Alternative Business Models: Single Family RentalsMEET OUR PANELISTS

Matt Blank Dylan Rhea Betsy ScottBB Residential RealFoundations the Alliance

The information contained in this presentation is confidential and is not to be disclosed to third parties.Contents are Copyright (c) 2000-2020 Real Foundation, Inc. and all rights are reserved. (“Confidential”).

Insights into the SFR and SFR/BFR Product Spaces

April 2020

Single-Family Rental Snapshot

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RealFoundations at a Glance

Engagement→ Collaborative Work Methods

→ Proven Models and Frameworks

→ Methodology-Driven Execution

2,250+ projects + services delivered→ System Implementations of Leading

Industry Software Solutions Such As Yardi, JDE, MRI, Argus, and DXC Homebuilder

→ Strategy and Operating Platform Diagnostics

→ Outsourced Business Processes Including Lease Administration and Property Accounting

450+ clients→ Developers

→ Residential

→ Owners/Operators

→ Service Providers

→ Institutional Investors

→ Corporate Occupiers

400+ employees→ 20th Year Since Founding

→ 400+ Full Time Client-Service Professionals Globally

→ 9 Global Offices

→ Consultants Average 9+ years in the Real Estate Industry

→ Executive Management Team with 25+ years Working Together

ServicesManagement Consulting

Managed Services

Energy Solutions

Core Values→ We Work Hard

→ We Tell The Truth

→ We Do What We Say

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Discussion Agenda• Single-Family Rentals: Trends and Drivers

• Single-Family for Rent (SFR): Existing Product Portfolios

• Single-Family for Rent/Built for Rent (SFR/BFR): New Product Portfolios

• Applying Rental Metrics to SFR

• Outlook for SFR

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Single-Family Rentals: Trends + DriversBroad Trends: Expansion of the Single-Family Sector1

SFR in Context of the Total US Housing Picture2

→ Extended periods of declining homeownership since the 2008 downturn→ Ongoing challenges in meeting requirements for a traditional home purchase→ Other key factors are driving demand for Single-Family Rentals→ The single-family housing sector has expanded to include rentals as both SFR and SFR/BFR→ Homebuilders are shifting a portion of production to this market; other partnerships are evolving

1 Sources: Metrostudy National Outlook –8/29/19 and 2/24/20

2 Source: RCLCO; Census Data. Forbes 1/16/2020

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Single-Family Rentals: SFR and SFR/BFRSingle-Family For Rent (SFR): Existing Portfolios

→ Acquisition and management of existing housing product through both institutional and smaller-scale investment vehicles→ Owners and investors are comparing and contrasting characteristics against the the multifamily vertical→ There is a lack of single family-focused management software platforms for large SFR portfolios→ SFR is an evolving space with multiple varying operating models in use→ Financial markets and analysts are still working to embrace and understand the SFR space for REITs→ Significant public relations risks exist, especially for the large-scale players→ “Capital pouring into the growing single-family rental (SFR) housing market is bumping up against a

tough competitor—the consumer. Heightened competition amid a tight supply of housing inventory in many markets is pushing investors to shift strategies to focus on new development.”*

Single-Family for Rent/Build to Rent (SFR/BFR): New Product Portfolios→ Many traditional single-family homebuilders are transitioning a portion of their business plans to SFR/BFR product→ “Multifamily-ization” of Single-Family communities is driving changes in amenity planning and product design → Various planning strategies are being utilized with regards to increasing exposure to SFR/BFR product→ Various partnership and building strategies are being utilized → Numerous challenges exist for the the SFR/BFR model

* Source: National Real Estate Investor – 1/22/2019

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Applying Rental Metrics to SFRDefining Leading Practices

• NRHC engaged Green Street to determine how key disclosure metrics should be defined

• NRHC surveyed its members on how they define key terms as the starting point

• Focused on portfolio holdings, leasing stats, operating/income measures, and asset values

• Green Street overlaid best disclosure practices from other property sectors, then developed a report summarizing best practices

Portfolio Definitions Leasing Definitions

Income Definitions Asset Value Definitions

Additional Terms + Considerations Definitions

• Occupied vs Unoccupied• Leased vs Unleased• Core Portfolio• Stabilized vs Unstabilized• Same-Property Portfolio

• Downtime• Occupancy + Leasing• Average Occupancy• Tenant Retention• Rent Averages• Renewal Spread

• Net Operating Income• Same-Property NOI Growth• Funds From Operations (FFO)• Cap Ex

• Cost Basis• Yield• Measure of Value

• Availability• New Lease Rental Renewal• Total Physical Cost to Maintain• Leasing Costs• Vacancy to Move-In

• Home Price Appreciation• Purchase to Move-In• Turnover Cost• Rent-Ready Property• Turn 1 and Turn 2

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Outlook for Single-Family RentalsRegarding both SFR and SFR/BFR:

→ Both SFR and SFR/BFR will be permanent new fixtures in the housing market, despite recent events

→ Institutional and smaller-scale ownership of SFR continues to evolve in order to lower barriers to entry

→ SFR-focused technology platforms will continue to evolve in order to more effectively service the industry

→ Decreasing availability of existing quality homes for large-scale SFR operations will continue to drive new development

→ Homebuilders are continuing to explore how SFR/BFR can effectively expand revenue opportunities and potentially hedge risk

→ Partnerships and joint venture structures to control construction, property management, and capital will continue to evolve

→ Continued shifts in household structures will continue to affect demand→ Shifting priorities and perception of value in ownership will continue to drive expansion→ Focus on delivering a community/lifestyle experience will drive demand and improve lease durations→ Product design will continue to evolve as SFR/BFR rental base expands→ Off-site and modular construction will continue to expand availability of rental product

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Contacts

DALLAS13737 Noel RoadSuite 900Dallas, TX 75240+1 214 292 7000

NEW YORK286 Madison Avenue21st FloorNew York, NY 10017 +1 212 750 9550

ORANGE COUNTY 18565 Jamboree RoadSuite 540Irvine, CA 92612+1 949 258 4000

CHENNAIRF Managed Services India Pvt. Ltd.9th Floor, Shyamala TowersNo. 136, Arcot Road, SaligramamChennai 600093Tamil Nadu, India

HONG KONG19th Floor, Two International Finance Center8 Finance StreetCentral, Hong Kong +852 2810 5200

LONDONThe Clove Building4 Maguire StreetLondon SE1 2NQ+44 (0)20 7740 3260

MELBOURNE203-205 Blackburn RoadMount Waverley VIC 3149+61 3 9847 6844

SINGAPORE1 Sophia Rd. #05-03Peace CentreSingapore (228149)+65 6550 9776

SYDNEYLevel 17, The Ark Coca Cola Place40 Mount StreetNorth Sydney NSW 2060+61 2 8415 9821

www.realfoundations.net

Dylan RheaEnterprise Managing ConsultantDylan.Rhea@realfoundations.net+1 949 258 4040

4900 North Scottsdale Road, Suite 4900Scottsdale, AZ 85251

Seven Penn Plaza, Suite 1400 New York, NY 10001

BB Living ResidentialApril 2020

§ 1.2M net new households were formed in the last 12 months and over 50% of them were renters. ~60% of new households going forward are projected to rent

§ A majority of this household growth is expected to be driven by a key B2R age group, between ~25-45 years old, which has shown an increased propensity to rent SFRs over the past 10 years

§ That same age group has seen the sharpest acceleration in their income growth over the last 4 years compared to during the recession, at an increase of 390-410 bps

§ Additional households at a prime age for family creation with growing incomes will likely drive demand for higher square footagerental product resembling traditional SF living

Macroeconomic Drivers of Build to Rent Single-Family Rental (SFR)

§ Single family housing starts are still 13% below the historical average (market undersupplied at more affordable price points)§ Completion of entry-level homes are even more depressed as the percentage of new homes with fewer than 1,800 square feet

or below $200K has dropped off in recent years reducing options for the more affordable-minded buyer§ Quality of SFR rental stock is suffering from this lack of new supply as 86% of SFRs are 19+ years old§ This has led to the recent growth of the "Build to Rent" industry, though it still remains a miniscule part of the overall home

building output

Demographic and

Socioeconomic-Driven Demand

Entry-Level Supply

Relative Value to Consumers

The combination of limited affordable entry-level supply and the growth of younger households is driving higher demand for our product

§ In many markets it is more affordable to rent than own today, with greatest hurdle coming from upfront costs§ Despite recent declines in mortgage rates, the upfront costs associated with homeownership remain a significant hurdle for

most potential home buyers; +/- 80% of Americans have less than $10,000 in savings§ Lending standards may also be hindering would-be home buyers as originations for lower credit scores are still below pre-GFC

averages

Source(s): John Burns Real Estate Consulting

1

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2

3

Demographic and Socioeconomic-Driven Demand

Renter household formation has strengthened in the past ~6 months after relative stagnation over the last couple years

Source(s): JBREC US Analysis and Forecast, October 11, 2019. US Census Bureau

Net Household GrowthYoY Change, Millions

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1

Demographic and Socioeconomic-Driven Demand

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1

The vast majority of new households going forward are projected to be millennial-led, a target age for our communities

Source: “Big Shifts Ahead: Demographic Clarify for Business” by John Burns and Chris Porter (2016) and John Burns Real Estate Consulting - Figure 7.3

Projected Net Change in Households by Decade Born2016-2025, Millions

-3.1

-4.9-3.8

-1.4-0.1

1.6

4.3

14.0

5.9

Pre1930s

1930s Savers 1940Achievers

1950sInnovators

1960sEqualers

1970Balancers

1980sSharers

1990sConnectors

2000s andLater

“I skate to where the puck is going to be, not where it has been.” – Wayne Gretzky

Demographic and Socioeconomic-Driven Demand

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1

Our target demographic is growing in size and showing an increasing propensity to rent, SFR in particular

Source(s): John Burns Real Estate Consulting as of Oct-19

Share of SFR and MF Renters and Owners By Age

Demographic and Socioeconomic-Driven Demand

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1

Our target demographic has experienced the greatest income growth acceleration during the recovery, more than 2x the long term average growth

Source(s): US Census Historical Income Tables: Households Table H-10 Age of Householder: All Races by Median and Mean Income: 1967 to 2018 (accessed October 2019)

Median Household Income Change by Age of HouseholderCAGRs

2.3% 2.2% 2.3% 2.1%

2.4%

1.1% 0.9% 1.0%

1.6%

0.9%

4.2%

5.0% 4.9% 4.5%

3.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

15+ 25-34 35-44 45-54 55-64

Long Term: 2000-2018 Recession: 2008-2014 Recovery: 2014-2018

310bps

410bps

390bps 290bps240bps

Entry-Level Supply

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2

Percentage of new homes sold for less than $200K continues to plummet, likely causing an increase in homes sold for $200-300K

New Home Sales by PricePercentage of total sales, rolling 12-month average

Source(s): U.S. Census Bureau; John Burns Real Estate Consulting, LLC (Data: Jun-19, Pub: Aug-19)

Entry-Level Supply

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2

Over 60% of the SFR stock is 40+ years old. Lack of quality product is likely driving increase in new supply

Over 64% of SFRs are ~40+ years old

15%

23%

26%

21%

14%14%

11%

29% 28%

17%

0%

5%

10%

15%

20%

25%

30%

35%

Pre-1940 1940-1959 1960-1979 1980-1999 2000 or later

Single Family Apartments

SFR Stock by AgePercent of total stock

Builder-Completed New B2RsTrailing 12 Month Total

0

5

10

15

20

25

30

35

40

45

50

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2Q19

Source(s): Harvard University Joint Center for Housing Studies tabulations of US Census Bureau 2016 ACS 1-Year Estimates, John Burns Real Estate Consulting, US Census Bureau New Residential Construction (October 2019)

Relative Value to Consumers

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2

64% of single-family renters cited high down payment and closing costs as a barrier to obtaining a mortgage. 51% had unqualifying credit scores

SFR Occupants; Barriers to Buying a Home

Source(s): Terner Center for Housing Innovation; John Burns Real Estate Consulting, LLC (Data: Apr-18, Pub: Aug-19)

Relative Value to Consumers

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3

Despite lower mortgage interest rates, 80% of households do not have the requisite savings nor financial qualifications to purchase a home

Source(s): GoBankingRates as of May, 2019. JBREC as of October, 2019

Mortgage Originations by Credit Score $ Billions

Savings% of Americans Surveyed

58%

15%

7%

20%

< $1,000 $1,000-4,999 $5,000-9,999 > $10,000

~80% don’t have requisite savings to be buyers

Resident Profile• Renter by Choice

• Demographics at BB Living communities are comparable to the demographics of the surrounding areas• Average BB Living household comprised of two (2) adults, one (1) child, and 0.5 pets• Average age of adult residents is 38 years old (median age is 37)

• Average HH Income at BB Living at Higley Park is $95,140 (91.1% of Average HH Income of Zip Code) while Median HHIncome is $86,112 (99.2% of Median HH Income of Zip Code)

• More than 39% of households within BB Living at Higley Park have household incomes at/above $100,000• Average “Rent to Income” ratio for BB Living at Higley Park residents is +/- 21%; well below 33% minimum ratio

• Nearly 40% of all move-outs from BB Living communities are homebuyers. These residents are not “Entry Level”homebuyers, with an average purchase price of +/- $375,000 and average down payment of +/- 14%

• By focusing on high barrier to entry locations, residents are presented with the opportunity to rent a new home in a betterlocation than buying a home in a less desirable location due to their economic situation

• Renter by Necessity• Average American household has $8,863 in savings; skewed by Americans (45 years or older) saving more as they age• Our target demographic (couples with children) has average savings of $3,682 (<34 years)/$10,399 (35-44 years). These

represent the highest savings rates among these age groups, though this is unlikely enough to afford the upfront costs of homeownership in our locations/submarkets

• In markets with IC Approved deals, home prices have appreciated by 7.85% (CAGR) since 2012, highlighting continued affordability/attainability issues in these markets

Source(s): Mark-Taylor Residential, American FactFinder, CNBC/Smart Asset, Zillow Page 22

Rent vs. Own AnalysisDespite declining interest rates, homeownership remains unaffordablefor many Americans due to continued above average home priceappreciation and the upfront costs associated with purchasing a home• Rent vs. Own analysis for BB Living at Windrose is shown in the following table

• The Upfront Cost is significantly higher to Own than to Rent and is the biggest hurdle tohomeownership. The loan amount is below the FHA limit in Arizona, so a down paymentof 3.50% was assumed. In addition to the down payment, other upfront costs include:

• Closing Costs: Estimated at 3.00% of Purchase Price per discussions with TBIMortgage. FHA loans do not allow closing costs rolled into loan

• Upfront PMI: FHA loans, the most typically underwritten loan scenario, require a1.75% Upfront PMI Premium is typically rolled into the loan amount, increasingthe loan balance and thus the monthly payment for borrowers

• In order to get an “apples to apples” comparison, we included the major monthly costsof ownership including:

• PMI: In addition to Upfront PMI, FHA loans require monthly PMI payments of0.88%. These payments are made for the life of the loan if the down payment isless than 10%

• Repairs & Maintenance: Meyers Research indicated ongoing maintenancecosts a homeowner $476/month1. This seems to overstate the cost for newhomes, thus the $20/month underwritten cost, in line with BB Living R&M costs

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Note: “Upfront Costs” do not include typically required items including appliances, windowcoverings and rear yard landscaping; all provided by BB Living to its residents

Source(s): Belfiore Real Estate Consulting, Homes by Towne, Bankrate, TBI, Meyers Research/Redwood Homes

BB Living at Windrose - Rent vs. Own AnalysisLowest Priced Inventory Home $321,206Average Options / Upgrades $0Total Home Price $321,206

Down Payment 3.50% $11,242Closing Costs 3.00% $9,636Upfront Cost to Own $20,878

Upfront PMI 1.00% $3,100Total Mortgage Amount $313,063Monthly P&I Payment 3.40% $1,388.38

PMI 0.88% $229.58Insurance ($1,000/yr) $83.33HOA Dues $60.00Repairs & Maintenance $20.00Property Taxes 0.99% $265.41Total Additional Payments $658.32

Total Monthly Cost to Own $2,046.70

Upfront Cost to Rent (Sec. Deposit) $1,875

Underwrittend Weighted Average Rent $1,875.0Sales Tax 0.70% $13.13Total Monthly Payment $1,888.13

$19,003 / 91.02% Cheaper Up Front to Rent$158.58 / 7.75% Cheaper Per Month to Rent

"Build to Rent" Timeline: BB Living “Head Start”• The "Build to Rent" asset class has exploded in popularity in the past few years; however, there are multiple approaches being taken that are lumped

together in the category of "Build to Rent"

• Many of the “Build to Rent” developers on the list are pursuing the “horizontal apartment” strategy, building single-level, detached, 1-3 bedroom unitsranging from 600 -1,300 SF. The product ranges from 12-14 du/ac, is typically gated, includes a central amenity area of varying scale and detachedgarages. The popularity of this product is driven by:

• More straightforward planning and entitlements, similar to existing multi-family

• Less equity intensive, thus easier to finance for construction

• More similar to multi-family, making the current buyer pool more robust

• Agency financing available for next buyer

• More publicly reported sales, thus proving the exit

• In addition to the “horizontal apartment” strategy, there are groups pursuing smaller-scale “Build to Rent” communities, typically with fewer than 100homes in a community. For example, American Homes 4 Rent highlighted in their September 2019 investor update Steele Forest, a 64-homecommunity located in Atlanta

• This model is a hybrid of traditional single-family rental and “Build to Rent”

• Smaller-scale projects do not lend themselves to “Class A” MF management and maintenance program, but still provide superior returns forinvestors due to lower operating costs and rental rate premiums achieved by new homes

• Typically building on conventional lot sizes in remaining pockets of existing communities

• Lends itself to for-sale homebuilders merchant-building for investors or close-out of a community

• Inferior strategy from a financing and next buyer perspective due to lack of scale in one location

Source(s): Mark-Taylor Residential, American FactFinder, CNBC/Smart Asset, ZillowPage 25

3+ Bedroom “Build-to-Rent”Within the segmented strategies of “Build to Rent” focusing on more traditional housing product comparable to BB Living, entrants are limited to specificgeographies and often building smaller-scale communities ”For Rent”. While it is important to track these communities in each of the markets as theyrepresent the best comparables, no other group is currently executing the scale of community in the broad cross-section of locations as BB Living. Beloware brief summaries on a few of these groups:

Bridge Tower owns and manages a portfolio of SFR/MF throughout Dallas and Houston. Built a 180-home 3 and 4-bedroom SFR community in Forney,TX that offer two-car garages and backyard patios

Source(s): Brooklyn-village.com, Prnewswire.comPage 26

American Homes 4 Rent is continuing their program of purchasing or building new construction homes for rent. While they have purchased larger, morecomparable communities to BB Living, including purchasing BB Living at Verrado, they are often buying a small number of lots/homes within acommunity. For example, they recently pulled 14 permits out of an identified 21 lots owned within Serene Park in Las Vegas, NV. Per their latest quarterlyreport, 2-2.5% of portfolio will be new construction, which would be +/- 3,000 homes a year. The targeted yield on cost is 6%, according to their latestreport

BB Living vs Horizontal Apartment: Comparison

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Horizontal Apartment product

BB Living product

BB Living Horizontal ApartmentsNet Density (Du/Ac) 7-14 12-14Bedroom Counts 3-4 1-3Average Unit Size 1,857 SF 946 SF3 Bedroom Size 1,442-2,150 SF 1,200-1,250 SF% of 3+ Bedroom 100% 0-30%

Note: BB Living average unit size includes all proposed floor plans and product types

BB Living vs Horizontal Apartment: Floor Plan Comparison• BB Living floorplans offers superior livability with key features including: full laundry rooms, substantial closet and storage space, larger common living

areas and attached, two-car garages

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BB Living (single-level floor plan) Horizontal Apartment

Note: Light green on BB Living floor plan is fenced-in private yard space and images have been scaled to accurately reflect size of home / unit

BB Living vs Horizontal Apartment: Horizontal Apartment Site Plan

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Gated Entry / Exit

Central Amenity

Detached Garages