How To Make A Fortune

*

November 3, 2010

• My compliance team cautions you that this is a tongue in cheek title

o ,..;:. J'o

,_,+ sc.

<; Pershing Square Capital Management, L.P.

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Disclaimer

The analyses and conclusions of Pershing Square Capital Management, L.P. C'Pershing Square") contained in this presentation are based on publicly available information.

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

This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.

Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained in this presentation.

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What We Look for in Our Investments

~ Low valuation ~ Forced Sellers

~ Attractive capital structure

~ Favorable long-term supply dynamics ~ Favorable long-term demand dynamics ~ Out-of-favor

2

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We Believe We've Identified an Investment with:

~ A low valuation

• Lowest valuation in at least a generation

~ Forced sellers

• A large number of distressed transactions

~ Extremely attractive financing available

• High LTV, low-rate, fixed-rate, long-dated, non-recourse debt, pre-payable without penalty

~ Favorable long-term supply dynamics

• Short-term oversupplied market, but long-term supply is controlled

~ Favorable long-term demand dynamics • Demographically driven demand growth

~ Out-of-favor

• Currently, this is a somewhat shunned asset class

3

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So ... How Can You Make A Fortune?

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The American Dream - On Sale

5

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What Happened?

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What Happened in the Credit Markets?

./ Relaxed lending standards

./ Financial "innovation"

./ COO Demand

Decreasing Defaults

Source: "Who's Holding the Bag?," PSCM, May 2007

7

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Leverage Increased

The second lien market allowed borrowers to layer additional leverage

Total Second Lien & Piggyback Second Lien Issuance

• Totall issuance

• Simultaneous second liens

(Bill. $)

16,0

80'

• • (( [I I
II I I I I I l ttl • • I I, I 120,

10D

201

Source: Standard & Poor's, and "Who's Holding the Bag?," PSCM, May 2007 8

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Financial "Innovation"

The popularity of Interest Only and Negative Amortization loans grew rapidly

10 and Neg. Amortization Originations (% of dollar volume)

35%

5%

29%
,----
25%
- 23%
,-----
6%
4% ,-----
2% 1% n
II ,--------, 30%

25%

20%

15%

10%

0%

2000

2001

2002

2003

2004

2005

2006

Source: Loan Performance, Credit Suisse

9

The ABS Market Provided Liquidity for Originators

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Sub-prime and Second-lien ABS Issuance Volume

100

I B7

Facilitated by Rating Agencies and Bond Insurers

G o

i 300

G

OJ -~

o 200

91

87

28

Source: Thompson Financial, Deutsche Bank, "Who's Holding the Bag?," PSCM, May 2007

~ 998 ~ 999 2.000 201] 11 20102 20[13 2004 20[15 20106

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Asset Values Went Up

Between January 2001 and June 2006 home prices rose at a 13% CAGR

Home Price Appreciation (Case-Shiller 10-City Index)

250 230 210 190 170 150 130 110

90 70

50 +---~----~--~----~--~----~----~--~----~--~----~

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Source: Case-Shiller Home Price Indices

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Valuation

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Asset Values Have Declined Meaningfully

Home prices are down 280/0 nationwide

Home Price Appreciation (Case-Shiller 10-City Index)

250
230
...
210
190
170
, - .
150 ,.
130
110
90
70
50 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Source: Case-Shiller Home Price Indices

13

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Housing is More Affordable Today

Falling home prices and lower interest rates dramatically improved affordablllty', Median family income is now 78% higher than what is required to qualify for a loan to purchase the median price single family home using 80% loan-to-value, fixed-rate financing

NAR National Housing Affordabilitv Index - Fixed Rate Composite 200

80

178
170 -
-
150
-
134 134 130 133 137
127 - - 126 127 128 124 128
--- 125
122 r- - - - - _ 120 -
117 _ 117 -
109 - - 109 110
- - - 180

160

140

120

100

60

Source: National Association of Realtors

'Affordability = Median Income/Qualifying Income

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Cheap Compared to Renting

The breakeven appreciation rate for rental equivalent value is the best since the 1970s

1l4,O©r% :1;3J~lE}% 112Jl(i,% n_oo% :l:Q,OO%

9_0<I:t!% !to<I:t!% 7_~ .6·_0<I:t!% 5_001% 4_00% 3_(I:(!!%

Ex-Ante ,Annurarlll Requir1edl Appre!d,a:tio'lni Ralte·witih R.is k-Equal 0 pportu nitty [ost ::: 1~9j'.8 -2009

Housing as a hedge: Home ownership with fixed-rate financing protects buyers from asset and rent inflation

Source: Beracha and Johnson, "Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise?"

Assumptions in appendix

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Forced Sellers

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Foreclosures and Short Sales

Nationwide, -30% of sellers are in or are approaching foreclosure

Distressed Sales (Ufo of total re-sales)

;8IQ~{~ -.---------------------------------, 7IQOlo -+=-------------------------------i 160~;'0

'5IQ'Vo

4!Q~;'0

310%

1-

:210% 1IQo,'iJ,

O~to -tL-'~L,L....L...L--...L...L..L.--.,L_L~a,>_...LL..__,.LL...J'---_,_'__I_~L,L...LL..__.L..L...J'---,L_L~~..L...L..__,..L.L...l___J

Long-term the foreclosure crisis is good for housing. Over-priced and overleveraged homes will be transitioned to new, stable owners at more reasonable prices and on more favorable financing terms

Source: Deutsche Bank, "Whither the distressed inveotory flood"

17

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Short Sales

Short sale transactions are increasing

Number of Short Sales Per Month

Source: HUD, Core Logic

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Distressed Sales are an Opportunity for Buyers

REO sales tend to be priced below the broader market

Houston REO vs. Overall Pricing ($ thousand)

'---_-' IRIEO Plfieing

$20.0

0,%

$115.0

$110.0

$50

r- r- r-
- _ - _ _ _ -
r-
- _ _ - _ - _ _ _ _ _ _ -
r-r- ,-- ,-- r-r- r-r- r- r-r- ,-- - r-r- ,-- -
~ ' .. ~ ~ .. .. ~ - . ~~ . ~ ..... ~ . ...... i"'
1- ..... - - - - '!!!J!!oi!1oo ~ -
.. $.0

Of) m 0i'I m al' 01 10 01 01 01 10 01
0 <:I 0 01 0, 'I!"'" _, 'I!"'" 'I!"'" 'I!"'" 'P" 'I!"'"
-, -II -, -, , , , "' , II , "'
m Q. .... ::0- 'Col' c ..0 , ... ... ~, c
=. Qi)' 0 0 IQ:;I (ICi 'dl It: Q. ('t:I -= ::l
'e:[, r.1J 0 '2: QI "") IUl;" :as ~ :as .., "") Source: Deutsche Bank, "Whither the distressed inventory flood"

19

-1.01%

-2Ol~o

-3.01%

-401%

.J.5.oI~o ~6.oI%

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A Sellers' Race to the Bottom in Vegas

Buyers benefit when conventional sellers compete with distressed sales. Las Vegas is an extreme example, where distressed and non-distressed sale prices have nearly converged

Las Vegas REO vs. Overall Pricing ($ thousand)

=F!!!':OPridn~

= Norll RElJ ~rieiflg

- • % diiffereilH:e

$160..,-------------------------------r 5% $140 +-----------------._,\.-----------1

r- ~. -

- - r- L - , r- r-r- 0%

$lZ0 _ ----r= ~ -----= ----=r- rr: r- '\ _r- ----;::r- -

$100 _r- , ... -=- _" '" - -5%

sao - _ ,,_..._ - .... 10- -"'- .. _:......c! ... ..._ .. I'" ~

S60 - .... _!!__I .. _

I""

$40 -

SZO -

so +-"---'--'-+,--'-,-+-,'--'--,-+.1.......L..--,+..J........L-'-j--'-L.......1.-t-'--'--'-+-"-...J........L-+'--'-'-+-'---'---'-+-'---'--'-+..J........L-,-+ -21)%

-11)%

-15%

'i;Jl' In (!:l Qj, (!:l I~I @ I~I .,. ,." €iiI @
'''l'' 'l!I .,. ~ .,. ' ... ' ~ L 1: ,t ~" ~
:;, Q" .~ :'" .. '1:: 1::
~ ~ .. ,0, ¢i ,,. '" rtl:li Co ~ ::II
<1i~ '(j() Q Z CI " u, ::iii. o<'J; :::E "'), , Source: Deutsche Bank, "Whither the distressed inventory flood"

20

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Financing

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Mortgage Rates are Very Low

Mortgage rates have fallen to historically low levels. Fixed 30-year rates are now below 4.5% for the first time in the history of the Freddie Mac lender survey

3D-Year Fixed-Rate 80% LTV Mortgage

9%

19%

17%

15%

13%

11%

7%

5%

3%+-----~----~------~----~----~----~------~--

1973

1977

1982

1987

1992

1997

2002

2007

Source: Freddie Mac

22

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What Makes a Home Mortgage So Attractive?

Typical Conforming Mortgage Term Sheet

Low Fixed Rate - 4.430/0 APR

Long Term - 30-Year Amortization High LTV - 800/0 (970/0 for FHA loans)

Non-Recourse - Loans are explicitly or effectively non-recourse Adequate Financing Available - $417k to $730k, depending on location No Prepayment Penalties - Creates refinancing optionality

Tax Deductible Interest - More valuable with coming tax increases

No other business or investor can get financing on such favorable terms

23

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The Mortgage Market Benefits from Government Support

Support from the federal government provides qualified borrowers with access to credit on favorable terms

~ GSE and FHA mortgages are now >90% of the origination market

~ The target Fed Funds rate is 0%

~ The Fed has purchased more than one trillion dollars of Mortgage Backed Secu rities

~ FHA high LTV refinancing programs are helping distressed borrowers

24

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What Are the True Economics of Home Ownership?

Our Assumptions:

Conventional Loan

Down Payment Mortgage Interest Rate

20% 30yr Fixed Rate 4.40%

Transaction Costs

Closing Costs (% of Purchase Price) 2%

Selling Fees (% of Sale Price) 6%

FHA Loan

Annual Fees

Down Payment Mortgage Interest Rate

Upfront Mtge Insurance (Financed) Annual Mtge Insur. Premium (First 5yrs)

3.5%

30yr Fixed Rate 4.25% 1.00% 0.90%

Property Taxes (% of Home Value) 1.50%

Maint. + Insurance (% of Home Value) 2.00%

Annual expenses grow with home appreciation

Tax Rate

Income Tax Rate 25%

Rent

Implied rent grows with home appreciation

Holding Period

10 Years

25

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What Are the True Economics of Home Ownership? (cont.)

After a small down payment, a buyer's monthly after-tax cost of carry is at or below the monthly rental expense

Average Two Bedroom Home in Baltimore:

Conventional

FHA

Home Price

Equivalent Monthly Rent Owner's Monthly Out of Pocket Downpayment + Closing Costs LTV

$ 187,998 $ 187,998 r·······1:300·················1·:300·~

~ 1,072 1 ,362 ~

..............................................

41,360 10,406

80% 96.5%

Source: Trulia - home price and rent expense data

26

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The Benefits of Low-Cost, High-LTV Financing

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions

Conventional 80% Financing I

IRR Assuming 10yr Hold
Annual Residual Current Multiple
Appreciation Return Return Total of Equity
1%) 3.8% 6.6% 10.40/0 2.7x
2% 6.9% 6.8% 13.70/0 3.6x
3% 9.5% 7.0% 16.50/0 4.6x
4% 11.8% 7.30/0 19.1% 5.7x
5% 14.0% 7.50/0 21.5% 7.0x
6% 15.9% 7.80/0 23.7% 8.4x If the borrower has the opportunity to refinance at better rates, returns would be even higher

27

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The Benefits of Low-Cost, High-LTV Financing (Cont'd)

Homebuyers can make an excellent after-tax return on their equity investment, even under modest appreciation assumptions

FHA 96.5% Financing I

IRR Assuming 10yr Hold
Annual Residual Current Multiple
Appreciation Return Return Total of Equity
1% 16.3% 0.4% 16.7% 5x
2% 20.5% 1.7% 22.2% 7x
3% 24.0% 2.80/0 26.8% 11x
4% 27.0% 3.80/0 30.8% 15x
5% 29.7% 4.70/0 34.4% 19x
6% 32.1% 5.60/0 37.7% 25x If the borrower has the opportunity to refinance at better rates, returns would be even higher

28

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Favorable Long-Term Demand Dynamics

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Household Formation Trends

Household Formation has been positive, with some degree of cyclicality, since at least the 1970s. Household growth will likely accelerate as the recovery gains traction

Annual Household Formation (% growth)

5.0%

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

Source: US Census Bureau

......

: .

: ~

: :

\.. i

( ... , .... )

.. .:

.........

30

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Homeownership Rates have Normalized

Homeownership rates have declined to pre-bubble levels. While ownership is above pre-2000 rates, higher affordability and an aging population should support an ownership rate near today's level

Homeownership (% of households)

70
69
68
67
66
65
64
63
62
61
60
1983 1986 1989
Source: us Census 1992

1995

1998

2001

2004

2007

2010

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The Number of Owner Households Will Rebound

Accelerating household formation and a stabilization of the homeownership rate should lead to growth in owner households

............... ..

: .

.. .

.

Ch.ngeln Ch~nge ifl

!-'lOll sehol tJ It of Own.u HO!'f:;I!!OWfl~~sl:'1I p rt of !'.:il?i1trl'r

~ of US Households R~nter Owner

~o rm atio"'~ 1H(:,,;>~hold~ ~ .. te H .;.v-se:hO t(ii~

Households 1-1 ousehol ds

---------- ------ ---------------

2003

:un') II,

a.:Hi,.783,OOO

7'72,01)0

133,595

, .

, .

Change in Owner Households =

D

(Household Formation x Homeownership Rate) + [Number of Households x (Change in Homeownership Rate)]

Source: us Census Bureau, BLS, Maximus Advisors

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Long-Term Demand for Housing

Projected Long-Term Demand for New Housing Units (single and multi-family)

AnmM:1J Average 1.,644 1,870

JCHS L(DilV Immig~'aUQll P'F10j ect.i'H!I.

3;279

JeHS Hi.gll. Immignl t!lGll F'r~jedio!llJ

3,1,79

Household Formation

10 ID. 0- 21()2·0

I--P_l"_oi.._'ii"e_c_te_d_' _H_~_~_s_eib_,_ol_d_G_<_r_ .. _w_tih_-", ~'_(OO_O_s-,-)., +-_Jl_.I!--,1 ,:_80_'2_' _--t __ ID._3,:;_,8_2-_8_, ----l q

VaC(lnt For Ren.1 (()OO:;) 508 %1 q

r-----------~--~----------------------------___l_------'-'--____l-----.-'--_____l

Pacant For Sate (000£0) u 9 209

Second H omes ,~(){j1O's) 934 r. 0'26

Growth needed to maintain constant vacancy rate

(Totat Units * ,.025%! ,}':['1w)

~ ~ ~9!1J~~~.~~~~~!p' .~f.t~ q

1.5 "j I i Ii i iji fiitfj fj m fj: i.i Ilii ,m II ij i d. Hl=>~ J.'.1 ~' • .I J.t~.~~ J

Assumed: 66%1

Source: Joint Center for Housing Studies, Harvard University, "Updated 2010-2020 Household and New Home Demand Projections" 'Applies 66% to all figures excluding: Vacant Rental (0%) and Second Homes (100%)

33

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Favorable Long-Term Supply Dynamics

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Temporarily Elevated Inventory Levels

In the short-term, for-sale homes and shadow inventory will weigh on home prices. This provides an opportunity to buy a long-term investment at an attractive valuation in a market facing short-term distress

Change in Home Prices vs. Months of Inventory

-25%
-20%
:c -15%
cu
1::
cu
> -10%
.E
~
.. -5%
>
0
it.
III 0%
cu
u
-;:
11.. 5%
cu
E
0 10%
:I:
15%
20%
2001 Source: US Census Bureau

14

12

:c

III cu ...J

10 .c:::

- c

o

::::iE

-

o

4 III .c:::

- c

o ::::iE

2

~---+--~----+---~---+--~----~--~--~--~o

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

35

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New Supply Growth Will be Slow

Builders have sharply reduced their construction capacity, increasing lead times when the market does recover

Community Counts for Public Builders

6,500 -n:::-l~--------------------------'

5,635

6,000 -

6,Q42

5,500 - -5;28
5,000 - _4.8_6A
4,559
4,500 - -'+,Z83
4,000 - 3,897
3,609 3,631 3,723
3,504 3,462 3,534
3,500 -
3,000
'" .... '" 00 00 00 00 ." ." ." ." 0 0 0
0 0 0 0 0 0 0 0 0 0 0 - - -
a a ~ ;2 a 0 ~ ;2 0 a ~ ;2 a a
N M N M N M N M It can take three to seven years to get land permitted in many of the more desirable markets"

Sources: Deustche Bank, "Builder Community Analysis" "Toll Brothers Management

36

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Housing Starts are Now Below Long-Term Demand Growth

Housing starts have fallen sharply and are now lower than at any time in at least the past 50 years. Starts today are less than half of average long-term demand

Seasonally Adjusted Housing Starts (thousands)

3,000

500

D

2,500

2,000

1,500

1,000

D

o+---~--~~--~--~--~--~--~--~--~--~--~--

1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

New Supply Growth Will be Slow

Source: Chart: US Census Bureau

'Joint Center for Housing Studies, Harvard University, "Updated 2010-2020 Household alta New Home Demand Projections"

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Out-of-favor

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Everybody Else is Afraid

The best investments we have made are the ones no one else would touch

"So even at 89 cents a share, it still looks pretty bleak out there for General Growth Shareholders"

• Businessweek, April 2009

"The U.S. housing market is headed for a complete and total nightmare" • Business Insider, August 2010

"Now They Tell Us: Experts say housing is a lousy investment and it always will be"

• Yahoo Finance, August 2010

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Concluding Thoughts

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Why Now?

~ Interest rates won't stay this low forever

~ New monetary easing increases the risk of inflation

~ Even with the current inventory levels, at today's valuations, it is unlikely we will see another substantial decline in prices

~ Forced selling may abate as lenders' balance sheets improve

~ Generally, there is more liquidity on the way down than on the way up

~ An economic recovery could cause housing to recover faster -+ than many people think

41

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The Housing Purchase is One of the Most Emotional Investment Decisions a Family Can Make

~ Once a family is able to purchase a home, the decision is based on psychological factors:

• Confidence in the, and one's, future

• The fear of missing the opportunity to buy at the bottom

~ These psychological factors have self-reinforcing qualities that are similar to the forces that drive financial markets

Catalyst

Housing

- ... ~ Prices

Increase

Increase in Buyer Confidence

Decision to Purchase

42

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An Institutionally Under-Owned Asset Class

~ Institutional investors have almost no exposure to singlefamily home rental properties ("SFHRPs") as an asset class

~ Low valuation, high current yield and long-term appreciation potential make SFHRPs an intelligent investment for institutional investors

~ Despite these investment characteristics, we are unaware of any large pools of capital that have been raised to pursue this opportunity. This will change

43

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The SFHRP Investment Opportunity Is Best Understood By Analogy

~ For the vast majority of the 20th century, timber was never considered an institutional asset class

~ Led by forward thinking investors, institutional investments in timberland emerged in the USA in the 1980s

~ With the advent of timber institutional management organizations (TIMOs) and timber REITs, institutional timberland investments have grown significantly

• DANA Limited estimated that institutional investors had invested -$50bn in timberlands as of early 2008

• In 2007, the first timber ETF launched

~ The same features that attracted institutional investors to timber:

current yield, inflation-protection, portfolio diversification, demand for "hard assets," and the ability to create long-term tax-deferred gains, also apply to SFHRPs

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Potential Institutional Investment Demand is Material

If global institutions and private wealth funds allocated approximately 1 % of their assets under management to SFHRPs, it would absorb the entire U.S. for-sale inventory of single-family homes

Median Priced Single Family Home

U.S. For-Sale Inventory of Single-Family Homes

U.S. For-Sale Housing Inventory ($Tn)

$172,000 3,970,000

$0.7

Global Institutional & Private Wealth AUM ($Tn)*

$64.3

U.S. For-Sale Inventory as % of Global AUM

1.1%

• Source: IFSL, us Census Bureau

45

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Appendix

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Appendix - Buy vs. Rent Assumptions:

Home Buyer's Assumptions

Down Payment Mortgage Closing Costs Holding Period Selling Fees Income Tax Rate Capital Gains

Property Taxes - Annual Maint. + Insur - Annual

Annual expenses grow with appreciation

Renter's Assumptions

20% 30yr Fixed Rate 2% 8 Years 6% 25% 20% 1.50% 2.00%

Down Payment seeds investment portfolio Diff between mtge and rent is invested Portfolio is made of stocks and bonds

Rent Growth Same as home appreciation

Income Tax Rate 25%

Capital Gains

20%

Source: Beracha and Johnson, "Lessons from Over 30 Years of Buy versus Rent Decision: Is the American Dream Always Wise?"

47

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