Equity | United States | REITs 11 December 2014 2015 the ... · For REITs, we forecast 2015 year-over-year normalized FFO growth of 6.6% on a weighted average basis, above our strategists’

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U.S. REITs Industry Overview

2015 – the year ahead: it’s all about that “extra” demand

Equity | United States | REITs 11 December 2014

Jeffrey Spector Research Analyst MLPF&S

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We are focused on three transforming themes that will drive this extra demand in 2015 and beyond: 1) technology and the changing retail landscape, 2) the rise of urbanization in secondary cities, 3) Millennials’ and Boomers’ impact on housing. Our three themes tie in with two of our BofAML Global Research investment themes: people and innovation.

A Transforming World

Positive outlook for CRE with US growth, low rate backdrop

BofAML economists expect growth to improve in 2015, and they are not concerned over major disruptions in the US economy. Additionally, they believe rates should remain manageable, with the 10-year forecast to end 2015 at 2.75%. For US REITs, we expect fundamentals to continue to improve, cap rates to remain firm with possible further compression and limited new supply. In terms of stock performance, we expect 2015 to be more of a stock pickers’ year as select REITs are better positioned for growth than others. The main reason is these REITs have “extra” drivers of demand that will not only deliver stronger internal growth, but will also lead to more development / redevelopment opportunities, in our view. We are focused on three transforming themes that will drive this extra demand in 2015 and beyond: 1) technology and the changing retail landscape; 2) the rise of urbanization in secondary cities; and 3) Millennials’ and Boomers’ impact on housing.

Theme #1: Growing importance of omni-channel retailing As retailers try to replicate the success Apple and Macy’s have had combining online sales with a brick and mortar presence, we view the clear beneficiary as dominant retail properties and warehouse. For retail REITs with dominant assets, omni-channel retailing has created significant demand for flagship stores helping these landlords push rents. We expect this to continue in 2015, as BofAML’s retail team believes we are entering the next phase, with retailers optimizing omni-channel efforts. For warehouse, the growth of eCommerce, leaner inventory controls and consumers demanding fast shipping continues to generate demand.

Theme #2: Rise of urbanization in secondary cities The urbanization of non-gateway cities will continue in 2015, in particular in the Southeast. The Southeast continues to attract job and population growth as demonstrated by high office and apartment occupancy rates in cities such as Atlanta, Houston, Dallas, Charlotte, Austin, and Nashville. We expect office, apartments and retail in those key cities to continue to benefit in 2015; however, we will watch oil prices closely and the potential impact on Houston employment.

Theme #3: The changing housing landscape Whether the shift in how people want to live is due to echo-boomer lifestyle choices or memories of the housing crisis, turnover is down. Potential first time homebuyers remain in their rentals, and seniors are downsizing to the city or spending winters in warmer climates vs. entering independent living facilities. We expect apartments and manufactured housing will continue to benefit, and we are cautious on senior housing as we expect increased supply may limit rental growth by year-end.

Other themes: Distributions, M&A and REIT GICS See inside for our thoughts / analysis on these themes as well sector as overviews.

Top picks: AVB, BXP, ESS, GGP, HIW & KRG We are overweight apartments, office, industrial and self storage within REITs.*

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U.S. REITs 11 December 2014

Contents Executive summary 3

Spector’s top picks for 2015 4

Sector weightings and views* 5

Overweight 5

Equal weight 8

Underweight 10

Supply manageable: subsector outlook 11

Attractive & growing distributions 18

Fund flows and cap rates 19

Potential for leveraged buyouts and REIT M&A 22

Real Estate GICS elevates status of REITs 23

Risks to the year ahead 23

Appendix: 24

BofAML vs. consensus 2015 24

REIT Valuation Summary 25

Team Page 42


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Executive summary 2015 – the year ahead: it’s all about that “extra” demand The BofAML core view is that US growth momentum from 2H14 will continue into 2015. Our economists’ 2015 GDP forecast is 3.3%, following 2.2% in 2014. In their view, the two most damaged sectors, banking and housing, have healed significantly, and balance sheets have been repaired in almost every sector. Headwinds from Washington have faded, after three years of aggressive fiscal tightening, and policy has turned neutral. However, despite stronger growth, core inflation is likely to remain relatively flat as imported disinflation offsets a gradual pickup in wages. This low inflation environment will all allow for a carefully calibrated Fed exit. Our economists do not expect a rate hike until September 2015.

BofAML Equity Strategists forecast 5.0% EPS growth in 2015 for the S&P500 (below consensus of 10.0%). BofAML’s 2015 S&P 500 EPS forecast implies a modest slowdown in earnings growth next year and slightly below the long-term trend growth of 6-7%, primarily due to lower oil prices affecting the energy sector.

For REITs, we forecast 2015 year-over-year normalized FFO growth of 6.6% on a weighted average basis, above our strategists’ S&P 500 growth expectations. Interest rates should be manageable, with the 10-year forecasted to end 2015 at 2.75%. Another positive for REIT valuations in 2015 is the significant amount of domestic and global capital that has been raised, in both debt and equity, with an allocation toward real estate. Because we are not worried about oversupply, rates, or other major disruptions in the US economy in 2015, it will all come down to drivers of “extra” demand. We see pockets of extra demand generated by changes in retailing, job growth in the Southeast, and changes in where Americans want to live, that should create opportunities for select sectors/stocks to outperform next year.

We continue to see the argument to own REITs as particularly compelling for the aging US and global, population, which will continue to place a premium on certainty on income and income growth through distributions. BofA Merrill Lynch equity strategists continue to emphasize dividend/distribution growth as an important theme, and in this report we identify select REITs with potential to grow their distribution rates by at least 20% per year over the next three years.

In addition, we believe investors should maintain an allocation to select REITs on geopolitical risks. There could be market volatility around global uncertainties and unrest, and US REITs would be a good defensive play, in our view. REITs are less exposed to currency risk and overall are less correlated with financials.

Our team forecasts normalized FFO growth of 6.6% in 2015 for REITs.


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Spector’s top picks for 2015 We favor REITs with exposure to our key demand themes, coupled with strong management teams and reasonable valuations.

AVB (B-1-7, $170 PO): AVB owns, operates and develops high quality apartments in coastal urban in-fill locations. We expect AVB will benefit more than peers from a re-acceleration in rents given its geographic mix and expansion of its B asset base with parts of the Archstone portfolio, Ava and Eaves brands. AVB’s development pipeline is ~$3.5 billion and should create significant value as it delivers compared to acquisition cap rates.

BXP (B-1-7 $138 PO): BXP owns the highest quality portfolio of office assets in the markets targeted for investment by global capital sources. This should push comparable asset valuations higher. BXP has a sector-leading management team and balance sheet. BXP’s growing development pipeline will create outsized growth in the future. 2015 internal growth will be below average due to transitional vacancy, but should accelerate meaningfully going forward. Key catalysts include upside to its same store outlook, development leasing progress, and comparable private market trades at higher valuations.

ESS (B-1-7, $217 PO): ESS is a West Coast Class B apartment owner/ operator with strength in sourcing unique investments. Strong same store growth (will include the BRE portfolio starting 2Q15) coupled with attractive wholly owned and JV development opportunities position ESS to have 12% FFO growth in 2015. Potential catalysts include greater accretion from the BRE acquisition, stronger job growth in Southern CA and better than expected development yields and promotes.

GGP (B-1-7, $30 PO): We expect GGP, the second largest retail REIT, to generate above average long-term EBITDA growth of +4% and +5% with its portfolio of upscale and dominant malls, which we believe would translate into roughly similar same-store NOI growth. GGP’s portfolio is composed predominantly of Class A regional malls, complimented by flagship urban retail properties – a segment we believe will grow in importance in a post omni-channel world. Over 87% of GGP’s SS NOI comes from A and B+ malls, and this portfolio should achieve 94.0% of permanent occupancy by YE’15. GGP will augment strong internal growth with over $2 billion in redevelopments that are expected to achieve +9% to +11% returns, including the redevelopment/expansion of the iconic Ala Moana Center.

HIW (B-1-7 $46 PO): HIW’s portfolio and land bank are well positioned to benefit from outsized job, population and economic growth in the Southeast. Lower business and living costs, higher quality of life, manufacturing growth and the availability of talent should support demand. HIW’s markets have a large gap between market rents and rents that justify speculative construction. This means rents should rise before supply becomes an issue and this is a good environment for build to suits. Backfilling known vacancies, development starts and generally improving leasing conditions are key catalysts.

KRG (B-1-7 $30 PO): We see upside from here as the stock trades at a discount to our forward NAV estimate and to the strip peer average. KRG has an attractive development pipeline, which we believe will be accretive to

Spector's top picks for 2015 AVB BXP ESS GGP HIW KRG


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earnings growth in 2015. Many of KRG’s assets have multiple anchors, and we view its tenant quality as solid, outside of its exposure to office supply retailers and Best Buy. KRG continues to improve its balance sheet, as evidenced by the recent investment grade ratings from Moody’s and S&P.

Sector weightings and views* Overall, we expect apartment, office, warehouse and self storage sectors to outperform REITs, but within other real estate sub sectors, we expect performance will be driven by individual stock picking.

Table 1: Sub-sector historical relative price performance vs. US REIT Index – Green = outperformance; Red = underperformance 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014 S&P 500 9.0% 3.0% 13.6% 3.5% (38.5%) 23.5% 12.8% 0.0% 13.4% 29.6% 11.8% SNL US REIT Equity 24.6% 6.8% 29.2% (19.6%) (40.4%) 22.2% 24.1% 4.4% 15.9% (0.1%) 19.8% SNL US REIT Healthcare 15.2% (4.5%) 36.0% (5.1%) (16.3%) 18.7% 12.9% 8.4% 14.3% (10.7%) 23.0% SNL US REIT Hotel 29.0% 5.9% 22.9% (26.9%) (63.1%) 63.1% 38.5% (15.1%) 9.6% 22.3% 23.1% SNL US REIT Industrial 24.2% 8.9% 23.0% (8.8%) (64.4%) 16.2% 13.4% (7.5%) 27.8% 4.1% 13.6% SNL US REIT Diversified/Other 24.6% 4.9% 22.3% (14.5%) (29.9%) 21.6% 15.7% 1.5% 19.8% 0.8% 9.4% SNL US REIT Office 15.0% 5.7% 36.8% (24.8%) (46.2%) 29.2% 17.0% (4.4%) 10.6% 2.5% 19.1% SNL US REIT Retail Enclosed Mall 38.9% 12.2% 20.7% (18.5%) (58.3%) 68.2% 31.3% 14.4% 24.1% (3.7%) 21.1% SNL US REIT Retail Shopping Ctr 28.9% 3.2% 29.2% (21.0%) (43.2%) (7.4%) 24.8% (6.7%) 21.5% 2.9% 21.7% SNL US REIT Multifamily 26.4% 9.0% 35.8% (28.5%) (31.8%) 25.1% 43.0% 10.8% 3.1% (7.7%) 32.1% SNL US REIT Manufactured Homes (7.0%) (6.0%) 11.8% (22.4%) (23.3%) 37.5% 21.8% 15.3% 3.2% 6.6% 33.7% SNL US REIT Self-storage 24.1% 22.0% 36.9% (26.7%) 1.9% 6.2% 24.8% 30.8% 14.6% 5.7% 26.3% Source: SNL Financial and BofA Merrill Lynch Global Research. As of 11/26/2014.

Overweight Apartment REITs: Improving pace of rent growth In our view, re-accelerating rate growth in 2H14 positions the apartment REITs well heading into 2015, and we expect the positive trends to continue. EQR was the first apartment REIT to provide 2015 SS revenue guidance of 3.5-4.5% and we expect most apartment REITs to anchor their guidance around that range, but note that we are modeling about 4.3% top line growth for the group. The big surprise in 2014 was healthy absorption of new supply thanks to improving job growth and low turnover, primarily driven by low levels of move-outs for home ownership.

In 2015 we expect roughly the same level of conventional apartment supply, but economists predict stronger job growth, which should bode well for occupancy levels and rent growth sector wide. While there will be clear outperformers like ESS thanks to its market exposure and further upside potential from the BRE acquisition, we would expect the entire sector to continue outperforming. In our view, we expect apartments will continue to benefit from:

Demographic trends where echo boomers (sheer number) as well as generation Y are getting married later and having children later (keeping them renting longer); baby boomers are also looking to downsize and move closer to their offspring.

Better job and wage growth in 2015.

The reluctance of first time home buyers.

Potential for privatizations, public-to-public M&A or investor activism. We note that the implied cap rates of apartment REITs are ~50bps above transaction cap rates, effectively taking REITs out of the acquisition market

The big surprise in 2014 was low turnover in the face of new supply, helped by historically low levels of move-outs for home ownership and better job growth.

In addition to healthy demand from 20-35 year olds, baby boomers are looking to downsize and move closer to their offspring.

We are overweight apartment, office, warehouse and self storage sectors within REITs*


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due to their disciplined leverage targets. Private equity players like Blackstone have recently been in the media discussing their interest in REIT privatizations but noting the challenges of getting management on board.

We expect the strongest markets next year to continue to be the Bay Area (San Francisco, San Jose and Oakland), Seattle, Atlanta, and Southern California (primarily greater LA). We are more cautious on Houston, which has been a great apartment market in 2014, given our concern about lower oil prices and the impact on the energy sector’s hiring plans. Washington, DC remained a drag on REIT portfolios in 2014, but actual results were slightly better than budgeted expectations. Most apartment management teams feel that DC has troughed, though AVB and PPS still caution that 2015 will have about the same level of deliveries as 2014. CPT and PPS benefit most from the rise of urbanization in secondary cities, in our view.

Industrial REITs: supply concerns should fade in 2015 Industrial REITs underperformed in 2014 as investor supply concerns overshadowed improving fundamentals. We have good visibility on supply pipelines through YE15, and REIS forecasts net absorption to outpace development deliveries each year through 2017 (Chart 3). This imbalance should maintain healthy operating conditions for Industrial REITs and upward pressure on rents and occupancy in most markets. We forecast above average FFO growth for the sector in 2015. New REIT developments entering service and accelerating leasing spreads should provide a boost. The sector should deliver solid quarterly earnings and portfolio results in 2015 that serve as the key catalyst for the stocks. We expect stronger operating conditions in the US than in markets overseas based on BofAML’s relative GDP growth forecasts, and we see DCT as the best positioned domestic REIT.

Manufacturing competitiveness returned to the US this cycle due to lower costs, including energy and labor. Lower oil prices should help the consumer. eCommerce and general retail spending are key drivers of Industrial demand. The growing importance of omni-channel retailing should also drive demand as retailers continue trying to figure out the optimal warehouse footprint for their needs. We expect those focused on same and next day delivery to focus on assets near the urban core. We will watch for changes in eCommerce strategies to see which industrial REITs own the land and assets best suited for this demand.

Residential construction tends to increase Industrial demand from builders and home goods retailers, meaning urbanization in secondary cities and the changing housing landscape should help the sector. Industrial REITs try to incorporate green construction practices in their new development projects. A few stand out for their efforts and publish sustainability reports such as PLD. We will also focus on the potential impact of the wider Panama Canal, intermodal infrastructure improvements, and port labor strikes risks on tenant geographic logistics decisions.

Direct investor interest in warehouse remains high, but cap rates are unlikely to compress in 2015 as they did in recent years. Asset values should still increase due to higher NOI streams and growth assumptions. We see slowing global growth as a key risk for Europe and Asia. However, regional interest rate cuts may help cap rate compression for high quality assets in select global markets, which should help offset the potential of slowing demand on valuation for PLD.

Chart 1: Industrial occupancy and rent growth

Source: REIS, BofA Merrill Lynch Global Research

Chart 2: Industrial completions versus net absorption


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CPT and PPS benefit most from the rise of urbanization in secondary cities.

eCommerce and general retail spending are key drivers of Industrial demand.


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Office REITs: focus on the developers Most office markets should continue to improve in 2015. We favor the developers such as BXP and HIW for their prospects to generate outsized growth over the next several years. BofAML forecasts unemployment to decline to 5.2% by YE 15 and 4.7% by YE 16, which suggests an improving employment market. 2015 will be an office stock-pickers’ year given a wide dispersion of earnings growth rates and regional demand drivers across the sector.

The recovery should deepen in secondary cities. We are particularly optimistic on the Southeast and Philadelphia. This should help HIW and BDN. There was a pickup in corporate relocation and build to suit development activity in these markets in 2014, which should continue. Employee preference for work / live / play environments in markets with good quality of life should help. Well positioned land banks in these markets will be key for development pipeline growth. We prefer lower risk build to suits.

New York City jobs and space demand should grow in 2015 with the economy. It will be key to pick the right submarkets. Midtown South and smaller tenants were most active in 2014. We start the year anticipating the same trends, but are watching to see if Penn Plaza, Midtown or Downtown become the next submarkets of choice. New York has more supply on the horizon in 2017 when the Hudson Yards delivers its first building, a key risk to watch.

We start the year positive on West Coast office. Market rents are rising as the recovery spreads further into Los Angeles and San Diego. Leasing demand in CBD San Francisco is robust and spreading to Silicon Valley. Tech sector expansion and the fusion of tech and media should maintain healthy demand.

Most office REITs now incorporate green building practices. This comes from a combination of tenant demand requirements, good corporate citizenship and reducing operating costs.

BofAML forecasts the 10-year yield to rise only slightly by YE15. Our economists also see muted growth around the world and a stronger dollar. This backdrop means continued high demand from global capital for US office assets as it struggles to find returns elsewhere. JLL continues to see a 10:1 ratio of capital to assets on the market for sale. This should maintain the bid for high quality real estate in 2015, and support higher valuations. With the highest overall portfolio quality we expect BXP to benefit most from this trend.

Self storage REITs: shifting to growth from rent and devs We maintain our overweight rating on self storage REITs within REITs*, though with less conviction than prior years. Upside could come from better than expected street rates, faster lease-ups on developments and expansion and accretive acquisition opportunities. In our view, self storage REITs have created a moat around their businesses through their investment in online marketing and revenue management. The REITs will continue to benefit from market share gains, third-party management contracts and industry consolidation in addition to external growth from development. However, performance will vary relative to what level of growth other sectors can produce as same store revenue and NOI growth slow from 2014’s impressive levels, now that companies are near or at same store peak occupancy levels. We continue to model above average same store NOI for the group (ranging between mid-5% to mid-6% vs. high-single-digit growth for 2014). While we think it is hard to make a case for multiple expansion as growth rates slow, it is possible to see further cap rate compression as demand for storage assets continues to increase.

Chart 3: Office occupancy and rent growth


Chart 4: Office completions versus net absorption


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Equal weight Retail: Focus on core portfolios and redevs are key in ’15 In our view, retail REITs best positioned for growth are those that have whittled their portfolios down to the most productive assets and are spending less time devoted to the maintenance of weaker assets. REITs still active in selling their weaker assets may find transactions more difficult to close as we believe the overall buyer appetite for lower productivity assets has waned. We prefer REITs that own dominant assets. Given the blurring/convergence of shopping center formats, we are also less focused on grocer vs. power center, but rather focused on those centers best positioned to capture share.

While meaningful ground-up development pipelines for many REITs are more than a year away and making accretive acquisitions remains challenged, the most important lever for external growth continues to be redevelopment.

Beyond redevelopments, we expect operations will be a key focus for retail REITs. The easy occupancy push has already occurred, so now it will get down to which companies will work the hardest to push rents and operate efficiently. We expect investors to focus more on other operating metrics, such as leasing spreads, rather than solely focus on SS NOI, which has increasing become less comparable across companies.

The growing impact of the Internet world As the retail world continues to adjust to operating in an omni-channel world, we believe the trend of retailers wanting space in dominant assets with the ability to house larger-sized flagship stores will continue. Flagship stores allow retailers to show the entire breadth and depth of their stock to higher traffic volumes.

Additionally, we believe more retailers will focus on omni-channel efforts and will approach store closings by thinking of the impact to both their “bricks and mortar” business as well as their internet business. Increasingly, retailers are reporting that with store closings, they not only lose that store’s four-wall sales, but they are also losing the eCommerce shoppers in the surrounding zip codes. However, there will still be situations where both the store and internet sales are not sufficient to justify keeping certain stores open. Typically, these stores will be located in low household density markets or in markets where the demographic fit is poor.

Grocery eCommerce offerings continue to emerge as a response to growing customer demand for convenience. As competition heats up, retailers are moving beyond “click-and-collect” toward fresh food home delivery options (see BofAML retail analyst’s report). In the near term, we do not see negative impact to existing grocery-anchored centers, as food retailers are partnering with services such as Instacart or Google Express for fulfillment and delivery from existing retail stores.

Mall REITs: Redevelopments still best risk-adjusted path of growth The four most dominant regional mall companies (GGP, MAC, SPG and TCO) have essentially completed large-scale culling of their portfolios, allowing the more dominant assets’ above average NOI growth to reach their bottom lines.

Ground-up developments for regional malls will likely remain low, as department stores’ motivation for new store expansion remains a low priority. We expect that, on average, only one new regional mall will be delivered per year for the next five years, with only one new mall expected to open during 2015 (TCO’s The Mall of San Juan). We see mall closings occurring at a pace of 5-7 per year, or roughly 30 mall closings over the next five years, and we do not expect any dominant regional malls to be sold in the open market (rare occurrence).

The heated transaction market is making accretive acquisitions difficult, and traction on ground-up development is slow, so we expect redevelopment to remain paramount for external growth.

Flagship stores allow retailers to show the entire breadth and depth of their stock to higher traffic volumes.


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Our emphasis remains on major redevelopment as the most important external growth driver for mall REITs. Simon has a total spend of $2.2 billion over the next three years, all committed and underway. GGP has $1.1 billion under construction and $800 million in the pipeline (timing TBD). MAC is approaching the end of construction on its mixed-use redevelopment at Tyson’s Corner and is further progressing on redevelopment opportunities at Broadway Plaza, King’s Plaza and Green Acres.

Strip REITs: Internal growth solid, external growth tougher to source The strip center REITs continue to exhibit better than expected internal growth, driven by what we believe is a 38-year low of ground-up construction. Average overall occupancy for the strip REITs is 95.4%, while the small shop occupancy average is at a more opportunistic level of 88.0%. We believe that above average growth can continue, driven by occupancy gains in small shop space.

The current low cap rate environment, although attractive for the valuation of existing centers, presents a challenge for acquirers. Winning bids in an overheated transaction market often suggests overpaying. We favor strip REITs with redevelopment opportunities to supplement their internal growth, as well as select companies that have development programs in place. We believe REITs with larger community/power centers will be able to accelerate redevelopment efforts in 2015. Larger centers have more flexibility in combining space and creating new space, as well as adding outparcels and pads.

Outlets: Expect ground-up development to continue While internal operating metrics for the outlet business have slowed relative to previous years, they still remain in a healthy range. On the other hand, development activity of outlet centers continues to remain robust and see significant growth. Over the last two years, outlet space in the US has expanded by approximately 5% (measured by square footage), and we expect this pace to continue into 2015.

Our biggest concern in outlets is retailers potentially getting too aggressive with their outlet store openings and in locations too close to full price. Developers are building new outlet centers closer and closer in to traditional/full price distribution regions, and these new outlets could begin competing more directly with full price. Should this occur, we believe it eventually could damage retailer brands. This is a key trend we continue to watch.

Data Center REITs: Focus on growth We remain generally bullish on demand for outsourced data center providers heading into 2015 stemming from growing enterprise IT requirements and myriad cloud deployments, and an increased willingness by IT departments to outsource the infrastructure (data center space, power, and cooling) underlying critical servicer, storage and networking equipment. Additionally, we see data centers as direct beneficiaries of growth in eCommerce associated with our omni-channel retailing theme.

Concerns regarding new supply growth have dissipated as public providers have pulled back on new developments and private equity has largely backed away from the sector. The result has been generally better pricing dynamics across most US markets, even in the more competitive wholesale segment. While conversations with brokers and industry contacts suggest that wholesale data center pricing has reached an inflection point following several years of declines, pricing expectations for 2015 only call for flat to modestly positive growth. As

We see data centers as direct beneficiaries of growth in eCommerce.

Redevelopment remains the most important external growth driver for mall REITs.

Larger shopping centers have more flexibility with redevelopments. We expect REITs with the largest centers to be the most active redevelopers in 2015.


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such, we view internal growth prospects purely through rising rents as muted relative to the growth expected from increased occupancy, redevelopment and expansion of existing buildings, acquisitions and ground up developments.

This said, data center stocks have outperformed the broader REIT index (up 27% on average vs. RMZ up 24%) year-to-date in 2014, reflecting a mean reversion, as we believe the sector was largely underweighted by investors in 2013 amid oversupply concerns combined with weaker-than-expected macroeconomic tailwinds. The average forward AFFO multiple for the sector now sits at 15x, vs. approximately 13x at this time last year and compares to the three-year historical average of 15.5x. We believe investors should focus on data center stocks at the cheaper end of the valuation spectrum, which we believe reflect better risk/reward tradeoffs considering premium growth outlooks.

Additionally, we note that Equinix (EQIX, B-1-9, covered by US Telecom Analyst David Barden), is slated to convert to a REIT effective January 1, 2015. As the company will represent the largest market cap stock among data center REITs and top 15 among all US REITs, we expect the company’s conversion and ultimate inclusion in relevant REIT indices to brighten the spotlight on the sector and necessitate a greater level of focus among investors on the data center stocks which could create additional investor demand.

Triple-net REITs While we do not foresee any major negative catalysts for the group operationally, we see limited upside in an improving economy given the length of triple net leases. In addition, we expect rising rates may impact the pace of accretion from acquisitions. Positively, we think there could be less aggressive competition (at least to start 2015) from ARCP and related unlisted funds, which may limit downward pressure on cap rates. We continue to favor smaller REITs with a focus on growing through one-off, off market or relationship transactions that present more attractive spread investing opportunities. We continue to favor retail over industrial and office assets given lower releasing/capex risk.

Student housing: Stable but less exciting than apartments Supply will be down from the number of deliveries we have seen the past two years and we do not foresee any negative catalysts for the student housing sector. However, student housing is traditionally viewed as a defensive sector and may underperform if we see stronger job numbers as investors anticipate better growth in apartments. Given that leases for the academic year have already been locked in, we see less potential to outperform and note that leasing for the 2015/16 academic year will be slightly more challenging, as 2014/15 was both an early and a strong leasing year.

We continue to have Buy ratings on ACC and EDR and favorably view their growth with top tier four-year public universities through public private partnerships. We reiterate our Underperform rating on CCG until we see further balance sheet improvement.

Underweight Healthcare REITs: limited upside in an improving economy While we do not foresee any major negative catalysts for the group operationally, we see limited upside in an improving economy given the length of triple net leases. In addition, we expect rising rates will influence the pace and accretion from acquisitions, with competition (unlisted REITs, pension funds, sovereign funds, private equity etc.) continuing to pressure cap rates and spreads.


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We continue to prefer private pay (senior housing, MOBs and life science) focused REITs given the expectation of accelerating economic growth throughout 2015. Improvement in the housing and employment markets should continue to drive senior housing demand, and offset new supply for most of 2015, although top line growth may moderate by year-end.

As discussed above, although we are optimistic on private pay seniors housing assets (including RIDEA) given improving growth expectations, supply may reaccelerate and will likely remain a focal point for investors in 2015. As of 3Q, construction in seniors housing (assisted living and independent living) was at 3.4% of inventory, with assisted living (40% of total stock) at 5.1% (average since 2013 is 5.5%). Construction typically takes about 12-18 months to complete, meaning inventory growth will remain elevated through 2015. Importantly, the availability of financing also appears to be picking up, which may signal even more construction to come.

For public pay assets, we expect reimbursement headline risk will moderate for stocks in 2015, with politicians not posturing for meaningful legislation ahead of the 2016 presidential election, budgets improving and macro growth expected to accelerate. However, over the long term, we believe budget tensions will remain an issue given entitlement issues have yet to be addressed. We forecast SNF rent coverage ratios will remain flattish for health care REITs under coverage (AVIV, HCN, HCP, NHI, SBRA, SNH and VTR) and limit rent growth for REITs. We expect operators to continue to focus on cost controls to offset rate growth that has generally lagged inflation and for there to be greater volatility among operators with the Affordable Care Act transition.

We expect acquisitions will continue to be a major focus for REITs and investors. However, given increased competition and the expectation for rising rates, markets could undergo further spread compression vs. 2014. Across asset types, we expect transactions will continue to focus on senior housing and medical office building assets for diversified players. In addition, we expect continued geographic diversification with a growing focus on Europe (HCN and HCP have both opened local offices), given less competition and attractive financing. Overall, we expect cap rates to remain flat to slightly down across healthcare given increased retail and institutional appetite for stable and defensive yields at a discount to traditional, core commercial real estate in gateway cities.

We maintain our Buy on VTR (B-1-7), with upside to an improving economy via RIDEA, as well as a strong management team, balance sheet and flexible payout ratio. We also maintain our Buys on DOC (small cap growth; C-1-7) and SBRA (relative value; B-1-7).

Supply manageable: subsector outlook Supply concerns have eased a bit with apartments reporting re-accelerating rents despite the largest amount of supply deliveries since the recession and warehouse continuing to see significant absorption. Select sectors continue to see muted supply growth like malls and shopping centers and some have no supply growth at all such as manufactured housing. While in the current environment it appears that supply is in check, we note that bank lending has loosened throughout the year. While higher land values and construction costs have caused development yields to compress, we continue to monitor the supply outlook for 2015.

In years to come, affluent baby boomers may demand more modern housing (and potentially greater amenities) and prefer locations near top MSAs with a work, life and play environment. We believe this could favor REITs with product in infill markets (HCN & VTR) and could bring more mixed-use developments.

We have Buy ratings on VTR, DOC and SBRA.


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Chart 5: Supply as a percentage of inventory

Source: Reis, BofA Merrill Lynch Global Research

Apartments: Supply expected to peak in early 2015 Apartment supply deliveries in 2015 will be similar to 2014, based on Axiometrics (apartment data provider) ground up estimates of conventional apartment product and up about 5% or 18k units when looking at census permitting data for all projects of five or more units (note this includes affordable, condo, seniors housing and student housing).

In our view, supply for the major apartment markets where REITs have exposure will peak in early 2015. The markets with the greatest number of deliveries in 2015 are New York City, Houston, Washington, DC, Dallas and Seattle. Most REIT management teams continue to expect Washington DC to be a drag on their portfolios but hope 2015 performance will improve over 2014. We are cautious on Houston next year because oil prices may pressure employment in that market. CPT has the greatest exposure to Houston at 10.6% of NOI.

Chart 6: Historical new supply of +5 units in US

Source: Axiometrics, BofA Merrill Lynch Global Research

Student housing: Expected deliveries down 25% y/y Nationally, 2015 deliveries are expected to be just under 50k beds, down from 2014 (65k) and 2013 (58k) levels. ACC projects that the year-over-year decrease in its 78 university markets is 26% less. In 2014 its markets added 46,994 beds and in 2015 are projected to add 35,403 beds. EDR is expecting 15% less supply additions in its markets for fall 2015 or an absolute increase of 1.6% from current stock. EDR highlighted four university markets where supply is expected to increase by greater than 5%: University of Louisville (+8.4%), Saint Louis University (+7.3%), University of Oklahoma (+6.8%) and University of Alabama (+5.8%).

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Table 2: Top 10 MSAs for apartment deliveries MSA Name 2014 2015* Houston, TX 14,795 13,565 Washington, DC 12,339 13,736 Dallas, TX 11,366 12,894 Austin, TX 9,226 7,270 Seattle, WA 8,038 7,994 Denver, CO 7,397 7,302 Los Angeles, CA 7,156 7,092 New York, NY 6,880 16,413 Charlotte, NC 6,079 5,571 Atlanta, GA 5,754 5,561 National 235,638 225,007 Source: Axiometrics, data as of October 2014. Note: Based on properties that have already began construction and only includes conventional rental apartments


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ACC plans to add 3,188 beds in 2015 through its owned develop projects and 1,689 beds for third parties. EDR is contributing 2,948 beds with its owned/JV pipeline and 728 beds for third party projects. CCG has shut down its construction and development business.

Chart 7: National off-campus student housing supply

Source: Axiometrics


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Office US office development deliveries increased from the 2012 cyclical bottom in 2013, and the pipeline grew more in 2014. However, expected deliveries through 2017 remain well below the historic average since 1999 (see Chart 5). REIT development pipelines remain concentrated in select markets, with unique demand drivers such as tech, media, cyber defense and life sciences. Banks still are not lending to speculative development, so equity and a good sponsor is required to build.

The most active development markets are San Francisco, Los Angeles, Boston, Philadelphia and around key military bases. Development starts in Houston are likely to slow following recent oil price concerns.

REITs are particularly well positioned for build-to-suit developments in markets where rents do not justify speculative construction due to rising demand for collaborative, green and modern office space. We are seeing this trend most in the Southeast. This profitable and lower-risk development opportunity should continue for REITs in 2015.

REIS projects new US Office supply as a percentage of existing inventory of 1.01% in 2015, 1.05% in 2016, and 1.17% in 2017. This is well below the long term average of 1.27% since 2000. The table below provides the aggregate development pipeline for the office REITs as of September 30, 2014.

Table 3: Office development and redevelopment pipeline analysis Ticker Development pipeline ($M) As % of market cap Development pipeline ('000 SF) As % of total portfolio SF % leased

ARE 1,332 21.9% 1,600 8.7% 86.7% BDN 774 28.1% 1,631 7.6% 53.3% BXP 2,132 10.8% 3,278 7.8% 54.0% CLI 191 11.3% NA NA NA CUZ 183 6.9% 407 2.5% 84.8% HIW 349 8.9% 1,316 4.7% 83.4% HPP 383 7.6% 697 14.2% 50.4% KRC 1,165 20.5% 2,000 15.8% 79.0% LXP NA NA NA NA NA VNO 1,680 8.1% 1,883 NA NA Total 8,443 13,949

Source: Company filings, ,BofA Merrill Lynch Global Research Note: BDN includes office portion of Cira Centre South development announced 10/31/13 CLI's developments are mostly Multifamily rentals, thus SF and % leased is not a comparable statistic to use against other office REITs. CLI's development costs represent their own contribution. A money partner (Prudential, UBS, Hartz, etc.) is funding the remaining of each JV development CUZ's Emory Point JV is a multifamily development, thus SF is not a comparable statistic to use against other office REITs HPP's pipeline includes 284K SF lease Riot Games signed at Element LA. SLG does not disclose CIP amount for their JV redvelopment of 280 Park Avenue with VNO. VNO does not disclose SF or % leased for their developments. All data as of 9/30/14.

Chart 8: New office supply as a percentage of existing inventory (average = 1.3%)


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Industrial Industrial development started to increase first in the most active coastal and trade-related markets this cycle. New supply growth has since spread to almost all major markets. The amount of new square footage delivered in the US as a percent of total inventory has increased each year from 2012 through 2014. However, REIS projects this ratio to decline in 2015 from 2014, and for net absorption to outpace new deliveries in each year through 2017. This should maintain healthy operating conditions for Industrial REITs over the period.

The key variable keeping supply in check this cycle is that banks are not lending to speculative development, so equity is required. Brokers and industry contacts also commented to us in late 2014 that general supply concerns have caused equity investors funding development in many markets to take a mid-cycle pause and assess supply risk.

There is high visibility on 2015 deliveries at this point. Recent oil price concerns should slow supply growth in Houston, one of the most active markets for development this cycle. REIS projects new supply as a percentage of total inventory of 0.83% in 2015, 0.72% in 2016 and 0.79% in 2017. This compares to the 0.78% long-term average that was weighed down by very low levels of new supply from 2009- 2012. The aggregate development pipeline for our coverage universe was $2.9B, which was 36% leased at 9/30.

Table 4: Industrial development pipeline analysis Ticker Development pipeline ($M) As % of market cap Development pipeline ('000 SF) As % of total portfolio SF % leased DCT 280 9.3% 4,413 6.7% 10.0% DRE 627 9.4% 8,316 5.4% 59.0% EGP 116 5.4% 1,594 4.8% 33.0%

REXR 0 0.0% 0 0.0% 0.0% PLD 1,877 8.9% 23,304 7.1% 33.0%

STAG 0 0.0% 0 0.0% 0.0% Total 2,899 37,627 36.0%

Source: Company filings, BofA Merrill Lynch Global Research Note: PLD development pipeline is at PLD's share; As of 9/30/14

Retail While ground-up development pipelines in the strip center space continue to grow modestly, it is taking landlords/developers longer than previously expected to gain significant traction with new developments. This is due in part to retailers not prepared to pursue aggressive new store openings and unwilling to pay rents at new projects that would generate 8.0-10.0% stabilized yields for developers. We expect that 2015 will not see meaningful growth in new supply of open-aired shopping center space, but those REITs ahead of the curve, with programs in place, will be viewed favorably. According to REIS, the estimated pace of the strip center growth in 2015 is 0.6% of existing inventory, which is below the long-term (15-year) average of 1.1% of stock and is coming off of 38-year lows of new supply deliveries.

Table 5: US shopping center supply as a percentage of existing inventory (SF 000s) 2010 2011 2012 2013 2014E 2015E

Total Inventory 2,020,796 2,028,421 2,035,199 2,041,920 2,049,667 2,061,378 New supply 4,499 7,625 6,778 6,721 7,747 11,711 Growth in new supply 0.0% 0.4% 0.3% 0.3% 0.4% 0.6% Source: REIS and BofA Merrill Lynch Global Research; Showing community & neighborhood center retail real estate

Chart 9: New industrial supply as a percentage of existing inventory (average = 0.8%)


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Similar to shopping centers, we do not expect mall development to pick up in the near to medium term. Most department store anchors are looking to close underperforming locations first before moving on to new store openings. In addition, the gestation period for opening new malls is significantly longer than open-air centers. For example, the recently opened Mall at University Town Center in Sarasota by TCO took 14 years to develop, from conception to opening.

There are currently three mall developments under construction: TCO’s The Mall at San Juan, Puerto Rico, TCO’s International Market in Honolulu, HI, and Swire’s Brickell Town Centers, Miami, FL. All should be open in three years’ time, which equates to a pace of supply growth of around 0.1% per year. GGP is pursuing a vertical mall project in Norwalk, CT, but is still in the process of obtaining entitlements. Simon will partner with Cassco Development Co. to develop the first phase of retail of a 500,000 square foot shopping destination in Fort Worth, TX, which will be anchored by Neiman Marcus. The Shops at Clearfork will include 100 high-end specialty stores. Construction will commence in the spring of 2015 with a planned grand opening in February of 2017. We expect that, on average, only one new regional mall will be delivered per year for the next five years.

The most active ground-up development activity in retail real estate is within the outlet space. Between the US and Canada, 11 projects opened in 2014, and we expect a similar number of projects to open in 2015. The 11 projects opened in 2014 total 3.7 million square feet, which represents over a 5.7% increase on existing supply. Of that 3.7 million square feet, 56.0% included participation by a public REIT. We expect SPG and SKT to add to their development pipelines in 2015. While new outlets are beginning to open closer and closer to traditional full price distribution areas of markets, we believe that retailers are becoming more focused on the impact to their traditional sales from these new closer-in outlet centers.

Healthcare In healthcare, senior housing supply remains a key focus, with construction at 3.4% of inventory, according to National Investment Center for Seniors Housing & Care’s (NIC) 3Q14 data. In particular, Assisted Living (AL), which represents about 40% of senior housing inventory, remains elevated, with construction representing 5.1% of total AL inventory and 60% of total senior housing construction across top markets. We estimate construction typically takes about 12-18 months to complete, meaning inventory growth will remain elevated through 2015.

Positively, BofAML forecasts 3.3% GDP growth in 2015, driven by improved housing and labor markets that have a high correlation with senior housing demand. Near term we expect continued resilient results from operators, but supply remains a key issue to monitor for investors – particularly for those REITs with more volatile senior housing operating assets (a.k.a. RIDEA) like HCN (38% of assets) and VTR (37%). We see fundamentals remaining firm for most of 2015 (expect 4-6% same store RIDEA NOI growth), but are worried growth could begin to wane by year-end.


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Chart 10: Senior housing construction and annualized absorption as a percentage of total inventory (top 31 MSAs)

Source: NIC and BofA Merrill Lynch Global Research.

The chart above highlights the markets with the greatest senior housing construction as a percentage of inventory and compares it to the 3Q14 annualized absorption as a percentage of inventory. Texas markets continue to have the highest level of construction given relatively easy permitting and available land vs. more infill coastal markets.

Self storage Supply in self storage is starting to pick up. Given the strong performance of the sector in recent years, interest from developers has increased and the buzz at industry conferences is certificate of occupancy (CO) deals. PSA is growing its development, redev and expansion pipeline to ~$350M per year and CUBE, EXR and SSS are increasingly partnering with developers. Those developers that cannot get funding or have construction loans contingent on institutional quality management of the facilities once complete, are partnering with REITs in CO deals.

FW Dodge reports only 130 new starts in the last five quarters. While these numbers appear to be missing some of the activity, we do not expect supply to adversely impact self storage fundamentals in 2015.

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Chart 11: Historical self storage starts (# of facilities); 3Q14 starts are down 11% QoQ and 20% YoY

Source: SSDS (FW Dodge), BofA Merrill Lynch Global Research

Chart 12: Total construction SF nationwide (in millions) and cost/sf

Source: SSDS (FW Dodge), BofA Merrill Lynch Global Research

Attractive & growing distributions BofAML’s Equity Strategist Savita Subramanian continues to highlight the secular case for yield remains intact. Aging demographics is a theme not just in the US, but across most developed economies. BofAML Strategist Sarbjit Nahal highlights that in a little over three decades, people over 65 years old will outnumber children under 5 years old for the first time in human history. But it is easy to interpret this as creating an air pocket for yield plays, with increasing life expectancies and with net worth still well below 2007 levels, Baby Boomers’ preferences may require a combination of income plus capital appreciation. In our view, REITs fit this thesis.

REITs offer average distribution rates of 3.6% and distribution growth potential due to their ability to grow distribution through internal growth (from positive fundamentals) and external growth (redevelopments and developments).

BofAML Equity Strategists forecast S&P 500 dividend growth of 10.0% in 2015 vs. our forecast for REITs of 6.8% in 2015. However, the S&P 500 is off of a lower base, with the S&P 500 yielding 1.9% vs. REITs distribution rate of 3.6%.

To asses which REITs have the most potential for distribution growth, we updated our bi-annual analysis of distribution growth prospects examined our coverage universe under two scenarios:

1. we pulled the three-year distribution CAGR from our current earnings model for each REIT; and,

2. we assume REITs within our coverage will raise distribution to an 80% AFFO payout ratio by 2017 in our sensitivity or bull case.

Our earnings models forecast a weighted average distribution three-year CAGR of 6.1%, with an average AFFO payout ratio of 73.3% in 2017. Single-family rentals have the highest three-year CAGR (~54%) due to the emerging growth nature of these companies and low current distribute rates (~1.0%). Ex SFRs, Multifamily (+8.6%), Self Storage (+7.8%), and Data Centers (+7.5%) screened as the highest three-year distribution growth, while Triple Nets (3.0%) and Health Care (3.4%) screened the lowest. Based on our current models, REITs with the highest three-year distribution growth rates (ex SFRs) are CONE, GPT, QTS, REXR, COR, and ESS, while the REITs with the lowest expected growth are CCG, CLI, SIR, FSP, GOV and PKY.

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Table 6: Distribution growth for base case and sensitivity 2015 3 yr CAGR

AFFOx Base case Sensitivity Malls 21.8x 6.1% 12.7% Multifamily 22.0x 8.6% 12.6% Office 26.4x 5.1% 11.0% Self Storage 22.1x 7.8% 10.5% Specialty 16.7x 7.5% 10.3% Total 21.7x 6.1% 10.1% Strips 21.7x 3.4% 8.8% Industrial 23.5x 4.6% 5.3% Healthcare 17.2x 3.5% 4.6% Source: FactSet & BofA Merrill Lynch Global Research estimates, Note (*): Based on sensitivity analysis: 2017 distribution estimate using 80% AFFO payout ratio. Sorted by sensitivity. 3-year CAGR based on 4Q14 annualized vs. FY 2017. AFFOx based on 2015 AFFO estimates and priced as of 12/1/14. Excluding SFR (single-family rentals).


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Our sensitivity analysis uses at least an 80% AFFO payout ratio in 2017. If our original estimated AFFO payout ratios were already higher than the 80% assumed in the sensitivity, we kept our estimates. According to our sensitivity analysis, we took the 2017 AFFO payout ratio to 81.7% from 73.3%, and the weighted average three-year distribution CAGR increased to 10.1%. This is slightly lower than the 11.0% three-year CAGR from our December 2013 analysis due to strong distribution growth achieved by REITs in 2014.

After SFRs (62.4%), sectors that screened the highest distribution growth were Malls (12.7%), Multifamily (12.6%) and Office (11.7%), while the sectors that screened the lowest were Triple Nets (3.3%) and Health Care (4.6%). Based on our sensitivity analysis, the most attractive REITs for dividend growth are CONE, ACC, CUBE, QTS, ELS and CUZ. The least attractive are SIR, FSP, GOV and PKY.

When we layer in 2015 AFFO multiples versus the three-year distribution CAGR based on our sensitivity analysis, we can get a sense of which sectors screen cheap/expensive versus their potential distribution growth. Specialty looks most attractive with the lowest multiple and highest growth. Triple-nets look the least attractive with the lowest growth (although cheap), while Industrial looks expensive but is skewed by PLD (which has a high multiple, average distribution growth and large relative market cap weighting).

Chart 13: 2015 AFFO multiple vs. *Distribution three-year CAGR (based on sensitivity)

Source: Source: FactSet, BofA Merrill Lynch Global Estimates; Priced as of 12/1/14 * Based on sensitivity analysis: 2016 dividend estimate using 80% AFFO payout ratio. Ex SFRs. Note (*): Multifamily include Manufactured Housing & Student Housing. Chart excludes SFRs given growth off of a low initial base.

Fund flows and cap rates While we note there is a strong relationship between borrowing rates and real estate values, we also note that investor appetite for yield and real estate has continued to increase providing a support for cap rates, which we think would hold even in a rising interest rate environment.

Office – cap rates may compress a little further from here; flow of capital going to US since Asia and Europe slowing; industry participants expect Chinese insurance companies to follow

Warehouse – cap rates have likely bottomed

Retail – cap rates unlikely to go much lower but the amount of capital chasing the sector is at an all-time high

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2015 *Sensitivity Most attractive AFFOx Distr 3yr CAGR CONE (C-1-7) 14.3x 39.5% ACC (B-1-7) 16.9x 27.7% CUBE (C-1-7) 18.2x 24.5% QTS (C-1-7) 13.7x 24.4% ELS (B-1-7) 18.5x 22.5% CUZ (C-2-7) 19.3x 21.2%

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Least attractive AFFOx Distr 3yr CAGR SIR (C-3-8) 9.0x 0.4% FSP (B-3-8) 16.6x 0.0% GOV (C-3-8) 17.0x 0.0% PKY (B-2-7) 33.4x 0.0% Source: FactSet & BofA Merrill Lynch Global Research estimates, Note (*): Based on sensitivity analysis: 2017 distribution estimate using 80% AFFO payout ratio. Sorted by sensitivity. 3-year CAGR based on 4Q14 annualized vs. FY 2017. AFFOx based on 2015 AFFO estimates and priced as of 12/1/14. Excluding SFR (single-family rentals).


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Apartments – could see further cap rate compression as debt and equity continue to flow into the sector; also seeing development yields compress

Self Storage – further compression possible; REITs can still make deals accretive

Healthcare/Triple Nets – cap rates most dependent on rates; may see less downward pressure as nontraded REITs were the most aggressive bidders and have not raised as much money for 2015

Data centers – flat to further compression, driven by tighter supply and continued demand for yield within the financial community

Chart 14: Cap rates across property types were about 20-40bp tighter year-over-year

Source: Real Capital Analytics, BofA Merrill Lynch Global Research

Chart 15: The differential between cap rates and the 10-year Treasury yield indicates cap rates can compress further


Chart 16: The average cap rates across sectors was up to 36bp lower between 2H 2013 and 1H 2014

Source: CBRE, BofA Merrill Lynch Global Research

As discussed at our global conference in September, given the global increase in savings, there continues to be increased focus from insurance companies and other institutional investors interested in real estate. Often these global investors are looking to invest for “decades plus,” which creates transaction problems because they remove major assets from trading for extended periods. Higher

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demand is forcing institutional investors to accept increased risk (ie, core assets in non-core markets or non-core assets in core markets). Highlighting the high level of demand is the number of bids chasing each deal. In the first half of 2013 for the global market, $7 chased every $1 of deals. Today, it has increased to $10 chasing every $1 of deals.

Table 8: Cross border capital tracker, transactions closed/ under contract past two years Origin of capital Top market destinations Country Total props Total volume Market Total props Total volume Canada 846 $24,981.9 Manhattan 110 $21,514.5 China 82 $7,843.3 Los Angeles 72 $8,561.4 Norway 81 $6,339.7 Boston 53 $6,293.6 Germany 87 $4,752.4 Chicago 96 $4,302.1 Singapore 19 $4,748.0 DC 33 $4,125.6 Switzerland 51 $4,078.9 San Francisco 46 $3,865.5 Japan 53 $3,960.3 Hawaii 13 $2,990.1 Israel 104 $3,953.2 Houston 76 $2,499.0 Hong Kong 33 $3,121.9 Seattle 64 $2,110.1 Other 580 $25,033.5 Other 1,373 $32,551.1 Source: Real Capital Analytics, BofA Merrill Lynch Global Research

Chart 17: Cross-border investment activity in US CRE increased from 2-4% in 2001 to 10-12% in 2014


Chart 18: Foreign capital flows in to US CRE have become more concentrated in trophy assets in primary markets


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Chart 19: Cumulative foreign investment in US CRE since 2007 has been greatest from Canada, Europe and the Middle East


Table 9: Since the beginning of 2013, most cross border investment in US CRE has been in top tier markets or those with exposure to the technology, healthcare or energy industries


Potential for leveraged buyouts and REIT M&A Select REIT sectors are getting priced out of the acquisition market, and apartments are even getting priced out of development. The REITs with conservative leverage cannot compete with private equity or developers that are able to take leverage up to 65-75% LTV. As discussed at our Global Real Estate conference in September, the debt markets are open, and it is better to be a borrower than a lender. There is more capital looking for a home than opportunities to invest. Volumes and pricing are up meaningfully from 2011, but

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volumes are well below 2007 due to high levels of M&A debt in that year. CMBS LTVs were 72-80% in 2007, and are down only 5-10% from that level today. Insurance lending LTVs were 74% in 2007, and are now 69%.

Cap rates in the transaction market continue to be 25-75bp below implied cap rates on the REITs, making the environment conducive to leveraged buyouts and take-privates, in our view. The average leverage for REITs is 34%, which the private market can take up to 65-75%. Blackstone was recently in the press, reportedly looking for publicly listed real estate investment trusts to take private when it starts investing its latest property fund.

Real Estate GICS elevates status of REITs The creation of the Real Estate GICS is a significant change, in our view. MSCI and S&P Dow Jones Indices announced in late 2014 the creation of a new GICS sector (the 11th sector), Real Estate, where Equity REITs will be removed from Financials (but Mortgage REITs will remain). The implementation likely will not occur until the proposed date, August 31, 2016. The final implementation date will be announced by March 31, 2015. In our view, the GICs sector creation elevates the status of Real Estate. Feedback gathered by MSCI and S&P Dow Jones Indices during the annual GICS structural review “confirmed that Real Estate is now viewed as a distinct asset class and is increasingly being incorporated separately into the strategic asset allocation of asset owners.”

The near-term potential impact to REIT shares is that financial portfolio managers and financial ETFs would no longer have to own REITs. Longer term, we would expect less volatility for REITs and therefore a lower beta, which would theoretically help with portfolio diversification. We see potential upside as managers increasingly include real estate as a sector allocation to portfolios.

Risks to the year ahead Risk to our thesis include lower/higher interest rates, higher/lower unemployment, a strong/weaker than expected consumer, a tightening of financial markets, higher/lower levels of CMBS issuance, looser real estate underwriting standards, increased development or higher real estate taxes.

* Relative within REITs, we view each REIT sector (i.e., office, apartments, retail, etc.) as either overweight (will outperform the RMZ rate of change in a twelve month period), underweight (will underperform the RMZ rate of change in a twelve month period), or equal weight (will be in line with RMZ rate of change over a twelve month period). The MSCI US REIT Index (RMZ) is a free float market capitalization weighted index that is comprised of Equity REIT securities that belong to the MSCI US Investable Market 2500 Index. The MSCI US REIT Index includes only REIT securities that are of reasonable size in terms of full and free float-adjusted market capitalization. MSCI began calculating the index on June26, 2005. The AMEX had previously been calculating the index with a base level of 200, as of December 30, 1994.

The creation of the Real Estate GICS sector is a significant change; expected implementation is August 2016.


24

Appendix: BofAML vs. consensus 2015

Table 10: BofAML 2015 FFO estimates vs. consensus

Source: BofAML Merrill Lynch Global Research and FactSet

2015 2015Us vs. Street Street Us vs. Street Street

Apartments IndustrialAEC $1.35 ($0.00) $1.35 DCT $2.03 $0.02 $2.01AIV $2.22 ($0.00) $2.23 DRE $1.24 ($0.01) $1.25AVB $7.42 $0.01 $7.41 EGP $3.73 $0.01 $3.72CPT $4.54 $0.02 $4.53 PLD $1.99 ($0.01) $2.00EQR $3.35 ($0.04) $3.39 REXR $0.88 $0.01 $0.87ESS $9.48 $0.10 $9.38 STAG $1.55 ($0.04) $1.59HME $4.71 $0.05 $4.66 Average ($0.01)PPS $2.84 $0.01 $2.84UDR $1.62 ($0.01) $1.63 OfficeAverage $0.01 ARE $5.21 $0.04 $5.17

BDN $1.44 $0.01 $5.39Man. Homes BXP $5.34 ($0.05) $5.39ELS $2.95 $0.02 $2.93 CLI $1.74 ($0.02) $1.76SUI $3.56 ($0.01) $3.57 CUZ $0.84 $0.00 $0.84Average $0.01 EQC $2.16 $0.02 $2.14

DEI $1.63 $0.04 $1.63St. Housing ESRT $0.83 $0.04 $0.86ACC $2.53 $0.04 $2.49 FSP $1.07 $0.00 $1.05CCG $0.67 ($0.02) $0.69 GOV $2.29 $0.04 $2.25EDR $2.00 ($0.07) $2.07 HIW $3.03 $0.00 $3.03Average $0.01 KRC $3.11 $0.04 $3.07

LXP $1.13 $0.05 $1.08Single-family Rental OFC $1.94 ($0.07) $2.00AMH $0.88 ($0.03) $0.91 PKY $1.39 ($0.04) $1.43ARPI $0.91 $0.02 $0.89 SIR $2.67 $0.01 $2.66SBY $0.49 ($0.00) $0.49 SLG $6.28 $0.04 $6.24Average ($0.02) VNO $5.21 ($0.05) $5.26

Average ($0.01)Health CareAVIV $2.15 $0.01 $2.14 MallsDOC $1.09 $0.02 $1.07 CBL $2.28 $0.02 $2.26HCN $4.38 $0.09 $4.29 GGP $1.46 $0.02 $1.44HCP $3.18 $0.02 $3.16 GRT $0.80 $0.01 $0.79MPW $1.20 ($0.02) $1.22 MAC $3.87 $0.02 $3.85NHI $4.86 $0.23 $4.63 PEI $2.04 ($0.01) $2.05SBRA $2.46 ($0.02) $2.48 RSE $1.72 $0.03 $1.69SNH $1.81 ($0.01) $1.82 SPG $9.77 ($0.03) $9.80VTR $4.68 $0.01 $4.67 TCO $3.60 $0.06 $3.54Average $0.04 Average ($0.01)

Triple Net StripsARCP NA NA AAT $1.69 ($0.02) $1.71EPR $4.36 ($0.02) $4.38 AKR $1.55 $0.03 $1.52NNN $2.15 ($0.03) $2.18 BRX $1.96 ($0.02) $1.98O $2.72 $0.01 $2.72 DDR $1.25 ($0.02) $1.27SRC $0.86 $0.00 $0.86 EQY $1.33 $0.02 $1.32WPC $3.85 ($0.22) $4.07 FRT $5.32 ($0.00) $5.32Average ($0.06) IRC $1.00 $0.01 $0.99

KIM $1.47 $0.01 $1.46Specialty KRG $2.07 $0.01 $2.06CONE $1.93 ($0.04) $1.97 REG $2.95 $0.00 $2.95COR $2.50 $0.07 $2.43 ROIC $0.92 $0.01 $0.91DLR $5.04 ($0.06) $5.10 RPT $1.32 $0.02 $1.30QTS $2.40 $0.08 $2.32 SKT $2.22 $0.04 $2.18Average ($0.05) WRI $2.09 $0.01 $2.08

Average $0.00StorageCUBE $1.22 $0.04 $1.18 All REITs Average $0.00PSA $8.66 $0.01 $8.65 YoY growth rate 6.4% 8.2%SSS $4.73 $0.00 $4.73Average $0.01

11 December 2014

U.S. REITs

25

REIT Valuation Summary Table 11: Apartment REITs

Source: Company reports, FactSet, BofA Merrill Lynch Global Research; priced as of 12/09/2014.

Multifamily - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAEC Associated Estates Realty Corporation U $22.94 6.5% $21.45 106.9% 6.3% $1.25 ($0.01) $1.35 ($0.00) 17.0x 68.0% 20.1x 18.6x NA NA NA NA -22.4% NA NAAIV Apartment Investment and Management Co B $37.55 6.0% $39.60 94.8% 6.2% $2.08 ($0.00) $2.22 ($0.00) 16.8x 59.6% 21.9x 19.5x 20.3x 18.8x 31.1x 5.8x -15.6% -9.0% -8.5%AVB AvalonBay Communities, Inc. B $163.19 4.7% $162.30 100.5% 4.6% $6.84 ($0.33) $7.42 $0.01 22.0x 71.9% 25.8x 23.5x 22.8x 22.3x 31.7x 9.3x -0.7% 2.2% 8.3%CPT Camden Property Trust N $74.70 5.7% $80.50 92.8% 6.0% $4.30 $0.02 $4.54 $0.02 16.5x 71.4% 20.5x 18.9x 20.9x 19.4x 29.1x 7.2x -20.9% -6.3% -5.7%EQR Equity Residential N $72.23 4.8% $71.50 101.0% 4.8% $3.14 $0.01 $3.35 ($0.04) 21.3x 77.6% 29.0x 25.9x 23.7x 22.4x 28.8x 9.0x 11.8% 6.3% 9.0%ESS Essex Property Trust, Inc. B $205.28 4.4% $197.00 104.2% 4.3% $8.47 ($0.02) $9.48 $0.10 21.9x 69.8% 29.6x 24.0x 23.5x 22.7x 30.2x 8.9x 14.0% 5.5% 10.5%HME Home Properties, Inc. B $65.32 6.4% $66.70 97.9% 6.5% $4.42 $0.06 $4.71 $0.05 14.0x 72.6% 16.8x 15.7x 17.2x 17.3x 22.7x 10.8x -35.1% -22.6% -16.0%PPS Post Properties, Inc. N $58.72 5.1% $60.40 97.2% 5.2% $2.38 $0.01 $2.84 $0.01 20.7x 70.2% 25.7x 24.0x 25.3x 24.6x 36.8x 9.5x -0.8% 13.7% 19.7%UDR UDR, Inc. N $31.10 5.1% $30.90 100.6% 5.1% $1.52 ($0.03) $1.62 ($0.01) 19.1x 75.7% 22.8x 21.3x 20.2x 18.4x 25.8x 7.1x -11.9% -9.1% -10.6%

Apartment REITs 5.0% 100.2% 5.0% ($0.08) $0.01 20.3x 72.7% 25.9x 23.1x 22.3x 20.6x 27.3x 8.5x 7.7% 10.0% 11.9%ACC American Campus Communities, Inc. B $40.41 5.3% $43.80 92.3% 5.6% $2.36 ($0.01) $2.53 $0.04 16.2x 66.8% 18.5x 17.2x 19.4x 19.8x 35.3x 11.5x -2.6% -5.9% 9.2%CCG Campus Crest Communities, Inc. U $7.82 6.5% $7.00 111.7% 6.2% -$1.39 ($0.12) $0.67 ($0.02) 11.3x 51.0% 14.4x 12.1x NA NA NA NA -24.3% NA NAEDR Education Realty Trust, Inc. B $35.75 5.5% $35.41 101.0% 5.4% $1.89 $0.03 $2.00 ($0.07) 17.3x 79.0% 21.6x 18.9x 25.6x 25.6x 53.7x 12.3x 13.7% 24.2% 0.0%

Student Housing REITs 5.4% 96.1% 5.6% ($0.00) $0.00 16.1x 68.8% 19.0x 17.2x 20.6x 18.1x 25.8x 9.8x -21.1% 1.8% 10.9%ELS Equity LifeStyle Properties, Inc. B $50.57 5.9% $48.73 103.8% 5.8% $2.70 ($0.01) $2.95 $0.02 17.3x 56.2% 20.9x 18.9x 16.3x 16.9x 25.9x 8.6x 1.0% 2.1% 19.9%SUI Sun Communities, Inc. U $59.96 6.5% $53.50 112.1% 6.0% $3.40 ($0.01) $3.56 ($0.01) 16.8x 80.0% 20.4x 18.2x NA NA NA NA -1.4% NA NA

Manufactured Homes REITs 6.2% 107.1% 5.9% ($0.01) $0.00 17.1x 65.8% 20.7x 18.6x 15.9x 14.1x 18.7x 5.2x -14.1% -21.3% -19.4%AMH American Homes 4 Rent Class A B $16.88 5.1% $19.10 88.4% 5.5% $0.65 $0.14 $0.88 ($0.03) 18.5x 45.5% 30.1x 21.9x NA NA NA NA NM NA NAARPI American Residential Properties, Inc. U $17.43 6.0% $18.80 92.7% 6.2% $0.42 $0.03 $0.91 $0.02 19.6x 11.7% 293.5x 34.7x NA NA NA NA NM NA NASBY Silver Bay Realty Trust Corp. N $16.46 5.2% $17.60 93.5% 5.2% $0.35 $0.08 $0.49 ($0.00) 33.6x 71.4% 96.8x 58.8x NA NA NA NA NM NA NA

SF Rental REITs 5.2% 89.6% 5.6% $0.12 ($0.02) 20.6x 44.8% 70.0x 28.2x NA NA NA NA NM NA NAREITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

StatisticsLast 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAEC Associated Estates Realty Corporation $22.94 $23.00 $15.49 49.5% 46.4% 26.0% 19.2% 0.8% 1.0% 3.7% 1,322 35.5% 7.2x 4.6% 17.4x 13.4x 12.0x 22.4x 4.4x -15.4% -31.4% -33.7%AIV Apartment Investment and Management Co $37.55 $37.86 $25.07 49.6% 48.9% 11.6% 5.2% 0.9% 0.4% 2.8% 5,490 43.0% 7.3x 3.0% 17.1x 14.5x 13.3x 18.9x 3.0x -16.5% -25.8% -26.6%AVB AvalonBay Communities, Inc. $163.19 $164.45 $114.16 41.6% 38.3% 10.4% 3.7% 0.6% 0.2% 2.8% 21,542 22.5% 5.6x 4.3% 24.8x 23.6x 22.3x 30.5x 9.1x 20.9% 20.5% 23.1%CPT Camden Property Trust $74.70 $77.90 $56.09 35.2% 30.9% 3.2% -1.1% 1.3% -0.2% 3.5% 6,454 29.8% 5.6x 3.3% 16.8x 17.4x 16.2x 21.0x 5.9x -18.1% -11.1% -10.6%EQR Equity Residential $72.23 $72.51 $50.89 42.8% 40.2% 12.7% 4.2% 1.6% 0.9% 2.9% 26,173 29.6% 6.7x 1.8% 21.6x 20.0x 18.2x 23.4x 8.0x 5.0% 2.4% 0.5%ESS Essex Property Trust, Inc. $205.28 $205.82 $137.53 46.2% 37.1% 8.8% 2.4% 1.0% 0.8% 2.5% 13,126 28.1% 9.2x 2.0% 22.4x 21.0x 20.1x 27.4x 9.7x 9.2% 7.2% 11.1%HME Home Properties, Inc. $65.32 $66.74 $52.16 27.7% 23.7% 6.8% 3.2% 0.8% 0.0% 4.5% 3,747 39.8% 6.1x 1.9% 14.1x 15.0x 14.9x 20.0x 8.4x -31.3% -23.2% -18.0%

MORE Monogram Residential Trust Inc $8.84 $9.75 $8.72 NA NA NA NA -3.3% -0.7% NA 1,493 42.5% NA 0.0% NA NA NA NA NA NA NA NAPPS Post Properties, Inc. $58.72 $59.18 $44.05 32.8% 31.1% 10.0% 6.1% 1.5% 0.9% 2.7% 3,198 21.8% 3.8x 2.1% 21.0x 20.1x 19.7x 26.7x 7.5x 2.1% 2.5% 8.5%UDR UDR, Inc. $31.10 $31.29 $22.85 38.4% 33.0% 7.1% 3.0% 0.4% 0.5% 3.3% 7,937 31.6% 7.9x 1.9% 19.4x 17.9x 15.9x 20.4x 6.4x -5.4% -8.7% -12.1%MAA Mid-America Apartment Communities, Inc. $73.45 $75.09 $59.23 26.3% 23.8% 4.6% 3.9% 1.2% 0.9% 4.2% 5,527 38.3% NA 1.9% 14.2x 14.3x 14.0x 17.7x 7.4x -31.1% -26.8% -22.8%

Apartment REITs 40.0% 36.2% 9.7% 3.6% 1.0% 0.5% 3.0% 96,011 30.2% 6.7x 2.2% 20.5x 19.6x 18.1x 23.1x 7.9x 14.0% 17.4% 19.2%ACC American Campus Communities, Inc. $40.41 $40.74 $31.64 30.6% 27.5% 4.2% 3.4% 1.7% 0.1% 3.8% 4,248 40.8% 8.4x 1.3% 16.5x 18.4x 17.8x 22.6x 10.5x NM NM NMCCG Campus Crest Communities, Inc. $7.82 $9.76 $6.00 -11.7% -11.3% 0.5% 9.2% 3.0% 2.5% 8.4% 506 53.4% 11.8x 7.3% 11.7x 13.1x 13.1x 18.4x 9.3x -29.7% -26.9% -21.8%EDR Education Realty Trust, Inc. $35.75 $36.21 $25.77 41.3% 38.3% 11.6% 3.6% 2.7% 0.4% 4.0% 1,696 30.2% 6.6x 4.3% 18.3x 18.1x 15.6x 23.6x 4.8x 10.4% 1.2% -6.9%

Student Housing REITs 30.1% 27.3% 5.8% 3.9% 2.1% 0.4% 4.2% 6,450 39.7% 8.3x 3.7% 16.6x 17.9x 16.7x 21.8x 6.0x -7.8% 7.2% 12.5%ELS Equity LifeStyle Properties, Inc. $50.57 $50.95 $35.06 42.8% 43.5% 14.0% 3.8% 1.8% -0.2% 2.6% 4,243 35.6% 6.1x 0.4% 17.6x 15.2x 15.1x 23.8x 8.1x NM NM NMSUI Sun Communities, Inc. $59.96 $60.00 $39.53 46.4% 51.5% 15.4% 4.4% 3.4% 0.6% 4.3% 2,879 32.6% 5.0x 3.4% 17.5x 12.3x 10.8x 17.5x 3.0x NM NM NM

UMH UMH Properties, Inc. $9.40 $10.41 $9.01 7.3% 6.7% -6.1% -3.8% -1.1% 2.4% 7.7% 222 61.0% NA 2.6% 15.2x 14.6x 14.6x NA NA -8.7% -18.4% -12.7%

Manufactured Homes REITs 43.2% 45.5% 13.9% 3.8% 2.4% 0.2% 3.4% 7,344 35.7% 5.7x 1.7% 17.5x 14.2x 13.8x 19.5x 7.1x -2.8% -14.8% 0.7%AMH American Homes 4 Rent Class A $16.88 $18.85 $15.76 5.1% 3.5% -5.9% -1.3% -2.8% -0.9% 1.2% 3,559 23.2% NA 1.9% 42.2x NA NA NA NA NM NM NMARPI American Residential Properties, Inc. $17.43 $19.63 $16.21 1.6% 1.9% -10.1% -2.6% -0.4% -0.9% 0.0% 561 53.3% NA 7.1% 23.6x NA NA NA NA NM NM NMSBY Silver Bay Realty Trust Corp. $16.46 $17.10 $14.65 3.6% 2.6% -1.0% -0.2% 0.4% 0.0% 1.0% 615 33.6% NA 4.1% 32.9x NA NA NA NA NM NM NMRESI Altisource Residential Corp. Class B $20.66 $35.05 $18.28 -27.5% -28.5% -13.2% -0.7% 2.5% 1.4% 10.6% 1,181 54.6% NA 6.2% 4.7x 9.8x 9.8x 17.2x 4.5x NM NM NMSWAY Starwood Waypoint Residential Trust $26.44 $31.04 $23.92 NA NA -3.6% 2.9% 2.1% -0.2% 2.1% 999 58.6% NA 10.9% 24.7x 25.8x 25.8x 37.3x 17.5x NM NM NM

SF Rental REITs -1.6% -2.7% -6.7% -0.6% -0.7% -0.3% 2.8% 4,735 41.3% 0.0x 4.1% 34.6x 44.6x 44.6x 311.9x 12.5x NM NM NM

REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

FFO Premium/Discount

BofAML FFO Estimates vs. StreetForward Cap Rates and NAV BofAML AFFO Payout & Multiples 2014E AFFO Premium/Discount

Total ReturnsPrice Performance Yields, Leverage, and Ratios Consensus FFO Multiples (forward 4 quarters)

11 December 2014

U.S. REITs

26 Table 12: Health Care REITs

Source: Company reports, FactSet, BofA Merrill Lynch Global Research; priced as of 12/09/2014.

Health Care - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAVIV Aviv REIT, Inc. NA $34.18 8.9% $21.20 161.2% 7.0% $1.86 $0.04 $2.15 $0.01 16.0x 62.1% 17.9x 14.2x NA NA NA NA -2.5% NA NADOC Physicians Realty Trust B $15.67 7.3% $13.37 117.2% 6.5% $0.74 $0.02 $1.09 $0.02 14.6x 88.7% 22.7x 15.0x NA NA NA NA 24.0% NA NAHCN Health Care REIT, Inc. N $75.55 6.6% $61.34 123.2% 5.7% $4.11 ($0.00) $4.38 $0.09 17.6x 85.0% 20.8x 19.5x 16.2x 14.8x 22.1x 5.7x 13.6% -0.4% -3.3%HCP HCP, Inc. U $45.03 7.1% $34.40 130.9% 5.9% $3.01 ($0.02) $3.18 $0.02 14.3x 83.4% 17.5x 16.6x 17.0x 16.1x 22.5x 7.8x -4.5% 4.7% 5.3%MPW Medical Properties Trust, Inc. U $13.66 9.0% $12.08 113.1% 8.4% $1.07 $0.00 $1.20 ($0.02) 11.2x 83.6% 13.7x 12.4x NA NA NA NA -25.4% NA NANHI National Health Investors, Inc. N $66.52 7.4% $45.50 146.2% 5.6% $4.15 ($0.00) $4.86 $0.23 14.4x 76.0% 17.6x 15.4x NA NA NA NA -4.0% NA NA

SBRA Sabra Health Care REIT, Inc. B $27.88 8.1% $23.40 119.1% 7.3% $2.28 $0.03 $2.46 ($0.02) 11.2x 72.5% 13.0x 12.6x NA NA NA NA -29.2% NA NASNH Senior Housing Properties Trust U $22.79 6.5% $25.70 88.7% 7.0% $1.74 ($0.01) $1.81 ($0.01) 12.5x 104.3% 14.8x 15.2x 13.4x 13.0x 16.8x 8.4x -19.4% -17.3% -15.0%VTR Ventas, Inc. B $72.38 6.6% $59.80 121.0% 5.8% $4.47 $0.01 $4.68 $0.01 15.5x 73.0% 17.9x 16.9x 16.7x 15.7x 21.1x 1.7x -2.5% 3.2% 2.8%

Health Care REITs 6.9% 123.6% 6.0% ($0.00) $0.04 15.4x 81.5% 18.3x 17.2x 16.2x 15.3x NA 6.2x -23.9% -19.9% -16.8%REITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

Health CareStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAVIV Aviv REIT, Inc. $34.18 $34.71 $22.74 50.2% 47.0% 23.3% 3.0% 0.3% 0.7% 3.2% 1,615 34.2% 6.2x NA 16.4x NA NA NA NA 9.7% NA NADOC Physicians Realty Trust $15.67 $16.10 $11.43 31.4% 44.0% 11.7% 1.3% 1.5% -0.3% 5.7% 742 17.1% 8.2x 3.6% 15.5x NA NA NA NA 4.1% NA NAHCN Health Care REIT, Inc. $75.55 $76.08 $52.43 48.3% 43.4% 15.4% 7.0% 1.0% 1.0% 4.2% 24,756 31.3% 6.4x 4.1% 17.7x 15.1x 13.9x 19.5x 9.3x 18.7% 2.9% 0.0%HCP HCP, Inc. $45.03 $45.69 $35.50 30.7% 28.8% 7.5% 4.3% -0.9% 0.4% 4.8% 20,681 30.8% 5.3x 2.5% 14.3x 14.4x 14.2x 19.4x 7.6x -3.8% -1.6% 2.2%MPW Medical Properties Trust, Inc. $13.66 $14.14 $11.87 19.1% 13.8% 4.5% 2.3% 0.0% 1.6% 6.1% 2,356 40.7% 6.6x 4.9% 11.5x 12.1x 10.9x 15.0x 3.9x -23.0% -17.5% -21.9%NHI National Health Investors, Inc. $66.52 $67.95 $54.75 23.2% 21.0% 7.5% 0.5% 1.2% 0.7% 4.6% 2,455 20.7% 4.5x 3.1% 14.8x 15.7x 15.7x 19.4x 13.0x -0.8% 7.1% 13.2%

SBRA Sabra Health Care REIT, Inc. $27.88 $31.17 $24.01 12.6% 11.7% 1.7% 0.0% -0.6% 0.5% 5.6% 1,520 45.9% 10.0x 2.3% 11.5x 11.9x NA 19.2x 6.9x -23.0% -18.7% NASNH Senior Housing Properties Trust $22.79 $24.60 $20.70 9.9% 6.7% 4.5% 2.3% 1.4% 1.3% 6.8% 4,647 37.3% 6.0x 3.5% 12.5x 12.7x 12.3x 15.6x 5.8x -16.0% -13.3% -11.8%VTR Ventas, Inc. $72.38 $72.71 $54.89 30.7% 32.5% 13.3% 6.0% -0.1% 1.0% 4.0% 21,303 33.0% 6.4x 5.7% 15.6x 16.0x 15.0x 19.3x 6.6x 4.9% 8.9% 8.0%HCT American Realty Capital Healthcare Tru $11.90 $11.94 $9.44 NA NA 11.6% 7.8% 0.5% 1.1% 5.7% 2,015 31.5% NA 3.1% NA NA NA 0.0x 0.0x NA NA NAHR Healthcare Realty Trust Incorporated $26.94 $26.96 $20.85 32.8% 28.9% 9.9% 3.5% 0.7% 1.7% 4.5% 2,645 34.7% NA 2.5% 17.5x 16.6x 15.9x 21.0x 9.7x 17.4% 13.4% 14.7%

HTA Healthcare Trust of America, Inc. Class $12.92 $13.03 $9.71 36.3% 33.0% 6.5% 4.1% -0.6% 0.2% 4.5% 3,191 31.9% NA 1.2% 16.6x NA NA NA NA 11.1% NA NALTC LTC Properties, Inc. $42.36 $42.64 $34.77 25.6% 19.5% 7.0% 1.8% 1.3% 1.5% 4.8% 1,476 18.8% NA 1.8% 15.8x 14.3x 14.3x 18.1x 11.2x 6.1% -2.5% 3.0%OHI Omega Healthcare Investors, Inc. $38.47 $39.53 $29.32 36.6% 26.5% 7.0% 2.0% 0.2% 0.6% 5.4% 4,902 31.9% NA 9.3% 13.3x 11.6x 11.5x 14.4x 7.5x -11.0% -20.7% -17.1%SNR New Senior Investment Group Inc $17.32 $20.20 $17.02 NA NA NA -10.3% -2.5% -1.1% 0.0% 1,150 48.8% NA 6.4% NA NA NA 0.0x 0.0x NA NA NAUHT Universal Health Realty Income Trust $49.13 $49.35 $39.50 28.1% 26.0% 12.9% 1.2% 0.4% 1.9% 5.2% 635 27.8% NA 1.8% NA 14.7x 14.3x 16.1x 12.1x NA 0.3% 3.0%

Health Care REITs 33.2% 30.8% 10.8% 4.7% 0.2% 0.9% 4.6% 96,088 32.4% 6.1x 3.7% 14.9x 14.7x 13.9x 18.1x 7.8x -17.3% -12.0% -10.0%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Total ReturnsPrice Performance

Forward Cap Rates and NAV

FFO Premium/DiscountConsensus FFO Multiples (forward 4 quarters)

BofAML FFO Estimates vs. Street BofAML AFFO Payout & Multiples 2014E AFFO Premium/Discount

Yields, Leverage, and Ratios

11 December 2014

U.S. REITs

27

Table 13: Industrial REITs

Source: Company reports, FactSet, BofA Merrill Lynch Global Research; priced as of 12/09/2014

Industrial - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrDCT DCT Industrial Trust Inc. B $34.50 5.8% $35.05 98.4% 5.8% $1.90 $0.01 $2.03 $0.02 17.2x 69.8% 25.2x 21.4x 36.7x 29.4x 98.9x 6.7x -7.9% 30.5% 35.0%DRE Duke Realty Corporation N $19.52 6.4% $20.86 93.6% 6.7% $1.17 ($0.01) $1.24 ($0.01) 15.6x 74.8% 19.4x 19.0x 17.4x 17.0x 26.6x 3.8x -29.2% -38.0% -22.0%EGP EastGroup Properties, Inc. N $65.66 5.7% $68.09 96.4% 5.8% $3.46 $0.00 $3.73 $0.01 17.7x 76.2% 23.5x 21.7x 20.7x 19.0x 25.1x 9.8x -14.3% -26.2% -12.7%

REXR Rexford Industrial Realty, Inc. B $15.33 5.8% $15.93 96.2% 6.0% $0.82 ($0.03) $0.88 $0.01 17.6x 65.9% 22.3x 19.6x NA NA NA NA -18.8% NA NAPLD Prologis, Inc. B $42.95 6.1% $42.49 101.1% 5.8% $1.85 $0.00 $1.99 ($0.01) 21.5x 85.7% 29.0x 26.5x 28.6x 24.0x 36.7x 8.0x 5.9% 1.8% 10.4%

STAG STAG Industrial, Inc. B $24.01 8.2% $18.98 126.5% 7.1% $1.46 ($0.01) $1.55 ($0.04) 15.1x 97.1% 16.7x 17.3x NA NA 17.2x 9.2x -38.9% NA NAIndustrial REITs 6.1% 101.7% 5.9% $0.00 ($0.01) 20.3x 83.5% 27.4x 25.0x 28.1x 21.8x 36.7x 5.7x 13.9% 38.7% 18.4%REITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

IndustrialStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrDCT DCT Industrial Trust Inc. $34.50 $34.82 $27.52 24.3% 21.4% 10.3% 1.6% 0.9% 0.4% 3.2% 3,038 33.6% 7.3x 2.5% 17.3x 14.7x 13.5x 17.6x 5.3x -15.4% -24.2% -17.8%EGP EastGroup Properties, Inc. $65.66 $69.90 $56.25 16.4% 13.6% 3.3% -4.2% -0.9% 1.1% 3.5% 2,097 30.5% 6.5x 3.4% 17.9x 16.0x 15.1x 19.6x 7.8x -12.7% -17.9% -7.7%

REXR Rexford Industrial Realty, Inc. $15.33 $15.82 $12.73 19.1% 15.3% 6.1% 0.7% 0.6% -0.1% 3.1% 667 16.9% 2.9x 2.8% 18.0x NA NA NA NA -12.0% NA NAPLD Prologis, Inc. $42.95 $43.06 $35.71 19.1% 16.9% 6.6% 3.7% 0.7% 0.4% 3.1% 21,475 29.3% 5.9x 1.6% 22.1x 21.2x 17.8x 25.7x 5.1x 8.0% 9.1% 8.5%

STAG STAG Industrial, Inc. $24.01 $25.26 $19.28 23.9% 24.0% 5.9% -2.1% 0.3% 1.1% 5.6% 1,547 34.6% 7.1x 4.0% 15.3x NA NA 16.4x 11.2x -25.4% NA NAFR First Industrial Realty Trust, Inc. $20.15 $20.29 $16.29 17.4% 19.6% 12.1% 2.3% 0.9% 0.8% 2.0% 2,228 37.6% NA 3.8% 15.9x 12.5x 10.3x 16.8x 1.9x -22.6% -35.5% -36.9%

TRNO Terreno Realty Corporation $19.71 $21.75 $16.54 13.8% 16.8% -0.8% -7.3% -5.6% -3.9% 3.2% 652 25.1% NA 2.4% 20.5x 39.9x 39.9x NM 17.3x 0.1% NM NM

Industrial REITs 19.4% 17.6% 6.9% 2.3% 0.5% 0.4% 3.2% 28,823 30.4% 6.1x 2.3% 20.5x 19.4x 16.4x 23.6x 4.7x 13.8% 16.5% 6.1%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Mixed (Ind/Off)Statistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrDRE Duke Realty Corporation $19.52 $19.73 $14.18 34.9% 34.9% 8.3% 1.4% 0.5% 0.3% 3.5% 6,670 40.5% 6.2x 1.5% 16.0x 13.1x 12.2x 16.9x 2.4x 6.3% -0.9% -2.9%LPT Liberty Property Trust $35.93 $40.17 $32.28 10.3% 12.5% 0.7% 1.8% 1.1% 0.2% 5.3% 5,337 37.4% NA 1.8% 13.9x 13.3x 12.7x 16.7x 4.7x -7.9% 0.5% 1.1%

Mixed (Ind/Off) REITs 24.0% 24.9% 4.9% 1.5% 0.8% 0.2% 4.3% 12,008 39.2% 6.2x 1.6% 15.1x 13.2x 12.5x 16.9x 4.3x -16.4% -20.8% -18.9%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x


2014E AFFO Premium/Discount

Total ReturnsPrice Performance Consensus FFO Multiples (forward 4 quarters)

BofAML FFO Estimates vs. Street BofAML AFFO Payout & MultiplesForward Cap Rates and NAV

Price Performance Total Returns Yields, Leverage, and Ratios


Consensus FFO Multiples (forward 4 quarters) FFO Premium/Discount

11 December 2014

U.S. REITs

28

Table 14: Office REITs


Office - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrARE Alexandria Real Estate Equities, Inc. N $90.19 5.5% $90.37 99.8% 5.3% $4.80 $0.01 $5.21 $0.04 17.4x 68.0% 21.5x 19.7x 16.6x 16.7x 21.5x 6.4x -23.9% -24.6% -13.9%BDN Brandywine Realty Trust B $15.64 6.9% $16.39 95.4% 7.1% $1.34 $0.01 $1.44 $0.01 10.9x 74.5% 19.6x 19.1x 14.8x 14.3x 25.1x 2.2x -30.7% -32.6% -26.5%BXP Boston Properties, Inc. B $133.16 4.8% $128.00 104.0% 4.7% $5.19 ($0.06) $5.34 ($0.05) 24.7x 223.6% 31.7x 31.5x 23.9x 23.9x 37.6x 10.4x 12.2% 8.5% 22.9%CLI Mack-Cali Realty Corporation U $19.14 7.5% $20.60 92.9% 7.7% $1.74 ($0.01) $1.74 ($0.02) 10.9x 56.3% 19.0x 18.0x 16.3x 16.1x 26.1x 7.4x -32.5% -25.9% -17.1%

CUZ Cousins Properties Incorporated N $11.52 6.1% $12.49 92.2% 6.4% $0.78 $0.00 $0.84 $0.00 13.7x 52.2% 23.2x 18.8x 25.3x 24.3x 39.6x 8.0x -17.7% 15.0% 25.0%DEI Douglas Emmett, Inc N $28.07 5.0% $27.99 100.3% 4.9% $1.54 ($0.01) $1.63 ($0.00) 17.2x 63.5% 22.1x 21.2x 19.7x 21.8x 38.7x 9.4x -21.6% -10.5% 12.5%

ESRT Empire State Realty Trust, Inc. Class A B $17.09 5.1% $17.84 95.8% 5.2% $0.82 $0.01 $0.83 ($0.03) 19.9x 62.7% 26.9x 31.1x NA NA NA NA -4.8% NA NAEQC Equity Commonwealth U $26.17 8.1% $26.86 97.4% 8.2% $3.32 $0.54 $2.16 $0.02 12.2x 0.0% 11.2x 22.2x 21.2x 18.3x 56.4x 4.2x -60.2% -3.9% -5.8%FSP Franklin Street Properties Corp. U $12.25 7.2% $12.69 96.5% 7.4% $1.11 ($0.00) $1.07 $0.02 11.7x 104.7% 14.9x 16.9x NA NA NA NA -47.1% NA NAGOV Government Properties Income Trust U $23.12 8.3% $22.40 103.2% NA $2.31 $0.04 $2.29 $0.04 10.3x 129.3% 13.6x 17.4x 13.4x 13.4x 17.1x 10.4x -51.8% -38.9% -30.9%HIW Highwoods Properties, Inc. B $44.33 6.3% $43.46 102.0% 6.2% $2.90 $0.00 $3.03 $0.00 14.6x 83.9% 24.0x 21.7x 18.6x 18.5x 21.9x 12.8x -14.9% -15.4% -4.7%KRC Kilroy Realty Corporation B $69.64 5.5% $69.05 100.9% 5.5% $2.81 $0.03 $3.11 $0.04 22.7x 64.7% 36.8x 31.4x 26.4x 24.9x 43.0x 3.5x 30.5% 19.8% 28.5%LXP Lexington Realty Trust B $11.28 7.8% $10.19 110.7% 7.4% $1.07 ($0.03) $1.13 $0.05 10.4x 77.8% 13.0x 12.7x 10.9x 10.5x 14.8x 2.9x -54.1% -50.4% -46.0%OFC Corporate Office Properties Trust B $28.64 6.9% $29.97 95.6% 7.1% $1.82 ($0.04) $1.94 ($0.07) 14.3x 99.6% 22.6x 24.0x 17.2x 17.2x 23.9x 10.5x -20.0% -22.1% -11.6%PKY Parkway Properties, Inc. N $18.62 6.3% $19.97 93.2% 6.5% $1.45 $0.07 $1.39 ($0.04) 13.0x 133.9% 25.7x 33.2x NA NA NA NA -8.9% NA NASIR Select Income REIT U $24.34 7.1% $25.78 94.4% 7.4% $2.68 $0.01 $2.67 $0.01 9.2x 74.4% 9.5x 9.4x NA NA NA NA -66.5% NA NASLG SL Green Realty Corp. B $122.28 4.9% $122.40 99.9% 4.9% $5.86 ($0.07) $6.28 $0.04 19.6x 51.4% 39.1x 25.5x 26.2x 25.4x 44.8x 3.6x 38.5% 18.9% 30.9%VNO Vornado Realty Trust N $114.24 5.0% $107.84 105.9% 4.7% $4.89 $0.05 $5.21 ($0.05) 21.7x 82.1% 31.7x 31.7x 24.0x 22.7x 32.4x 8.5x 12.5% 9.1% 17.2%

Office REITs 5.6% 101.6% 5.4% $0.01 ($0.01) 19.1x 103.0% 28.2x 26.6x 22.0x 19.4x 27.0x 4.8x 17.2% 8.7% 5.5%REITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

OfficeStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrARE Alexandria Real Estate Equities, Inc. $90.19 $91.49 $61.08 45.9% 47.5% 16.4% 9.5% 4.2% 0.5% 3.3% 6,494 37.4% 8.6x 2.9% 17.8x 15.5x 15.1x 19.3x 5.4x -2.4% -2.1% -2.9%BDN Brandywine Realty Trust $15.64 $16.33 $13.02 15.7% 22.5% 0.5% 1.3% 1.0% 0.3% 3.8% 2,799 49.2% 6.0x 3.5% 11.6x 9.1x 9.2x 13.6x 1.4x -36.3% -42.3% -41.2%BXP Boston Properties, Inc. $133.16 $133.69 $98.04 34.9% 36.6% 12.5% 4.2% 1.3% 1.0% 2.0% 20,387 34.7% 7.1x 1.6% 25.3x 20.5x 19.3x 27.8x 7.4x 39.2% 29.5% 24.2%CLI Mack-Cali Realty Corporation $19.14 $23.23 $18.34 -6.9% -5.4% -6.6% -3.5% 0.4% 0.8% 3.1% 1,704 56.8% 7.5x 3.3% 10.8x 11.0x 11.2x 16.0x 4.2x -40.9% -30.3% -28.2%

CUZ Cousins Properties Incorporated $11.52 $13.30 $9.94 14.8% 13.6% -10.0% -9.8% 0.8% -0.9% 2.6% 2,494 21.2% 3.9x 2.6% 13.7x 16.3x 17.8x 28.0x 7.9x -24.6% 3.1% 14.4%DEI Douglas Emmett, Inc $28.07 $29.56 $22.27 23.2% 25.3% -0.2% -1.2% 1.2% 0.9% 3.0% 4,065 44.1% 8.7x 1.0% 17.4x 15.4x 14.9x 21.1x 5.9x -4.2% -2.4% -4.5%

ESRT Empire State Realty Trust, Inc. Class A $17.09 $17.34 $13.95 13.5% 19.6% 6.4% 7.8% 1.7% 0.5% 2.0% 1,734 48.0% 6.0x 6.5% 20.1x NA NA NA NA 10.5% NA NAEQC Equity Commonwealth $26.17 $28.28 $22.06 13.5% 13.3% -3.1% -0.2% 2.9% 0.6% 3.8% 3,373 45.6% 6.3x 0.6% 12.5x 7.8x 7.8x 12.5x 1.6x -31.5% -50.8% -50.1%FSP Franklin Street Properties Corp. $12.25 $13.18 $11.04 9.1% 5.2% 3.3% 1.7% 1.0% 1.8% 6.2% 1,227 42.4% 6.3x 2.3% 11.6x 11.7x 11.7x 13.9x 10.4x -36.5% -25.8% -24.6%GOV Government Properties Income Trust $23.12 $26.30 $21.71 -0.2% -0.6% -0.3% -0.3% 1.4% 1.2% 7.4% 1,626 39.7% 7.8x 5.9% 10.2x 11.9x 11.9x 14.5x 9.2x -44.0% -24.7% -23.5%GPT Gramercy Property Trust Inc. $5.77 $6.46 $4.96 2.3% 11.4% -6.5% -3.5% -2.0% 1.6% 2.4% 717 45.1% 7.4x 6.0% 12.8x NA NA NA NA -29.5% NA NAHIW Highwoods Properties, Inc. $44.33 $44.62 $34.66 27.8% 27.7% 6.4% 5.5% 1.6% 1.1% 3.8% 4,046 33.8% 6.0x 4.6% 14.8x 12.9x 12.8x 17.9x 6.6x -18.5% -18.1% -17.5%HPP Hudson Pacific Properties, Inc. $29.21 $29.60 $19.13 35.6% 43.1% 11.6% 5.1% 3.4% 1.4% 1.7% 1,959 35.5% 8.6x 2.0% 22.0x 18.7x 18.7x 23.9x 10.8x 20.7% 18.1% 19.9%KRC Kilroy Realty Corporation $69.64 $69.91 $48.75 41.2% 39.9% 11.4% 2.7% 0.5% 0.4% 2.0% 5,986 30.5% 7.7x 1.7% 23.3x 18.0x 15.1x 23.3x 4.1x 28.0% 14.0% -3.2%LXP Lexington Realty Trust $11.28 $11.81 $9.74 15.9% 14.2% 5.3% 2.6% 1.3% 1.7% 6.0% 2,620 46.3% 6.0x 2.3% 10.4x 9.2x 9.0x 12.3x 1.9x -42.6% -41.5% -42.2%OFC Corporate Office Properties Trust $28.64 $29.44 $21.86 24.7% 33.8% 1.9% 2.7% 1.6% 0.9% 3.8% 2,650 45.9% 6.1x 1.6% 14.5x 13.5x 14.7x 31.1x 3.3x -20.1% -14.7% -5.5%PKY Parkway Properties, Inc. $18.62 $21.80 $16.93 -0.7% 7.4% -7.8% -6.2% -0.1% 0.7% 4.0% 2,069 41.3% 6.4x 2.9% 13.3x 10.0x 12.8x 24.2x 4.7x -26.9% -36.7% -18.0%SIR Select Income REIT $24.34 $31.47 $22.65 -2.5% -6.2% -4.8% 1.1% 4.6% 0.9% 7.9% 1,459 22.9% 2.6x 2.0% 9.1x NA NA NA NA -49.9% NA NASLG SL Green Realty Corp. $122.28 $122.41 $89.05 34.3% 33.4% 14.0% 7.2% 3.4% 1.5% 2.0% 11,802 42.2% 9.2x 5.2% 20.1x 16.8x 16.5x 27.8x 2.2x 10.7% 6.1% 5.7%VNO Vornado Realty Trust $114.24 $114.91 $86.83 32.4% 29.9% 9.1% 4.8% 1.3% 0.9% 2.6% 21,447 36.7% 8.0x 1.6% 22.2x 17.1x 16.4x 23.6x 6.2x 21.9% 7.9% 5.6%BMR BioMed Realty Trust, Inc. $21.95 $22.62 $17.97 25.6% 23.1% 1.3% 2.4% 1.7% 0.8% 4.6% 4,334 39.7% NA 3.3% 14.6x 14.4x 13.6x 17.7x 4.0x -19.6% -8.9% -12.4%CSG Chambers Street Properties $8.19 $8.30 $7.31 13.6% 9.7% 8.0% 1.6% 0.5% 1.5% 6.2% 1,940 41.4% NA 2.1% 11.4x NA NA NA NA -37.5% NA NACXP Columbia Property Trust, Inc. $25.64 $29.59 $22.55 7.4% 18.2% 2.4% 3.1% 1.5% -0.6% 4.7% 3,204 38.0% NA 0.8% 13.0x NA NA NA NA -28.5% NA NAFPO First Potomac Realty Trust $12.40 $13.61 $11.06 11.7% 10.8% -2.8% 1.1% 0.2% -0.3% 4.8% 729 57.2% NA 3.9% 12.7x 12.6x 15.5x 28.0x 6.6x -30.4% -20.4% -0.4%

NYRT New York REIT, Inc. $10.88 $12.32 $9.51 NA NA 4.4% -1.1% 0.6% 0.6% 4.2% 1,765 0.0% NA 3.0% 17.8x NA NA NA NA -1.9% NA NAPDM Piedmont Office Realty Trust, Inc. Class $18.81 $20.05 $15.83 19.0% 18.2% -1.6% -2.2% -0.6% 0.2% 4.5% 2,903 43.5% NA 5.8% 12.1x 12.5x 12.5x 14.6x 11.1x -33.7% -21.1% -19.9%PGRE Paramount Group, Inc. $18.33 $18.95 $17.49 NA NA NA NA 0.3% -0.1% 0.0% 3,524 15.6% 0.0x 0.4% NA NA NA NA NA NA NA NAWRE Washington Real Estate Investment Tru $27.50 $28.44 $22.30 21.9% 22.6% 1.1% -0.7% 0.3% 1.3% 4.4% 1,833 38.9% NA 6.0% 16.1x 15.0x 14.7x 19.2x 8.2x -11.6% -5.2% -5.4%

Office REITs 26.1% 26.6% 6.9% 3.2% 1.6% 0.8% 3.0% 120,891 38.3% 7.0x 2.8% 18.2x 15.8x 15.6x 22.4x 6.1x 1.0% -5.2% 0.8%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Total ReturnsPrice Performance


FFO Premium/DiscountConsensus FFO Multiples (forward 4 quarters)

BofAML FFO Estimates vs. Street BofAML AFFO Payout & Multiples 2014E AFFO Premium/Discount


11 December 2014

U.S. REITs

29

Table 15: Shopping Center REITs


Shopping Center - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAAT American Assets Trust, Inc. B $40.14 5.3% $40.66 98.7% 5.3% $1.61 $0.01 $1.69 ($0.02) 23.5x 67.5% 34.6x 29.5x NA NA 32.5x 16.4x 39.6% NA NAAKR Acadia Realty Trust B $32.15 5.4% $32.00 100.5% 5.4% $1.35 ($0.00) $1.55 $0.03 21.2x 76.6% 31.2x 25.1x 22.2x 22.0x 27.4x 13.6x 25.9% 13.5% 27.1%BRX Brixmor Property Group, Inc. B $24.34 6.5% $25.95 93.8% 6.7% $1.82 $0.01 $1.96 ($0.02) 12.3x 60.0% 23.6x 16.0x NA NA NA NA -4.7% NA NADDR DDR Corp. B $18.42 6.9% $18.89 97.5% 7.0% $1.16 ($0.01) $1.25 ($0.02) 14.5x 58.7% 18.6x 16.9x 14.9x 14.0x 20.4x 1.3x -24.9% -24.1% -19.1%EQY Equity One, Inc. U $24.97 6.2% $21.15 118.1% 5.5% $1.28 $0.01 $1.33 $0.02 18.9x 94.3% 30.8x 25.9x 22.6x 20.7x 29.0x 10.5x 24.1% 15.6% 19.6%FRT Federal Realty Investment Trust N $133.09 5.1% $129.01 103.2% 4.9% $4.93 $0.02 $5.32 ($0.00) 25.0x 78.4% 31.8x 29.4x 25.4x 24.4x 31.5x 8.1x 28.1% 29.7% 41.0%IRC Inland Real Estate Corporation U $10.95 7.4% $10.51 104.2% 7.2% $0.93 ($0.01) $1.00 $0.01 11.1x 85.3% 17.9x 16.1x NA NA NA NA -27.9% NA NAKIM Kimco Realty Corporation B $25.43 6.5% $26.54 95.8% 6.6% $1.42 $0.02 $1.47 $0.01 17.4x 76.0% 21.0x 20.3x 17.0x 16.4x 21.8x 5.4x -15.2% -13.5% -5.4%KRG Kite Realty Group Trust B $27.87 6.5% $29.99 92.9% 6.8% $2.03 ($0.00) $2.07 $0.01 13.5x 60.7% 17.8x 15.5x NA NA NA NA -28.3% NA NAREG Regency Centers Corporation B $63.12 5.6% $64.88 97.3% 5.7% $2.83 $0.02 $2.95 $0.00 21.4x 80.4% 27.9x 26.3x 21.6x 19.2x 27.1x 8.4x 12.7% 10.3% 10.8%ROIC Retail Opportunity Investments Corp. U $16.75 5.9% $13.40 125.0% 5.1% $0.84 ($0.01) $0.92 $0.01 18.4x 92.9% 25.4x 23.9x NA NA 24.2x 15.6x 2.4% NA NARPT Ramco-Gershenson Properties Trust U $18.13 7.4% $16.95 106.9% 7.1% $1.22 ($0.01) $1.32 $0.02 13.9x 75.9% 17.8x 16.8x NA NA NA NA -28.3% NA NASKT Tanger Factory Outlet Centers, Inc. N $37.08 6.6% $36.43 101.8% 6.5% $1.97 $0.07 $2.22 $0.04 17.0x 55.1% 24.9x 20.0x 20.1x 19.2x 24.7x 5.3x 0.4% 2.6% 11.1%WRI Weingarten Realty Investors N $35.07 6.4% $37.42 93.7% 6.7% $2.06 $0.03 $2.09 $0.01 16.9x 77.3% 20.8x 19.9x 16.3x 15.2x 24.3x 4.7x -16.3% -16.6% -12.2%

Shopping Center 6.1% 100.4% 6.1% $0.02 $0.01 18.3x 74.3% 24.8x 22.6x 19.6x 17.3x 23.7x 6.1x 2.9% -3.3% -5.9%REITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

Shopping CenterStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAAT American Assets Trust, Inc. $40.14 $40.28 $30.64 30.2% 30.2% 15.9% 4.6% 2.6% 1.3% 2.3% 1,711 38.1% 6.4x 1.7% 23.9x NA NA 23.9x 14.7x 26.6% NA NAAKR Acadia Realty Trust $32.15 $32.40 $24.47 32.8% 27.5% 15.3% 1.0% 1.5% 1.0% 3.0% 2,064 17.8% 4.0x 4.8% 22.3x 19.6x 18.4x 22.4x 8.4x 18.3% 17.6% 18.2%BRX Brixmor Property Group, Inc. $24.34 $25.95 $19.66 23.8% 25.0% 4.3% 1.4% 1.2% 0.8% 3.3% 7,214 46.3% 7.3x 0.5% 12.7x NA NA 12.7x 11.1x -32.5% NA NADDR DDR Corp. $18.42 $18.57 $14.89 23.2% 19.1% 4.3% 0.3% -0.3% 1.3% 3.4% 6,640 45.7% 8.7x 4.5% 14.6x 13.4x 12.4x 18.1x 1.1x -22.5% -19.3% -20.4%EQY Equity One, Inc. $24.97 $25.06 $21.03 14.6% 14.9% 9.6% 4.6% 2.0% 0.3% 3.5% 3,092 31.0% 5.9x 2.8% 19.7x 17.5x 16.1x 20.7x 9.4x 4.2% 5.2% 3.7%FRT Federal Realty Investment Trust $133.09 $136.54 $99.83 34.0% 31.7% 8.5% 0.1% 0.4% 0.0% 2.6% 9,068 20.8% 5.5x 3.6% 25.7x 22.0x 20.5x 25.9x 10.7x 36.5% 31.9% 31.9%IRC Inland Real Estate Corporation $10.95 $10.99 $9.85 9.4% 9.8% 8.3% 4.3% 1.5% 1.0% 5.2% 1,096 50.1% 8.7x 3.1% 11.2x NA NA 12.1x 8.5x -40.8% NA NAKIM Kimco Realty Corporation $25.43 $25.99 $19.61 32.7% 25.6% 12.1% 2.6% -0.5% -0.1% 3.8% 10,463 31.0% 7.3x 3.5% 17.8x 15.1x 14.6x 20.2x 4.2x -5.7% -9.5% -6.1%KRG Kite Realty Group Trust $27.87 $27.95 $22.92 10.5% 14.4% 8.6% 4.1% 3.2% 1.0% 3.7% 2,326 41.6% 14.7x 1.0% 13.6x 11.6x 11.3x 16.9x 2.9x -27.9% -30.2% -27.4%REG Regency Centers Corporation $63.12 $63.46 $45.31 41.1% 34.6% 12.9% 3.4% 2.0% 0.4% 3.0% 5,886 28.5% 6.8x 4.4% 21.8x 18.3x 16.6x 21.8x 6.9x 15.8% 10.1% 6.6%ROIC Retail Opportunity Investments Corp. $16.75 $16.98 $13.85 17.4% 15.9% 6.9% 3.3% 0.2% 1.4% 3.8% 1,557 30.3% 6.9x 4.5% 18.8x NA NA 18.8x 14.7x -0.2% NA NARPT Ramco-Gershenson Properties Trust $18.13 $18.30 $15.06 19.3% 20.9% 7.9% 3.4% 0.2% 1.0% 4.4% 1,406 42.4% 8.3x 5.4% 14.1x 12.2x 10.9x 15.3x 1.6x -25.5% -26.8% -29.7%SKT Tanger Factory Outlet Centers, Inc. $37.08 $37.18 $31.40 19.0% 16.4% 8.1% 3.8% 0.6% 0.5% 2.6% 3,556 29.0% 6.0x 3.2% 18.1x 17.7x 15.9x 20.1x 10.0x -4.1% 6.3% 2.0%WRI Weingarten Realty Investors $35.07 $37.13 $27.21 33.0% 25.6% 6.0% -3.3% 0.0% 0.5% 3.7% 4,288 31.9% 5.9x 7.4% 17.2x 14.5x 13.2x 18.2x 3.7x -8.9% -13.0% -15.0%BFS Saul Centers, Inc. $55.72 $56.16 $44.78 20.6% 17.8% 15.5% 1.8% 2.0% 1.6% 2.9% 1,165 46.8% NA 0.9% 18.8x 16.8x 16.2x 21.4x 9.0x -0.6% 0.9% 4.2%CDR Cedar Realty Trust, Inc. $6.90 $6.98 $5.70 13.8% 20.1% 12.5% 1.2% -0.3% 1.0% 2.9% 547 61.6% NA 1.9% 12.5x 10.6x 10.3x 13.9x 1.8x -33.5% -36.2% -33.6%EXL Excel Trust, Inc $13.09 $13.94 $10.96 19.9% 16.5% 4.8% 1.9% -0.4% 0.8% 5.3% 800 46.2% NA 2.2% 14.7x NA NA 17.2x 12.3x -22.0% NA NARPAI Retail Properties of America, Inc. Class $16.46 $16.55 $12.07 34.0% 33.6% 6.0% 6.0% 1.3% 0.9% 4.0% 3,894 38.2% NA 1.1% 15.4x NA NA 15.4x 12.7x -18.5% NA NAUBA Urstadt Biddle Properties Inc. Class A $22.49 $22.65 $18.00 26.5% 24.8% 6.6% 2.8% 0.6% 1.1% 4.5% 587 42.2% NA 2.4% 17.8x 15.6x 14.3x 19.0x 9.8x -5.4% -6.3% -8.0%WSR Whitestone REIT $14.89 $15.68 $12.86 20.5% 21.0% 2.2% 1.2% 0.5% 1.4% 7.7% 340 47.2% NA 2.8% 12.2x NA NA 12.3x 11.4x -35.3% NA NA

Shopping Center REITs 28.3% 24.9% 9.3% 2.1% 0.7% 0.5% 3.4% 67,699 34.2% 7.2x 3.5% 18.9x 16.6x 15.5x 19.7x 7.6x 4.7% -0.2% 0.7%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Total ReturnsPrice Performance FFO Premium/Discount

2014E AFFO Premium/Discount



Consensus FFO Multiples (forward 4 quarters)

BofAML FFO Estimates vs. Street BofAML AFFO Payout & Multiples

11 December 2014

U.S. REITs

30

Table 16: Other REIT sectors covered


Self Storage, Specialty and Retail - BofAML Coverage Universe Cons. FFOxInvestment Last Cap Est. Price to Implied 2015E '15E AFFO 2014E 2015E 5-yr 10-yr Prem/Disc Prem/Disc Prem/Disc

Ticker REIT Rating Price Rate NAV Forward Cap Rate 2014E vs Street 2015E vs Street FFOx Payout AFFOx AFFOx avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrCONE CyrusOne, Inc. B $26.80 7.4% $32.25 83.1% 8.7% $1.67 $0.01 $1.93 ($0.04) 13.6x 53.6% 16.1x 14.3x NA NA NA NA -3.6% NA NACOR CoreSite Realty Corporation N $38.55 7.3% $39.98 96.4% 7.6% $2.18 $0.02 $2.50 $0.07 15.9x 80.8% 22.1x 17.8x NA NA NA NA 32.1% NA NADLR Digital Realty Trust, Inc. N $69.27 7.0% $66.41 104.3% 6.8% $4.93 $0.02 $5.04 ($0.06) 13.6x 86.2% 18.0x 17.1x NA NA 29.1x 10.5x 7.7% NA NAQTS QTS Realty Trust, Inc. Class A B $32.63 7.9% $49.25 66.2% 7.8% $2.00 $0.03 $2.40 $0.08 14.1x 64.8% 17.6x 13.8x NA NA NA NA 4.9% NA NA

ARCP American Realty Capital Properties, Inc NA $9.23 NA NA NA NA NA 10.4x NA NA NA NA NA NA NA NA NA NAEPR EPR Properties B $56.40 7.9% $53.10 106.2% 7.6% $4.04 $0.02 $4.36 ($0.02) 12.9x 87.3% 14.3x 13.4x NA NA NA NA 2.7% NA NANNN National Retail Properties, Inc. B $38.13 7.4% $26.74 142.6% 5.9% $2.06 ($0.00) $2.15 ($0.03) 17.5x 78.5% 18.2x 17.4x 14.3x 13.7x 19.5x 6.8x 30.2% -3.5% 21.4%

O Realty Income Corporation N $45.55 7.2% $31.52 144.5% 5.7% $2.60 $0.01 $2.72 $0.01 16.7x 84.4% 17.7x 17.0x 16.5x 15.3x 23.2x 7.7x 26.4% 11.6% 35.6%SRC Spirit Realty Capital, Inc. B $11.48 7.4% $8.60 133.5% 6.4% $0.83 $0.21 $0.86 $0.00 13.3x 80.3% 13.9x 13.2x NA NA NA NA -0.8% NA NAWPC W.P. Carey Inc. N $69.80 7.3% $60.90 114.6% 6.7% $4.44 ($0.15) $3.85 ($0.22) 17.1x 80.2% 14.7x 14.5x NA NA NA NA 5.3% NA NA

CUBE CubeSmart B $21.55 5.7% $22.53 95.7% 5.9% $1.07 $0.02 $1.22 $0.04 18.3x 50.0% 21.7x 18.4x 16.7x 15.6x 21.7x 2.6x -2.3% -18.7% -18.6%PSA Public Storage B $185.91 5.1% $185.87 100.0% 5.0% $8.23 $0.17 $8.66 $0.01 21.5x 72.0% 24.0x 22.7x 21.0x 20.4x 26.9x 8.0x 8.3% 2.2% 6.6%SSS Sovran Self Storage, Inc. B $86.78 6.1% $94.42 91.9% 6.3% $4.37 $0.25 $4.73 $0.00 18.3x 68.0% 24.0x 19.7x 18.0x 18.0x 20.8x 13.1x 8.0% -12.5% -6.1%

REITs 5.5% 100.1% 5.5% $0.00 $0.00 18.3x 78.9% 24.1x 22.0x 20.3x 18.4x 23.2x 7.2x

Self StorageStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrCUBE CubeSmart $21.55 $21.86 $15.07 38.2% 40.5% 17.1% 2.8% -0.3% 0.5% 2.4% 3,510 24.1% 5.4x 2.9% 18.6x 16.6x 14.8x 20.8x 2.5x -12.8% -15.9% -18.9%PSA Public Storage $185.91 $190.19 $147.14 26.6% 23.9% 8.6% -0.2% 0.0% 0.2% 3.0% 32,111 11.6% 2.8x 1.1% 21.8x 20.3x 18.8x 24.0x 11.0x 2.5% 2.6% 3.2%SSS Sovran Self Storage, Inc. $86.78 $87.27 $62.66 38.2% 34.4% 12.9% 2.8% 1.4% 0.9% 3.1% 2,929 20.4% 4.5x 1.6% 18.7x 16.3x 14.9x 19.6x 6.9x -12.0% -17.2% -18.6%EXR Extra Space Storage Inc. $59.94 $60.56 $40.32 46.0% 46.6% 13.7% 3.0% 0.6% 0.5% 3.1% 6,973 23.8% NA 3.2% 21.3x 18.9x 16.4x 21.7x 6.2x 0.2% -4.0% -10.0%

Self Storage REITs 31.2% 29.4% 10.3% 0.7% 0.1% 0.3% 3.0% 45,524 15.3% 3.2x 2.2% 21.3x 19.7x 18.3x 23.1x 10.4x 18.2% 18.4% 18.3%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

SpecialtyStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrCONE CyrusOne, Inc. $26.80 $28.12 $19.52 23.3% 33.6% 3.7% -0.7% -0.1% 2.3% 3.1% 1,036 29.6% 3.5x 2.4% 14.6x NA NA NA NA 4.0% NA NACOR CoreSite Realty Corporation $38.55 $39.22 $27.51 23.7% 35.8% 9.8% 2.0% 0.8% 0.3% 3.6% 837 33.4% 3.3x 2.6% 16.5x 15.4x 15.4x 19.2x 11.9x 17.7% 9.6% 37.2%DLR Digital Realty Trust, Inc. $69.27 $70.92 $44.37 47.2% 61.1% 5.4% 2.2% 0.3% 0.6% 4.8% 9,387 36.1% 5.7x 10.2% 13.8x 13.9x 14.4x 20.3x 8.3x -1.4% -0.9% 27.8%QTS QTS Realty Trust, Inc. Class A $32.63 $36.04 $20.13 35.8% 62.3% 4.6% -0.7% 0.4% 0.6% 3.6% 946 38.4% 6.4x 1.4% 14.6x NA NA NA NA 4.0% NA NADFT DuPont Fabros Technology, Inc. $33.95 $34.19 $22.77 43.1% 53.2% 21.0% 11.0% 5.1% 1.0% 4.9% 2,236 37.1% NA 14.0% 13.4x 13.8x 12.7x 19.1x 1.5x -4.2% -2.1% 12.6%

Specialty REITs 42.7% 56.5% 7.9% 3.2% 1.0% 0.7% 4.5% 11,260 36.4% 5.2x 8.6% 14.0x 14.1x 11.2x 17.2x 2.1x -22.3% -15.6% -27.2%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Retail - FreestandingStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt / Net Debt/ S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap EBITDA % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrARCP American Realty Capital Properties, Inc $9.23 $14.96 $7.38 -21.6% -21.8% -27.5% 6.0% 0.3% 0.4% 10.8% 8,381 54.6% 19.2x 3.5% 9.9x NA NA NA NA -31.2% NA NAEPR EPR Properties $56.40 $60.80 $48.06 21.6% 19.7% 1.9% 0.1% 0.5% 0.6% 6.1% 3,223 33.5% 5.0x 4.4% 13.1x 12.4x 11.7x 15.7x 3.5x -9.1% -18.4% -10.0%NNN National Retail Properties, Inc. $38.13 $39.91 $30.01 31.7% 27.2% 5.7% -0.7% 0.5% 0.7% 4.4% 5,002 32.8% 6.6x 7.8% 17.7x 16.7x 14.4x 20.9x 5.7x 22.9% 9.6% 11.2%

O Realty Income Corporation $45.55 $47.88 $36.67 27.8% 28.4% 4.7% -2.4% -2.1% 0.2% 4.8% 10,143 34.7% 6.7x 11.5% 17.0x 17.0x 15.3x 21.1x 8.8x 17.7% 12.0% 17.9%SRC Spirit Realty Capital, Inc. $11.48 $12.08 $9.52 22.2% 23.5% 0.9% -2.0% -0.9% -0.5% 5.8% 4,576 46.7% 9.1x 2.2% 13.5x NA NA NA NA -6.4% NA NAWPC W.P. Carey Inc. $69.80 $70.41 $55.23 18.8% 19.4% 2.7% 4.1% 1.9% 0.3% 5.4% 7,260 34.5% 6.0x 0.8% 17.5x NA NA NA NA 21.2% NA NAALX Alexander's, Inc. $409.99 $447.00 $313.03 28.7% 30.7% 2.0% -3.9% 0.7% 1.8% 3.2% 2,093 33.1% NA 1.1% 20.9x 18.2x 18.0x 24.5x 12.6x 44.8% 19.7% 39.4%GTY Getty Realty Corp. $18.20 $20.39 $17.00 2.4% 3.9% -0.9% -2.4% 0.3% 0.8% 4.8% 608 17.3% NA 1.7% 16.0x 13.3x 13.7x 19.6x 6.8x 10.6% -12.6% 5.8%

STOR STORE Capital Corporation $20.51 $21.13 $19.25 NA NA NA NA 0.0% 1.9% 0.0% 2,275 39.6% NA 0.1% NA NA NA NA NA NA NA NA

Retail - Freestanding REITs 14.4% 14.2% -2.8% 0.7% -0.1% 0.4% 5.9% 26,956 40.8% 8.9x 4.1% 14.4x 15.2x 12.9x 19.1x 5.9x -19.9% -8.7% -16.1%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 6.7x 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

Forward Cap Rates and NAV BofAML FFO Estimates vs. Street BofAML AFFO Payout & Multiples 2014E AFFO Premium/Discount

FFO Premium/DiscountPrice Performance Total Returns Yields, Leverage, and Ratios


Price Performance Total Returns Yields, Leverage, and Ratios Consensus FFO Multiples (forward 4 quarters) FFO Premium/Discount

Price Performance Yields, Leverage, and Ratios Consensus FFO Multiples (forward 4 quarters)Total Returns

Consensus FFO Multiples (forward 4 quarters)

11 December 2014

U.S. REITs

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Table 17: Other REIT sectors not covered by BofAML REIT Team

Source: FactSet; priced as of 12/092014

Lodging REITsStatistics

Last 52-wk 52-wk Past Past Past Past Past Distr. Market Debt+Pref / S.Interest Current 5-yr 10-yr Prem/Disc Prem/Disc Prem/DiscTicker REIT Price High Low YTD Year 90 30 Week Day Rate Cap Total Cap % of Shares Multiple avg avg Peak Trough to Peers to peer 5 yr to peer 10 yrAHT Ashford Hospitality Trust, Inc. $10.26 $11.36 $7.42 35.6% 39.9% -3.3% -4.1% 1.6% 0.4% 4.7% 918 68.1% 2.7% 9.6x 7.0x 7.0x 13.9x 0.9x -31.0% -51.5% -43.9%BEE Strategic Hotels & Resorts, Inc. $13.06 $13.41 $8.52 38.2% 46.1% 11.4% 4.3% 1.8% 2.0% 0.0% 3,492 33.4% 2.2% 16.3x 36.3x 22.8x 237.5x 1.0x 17.4% 151.2% 83.0%DRH DiamondRock Hospitality Company $15.28 $15.34 $10.78 35.6% 39.4% 15.5% 8.4% 2.1% 1.3% 2.7% 2,990 27.3% 2.9% 15.1x 14.0x 11.9x 19.3x 2.5x 8.8% -3.5% -4.7%FCH FelCor Lodging Trust Incorporated $10.55 $10.99 $6.71 30.4% 48.4% 8.1% -2.1% 1.7% 0.9% 0.8% 1,311 61.7% 2.6% 13.9x 25.3x 16.2x 197.7x 0.7x -0.1% 75.2% 30.0%HPT Hospitality Properties Trust $31.28 $31.63 $24.66 23.8% 23.4% 9.6% 4.3% 2.1% -0.3% 6.3% 4,689 39.9% 3.3% 9.0x 8.0x 8.2x 12.7x 2.5x -35.0% -45.0% -34.3%HST Host Hotels & Resorts, Inc. $23.73 $23.77 $17.85 24.9% 31.8% 7.6% 4.7% 1.2% 0.6% 3.4% 17,971 18.3% 3.8% 14.7x 15.4x 13.6x 25.1x 4.4x 6.0% 6.5% 8.9%HT Hersha Hospitality Trust Class A $7.37 $7.49 $5.18 36.4% 34.7% 12.7% 0.4% 0.0% 1.0% 3.8% 1,479 38.9% 3.6% 13.4x 12.6x 10.3x 18.1x 2.3x -3.6% -13.1% -17.0%

LHO LaSalle Hotel Properties $39.95 $41.58 $28.41 33.4% 36.4% 11.8% 2.7% 0.2% -2.3% 3.8% 4,158 22.1% 4.0% 14.5x 13.7x 12.8x 22.2x 3.0x 4.1% -5.2% 2.6%SHO Sunstone Hotel Investors, Inc. $16.64 $16.66 $12.33 25.5% 27.9% 15.7% 8.3% 3.9% 1.7% 8.7% 3,418 30.7% 2.3% 13.3x 12.6x 10.4x 29.4x 1.5x -4.2% -13.2% -16.2%

Lodging REITs 28% 34% 9.8% 4% 2% 0% 3.8% 40,426 30.5% 3.2% 13.9x 14.5x 12.5x 23.9x 3.6x -22.8% -13.2% -19.3%REITs 30.0% 28.8% 8.3% 3.3% 0.7% 0.5% 3.6% 689,461 33.8% 3.1% 18.0x 16.7x 15.4x 19.4x 7.2x

FFO Premium/DiscountConsensus FFO Multiples (forward 4 quarters)Yields, Leverage, and RatiosPrice Performance Total Returns


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Price objective basis & risk American Campus Communities, Inc. (ACC) Our $44.00 price objective for ACC assumes the stock trades in line with our NAV estimate. We apply a 5.3% nominal cap rate to our forward NOI estimate of $398M, which includes forward development NOI estimates. We use a 5.3% for ACC based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of ACC. Downside risks to our price objective are if college enrollments are more sensitive to economic conditions in a downturn greater than we anticipated, supply dramatically increases in their respective markets, and higher interest rates.

Avalon Bay Communities Inc (AVB) Our $170 price objective for AVB represents a 5.0% premium to our forward NAV estimate to reflect AVB's strong management team, development expertise and low leverage. We apply a 4.7% cap rate to our forward NOI estimate of $1.36B to derive our NAV estimate. We use 4.7% based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of AVB. The upside risk to our price objective is better-than-expected employment and operating conditions in AVB's markets and lower interest rates. The downside risk to our price objective is employment and operating conditions in AVB's markets deteriorating beyond our expectations and higher interest rates. The development pipeline also exposes AVB to project execution and lease-up risk. In addition, a reduction in GSE lending to the multifamily sector could weigh on AVB's access to capital, borrowing costs and direct real estate values.

Boston Properties (BXP) Our price objective for BXP of $138 represents a +7.5% premium to our forward NAV estimate to reflect the strength of BXP's management team. We apply a 4.9% cap rate to our forward nominal NOI estimate of $1,642M to calculate our NAV. We apply a 4.9% cap rate for BXP based on our view of private market / transaction comps, and the market exposure of BXP. Risks to our price objective are conditions in BXP's office markets and development yields below our expectations. Further, a prolonged period of tight credit market conditions could weigh on access to capital, borrowing costs, and direct real estate values.

Cousins Properties Inc. (CUZ) Our price objective of $12.25 for CUZ is a -2.5% discount to our forward NAV estimate. This discount reflects uncertainty about the future demand profile of the energy sector in PKY's markets. We apply a 6.1% cap rate to our forward nominal NOI estimate of $245M to calculate our NAV. We use a 6.1% cap rate for CUZ based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of CUZ. Downside risks to our PO are operating conditions below our expectations and a prolonged period of tight credit market conditions. Upside risks to our PO are operating and leasing conditions above our expectations.

CubeSmart (CUBE) Our forward NAV derived PO of $23 is in line with our forward NAV estimate. We derive our NAV from applying the 5.7% cap rate to our forward NOI estimate of $287M. We use a 5.7% rate based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of CUBE. Downside risks to our PO are a significant systemic negative inflection in storage fundamentals and higher interest rates, while upside risks are a loosening of the debt markets and a better-than-expected fundamental performance driven by increased consumer demand for self-storage space.


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CyrusOne Inc. (CONE) Our price objective of $30 for CONE is based on our relative AFFO multiple analysis and supported by our NAV estimate. Our price objective implies a 16.5x '15 AFFO multiple, a premium to our DLR target multiple reflecting faster growth, higher exposure to the more attractive retail colocation segment, and CONE's strategic value in a consolidating sector. For our NAV, we apply a 7.4% blended cap rate to the NOI from CONE's owned assets, an EV/EBITDA multiple of 12x to the EBITDA from leasehold properties and use a DCF to estimate CONE's development pipeline. We use a 7.4% cap rate for CONE based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of CONE. Downside risks to our price objective are increased competition, customer consolidation or bankruptcies, potential conflicts of interests with majority shareholders and stock overhang, and a decrease in outsourced data center demand. As a real estate company, CONE remains exposed to excessive new supply in its markets, rising construction and capital costs, real estate values, and rising interest rates.

Equity LifeStyle Properties (ELS) Our $54 price objective for ELS represents a 10.0% premium to our forward NAV estimate. We feel this is warranted given ELS's strong balance sheet and management team. We derive our NAV estimate by applying a 5.9% cap rate to our forward NOI estimate of $394M. We use a 5.9% based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of ELS. The downside risk to our price objective is economic and operating conditions in ELS' markets deteriorating beyond our expectations and higher interest rates.

Essex Property Trust, Inc. (ESS) Our $217 price objective represents a 10.0% premium to our forward NAV estimate. In our view, ESS deserves a premium given its strong balance sheet and management expertise. We derive our one year forward NAV estimate by applying a 4.4% cap rate to our forward NOI estimate of $836M. We use 4.4% based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of ESS. The upside risk to our price objective is better than expected employment and operating conditions in ESS's markets and lower interest rates. The downside risk to our price objective is employment and operating conditions in ESS's markets deteriorating beyond our expectations and higher interest rates. Also, developments expose ESS to project execution and lease-up risk. In addition, a reduction in GSE lending to the multifamily sector could weigh on ESS's access to capital, borrowing costs, and direct real estate values.

Franklin Street Properties (FSP) Our price objective of $11.50 for FSP represents a -7.5% discount to our forward NAV estimate. This discount reflects below average earnings visibility as FSP sells non-core assets and redeploys the proceeds into higher quality acquisitions. We apply a 7.2% cap rate to our forward NOI estimate of $133M. We use a 7.2% cap rate based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of FSP. Upside risks to our FSP PO are better-than-expected operating conditions and demand and pricing for assets in FSP's core markets. The downside risks to our FSP PO are operating conditions and asset demand below our expectations. A prolonged period of tight credit market conditions is another risk.


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General Growth Properties (GGP) Our $30 price objective assumes a 2.5% premium to our forward NAV estimate to reflect management strength and external growth pipeline. We apply a 5.1% cap rate to our forward NOI estimate of $2.4B. We use a 5.1% for GGP based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of GGP. The risks to GGP achieving our price objective are a significant slowdown in retail sales, a rise in retailer bankruptcies and significantly higher long-term interest rates. Upside risk to our price objective is a faster- and stronger-than-expected macroeconomic recovery.

Government Properties Income Trust (GOV) Our price objective of $21 for GOV represents a -7% discount to our forward NAV estimate. We apply this discount to reflect GOV's externally managed structure. We apply an 8.25% cap rate to our forward NOI estimate of $158M. We use a 8.25% cap rate based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of GOV. Upside risks to our PO are better than expected operating conditions, leasing demand, and pricing on acquisitions. Downside risks to our PO are operating conditions below our expectations and a prolonged period of tight credit market conditions, and dilutive capital markets activity.

Highwoods Properties (HIW) Our price objective of $46 for HIW represents a 6.5% premium to our forward NAV estimate to reflect HIW's management strength. We apply a 6.5% cap rate to our forward NOI estimate of $397M. We use a 6.5% cap rate based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of HIW. Upside risks to our HIW PO are better-than-expected operating conditions and demand and pricing for assets in HIW's core markets. The downside risks to our HIW PO are operating conditions and acquisition and development yields below our expectations. A prolonged period of tight credit market conditions is another risk.

Kite Realty Group (KRG) Our $30.00 PO implies that the stock trades in line with our forward NAV. We apply a 6.5% cap rate to our forward NOI estimate of $260M. Risks to KRG achieving our price objective are a significant downturn in retail sales, a rise in retailer bankruptcies, and a sharp increase in long-term interest rates. Upside risks to our price objective are a faster and stronger-than-expected macroeconomic recovery and a faster pace in upgrading the quality of the portfolio.

Parkway Properties, Inc. (PKY) We apply a -2.5% discount to our forward NAV to derive our $19 price objective for PKY. This discount reflects uncertainty about the future demand profile of the energy sector in PKY's markets. We apply a 6.3% cap rate to our forward NOI estimate of $227M. We apply a 6.3% cap rate to PKY based on the geographic exposure of assets, asset quality, and recent asset transactions. Upside risks to our PKY PO are better-than-expected operating conditions in PKYs markets and pricing on acquisitions and sales. The downside risks to our PKY PO are worse-than-expected operating conditions in PKYs markets and pricing on acquisitions and sales. TPG Capital Management (TPG) owns 22% of the outstanding shares, which could create on overhang should TPG decide to sell down its position.


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Physicians Realty Trust (DOC) Our $16.50 price objective for DOC is derived using a blended Dividend Discount Model and AFFO Multiples. We apply a 15.4x AFFO multiple to our forward four-quarter adjusted Normalized AFFO (adjusted for non-cash items) estimate based on historic and relative multiples. We also forecast 3.2% terminal dividend growth. Upside risks to our PO are better-than-expected operating performance, higher-than-forecast dividend growth and lower interest rates. Downside risks to our PO are public pay reimbursement cuts, a more competitive acquisition environment, weaker-than-expected operating fundamentals, increased tenant credit risk and rising interest rates.

QTS Realty Trust (QTS) Our price objective of $38 for QTS is based on our relative AFFO multiple analysis and supported by our NAV estimate. Our price objective implies a 15.5x '15E AFFO multiple, a discount to our target multiples for other data center REITs reflecting relatively higher execution risk associated with a new IPO and a more concentrated footprint. For our NAV, we apply a 7.9% blended cap rate to the NOI from QTS's assets. We use a 7.9% cap rate for QTS based on our view of interest rates over the next year, current private market/transaction comps, and the market exposure of QTS. Downside risks to our price objective are increased competition, customer consolidation or bankruptcies, potential conflicts of interests with majority shareholders and stock overhang, and a decrease in outsourced data center demand. As a real estate company, QTS remains exposed to excessive new supply in its markets, rising construction and capital costs, real estate values, and rising interest rates.

Sabra Health Care (SBRA) Our $30 price objective for SBRA is derived using a blended Dividend Discount Model and AFFO Multiples. We apply a 13.5x AFFO multiple to our forward four-quarter adjusted Normalized AFFO (adjusted for non-cash items) estimate based on historic and relative multiples. We also forecast 3.0% terminal dividend growth. Upside risks to our PO are better-than-expected senior housing or skilled nursing performance, higher-than-forecast dividend growth and lower interest rates. Downside risks to our PO are further public pay reimbursement cuts, a more competitive acquisition environment, weaker-than-expected senior housing fundamentals, increased tenant credit risk and rising interest rates.

Select Income REIT (SIR) Our SIR price objective of $22.50 is based on a blend of our Dividend Discount Model (0% dividend growth) and warranted FFO multiple (7.5x forward estimates). Risks to our SIR price objective are real estate operating conditions and acquisition opportunities above or below our expectations. As an owner of single tenant assets, SIR's cash flow stream is particularly exposed to the risks of its individual tenants. A prolonged period of tight credit conditions could also weigh on SIRs access to capital, borrowing costs, and direct real estate values. SIR's recently announced $2.5B acquisition of CCIT adds transaction execution risk to the shares.

Ventas, Inc. (VTR) Our $78 price objective for VTR is derived using a blended Dividend Discount Model and AFFO Multiples. We apply a 16.5x AFFO multiple to our forward four-quarter adjusted Normalized AFFO (adjusted for non-cash items) estimate based on historic and relative multiples. We forecast terminal dividend growth of 3.4% and assume a beta of 0.7. The risks to VTR achieving our price objective are


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weaker-than-expected senior housing fundamentals, increased tenant credit risk, rising interest rates and the possibility that the acquisition of ARC Healthcare could fail to close. Analyst Certification We, Jeffrey Spector, Craig Schmidt, James Feldman, Jana Galan, Juan C. Sanabria and Stephen W. Douglas, CFA, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.


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US - REITs Coverage Cluster

Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst

BUY Acadia Realty Trust AKR AKR US Craig Schmidt American Assets Trust AAT AAT US Craig Schmidt American Campus Communities, Inc. ACC ACC US Jeffrey Spector American Homes 4 Rent AMH AMH US Jana Galan Apartment Investment and Management Co. AIV AIV US Jana Galan Avalon Bay Communities Inc AVB AVB US Jeffrey Spector Boston Properties BXP BXP US Jeffrey Spector Brandywine Realty BDN BDN US James Feldman Brixmor Property Group BRX BRX US Craig Schmidt Corporate Office Properties Trust OFC OFC US James Feldman CubeSmart CUBE CUBE US Jana Galan CyrusOne Inc. CONE CONE US Stephen W. Douglas, CFA DCT Industrial Trust, Inc. DCT DCT US James Feldman DDR Corp DDR DDR US Craig Schmidt Education Realty Trust, Inc. EDR EDR US Jana Galan Empire State Realty Trust ESRT ESRT US James Feldman EPR Properties EPR EPR US Jane Wong Equity LifeStyle Properties ELS ELS US Jana Galan Essex Property Trust, Inc. ESS ESS US Jana Galan General Growth Properties GGP GGP US Craig Schmidt Highwoods Properties HIW HIW US James Feldman Home Properties, Inc. HME HME US Jana Galan Kilroy Realty Corporation KRC KRC US James Feldman Kimco Realty KIM KIM US Craig Schmidt Kite Realty Group KRG KRG US Craig Schmidt Lexington Realty Trust LXP LXP US James Feldman Macerich MAC MAC US Jeffrey Spector National Retail Properties NNN NNN US Juan C. Sanabria Physicians Realty Trust DOC DOC US Juan C. Sanabria Prologis, Inc. PLD PLD US Jeffrey Spector Public Storage, Inc. PSA PSA US Jeffrey Spector QTS Realty Trust QTS QTS US Stephen W. Douglas, CFA Regency REG REG US Craig Schmidt Rexford Industrial Realty REXR REXR US James Feldman Sabra Health Care SBRA SBRA US Juan C. Sanabria Simon Property SPG SPG US Jeffrey Spector SL Green Realty SLG SLG US James Feldman Sovran Self Storage, Inc. SSS SSS US Jana Galan Spirit Realty Capital SRC SRC US Juan C. Sanabria STAG Industrial STAG STAG US James Feldman Ventas, Inc. VTR VTR US Jeffrey Spector NEUTRAL Alexandria Real Estate Equities ARE ARE US James Feldman Camden Property Trust CPT CPT US Jeffrey Spector CBL & Associates CBL CBL US Craig Schmidt CoreSite Realty Corporation COR COR US Stephen W. Douglas, CFA Cousins Properties Inc. CUZ CUZ US James Feldman Digital Realty Trust DLR DLR US Stephen W. Douglas, CFA Douglas Emmett DEI DEI US James Feldman Duke Realty DRE DRE US James Feldman EastGroup Properties EGP EGP US James Feldman Equity Residential EQR EQR US Jana Galan Federal Realty FRT FRT US Jeffrey Spector Health Care REIT, Inc. HCN HCN US Juan C. Sanabria National Health Investors, Inc. NHI NHI US Juan C. Sanabria Parkway Properties, Inc. PKY PKY US James Feldman Post Properties, Inc. PPS PPS US Jana Galan Realty Income O O US Juan C. Sanabria Rouse Properties RSE RSE US Craig Schmidt Silver Bay Realty Trust Corp SBY SBY US Jana Galan


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US - REITs Coverage Cluster

Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst

Tanger Factory SKT SKT US Craig Schmidt Taubman Centers TCO TCO US Craig Schmidt UDR, Inc. UDR UDR US Jana Galan Vornado Realty VNO VNO US James Feldman Weingarten Rlty WRI WRI US Craig Schmidt WP Carey WPC WPC US Juan C. Sanabria UNDERPERFORM American Residential Properties ARPI ARPI US Jana Galan Associated Estates Realty Corporation AEC AEC US Jana Galan Campus Crest Communities CCG CCG US Jana Galan Equity Commonwealth EQC EQC US James Feldman Equity One Inc EQY EQY US Craig Schmidt Franklin Street Properties FSP FSP US James Feldman Government Properties Income Trust GOV GOV US James Feldman HCP, Inc. HCP HCP US Juan C. Sanabria Inland Real Estate Corporation IRC IRC US Craig Schmidt Mack-Cali Realty CLI CLI US James Feldman Medical Properties Trust, Inc. MPW MPW US Juan C. Sanabria Pennsylvania REIT PEI PEI US Craig Schmidt Ramco-Gershenson Properties Trust RPT RPT US Craig Schmidt Retail Opportunity Investments Corp. ROIC ROIC US Craig Schmidt Select Income REIT SIR SIR US James Feldman Senior Housing Properties Trust SNH SNH US Juan C. Sanabria Sun Communities SUI SUI US Jana Galan RSTR Gramercy Property Trust GPT GPT US James Feldman Hudson Pacific Properties, Inc. HPP HPP US James Feldman RVW American Realty Capital Properties ARCP ARCP US Juan C. Sanabria

Important Disclosures Investment Rating Distribution: REITs (Real Estate Investment Trusts) Group (as of 30 Sep 2014) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 61 49.59% Buy 53 86.89% Neutral 37 30.08% Neutral 29 78.38% Sell 25 20.33% Sell 17 68.00% Investment Rating Distribution: Global Group (as of 30 Sep 2014) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 1708 51.90% Buy 1280 74.94% Neutral 788 23.94% Neutral 577 73.22% Sell 795 24.16% Sell 491 61.76% * Companies that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.


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FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK

RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*

Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed. MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: American Campus, Avalon Bay, Boston Properties,

Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Franklin Street Prop, Genl Growth Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: American Campus, CyrusOne Inc., Gov. Properties, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT.

The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Franklin Street Prop, Genl Growth Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Franklin Street Prop, Genl Growth Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Franklin Street Prop, Genl Growth Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Franklin Street Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: American Campus, Boston Properties, CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Genl Growth Prop, Kite Realty Group, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 8th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 8th day of a month reflect the ownership position at the end of the second month preceding the date of the report: CyrusOne Inc., Franklin Street Prop, QTS Realty Trust, Ventas Inc.

MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Equity Lifestyle, Essex Property, Franklin Street Prop, Genl Growth Prop, Gov. Properties, Highwoods, Kite Realty Group, Parkway Properties, Physicians Realty Tr, QTS Realty Trust, Sabra Health Care, Select Income REIT, Ventas Inc.

The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: American Campus, Avalon Bay, Boston Properties, Cousins Prop Inc., CubeSmart, CyrusOne Inc., Essex Property, Franklin Street Prop, Genl Growth Prop, Highwoods, Kite Realty Group, Parkway Properties, Ventas Inc.

BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

Other Important Disclosures

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

From time to time research analysts conduct site visits of covered companies. BofA Merrill Lynch policies prohibit research analysts from accepting payment or reimbursement for travel expenses from the company for such visits.

BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf. "BofA Merrill Lynch" includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates. Investors should contact their BofA

Merrill Lynch representative or Merrill Lynch Global Wealth Management financial advisor if they have questions concerning this report. "BofA Merrill Lynch" and "Merrill Lynch" are each global brands for BofA Merrill Lynch Global Research.

Information relating to Non-US affiliates of BofA Merrill Lynch and Distribution of Affiliate Research Reports: MLPF&S distributes, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France):

Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd., Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd.; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLI (UK): Merrill Lynch International; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd.; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co., Ltd.; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill


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Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): OOO Merrill Lynch Securities, Moscow; Merrill Lynch (Turkey I.B.): Merrill Lynch Yatirim Bank A.S.; Merrill Lynch (Turkey Broker): Merrill Lynch Menkul Değerler A.Ş.; Merrill Lynch (Dubai): Merrill Lynch International, Dubai Branch; MLPF&S (Zurich rep. office): MLPF&S Incorporated Zurich representative office; Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V.; Merrill Lynch (Brazil): Bank of America Merrill Lynch Banco Multiplo S.A.; Merrill Lynch KSA Company, Merrill Lynch Kingdom of Saudi Arabia Company.

This research report has been approved for publication and is distributed in the United Kingdom to professional clients and eligible counterparties (as each is defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority) by Merrill Lynch International and Bank of America Merrill Lynch International Limited, which are authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, and is distributed in the United Kingdom to retail clients (as defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority) by Merrill Lynch International Bank Limited, London Branch, which is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority - details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co., Ltd., a registered securities dealer under the Financial Instruments and Exchange Act in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong SFC and the Hong Kong Monetary Authority is issued and distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in India by DSP Merrill Lynch Limited; and is issued and distributed in Singapore to institutional investors and/or accredited investors (each as defined under the Financial Advisers Regulations) by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. (Company Registration No.’s F 06872E and 198602883D respectively). Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority of Singapore. Bank of America N.A., Australian Branch (ARBN 064 874 531), AFS License 412901 (BANA Australia) and Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), AFS License 235132 (MLEA) distributes this report in Australia only to 'Wholesale' clients as defined by s.761G of the Corporations Act 2001. With the exception of BANA Australia, neither MLEA nor any of its affiliates involved in preparing this research report is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this report in Brazil and its local distribution is made by Bank of America Merrill Lynch Banco Múltiplo S.A. in accordance with applicable regulations. Merrill Lynch (Dubai) is authorized and regulated by the Dubai Financial Services Authority (DFSA). Research reports prepared and issued by Merrill Lynch (Dubai) are prepared and issued in accordance with the requirements of the DFSA conduct of business rules.

Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin. This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in

the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates. Hong Kong recipients of this research report should contact Merrill Lynch (Asia Pacific) Limited in respect of any matters relating to dealing in securities or provision of specific advice on securities. Singapore recipients of this research report should contact Merrill Lynch International Bank Limited (Merchant Bank) and/or Merrill Lynch (Singapore) Pte Ltd in respect of any matters arising from, or in connection with, this research report.

General Investment Related Disclosures: Taiwan Readers: Neither the information nor any opinion expressed herein constitutes an offer or a solicitation of an offer to transact in any securities or other

financial instrument. No part of this report may be used or reproduced or quoted in any manner whatsoever in Taiwan by the press or any other person without the express written consent of BofA Merrill Lynch.

This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering, and not on this report.

Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and, derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change.

This report may contain a short-term trading idea or recommendation, which highlights a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Short-term trading ideas and recommendations are different from and do not affect a stock's fundamental equity rating, which reflects both a longer term total return expectation and attractiveness for investment relative to other stocks within its Coverage Cluster. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity rating.

BofA Merrill Lynch is aware that the implementation of the ideas expressed in this report may depend upon an investor's ability to "short" securities or other financial instruments and that such action may be limited by regulations prohibiting or restricting "shortselling" in many jurisdictions. Investors are urged to seek advice regarding the applicability of such regulations prior to executing any short idea contained in this report.

Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in such securities and instruments, including ADRs, effectively assume currency risk.

UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated by BofA Merrill Lynch entities located outside of the United Kingdom. BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

MLPF&S or one of its affiliates is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. MLPF&S or one of its affiliates may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.

BofA Merrill Lynch, through business units other than BofA Merrill Lynch Global Research, may have issued and may in the future issue trading ideas or recommendations that are inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect the different time frames, assumptions, views and analytical methods of the persons who prepared them, and BofA Merrill Lynch is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this report.

In the event that the recipient received this report pursuant to a contract between the recipient and MLPF&S for the provision of research services for a separate fee, and in connection therewith MLPF&S may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom


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MLPF&S has contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by MLPF&S). MLPF&S is and continues to act solely as a broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report.

Copyright and General Information regarding Research Reports: Copyright 2014 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks

of Bank of America Corporation. iQanalytics®, iQcustom®, iQdatabase® are registered service marks of Bank of America Corporation. This research report is prepared for the use of BofA Merrill Lynch clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of BofA Merrill Lynch. BofA Merrill Lynch Global Research reports are distributed simultaneously to internal and client websites and other portals by BofA Merrill Lynch and are not publicly-available materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets) without first obtaining expressed permission from an authorized officer of BofA Merrill Lynch.

Materials prepared by BofA Merrill Lynch Global Research personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch, including investment banking personnel. BofA Merrill Lynch has established information barriers between BofA Merrill Lynch Global Research and certain business groups. As a result, BofA Merrill Lynch does not disclose certain client relationships with, or compensation received from, such companies in research reports. To the extent this report discusses any legal proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult their own legal advisers as to issues of law relating to the subject matter of this report. BofA Merrill Lynch Global Research personnel’s knowledge of legal proceedings in which any BofA Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by, discussed with, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch in connection with the legal proceedings or matters relevant to such proceedings.

This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or warranty on behalf of the issuer(s). BofA Merrill Lynch Global Research policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis.

Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.

The information herein (other than disclosure information relating to BofA Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy. This report may contain links to third-party websites. BofA Merrill Lynch is not responsible for the content of any third-party website or any linked content contained in a third-party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this report. The inclusion of a link in this report does not imply any endorsement by or any affiliation with BofA Merrill Lynch. Access to any third-party website is at your own risk, and you should always review the terms and privacy policies at third-party websites before submitting any personal information to them. BofA Merrill Lynch is not responsible for such terms and privacy policies and expressly disclaims any liability for them.

Subject to the quiet period applicable under laws of the various jurisdictions in which we distribute research reports and other legal and BofA Merrill Lynch policy-related restrictions on the publication of research reports, fundamental equity reports are produced on a regular basis as necessary to keep the investment recommendation current.

Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision.

In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of any kind. Sales persons and financial advisors affiliated with MLPF&S or any of its affiliates may not solicit purchases of securities or financial instruments that are Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies.

Neither BofA Merrill Lynch nor any officer or employee of BofA Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.


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Team Page Jeffrey Spector Research Analyst MLPF&S James Feldman Research Analyst MLPF&S Jana Galan Research Analyst MLPF&S

Craig Schmidt Research Analyst MLPF&S Juan C. Sanabria Research Analyst MLPF&S Stephen W. Douglas, CFA Research Analyst MLPF&S

Jane Wong Research Analyst MLPF&S

Scott C. Freitag Research Analyst MLPF&S

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