LAZARD S REAL ESTATE PROPERTY TOURS

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1 LAZARD S REAL ESTATE PROPERTY TOURS A Firsthand View of What Drives Real Estate Today Lazard s Global Real Estate team recognizes the importance of primary research, making it a point to visit properties around the globe. These visits are used to confirm asset quality and to gather market intelligence. Since firsthand experience is essential in evaluating real estate, we launched a series of behind-the-scenes property tours that help investors better understand the size, scope, and quality of the listed US real estate market; how sectors perform differently based on lease terms and economic drivers; and the current state of commercial real estate markets, both nationally and locally. These tours are a unique opportunity to meet with both representatives of the REIT-owned properties and Lazard s Global Real Estate team.

2 2 About REITs The performance of core REITs (office, industrial, retail, apartments) in the United States has led to significant expansion not only of new mainstream REITs, but of new subsectors as well (cell towers, data centers, student housing). These non-traditional REITs almost quadrupled from $40 billion in 2011 to $152 billion at the end of As listed real estate becomes both deeper and broader, the unique set of lease terms and economic drivers specific to each sector further enhances the diversification benefits of the asset class (see below). Did You Know? REITs have outperformed the S&P 500 Index for every long-term time period 2 since the REIT benchmark was created in 1972, with the only exception being the 30-year period, where REITs trailed by 28 bps. 3 Real Estate Sector Characteristics Real Estate Sector % of US Market Cap ($B) 3 Listed Market Economic Drivers Key Tenants Lease Duration Corporate Profits, Business Segment Growth, GDP Consumer Spending, Sales Regional Disposable Income, Consumer Sentiment Corporations, Professional Service Industries Logistics, Manufacturing, ers Soft Good ers, Jewelry, Department Stores 5 10 yrs 3 5 yrs 7 10 yrs (in-line) Shopping Centers Consumer Spending, CPI, Population Grocery and Drug, Local Necessity 3 5 yrs (in-line) Single Tenant Consumer Spending, CPI, Population Restaurants, Banks, Gas/Convenience yrs Multi-family Age Cohort Growth, Interest Rates yrs and 65+ Age Cohorts 9 12 months Manufacturing Housing Interest Rates, Population, Age Cohort Growth 55+ Age Cohort, Lower Middle Class Families Various Diversified Various Various Various Lodging Business Spending, Disposable Income, Consumer Sentiment Business and Leisure Travel Daily (consumer); yrs (management contract) Aging Population, Government 65+ Age Cohort 9 12 months (resident); yrs (management contract) Self Population Adults Monthly Timber Construction, New Home Sales Construction Industry Various Mortgage REITs Interest Rates, Financial System Health Real Estate Owners 3 10 yrs* As of 31 March 2015 * Maturity Duration Note: All REIT sub sectors are included Source: FTSE, Lazard

3 3 The importance of diversfying within REITs and actively managing sector exposure is demonstrated by the variability in yearly sector performance % 54% 52% 38% 38% a 3 36% 26% 46% 42% 3 34% 30% 24% 21% 51% 2 16% 16% 15% 13% 12% 8% 8% 1% 4 43% 42% 38% 36% 35% 26% 24% 2% 2% 1% -15% -15% -1-20% -24% -24% -25% -12% -19% -26% -35% -38% -39% -60% -60% -6 75% 64% 39% 38% 29% 25% 9% 2% 4 43% 39% 36% 30% 29% 19% 19% 19% % Difference between Best/Worst Sectors 36% 21% 15% 14% 9% 0% -2% -5% -5% -13% 29% 25% 20% 18% 18% 13% 13% 9% 6% 4% 2% 0% -6% % 2 26% 21% 10% As of 31 December 2014 The performance quoted represents past performance. Past performance does not guarantee future results. Not intended to represent any product or strategy managed by Lazard. a The FTSE NAREIT Equity Index is represented by. Source: FTSE The Real Estate Property Tour Experience Lazard s interactive tours provide a look into how property managers seek competitive advantages, position their properties, and respond to changing market dynamics. Attendees also gain a sense for how asset quality and location affect fundamentals. In addition to hearing directly from the property owners and managers, representatives from Lazard s Global Real Estate team use the time between stops to explain their investment process. These exclusive tours provide a more detailed look at the variety of property sectors that exist today. The tours involve three or four locations that are representative of listed real estate, which is typically characterized as Class A, welllocated, trophy properties in gateway cities, and/ or central business districts. These properties are most often LEED 4 certified and occupied by some of the highest-credit tenants. The following pages highlight some of the properties we have visited on past tours.

4 4 New York Tour Alexandria Center for Life Sciences Sector Life Sciences REIT Alexandria 5 Alexandria Center for Life Sciences New York City; courtesy of Alexandria Real Estate Equities, Inc. The Alexandria Center for Life Sciences New York City, located between Bellevue Hospital and NYU Medical Center along Manhattan s East Side Medical Corridor, is a state-of-the-art research and development campus that serves as the flagship location for New York s expanding life sciences sector. With over 1 million square feet set on 3.5 acres, the center brings together world-class pharmaceutical and biotech firms, renowned academic and medical institutions, and highly regarded investment capital. Features Flexible, state-of-the-art office/lab space Science Hotel for promising early-stage life science companies LEED Gold certified On-site digital conference and event center Close proximity to subway and bus lines Insight During the tour, we learned how Alexandria works to foster the exchange of ideas between their tenants and constituents by hosting events and conferences with members of both the public and private domains. The building management is offering not only office and lab space, but also an ongoing collaboration that delivers innumerable benefits. Prior to the campus s existence, many emerging life science or biotech companies had to leave the city for larger space. But through Alexandria s knowledge, expertise, and connections, the construction of the life sciences park has resulted in New York City becoming a major hub in the industry driving demand, and rents, for space in the Center.

5 5 Chicago Tour 350 East Cermak Road Sector Data Center REIT Digital Realty 5 Located in Chicago s Near South Side, 350 East Cermak is in close proximity to major transportation hubs as well as O Hare and Midway airports. At over 1 million square feet, the facility is the largest contiguous data center in the world and serves as the Midwest mission-critical facility for the telecom industry. Features grade electrical and HVAC infrastructure Variety of exchange and connectivity options, including over 1,000 provider networks and multiple internet exchanges Networked ecosystem seamless connection to more than 40 other digital realty data centers 24/7 security with two-factor authentication and biometric access Insight At one point during the tour, our guide stopped and pointed to a floor tile, stating that if the panel were removed the cables carrying data for every single internet provider in the United States could be viewed. We learned that data center properties are unique when compared to other property types, as they are driven for the most part by engineering concepts (mechanical, electrical, networking) and charge by power consumption versus square footage. Due to its central geographic location, the data center is almost at full capacity. 12 back-up generators LEED Gold certified

6 6 Washington, DC Tour First Street & M Street, NE Sector Multi-family REIT AvalonBay 5 First and M is located in Washington, DC s emerging NoMa neighborhood and was originally part of the Archstone portfolio purchased by AvalonBay. In addition to being adjacent to Metro Rail, Virginia Rail, MARC Train, and Greyhound, the property is a short walk to Capitol Hill. Built in 2012, the 13-story property has 469 units ranging from studios to 3 bedrooms. Features Rooftop pool and spa Movie screening room On-site pet salon Sound-proof music practice rooms Outdoor theater Café/internet lounge Insight First and M is emblematic of the type of multifamily properties that millennials are flocking to; newer and aesthetically interesting, near transportation, within walking distance of jobs and services, and laden with amenities. Renters are paying a premium for smaller units, but in exchange receive a community that offers plenty of services and amenities. Millennials aren t the only ones migrating to these high-quality apartments. Baby Boomers, now finding themselves with an empty nest, are moving into city centers in search of more social and culturally enriching activities and less maintenance.

7 7 San Francisco Tour 303 Second Street Sector REIT Kilroy Realty Corporation 5 The 734,000-square foot twin tower, 303 Second Street, is the largest office complex in San Francisco s SoMA district. The property is close to main transportation hubs, including the new Transbay Transit Center and offers a strong retail and amenity base. The property s large floor plates and flexible design draws interest from a wide variety of businesses. The building was constructed in 1988 and acquired by Kilroy in 2010, which later renovated and expanded the street level retail and plaza and added 14 rooftop balconies. Features Large, flexible floor plates Bike storage On-premise daycare, bank, FedEx 24 Hour Fitness Multiple full and self service restaurants/cafes LEED Gold certified Insight 303 Second Street was Kilroy s entry into the San Francisco market. Owner John Kilroy wanted to be in the city for some time, but was unable to find an attractive price until the financial crisis drove prices down significantly. The building represents a departure from Kilroy s initial efforts to own something closer to the financial district. Over time, rents in SoMa caught up and surpassed those in the financial district, allowing Kilroy to become comfortable with the more creative and tech-driven district. Investors and tenants started to flock to the area, reviving not only development and acquisitions, but occupancy levels and rental rates. The building s large, open, and flexible floor plans, once more the domain of tech and media firms, have attracted a diverse mix of tenants, including more traditional financial firms.

8 Notes 1 As of 31 March Source: Ernst & Young, SNL 2 Starting with the 10-year period 3 As of April Source: FTSE NAREIT All Equity Total Return Index, S&P 500 Index 4 LEED: Leadership in Energy and Environmental Design 5 Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio. Important Information Published on 13 August Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of 11 August 2015 and are subject to change. FTSE International Limited ( FTSE ) FTSE FTSE is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. The performance of investments in real estate and real estate related securities may be determined to a great extent by the current status of the real estate industry in general, or by other factors (such as interest rates and the availability of loan capital) that may affect the real estate industry, even if other industries would not be so affected. The risks related to investments in realty companies include, but are not limited to: adverse changes in general economic and local market conditions; adverse developments in employment; changes in supply or demand for similar or competing properties; unfavorable changes in applicable taxes, governmental regulations, and interest rates; operating or development expenses; and lack of available financing. An investment in REITs may be affected or lost due in part to the fluctuation with the value of the underlying properties of the investment. An investment in REITs may be affected or lost if the REIT fails to comply with applicable laws and regulations, including tax regulations, specifically, the failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended. Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Diversification does not guarantee profit or protect against loss of declining markets. This document reflects the views of Lazard Asset Management LLC or its affiliates ( Lazard ) and sources believed to be reliable as of the publication date. There is no guarantee that any projection, forecast, or opinion in this material will be realized. Past performance does not guarantee future results. This document is for informational purposes only and does not constitute an investment agreement or investment advice. References to specific strategies or securities are provided solely in the context of this document and are not to be considered recommendations by Lazard. Investments in securities and derivatives involve risk, will fluctuate in price, and may result in losses. Certain securities and derivatives in Lazard s investment strategies, and alternative strategies in particular, can include high degrees of risk and volatility, when compared to other securities or strategies. 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