreciation

But not so much that the currency would become overvalued

A wider trading band could be introduced to provide greater flexibility in a volatile world

We Believe a 30% Revaluation to 6:1 is Likely

Would bring HKD back in line with fair value

It would be sizeable enough to convince the market that this is a one-time event

A revaluation is consistent with HK’s handling of prior Sterling and USD devaluations in the 1960s and 1970s

Hong Kong would retain the simplicity and credibility of the USD peg and maintain the current currency board apparatus

It would reinforce the HKMA’s and government’s credibility as responsible stewards of Hong Kong’s economy

Revaluation: How are Stakeholders Affected?

Citizens: The purchasing power of savings would instantly rise

The cost of food imports (~30% of the poorest half’s spending)¹ would drop immediately

Real estate appreciation would moderate and rents should stabilize over time

The Banks: HKMA data show that banks would not suffer large FX or loan losses on a revaluation²

The HKMA:Has sufficient foreign reserves to ensure that the Monetary Base is covered

Mainland China: A revaluation could be seen as evidence that HK is addressing its social divide and political tensions

________________________________________________

Source: ¹ “Half-yearly Hong Kong Economic Report 2011” – Hong Kong SAR Government, p. 97. ² “Foreign Currency Position” and “Asset Quality of Retail Banks” – Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).

V. Investment Opportunity

Three Ways to Make Money

Buy HKD Outright

Buy HKD with USD Leverage

Buy HKD Call Options

Buy HKD Outright

The HKMA’s commitment to support HKD at 7.85 HKD/USD limits the downside to owning HKD to ~1%, making the HKD effectively a one-way bet

The HKMA’s 7.85 HKD/USD defense is credible:

The HKD is materially undervalued

HK has substantial international reserves, at ~2.2x the Monetary Base

The HKMA’s successful defense of the HKD during the Asian Financial Crisis makes its credibility unquestioned

117

Purchase HKD with USD Leverage

Similar short-term interest rates and the HKMA’s pledge to support HKD at 7.85, means investors can cheaply and safely purchase HKD on USD leverage

Similar short-term interest rates and the HKMA’s pledge to support HKD at 7.85, means investors can cheaply and safely purchase HKD on USD leverage

Reflects the cost of financing for a bank. Institutional and individual investors will pay a

higher rate (~35bps more)

12-Month %Total Return (from 7.80)Leverage:

(Notional/Equity) 7.85

(Weak Side) 6.24

(25% Reval) 5.78

(35% Reval)4.0x -3% 100% 140%6.0x -5% 149% 209%8.0x -6% 199% 279%

10.0x -8% 249% 349%12.0x -9% 298% 418%14.0x -11% 348% 488%16.0x -12% 398% 558%18.0x -14% 447% 627%20.0x -16% 497% 697%

12 Month Financing Cost (Fixed)HIBOR 0.67%LIBOR 0.82%Carry -0.15%

118

HKD Call Options

HKD call options are extremely cheapHKD call options are extremely cheap

USD received = value of HKD purchased at strike price converted back at spot (6.00)

________________________________________________

Source: Indicative broker quote September 8, 2011.

Option TermsNotional 1,000,000,000$ 1,000,000,000$ 1,000,000,000$ Strike (HKD/USD rate) 7.80 7.50 7.00 Premium (% of notional) 0.83% 0.57% 0.27%Premium Dollars (USD) 8,300,000$ 5,650,000$ 2,700,000$

Payouts at Exercise (Revaluation to 6.00, +30%)USD Received 1,300,000,000$ 1,250,000,000$ 1,166,666,667$ USD Spent (notional) 1,000,000,000 1,000,000,000 1,000,000,000 Payoff 300,000,000$ 250,000,000$ 166,666,667$

Payoff/Premium 36x 44x 62x

.0x

10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

70.0x

10% 15% 20% 25% 30% 35% 40%

119

HKD Call Options are Cheap

The HKD options market implies that the probability of a revaluation is extremely remote. We think a ~30% revaluation is likely, giving investors a ~44x payout on one-year 7.50 strike options

The HKD options market implies that the probability of a revaluation is extremely remote. We think a ~30% revaluation is likely, giving investors a ~44x payout on one-year 7.50 strike options

Payout as Multiple of Premium

% Revaluation% Revaluation

The Market is Mispricing this Option

Because of the peg, HKD/USD volatility is very low

We believe HKD call options should be priced based on expected value rather than volatility

We think a revaluation is more likely than not, but the market price implies extremely low probabilities

A revaluation will likely be in

this range

Market implied probabilities are

very low

One Year, 7.50 Strike

Expected HKD

Stregthening Payoff

Implied Probability of

Revaluation15% 18.7x 5.3%20% 27.2x 3.7%25% 35.7x 2.8%30% 44.2x 2.3%35% 52.8x 1.9%40% 61.3x 1.6%

Expected Value = (Probability of Reval) X (Expected Amount of Reval)

121

A falling USD puts more pressure on HK authorities to actA falling USD puts more pressure on HK authorities to act

The HKD is a cheap hedge against a weakening USD:

VI. Why Now?

Why Now? – Benefits Outweigh the Cost

The benefits of acting nowConsumer inflation could get materially worse

It’s not too late to prevent a real estate bubble

Social unrest is building

The fiscal and economic divergence with the US will continue

Revaluation is inevitable when the RMB peg is established

The costs of acting today are lowThe credibility of the HKMA would be enhanced

The HKMA has reserves to support a large revaluation

HKMA data show the banks’ FX exposure is minimal and their real estate loans are well performing¹

HK’s lack of an export manufacturing sector reduces the economic risk of a stronger currency

________________________________________________

Source: ¹ “Foreign Currency Position” and “Mortgage Survey Results”– Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).

Why Now? – 2012 Election

Change tends to happen around political transitions:

Outgoing politicians are often less risk averse

Incoming politicians are often most bold when they first take office

A revaluation may well materially increase the new Chief Executive’s approval ratings

It would enhance HK’s citizens’ perception of China’s beneficence

The March 2012 HK Chief Executive election increases the chances of a near-term revaluationThe March 2012 HK Chief Executive election increases the chances of a near-term revaluation

________________________________________________

Source: ¹ “Previewing the Political Year Ahead: Article 23” – Suzanne Pepper (http://chinaelectionsblog.net/hkfocus/?p=168).

Revaluing Now Mitigates the Financial Risk to the HKMA

The conventional wisdom is that central banks (CBs) can defend the strong side of their currency without limit by simply printing an unlimited amount of money

The reality is different:

The CB loses money on a revaluation, because a revaluation reduces the value of foreign assets on their balance sheet

Printing money expands and leverages the CB’s balance sheet, making it more costly to revalue

Printing money is highly inflationary

Because the Basic Law requires the HKMA to back its Monetary Base 100% with international reserves, printing money could severely limit the HKMA’s future revaluation options

Revaluing Now Mitigates Financial Risk to the HKMA

Balance Sheet, Dec. 2007 Balance Sheet, July 2011

Pre-InterventionPre-Intervention Post-InterventionPost-Intervention

Leverage: 56%

Leverage: 75%

The HKMA’s 2008/2009 intervention, in response to over HKD $600bn of money flows, greatly increased the size and leverage of its balance sheet

The HKMA’s 2008/2009 intervention, in response to over HKD $600bn of money flows, greatly increased the size and leverage of its balance sheet

________________________________________________

Source: “Monthly Statistical Bulletin – Table 8.2” – Hong Kong Monetary Authority, July 2011 (http://www.info.gov.hk/hkma/eng/statistics/msb/index.htm).

127

We believe it would be imprudent for Hong Kong to print more moneyWe believe it would be imprudent for Hong Kong to print more money

128

1) Reducing inflation and the risk of asset bubbles in HK enhances HK’s status as a stable, economically successful, AAA rated region

1) Reducing inflation and the risk of asset bubbles in HK enhances HK’s status as a stable, economically successful, AAA rated region

2) Allowing the HKD to appreciate only increases the credibility of the HKD as a store of value2) Allowing the HKD to appreciate only increases the credibility of the HKD as a store of value

The principal argument against a revaluation is that it might harm the HKMA’s credibility. We believe this is false for two reasons:

129

Some observers have suggested a revaluation would be inconsistent with the HKMA’s public statementsSome observers have suggested a revaluation would be inconsistent with the HKMA’s public statements

130

“It will be acceptable to indicate eventual possible appreciation in the event of confidence returning to such a degree as to produce unduly rapid monetary expansion, but such an indication must carry complete conviction that the rate would only ever be adjusted in that direction.”

- Internal Hong Kong government policy memo, 1983

“It will be acceptable to indicate eventual possible appreciation in the event of confidence returning to such a degree as to produce unduly rapid monetary expansion, but such an indication must carry complete conviction that the rate would only ever be adjusted in that direction.”

- Internal Hong Kong government policy memo, 1983

However, an upward revaluation was explicitly contemplated in 1983 when the LERS was introduced:

________________________________________________


131

“Any statement which can be interpreted as hinting at the possibility of depreciating the announced rate would sabotage the scheme from the onset.”

- Hong Kong government policy memo, 1983

“Any statement which can be interpreted as hinting at the possibility of depreciating the announced rate would sabotage the scheme from the onset.”

- Hong Kong government policy memo, 1983

A peg depends on confidence and credibility. Any hint of devaluation would compromise the integrity of the link:

________________________________________________


132

"The Hong Kong dollar peg has been working well since its adoption in 1983. It's the foundation for the stability of the currency and financial system in Hong Kong so we have no intention to make any change"

– Norman Chan, HKMA Chief – August 2011

"The Hong Kong dollar peg has been working well since its adoption in 1983. It's the foundation for the stability of the currency and financial system in Hong Kong so we have no intention to make any change"

– Norman Chan, HKMA Chief – August 2011

________________________________________________

Sources: “Linked Exchange Rate System” – Hong Kong Monetary Authority, August 2011 (http://www.info.gov.hk/hkma/eng/insight/20110815e.htm).

As such, anytime observers have questioned the link, the HKMA has issued a prompt statement to quell speculation

133

“We have no plans to change the peg. One of the reasons the peg remains and people are confident about the Hong Kong dollar is that it has not changed in the last 19 years”

– Antony Leung, Financial Secretary (2001-2003) – Nov. 2002

“We have no plans to change the peg. One of the reasons the peg remains and people are confident about the Hong Kong dollar is that it has not changed in the last 19 years”

– Antony Leung, Financial Secretary (2001-2003) – Nov. 2002

In 2002, facing SARS, deflation, and budget deficits the then Financial Secretary strongly defended the peg publically:

But in private the story was very different…

________________________________________________

Source: “Financial Secretary Transcript” - Press Release, November 23, 2002 (http://www.info.gov.hk/gia/general/200211/23/1123063.htm).

134

“The chief executive, Joseph Yam, and I did seriously evaluate the various options including unpegging”

– Antony Leung, Financial Secretary (2001-2003)

Interview – “Hong Kong’s Peg Admission May Hurt its Future Defense” Bloomberg, June 2007

“The chief executive, Joseph Yam, and I did seriously evaluate the various options including unpegging”

– Antony Leung, Financial Secretary (2001-2003)

Interview – “Hong Kong’s Peg Admission May Hurt its Future Defense” Bloomberg, June 2007

Behind the scenes…

________________________________________________

Sources: “Hong Kong's Peg Admission May Hurt Its Future Defense” – Bloomberg, June 8, 2007 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akb5SpAzhFKg&refer=asia).

135

“Numerous commission [HK’s Commission on Strategic Development – One of the HK government’s most prominent] members who, in Fung’s words, ‘have the ear of senior officials’ are arguing that the HKD-USD peg should be floated shortly after the Chinese RMB surpasses the HKD in value.”

Internal US Treasury Memo, “Hong Kong Dollar Peg’s Future Under Consideration by Government Advisory Body” – April 2006

“Numerous commission [HK’s Commission on Strategic Development – One of the HK government’s most prominent] members who, in Fung’s words, ‘have the ear of senior officials’ are arguing that the HKD-USD peg should be floated shortly after the Chinese RMB surpasses the HKD in value.”

Internal US Treasury Memo, “Hong Kong Dollar Peg’s Future Under Consideration by Government Advisory Body” – April 2006

We also know from a document WikiLeaks released August 30th, 2011 that in 2006 a float was seriously considered by members of an important HK government commission:

________________________________________________

Sources: Wikileaks, August 30, 2011 (http://wikileaks.org/cable/2006/04/06HONGKONG1383.html).

136

“[T]he HKMA might choose a hot and boring Friday afternoon in mid-summer, when most fund managers and top government officials had gone vacationing, and announce the floating of the Hong Kong dollar.”

-Shu-ki TsangAcademic Economist and HKMA Advisory Board Member, Currency Board Sub-Committee

“[T]he HKMA might choose a hot and boring Friday afternoon in mid-summer, when most fund managers and top government officials had gone vacationing, and announce the floating of the Hong Kong dollar.”

-Shu-ki TsangAcademic Economist and HKMA Advisory Board Member, Currency Board Sub-Committee

A prominent member of the HKMA committee responsible for advising on the peg suggests a revaluation could happen when the market least expects:

________________________________________________

Source: “Commitment to Exit Strategies from a CBA” – Hong Kong Baptist University (http://sktsang.computancy.com/attrachment/Tsang20000506.pdf).

137

We have every reason to believe HK decision makers will approach the HKD peg question with the same diligence and rationality they have used in the past

We have every reason to believe HK decision makers will approach the HKD peg question with the same diligence and rationality they have used in the past

Economic and Monetary Policy Making in HK

Since its inception in 1993, the HKMA has built a reputation as one of the most credible monetary authorities in the world

The HKMA is known for its intelligence, transparency, and prudent oversight of the economy and banking system

Most importantly, the HKMA and other important decision makers in Hong Kong have a track record of behaving in an economically rational manner

139

Unlike some other currency regimes, HK’s peg can be modified through a purely administrative process. No legislative action is required

Unlike some other currency regimes, HK’s peg can be modified through a purely administrative process. No legislative action is required

Repegging is easy and quick to execute:

A highly undervalued currency

In Sum:In Sum:

+An extraordinary investment opportunity=

A highly undervalued option

Q & A


A Homespun FortuneOctober 18, 2011

Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained inthis presentation are based on publicly available information. Pershing Square recognizes that there may beconfidential information in the possession of the companies discussed in this presentation that could leadthese companies to disagree with Pershing Square’s conclusions. This presentation and the informationcontained herein is not investment advice or a recommendation or solicitation to buy or sell any securities.All investments involve risk, including the loss of principal.

The analyses provided may include certain statements, estimates and projections prepared with respect to,among other things, the historical and anticipated operating performance of the companies discussed in thispresentation, access to capital markets, market conditions and the values of assets and liabilities. Suchstatements, estimates, and projections reflect various assumptions by Pershing Square concerninganticipated results that are inherently subject to significant economic, competitive, and other uncertaintiesand contingencies and have been included solely for illustrative purposes. No representations, express orimplied, are made as to the accuracy or completeness of such statements, estimates or projections or withrespect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actualresults may vary materially from the estimates and projected results contained herein.

Funds managed by Pershing Square and its affiliates are invested in Fortune Brands Home & Security, Inc.(“FBHS”) common stock and cash settled derivative financial instruments based on the price of FBHScommon stock. Pershing Square manages funds that are in the business of trading – buying and selling –securities and financial instruments. It is possible that there will be developments in the future that causePershing Square to change its position regarding FBHS. Pershing Square may buy, sell, cover or otherwisechange the form of its investment in FBHS for any reason. Pershing Square hereby disclaims any duty toprovide any updates or changes to the analyses contained here including, without limitation, the manner ortype of any Pershing Square investment.

1

Fortune Brands Home & Security

2

FBHS (or the “Company”) is a leading North Americanresidential building products company

Manufacturer of:FaucetsKitchen and bath cabinetsSecurity and storage productsWindows and doors

Equity market capitalization of ~$2.0bn

Enterprise valuation of ~$2.5bn

Spun-off from Fortune Brands on October 4, 2011

Ticker: “FBHS”

Recent stockprice: $13 (1)

(1) Based on stock price as of Friday, October 14 2011.

Snapshot of FBHS

Plumbing#1 Faucet brand in North AmericaStable business driven by replacementdemand and “low ticket” remodeling projects

3

Kitchen & Bath Cabinetry

Windows and Doors

Security and Storage

#1 N. American kitchen and bath cabinet makerLeveraged to housing recovery

#1 Padlock brand in North AmericaStable, recurring cash flowsGood growth potential

Leveraged to housing recovery

Investment Highlights

4

Secular Winner…

Industry leader with significant scale and strong market positions

Winning new business and growing as financially leveraged competitorsremain defensive

Strong management team -- highly experienced operators

…And Cyclical Winner

Well-positioned when the housing market normalizes

Cyclical growth will not require capital investment above normal levels

Immense operating leverage: EBITDA can be 3x in a normalized housing market

Platform Business

Highly fragmented industry is ripe for consolidation

Opportunities to leverage scale and distribution through acquisitions inadjacent categories (i.e. electronic security, bath accessories)


5(1) See page 31 for valuation analysis.

Attractive ValuationCurrent valuation assumes minimal housing recovery over the next five years

Immense upside potentialIf housing starts improve by 2016, stock is worth ~$18 to $27 today, dependingon the strength of recovery

Midpoint of valuation analysis is ~$22 per share today, up about 70%(1)

Minimal downsideIf housing starts don’t improve, FBHS can still shrink capacity toget to an attractive level of profitability

Classic spin-off dynamicsOrphaned stock: October 4th spin-off

Most Fortune Brands shareholders owned it for Beam, a non-cyclical business

Strong balance sheetFlexibility to make opportunistic acquisitions

Limits downside risk as we wait for the housing markets to recover

FBHS: Business Overview

Plumbing

7

FinancialsCommentaryManufactures faucets,accessories, and kitchen sinksunder the #1 Moen brand

Large installed base helps winreplacement sales

Faucets are a “small ticket”remodeling expenditure – anaffordable way to improve thelook of the bathroom/kitchen

Generally a stable categorywhere branding and innovationcan drive marketplace gains

Variable-cost business model

The Plumbing segment, which contributed 54% of FBHS pre-corporate2010 EBIT, has performed exceptionally well in the downturn due toboth marketplace gains and the “small ticket” aspect of the category

$ in millionsPlumbing FY 2008 FY 2009 FY 2010

Revenue $967 $835 $924Growth (14)% 11 %

EBIT $171 $117 $133Margin 17.6 % 14.0 % 14.3 %

% of FBHS Revenues 26% 28% 29%% of FBHS pre-corp EBIT 48% 81% 54%

Kitchen & Bath Cabinets FY 2008 FY 2009 FY 2010Revenue $1,552 $1,126 $1,189

Growth (27)% 6 %EBIT $141 $4 $31

Margin 9.1 % 0.4 % 2.6 %


Kitchen & Bath Cabinets

8

#1 North American manufacturer of kitchen and bath cabinets

Key brands include: Aristokraft, Omega, and Diamond

Well-balanced distribution channels and flexible supply chain allow for differentiatedprice points and multiple levels of cabinet customization

Distributes through dealers, wholesalers, home centers, and large builders

Highly geared to “big ticket” remodeling projects and new home construction

Currently winning new business against competitors like Masco

High fixed-cost business model

The Cabinets segment is barely profitable today as demand for newhomes and “big ticket” remodeling projects has diminished drastically

$ in millions

The segment has significant excesscapacity, which is pressuringmargins today, but will allow forexplosive growth when the housingmarkets recover

Security & Storage FY 2008 FY 2009 FY 2010Revenue $571 $495 $520

Growth (13)% 5 %EBIT $59 $42 $61

Margin 10.3 % 8.4 % 11.7 %


Security and Storage

FinancialsCommentary

Manufactures Masterlockpadlocks and Waterloo storageproducts

Historically stable demand incore padlock market

FBHS exploring opportunitiesto expand Masterlock brandthrough acquisitions

Good potential to grow inadjacent categories (electronicsecurity and monitoring)

Masterlock is a great business with a strong marketplace position,stable cash flows, minimal capex requirements and good growthpotential in adjacent categories

$ in millions

Security and Storage contributed 25% ofFBHS’s 2010 EBIT

9

Windows and Doors

FinancialsCommentary

Manufactures fiberglass andsteel residential and patio doorsystems and vinyl-framedwindows

Key brands includeTherma-Tru Doors andSimonton Windows

Currently lapping difficultcomparisons driven by 2010federal tax credits for energyefficiency

EBIT Margins remain depressed as thesegment is significantly leveraged to newhome construction

FBHS’s Windows and Doors segment contributed only 8% of total pre-corporate EBIT in 2010.

$ in millions

10

Windows & Doors FY 2008 FY 2009 FY 2010Revenue $668 $551 $601

Growth (18)% 9 %EBIT ($17) ($19) $21

Margin (2.6)% (3.4)% 3.4 %

% of FBHS Revenues 18% 18% 19%% of FBHS pre-corp EBIT (5)% (13)% 8 %

2006 2007 2008 2009 2010 LTM($ in millions)

Revenue $4,694 $4,551 $3,759 $3,007 $3,234 $3,261Growth (3)% (17)% (20)% 8 % 1 %

% of Peak 100 % 97 % 80 % 64 % 69 % 69 %

EBITDA $816 $703 $435 $195 $288 $264Margin 17.4 % 15.4 % 11.6 % 6.5 % 8.9 % 8.1 %Growth (11)% (25)% (44)% 37 % (9)%% of Peak 100 % 86 % 53 % 24 % 35 % 32 %

EBIT $668 $553 $301 $81 $180 $160Margin 14.2 % 12.2 % 8.0 % 2.7 % 5.6 % 4.9 %Growth (15)% (34)% (66)% 107 % (12)%% of Peak 100 % 83 % 45 % 12 % 27 % 24 %

Memo:Housing Starts 1,812 1,342 900 555 586 569

Growth (26)% (33)% (38)% 6 % (3)%

FBHS: Margins Significantly Depressed

11

Consolidated EBIT margins are currently at ~5%, well below peak levelsof 14% reached in 2006.

Segments: A Tale of Two Cities

The company’s operating profit margin decline is primarily the result ofcomparatively weaker performance in the highly cyclical Cabinets andWindows/Doors segments…

FBHS Segments Doing Well Today: FBHS Segments Under Pressure:% of FBHS % of FBHS

2010 Revenue 2010 EBIT (1)

Plumbing 29% 54%

Security and Storage 16% 25%

Total 45% 79%

% of FBHS % of FBHS 2010 Revenue 2010 EBIT (1)

Cabinets 37% 13%

Windows / Doors 19% 8 %

Total 55% 21%

Strong and stable replacement demand

Leveraged to “low-ticket” remodeling

More variable-cost model

Represents ~45% of FBHS sales and~80% of FBHS EBIT today (1)

Margins have held up nicely

Leveraged to new home construction andbig ticket remodeling

More fixed-cost model

Represents 55% of FBHS sales and ~20%of FBHS EBIT today (1)

Currently at low capacity utilization rates,in anticipation of a recovery

Explosive growth potential when housingmarkets recover12(1) Excludes corporate costs

2004 2005 2006 2007 2008 2009Employees 21,171 21,480 27,729 22,771 18,409 15,834

Y-o-Y Change 1 % 29 % (18)% (19)% (14)%Change Since Peak (18)% (34)% (43)%

Manufacturing Plants 48 53 64 56 47 41Y-o-Y Change 10 % 21 % (13)% (16)% (13)%Change Since Peak (13)% (27)% (36)%

Restructured the Business in the Downturn…

The Company substantially improved its cost structure by reducing itsfootprint between 2006 and 2009. Manufacturing facilities andemployee count have been reduced by roughly 40%.

13

…But Kept Enough Capacity for a Recovery

Currently operating at ~60% capacity overall, in anticipation of arecovery

Lower levels of capacity at highly cyclical segments (Cabinet andWindow/Doors)

Higher levels of capacity in more stable segments (Plumbing andSecurity)

Footprint is currently right-sized to support $5bn in sales (at 1.5mmnew housing starts)

Current sales base is ~$3.3bn

FBHS is well-positioned to accelerate profit growth as volumes grow ina recovery scenario

14

% of 2010 2010 NormalizedRevenue Margins Margins

Cabinets 37 % 2.6 % 10 %

Plumbing 29 % 14.3 % 15 %

Windows Doors 19 % 3.4 % 8 %

Security & Storage 16 % 11.7 % 12 %

Segment 7.6 % 11 %

Corp. Expense as % of Rev (2.0)% (1.4)%

Total 5.6 % 10 %

What If Capacity Were Reduced Further?

If management becomes more bearish about a recovery, it can reducecapacity further and shrink the cost base. We believe that if thebusiness were right-sized to the current sales base of ~$3.3bn, EBITmargins could be approximately 10%

15

Capacityreduction

Secular Winner: Growing in the Downturn

16

Winning New Business: Driving Sales through Innovation:

Martha Stewart Living cabinetryline at Home Depot

In-stock cabinetry at Lowe’srolling out in 2011

Waterloo storage productsrolling out Husky GarageOrganization at Home Depot

Moen “Spot Resist” finishDeveloped new finish thateliminates water spotting and fingerprinting

Strong product receptivity in themarket

Cabinetry: Paper laminatetechnology

Fashionable color and textures ataffordable prices

Since the downturn, FBHS has been aggressively winning newbusiness and increasing its marketplace position through productinnovations. As a result, the company has experienced organicgrowth in every quarter since Q1 2010 - even in this difficult housingmarket

Strong Balance Sheet Allows for Flexibility

Total Debt / EBITDA (1):

The Company has significantly less financial leverage than its peersallowing it to acquire smaller building products companies that arecurrently operating at trough levels of profitability

FBHS:

$520mm of total debt

LTM EBITDA - Capex:$194mm

No liquidity concerns

(1) Peer average based on Moody’s. Peers include Armstrong, Lennox, Masco, Mohawk, Owens Corning, Stanley Black &Decker and Whirlpool. FBHS leverage based on 12/31/2010 pro forma metrics.

17

Housing Market Review

Long-term Housing Market Drivers

New HomeConstruction

Repair andRemodel

Positive population / immigration growth

Increased levels of household formation

Favorable housing affordability

Aging housing stock (average of 40years), particularly homes > 12 years

Existing home sales

Note: This page is taken from FBHS investor presentation dated September 6, 2011

Economic factors that enable a recovery:

Consumer confidenceUnemployment—at the local market levelCredit availabilityStability in home prices

19

Historical Housing Starts: 1965 to Present

20

Housing starts are currently at the lowest levels in the last 40 years andwell below the long term annual average of ~1.5mm

Average~1.5mm

Source: Bloomberg

We are in Year Five of the Housing Recession

21

Housing starts are currently at ~25% of peak levels achieved in 2006and have been below the long-term trend of sustainable housingdemand for nearly 4 years

Peak:~2.3mm

Trough: <0.5mm

Current: ~0.6mm

Average~1.5mm

Source: Bloomberg

What a Housing Recovery Might Look Like

22

We believe that the current level of excess supply is ~2mm to 2.5mm housingunits and normalized housing demand is approximately 1.5mm

At a normalized level of housing demand:Excess housing supply could be eliminated in roughly 2.5 years if housing startsremain at ~600k

At the depressed level of housing demand (~1m):

Excess supply could be eliminated in ~ 5.5 years if housing starts remain at~600k

Although the pace of the housing recovery is difficult to predict, webelieve a recovery over the next several years is highly likely

Depressed NormalizedHousing Demand 1,000 1,500Housing Starts 600 600

Annual Reduction of Excess Supply 400 900

Current Excess Supply 2,250 2,250Years to Zero Excess Supply 5.6 2.5

(Units in 000s, except years)

Repair/Remodel Market Overview

23

Repair / Remodeling projects are generally discretionary

Certain replacement projects can wait: Cabinets, tiling (versus more criticalitems such as doors, windows, roofing)

Weak existing home sales are hurting the R&R market - new homeownersspend 2x the average repair/remodel level

Despite the weak market, there is pent-up demand from an aging housingstock

Today the ticket matters a lot

Big ticket remodel items (cabinets, tiling) are weak

Small ticket remodel items (faucets, paint) are showing strength

Longer term, Repair / Remodel growth rates tend to trend in linewith GDP

Housing Market Summary

24

Housing starts are currently at the lowest levels in 40 years

Long-term average of housing starts is ~1.5mm versus today of 600k

Repair and remodel market is likely facing pent-up demand given aginghousing stock

Before housing starts return to their long-term trend, we need to absorbthe current excess supply of homes – a matter of time

The current level of housing starts (~600k) is unsustainable over thelonger term

Historical levels of annual household formation are far in excess of 600k

We think a meaningful recovery in housing starts could happen in thenext several years

However, new homes will likely be smaller and more affordable (cheaperproducts) than in recent years

FBHS’s market position may improve, given the Company’s skew to morevalue-priced products

“The only way a correction takes place is to havehousehold formation exceed new construction by asignificant amount for a significant period of time. We'vehad it for quite a while. And when you see these figuresof 500,000 or 600,000, that means we're sopping uphousing inventory. And I don't know exactly when thathits equilibrium, but it isn't five years from now. I knowthat. And I think it actually could be reasonably soon.”

--Warren Buffett (July 8, 2011 Bloomberg TV interview)

25

Valuation

Upside Case: Housing Recovery

27

EBITDA: ~$265MM

EBITDA: ~$550MM

EBITDA: ~$850MM

Home Starts ~0.6M 1MM 1.5MM

Revenue $3B $4B $5B

EBITDA Margin 8% ~14% ~17%

Management estimates that when housing starts recover to ~1mm to1.5mm, EBITDA will be 2 to 3x current levels

~2X LTMEBITDA

~3X LTMEBITDA

Note: Partial Recovery assumes 2-3% Repair & Remodel CAGR and Full Recovery assumes 4-6% CAGR

PartialRecovery

Full Recovery /Normalized Starts

Last TwelveMonths

Downside: What if there is No Housing Recovery?

28

If housing starts were to stay at depressed levels (~600k) for the longerterm, we believe FBHS could right-size the business to achieve a morenormalized level of profitability

We estimate that FBHS can generate at least $400MM in EBITDA ontoday’s sales base by cutting capacity and excess cost

FBHS has maintained excess capacity to position itself for a housingrebound

If it fails to materialize, we believe management can right-size the coststructure and achieve a ~10% EBIT margin

FY 2011E Revenue $3.3bnNormalized EBIT Margin 10%EBIT $330mmPlus: D&A (reduced capacity) 70mmEBITDA $400mm

No Recovery RecoveryLTM (Cut Capacity) Partial Full

Housing Starts (000s) 569 600 1,000 1,500

EBITDA $264 $400 $550 $850EBITDA - Capex $194 $330 $450 $750EPS $0.57 $1.26 $1.76 $3.00FCF per Share $0.79 $1.26 $1.76 $3.00

EV / EBITDA 9.7 x 6.4 x 4.7 x 3.0 xEV / EBITDA-Capex 13.2 x 7.8 x 5.7 x 3.4 xP/E 23.0 x 10.3 x 7.4 x 4.3 xP/FCF 16.5 x 10.3 x 7.4 x 4.3 x

Current Trading Multiples

29

FBHS currently trades ~9.7x LTM EBITDA and ~16.5x LTM cash earnings. Ifno recovery occurs, FBHS is trading at ~10x our estimate of cash earnings.If a recovery occurs, FBHS trades at ~4x to 7x our estimates of cashearnings, depending on the strength of recovery

Note: EPS and FCF per share based on a 35% normalized tax rate.

Memo: Market CapitalizationRecent Stock Price $13.00Diluted Shares (mm) 157

Market Cap $2,045Plus: Net Debt 520

Enterprise Value $2,565

Valuing FBHS in a Recovery

30

Assuming a 7x Forward EBITDA multiple, even if the recovery isprotracted or prolonged, we believe we will earn an attractive IRR atthe current share price

Note: Assumes 7x EBITDA exit multiple and includes the value of annual free cash flow generated until exit. Based on R&M CAGR of2-3%, 3-4%,and 4-6% for housing starts of 1.0m,1.3m, and 1.5m

Total ReturnHousing Starts 1.0M 1.3M 1.5MEBITDA $550 $700 $850

2014 83 % 139 % 196 %Recovery 2015 92 % 151 % 209 %Year 2016 101 % 162 % 223 %

2017 111 % 174 % 237 %

IRRHousing Starts 1.0M 1.3M 1.5MEBITDA $550 $700 $850

2014 35 % 55 % 72 %Recovery 2015 24 % 36 % 46 %Year 2016 19 % 27 % 34 %

2017 16 % 22 % 28 %

Stock Price at Various Levels of Recovery

31

~$14 per share

~$18 per share

~$27 per share

Housing Starts 0.6M 1.0M 1.5M

Year 2014 2016 2016

EBITDA ($MM) $400 $550 $850

EBITDA Multiple 7x 7x 6.5x

Assuming on a housing recovery over the next several years, we believe FBHS isworth ~$18 to $27 per share today. The midpoint valuation is $22/share today,which is up ~70% from the recent share price of $13. If the housing market neverrecovers, we believe FBHS is still worth nearly $14 per share today

PartialRecovery

Full Recovery /Normalized Starts

No Recovery(capacity reduction)

~40% upside

~110% upside

~8% upside

Note: Assumes 157MM shares, $520MM of net debt, and uses a 10% discount rate to discount the future stock price to today. Includes thevalue of annual free cash flow generated until exit.

What FBHS is worth today:

Conclusion

32

Pace and strength of a housing recovery is difficult to predict

However, at some point, the housing markets will recover

Investing in FBHS is a low-risk way to profit from an eventual housingmarket recovery

Pure-play residential building products company

Best operators in the business

Improving marketplace position, even in tough housing markets

Many of its competitors are on the defensive

No liquidity concerns and currently generating a healthy FCF yield of 6%

Downside is limited, given clean balance sheet and Company’s ability toreduce capacity, if necessary

Upside potential is enormous, as cyclical growth will not require capitalinvestment above normal levels

Waiting for a Bounce from the Lowe’s

November 8, 2011


Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in this presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation to buy or sell any securities. All investments involve risk, including the loss of principal.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies discussed in this presentation, access to capital markets, market conditions and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any liability with respect thereto. Actual results may vary materially from the estimates and projected results contained herein.

Funds managed by Pershing Square and its affiliates are invested in Lowe’s Companies, Inc. (“LOW”) common stock. Pershing Square manages funds that are in the business of trading – buying and selling –securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding LOW. Pershing Square may buy, sell, cover or otherwise change the form of its investment in LOW for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

1

Lowe’s (“LOW”)

2

Lowe’s (or the “Company”) is a leading North American home improvement retailer

Operates ~1,750 stores consisting of approximately 200mm ft² of selling space

99% of stores located in the US

Equity market capitalization of ~$29bn

Enterprise valuation of ~$34bn

Current free cash flow yield of ~8%

Recent stock price: $21.50 (1)

Ticker: “LOW”

Div. Yield: ~2%

(1) Based on stock price of $21.54 as of November 4, 2011.

Stock Price Performance: Last 5 Years

3

Lowe’s recent share price of $21.50 is nearly 40% below its peak of ~$35 in February 2007


4

Attractive retail categoryLimited internet risk relative to other retailers

High gross margin retail category and diversified commodity risk

Limited fashion risk

Service component = consumer value proposition

Good barriers to entryHome Depot and Lowe’s are the central players in home center retail

Home centers are low-cost providers, given scale and leverage with suppliers

Limited risk of new entrants

Cheap ValuationLowe’s trades at 6.5x depressed EBITDA and less than 13.5x depressed EPS

Lowe’s EBIT margin currently 7.5% only 70bps higher than its trough in 2009 at 6.8%

Company believes normalized EBIT margins are 10%

Company has maintained staffing to provide high service levels and be positioned for a recovery

Investment Highlights (cont’d)

5

Extremely shareholder friendly capital allocation policy

All free cash flow after dividends goes towards share repurchase

Company is increasing leverage levels modestly to further accelerate buyback

We expect the Company to buy back $10bn to $13bn of stock from 2012 to 2015

Equivalent to 35% to 45% of the current market cap of the Company

Strong asset value and low financial leverage – limits downside

Lease-Adjusted Net Debt / LTM EBITDAR = 1.6x

Owns roughly 89% of its ~1,750 buildings

$23bn gross book value of land and buildings, or ~65% of Lowe’s enterprise value

Business Overview

2010

Discretionary

Repair & Maintenance

30%

70%

Lowe’s Business Snapshot

7

2nd largest home improvement retailer

Typical customer shops at Lowe’s three to four times per year and spends ~$62 per transaction

Each store averages ~$28mm in revenue

LTM Sales/ft² is $246

Revenue MixOverview of Lowe’s

2005

DiscretionaryRepair & Maintenance 50%50%

Sales today are significantly more Repair & Maintenance items than Discretionary items

Valuable Customer ServiceHelps customers identify the exact products they need (e.g., replacement parts)

Consults with customers on complex remodeling projects

Provides installation services

One-Stop ShoppingHome improvement purchases are typically project-oriented (e.g., bathroom remodel)

Consumers buy across categories (paint, plumbing, flooring, etc.) making one-stop shopping ideal

Home centers’ big-box layout allows for ~40,000+ SKUs

Product selection can’t be matched by general merchandise retailers

Instant SatisfactionCustomers can purchase products and take them home from the store immediately

ConvenienceLowe’s has ~1,750 stores across 50 U.S. states

Why Do Consumers Shop at Home Centers?

8

Why Do Consumers Shop Online?

9

Online retailing has become a headwind for most brick-and-mortar retailers over the recent years. Online shopping is most appealing to consumers when the following conditions apply:

Product is relatively high-priced (i.e., sales tax savings are more material)

Product is not needed immediately

Shipping cost is low

Shipping is unlikely to damage the product

Professional installation is not needed

Item is not purchased as part of a larger project

End-user of the product is making the purchasing decision

We believe that the home centers face limited risk from online shopping because the majority of products they sell do not meet most of these conditions

Est. Threat ofCategory % of Rev. Product Example Internet Competition Reason

Lawn & Garden 13 % Grills, mowers, garden chemicals Limited Shipping issues

ElectricalLight Bulbs 1 % High New LED bulbs ship well, high ticketTechnical Lighting 1 % Switches, dimmers Limited Low ticketCeiling Fans 2 % Moderate

PlumbingPipes/Fitting 3 % Limited Contractor purchase, project-basedFaucets 2 % Moderate High ticket, ships wellLarge Fixtures 2 % Tubs, sinks Limited

Paint & Accessories 9 % Limited Paint not ship well, project-based

Floor & WallFlooring 4 % Limited Shipping issuesWall Storage 2 % Closets storage Limited Shipping issuesWall Décor 2 % Curtain rods High Higher ticket, ships well

HardwarePower Tools 3 % Electric drills, screwdrivers High Higher ticket, ships well, not project-basedHandtools 3 % Manual hammer, screwdriver Limited Low-ticket, project-basedHardware Accessories 6 % Nails, bolts, nuts Limited Low-ticket, project-basedDoor Lock Sets 1 % Front door knobs, deadbolts High High ticket, ships well

Windows & Doors 11 % Limited Shipping issues

Building Materials 20 % Lumber, insulation, roofing, concreteLimited Contractor purchase, project based, shipping issues

AppliancesInstallable Appliances 8 % Washer/Dryer, A/C, stove, refrig. Limited-Moderate Service componentNon-Installable Appliances 2 % Small appliances High High ticket, no service component, ships well

Kitchen 5 % Cabinets Limited Installation, shipping issues

Limited Risk 82 %Moderate Risk 8 %High Risk 10 %

Home Improvement Retail: Limited Internet Risk

10

We believe that only 10% of Lowe’s revenues face a high risk of competition from online retailers

Note: Limited-Moderate category counts 50% towards limited, 50% towards moderate

2005 2006 2007 2008 2009 2010 LTMRevenue ($ in B) $43.2 $46.9 $48.3 $48.2 $47.2 $48.8 $48.8

Growth 19 % 9 % 3 % (0)% (2)% 3 % (0)%

EBIT Margin 10.8 % 11.0 % 9.7 % 7.9 % 6.8 % 7.4 % 7.5 %

Sales / Ft² $328 $316 $292 $267 $249 $250 $246Growth 5 % (4)% (8)% (8)% (7)% 1 % (1)%% of Peak 100 % 96 % 89 % 82 % 76 % 76 % 75 %

SSS Growth 6.1 % 0.0 % (5.1)% (7.2)% (6.7)% 1.3 % (0.1)%

Units 1,234 1,385 1,534 1,638 1,710 1,749 1,753Growth 14 % 12 % 11 % 7 % 4 % 2 % 0 %

Lowe’s Financials: Margins Down Significantly

11

Lowe’s sales/ft² is 25% less than peak levels achieved nearly six years ago. EBIT margins are ~350bps below peak margins achieved nearly five years ago

LOW Outperformed HD for Most of the Last Decade…

Lowe’s level of same-store sales growth outpaced Home Depot’s each year from 2001 to 2008

12

Same-Store Sales Growth

2000 2001 2002 2003 2004 2005 2006 2007 2008Lowe's 1.2 % 2.4 % 5.8 % 6.7 % 6.6 % 6.1 % 0.0 % (5.1)% (7.2)%Home Depot 4.0 % 0.0 % (0.5)% 3.7 % 5.1 % 3.1 % (2.8)% (6.7)% (8.7)%

Lowe's - Home Depot (2.8)% 2.4 % 6.3 % 3.0 % 1.5 % 3.0 % 2.8 % 1.6 % 1.5 %

Note: Home Depot same-store sales growth figures are for the entire company only, as Home Depot did not consistently disclose U.S.-only same-store sales growth figures during the period from 2000 to 2008.

…But Now LOW is the Underperformer

Lowe’s level of same-store sales growth has underperformed Home Depot’s for eight out of the last ten quarters

Potential Causes of Recent Underperformance:

Strength of HD’s current operational executionStrong regional-level merchandising

Post Bob Nardelli, invigorated management team under CEO Frank Blake

Lowe’s product mix is more discretionary than Home Depot’s

Home Depot currently doing well with the basic repair customer versus Lowe’s more fashion-oriented customer

13

Same-Store Sales GrowthQ1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11

Lowe's (6.6)% (9.5)% (7.5)% (1.6)% 2.4 % 1.6 % 0.2 % 1.1 % (3.3)% (0.3)%Home Depot - U.S. Only (8.6)% (6.9)% (7.1)% (1.1)% 3.3 % 1.0 % 1.5 % 4.8 % (0.7)% 3.5 %

Lowe's - Home Depot 2.0 % (2.6)% (0.4)% (0.5)% (0.9)% 0.6 % (1.3)% (3.7)% (2.6)% (3.8)%

LTM Consensus 2012EEV/EBITDA P/E EV/EBITDA P/E

Lowe's 6.5 x 13.3 x 6.3 x 12.2 xHome Depot 8.5 x 16.1 x 7.8 x 13.8 x

Trading Multiples Reflect Underperformance

14

Based on its recent underperformance, Lowe’s trades at a discount to Home Depot on both LTM and 2012 multiples

Despite the valuation discount relative to HD, we believe Lowe’s long history of same-store sales outperformance suggests that recent underperformance is more likely temporary rather than structural

Memo: CapitalizationLowe's Home Depot

Stock Price $21.50 $37.00Diluted Shares 1,328 1,577

Market Cap $28,552 $58,349Plus: Debt 6,620 10,775Less: Cash & Investments (1) (1,423) (2,551)

Enterprise Value $33,749 $66,573Dividend Yield 2.0 % 2.7 % (1) For Lowe’s, Cash & Investments are net of restricted cash balances.

Recent Price $21.502015 EPS $3.40Price / 2015 EPS 6.3 x

Lowe’s Management is Bullish…

15

Note: This page is taken from Lowe’s investor presentation dated November 30, 2010. Red highlights added for emphasis.

At last year’s analyst day, management guided to $3.40 of EPS in 2015, driven by a 4% average growth rate in same-store sales, a 10% EBIT margin, and an $18bn share repurchase program (2011 to 2015)

…And is Buying Back Stock Aggressively

16

Management plans to use all free cash flow after dividends to repurchase stock and will increase leverage to 1.8x Lease Adjusted Net Debt / EBITDAR from 1.6x. We estimate share repurchases will be ~$10bn to $13bn from 2012 to 2015

At the current share price, management could repurchase ~35% to 45% of the Company between 2012 and 2015

In the first half of 2011, management repurchased nearly $2.4B of shares at an average price of ~$25

Repurchased ~7% of the current share base

Share repurchases may accelerate annual core earnings growth by 8% to 10% from 2012 to 2015

Current interest rate environment makes debt financing an attractive source of capital for share repurchases

Valuation

Management Pershing Square EstimatesTargets Low Mid High

2012E to 2015E CAGR:Home Improvement Market 3.0 % 0.0 % 1.5 % 3.0 %Impact of Share Gains 1.0 % 0.0 % 1.0 % 1.0 %

Same-Store Sales 4.0 % 0.0 % 2.5 % 4.0 %

2015 EBIT Margin 10.0 % 7.3 % 8.3 % 9.3 %

2015 EPS $3.40 $2.00 $2.60 $3.20

% Increase from LTM EPS ~110% ~25% ~60% ~100%

Drivers of share gains:Growth from internet siteGains from Mom & Pop dealersGains from Sears

⌦ Losses from cannibalization

Valuation Assumptions

18

Pershing Square Mid and High cases reflect our view of the most likely outcomes

Note: Management targets based on November 2010 analyst day and annualized same-store sales growth reflected management estimates for 2011E to 2015E.

Our estimates are more conservative than management’s 2015 targets

~~

Sales/ft²

19

LTM

Sales/ft² is still 25% below 2005 peak levels six years later. We believesales/ft2 could increase materially by 2015 and still be meaningfully below inflation-adjusted peak levels reached in 2005

Mid High2005 Peak

$246

$328~$275

~$290

2015E

2012E to 2015E Same-Store Sales CAGR 0% ~2.5% ~4%

% of 2005 Peak ~75% ~85% ~90%

% of 2005 Inflation-Adjusted Peak ~55% to 65% ~65% to 75% ~70% to 80%

Note: Inflation-adjusted peak based on a 1% to 2% annual inflation rate.

Sales/ft2:Low

~$245

EBIT Margins

20

In our Mid and High cases, we believe EBIT margins could be ~8.3% to 9.3%. In our Low case, if same-store sales remain flat, we believe Lowe’s can maintain current EBIT margins through cost reductions

Note: Current gross margins are partially elevated by a favorable mix of higher-margin, lower-ticket items. As sales recover, we expect a slight gross margin headwind, offset by positive operating leverage. Management estimates each 1% of same store sales growth above 1% will result in 20bps of operating expense leverage.

Low Mid High2012E to 2015E Same Store Sales CAGR 0.0% 2.5% 4.0%

Est. Annual EBIT Margin Improvement 0bps 25bps 50bps

2011E EBIT Margin 7.3 % 7.3 % 7.3 %Plus: Total Est. EBIT Margin Improvement 0.0 % 1.0 % 2.0 %2015E EBIT Margin 7.3 % 8.3 % 9.3 %

2012E to 2015E SSS CAGR 0% ~2.5% ~4%

2015E EBIT Margin 7.3% 8.3% 9.3%

2015 EPS $2.00 $2.60 $3.20

P/E Multiple (based on current) 13x 13x 13x

Valuing Lowe’s

21

~$36 per share

~$43 per share

We believe 2015 EPS will likely be between $2.60 to $3.20. At a 13x P/E, the total value per share at year end 2014 is $36 to $43. If same-store sales remain flat for the next several years, year end 2014 total value per share is $28, driven largely by share repurchases

Mid High

~65% Return 26% IRR

Note: Based on ~1% annual net unit growth. Includes ~$1.80 of dividends received between 2012 and 2014.

Year End 2014 Total Value Per Share (includes dividends):

~100% Return

18% IRR

~$28 per share

Low

~30% Return9% IRR

Conclusion

22

We think Lowe’s is a good business in an attractive retail categoryHowever, sentiment is poor because of the Company’s more recent underperformance relative to Home Depot

We think this underperformance is more temporary than structural

The current stock price is not factoring in a sales recovery, but we believe one is likely in the next several years

Even if no sales recovery occurs, we believe downside is limitedMinimal financial leverage, limited lease leverage, cheap stock

Aggressive share repurchase program is a catalystLowe’s has ~8% current cash earnings yield

The Company is returning all cash earnings to shareholders in the form of buybacks and dividends

Investors are effectively paid to wait for a recovery

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