REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal...

60
REIT-Based Pure-Play Portfolios: The Case of Property Types and Geographic Locations by Eui-Hoe Kim Bachelor in Architecture, 1997 Seoul National University, Korea Submitted to the Department of Architecture in Partial Fulfillment of the Requirements for the Degree of Master of Science in Real Estate Development at the Massachusetts Institute of Technology September, 2004 ©2004 Eui-Hoe Kim All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author______________________________________________________ Department of Urban Studies and Planning August 6, 2004 Certified by_____________________________________________________________ Henry O. Pollakowski Visiting Scholar, Center for Real Estate Thesis Supervisor Accepted by_____________________________________________________________ David Geltner Chairman, Interdepartmental Degree Program in Real Estate Development 1

Transcript of REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal...

Page 1: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

REIT-Based Pure-Play Portfolios: The Case of Property Types and Geographic Locations

by

Eui-Hoe Kim

Bachelor in Architecture, 1997

Seoul National University, Korea

Submitted to the Department of Architecture in Partial Fulfillment of the Requirements for the Degree of

Master of Science in Real Estate Development

at the

Massachusetts Institute of Technology

September, 2004

©2004 Eui-Hoe Kim All rights reserved

The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part.

Signature of Author______________________________________________________ Department of Urban Studies and Planning August 6, 2004

Certified by_____________________________________________________________ Henry O. Pollakowski Visiting Scholar, Center for Real Estate Thesis Supervisor

Accepted by_____________________________________________________________ David Geltner Chairman, Interdepartmental Degree Program in Real Estate Development

1

Page 2: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

REIT-Based Pure-Play Portfolios: The Case of Property Types and Geographic Locations

by

Eui-Hoe Kim

Submitted to the Department of Urban Studies and Planning On August 6, 2004 in Partial Fulfillment of the Requirement for

the Degree of Master of Science in Real Estate Development

ABSTRACT Over the last 20 years the REIT industry has made remarkable progress in terms of the magnitude of market capitalization and management performance. However, it is difficult for investors to precisely target their investments because publicly traded REITs diversify their assets across property types and geographic locations. This research has explored the concept and methodology of a REIT-based pure-play portfolio. This portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio can replicate the investment returns to a specified target sector without any direct exposure to other sectors while minimizing the idiosyncratic risk component of the portfolio. This thesis constructed pure-play portfolios across four property types and four geographic locations using seven years of structural information on publicly traded REITs. For comparison with the privately held property market, NCREIF sub-indices which represent also four property types and four geographic locations are used. In addition to the construction of pure-play portfolios, the performance indices of REIT-based pure-play portfolios and private property-based NCREIF sub-indices are presented.

`

Thesis Supervisor: Henry O. Pollakowski Title: Research Associate, Center for Real Estate

2

Page 3: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

ACKNOWLEDGEMENTS

I would like to thank my advisor Henry Pollakowski for his constant advice and support I would like to thank David Geltner for his comments and suggestions I would like to thank Matthew Ostrower at Morgan Stanley for his support and insight I would like to thank Paul Reeder at SNL financial and Jeff Fisher for their support Last but not least, I would like to thank Mina and Taein for being there for me

3

Page 4: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

TABLE OF CONTENTS

Abstract ------------------------------------------------------------------------------ 2 Acknowledgements ---------------------------------------------------------------- 3 Table of Contents ------------------------------------------------------------------- 4

Chapter 1: Introduction

Overview ---------------------------------------------------------------------------- 5 Definition of a Pure-Play Portfolio ---------------------------------------------- 6 Objectives of a Pure-Play Portfolio ---------------------------------------------- 7

Chapter 2: Methodology - Construction of the Pure-Play Portfolio

2-1. Basic Assumptions Basic Model ------------------------------------------------------------------------- 8 Variance Minimization ------------------------------------------------------------ 11 2-2. Application of Two Methods Method 1: Matrix Inverse Method ----------------------------------------------- 12 Method 2: Excel Solver Tool ----------------------------------------------------- 16 Comparison of Results ------------------------------------------------------------ 17 2-3. Other Considerations Adjusting for Debt ----------------------------------------------------------------- 18 The Data ----------------------------------------------------------------------------- 18

Chapter 3: Application of Pure-play Portfolio

3-1. Property-Type Pure-play Portfolios General Characteristics ------------------------------------------------------------ 22 Historical Index of Pure-Play Return -------------------------------------------- 23 Comparison with NCREIF Returns --------------------------------------------- 26 Comparison with NAREIT Property Returns ---------------------------------- 31 Lagged Correlation ---------------------------------------------------------------- 34 3-2. Geographic Location Pure-play Portfolios General Characteristics ------------------------------------------------------------ 35 Historical Index of Pure-Play Return vs. NCREIF ---------------------------- 36 Contemporaneous Correlation and Lagged Correlation ---------------------- 40

Conclusion ------------------------------------------------------------------------------------------------------ 43 References ------------------------------------------------------------------------------------------------------- 44 APPENDIX-A -------------------------------------------------------------------------------------------------- 44 APPENDIX-B -------------------------------------------------------------------------------------------------- 46

4

Page 5: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

CHAPTER 1 : Introduction

Overview

Over the last 20 years the REIT industry has made remarkable progress in terms of the

magnitude of market capitalization and management performance. REITs provide a way to

realize the economic benefits of underlying real estate assets, obtain stable, consistent income

and long-term growth while increasing portfolio diversification. Therefore, the correlation of

REIT returns to the returns of other stocks and bonds has declined significantly. However, many

investors and analysts are interested in obtaining pure-play return and historical performance

which are exposed to only one target sector such as a property type and a geographic location. It

is difficult for investors to precisely target their investments because publicly traded REITs hold

large number of individual properties which vary by property types or locations. Although the

REIT industry has specialized in its investments with regard to property type for the last 10 years,

it is impossible to achieve the portfolio which is exactly exposed to only one target sector by

investing in a group of REITs which represents the targeted property type. The construction of a

pure-play portfolio is a mechanism to address this issue in a systematic way. This thesis

demonstrates and applies the procedure of deriving unlevered returns to the underlying properties

held by the REITs, broken out by property type and geographic location.

In addition to construction of REIT-based pure-play portfolios, a comparison of performance

with privately owned properties is performed. In this case, the NCREIF sub index was used as a

proxy of performance of privately held real estate assets. As the REIT-based pure-play portfolio

is based on the public stock market and underlying property market while the NCREIF index is

based on the private property market, the comparison of performance between two markets can

help identify REIT-level management performance. We constructed pure-play portfolios for

property types and geographic locations for 7 years, 1997-2003.

5

Page 6: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Definition of a Pure-Play Portfolio

A REIT-based pure-play portfolio is defined as an optimal combination of long and short

positions in publicly traded REITs, such that the portfolio can replicate the investment returns to

a specified target sector without any direct exposure to other sectors. Here, the target sector can

be defined in terms of any attributes of property assets such as usage, location, and size. For

example, if we want to invest into REITs which are exposed only to office properties in the east

region, we can construct the pure-play portfolio whose performance is related to the target sector

without exposure to other attributes using a combination of long and short positions in REITs.

Here, short positions in the portfolio are used to eliminate exposure to non-target sectors.

It is important to note that there can be many combinations which can meet the condition of

exposure to a target sector. For example, suppose that we can construct a pure-play portfolio

whose target is an office property by a 150% long position to REIT A, and a -50% short position

to REIT B. We could also construct another pure-play portfolio whose target sector is the same

by a 300% long position and a -100% short position to REIT A and B respectively. Therefore,

we have to choose the optimal portfolios among the possible combinations. The optimal pure-

play portfolio is the one which minimizes random volatility, or idiosyncratic risk, while

maintaining pure exposure to the target.

Idiosyncratic risk is defined as a return component that is unique to each REIT and property type.

That is, a return of a REIT in one property type is made up of two components, the idiosyncratic

component and the pure-play component which is same for any investment in the given property

type. For instance, assume that REIT A makes an 11% return in an office property and REIT B

makes a 9% in an office property. If an aggregate-level pure-play office return is 10%, REIT A

has a +1% idiosyncratic component in its return and REIT B has a -1% idiosyncratic return.

However, as we do not know the aggregate pure-play return of office, say 10%, in advance, we

need to extract the pure-play return component by diversifying away the idiosyncratic

component. From the statistical point of view, the more assets and properties we hold in an office

property, the more diversification effects we can have and the more accurate a pure-play return

we can achieve. Note that the pure-play component of our REIT-based portfolio can reflect not

6

Page 7: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

only the passive return of underlying assets, but also the REIT-level management effect of each

property type.

Objectives of a Pure-Play Portfolio

There are four main objectives for construction of REIT-based pure-play portfolios: speculation,

hedging, estimates of beta, and construction of historical index.

From an investment point of view, investors want to construct portfolios which are exposed to a

target sector or hedged against one sector. Since the assets of REITs are already diversified

across property sectors and geographic locations, it is difficult for investors to meet their needs

perfectly by simply investing in one or a group of REITs which represent their target sectors.

Once pure-play portfolios are constructed, we can estimate sectoral betas using the correlation

between targeted sectors and market. These sectoral betas can be used when estimating the cost

of capital in capital budgeting. For example, if we obtain the beta of REITs in west region as 2

against the total REIT market, the opportunity cost of capital of investing in west region can be

achieved from the risk-free rate and expected market return using Capital Asset Pricing Model

(CAPM). The last objective is to construct historical index using pure-play returns across time.

The historical index can help evaluate the performance of specified REIT sectors. In addition, we

can identify REIT-specific and target-specific management components by comparing across

several sectors that index with other indices of assets which are already constructed.

7

Page 8: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

CHAPTER 2: Methodology - Construction of a Pure-Play Portfolio

2-1. Basic Assumptions

Basic Model We can model the return of one REIT which invests only one property type: retail property. In

that case, we can break down the return component into the true return to that property type and

idiosyncratic return which can be thought of as random “noise.” This idiosyncratic return of the

REIT can be also regarded as the results of REIT-level asset management components and

financial leverage effects. This model is shown in equation (1) below:

RiRi err ~~~ += (1)

Where the “r” is a true return and the “e” is an idiosyncratic return.

Now, we can apply above relations to a set of n REITs, whose assets are made up of just two

property types: office properties and retail properties. Again, the return components can be broke

down into a pure-play return and a REIT-specific idiosyncratic return. The idiosyncratic return

components are different according to different companies and property types since the

idiosyncratic returns of large amount of assets should be smaller than those of small amount of

assets. On the contrary, the pure-play “true” return components are considered to be same across

the same property type by definition. For example, REIT A which holds $100 million assets in

office and $2 million in retail should have larger idiosyncratic components in retail property. By

the same token, REIT B which holds $2 million assets in office and $100 million in retail should

have larger idiosyncratic risks in an office property. However, the true return components of

same properties are same regardless of the absolute amount of assets. Therefore, the return to

REIT i is

)~~()~~(~OiOOiRiRRii erxerxr +++= (2)

8

Page 9: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

=ir~ Return to REIT i.

=Rr~ Pure-play retail property return.

=Or~ Pure-Play office property return.

=Rix Fraction of REIT i invested in retail property.

=Oix Fraction of REIT i invested in office property.

=Rie~ Idiosyncratic return to REIT i’s retail property.

=Oie~ Idiosyncratic return to REIT i’s office property.

Where xRi + xOi should be one because each REIT holds only office and retail properties. Again,

it is important to note that the pure-play portion of the return is the same for any investments in

the given property-type sector. The idiosyncratic components are uncorrelated with other random

variables and the expected value is zero.

Now, since the objective of a pure-play portfolio is to construct a portfolio from the information

on asset fractions of many REITs, we can think of investing in a number of companies. The

return of our portfolio would be

∑=

=n

iiiP rwr

1

~~ (3)

where the weight wi is REIT i’s proportion of the total value of our portfolio. In other words, wi

is the weight of REIT i in our pure-play portfolio. From equations (2) and (3), the portfolio

return can be the equation below:

)~~(~~~111

RiRii

n

iOiOiiRi

n

iiROi

n

iiOP exwexwxwrxwrr ∑∑∑

===

+++= (4)

Note that in above equation we split the return components of a given property-type to handle the

processes more efficiently. Now as a next step, we have to construct the pure-play portfolio,

which is exposed only to the specified target sector, office or retail in this case, while minimizing

9

Page 10: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

the idiosyncratic risks at the same time. For example, the office pure-play portfolio can be

achieved by constraining several terms in above equation. First, the sum of weights to office

investment should be one while the sum of weights to retail investment should be zero. Second,

we should come up with the one optimal solution which can minimize the idiosyncratic variance

since there can be several solutions that can meet the first conditions. Since the variance of pure-

play return components, that is Var(rO) in this case, is same regardless of different weights, the

solution which minimizes the variance of a portfolio can also minimize the variance of an

idiosyncratic component. The first constraint can be expressed as below:

∑=

=n

iOii xw

11 and (5) ∑

=

=n

iRii xw

10

As mentioned above, the first part of the equation (5) makes sure that the portfolio is exposed

only to office property and the second part eliminates any exposure to the retail property. Table 1

shows simple case that explains the basic model of a pure-play portfolio. If we consider only

three REITs, each of which holds only two property sectors: office and property, we can

construct a pure-play portfolio using the equation (5). Note that in this example we can come up

with infinite solutions which can meet weight constraints since we have only three unknown

variables, w1, w2, and w3, while there are two equations related to these variables from the weight

constraints. In general, when the number of companies exceeds the number of sectors, there are

many ways to construct a pure-play portfolio. To obtain the optimal solution among the possible

numerous answers, we should apply the optimization procedure which can yield the minimum

variance solution.

Table 1: Example, Pure-play portfolio with two property types and three REITs

Share of Firm Assets

Office (xOi) Retail (xRi) Portfolio

Investment (wi)

Exposure to Office

(wi × xOi)

Exposure to Retail

(wi × xRi)

REIT 1 80.0% 20.0% 100.0% 80.0% 20.0%

REIT 2 20.0% 80.0% -100.0% -20.0% -80.0%

REIT 3 40.0% 60.0% 100.0% 40.0% 60.0%

Total 100.0% 100.0% 0.0%

10

Page 11: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Variance Minimization

As explained above, there can be numerous solutions of a pure-play portfolio since usually the

number of firms that constitute a portfolio is bigger than that of property types. For example,

Table 2 computes the idiosyncratic components of a portfolio. When we invest 100%, -100%,

and 100% into REIT 1, REIT 2, and REIT 3 respectively, the total idiosyncratic exposure is

22.4%. However, if we change the weights into 119%, -62%, and 43% while meeting the office

and retail weight constraints, we can come up with 15.6% total idiosyncratic exposure in Table 3.

This result makes sense as the idiosyncratic risk of retail properties is larger than that of office

properties, the absolute weight value of REIT 2 which has a high fraction of the retail property

should be smaller than before.

Table 2: Example, Pure-play portfolio with two property types and three REITs

Share of Firm Assets

Idiosyncratic Std.Dev

Office (xOi)

Retail (xRi)

Office (σoi)

Retail (σRi)

Portfolio Investment

(wi)

Idiosyncratic exposure

Exposure to Office (wi × xOi)

Exposure to Retail (wi × xRi)

REIT 1 80.0% 20.0% 10.0% 20.0% 100.0% 8.9% 80.0% 20.0%

REIT 2 20.0% 80.0% 10.0% 20.0% -100.0% 16.1% -20.0% -80.0%

REIT 3 40.0% 60.0% 10.0% 20.0% 100.0% 12.6% 40.0% 60.0%

Total 100.0% 22.4%* 100.0% 0.0%

* Total idiosyncratic exposure = ∑ +3

1

22 )()( RiiRioiioi wxwx σσ

Table 3: Example, Pure-play portfolio with two property types and three REITs

Share of Firm Assets

Idiosyncratic Std.Dev

Office (xOi)

Retail (xRi)

Office (σoi)

Retail (σRi)

Portfolio Investment

(wi)

Idiosyncratic exposure

Exposure to Office (wi × xOi)

Exposure to Retail (wi × xRi)

REIT 1 80.0% 20.0% 10.0% 20.0% 118.9% 10.6% 95.1% 23.8%

REIT 2 20.0% 80.0% 10.0% 20.0% -62.1% 10.0% -12.4% -49.7%

REIT 3 40.0% 60.0% 10.0% 20.0% 43.2% 5.5% 17.3% 25.9%

Total 100.0% 15.6% 100.0% 0.0%

11

Page 12: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

To address this potential several solution issue, we should find the optimal solution which can

minimize the variance of idiosyncratic components, which in turn can minimize the variance of a

portfolio. There are two ways to achieve a minimum variance portfolio: matrix inverse method

and excel solver function method.

2-2. Application of Two Methods

Method 1: Matrix inverse method using Lagrangean Relaxation

First, by applying the weight constraints of the equation (5) to the equation (4), we can simplify

the portfolio return equation as below:

)~~(~~1

RiRii

n

iOiOiiOP exwexwrr ∑

=

++= (6)

Note that the idiosyncratic return part remains in the above equation. The variance of the

portfolio would be

)]~()~([)~()~( 22

1

22RiRii

n

iOiOiiOP eVarxweVarxwrVarrVar ∑

=

++= (7)

To get the minimum variance, Lagrangean relaxation method is used. Lagrangean relaxation is a

technique which was invented by Lagrange in 1797. This technique has been very useful in

conjunction with Branch and Bound method as to boundary solutions. Usually, this is an obvious

tool for getting lower bounds. Given the original problem, with some “fixed” variables, this

technique relaxes some of the constraints by inserting Largrange multiplier and performs sub-

gradient optimization, which in turn will give a lower bound. From this relaxation assumption,

new function of L is created as below

12

Page 13: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

⎟⎠

⎞⎜⎝

⎛−+⎟

⎞⎜⎝

⎛+++= ∑∑∑

===

n

iOii

n

iRiiRiRii

n

iOiOiiO xwhxwaeVarxweVarxwrVarL

11

22

1

22 1)]~()~([)~( (8)

where a and h are Lagrange multipliers. Note that the value of the new equation (8) is the same

as the equation (7) since we assumed that in the equation (5). To

get the minimum of L, the first derivatives according to different weights, δL/ δw

∑∑==

==n

iRii

n

iOii xwandxw

1101

j (for j =1, . . ,n),

should be equal to zero. Therefore, we can get the following n different equations as below:

0)()()]~(2)~(2[ 22 =+++ OjRjRjRjjOjOjj xhxaeVarxweVarxw (for j =1, . . ,n) (9)

Now we have n + 2 linear equations (n in equations (9) and two in equation (5)) with n + 2

unknown variables (n weights and two in a and h). All we have to do is solve the n + 2 linear

equations by using basic algebra.

However, we need to generalize the n + 2 equations because the number of REITs considered in

analysis tends to be quite high and the number of property sectors or the number of other target

categories is different according to the situation. Suppose that there are t categories in pure-play

portfolios and you want to construct a portfolio in property category 1. Hi would be defined as

below:

∑=

=t

kkikii eVarxH

1

2 )~(2 (10)

If we substitute the equation (10) into the equation (9) and define t more variables as in the

equation (8), we can achieve generalized matrix system of pure-play equations as the equation

(11) below.

13

Page 14: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

=

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

0

010

000

000

000000

000

000000000

2

3

2

1

321

2232221

1131211

21

323133

222122

121111

M

M

M

M

LL

MMMMMMM

LL

LL

LL

MMMMOMMM

LL

LL

LL

t

n

tnttt

n

n

tnnnn

t

t

t

a

ah

w

www

xxxx

xxxxxxxx

xxxH

xxxHxxxHxxxH

(11)

Therefore, our portfolio weights of a target property sector can be achieved as below:

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

=

⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢⎢

⎡−

0

010

000

000

000000

000

000000000 1

321

2232221

1131211

21

323133

222122

121111

2

3

2

1

M

M

LL

MMMMMMM

LL

LL

LL

MMMMOMMM

LL

LL

LL

M

M

tnttt

n

n

tnnnn

t

t

t

t

n

xxxx

xxxxxxxx

xxxH

xxxHxxxHxxxH

a

ah

w

www

(12)

Due to the characteristics of matrix calculations and definitions of variables, we can derive t

target sets of portfolio weights by only seeing the upper-right t × n part of inverse matrix. If we

define the components of t × n matrix as Itn (for t=1,. ., t and n=1,. ., n), we can simplify the final

solution of pure-play portfolios as below:

⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢

=

⎥⎥⎥⎥⎥⎥⎥⎥

⎢⎢⎢⎢⎢⎢⎢⎢

tnnn

t

t

t

tnnn

t

t

t

III

IIIIIIIII

www

wwwwwwwww

tSETSETSET

L

MMM

L

L

L

L

MMM

L

L

L

L

21

32313

22212

12111

21

32313

22212

12111

21

(13)

14

Page 15: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

To solve the matrix inverse, we used GAUSS which is a specialized matrix calculation program

due to the huge size of the matrix.

Estimates of Idiosyncratic Variance

All data that is necessary to construct linear equations can be obtained directly from the

structural information of each REIT except for the idiosyncratic variance, )~( kieVar . Therefore,

we need to estimate the idiosyncratic variance of each REIT from the structural information. In

fact, precise value about the individual REIT idiosyncratic variances across sectors might be

difficult to obtain. However, the pure-play portfolio weights are a function of the relative

idiosyncratic variances instead of the absolute values. In other words, relative idiosyncratic

amounts are enough to obtain the optimal weights. To show this, divide both sides of the

equation (7) by a constant, Y.

])~()~(

[)~()~( 22

1

22

YeVar

xwY

eVarxw

YrVar

YrVar Ri

Rii

n

i

OiOii

OP ∑=

++= (14)

If the same Lagrangean relaxation procedure is applied as before to the above equation (14), we

can see that the same portfolio weights can meet the conditions of a pure-play portfolio as below.

0)()()]~(2)~(2[ 22 =+++ OjRjRjRjjOjOjj xhYxaYeVarxweVarxw (15)

The only difference between the equation (9) and (15) is Lagrangean multipliers, aY and hY,

which do not have any effects on the optimal solution. From above relationship, we could prove

that the relative idiosyncratic variance is enough to obtain the optimal pure-play weights.

The next step is to estimate relative idiosyncratic variances. We assume that idiosyncratic

variances are inversely proportional to the dollar amounts of each REIT’s holdings in each

property type because the more assets they hold, the more idiosyncratic variances can be

15

Page 16: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

diversified away. For example, if we think of REIT i and j which hold property types o and r, the

relationship between idiosyncratic variances across REITs would be

bii

ajj

aj

bi

xAxA

eVareVar

=)~()~(

(16)

where Ai is the dollar value of REIT i’s assets. Therefore, we can define the relative idiosyncratic

variances of REIT in another way by inserting a constant, Z, as below

ajiaj

biibi xA

ZeVarandxA

ZeVar == )~()~( (17)

Using the above equation, we can estimate the relative idiosyncratic variance of each REIT from

its structural information, which can finish the constructions of the linear equations.

Method 2: Excel Solver Tool

Excel solver tool can identify the optimal solution by trial and error methods given specified

constraints. Keep in mind that our objective is to find the optimal weights which lead to the

minimum idiosyncratic variance. From above assumptions in the equation (17), we can obtain

total relative idiosyncratic variance of REIT i, which holds t property sectors as below

∑∑∑===

⎟⎟⎠

⎞⎜⎜⎝

⎛=⎟⎟

⎞⎜⎜⎝

⎛==

t

t tiitii

t

t tiitii

t

ttitiii xA

xZwxA

ZxweVarxweVar1

22

1

22

1

22 1)~()~( (18)

Therefore, the total portfolio-level amount of idiosyncratic variance would be

∑ ∑= =

⎟⎟⎠

⎞⎜⎜⎝

⎛⎟⎟⎠

⎞⎜⎜⎝

⎛=

i

i

t

t tiitiiP xA

xwZeVar1 1

22 1)~( (19)

16

Page 17: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Now, we defined the whole components necessary to run Solver tool. The input of Solver tool is

made up of three parts: target cells, changing cells, and constraints.

• Target Cells:

Make sure that the total idiosyncratic variance, equation (19), should be

minimum amount.

• Changing Cells:

Make sure that the weight cells, wi, should be changing cells.

• Constraints

Input several constraints defined above. When an office property is a target,

∑∑∑ === 0,1,1 RiiOiii xwandxww

It is important to note that the optimal portfolio weights which lead to the minimum idiosyncratic

variance has nothing to do with the magnitude of a constant Z.

Comparison of results

We applied the two methods to the same situation in an effort to check the accuracy of the two

methodologies. Table 4 shows the main assumption, where there are 5 REITs, each of which has

different amount of assets but holds only two property sectors.

Table 4: Main assumption in the comparison of the two methodologies

Share of Firm Assets Relative Idiosyncratic Var.

Asset (Ai) Office (xOi) Retail (xRi) Total Office

(Z/(AixOi)) Retail

(Z/(AixRi)) Hi

REIT 1 500 10% 90% 100% 2.00 0.22 0.40

REIT 2 400 25% 75% 100% 1.00 0.33 0.50

REIT 3 300 50% 50% 100% 0.67 0.67 0.67

REIT 4 200 60% 40% 100% 0.83 1.25 1.00

REIT 5 100 90% 10% 100% 1.11 10.00 2.00

Total

17

Page 18: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table 5: Comparison of the two methodologies, Matrix Inverse and Solver Tool

Matrix Inverse (1) Solver Tool (2) Difference (2)-(1)

Office Retail Office Retail Office Retail

REIT 1 -0.6028 0.8156 -0.6046 0.8156 -0.0017 0.0000

REIT 2 -0.0142 0.4113 -0.0125 0.4112 0.0017 -0.0002

REIT 3 0.5745 0.0071 0.5736 0.0074 -0.0008 0.0003

REIT 4 0.5390 -0.0757 0.5411 -0.0757 0.0021 -0.0001

REIT 5 0.5035 -0.1584 0.5023 -0.1584 -0.0012 -0.0001

Total 1.0000 1.0000 1.0000 1.0000 0.0000 0.0000

As we can see in above Table 5, the resulting sets of optimal weights from two methods have

negligible differences. In following analysis of pure-play portfolios, we mainly conducted the

Matrix Inverse method since there is higher volume of operations in the Excel tool method.

2-3. Other Considerations

Adjusting for Debt

Until now, we just assumed that REITs hold 100% equity in their assets. However, we have to

know unlevered property level returns of REITs in case they use debt among their assets. To

apply above solution to REITs which hold debt in their assets, we need to redefine several

variables using leverage ratios of REITs. Leverage ratios are obtained from balance sheet

information across REITs and years. (See Appendix A)

The Data

As we can see in above equation (13), only one matrix inverse procedure can lead to the total

pure-play portfolio weights as long as we are able to get the appropriate input information of the

matrix equation (11). In other words, one of the most critical parts in pure-play analysis is data

18

Page 19: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

gathering. The data we need to fill out the matrix consist of three parts: balance sheet

information, return data, and asset breakdown data.

First, balance sheet data is needed to identify the amount of idiosyncratic variance terms across

REITs and to unlever REIT returns using leverage ratios. Second, return data is needed to obtain

the total portfolio return from pure-play weights across REITs. These two kinds of information

are easy to obtain from financial data base such as CRSP (Center for Research in Security Prices).

Finally, we need information on the fraction of assets across specified sectors such as property

types and locations. This final information is the most challenging part to obtain and, in turn, the

most critical part in the pure-play analysis. It is impossible to get perfectly precise asset

breakdown because the balance sheet information is related to the book value while the asset

breakdown should be based on their market values. Moreover, the marked to market real estate

value across time and REITs is private information, which is difficult to obtain from all REITs

directly. Instead, we used publicly available data from NAREIT (The National Association of

REITs) and the commercial data service firm, SNL financial. Since this data is based on the lease

area, we converted area information into market values by multiplying price per SF data by

property type and region from NCREIF (National Council of Real Estate Investment Fiduciaries).

As explained above, very little information is required to construct a pure-play portfolio. We do

not need the statistical relationship between property returns and REIT returns. All we need is

the structural information on REITs and their balance sheet information to estimate the relative

magnitude of the idiosyncratic risk. In other words, the procedures of constructing pure-play

portfolios are very straightforward as long as the accuracy of data is guaranteed. In this research,

we followed an indirect path to obtain the structural information of REITs. More accurate and

market value-based information on REITs holding can lead to more reliable results.

19

Page 20: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

CHAPTER 3: Application of Pure-play Portfolio

We applied above pure-play methodologies to construct REIT-based pure-play portfolios for

major property types (apartments, office, industrial, and retail) and geographic locations (east,

west, south, and midwest) for the period 1997-2003. For the analysis, we used area-based

property holding data from SNL financial and Morgan Stanley. We also used NCREIF market

value data to obtain value-based property holdings. For the geographic location, regional

breakdown of NCREIF was applied since our market values of properties can be organized

according to NCREIF regions. Property holdings and balance sheet data are on an annual basis;

we constructed annual pure-play portfolios across property types and geographic locations.

We started from publicly traded REITs across the period, which can be derived from NAREIT.

Among those REITs, about 50% of REITs were filtered out for the accuracy of analysis and the

relevance of information. The main considerations in the filtering process are as below.

Equity REITs: Equity REITs own and operate income-producing real estate but Mortgage

REITs lend money directly to real estate owners, or indirectly through acquisition of loans or

mortgage-backed securities. Hybrid REITs are companies that both own properties and make

loans to owners and operators. Even though there is technical way to adjust REIT investments

considering the percentage of mortgage in their assets, these mortgage REITs can introduce error

into the results because it is difficult to get the exact information on their mortgage holding

values and the accompanying returns.

Main-Property REITs: We exclude REITs which hold more than 10% of their property

holdings in property sectors such as health care, hotel, golf course, and self storage. It is not

possible to infer the values of those miscellaneous sectors from NAREIF information. In addition,

the other sectors would generate more short positions to get the pure-play portfolios of main

sectors, which, in turn, would magnify the idiosyncratic risk in the portfolio.

20

Page 21: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Adjustment: The remaining REITs after two tests are assumed to hold only major

property sectors, apartment, office, industrial, retail. Therefore, if one REIT hold 95% asset in

major sectors, the remaining 5% asset is distributed according to the proportions of asset in

major sectors.

We also excluded several REITs on which we cannot get structural information. This would not

make a major difference since the number of REITs whose data is unavailable is very small

compared to total number. In addition, the data of most major REITs which hold a large

magnitude of assets is available. The lists of REITs in pure-plays for geographic locations also

followed the same lists for property sectors of given year. Table 6 shows the summary of REITs

included in pure-play portfolios for 7 years. We can see the large increase in the average asset of

REITs compared to the number of REITs in the portfolios for 7 years. It is also important to note

that the average leverage ratio, average asset divided by average debt, is 2.61. Since we have to

achieve unlevered property level REITs returns, this high leverage ratios make the unlevered

REITs returns largely attributable to corporate bond index. The detailed explanation of REITs

leverage will be made in Appendix A.

Table 6 : Summary of Pure-Play Portfolios

Year Number of REITs

Total Asset (Million $)

Total Debt (Million $)

Av. Asset (Million $)

Av. Debt (Million $)

Av. LeverageRatio

1997 77 63,383 38,851 823 505 2.58 1998 85 114,200 63,965 1,344 753 2.27 1999 88 174,874 103,339 1,987 1,174 2.44 2000 92 206,760 127,675 2,247 1,388 2.61 2001 95 223,591 142,096 2,354 1,496 2.74 2002 90 233,934 148,040 2,599 1,645 2.72 2003 96 267,194 174,349 2,783 1,816 2.88

Average 89 183,419 114,045 2,061 1,281 2.61

21

Page 22: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

3-1. Property-Type Pure-play Portfolios

General Characteristics

Table P1-P7 in Appendix B show the pure-play portfolios whose targets are major property

sectors, apartment, office, industrial, and industrial, for the period 1997-2003. Fourth and fifth

columns show total asset and leverage ratio (total asset divided by total equity) on a book-value

basis. The other parts explain the asset breakdown into property sectors and the final portfolio

weights. The positive signs in weights mean long positions and negative signs mean short

positions in their investments. As we can see, we should invest about 65% in bonds to obtain

property level REIT returns. Especially, retail pure-play portfolios need higher weights in bonds

since the REITs who specialize in retail sectors use higher leverage in their assets. The Ibbotson

corporate-bond total return index was used to represent bond returns in the portfolios since we

assumed that the general corporate bond index can represent the overall bond market regardless

of different industries.

The REITs industry has made a lot of progress over the past two decades in terms of the number

of REITs and specialization by property types. Specifically, after mid 90s a large number of

REITs tended to have specialized investment targets such as apartment and office. In other words,

many recent REITs are already individual pure play vehicles by themselves. We can see these

trends from their fractions of assets across property types. Except several REITs which

diversified well across property types, most REITs hold their specialized investment sectors.

These improvements in REITs industry make it possible to construct more effective pure-play

portfolios with small amount of short positions since large short positions act like leverage

within the portfolio, increasing idiosyncratic risk of the portfolio.

It is important to note that during the period 1997-2003 REIT industry has been stabilized in

terms of specialization and structure of investments. For instance, if we look at the pure-play

portfolio of apartment in 2003, the sum of short positions is only 1.37% with the lowest position

in one REIT 0.34%. Moreover, 96% of long positions are invested in residential REITs which

are classified by NAREIT. In other words, this result means that most REITs already hold pure-

22

Page 23: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

play portfolio by themselves with regard to property types, so constructing pure-play portfolios

makes no big difference compared to investments in the specialized REITs according to the

target property types. In fact, if we compare pure-play portfolio index with NAREIF property

index adjusted with bond returns, we could come up with almost same index. This result will be

discussed in next section.

For comparison, we can contrast the pure-play portfolio in 2003 with 1987 which was

constructed by David Geltner and Brian Kluger in 1998. In 1987, there is small number of REITs

in the industry and the REITs were less specialized with regard to property types compared to the

present. Therefore, we need to have very large amount of short position to eliminate non-target

property sectors, which makes a great deal of noise in the return components and increases

idiosyncratic risk. For example, the 1987 apartment portfolio demanded 95% of the portfolio be

invested in just four REITs, and the total of all the required short positions equals 67% of the

entire portfolio value.

Another issue we need to consider is the frequency of rebalancing of portfolios. Before mid 90s,

there was a big change in the REIT industry with regard to the number of REITs and

specialization by property types. Therefore, we need to rebalance our pure-play portfolio at least

every year. However, during the period of 1997-2003 in our analysis, it is less necessary to

rebalance the portfolios as frequently because of the stabilization of REITs industry.

Nevertheless, we rebalanced our portfolios on an annual basis since we performed pure-play

procedures to not only property sectors but also geographical locations, which are less stabilized

than property sectors. In addition, the big increase in total assets can have an impact on the pure-

play weights.

Historical Index of Pure-Play Return

One of the main objectives of constructing pure-play portfolio is to compute the historical returns

and compare those returns with comparable returns. The analysis of investment performance by

property type can be very important for several perspectives. From a fundamental perspective,

23

Page 24: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

disaggregating by property type can allow the richness in the study of the economic relationship

between underlying property markets and capital markets. From an investment analysis

perspective, property type has always been considered a major dimension for diversification of

real estate portfolios. NAREIT property index which has been constructed from 1993 by

classifying each REIT as representing a given property type has the same motivation. In addition

to the above considerations, the correlations between REIT pure-play returns with those of total

markets can help obtain the beta components with regard to overall market situations. For

instance, the relative volatility of pure-play portfolios across property types compared to the total

REIT market can represent the risk component of a given property type. That risk components

can be translated to market beta, which have an impact on the required cost of capital of

investment.

From the pure-play weights that we derived in table P1-P7 in Appendix B and the past return

components including corporate bond index, we can compute historical returns of REIT-based

pure-play portfolios for four property sectors. As explained above, the Ibbotson corporate-bond

total return index was used to represent bond returns. Table 7 shows the historical returns and

Index of pure-play portfolios for the period 1997-2003. The Index value of pure-play returns was

obtained by computing compound return of one dollar value invested in 1996. We can see that,

industrial and retail sectors outperformed apartment and office sectors for the past 7 years.

24

Page 25: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table 7: Historical Index of Pure-Play Quarterly Returns vs. NCREIF unsmoothed Quarterly Returns, 1997~2003

Pure-Play Index Returns NCREIF Index Returns (Unsmoothed)

Quarterly Total Return (%) Cumulative Total Value ($) Quarterly Total Return (%) Cumulative Total Value ($) Year

Q

APT office Indus trial Retail APT office Industr

ial Retail APT office Industrial Retail APT Office Indus

trial Retail

1996 4 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1997 1 -0.3% 0.7% -0.2% -1.8% 1.00 1.01 1.00 0.98 0.7% -0.5% 3.1% 1.3% 1.01 0.99 1.03 1.01

2 4.4% 4.8% 4.1% 5.3% 1.04 1.06 1.04 1.04 3.8% 4.6% 4.3% 3.6% 1.05 1.04 1.07 1.05 3 7.0% 10.7% 10.2% 5.4% 1.11 1.17 1.14 1.09 3.4% 7.2% 5.9% 3.3% 1.08 1.12 1.14 1.08 4 2.4% 3.3% 5.9% 4.0% 1.14 1.21 1.21 1.14 5.3% 9.5% 4.2% 4.0% 1.14 1.22 1.19 1.13

1998 1 1.5% -0.6% -0.3% 2.2% 1.16 1.20 1.21 1.16 1.1% 5.4% 2.7% 3.9% 1.15 1.29 1.22 1.17 2 0.5% -1.9% 0.2% 2.4% 1.16 1.18 1.21 1.19 4.3% 4.5% 6.7% 3.7% 1.20 1.35 1.30 1.21 3 -0.5% -4.7% 1.4% 1.5% 1.16 1.12 1.23 1.20 3.7% 2.1% 2.5% 2.4% 1.24 1.37 1.33 1.24 4 -0.7% 0.7% -2.3% 1.1% 1.15 1.13 1.20 1.22 3.7% 5.2% 2.6% 3.5% 1.29 1.44 1.37 1.29

1999 1 -1.9% -2.2% -4.2% -4.4% 1.13 1.10 1.15 1.16 1.6% 0.7% 1.4% 3.9% 1.31 1.45 1.38 1.34 2 4.6% 3.4% 3.6% -0.4% 1.18 1.14 1.19 1.16 2.1% 3.1% 3.7% 2.0% 1.34 1.50 1.44 1.36 3 -2.5% -4.8% -4.0% -2.7% 1.15 1.09 1.14 1.13 2.5% 3.2% 3.3% 2.7% 1.37 1.55 1.48 1.40 4 0.3% 0.3% 2.3% -1.7% 1.16 1.09 1.17 1.11 4.3% 2.7% 2.1% 3.2% 1.43 1.59 1.51 1.44

2000 1 2.0% 2.6% 2.3% 2.9% 1.18 1.12 1.20 1.14 0.9% 2.4% 2.9% 1.7% 1.44 1.63 1.56 1.47 2 5.6% 5.3% 6.8% 2.2% 1.25 1.18 1.28 1.17 3.4% 4.2% 4.3% 3.3% 1.49 1.69 1.62 1.52 3 6.0% 6.9% 6.4% 3.3% 1.32 1.26 1.36 1.20 2.6% 2.9% 3.7% 2.0% 1.53 1.74 1.68 1.55 4 6.4% 5.7% 4.1% 5.4% 1.40 1.33 1.42 1.27 5.2% 4.1% 4.9% 0.9% 1.61 1.81 1.77 1.56

2001 1 2.0% 0.6% 0.4% 6.0% 1.43 1.34 1.42 1.35 0.1% -0.1% -0.2% 2.3% 1.62 1.81 1.76 1.60 2 4.0% 4.9% 4.3% 4.3% 1.49 1.40 1.48 1.40 3.8% 1.7% 3.8% 1.6% 1.68 1.84 1.83 1.62 3 3.0% 2.2% 0.1% 2.0% 1.53 1.43 1.48 1.43 1.6% 0.3% 0.9% 2.8% 1.70 1.85 1.85 1.67 4 1.6% 0.8% 3.4% 4.4% 1.56 1.45 1.53 1.50 1.3% -1.9% -0.7% 1.2% 1.72 1.81 1.83 1.69

2002 1 1.9% 2.5% 4.4% 2.9% 1.59 1.48 1.60 1.54 2.1% 2.3% 2.7% 2.4% 1.76 1.85 1.88 1.73 2 3.1% 3.7% 7.3% 6.3% 1.64 1.54 1.72 1.64 1.7% 0.2% 1.0% 3.8% 1.79 1.86 1.90 1.79 3 0.9% 1.1% 2.9% 6.0% 1.65 1.55 1.77 1.73 3.9% 1.8% 2.6% 3.6% 1.86 1.89 1.95 1.86 4 1.6% 1.3% 1.8% 2.1% 1.68 1.57 1.80 1.77 1.1% -1.5% 2.1% 5.4% 1.88 1.86 1.99 1.96

2003 1 0.8% 1.9% 2.4% 3.6% 1.69 1.60 1.84 1.84 2.7% 3.1% 2.6% 6.0% 1.93 1.92 2.04 2.08 2 7.0% 8.6% 6.0% 7.2% 1.81 1.74 1.95 1.97 3.3% 1.3% 1.5% 4.2% 2.00 1.94 2.07 2.17 3 2.9% 0.6% 2.6% 1.5% 1.86 1.75 2.01 2.00 1.4% 2.1% 3.4% 0.4% 2.03 1.98 2.14 2.17 4 1.0% 4.0% 3.4% 2.7% 1.88 1.82 2.07 2.05 2.7% 1.7% 2.9% 9.6% 2.08 2.02 2.21 2.38

25

Page 26: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Comparison with NCREIF returns

The pure-play index is based on REIT and Bond returns, and therefore represents the economics

of public securities and bond market. In other words, REIT performance can be attributable to

underlying property market, stock market, and REIT-level management power such as asset

management and financial leverage. On the contrary, NCREIF index is based on the privately

held properties of institutional investors. NCREIF index is the most widely used benchmark of

appraisal-based total returns to commercial property of institutional investors. Therefore, the

performance of NCREIF index can be attributable to the economic of the underlying property

market although there are some smoothing and lagging effects caused by the appraisal process

and the index construction procedure.

Recent studies have suggested that there are interesting differences and similarities between

REIT returns index and appraisal-based returns index. Specifically, several recent studies have

suggested that REIT returns and appraisal based returns are fundamentally related, but with

REIT returns leading appraisal returns by one to three years. From the several perspectives

mentioned above, it is very interesting to compare REIT-based index with appraisal-based

NCREIF index.

The right eight columns in table 7 show NCREIF quarterly returns and compound return values

invested in 1996. The NCREIF returns have been unsmoothed using the procedures described in

Fisher, Geltner and Webb (1994). This unsmoothing technique is applied to correct for the effect

of appraisal smoothing and temporal aggregation. NCREIF returns consist of two components,

income returns and appreciation returns, and there are two ways to define the corresponding

income components: NOI based and Cash flow based. According to Michael, David, Willard,

Douglas (1995), if the bulk of the REIT share price appreciation reflects property development

and acquisitions that are largely externally financed, the comparable form of the NCREIF Index

appreciation returns should be the official NOI-based definition. If, on the other hand, the bulk of

the REIT share price appreciation reflects same-store property market value growth and routine

capital improvement expenditures that are internally financed (essentially, from the cash flow

generated by the REITs’ property holdings), then the cash flow based definition of appreciation

26

Page 27: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

return in the NCREIF Index is best to use for comparability to REIT price appreciation. We used

cash flow based returns since we assumed that method would more accurately portray the actual

price path of properties over time given the reality of capital improvements to the properties.

Figure 1 shows the values of $1 invested to pure-play portfolios and NAREIF index at the end of

1996 for each property type which were computed in Table 7. The overall movements of the

index value are almost similar, but NCREIF returns outperformed REIT-based pure-play returns

by small amount. In particular, REIT portfolios suffered very lower returns in the period of

1997-1999 in every sector because of the general poor performance of REIT market. After that

period, REIT-based pure-play returns slightly outperformed NCREIF returns, decreasing the gap

between two indices. From the shape of index line and the summary statistics explained in next

section, we can see that the returns of REIT portfolio tend to be more volatile than NCREIF

returns, even though the REIT-based returns are unlevered and the NCREIF returns are

unsmoothed.

Figure 1 : Value of $1 invested at the end of 1996, REIT-based Pure-Play vs. NCREIF

Apartments

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

27

Page 28: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Industrial

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

Office

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

We can also see that the best performance property sectors during the past 7 years are industrial

and retail sectors both in REIT pure-play index and NCREIF index.

28

Page 29: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Retail

0.00

0.50

1.00

1.50

2.00

2.50

3.00

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

Although the orders of performance do not perfectly match between two indices, the general

trends of performance are very similar with each other. We can infer that the difference in

absolute index value can be caused by the different characteristics of two market, public REIT

market and private property market. However, the economics of underlying properties in both

markets can make the relative values almost similar. For example, if apartment properties

generate higher returns than other sectors in property market, the REITs which specialize in an

apartment sector tend to have higher performance than other REITs.

Table 9 shows the summary statistics for the quarterly returns of REIT-based pure-play portfolio

and unsmoothed NCREIF index. As explained above, pure-play portfolios have higher volatility

and lower average returns than NCREIF returns. The correlations between pure-play portfolios

and NCREIF returns for the same property sectors are around 25%. We can infer that the

potential lagging situation between two markets and the difference in market economics can lead

to these low correlations. On the other hand, the correlations between different property sectors

in the same market show very close movements except for the retail sector in NCREIF returns.

29

Page 30: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table 8: Basic Statistics for REIT-based pure-play portfolio, NCREIF unsmoothed Return, and Other Index based on quarterly returns, 1997~2003

Pure-Play Quarterly Return (%) NCREIF Unsmoothed Return (%) Adjusted NAREIT property INDEX (%)

APT Office Indus trial Retail APT Office Indus

trial Retail APT Office Indus Trial Retail

S&P 500

Corp. Bond Index

Mean 2.3% 2.2% 2.7% 2.6% 2.7% 2.6% 2.9% 3.2% 2.3% 2.3% 2.6% 2.6% 2.3% 2.1%

Median 1.9% 2.0% 2.8% 2.8% 2.6% 2.3% 2.8% 3.2% 1.6% 2.1% 3.1% 2.6% 2.8% 2.1%

Maxi. 7.0% 10.7% 10.2% 7.2% 5.3% 9.5% 6.7% 9.6% 7.5% 12.8% 8.6% 7.3% 21.3% 9.0%

Min. -2.5% -4.8% -4.2% -4.4% 0.1% -1.9% -0.7% 0.4% -2.5% -3.9% -3.7% -4.3% -17.3% -3.6%

Standard deviation 2.6% 3.5% 3.3% 2.9% 1.4% 2.5% 1.6% 1.8% 2.6% 3.6% 3.1% 2.8% 10.3% 3.0%

CORRELATION

Pure-Play APT 100.0%

Office 89.6% 100.0%

Industrial 81.5% 82.6% 100.0%

Retail 63.1% 60.8% 66.9% 100.0%

NCREIF APT 21.8% 22.1% 29.8% 20.1% 100.0%

Office 22.1% 23.5% 25.3% 8.6% 63.9% 100.0%

Industrial 30.2% 26.8% 28.0% -0.2% 58.7% 70.5% 100.0%

Retail -17.5% 6.9% 1.6% 6.5% 11.6% 8.0% -1.7% 100.0%

NAREIT APT 99.1% 89.1% 82.4% 64.9% 30.5% 25.5% 31.4% -14.0% 100%

Property Office 86.7% 97.6% 80.7% 59.8% 21.0% 28.0% 27.3% 6.6% 87% 100%

Industrial 83.0% 83.7% 97.5% 69.3% 20.9% 18.7% 19.8% 1.9% 83% 81% 100%

Retail 66.8% 64.0% 71.2% 99.4% 21.1% 10.2% 2.2% 8.7% 69% 62% 74% 100%

S&P 500 3.9% 18.5% -1.0% -16.0% 9.1% 22.2% 13.2% 22.3% 6% 20% -2% -16% 100%

Corporate Bond Index 36.4% 31.6% 39.1% 79.1% 37.7% 18.5% 6.0% 7.6% 41% 34% 38% 78% -36% 100%

30

Page 31: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Comparison with NAREIT property returns

Over the past 10 years, REIT industry experienced considerable specialization into property

sectors. Therefore, it has been very easy to classify one REIT as representing a given property

sector. As of Dec. 2003, there were only 16 REITs classified as diversified out of 173 NAREIT

member companies. The whole remaining REITs have their own specialty in the property sectors

such as apartment, office, and retail. NAREIT constructed NAREIT sub-index of property from

1993 according to their classifications. Property index is calculated using portfolios whose

weights are proportional to their market capitalization within their specialized property sectors.

We included NAREIT property index in our quarterly return analysis to compare the results with

pure-play portfolio returns. To make “apples to apples” comparison with unlevered pure-play

returns, the index was adjusted using the weights of debt investment in the pure-play portfolios.

For instance, if 50% debt investment is needed in the pure-play portfolio of the apartment sector

in 2000, the adjusted NAREIT property index of apartment in a given year is achieved by

applying the same 50% weight in debt investment. By doing so, we can obtain the comparable

return components independent of bond returns. Table 8 also includes several basic statistics of

adjusted NAREIT property index and Figure 2 shows the quarterly returns of three different

indices: Pure-play portfolio, Unsmoothed NCREIF index, and NAREIF property index.

As we can see, the minimum correlation between pure-play portfolio and adjusted NAREIT

index is 97.5%. Since the REIT industry already specialized in its investment across property

sectors, the investment strategy of focusing one specialized property sector does not make a big

difference with pure-play portfolios. We can expect these results from above pure-play

computations since, for example, pure-play portfolio for apartment in 2003 calls for 96% long

positions in apartment REITs classified by NAREIT. Figure 2 shows that the pure-play and

NAREIT returns are almost similar to each other, sometimes perfectly overlap.

31

Page 32: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Figure 2 : Quarterly returns for Pure-Play, NCREIF, and NAREIT for property sectors, 1997~2003

Apartments

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Valu

e($)

Pure-Play NCREIF NAREIT

Office

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Val

ue($

)

Pure-Play NCREIF NAREIT

32

Page 33: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Industrial

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Val

ue($

)

Pure-Play NCREIF NAREIT

Retail

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Val

ue($

)

Pure-Play NCREIF NAREIT

33

Page 34: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Lagged Correlation

With regard to the statistical relationship between REIT-based pure-play portfolio and NAREIF

sub-index, the correlations shown in Table 8 are contemporaneous correlations using quarterly

returns within sectors. However, according to the previous study, quarterly contemporaneous

correlations are subject to obfuscation by noise and transient effects. Therefore, more

fundamental relationship between two markets can be identified using annual return across time.

In this analysis, the results of the previous pure-play study by Geltner and Kluger (1998) are

used since 7 year data is not enough to get reliable statistical results. Therefore, we computed

lagged correlations between pure-play portfolio and NCREIF sub-index using 17 year (1987-

2003) annual return data.

Previous research has shown that REIT-based returns tend to lead private-property returns by

several years. Table 9 shows annual-frequency lagged correlations between pure-play portfolio

and NAREIF sub-indices within each property type. With no lag in time, office and industrial

sectors show positive correlations while apartment and retail sectors have negative relation. By

increasing lag up to 4 years, we can see more substantial positive correlations between two

markets. In particular, all four property types display positive correlation at two-year lag.

Therefore, these results can partly support the previous research that the REIT market tends to

lead property market by some years.

Table 9: Lagged Correlation between REIT-based pure-play portfolios and NCREIF, annual frequency total returns, 1987~2003

Lag(Year) Apartment Office Industrial Retail

0 -76% 43% 48% -11%

1 -34% 57% 47% 46%

2 44% 40% 53% 25%

3 31% 45% 64% -3%

4 5% 37% 46% -22%

34

Page 35: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

3-2. Geographic Location Pure-play Portfolios

General Characteristics

After applying the procedures of pure-play

portfolios and historical index to property

usages, we applied the same procedures to

geographic locations, which are classified as

West, East, South, and Midwest by NCREIF

(See figure 3). For the effective comparison

data availability, the same REITs from

property-type portfolios are picked up for a

given year.

Figure 3: Geographic Locations by NCREIF

and

Table G1-G7 in Appendix B show the pure-play portfolios whose targets are locations, West,

East, South, and Midwest, for the period 1997-2003. Every data in table is organized in the same

way as the property-type case except that the location classification is used instead of the

property type. As mentioned above, most REITs have specialized investment targets across

property types. As for locations, on the other hand, we can see that the assets of many REITs are

more diversified than property types. Therefore, to cancel out untargeted sectors, we should use

larger amount of short positions within the portfolios. For example, if we see the pure-play

portfolio in 2003, the sum of short positions of south is 29.96%, which is fairly high compared to

1.37% of the apartment-targeted portfolio in 2003. In addition, to get the same portfolio, we

should have long positions in 50 REITs out of 96 but, in case of the apartment portfolio in 2003,

only 27 REITs get long positions. In one sense, large number of REITs in long positions can be

thought to be helpful in the diversification effect of idiosyncratic risks. However, this advantage

tends to be offset by small amount of total assets in long position and large amount of assets in

short position. Therefore, pure-play results of locations can have more noise in the return

components and accompanying idiosyncratic risks.

35

Page 36: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

It is also important to note that even though the assets of REITs are more diversified across

geographic locations than property usages, most part of long positions are held by several big

REITs which have large assets in given regions. This result is the same as the case of property

type pure-plays.

Historical Index of Pure-Play Return vs. NCREIF

Again, we computed the historical returns of pure-play portfolios and compared those returns

with comparable returns, NCREIF sub-indices. Like the case of property sectors, we achieved

historical returns of REIT-based pure-play portfolios for four geographic locations from the

pure-play weights in table G1-G7 in Appendix B and the past return information on REITs and

corporate bond index. Table 10 shows the quarterly returns of pure-play portfolios and NCREIF

for the period 1997-2003. Here, NCREIF index is also adjusted using unsmoothing technique

applied to the previous property typed case. Figure 4 shows the comparison of performance for

four different regions, which is interpreted as the amount of $1 invested in 1996.

We can see that the West region outperformed the other regions in both REIT and NCREIF

index for the past 7 years. However, the orders of performance from 2nd to 4th are a little different.

For instance, REIT-based pure-play results are sorted as West, Midwest, East, and South by

descending order but NCREIF results are West, East, South, and Midwest. This can result from

REIT-specific management components which are assumed to be different for every sector,

different economics of stock market and underlying property market, and the possible data noise

from the construction of pure-play portfolios. If we see Figure 4, the overall movements of index

for the two markets are almost similar, but NCREIF returns outperformed REIT-based pure-play

returns by small amount except Midwest region. For the same reason of the property sector case,

REIT portfolios suffered low returns or losses in the period of 1997~1999.

36

Page 37: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table 10: Historical Index of Pure-Play Quarterly Returns vs. NCREIF unsmoothed Quarterly Returns, 1997~2003

Pure-Play Index Returns NCREIF Index Returns (Unsmoothed)

Quarterly Total Return (%) Cumulative Total Return ($) Quarterly Total Return (%) Cumulative Total Return ($) Year

Q

East West South Mid west East West South Mid

west East West South Mid west East West South Mid

west 1996 4 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1997 1 -1.0% 1.8% -2.3% -0.8% 0.99 1.02 0.98 0.99 0.9% 2.2% 0.6% 1.9% 1.01 1.02 1.01 1.02

2 4.4% 3.8% 6.0% 5.3% 1.03 1.06 1.04 1.04 4.5% 5.2% 3.6% 2.7% 1.05 1.08 1.04 1.053 7.5% 9.3% 6.0% 6.9% 1.11 1.15 1.10 1.12 4.7% 5.7% 4.6% 5.1% 1.10 1.14 1.09 1.104 3.4% 3.3% 3.3% 4.8% 1.15 1.19 1.14 1.17 7.3% 6.7% 5.0% 4.2% 1.18 1.21 1.14 1.15

1998 1 1.1% -0.3% 0.9% 1.7% 1.16 1.19 1.15 1.19 2.3% 2.7% 5.5% 2.3% 1.21 1.25 1.21 1.17 2 0.1% -1.0% 0.6% 1.7% 1.16 1.18 1.15 1.21 4.8% 6.7% 4.3% 3.0% 1.27 1.33 1.26 1.21

3 -1.7% -2.4% -1.9% 3.2% 1.14 1.15 1.13 1.25 3.1% 2.4% 1.6% 4.4% 1.31 1.36 1.28 1.264 0.7% 1.3% -1.8% 0.2% 1.15 1.16 1.11 1.25 4.3% 3.1% 3.6% 4.6% 1.37 1.40 1.32 1.32

1999 1 -3.2% -1.9% -2.7% -4.9% 1.11 1.14 1.08 1.19 1.7% 1.2% 2.7% 1.1% 1.39 1.42 1.36 1.33 2 2.1% 4.3% 3.0% 0.4% 1.14 1.19 1.11 1.19 2.7% 3.5% 1.9% 3.4% 1.43 1.47 1.39 1.38 3 -4.1% -3.7% -2.3% -3.8% 1.09 1.15 1.09 1.15 3.8% 2.5% 3.0% 3.0% 1.48 1.50 1.43 1.42

4 -0.6% 0.8% -0.5% 0.5% 1.08 1.16 1.08 1.16 3.1% 4.1% 2.3% 1.8% 1.53 1.57 1.46 1.442000 1 2.1% 3.8% 2.2% 1.5% 1.11 1.20 1.10 1.17 1.6% 2.8% 1.6% 1.6% 1.55 1.61 1.48 1.47

2 1.7% 7.7% 5.6% 4.6% 1.13 1.29 1.17 1.23 4.4% 5.1% 3.1% 2.3% 1.62 1.69 1.53 1.503 5.4% 9.4% 2.6% 3.9% 1.19 1.41 1.20 1.27 4.9% 2.9% 1.6% 2.2% 1.70 1.74 1.55 1.534 6.2% 5.5% 5.2% 5.4% 1.26 1.49 1.26 1.34 3.1% 7.3% 2.3% 1.6% 1.75 1.87 1.59 1.56

2001 1 3.8% -1.7% 5.0% 4.1% 1.31 1.46 1.32 1.40 0.5% -1.3% 1.1% 2.3% 1.76 1.84 1.61 1.59 2 3.9% 4.8% 5.2% 4.0% 1.36 1.53 1.39 1.45 3.1% 3.3% 2.6% 1.4% 1.81 1.90 1.65 1.62

3 2.7% 2.4% 1.6% 1.0% 1.40 1.57 1.41 1.47 0.9% 1.3% 1.2% 0.3% 1.83 1.93 1.67 1.624 3.0% 1.4% 1.9% 3.4% 1.44 1.59 1.44 1.52 0.5% -0.4% -1.0% -0.8% 1.84 1.92 1.65 1.61

2002 1 3.2% 2.1% 2.7% 2.5% 1.48 1.63 1.48 1.55 2.3% 2.8% 2.7% 1.9% 1.88 1.98 1.70 1.64 2 4.5% 3.7% 4.2% 7.7% 1.55 1.69 1.54 1.67 2.0% 1.3% 0.6% 1.9% 1.92 2.00 1.71 1.67

3 2.8% 1.7% 4.1% 2.2% 1.59 1.72 1.60 1.71 3.2% 2.6% 2.9% 2.4% 1.98 2.05 1.76 1.714 1.3% 1.4% 2.4% 1.8% 1.62 1.74 1.64 1.74 1.8% 1.7% 0.0% 1.4% 2.02 2.09 1.76 1.73

2003 1 1.8% 2.0% 1.8% 4.1% 1.65 1.77 1.67 1.81 2.5% 2.8% 5.5% 1.5% 2.07 2.15 1.86 1.76 2 8.8% 7.0% 7.8% 5.2% 1.79 1.90 1.80 1.90 2.5% 2.5% 1.3% 2.9% 2.12 2.20 1.88 1.81

3 1.6% 1.8% 1.3% 1.8% 1.82 1.93 1.82 1.94 3.8% 2.7% 0.8% 0.9% 2.20 2.26 1.90 1.824 3.5% 2.6% 3.3% 0.7% 1.88 1.98 1.88 1.95 4.0% 4.5% 2.7% 1.2% 2.29 2.36 1.95 1.85

37

Page 38: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Figure 4 : Value of $1 invested at the end of 1996, REIT-based Pure-Play vs. NCREIF

East

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

West

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

38

Page 39: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

South

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

Midwest

0.00

0.50

1.00

1.50

2.00

2.50

96-4

97-2

97-4

98-2

98-4

99-2

99-4

00-2

00-4

01-2

01-4

02-2

02-4

03-2

03-4

Quarter

Val

ue($

)

Pure-Play NCREIF

39

Page 40: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Contemporaneous Correlation and Lagged Correlation

Table 11 shows the summary statistics for the quarterly returns of the REIT-based pure-play

portfolio and unsmoothed NCREIF index. As explained above, pure-play portfolios have higher

volatility than NCREIF returns due to the unique characteristic of stock market. Figure 5 shows

these quarterly returns for two markets. The correlations between pure-play portfolios and

NCREIF returns for the same regions are very low positive amount, from 2.8% to 38.8%. These

results are also attributable to the potential lagging situation between two markets and the

difference in market economics. We can obtain very high correlations between different regions

in the same market. Since there is no NAREIT sub-index for geographic locations, we can not

perform the comparison with the comparable NAREIT index. Alternatively, the pure-play

technique can be used in constructing NAREIT sub-index for different locations.

Table 11: Basic Statistics for REIT-based pure-play portfolio of geographic locations, and

NCREIF unsmoothed Return, 1997~2003

Pure-Play Quarterly Return (%) NCREIF Unsmoothed Return (%)

East West South Mid west East West South Mid

west

S&P 500

Bond Index

Mean 2.3% 2.5% 2.3% 2.5% 3.0% 3.1% 2.4% 2.2% 2.3% 2.1%

Median 2.4% 2.1% 2.5% 2.3% 3.1% 2.8% 2.5% 2.1% 2.8% 2.1%

Max. 8.8% 9.4% 7.8% 7.7% 7.3% 7.3% 5.5% 5.1% 21.3% 9.0%

Min. -4.1% -3.7% -2.7% -4.9% 0.5% -1.3% -1.0% -0.8% -17.3% -3.6%

Standard deviation 2.9% 3.3% 2.8% 2.8% 1.6% 2.0% 1.6% 1.3% 10.3% 3.0%

CORRELATION

Pure-Play East 100.0%

West 77.6% 100.0%

South 88.8% 69.6% 100.0%

Midwest 80.3% 61.8% 78.3% 100.0%

NCREIF East 12.8% 30.8% 15.0% 21.6% 100.0%

West 20.2% 38.8% 23.7% 24.4% 77.8% 100.0%

South -2.9% 2.5% 2.8% 5.0% 59.4% 59.3% 100.0%

Midwest 5.5% 11.3% 3.1% 17.8% 59.9% 43.5% 50.7% 100.0%

S&P 500 5.6% 13.2% -2.9% -12.4% 19.9% 21.7% 17.9% 12.4% 100%

Bond Index 56.4% 24.2% 53.1% 65.0% 17.7% 15.6% 12.2% 25.2% -36% 100%

40

Page 41: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

From the same motivation as the case of property types, we computed lagged correlation using

annual returns of pure-play portfolios and NCREIF index to identify the tendency of REIT

industry to lead property market. This time, only 7 year data, 1997-2003, is used since the

previous data regarding pure-play returns for locations is unavailable. Table 12 shows annual-

frequency lagged correlations. Even though the data is not sufficient to ensure that the result is

reliable and relevant, we can see the similar trend as before case. By increasing lag up to 3 years,

very substantial positive correlations between two markets appeared. In particular, all regions

display almost over 75% correlation at three-year lag, with Midwest region at two-year lag.

Table 12: Lagged Correlation between REIT-based pure-play portfolios and NCREIF, annual frequency total returns, 1997~2003

Lag(Year) East West South Midwest

0 -1% 51% -49% -11% 1 -43% -60% -14% 4% 2 39% -18% 46% 89% 3 77% 75% 93% -2%

Figure 5: Quarterly returns for Pure-Play and NCREIF for geographic locations, 1997~2003

East

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Valu

e($)

Pure-Play NCREIF

41

Page 42: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

West

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Valu

e($)

Pure-Play NCREIF

South

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Val

ue($

)

Pure-Play NCREIF

42

Page 43: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Midwest

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

97-1

97-3

98-1

98-3

99-1

99-3

00-1

00-3

01-1

01-3

02-1

02-3

03-1

03-3

Quarter

Val

ue($

)

Pure-Play NCREIF

Conclusion A REIT-based pure-play portfolio is defined as an optimal combination of long and short

positions in REITs, such that the portfolio can replicate the investment returns to a specified

target sector without any direct exposure to other sectors. We applied this concept of pure-play

portfolios to the publicly traded REITs for property sectors and geographic locations for the

period 1997-2003. Even though most REITs have recently specialized investment targets for the

property types, this analysis make investors and analysts identify the performance of targeted

property sectors for the given period, which can help take investment positions according to their

target sectors in REIT market. In addition, the performance comparison with private-based

NCREIF sub-index reveals some similarities and differences, which result from the different

characteristics of two markets. The analysis of lagged correlation for annual returns shows that

publicly traded REIT tends to lead the privately owned property market by two or three years.

The most critical factor in pure-play analysis is the accuracy and reliability of structural data. We

followed an indirect way to get the property holding information. More relevant and direct data

from each REIT will facilitate this pure-play process.

43

Page 44: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

References

David Geltner and Brian Kluger. 1998. REIT-Based Pure-Play Portfolios: The Case of Property Type. Real Estate Economics 26(4): pp. 581-612 Richard Barkham, David Geltner, and Brian Kluger. Using Pure-Play Portfolios for Real Estate Investment and Cost of Capital Estimation: A British Example. Real Estate Finance, Fall 1998: pp. 25-36. David Geltner. 1991. Smoothing in Appraisal Based Returns. Journal of Real Estate Finance & Economics 4(3): pp. 327-345 Michael S. Young, David Geltner, Willard McIntosh, and Douglas M. Poutasse. 1995. Defining Commercial Property Income & Appreciation Returns for Comparability to Stock Market-Based Measures. Real Estate Finance 12(2)

Appendix A: Adjusting for Debt

Most REITs use debts in their investments in real estate. As the main objective of a pure-play

portfolio is to identify REITs-level management components on the property-level basis, we

have to adjust levered equity-level returns of REITs to unlevered property-level returns in case

they hold debts on the liability sides. This adjustment technique starts from the equation (2) in

Chapter 2 which explains the return components of REIT i in the two-property case.

)~~()~~(~OiOOiRiRRii erxerxr +++= (2)

Where ir~ is the property-level return to REIT i. When a REIT’s capital structure consists of debt

and equity, the return on assets can be computed using weighted average of the returns on debt

and equity. Therefore, the return to REIT i can be rewritten as below in equation (A-1)

D

i

iEi

i

ii r

TAD

rTAE

r += ~~ (A-1)

44

Page 45: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Where E is for equity, D is for debt, and TA is for asset. From the equations (2) and (A-1), we

can construct the new equation which reflects the relation between the capital structure and pure-

play returns of REIT i.

)~~()~~(~OiOOiRiRRi

D

i

iEi

i

i erxerxrTADr

TAE

+++=+ (A-2)

Now rearranging the above equation after multiplying by TA/E results in

D

i

iOiOOi

i

iRiRRi

i

iEi r

EDerx

ETAerx

ETAr −+++= )~~()~~(~ (A-3)

Here, we define the x* as proportions of properties multiplied by TA/E (the equity multiplier) as

below

Oii

iOiRi

i

iRi x

ETA

xxE

TAx == ** , (A-4)

From the equation (A-3) and (A-4), the equity-level return of REIT i can be shown as below

D

i

iOiOOiRiRRi

Ei r

ED

erxerxr −+++= )~~()~~(~ ** (A-5)

Now consider a pure-play portfolio which is targeted to an office sector using REIT weights, wi

and a debt weight, wD. The portfolio return is then as below

∑∑∑∑∑=====

+−+++=+=n

i

DD

i

ii

DRiRii

n

iOiOiiRi

n

iiROi

n

iiO

n

i

DD

EiiP rw

ED

wrexwexwxwrxwrrwrwr1

*

1

**

1

*

11)~~(~~~~

∑∑==

+−++=n

i

DD

i

ii

DRiRii

n

iOiOiiO rw

EDwrexwexwr

1

*

1

* )~~(~ (A-6)

45

Page 46: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

because the weight constrains of the equations (5) are also applied after the category proportions

of total assets are restated as proportions of total equity.

∑=

=n

iRii xw

1

* 0 and (A-7) ∑=

=n

iOii xw

1

* 1

In addition, since the modified proportions(x*) sum to the equity multiplier, TA/E, for each REIT

and the total weights of equity(wi) and debt(wD) sum to one, the debt weight can be expressed as

∑=

=n

i i

iiD E

Dww

1 (A-8)

From equations (A-7) and (A-8), the return of pure-play portfolio, (A-6), simplifies to

)~~(~~ *

1

*RiRii

n

iOiOiiOP exwexwrr ∑

=

++= (A-9)

We can now unlever the portfolio returns on the basis of a property-level. It is important to note

that the debt term drops out of the portfolio equation. Therefore, the minimization process is

exactly the same as in the all-equity case except that each x is restated as x* which is a fraction of

equity. Since the variance minimization problem is identical, the ways of two methods are also

same except for the definition of a fraction of sector. The bond weight can be achieved from one

subtracted by the REIT weights.

Appendix B: Pure-play portfolio for property types and geographic locations

- Table P1-P7 : Pure-play portfolio for property types for 1997-2003

- Table G1-G7: Pure-play portfolio for geographic locations for 1997-2003

46

Page 47: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-1: Pure-play Portfolio for property types, 1997

1997 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Arden Realty Group, Inc. ARI 551 1.7 0.00 1.00 0.00 0.00 -0.11% 3.70% -0.97% -0.19%2 Brandywine Realty Trust BDN 178 1.4 0.00 0.98 0.02 0.00 -0.04% 1.40% -0.33% -0.07%3 CarrAmerica Realty Corporation CRE 1,537 2.0 0.00 1.00 0.00 0.00 -0.26% 8.78% -2.31% -0.46%4 Corporate Office Properties Trust OFC 24 2.6 0.00 1.00 0.00 0.00 0.00% 0.10% -0.03% -0.01%5 Highwoods Properties, Inc. HIW 1,443 1.9 0.00 0.91 0.09 0.00 -0.22% 7.57% -0.64% -0.40%6 Mack-Cali Realty Corporation CLI 1,026 1.5 0.00 0.99 0.01 0.00 -0.23% 7.73% -1.93% -0.40%7 Parkway Properties, Inc. PKY 147 1.9 0.00 1.00 0.00 0.00 -0.03% 0.87% -0.23% -0.05%8 Prentiss Properties Trust PP 531 1.6 0.00 0.87 0.13 0.00 -0.09% 3.01% 0.05% -0.17%9 Bedford Property Investors, Inc. BED 232 1.9 0.00 0.47 0.53 0.00 -0.01% 0.46% 1.14% -0.03%

10 Duke Realty Corporation DRE 1,361 1.8 0.00 0.38 0.60 0.02 -0.06% 1.83% 8.36% -0.10%11 Kilroy Realty Corporation KRC 128 1.1- 0.00 0.77 0.23 0.00 0.03% -0.90% -0.27% 0.05%12 Liberty Property Trust LRY 1,153 3.1 0.00 0.60 0.40 0.00 -0.06% 2.06% 2.39% -0.13%13 PS Business Parks Inc. PSB 28 1.1 0.00 1.00 0.00 0.00 -0.01% 0.30% -0.08% -0.02%14 Reckson Associates Realty Corp. RA 544 2.9 0.00 0.97 0.03 0.00 -0.06% 2.00% -0.41% -0.11%15 CenterPoint Properties Trust CNT 451 1.8 0.00 0.02 0.98 0.00 0.02% -0.66% 4.89% 0.00%16 EastGroup Properties, Inc. EGP 281 1.9 0.00 0.11 0.89 0.00 0.00% -0.20% 2.57% -0.01%17 First Industrial Realty Trust, Inc. FR 1,023 1.9 0.00 0.00 1.00 0.00 0.04% -1.56% 10.77% -0.01%18 Monmouth Real Estate Investment Corp. MNRTA 33 2.0 0.00 0.00 0.89 0.11 0.00% -0.04% 0.29% 0.01%19 ProLogis Trust PLD 2,462 1.5 0.00 0.00 1.00 0.00 0.12% -4.69% 32.33% -0.02%20 Acadia Realty Trust AKR 259 4.6 0.00 0.00 0.00 1.00 -0.01% -0.03% 0.00% 0.25%21 Agree Realty Corporation ADC 121 5.0 0.00 0.00 0.00 1.00 -0.01% -0.01% 0.00% 0.11%22 Developers Diversified Realty DDR 975 2.1 0.00 0.00 0.00 1.00 -0.11% -0.28% 0.01% 2.04%23 Federal Realty Investment Trust FRT 1,035 2.7 0.03 0.00 0.00 0.97 -0.02% -0.22% 0.00% 1.64%24 Kimco Realty Corporation KIM 1,023 1.7 0.00 0.00 0.00 1.00 -0.15% -0.33% -0.01% 2.63%25 KRANZCO REALTY TRUST KRT 119 1.6 0.00 0.00 0.00 1.00 -0.02% -0.04% 0.00% 0.32%26 Malan Realty Investors, Inc. MAL 218 6.2 0.00 0.00 0.00 1.00 -0.01% -0.02% 0.00% 0.15%27 New Plan Excel Realty Trust, Inc. NXL 945 1.4 0.00 0.00 0.00 1.00 -0.16% -0.38% -0.01% 2.87%28 Ramco-Gershenson Properties Trust RPT 323 2.7 0.00 0.00 0.00 1.00 -0.03% -0.07% 0.00% 0.52%29 Regency Centers Corporation REG 387 1.9 0.00 0.00 0.00 1.00 -0.05% -0.12% 0.00% 0.90%30 Saul Centers, Inc. BFS 263 10.0- 0.00 0.25 0.00 0.75 0.01% -0.06% 0.02% -0.08%31 Tanger Factory Outlet Centers, Inc. SKT 332 3.0 0.00 0.00 0.00 1.00 -0.03% -0.06% 0.00% 0.48%32 Weingarten Realty Investors WRI 831 2.1 0.00 0.00 0.05 0.94 -0.09% -0.26% 0.42% 1.64%33 CBL & Associates Properties, Inc. CBL 1,026 3.8 0.00 0.01 0.00 0.99 -0.07% -0.14% -0.01% 1.18%34 General Growth Properties, Inc. GGP 1,758 5.3 0.00 0.00 0.00 1.00 -0.08% -0.18% -0.01% 1.43%35 Glimcher Realty Trust GRT 949 3.1 0.00 0.00 0.00 1.00 -0.07% -0.18% 0.00% 1.32%36 Macerich Company, The MAC 1,188 5.0 0.00 0.00 0.00 1.00 -0.06% -0.14% 0.00% 1.04%37 Mills Corporation, The MLS 863 18.9 0.00 0.00 0.00 1.00 -0.01% -0.03% 0.00% 0.20%38 Rouse Company, The RSE 3,643 20.6 0.00 0.22 0.00 0.77 -0.05% 0.36% -0.10% 0.57%39 Simon Property Group, Inc. SPG 5,896 4.5 0.00 0.01 0.00 0.99 -0.32% -0.59% -0.06% 5.61%40 Taubman Centers, Inc. TCO 379 1.0 0.00 0.00 0.00 1.00 -0.09% -0.21% 0.00% 1.60%41 Alexander's, Inc. ALX 212 38.0 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.02%42 Commercial Net Lease Realty, Inc. NNN 371 1.5 0.00 0.00 0.00 1.00 -0.06% -0.15% 0.00% 1.10%43 One Liberty Properties, Inc. OLP 53 1.7 0.18 0.00 0.30 0.52 0.03% -0.04% 0.19% 0.07%44 Realty Income Corporation O 454 1.2 0.00 0.00 0.06 0.94 -0.08% -0.27% 0.41% 1.54%45 Manufactured Home Communities, Inc. MHC 568 2.2 0.00 0.00 0.00 1.00 -0.06% -0.15% 0.00% 1.12%46 Sun Communities, Inc. SUI 585 1.9 0.00 1.00 0.00 0.00 -0.10% 3.35% -0.88% -0.18%47 Amli Residential Properties Trust AML 504 2.1 1.00 0.00 0.00 0.00 1.45% -0.08% 0.02% -0.06%48 Apartment Investment & Management AIV 835 3.7 1.00 0.00 0.00 0.00 1.34% -0.07% 0.02% -0.05%49 Archstone-Smith Trust ASN 2,282 1.8 1.00 0.00 0.00 0.00 7.60% -0.42% 0.10% -0.31%50 Associated Estates Realty Corporation AEC 418 2.6 1.00 0.00 0.00 0.00 0.95% -0.05% 0.01% -0.04%51 AvalonBay Communities Inc. AVB 712 1.7 1.00 0.00 0.00 0.00 2.47% -0.14% 0.03% -0.10%52 BRE Properties, Inc. BRE 784 1.7 1.00 0.00 0.00 0.00 2.78% -0.15% 0.04% -0.11%53 Camden Property Trust CPT 604 2.0 1.00 0.00 0.00 0.00 1.77% -0.10% 0.02% -0.07%54 Equity Residential EQR 2,986 2.0 1.00 0.00 0.00 0.00 8.74% -0.48% 0.11% -0.35%55 Essex Property Trust, Inc. ESS 417 1.9 1.00 0.00 0.00 0.00 1.33% -0.06% 0.01% -0.05%56 Gables Residential Trust GBP 760 2.7 1.00 0.00 0.00 0.00 1.69% -0.09% 0.02% -0.07%57 Home Properties, Inc. HME 249 3.0 1.00 0.00 0.00 0.00 0.50% -0.03% 0.01% -0.02%58 Mid-America Apartment Communities, MAA 611 2.5 1.00 0.00 0.00 0.00 1.45% -0.08% 0.02% -0.06%59 Post Properties, Inc. PPS 959 2.4 1.00 0.00 0.00 0.00 2.39% -0.13% 0.03% -0.10%60 Summit Properties Inc. SMT 635 2.5 1.00 0.00 0.00 0.00 1.54% -0.08% 0.02% -0.06%61 Tarragon Realty Investors, Inc. TARR 29 2.9 0.82 0.01 0.00 0.16 0.05% 0.00% 0.00% 0.01%62 Town and Country Trust, The TCT 383 5.4 1.00 0.00 0.00 0.00 0.42% -0.02% 0.01% -0.02%63 United Dominion Realty Trust, Inc. UDR 1,967 2.3 1.00 0.00 0.00 0.00 5.10% -0.28% 0.07% -0.21%64 Forest City Enterprises FCE.A 4,418 6.7 0.53 0.17 0.00 0.30 2.03% 1.01% -0.30% 0.71%65 BODDIE NOELL PROPERTIES INC BNP 103 4.2 0.93 0.00 0.00 0.07 0.14% -0.01% 0.00% 0.00%66 Colonial Properties Trust E CLP 948 3.4 0.37 0.16 0.00 0.46 0.58% 0.40% -0.13% 0.51%67 Cousins Properties Incorporated E CUZ 557 1.9 0.00 0.88 0.00 0.12 -0.10% 2.91% -0.77% 0.00%68 Crescent Real Estate Equities Company E CEI 1,731 2.0 0.00 0.72 0.28 0.00 -0.17% 6.21% 3.05% -0.37%69 First Union Real Estate Investments E FUR 441 2.9 0.00 1.00 0.00 0.00 -0.05% 1.70% -0.45% -0.09%70 Glenborough Realty Trust Incorporated GLB 186 1.9 0.09 0.82 0.08 0.00 0.03% 0.87% -0.07% -0.05%71 Income Opportunity Realty Investors IOT 64 2.8 0.00 1.00 0.00 0.00 -0.01% 0.25% -0.07% -0.01%72 Lexington Corporate Properties, Inc. LXP 309 3.3 0.00 0.38 0.37 0.25 -0.01% 0.28% 0.59% 0.08%73 Pennsylvania Real Estate Investment PEI 178 3.8 0.00 0.00 0.01 0.99 -0.01% -0.03% 0.01% 0.20%74 Sizeler Property Investors, Inc. E SIZ 278 3.1 0.56 0.00 0.00 0.44 0.29% -0.04% 0.00% 0.16%75 Transcontinental Realty Investors, Inc TCI 245 3.1 0.46 0.39 0.03 0.12 0.21% 0.32% -0.03% 0.01%76 Vornado Realty Trust E VNO 565 2.0 0.01 0.31 0.17 0.51 -0.05% 0.74% 0.71% 0.56%77 Washington Real Estate Investment Trust E WRE 318 1.6 0.20 0.53 0.10 0.17 0.19% 1.07% 0.08% 0.08%

Debt 58.04% 55.09% 41.30% 71.90%

WEIGHTTicker Asset TA/E

Fraction of Property Types

47

Page 48: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-2: Pure-play Portfolio for property types, 1998

1998 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Alexandria Real Estate Equities, Inc. ARE 248 1.5 0.00 1.00 0.00 0.00 -0.01% 0.58% -0.34% -0.04%2 Arden Realty Group, Inc. ARI 1,284 1.9 0.00 1.00 0.00 0.00 -0.04% 2.34% -1.35% -0.18%3 Boston Properties, Inc. BXP 1,673 9.6 0.00 0.61 0.02 0.37 -0.02% 0.35% -0.19% 0.20%4 Brandywine Realty Trust BDN 621 1.5 0.00 0.91 0.09 0.00 -0.02% 1.28% -0.19% -0.12%5 CarrAmerica Realty Corporation CRE 2,744 1.8 0.00 1.00 0.00 0.00 -0.08% 5.40% -3.12% -0.42%6 Corporate Office Properties Trust OFC 194 16.6 0.00 0.82 0.00 0.18 0.00% 0.03% -0.02% 0.00%7 Equity Office Properties Trust EOP 11,752 1.8 0.00 0.93 0.06 0.01 -0.30% 19.93% -6.01% -1.47%8 Highwoods Properties, Inc. HIW 2,722 1.9 0.00 0.89 0.11 0.01 -0.07% 4.01% -0.04% -0.35%9 HRPT Properties Trust HRP 2,136 1.7 0.00 1.00 0.00 0.00 -0.07% 4.41% -2.54% -0.34%

10 Mack-Cali Realty Corporation CLI 2,593 2.2 0.02 0.98 0.01 0.00 0.00% 3.92% -2.16% -0.31%11 Parkway Properties, Inc. PKY 369 1.5 0.00 1.00 0.00 0.00 -0.01% 0.85% -0.49% -0.07%12 Prentiss Properties Trust PP 1,240 1.8 0.00 0.77 0.23 0.00 -0.03% 1.54% 1.50% -0.19%13 Prime Group Realty Trust PGE 741 3.3 0.00 0.64 0.36 0.00 -0.01% 0.34% 0.99% -0.06%14 SL Green Realty Corp. SLG 383 2.2 0.00 1.00 0.00 0.00 -0.01% 0.61% -0.35% -0.05%15 Bedford Property Investors, Inc. BED 434 1.3 0.00 0.57 0.42 0.01 -0.01% 0.39% 1.94% -0.08%16 Duke Realty Corporation DRE 2,176 1.8 0.00 0.38 0.55 0.07 -0.06% 0.24% 9.88% -0.02%17 Kilroy Realty Corporation KRC 758 1.9 0.00 0.73 0.27 0.00 -0.02% 0.80% 1.12% -0.11%18 Liberty Property Trust LRY 2,094 2.2 0.00 0.57 0.43 0.00 -0.04% 1.08% 5.45% -0.27%19 PS Business Parks Inc. PSB 29 1.1 0.00 1.00 0.00 0.00 0.00% 0.10% -0.06% -0.01%20 Reckson Associates Realty Corp. RA 1,113 2.5 0.00 0.79 0.20 0.00 -0.02% 1.06% 0.74% -0.12%21 AMB Property Corp. AMB 2,506 1.5 0.00 0.00 0.84 0.16 -0.08% -2.89% 22.37% 0.50%22 CenterPoint Properties Trust CNT 699 1.8 0.03 0.03 0.94 0.01 0.03% -0.70% 5.79% -0.11%23 EastGroup Properties, Inc. EGP 413 1.6 0.20 0.15 0.60 0.04 0.18% -0.18% 2.40% -0.03%24 First Industrial Realty Trust, Inc. FR 2,272 2.7 0.00 0.00 1.00 0.00 -0.02% -1.72% 13.66% -0.26%25 Monmouth Real Estate Investment Corp. MNRTA 45 2.3 0.00 0.00 0.91 0.09 0.00% -0.04% 0.29% 0.00%26 Acadia Realty Trust AKR 255 5.2 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.01% 0.17%27 Agree Realty Corporation ADC 130 2.4 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.02% 0.19%28 Developers Diversified Realty DDR 1,392 2.1 0.00 0.02 0.01 0.97 -0.12% -0.13% -0.17% 2.29%29 Federal Realty Investment Trust FRT 1,317 2.4 0.02 0.00 0.00 0.98 -0.05% -0.15% -0.17% 1.90%30 Kimco Realty Corporation KIM 1,344 1.8 0.00 0.01 0.00 0.99 -0.14% -0.17% -0.20% 2.58%31 Malan Realty Investors, Inc. MAL 216 6.4 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.01% 0.12%32 New Plan Excel Realty Trust, Inc. NXL 1,261 1.7 0.24 0.00 0.00 0.75 0.56% -0.15% -0.18% 1.94%33 Pan Pacific Retail Properties, Inc. PNP 487 1.6 0.00 0.01 0.00 0.98 -0.06% -0.07% -0.08% 1.04%34 Ramco-Gershenson Properties Trust RPT 485 3.8 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.04% 0.45%35 Regency Centers Corporation REG 827 1.6 0.00 0.03 0.00 0.97 -0.09% -0.08% -0.18% 1.75%36 Saul Centers, Inc. BFS 261 6.9- 0.00 0.25 0.00 0.75 0.01% -0.03% 0.03% -0.10%37 Tanger Factory Outlet Centers, Inc. SKT 416 3.4 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.04% 0.43%38 Weingarten Realty Investors WRI 947 2.4 0.01 0.01 0.06 0.93 -0.06% -0.14% 0.25% 1.27%39 CBL & Associates Properties, Inc. CBL 1,245 3.8 0.00 0.01 0.00 0.99 -0.06% -0.08% -0.11% 1.16%40 General Growth Properties, Inc. GGP 2,098 4.2 0.00 0.00 0.00 1.00 -0.09% -0.13% -0.15% 1.75%41 Glimcher Realty Trust GRT 1,164 2.3 0.00 0.00 0.00 1.00 -0.09% -0.13% -0.15% 1.76%42 Macerich Company, The MAC 1,505 7.0 0.00 0.00 0.00 1.00 -0.04% -0.06% -0.07% 0.76%43 Mills Corporation, The MLS 927 9.4 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.03% 0.35%44 Rouse Company, The RSE 3,590 7.7 0.00 0.20 0.02 0.78 -0.07% 0.21% -0.17% 1.25%45 Simon Property Group, Inc. SPG 7,663 4.9 0.00 0.03 0.00 0.97 -0.28% -0.26% -0.55% 5.32%46 Taubman Centers, Inc. TCO 557 1.0 0.00 0.00 0.00 1.00 -0.10% -0.15% -0.17% 1.92%47 Alexander's, Inc. ALX 235 18.0 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.05%48 Commercial Net Lease Realty, Inc. NNN 537 1.5 0.00 0.00 0.00 1.00 -0.07% -0.10% -0.11% 1.28%49 One Liberty Properties, Inc. OLP 58 1.8 0.11 0.11 0.23 0.55 0.01% -0.01% 0.10% 0.06%50 Realty Income Corporation O 577 1.3 0.00 0.00 0.05 0.95 -0.08% -0.15% 0.20% 1.45%51 Manufactured Home Communities, Inc. MHC 864 3.1 0.00 0.64 0.00 0.36 -0.03% 0.59% -0.39% 0.31%52 Sun Communities, Inc. SUI 691 2.1 0.00 1.00 0.00 0.00 -0.02% 1.14% -0.66% -0.09%53 Amli Residential Properties Trust AML 680 2.5 1.00 0.00 0.00 0.00 0.98% -0.01% -0.01% -0.05%54 Apartment Investment & Management AIV 2,101 2.0 1.00 0.00 0.00 0.00 3.81% -0.06% -0.02% -0.19%55 Archstone-Smith Trust ASN 2,806 1.8 1.00 0.00 0.00 0.00 5.59% -0.09% -0.01% -0.27%56 Associated Estates Realty Corporation AEC 554 3.1 1.00 0.00 0.00 0.00 0.66% -0.01% 0.00% -0.03%57 AvalonBay Communities Inc. AVB 1,318 1.7 1.00 0.00 0.00 0.00 2.89% -0.04% -0.02% -0.15%58 BRE Properties, Inc. BRE 1,342 1.9 0.89 0.01 0.01 0.10 2.28% -0.04% 0.01% 0.12%59 Camden Property Trust CPT 1,324 1.9 1.00 0.00 0.00 0.00 2.57% -0.04% -0.02% -0.12%60 Cornerstone Realty Income Trust TCR 474 1.5 1.00 0.00 0.00 0.00 1.15% -0.02% -0.01% -0.06%61 Equity Residential EQR 7,095 1.9 1.00 0.00 0.00 0.00 13.44% -0.20% -0.08% -0.69%62 Essex Property Trust, Inc. ESS 739 1.9 0.94 0.01 0.00 0.05 1.36% -0.01% -0.02% 0.00%63 Gables Residential Trust GBP 981 2.2 1.00 0.00 0.00 0.00 1.64% -0.02% -0.01% -0.08%64 Home Properties, Inc. HME 544 3.6 1.00 0.00 0.00 0.00 0.55% -0.01% 0.00% -0.03%65 Mid-America Apartment Communities, MAA 1,194 2.6 1.00 0.00 0.00 0.00 1.68% -0.02% -0.01% -0.09%66 Post Properties, Inc. PPS 1,781 2.4 0.98 0.01 0.00 0.01 2.70% -0.02% 0.02% -0.13%67 Roberts Realty Investors, Inc. RPI 118 4.4 1.00 0.00 0.00 0.00 0.10% 0.00% 0.00% 0.00%68 Summit Properties Inc. SMT 825 3.1 1.00 0.00 0.00 0.00 0.97% -0.01% -0.01% -0.05%69 Tarragon Realty Investors, Inc. TARR 37 3.8 0.81 0.05 0.00 0.13 0.03% 0.00% 0.00% 0.00%70 Town and Country Trust, The TCT 366 7.3 1.00 0.00 0.00 0.00 0.18% 0.00% 0.00% -0.01%71 United Dominion Realty Trust, Inc. UDR 2,314 2.2 0.98 0.00 0.00 0.02 3.77% -0.05% -0.01% -0.13%72 Forest City Enterprises FCE.A 2,963 10.5 0.51 0.15 0.00 0.33 0.51% 0.12% -0.12% 0.29%73 BODDIE NOELL PROPERTIES INC BNP 166 3.0 0.91 0.00 0.00 0.09 0.18% 0.00% 0.00% 0.01%74 Colonial Properties Trust E CLP 1,397 2.8 0.46 0.13 0.00 0.41 0.77% 0.16% -0.20% 0.65%75 Cousins Properties Incorporated E CUZ 618 1.7 0.00 0.71 0.00 0.29 -0.03% 0.89% -0.56% 0.31%76 Crescent Real Estate Equities Company E CEI 4,180 1.9 0.00 0.74 0.25 0.01 -0.07% 4.56% 5.42% -0.53%77 First Union Real Estate Investments E FUR 820 3.1 0.17 0.13 0.00 0.70 0.12% 0.07% -0.13% 0.64%78 Glenborough Realty Trust Incorporated GLB 866 1.5 0.09 0.55 0.26 0.10 0.17% 0.78% 1.77% 0.06%79 Income Opportunity Realty Investors IOT 90 3.6 0.45 0.50 0.00 0.05 0.04% 0.04% -0.03% 0.00%80 Lexington Corporate Properties, Inc. LXP 467 2.3 0.00 0.40 0.35 0.24 -0.02% 0.13% 0.98% 0.13%81 Pennsylvania Real Estate Investment PEI 166 4.1 0.24 0.01 0.02 0.73 0.03% -0.01% 0.00% 0.10%82 Sizeler Property Investors, Inc. E SIZ 276 3.3 0.55 0.00 0.00 0.45 0.16% -0.01% -0.01% 0.13%83 Transcontinental Realty Investors, Inc TCI 319 3.7 0.49 0.33 0.09 0.09 0.15% 0.08% 0.06% 0.01%84 Vornado Realty Trust E VNO 2,524 1.9 0.00 0.35 0.17 0.48 -0.12% 0.97% 2.47% 2.01%85 Washington Real Estate Investment Trust E WRE 469 1.9 0.16 0.53 0.12 0.18 0.13% 0.39% 0.21% 0.11%

Debt 53.28% 48.94% 44.14% 70.59%

WEIGHTTicker Asset TA/E

Fraction of Property Types

48

Page 49: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-3: Pure-play Portfolio for property types, 1999

1999 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Alexandria Real Estate Equities, Inc. ARE 530 2.7 0.00 1.00 0.00 0.00 -0.01% 0.43% -0.16% -0.03%2 Arden Realty Group, Inc. ARI 2,332 1.7 0.00 0.99 0.00 0.01 -0.05% 2.91% -1.10% -0.21%3 Boston Properties, Inc. BXP 5,235 5.5 0.00 0.78 0.01 0.21 -0.04% 1.54% -0.55% 0.32%4 Brandywine Realty Trust BDN 1,912 2.6 0.00 0.92 0.08 0.00 -0.02% 1.40% -0.05% -0.12%5 CarrAmerica Realty Corporation CRE 3,793 2.1 0.00 1.00 0.00 0.00 -0.06% 3.87% -1.46% -0.31%6 Corporate Office Properties Trust OFC 564 3.3 0.00 0.91 0.00 0.09 -0.01% 0.32% -0.12% 0.01%7 Equity Office Properties Trust EOP 14,261 2.0 0.00 0.95 0.04 0.01 -0.20% 13.97% -2.93% -1.02%8 Highwoods Properties, Inc. HIW 4,314 2.3 0.04 0.84 0.09 0.04 0.09% 3.23% 0.08% -0.12%9 HRPT Properties Trust HRP 3,064 1.7 0.00 1.00 0.00 0.00 -0.06% 3.89% -1.47% -0.31%

10 Mack-Cali Realty Corporation CLI 3,452 2.4 0.01 0.98 0.00 0.00 0.00% 2.97% -1.07% -0.23%11 Parkway Properties, Inc. PKY 592 1.8 0.00 1.00 0.00 0.00 -0.01% 0.70% -0.26% -0.06%12 Prentiss Properties Trust PP 1,871 2.2 0.00 0.83 0.17 0.00 -0.03% 1.40% 0.61% -0.14%13 Prime Group Realty Trust PGE 1,165 3.3 0.00 0.86 0.14 0.00 -0.01% 0.60% 0.15% -0.06%14 SL Green Realty Corp. SLG 778 1.5 0.00 1.00 0.00 0.00 -0.02% 1.10% -0.41% -0.09%15 Bedford Property Investors, Inc. BED 598 1.7 0.00 0.63 0.36 0.01 -0.01% 0.37% 0.82% -0.04%16 Duke Realty Corporation DRE 2,854 1.8 0.00 0.40 0.54 0.06 -0.05% 0.63% 6.35% 0.01%17 Kilroy Realty Corporation KRC 1,106 2.3 0.00 0.77 0.23 0.00 -0.02% 0.70% 0.57% -0.07%18 Liberty Property Trust LRY 2,933 2.3 0.00 0.57 0.43 0.00 -0.04% 1.11% 3.79% -0.18%19 Mission West Properties MSW 520 15.6 0.00 1.00 0.00 0.00 0.00% 0.07% -0.03% -0.01%20 PS Business Parks Inc. PSB 709 1.4 0.00 0.94 0.06 0.00 -0.02% 0.96% -0.15% -0.08%21 Reckson Associates Realty Corp. RA 1,855 2.6 0.00 0.81 0.18 0.00 -0.02% 1.12% 0.59% -0.11%22 AMB Property Corp. AMB 3,563 2.0 0.00 0.00 0.89 0.11 -0.05% -1.30% 12.65% 0.26%23 CenterPoint Properties Trust CNT 818 2.0 0.03 0.04 0.93 0.01 0.01% -0.27% 3.04% -0.04%24 EastGroup Properties, Inc. EGP 568 1.8 0.14 0.11 0.72 0.03 0.09% -0.11% 1.80% -0.01%25 First Industrial Realty Trust, Inc. FR 2,554 2.4 0.00 0.00 1.00 0.00 -0.03% -0.85% 8.49% -0.12%26 Monmouth Real Estate Investment Corp. MNRTA 56 2.0 0.00 0.00 0.91 0.09 0.00% -0.02% 0.20% 0.00%27 ProLogis Trust PLD 4,331 1.9 0.00 0.00 1.00 0.00 -0.06% -1.81% 18.15% -0.25%28 Acadia Realty Trust AKR 529 3.4 0.12 0.00 0.00 0.88 0.03% -0.02% -0.02% 0.31%29 Agree Realty Corporation ADC 150 2.8 0.00 0.00 0.00 1.00 0.00% -0.01% -0.01% 0.12%30 Developers Diversified Realty DDR 2,127 2.4 0.00 0.02 0.01 0.97 -0.05% -0.11% -0.06% 1.97%31 Equity One, Inc. EQY 153 1.9 0.04 0.02 0.00 0.93 0.00% -0.01% -0.01% 0.17%32 Federal Realty Investment Trust FRT 1,484 2.8 0.02 0.00 0.00 0.98 0.00% -0.09% -0.06% 1.16%33 Kimco Realty Corporation KIM 3,051 1.9 0.00 0.01 0.00 0.99 -0.10% -0.24% -0.15% 3.52%34 Kramont Realty Trust KRT 225 2.8 0.00 0.02 0.00 0.98 0.00% -0.01% -0.01% 0.17%35 Malan Realty Investors, Inc. MAL 257 5.0 0.00 0.00 0.00 1.00 0.00% -0.01% -0.01% 0.12%36 New Plan Excel Realty Trust, Inc. NXL 1,385 1.8 0.23 0.00 0.00 0.76 0.38% -0.10% -0.07% 1.30%37 Pan Pacific Retail Properties, Inc. PNP 706 1.8 0.00 0.01 0.00 0.99 -0.02% -0.06% -0.04% 0.85%38 Ramco-Gershenson Properties Trust RPT 544 3.7 0.00 0.00 0.00 1.00 -0.01% -0.02% -0.02% 0.33%39 Regency Centers Corporation REG 1,240 2.3 0.00 0.01 0.00 0.99 -0.03% -0.08% -0.07% 1.22%40 Saul Centers, Inc. BFS 271 7.3- 0.00 0.24 0.00 0.76 0.00% -0.01% 0.01% -0.06%41 Tanger Factory Outlet Centers, Inc. SKT 472 4.1 0.00 0.00 0.00 1.00 -0.01% -0.02% -0.01% 0.26%42 Weingarten Realty Investors WRI 1,107 2.1 0.01 0.00 0.10 0.89 -0.02% -0.12% 0.38% 1.06%43 CBL & Associates Properties, Inc. CBL 1,855 4.5 0.00 0.01 0.00 0.99 -0.03% -0.06% -0.05% 0.93%44 General Growth Properties, Inc. GGP 4,027 4.4 0.00 0.00 0.00 1.00 -0.06% -0.15% -0.10% 2.07%45 Glimcher Realty Trust GRT 1,558 3.2 0.00 0.00 0.00 1.00 -0.03% -0.08% -0.05% 1.08%46 Macerich Company, The MAC 2,322 4.0 0.00 0.00 0.00 1.00 -0.04% -0.10% -0.06% 1.30%47 Mills Corporation, The MLS 970 12.3 0.00 0.00 0.00 1.00 0.00% -0.01% -0.01% 0.18%48 Rouse Company, The RSE 5,155 8.2 0.00 0.18 0.01 0.80 -0.03% 0.15% -0.07% 1.12%49 Simon Property Group, Inc. SPG 13,277 3.9 0.00 0.01 0.00 0.99 -0.21% -0.49% -0.40% 7.57%50 Taubman Centers, Inc. TCO 1,481 2.8 0.00 0.00 0.00 1.00 -0.03% -0.09% -0.06% 1.17%51 Alexander's, Inc. ALX 317 45.5 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.02%52 Commercial Net Lease Realty, Inc. NNN 686 1.8 0.00 0.00 0.00 1.00 -0.02% -0.06% -0.04% 0.86%53 One Liberty Properties, Inc. OLP 83 1.6 0.10 0.16 0.20 0.54 0.01% 0.00% 0.07% 0.06%54 Realty Income Corporation O 759 1.7 0.00 0.00 0.03 0.96 -0.03% -0.08% 0.08% 0.97%55 Manufactured Home Communities, Inc. MHC 1,177 3.8 0.00 0.65 0.00 0.35 -0.01% 0.42% -0.17% 0.21%56 Sun Communities, Inc. SUI 821 2.4 0.00 1.00 0.00 0.00 -0.01% 0.73% -0.27% -0.06%57 Amli Residential Properties Trust AML 786 2.3 1.00 0.00 0.00 0.00 0.79% -0.01% -0.01% -0.02%58 Apartment Investment & Management AIV 4,268 2.2 1.00 0.00 0.00 0.00 4.39% -0.06% -0.05% -0.12%59 Archstone-Smith Trust ASN 5,060 1.9 1.00 0.00 0.00 0.00 6.04% -0.09% -0.05% -0.15%60 Associated Estates Realty Corporation AEC 841 3.2 1.00 0.00 0.00 0.00 0.60% -0.01% -0.01% -0.02%61 AvalonBay Communities Inc. AVB 4,030 1.7 1.00 0.00 0.00 0.00 5.40% -0.08% -0.06% -0.14%62 BRE Properties, Inc. BRE 1,631 2.1 0.91 0.01 0.00 0.08 1.60% -0.02% 0.00% 0.09%63 Camden Property Trust CPT 2,348 2.0 1.00 0.00 0.00 0.00 2.69% -0.04% -0.03% -0.06%64 Cornerstone Realty Income Trust TCR 552 1.6 1.00 0.00 0.00 0.00 0.78% -0.01% -0.01% -0.02%65 Equity Residential EQR 10,700 2.0 1.00 0.00 0.00 0.00 12.29% -0.18% -0.13% -0.32%66 Essex Property Trust, Inc. ESS 932 2.4 0.96 0.01 0.00 0.03 0.86% -0.01% -0.01% 0.01%67 Gables Residential Trust GBP 1,586 2.8 1.00 0.00 0.00 0.00 1.29% -0.02% -0.01% -0.03%68 Home Properties, Inc. HME 1,012 2.8 1.00 0.00 0.00 0.00 0.83% -0.01% -0.01% -0.02%69 Mid-America Apartment Communities, MAA 1,366 2.6 1.00 0.00 0.00 0.00 1.19% -0.02% -0.01% -0.03%70 Post Properties, Inc. PPS 2,067 2.0 0.98 0.01 0.00 0.01 2.38% -0.02% 0.00% -0.05%71 Roberts Realty Investors, Inc. RPI 125 4.7 1.00 0.00 0.00 0.00 0.06% 0.00% 0.00% 0.00%72 Summit Properties Inc. SMT 1,199 3.3 1.00 0.00 0.00 0.00 0.83% -0.01% -0.01% -0.02%73 Tarragon Realty Investors, Inc. TARR 357 4.7 0.81 0.10 0.00 0.09 0.14% 0.01% -0.01% 0.01%74 Town and Country Trust, The TCT 432 13.7 1.00 0.00 0.00 0.00 0.07% 0.00% 0.00% 0.00%75 United Dominion Realty Trust, Inc. UDR 3,755 2.7 0.99 0.00 0.00 0.01 3.12% -0.04% -0.03% -0.05%76 BNP Residential Properties, Inc. BNP 221 3.9 0.94 0.00 0.00 0.06 0.12% 0.00% 0.00% 0.00%77 Colonial Properties Trust E CLP 1,755 2.9 0.42 0.14 0.00 0.44 0.57% 0.13% -0.10% 0.58%78 Cousins Properties Incorporated E CUZ 753 2.0 0.00 0.76 0.00 0.24 -0.02% 0.60% -0.24% 0.15%79 Crescent Real Estate Equities Company E CEI 5,043 2.1 0.00 0.77 0.21 0.01 -0.05% 3.57% 2.66% -0.33%80 First Union Real Estate Investments E FUR 787 5.2 0.17 0.13 0.00 0.70 0.05% 0.02% -0.03% 0.23%81 Glenborough Realty Trust Incorporated GLB 1,879 2.3 0.34 0.47 0.14 0.05 0.64% 0.72% 0.59% 0.00%82 Income Opportunity Realty Investors IOT 89 3.8 0.38 0.49 0.00 0.12 0.02% 0.02% -0.01% 0.00%83 Lexington Corporate Properties, Inc. LXP 647 3.2 0.00 0.51 0.32 0.17 -0.01% 0.16% 0.45% 0.05%84 Pennsylvania Real Estate Investment PEI 482 3.5 0.21 0.01 0.01 0.77 0.06% -0.02% 0.00% 0.24%85 Sizeler Property Investors, Inc. E SIZ 286 3.8 0.56 0.00 0.00 0.44 0.10% -0.01% 0.00% 0.07%86 Transcontinental Realty Investors, Inc TCI 382 4.2 0.47 0.38 0.08 0.07 0.10% 0.07% 0.03% 0.01%87 Vornado Realty Trust E VNO 4,426 2.5 0.00 0.47 0.13 0.40 -0.06% 1.49% 1.08% 1.42%88 Washington Real Estate Investment Trust E WRE 559 2.2 0.16 0.52 0.15 0.17 0.08% 0.24% 0.20% 0.07%

Debt 53.96% 55.43% 49.57% 71.49%

Ticker Asset TA/EFraction of Property Types WEIGHT

49

Page 50: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-4: Pure-play Portfolio for property types, 2000

2000 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Alexandria Real Estate Equities, Inc. ARE 643 2.4 0.00 1.00 0.00 0.00 -0.01% 0.42% -0.15% -0.02%2 AmeriVest Properties, Inc. AMV 30 4.8 0.00 0.97 0.03 0.00 0.00% 0.01% 0.00% 0.00%3 Arden Realty Group, Inc. ARI 2,570 1.9 0.00 0.99 0.00 0.01 -0.06% 2.16% -0.77% -0.08%4 Boston Properties, Inc. BXP 5,435 4.7 0.00 1.00 0.00 0.00 -0.05% 1.83% -0.65% -0.08%5 Brandywine Realty Trust BDN 1,830 2.3 0.00 0.92 0.08 0.00 -0.03% 1.11% 0.02% -0.06%6 Brookfield Property Corporation BPO 8,111 4.2 0.00 1.00 0.00 0.00 -0.08% 3.07% -1.09% -0.14%7 CarrAmerica Realty Corporation CRE 3,479 2.1 0.00 1.00 0.00 0.00 -0.07% 2.67% -0.95% -0.12%8 Corporate Office Properties Trust OFC 721 3.8 0.00 0.92 0.00 0.08 -0.01% 0.28% -0.10% 0.02%9 Equity Office Properties Trust EOP 14,046 2.1 0.00 0.97 0.02 0.01 -0.25% 10.33% -2.60% -0.39%

10 Glenborough Realty Trust Incorporated GLB 1,795 2.3 0.33 0.48 0.14 0.05 0.49% 0.52% 0.52% 0.02%11 Highwoods Properties, Inc. HIW 4,016 2.1 0.05 0.82 0.08 0.06 0.12% 2.35% 0.07% 0.08%12 HRPT Properties Trust HRP 2,953 1.9 0.00 1.00 0.00 0.00 -0.06% 2.41% -0.86% -0.11%13 Mack-Cali Realty Corporation CLI 3,630 2.5 0.02 0.98 0.00 0.00 -0.01% 2.23% -0.75% -0.10%14 Parkway Properties, Inc. PKY 649 2.0 0.00 1.00 0.00 0.00 -0.01% 0.51% -0.18% -0.02%15 Prentiss Properties Trust PP 1,995 2.4 0.00 0.85 0.15 0.00 -0.03% 1.04% 0.46% -0.07%16 Prime Group Realty Trust PGE 1,444 3.9 0.00 0.91 0.08 0.00 -0.01% 0.52% 0.02% -0.03%17 SL Green Realty Corp. SLG 1,071 2.1 0.00 0.99 0.00 0.01 -0.02% 0.81% -0.29% -0.03%18 Bedford Property Investors, Inc. BED 671 2.2 0.00 0.65 0.34 0.01 -0.01% 0.25% 0.58% -0.02%19 Duke Realty Corporation DRE 5,486 2.1 0.00 0.48 0.47 0.05 -0.10% 1.30% 7.70% 0.00%20 Kilroy Realty Corporation KRC 1,321 2.8 0.00 0.75 0.25 0.00 -0.02% 0.49% 0.60% -0.04%21 Liberty Property Trust LRY 3,118 2.4 0.00 0.50 0.50 0.00 -0.04% 0.66% 3.96% -0.14%22 Mission West Properties MSW 713 7.1 0.00 1.00 0.00 0.00 0.00% 0.16% -0.06% -0.01%23 PS Business Parks Inc. PSB 904 1.6 0.00 0.94 0.06 0.00 -0.02% 0.81% -0.08% -0.04%24 Reckson Associates Realty Corp. RA 2,724 2.4 0.00 0.86 0.14 0.00 -0.04% 1.43% 0.51% -0.09%25 AMB Property Corp. AMB 3,622 2.0 0.00 0.00 0.85 0.15 -0.06% -0.89% 10.38% 0.33%26 CenterPoint Properties Trust CNT 1,083 2.3 0.03 0.04 0.93 0.01 0.01% -0.22% 2.90% -0.06%27 EastGroup Properties, Inc. EGP 632 1.7 0.13 0.11 0.73 0.03 0.09% -0.09% 1.77% -0.02%28 First Industrial Realty Trust, Inc. FR 2,527 2.4 0.00 0.00 1.00 0.00 -0.03% -0.60% 7.10% -0.16%29 Keystone Property Trust KTR 875 4.7 0.07 0.27 0.65 0.01 0.02% 0.01% 0.78% -0.02%30 Monmouth Real Estate Investment Corp. MNRTA 79 2.2 0.00 0.00 0.92 0.08 0.00% -0.02% 0.22% 0.00%31 ProLogis Trust PLD 5,848 2.0 0.00 0.00 1.00 0.00 -0.09% -1.66% 19.79% -0.44%32 Acadia Realty Trust AKR 571 3.7 0.14 0.00 0.00 0.86 0.03% -0.01% -0.02% 0.27%33 Agree Realty Corporation ADC 158 3.0 0.00 0.00 0.00 1.00 0.00% 0.00% -0.01% 0.11%34 Developers Diversified Realty DDR 2,321 2.7 0.00 0.02 0.01 0.97 -0.05% -0.03% -0.08% 1.68%35 Equity One, Inc. EQY 212 2.3 0.04 0.02 0.00 0.94 0.00% 0.00% -0.01% 0.17%36 Federal Realty Investment Trust FRT 1,534 3.1 0.02 0.00 0.00 0.98 -0.01% -0.04% -0.07% 1.00%37 Kimco Realty Corporation KIM 3,007 1.9 0.00 0.01 0.00 0.99 -0.09% -0.10% -0.22% 3.25%38 Malan Realty Investors, Inc. MAL 253 5.4 0.00 0.00 0.00 1.00 0.00% 0.00% -0.01% 0.10%39 New Plan Excel Realty Trust, Inc. NXL 2,953 1.8 0.23 0.00 0.00 0.77 0.66% -0.09% -0.20% 2.50%40 Pan Pacific Retail Properties, Inc. PNP 785 2.1 0.00 0.01 0.00 0.99 -0.02% -0.02% -0.05% 0.77%41 Ramco-Gershenson Properties Trust RPT 551 3.8 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.02% 0.29%42 Saul Centers, Inc. BFS 300 9.4- 0.00 0.24 0.00 0.76 0.00% -0.01% 0.01% -0.05%43 Tanger Factory Outlet Centers, Inc. SKT 490 4.5 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.02% 0.22%44 Weingarten Realty Investors WRI 1,309 2.0 0.00 0.00 0.14 0.86 -0.04% -0.09% 0.51% 1.12%45 CBL & Associates Properties, Inc. CBL 2,019 4.8 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.06% 0.86%46 General Growth Properties, Inc. GGP 4,955 3.9 0.00 0.00 0.00 1.00 -0.07% -0.09% -0.19% 2.57%47 Glimcher Realty Trust GRT 1,586 3.5 0.00 0.00 0.00 1.00 -0.03% -0.03% -0.07% 0.93%48 Macerich Company, The MAC 2,404 3.9 0.00 0.00 0.00 1.00 -0.04% -0.05% -0.09% 1.27%49 Mills Corporation, The MLS 1,039 17.3 0.00 0.00 0.00 1.00 0.00% 0.00% -0.01% 0.12%50 Rouse Company, The RSE 4,427 6.9 0.00 0.01 0.02 0.97 -0.04% -0.04% 0.00% 1.26%51 Simon Property Group, Inc. SPG 14,223 4.4 0.00 0.01 0.00 0.99 -0.19% -0.18% -0.50% 6.56%52 Taubman Centers, Inc. TCO 1,597 3.3 0.00 0.00 0.00 1.00 -0.03% -0.04% -0.07% 0.98%53 Alexander's, Inc. ALX 366 29.3 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.03%54 Commercial Net Lease Realty, Inc. NNN 750 1.9 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.06% 0.80%55 One Liberty Properties, Inc. OLP 86 1.7 0.07 0.10 0.34 0.49 0.00% 0.00% 0.11% 0.05%56 Realty Income Corporation O 905 1.7 0.00 0.00 0.03 0.97 -0.03% -0.05% 0.03% 1.05%57 Manufactured Home Communities, Inc. MHC 1,160 5.5 0.00 0.66 0.00 0.34 -0.01% 0.22% -0.09% 0.14%58 Sun Communities, Inc. SUI 911 2.7 0.00 1.00 0.00 0.00 -0.01% 0.54% -0.19% -0.02%59 Amli Residential Properties Trust AML 805 2.3 1.00 0.00 0.00 0.00 0.71% -0.01% -0.01% -0.02%60 Apartment Investment & Management AIV 5,685 2.5 1.00 0.00 0.00 0.00 4.48% -0.09% -0.07% -0.13%61 Archstone-Smith Trust ASN 5,302 2.1 1.00 0.00 0.00 0.00 5.08% -0.10% -0.06% -0.15%62 Associated Estates Realty Corporation AEC 883 3.7 1.00 0.00 0.00 0.00 0.47% -0.01% -0.01% -0.01%63 AvalonBay Communities Inc. AVB 4,155 1.8 1.00 0.00 0.00 0.00 4.69% -0.09% -0.07% -0.14%64 BRE Properties, Inc. BRE 1,709 2.1 0.92 0.01 0.00 0.07 1.50% -0.03% -0.01% 0.07%65 Camden Property Trust CPT 2,488 2.4 1.00 0.00 0.00 0.00 2.00% -0.04% -0.03% -0.05%66 Cornerstone Realty Income Trust TCR 869 1.5 1.00 0.00 0.00 0.00 1.14% -0.02% -0.02% -0.03%67 Equity Residential EQR 11,716 2.1 1.00 0.00 0.00 0.00 10.90% -0.22% -0.16% -0.32%68 Essex Property Trust, Inc. ESS 1,062 2.7 0.96 0.02 0.00 0.02 0.73% 0.00% -0.02% 0.00%69 Gables Residential Trust GBP 1,471 2.9 1.00 0.00 0.00 0.00 1.01% -0.02% -0.01% -0.03%70 Home Properties, Inc. HME 1,504 3.0 1.00 0.00 0.00 0.00 0.98% -0.02% -0.01% -0.03%71 Mid-America Apartment Communities, MAA 1,299 2.8 1.00 0.00 0.00 0.00 0.92% -0.02% -0.01% -0.03%72 Post Properties, Inc. PPS 2,350 2.2 0.98 0.00 0.00 0.01 2.06% -0.04% 0.00% -0.05%73 Roberts Realty Investors, Inc. RPI 127 5.7 1.00 0.00 0.00 0.00 0.04% 0.00% 0.00% 0.00%74 Summit Properties Inc. SMT 1,217 3.7 1.00 0.00 0.00 0.00 0.65% -0.01% -0.01% -0.02%75 Town and Country Trust, The TCT 481 21.8 1.00 0.00 0.00 0.00 0.04% 0.00% 0.00% 0.00%76 United Dominion Realty Trust, Inc. UDR 3,688 2.8 0.99 0.00 0.00 0.01 2.56% -0.05% -0.03% -0.05%77 Colonial Properties Trust E CLP 1,864 3.8 0.39 0.12 0.00 0.49 0.36% 0.07% -0.07% 0.48%78 Cousins Properties Incorporated E CUZ 933 2.1 0.00 0.74 0.00 0.26 -0.02% 0.50% -0.20% 0.21%79 Crescent Real Estate Equities Company E CEI 4,951 2.4 0.00 0.82 0.17 0.01 -0.07% 2.48% 1.32% -0.13%80 First Union Real Estate Investments E FUR 461 2.7 0.16 0.12 0.00 0.72 0.04% 0.02% -0.03% 0.25%81 Forest City Enterprises FCE.A 3,814 9.9 0.92 0.08 0.00 0.00 0.70% 0.04% -0.03% -0.02%82 Glenborough Realty Trust Incorporated GLB 1,795 2.3 0.33 0.48 0.14 0.05 0.49% 0.52% 0.52% 0.02%83 Income Opportunity Realty Investors IOT 91 3.8 0.45 0.43 0.00 0.12 0.02% 0.02% -0.01% 0.00%84 Lexington Corporate Properties, Inc. LXP 656 3.2 0.00 0.58 0.26 0.15 -0.01% 0.16% 0.29% 0.05%85 One Liberty Properties, Inc. OLP 86 1.7 0.07 0.10 0.34 0.49 0.00% 0.00% 0.11% 0.05%86 Pennsylvania Real Estate Investment PEI 548 4.1 0.21 0.01 0.01 0.77 0.05% -0.01% 0.00% 0.21%87 Sizeler Property Investors, Inc. E SIZ 286 4.0 0.49 0.00 0.00 0.51 0.07% 0.00% -0.01% 0.07%88 St. Joe Company JOE 1,822 1.9 0.00 1.00 0.00 0.00 -0.04% 1.49% -0.53% -0.07%89 Transcontinental Realty Investors, Inc TCI 714 4.0 0.45 0.40 0.07 0.08 0.16% 0.10% 0.04% 0.02%90 Vornado Realty Trust E VNO 5,479 2.7 0.00 0.47 0.12 0.40 -0.08% 1.34% 1.05% 1.56%91 Washington Real Estate Investment Trust E WRE 608 2.4 0.15 0.54 0.14 0.17 0.07% 0.19% 0.16% 0.07%92 Capital Automotive REIT E CARS 943 3.1 0.00 0.00 0.00 1.00 -0.02% -0.02% -0.04% 0.61%

Debt 58.73% 60.21% 50.51% 71.47%

WEIGHTTicker Asset TA/E

Fraction of Property Types

50

Page 51: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-5: Pure-play Portfolio for property types, 2001

2001 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Alexandria Real Estate Equities, Inc. ARE 781 2.4 0.00 1.00 0.00 0.00 -0.01% 0.50% -0.17% -0.04%2 AmeriVest Properties, Inc. AMV 42 3.7 0.00 0.98 0.02 0.00 0.00% 0.02% 0.00% 0.00%3 Arden Realty Group, Inc. ARI 2,706 2.0 0.00 0.99 0.00 0.01 -0.03% 2.09% -0.72% -0.16%4 Boston Properties, Inc. BXP 6,226 3.6 0.00 0.78 0.01 0.21 -0.06% 2.07% -0.70% 0.51%5 Brandywine Realty Trust BDN 1,825 2.4 0.00 0.93 0.07 0.00 -0.02% 1.07% -0.07% -0.09%6 Brookfield Property Corporation BPO 8,624 4.1 0.00 0.97 0.00 0.03 -0.06% 3.13% -1.08% -0.13%7 CarrAmerica Realty Corporation CRE 3,073 1.9 0.00 1.00 0.00 0.00 -0.04% 2.56% -0.88% -0.21%8 Corporate Office Properties Trust OFC 795 4.1 0.00 0.93 0.00 0.07 -0.01% 0.28% -0.10% 0.00%9 Equity Office Properties Trust EOP 18,794 2.3 0.00 0.95 0.04 0.01 -0.18% 11.71% -2.12% -0.90%

10 Glenborough Realty Trust Incorporated GLB 1,371 2.1 0.33 0.49 0.13 0.05 0.42% 0.45% 0.32% 0.00%11 Highwoods Properties, Inc. HIW 3,702 2.1 0.03 0.84 0.08 0.04 0.08% 2.26% 0.01% -0.08%12 HRPT Properties Trust HRP 2,900 1.9 0.00 1.00 0.00 0.00 -0.04% 2.38% -0.82% -0.19%13 Mack-Cali Realty Corporation CLI 3,677 2.5 0.02 0.98 0.00 0.00 0.01% 2.21% -0.73% -0.18%14 Maxus Realty Trust Inc. MRTI 17 1.7 0.76 0.17 0.07 0.00 0.01% 0.00% 0.00% 0.00%15 Parkway Properties, Inc. PKY 655 2.0 0.00 1.00 0.00 0.00 -0.01% 0.51% -0.17% -0.04%16 Prentiss Properties Trust PP 2,118 2.6 0.00 0.87 0.13 0.00 -0.02% 1.03% 0.24% -0.10%17 Prime Group Realty Trust PGE 1,439 4.0 0.00 0.88 0.12 0.00 -0.01% 0.47% 0.07% -0.04%18 SL Green Realty Corp. SLG 1,161 2.1 0.00 0.99 0.00 0.01 -0.01% 0.87% -0.30% -0.07%19 Bedford Property Investors, Inc. BED 634 2.1 0.00 0.66 0.33 0.01 -0.01% 0.26% 0.45% -0.03%20 Duke Realty Corporation DRE 5,460 2.0 0.00 0.42 0.53 0.05 -0.06% 0.98% 7.52% -0.01%21 Kilroy Realty Corporation KRC 1,457 3.3 0.00 0.80 0.20 0.00 -0.01% 0.51% 0.30% -0.05%22 Liberty Property Trust LRY 3,396 2.6 0.00 0.58 0.42 0.00 -0.03% 0.89% 2.74% -0.14%23 Mission West Properties MSW 827 8.1 0.00 1.00 0.00 0.00 0.00% 0.16% -0.05% -0.01%24 PS Business Parks Inc. PSB 931 1.6 0.00 0.96 0.04 0.00 -0.01% 0.83% -0.15% -0.07%25 Reckson Associates Realty Corp. RA 2,998 2.7 0.00 0.83 0.17 0.00 -0.03% 1.34% 0.54% -0.13%26 AMB Property Corp. AMB 4,426 2.5 0.00 0.00 0.91 0.09 -0.03% -0.88% 9.05% 0.17%27 CenterPoint Properties Trust CNT 1,155 2.2 0.02 0.03 0.94 0.00 0.02% -0.25% 2.84% -0.04%28 EastGroup Properties, Inc. EGP 666 1.8 0.13 0.12 0.72 0.03 0.09% -0.08% 1.50% -0.01%29 First Industrial Realty Trust, Inc. FR 2,618 2.5 0.00 0.00 1.00 0.00 -0.01% -0.57% 5.98% -0.09%30 Keystone Property Trust KTR 963 5.8 0.06 0.25 0.68 0.01 0.02% 0.01% 0.62% -0.01%31 Monmouth Real Estate Investment Corp. MNRTA 86 2.1 0.00 0.00 0.95 0.05 0.00% -0.02% 0.22% 0.00%32 ProLogis Trust PLD 5,946 2.0 0.00 0.00 1.00 0.00 -0.04% -1.56% 16.54% -0.25%33 Acadia Realty Trust AKR 524 2.9 0.12 0.00 0.00 0.88 0.03% -0.02% -0.01% 0.29%34 Agree Realty Corporation ADC 166 3.2 0.00 0.00 0.00 1.00 0.00% -0.01% 0.00% 0.10%35 Chelsea Property Group, Inc. CPG 901 3.3 0.00 0.00 0.00 1.00 -0.02% -0.03% -0.02% 0.50%36 Developers Diversified Realty DDR 2,332 3.0 0.00 0.06 0.03 0.90 -0.05% -0.03% 0.07% 1.30%37 Equity One, Inc. EQY 239 2.3 0.02 0.01 0.00 0.97 0.00% -0.01% -0.01% 0.19%38 Federal Realty Investment Trust FRT 1,621 3.5 0.02 0.00 0.00 0.98 -0.01% -0.06% -0.04% 0.84%39 Kimco Realty Corporation KIM 3,171 1.9 0.00 0.01 0.00 0.99 -0.12% -0.20% -0.13% 3.12%40 Kramont Realty Trust KRT 764 3.4 0.00 0.01 0.00 0.99 -0.02% -0.03% -0.02% 0.41%41 Malan Realty Investors, Inc. MAL 244 6.2 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.07%42 New Plan Excel Realty Trust, Inc. NXL 2,894 1.9 0.23 0.00 0.00 0.77 0.61% -0.15% -0.11% 2.17%43 Pan Pacific Retail Properties, Inc. PNP 1,298 2.1 0.00 0.01 0.00 0.99 -0.04% -0.07% -0.05% 1.11%44 Ramco-Gershenson Properties Trust RPT 560 4.0 0.00 0.00 0.00 1.00 -0.01% -0.02% -0.01% 0.26%45 Regency Centers Corporation REG 3,035 2.5 0.00 0.01 0.00 0.99 -0.09% -0.14% -0.11% 2.24%46 Saul Centers, Inc. BFS 334 10.7- 0.00 0.25 0.00 0.75 0.00% -0.01% 0.01% -0.04%47 Tanger Factory Outlet Centers, Inc. SKT 487 5.4 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.01% 0.17%48 Weingarten Realty Investors WRI 1,518 2.4 0.00 0.00 0.09 0.91 -0.04% -0.10% 0.26% 1.05%49 CBL & Associates Properties, Inc. CBL 2,116 4.9 0.00 0.00 0.00 1.00 -0.03% -0.05% -0.04% 0.80%50 General Growth Properties, Inc. GGP 5,284 4.1 0.00 0.00 0.00 1.00 -0.09% -0.16% -0.11% 2.35%51 Glimcher Realty Trust GRT 1,590 3.7 0.00 0.00 0.00 1.00 -0.03% -0.05% -0.04% 0.79%52 Macerich Company, The MAC 2,337 3.8 0.00 0.00 0.00 1.00 -0.04% -0.08% -0.05% 1.13%53 Mills Corporation, The MLS 1,126 23.5 0.00 0.00 0.00 1.00 0.00% -0.01% 0.00% 0.09%54 Rouse Company, The RSE 4,176 6.6 0.00 0.15 0.01 0.84 -0.04% 0.08% -0.06% 0.96%55 Simon Property Group, Inc. SPG 13,938 4.5 0.00 0.01 0.00 0.99 -0.22% -0.34% -0.27% 5.60%56 Taubman Centers, Inc. TCO 1,908 3.9 0.00 0.00 0.00 1.00 -0.04% -0.06% -0.04% 0.91%57 Alexander's, Inc. ALX 403 22.8 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.03%58 Commercial Net Lease Realty, Inc. NNN 762 1.9 0.00 0.00 0.00 1.00 -0.03% -0.05% -0.03% 0.73%59 Realty Income Corporation O 935 1.8 0.00 0.00 0.03 0.97 -0.04% -0.07% 0.05% 0.92%60 Manufactured Home Communities, Inc. MHC 1,104 6.6 0.00 0.63 0.00 0.37 -0.01% 0.16% -0.06% 0.10%61 Sun Communities, Inc. SUI 967 2.9 0.00 1.00 0.00 0.00 -0.01% 0.52% -0.18% -0.04%62 Amli Residential Properties Trust AML 866 2.2 1.00 0.00 0.00 0.00 0.78% -0.01% 0.00% -0.03%63 Apartment Investment & Management AIV 7,700 3.1 1.00 0.00 0.00 0.00 4.86% -0.06% -0.03% -0.18%64 Archstone-Smith Trust ASN 5,020 2.2 1.00 0.00 0.00 0.00 4.37% -0.06% -0.02% -0.17%65 Associated Estates Realty Corporation AEC 820 4.2 1.00 0.00 0.00 0.00 0.38% 0.00% 0.00% -0.01%66 AvalonBay Communities Inc. AVB 4,397 1.8 1.00 0.00 0.00 0.00 4.75% -0.06% -0.03% -0.18%67 BRE Properties, Inc. BRE 1,718 2.1 0.91 0.01 0.00 0.08 1.42% -0.02% 0.00% 0.06%68 Camden Property Trust CPT 2,431 2.5 1.00 0.00 0.00 0.00 1.88% -0.02% -0.01% -0.07%69 Cornerstone Realty Income Trust TCR 800 1.5 1.00 0.00 0.00 0.00 1.01% -0.01% -0.01% -0.04%70 Equity Residential EQR 12,264 2.2 1.00 0.00 0.00 0.00 10.92% -0.14% -0.07% -0.41%71 Essex Property Trust, Inc. ESS 1,282 3.3 0.96 0.02 0.00 0.02 0.73% 0.00% -0.01% -0.01%72 Gables Residential Trust GBP 1,453 3.0 1.00 0.00 0.00 0.00 0.94% -0.01% -0.01% -0.04%73 Home Properties, Inc. HME 1,872 3.0 1.00 0.00 0.00 0.00 1.20% -0.02% -0.01% -0.04%74 Mid-America Apartment Communities, MAA 1,304 3.0 1.00 0.00 0.00 0.00 0.84% -0.01% -0.01% -0.03%75 Post Properties, Inc. PPS 2,551 2.5 0.99 0.00 0.00 0.01 1.97% -0.02% 0.01% -0.06%76 Roberts Realty Investors, Inc. RPI 132 6.1 1.00 0.00 0.00 0.00 0.04% 0.00% 0.00% 0.00%77 Summit Properties Inc. SMT 1,340 4.0 1.00 0.00 0.00 0.00 0.66% -0.01% 0.00% -0.02%78 Town and Country Trust, The TCT 499 24.9 1.00 0.00 0.00 0.00 0.04% 0.00% 0.00% 0.00%79 United Dominion Realty Trust, Inc. UDR 3,454 2.8 0.99 0.00 0.00 0.01 2.34% -0.03% -0.01% -0.07%80 BNP Residential Properties, Inc. BNP 231 5.2 0.95 0.00 0.00 0.05 0.08% 0.00% 0.00% 0.00%81 Catellus Development Corp. CDX 2,276 3.3 0.00 0.19 0.76 0.05 -0.01% -0.08% 2.87% 0.00%82 Colonial Properties Trust E CLP 1,944 4.3 0.40 0.14 0.00 0.47 0.33% 0.06% -0.05% 0.37%83 Cousins Properties Incorporated E CUZ 1,116 2.5 0.00 0.76 0.00 0.24 -0.02% 0.52% -0.19% 0.16%84 Crescent Real Estate Equities Company E CEI 4,532 2.6 0.01 0.77 0.21 0.01 -0.02% 1.88% 1.35% -0.17%85 First Union Real Estate Investments E FUR 463 3.8 0.16 0.12 0.00 0.72 0.03% 0.01% -0.02% 0.16%86 Forest City Enterprises FCE.A 4,030 8.8 0.55 0.16 0.00 0.29 0.48% 0.09% -0.05% 0.22%87 Income Opportunity Realty Investors IOT 97 2.4 0.45 0.42 0.00 0.12 0.03% 0.03% -0.01% 0.01%88 Lexington Corporate Properties, Inc. LXP 668 3.3 0.00 0.54 0.30 0.17 -0.01% 0.13% 0.28% 0.04%89 One Liberty Properties, Inc. OLP 128 2.4 0.09 0.12 0.33 0.46 0.01% 0.00% 0.09% 0.04%90 Pennsylvania Real Estate Investment PEI 577 4.0 0.23 0.01 0.01 0.76 0.06% -0.01% 0.00% 0.20%91 Sizeler Property Investors, Inc. E SIZ 285 4.3 0.50 0.00 0.00 0.50 0.06% -0.01% 0.00% 0.06%92 St. Joe Company JOE 1,115 2.0 0.00 1.00 0.00 0.00 -0.01% 0.89% -0.30% -0.07%93 Vornado Realty Trust E VNO 6,370 3.1 0.01 0.51 0.12 0.37 -0.06% 1.41% 0.73% 1.27%94 Washington Real Estate Investment Trust E WRE 632 2.4 0.15 0.56 0.13 0.15 0.07% 0.20% 0.12% 0.05%95 Capital Automotive REIT E CARS 1,022 3.5 0.00 0.00 0.00 1.00 -0.02% -0.04% -0.02% 0.53%

Debt 60.29% 61.19% 55.58% 72.70%

Ticker Asset TA/EFraction of Property Types WEIGHT

51

Page 52: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-6: Pure-play Portfolio for property types, 2002

2002 - Property Type

REITs APT office Industrial Retail APT office Industrial Retail1 Alexandria Real Estate Equities, Inc. ARE 962 2.9 0.00 1.00 0.00 0.00 0.00% 0.44% -0.13% -0.03%2 AmeriVest Properties, Inc. AMV 88 3.5 0.00 1.00 0.00 0.00 0.00% 0.03% -0.01% 0.00%3 Arden Realty Group, Inc. ARI 2,761 2.1 0.00 1.00 0.00 0.00 -0.01% 1.76% -0.50% -0.12%4 Boston Properties, Inc. BXP 7,254 3.9 0.00 0.78 0.00 0.22 -0.02% 1.86% -0.53% 0.55%5 Brandywine Realty Trust BDN 1,960 2.8 0.00 0.98 0.02 0.00 0.00% 0.91% -0.17% -0.06%6 Brookfield Property Corporation BPO 8,076 3.7 0.00 0.99 0.00 0.01 -0.02% 2.86% -0.82% -0.16%7 CarrAmerica Realty Corporation CRE 2,776 2.4 0.00 1.00 0.00 0.00 -0.01% 1.55% -0.44% -0.10%8 Corporate Office Properties Trust OFC 984 3.7 0.00 1.00 0.00 0.00 0.00% 0.35% -0.10% -0.02%9 Equity Office Properties Trust EOP 25,808 2.3 0.00 0.98 0.02 0.00 -0.08% 14.51% -2.92% -0.94%

10 Glenborough Realty Trust Incorporated GLB 1,388 2.1 0.03 0.91 0.06 0.00 0.04% 0.76% -0.01% -0.05%11 Highwoods Properties, Inc. HIW 3,648 2.3 0.01 0.88 0.07 0.04 0.03% 1.80% 0.11% -0.02%12 HRPT Properties Trust HRP 2,805 1.7 0.00 1.00 0.00 0.00 -0.01% 2.19% -0.62% -0.14%13 Mack-Cali Realty Corporation CLI 3,747 2.6 0.00 0.99 0.00 0.00 -0.01% 1.88% -0.50% -0.12%14 Maxus Realty Trust Inc. MRTI 38 3.1 0.92 0.08 0.00 0.00 0.02% 0.00% 0.00% 0.00%15 Parkway Properties, Inc. PKY 841 2.2 0.00 1.00 0.00 0.00 0.00% 0.50% -0.14% -0.03%16 Prentiss Properties Trust PP 2,031 2.5 0.00 0.93 0.07 0.00 -0.01% 0.98% 0.04% -0.07%17 Prime Group Realty Trust PGE 1,522 4.7 0.00 0.86 0.14 0.00 0.00% 0.35% 0.16% -0.03%18 SL Green Realty Corp. SLG 1,372 1.9 0.00 1.00 0.00 0.00 -0.01% 0.96% -0.27% -0.06%19 Bedford Property Investors, Inc. BED 636 2.3 0.00 0.59 0.41 0.00 0.00% 0.18% 0.58% -0.02%20 Duke Realty Corporation DRE 5,330 1.9 0.00 0.47 0.52 0.01 -0.01% 1.17% 7.65% -0.11%21 Kilroy Realty Corporation KRC 1,457 3.3 0.00 0.81 0.19 0.00 0.00% 0.44% 0.33% -0.03%22 Liberty Property Trust LRY 3,553 2.5 0.00 0.62 0.38 0.00 -0.01% 0.96% 2.72% -0.10%23 Mission West Properties MSW 910 8.4 0.00 1.00 0.00 0.00 0.00% 0.14% -0.04% -0.01%24 PS Business Parks Inc. PSB 1,170 2.0 0.00 0.95 0.05 0.00 0.00% 0.74% -0.05% -0.05%25 Reckson Associates Realty Corp. RA 2,994 2.9 0.00 0.98 0.02 0.00 -0.01% 1.35% -0.28% -0.09%26 AMB Property Corp. AMB 4,761 2.7 0.00 0.00 0.99 0.01 0.00% -0.65% 9.76% -0.04%27 CenterPoint Properties Trust CNT 1,183 2.3 0.00 0.02 0.97 0.00 0.00% -0.17% 2.81% -0.02%28 EastGroup Properties, Inc. EGP 684 1.8 0.00 0.08 0.92 0.00 0.00% -0.09% 1.90% -0.02%29 First Industrial Realty Trust, Inc. FR 2,621 2.6 0.00 0.00 1.00 0.00 0.00% -0.37% 5.60% -0.04%30 Keystone Property Trust KTR 828 3.1 0.00 0.01 0.99 0.00 0.00% -0.09% 1.46% -0.01%31 Monmouth Real Estate Investment Corp. MNRTA 119 2.4 0.00 0.00 0.96 0.04 0.00% -0.02% 0.27% 0.00%32 ProLogis Trust PLD 5,604 2.1 0.00 0.00 1.00 0.00 0.00% -1.01% 15.06% -0.11%33 Acadia Realty Trust AKR 494 2.8 0.14 0.00 0.00 0.86 0.04% -0.01% -0.01% 0.25%34 Agree Realty Corporation ADC 168 3.2 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.08%35 Chelsea Property Group, Inc. CPG 1,099 3.1 0.00 0.00 0.00 1.00 -0.01% -0.03% -0.01% 0.59%36 Developers Diversified Realty DDR 2,497 3.0 0.00 0.03 0.02 0.95 -0.01% -0.04% 0.04% 1.30%37 Equity One, Inc. EQY 669 2.4 0.00 0.00 0.00 1.00 0.00% -0.02% -0.01% 0.46%38 Federal Realty Investment Trust FRT 1,838 3.1 0.03 0.00 0.00 0.97 0.02% -0.05% -0.02% 0.95%39 Kimco Realty Corporation KIM 3,385 1.8 0.00 0.00 0.00 1.00 -0.03% -0.16% -0.08% 3.10%40 Kramont Realty Trust KRT 769 3.5 0.00 0.00 0.00 1.00 0.00% -0.02% -0.01% 0.36%41 Malan Realty Investors, Inc. MAL 225 11.3 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.03%42 New Plan Excel Realty Trust, Inc. NXL 2,623 1.8 0.00 0.00 0.00 1.00 -0.02% -0.13% -0.06% 2.45%43 Pan Pacific Retail Properties, Inc. PNP 1,340 2.2 0.00 0.00 0.00 1.00 -0.01% -0.05% -0.03% 1.02%44 Ramco-Gershenson Properties Trust RPT 553 4.1 0.00 0.00 0.00 1.00 0.00% -0.01% -0.01% 0.22%45 Regency Centers Corporation REG 3,109 2.6 0.00 0.00 0.00 1.00 -0.02% -0.11% -0.05% 2.00%46 Tanger Factory Outlet Centers, Inc. SKT 476 6.2 0.00 0.00 0.00 1.00 0.00% -0.01% 0.00% 0.13%47 Weingarten Realty Investors WRI 2,096 2.3 0.00 0.00 0.08 0.92 -0.01% -0.10% 0.36% 1.39%48 CBL & Associates Properties, Inc. CBL 3,373 6.5 0.00 0.00 0.00 1.00 -0.01% -0.04% -0.02% 0.86%49 General Growth Properties, Inc. GGP 5,647 3.7 0.00 0.01 0.00 0.99 -0.02% -0.11% -0.06% 2.47%50 Glimcher Realty Trust GRT 1,759 4.4 0.00 0.00 0.00 1.00 -0.01% -0.03% -0.02% 0.65%51 Macerich Company, The MAC 2,295 3.8 0.00 0.00 0.00 1.00 -0.01% -0.05% -0.02% 0.98%52 Mills Corporation, The MLS 1,329 7.7 0.00 0.00 0.00 1.00 0.00% -0.01% -0.01% 0.28%53 Rouse Company, The RSE 4,880 7.4 0.00 0.18 0.00 0.81 -0.01% 0.11% -0.06% 0.87%54 Simon Property Group, Inc. SPG 13,811 4.3 0.00 0.01 0.00 0.99 -0.05% -0.25% -0.14% 5.25%55 Taubman Centers, Inc. TCO 2,141 5.0 0.00 0.00 0.00 1.00 -0.01% -0.04% -0.02% 0.70%56 Alexander's, Inc. ALX 583 12.9 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.07%57 Commercial Net Lease Realty, Inc. NNN 1,007 1.8 0.00 0.00 0.00 1.00 -0.01% -0.05% -0.02% 0.93%58 Realty Income Corporation O 1,004 1.5 0.00 0.00 0.04 0.96 -0.01% -0.07% 0.12% 1.06%59 Manufactured Home Communities, Inc. MHC 1,100 6.3 0.00 0.00 0.00 1.00 0.00% -0.02% -0.01% 0.29%60 Sun Communities, Inc. SUI 994 3.0 0.00 1.00 0.00 0.00 0.00% 0.43% -0.12% -0.03%61 Amli Residential Properties Trust AML 919 2.2 1.00 0.00 0.00 0.00 0.77% 0.00% 0.00% -0.01%62 Apartment Investment & Management AIV 8,323 3.1 1.00 0.00 0.00 0.00 4.95% -0.02% 0.00% -0.04%63 Archstone-Smith Trust ASN 8,550 2.2 1.00 0.00 0.00 0.00 6.92% -0.03% 0.00% -0.06%64 Associated Estates Realty Corporation AEC 775 4.5 1.00 0.00 0.00 0.00 0.31% 0.00% 0.00% 0.00%65 AvalonBay Communities Inc. AVB 4,664 2.0 1.00 0.00 0.00 0.00 4.22% -0.02% 0.00% -0.04%66 BRE Properties, Inc. BRE 1,876 2.4 1.00 0.00 0.00 0.00 1.43% -0.01% 0.00% -0.01%67 Camden Property Trust CPT 2,450 2.7 1.00 0.00 0.00 0.00 1.67% 0.00% 0.00% -0.01%68 Cornerstone Realty Income Trust TCR 981 2.9 1.00 0.00 0.00 0.00 0.61% 0.00% 0.00% -0.01%69 Equity Residential EQR 12,236 2.3 1.00 0.00 0.00 0.00 9.86% -0.04% -0.01% -0.09%70 Essex Property Trust, Inc. ESS 1,329 3.4 0.99 0.01 0.00 0.00 0.70% 0.00% 0.00% -0.01%71 Gables Residential Trust GBP 1,589 3.1 1.00 0.00 0.00 0.00 0.92% 0.00% 0.00% -0.01%72 Home Properties, Inc. HME 2,064 3.1 1.00 0.00 0.00 0.00 1.22% 0.00% 0.00% -0.01%73 Mid-America Apartment Communities, MAA 1,263 3.2 1.00 0.00 0.00 0.00 0.72% 0.00% 0.00% -0.01%74 Post Properties, Inc. PPS 2,538 2.8 1.00 0.00 0.00 0.00 1.64% -0.01% 0.00% -0.01%75 Roberts Realty Investors, Inc. RPI 166 6.5 1.00 0.00 0.00 0.00 0.05% 0.00% 0.00% 0.00%76 Summit Properties Inc. SMT 1,296 3.7 1.00 0.00 0.00 0.00 0.64% 0.00% 0.00% -0.01%77 United Dominion Realty Trust, Inc. UDR 3,348 3.2 1.00 0.00 0.00 0.00 1.90% -0.01% 0.00% -0.02%78 BNP Residential Properties, Inc. BNP 225 5.4 0.97 0.00 0.00 0.03 0.07% 0.00% 0.00% 0.00%79 Colonial Properties Trust E CLP 2,015 4.0 0.31 0.19 0.00 0.50 0.28% 0.10% -0.05% 0.41%80 Cousins Properties Incorporated E CUZ 1,212 2.6 0.00 0.85 0.00 0.15 0.00% 0.51% -0.15% 0.08%81 Crescent Real Estate Equities Company E CEI 4,142 2.9 0.01 0.77 0.22 0.00 0.01% 1.31% 1.36% -0.11%82 First Union Real Estate Investments E FUR 186 1.5 0.00 1.00 0.00 0.00 0.00% 0.16% -0.05% -0.01%83 Income Opportunity Realty Investors IOT 92 2.6 0.53 0.21 0.00 0.26 0.03% 0.01% 0.00% 0.01%84 Lexington Corporate Properties, Inc. LXP 822 2.8 0.00 0.57 0.32 0.11 0.00% 0.18% 0.47% 0.04%85 One Liberty Properties, Inc. OLP 133 2.4 0.10 0.06 0.37 0.47 0.01% -0.01% 0.11% 0.04%86 Pennsylvania Real Estate Investment PEI 603 3.3 0.00 0.00 0.01 0.99 0.00% -0.02% 0.00% 0.29%87 Sizeler Property Investors, Inc. E SIZ 278 2.9 0.51 0.00 0.00 0.49 0.09% 0.00% 0.00% 0.08%88 Vornado Realty Trust E VNO 6,777 2.6 0.01 0.51 0.12 0.36 0.01% 1.54% 1.16% 1.41%89 Washington Real Estate Investment Trust E WRE 708 2.2 0.16 0.55 0.12 0.16 0.09% 0.22% 0.15% 0.07%90 Capital Automotive REIT E CARS 1,200 3.3 0.00 0.00 0.00 1.00 -0.01% -0.03% -0.01% 0.60%

Debt 61.23% 60.79% 56.35% 70.79%

WEIGHTTicker Asset TA/E

Fraction of Property Types

52

Page 53: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table P-7: Pure-play Portfolio for property types, 2003

2003 - Property Type

REITs APT Office Ind. Retail APT Office Ind. Retail1 Alexandria Real Estate Equities, Inc. ARE 1,159 2.4 0.00 1.00 0.00 0.00 -0.01% 0.59% -0.16% -0.03%2 AmeriVest Properties, Inc. AMV 157 3.6 0.00 1.00 0.00 0.00 0.00% 0.05% -0.01% 0.00%3 Arden Realty Group, Inc. ARI 2,832 2.3 0.00 1.00 0.00 0.00 -0.02% 1.52% -0.40% -0.08%4 Boston Properties, Inc. BXP 8,427 3.9 0.00 0.76 0.00 0.23 -0.04% 1.98% -0.50% 0.60%5 Brandywine Realty Trust BDN 1,919 2.8 0.00 0.98 0.02 0.00 -0.01% 0.81% -0.13% -0.04%6 Brookfield Property Corporation BPO 8,329 3.6 0.00 0.99 0.00 0.01 -0.03% 2.82% -0.74% -0.11%7 CarrAmerica Realty Corporation CRE 2,816 2.8 0.00 1.00 0.00 0.00 -0.01% 1.22% -0.32% -0.06%8 Corporate Office Properties Trust OFC 1,126 3.9 0.00 1.00 0.00 0.00 0.00% 0.35% -0.09% -0.02%9 Equity Office Properties Trust EOP 25,247 2.3 0.00 0.98 0.02 0.00 -0.14% 13.15% -2.24% -0.64%

10 Glenborough Realty Trust Incorporated GLB 1,434 2.3 0.02 0.92 0.05 0.00 0.02% 0.70% 0.00% -0.04%11 Highwoods Properties, Inc. HIW 3,395 2.2 0.01 0.88 0.07 0.04 0.00% 1.62% 0.18% 0.01%12 HRPT Properties Trust HRP 3,206 1.7 0.00 1.00 0.00 0.00 -0.02% 2.35% -0.62% -0.12%13 Koger Equity, Inc. KE 805 2.4 0.00 1.00 0.00 0.00 0.00% 0.42% -0.11% -0.02%14 Mack-Cali Realty Corporation CLI 3,796 2.6 0.00 1.00 0.00 0.00 -0.02% 1.76% -0.43% -0.09%15 Maxus Realty Trust Inc. MRTI 37 3.3 0.88 0.12 0.00 0.00 0.02% 0.00% 0.00% 0.00%16 Parkway Properties, Inc. PKY 764 2.0 0.00 1.00 0.00 0.00 0.00% 0.46% -0.12% -0.02%17 Prentiss Properties Trust PP 2,122 2.5 0.00 0.94 0.06 0.00 -0.01% 0.95% 0.04% -0.05%18 Prime Group Realty Trust PGE 1,409 5.7 0.00 0.85 0.15 0.00 0.00% 0.24% 0.14% -0.01%19 SL Green Realty Corp. SLG 1,473 2.0 0.00 1.00 0.00 0.00 -0.01% 0.90% -0.24% -0.05%20 Trizec Properties, Inc. TRZ 5,579 3.0 0.00 1.00 0.00 0.00 -0.02% 2.29% -0.60% -0.12%21 Bedford Property Investors, Inc. BED 694 2.5 0.00 0.60 0.40 0.00 0.00% 0.17% 0.55% -0.01%22 Duke Realty Corporation DRE 5,349 2.0 0.00 0.47 0.51 0.02 -0.01% 1.07% 6.95% -0.05%23 Kilroy Realty Corporation KRC 1,507 3.4 0.00 0.80 0.20 0.00 0.00% 0.40% 0.36% -0.02%24 Liberty Property Trust LRY 3,627 2.7 0.00 0.62 0.38 0.00 -0.01% 0.85% 2.57% -0.06%25 Mission West Properties MSW 929 8.4 0.00 1.00 0.00 0.00 0.00% 0.13% -0.03% -0.01%26 PS Business Parks Inc. PSB 1,157 1.7 0.00 0.89 0.11 0.00 -0.01% 0.69% 0.23% -0.04%27 Reckson Associates Realty Corp. RA 2,908 3.1 0.00 0.98 0.02 0.00 -0.01% 1.12% -0.20% -0.06%28 AMB Property Corp. AMB 4,992 3.0 0.00 0.00 0.99 0.01 0.00% -0.53% 9.07% 0.00%29 CenterPoint Properties Trust CNT 1,306 2.5 0.00 0.02 0.98 0.00 0.00% -0.15% 2.82% -0.01%30 EastGroup Properties, Inc. EGP 702 2.0 0.00 0.08 0.92 0.00 0.00% -0.07% 1.79% -0.01%31 First Industrial Realty Trust, Inc. FR 2,630 3.0 0.00 0.00 1.00 0.00 0.00% -0.28% 4.82% -0.02%32 Keystone Property Trust KTR 672 2.8 0.00 0.01 0.99 0.00 0.00% -0.07% 1.31% 0.00%33 Monmouth Real Estate Investment Corp. MNRTA 149 2.5 0.00 0.00 0.96 0.04 0.00% -0.02% 0.31% 0.00%34 ProLogis Trust PLD 5,924 2.1 0.00 0.00 1.00 0.00 0.01% -0.92% 15.78% -0.05%35 Acadia Realty Trust AKR 411 2.6 0.09 0.00 0.00 0.91 0.02% -0.01% 0.00% 0.20%36 Chelsea Property Group, Inc. CPG 1,703 3.7 0.00 0.00 0.00 1.00 -0.01% -0.03% -0.01% 0.64%37 Developers Diversified Realty DDR 2,777 2.9 0.00 0.02 0.01 0.97 -0.03% -0.04% 0.02% 1.29%38 Equity One, Inc. EQY 730 2.1 0.00 0.00 0.00 1.00 -0.01% -0.02% 0.00% 0.49%39 Federal Realty Investment Trust FRT 1,999 3.1 0.02 0.00 0.00 0.98 0.00% -0.04% -0.01% 0.89%40 Heritage Property Investment Trust HTG 2,060 2.3 0.00 0.03 0.00 0.97 -0.03% -0.03% -0.02% 1.20%41 Kimco Realty Corporation KIM 3,757 2.0 0.00 0.00 0.00 1.00 -0.06% -0.11% -0.03% 2.67%42 Kramont Realty Trust KRT 779 3.1 0.00 0.00 0.00 1.00 -0.01% -0.01% -0.01% 0.35%43 Malan Realty Investors, Inc. MAL 208 7.9 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.04%44 New Plan Excel Realty Trust, Inc. NXL 3,515 2.2 0.00 0.00 0.00 1.00 -0.05% -0.10% -0.03% 2.20%45 Pan Pacific Retail Properties, Inc. PNP 1,424 2.2 0.00 0.00 0.00 1.00 -0.02% -0.04% -0.01% 0.91%46 Ramco-Gershenson Properties Trust RPT 698 3.5 0.00 0.00 0.00 1.00 -0.01% -0.01% 0.00% 0.28%47 Regency Centers Corporation REG 3,062 2.5 0.00 0.00 0.00 1.00 -0.04% -0.08% -0.02% 1.71%48 Tanger Factory Outlet Centers, Inc. SKT 478 5.3 0.00 0.00 0.00 1.00 0.00% -0.01% 0.00% 0.13%49 Urstadt Biddle Properties Inc. UBA 393 1.8 0.00 0.08 0.04 0.89 -0.01% 0.01% 0.04% 0.27%50 Weingarten Realty Investors WRI 2,424 2.6 0.00 0.00 0.07 0.92 -0.03% -0.07% 0.36% 1.21%51 CBL & Associates Properties, Inc. CBL 3,795 5.1 0.00 0.00 0.00 1.00 -0.02% -0.04% -0.01% 1.04%52 General Growth Properties, Inc. GGP 7,281 4.8 0.00 0.01 0.00 0.99 -0.05% -0.08% -0.02% 2.13%53 Glimcher Realty Trust GRT 1,632 3.8 0.00 0.00 0.00 1.00 -0.01% -0.03% -0.01% 0.60%54 Macerich Company, The MAC 3,662 3.5 0.00 0.00 0.00 1.00 -0.03% -0.06% -0.02% 1.46%55 Mills Corporation, The MLS 2,155 3.5 0.00 0.00 0.00 1.00 -0.02% -0.04% -0.01% 0.87%56 Rouse Company, The RSE 6,386 5.7 0.00 0.16 0.00 0.84 -0.03% 0.16% -0.06% 1.30%57 Simon Property Group, Inc. SPG 14,905 4.3 0.00 0.01 0.00 0.99 -0.10% -0.19% -0.07% 4.83%58 Taubman Centers, Inc. TCO 2,270 6.1 0.00 0.00 0.00 1.00 -0.01% -0.02% -0.01% 0.52%59 Agree Realty Corporation ADC 178 3.4 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.07%60 Alexander's, Inc. ALX 665 9.7 0.00 0.00 0.00 1.00 0.00% 0.00% 0.00% 0.10%61 AmREIT Inc. AMY 74 1.9 0.00 0.01 0.00 0.99 0.00% 0.00% 0.00% 0.05%62 Commercial Net Lease Realty, Inc. NNN 954 1.7 0.00 0.12 0.00 0.88 -0.02% 0.05% -0.03% 0.67%63 Realty Income Corporation O 1,080 1.5 0.00 0.00 0.04 0.96 -0.02% -0.05% 0.13% 0.97%64 Manufactured Home Communities, Inc. MHC 1,163 6.6 0.00 0.00 0.00 1.00 -0.01% -0.01% 0.00% 0.25%65 Sun Communities, Inc. SUI 1,164 3.6 0.00 1.00 0.00 0.00 0.00% 0.39% -0.10% -0.02%66 Amli Residential Properties Trust AML 921 2.3 1.00 0.00 0.00 0.00 0.67% -0.01% 0.00% -0.01%67 Apartment Investment & Management AIV 10,317 3.3 1.00 0.00 0.00 0.00 5.33% -0.04% 0.01% -0.10%68 Archstone-Smith Trust ASN 8,855 2.3 1.00 0.00 0.00 0.00 6.48% -0.05% 0.01% -0.12%69 Associated Estates Realty Corporation AEC 735 4.9 1.00 0.00 0.00 0.00 0.25% 0.00% 0.00% 0.00%70 AvalonBay Communities Inc. AVB 4,951 2.3 1.00 0.00 0.00 0.00 3.70% -0.03% 0.01% -0.07%71 BNP Residential Properties, Inc. BNP 272 6.9 0.97 0.00 0.00 0.03 0.06% 0.00% 0.00% 0.00%72 BRE Properties, Inc. BRE 2,109 2.5 1.00 0.00 0.00 0.00 1.43% -0.01% 0.00% -0.03%73 Camden Property Trust CPT 2,610 3.1 1.00 0.00 0.00 0.00 1.41% -0.01% 0.00% -0.03%74 Cornerstone Realty Income Trust TCR 1,015 3.5 1.00 0.00 0.00 0.00 0.48% 0.00% 0.00% -0.01%75 Equity Residential EQR 11,811 2.3 1.00 0.00 0.00 0.00 8.76% -0.07% 0.02% -0.16%76 Essex Property Trust, Inc. ESS 1,620 3.3 1.00 0.00 0.00 0.00 0.82% 0.00% 0.00% -0.01%77 Gables Residential Trust GBP 1,584 3.7 1.00 0.00 0.00 0.00 0.71% -0.01% 0.00% -0.01%78 Home Properties, Inc. HME 2,456 3.4 1.00 0.00 0.00 0.00 1.22% -0.01% 0.00% -0.02%79 Mid-America Apartment Communities, MAA 1,239 3.7 1.00 0.00 0.00 0.00 0.57% 0.00% 0.00% -0.01%80 Post Properties, Inc. PPS 2,508 3.0 1.00 0.00 0.00 0.00 1.40% -0.01% 0.00% -0.03%81 Roberts Realty Investors, Inc. RPI 179 8.0 1.00 0.00 0.00 0.00 0.04% 0.00% 0.00% 0.00%82 Summit Properties Inc. SMT 1,337 3.4 1.00 0.00 0.00 0.00 0.67% -0.01% 0.00% -0.01%83 United Dominion Realty Trust, Inc. UDR 3,276 3.3 1.00 0.00 0.00 0.00 1.69% -0.01% 0.00% -0.03%84 Colonial Properties Trust E CLP 2,130 4.0 0.35 0.17 0.00 0.48 0.31% 0.09% -0.03% 0.35%85 Cousins Properties Incorporated E CUZ 1,248 3.1 0.00 0.84 0.00 0.16 -0.01% 0.41% -0.11% 0.07%86 Crescent Real Estate Equities Company E CEI 4,288 3.2 0.00 0.78 0.22 0.00 0.00% 1.19% 1.30% -0.07%87 First Union Real Estate Investments E FUR 172 1.6 0.00 1.00 0.00 0.00 0.00% 0.13% -0.03% -0.01%88 Forest City Enterprises FCE.A 5,077 7.2 0.50 0.19 0.00 0.31 0.59% 0.14% -0.04% 0.29%89 Lexington Corporate Properties, Inc. LXP 902 2.7 0.00 0.60 0.31 0.09 0.00% 0.21% 0.50% 0.03%90 One Liberty Properties, Inc. OLP 180 2.0 0.08 0.12 0.29 0.51 0.01% 0.00% 0.14% 0.06%91 Pennsylvania Real Estate Investment PEI 704 3.7 0.00 0.00 0.00 1.00 -0.01% -0.01% 0.00% 0.26%92 Sizeler Property Investors, Inc. E SIZ 288 2.8 0.38 0.00 0.00 0.62 0.06% 0.00% 0.00% 0.09%93 Vornado Realty Trust E VNO 9,018 3.4 0.02 0.57 0.09 0.32 -0.34% 0.00% 0.00% 0.01%94 Washington Real Estate Investment Trust E WRE 756 2.3 0.16 0.54 0.13 0.18 0.00% -0.24% 0.06% 0.01%95 Capital Automotive REIT E CARS 1,542 4.1 0.00 0.01 0.00 0.99 0.00% 0.06% -1.09% 0.00%96 Entertainment Properties Trust E EPR 730 2.1 0.00 0.00 0.00 1.00 0.01% 0.01% 0.00% -0.28%

Debt 64.61% 62.18% 59.23% 71.72%

Ticker ASSET($M)

TA/EFraction of Property Types Pure Play Weights (%)

53

Page 54: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-1: Pure-play Portfolio for geographic locations, 1997

1997-Location

REITs East West South Mwest East West South Mwest1 Arden Realty Group, Inc. ARI 551 1.7 0.00 1.00 0.00 0.00 -0.66% 4.94% -1.10% -0.51%2 Brandywine Realty Trust BDN 178 1.4 1.00 0.00 0.00 0.00 1.50% -0.26% -0.49% -0.44%3 CarrAmerica Realty Corporation CRE 1,537 2.0 0.23 0.52 0.17 0.08 0.62% 5.14% -0.16% -0.42%4 Corporate Office Properties Trust OFC 24 2.6 1.00 0.00 0.00 0.00 0.11% -0.02% -0.04% -0.03%5 Highwoods Properties, Inc. HIW 1,443 1.9 0.56 0.00 0.43 0.01 3.80% -1.97% 3.58% -2.53%6 Mack-Cali Realty Corporation CLI 1,026 1.5 0.94 0.04 0.02 0.00 7.59% -0.95% -2.39% -2.37%7 Parkway Properties, Inc. PKY 147 1.9 0.23 0.00 0.77 0.00 -0.02% -0.23% 0.90% -0.28%8 Prentiss Properties Trust PP 531 1.6 0.29 0.26 0.29 0.17 0.37% 0.66% 0.66% 0.36%9 Bedford Property Investors, Inc. BED 232 1.9 0.00 1.00 0.00 0.00 -0.25% 1.84% -0.41% -0.19%

10 Duke Realty Corporation DRE 1,361 1.8 0.05 0.00 0.09 0.86 -2.04% -1.30% -1.46% 13.17%11 Kilroy Realty Corporation KRC 128 1.1- 0.00 1.00 0.00 0.00 0.23% -1.69% 0.38% 0.18%12 Liberty Property Trust LRY 1,153 3.1 0.79 0.03 0.09 0.09 3.20% -0.62% -0.72% -0.47%13 PS Business Parks Inc. PSB 28 1.1 0.12 0.81 0.07 0.00 -0.01% 0.31% -0.06% -0.05%14 Reckson Associates Realty Corp. RA 544 2.9 1.00 0.00 0.00 0.00 2.18% -0.37% -0.72% -0.64%15 CenterPoint Properties Trust CNT 451 1.8 0.00 0.00 0.00 1.00 -0.86% -0.38% -0.90% 5.17%16 EastGroup Properties, Inc. EGP 281 1.9 0.00 0.42 0.58 0.00 -0.44% 0.63% 1.15% -0.40%17 First Industrial Realty Trust, Inc. FR 1,023 1.9 0.10 0.09 0.26 0.55 -1.06% -0.31% 0.82% 5.39%18 Monmouth Real Estate Investment Corp. MNRTA 33 2.0 0.77 0.00 0.04 0.19 0.13% -0.03% -0.05% 0.02%19 ProLogis Trust PLD 2,462 1.5 0.12 0.50 0.25 0.13 -1.63% 9.82% 2.30% 1.04%20 Acadia Realty Trust AKR 259 4.6 1.00 0.00 0.00 0.00 0.66% -0.11% -0.22% -0.20%21 Agree Realty Corporation ADC 121 5.0 0.07 0.01 0.09 0.82 -0.06% -0.04% -0.04% 0.40%22 Developers Diversified Realty DDR 975 2.1 0.32 0.10 0.20 0.38 0.71% -0.21% 0.09% 2.82%23 Federal Realty Investment Trust FRT 1,035 2.7 0.87 0.07 0.00 0.06 3.81% -0.29% -1.46% -0.76%24 Kimco Realty Corporation KIM 1,023 1.7 0.43 0.02 0.21 0.34 1.81% -1.04% 0.20% 2.95%25 KRANZCO REALTY TRUST KRT 119 1.6 0.00 0.00 1.00 0.00 -0.28% -0.24% 1.19% -0.27%26 Malan Realty Investors, Inc. MAL 218 6.2 0.00 0.00 0.00 1.00 -0.12% -0.05% -0.13% 0.73%27 New Plan Excel Realty Trust, Inc. NXL 945 1.4 0.44 0.15 0.22 0.19 2.16% 0.24% 0.47% 0.92%28 Ramco-Gershenson Properties Trust RPT 323 2.7 0.14 0.00 0.24 0.62 -0.17% -0.24% 0.13% 1.38%29 Regency Centers Corporation REG 387 1.9 0.07 0.00 0.83 0.11 -0.57% -0.63% 2.62% -0.21%30 Saul Centers, Inc. BFS 263 10.0- 0.92 0.00 0.08 0.00 -0.27% 0.06% 0.06% 0.09%31 Tanger Factory Outlet Centers, Inc. SKT 332 3.0 0.43 0.03 0.35 0.19 0.33% -0.21% 0.36% 0.13%32 Weingarten Realty Investors WRI 831 2.1 0.00 0.32 0.64 0.04 -1.30% 1.01% 3.66% -0.79%33 CBL & Associates Properties, Inc. CBL 1,026 3.8 0.34 0.05 0.51 0.10 0.43% -0.49% 1.76% -0.29%34 General Growth Properties, Inc. GGP 1,758 5.3 0.22 0.29 0.23 0.27 0.06% 0.87% 0.31% 1.17%35 Glimcher Realty Trust GRT 949 3.1 0.47 0.00 0.14 0.39 1.10% -0.61% -0.30% 1.82%36 Macerich Company, The MAC 1,188 5.0 0.13 0.70 0.09 0.08 -0.13% 2.33% -0.40% -0.04%37 Mills Corporation, The MLS 863 18.9 0.38 0.27 0.22 0.13 0.12% 0.11% 0.03% 0.01%38 Rouse Company, The RSE 3,643 20.6 0.56 0.16 0.20 0.08 0.93% 0.07% 0.05% -0.23%39 Simon Property Group, Inc. SPG 5,896 4.5 0.20 0.10 0.34 0.36 -0.57% -0.74% 3.95% 7.14%40 Taubman Centers, Inc. TCO 379 1.0 0.43 0.16 0.15 0.26 1.16% 0.23% -0.24% 1.16%41 Alexander's, Inc. ALX 212 38.0 1.00 0.00 0.00 0.00 0.06% -0.01% -0.02% -0.02%42 Commercial Net Lease Realty, Inc. NNN 371 1.5 0.23 0.18 0.46 0.13 0.02% 0.14% 1.38% -0.01%43 One Liberty Properties, Inc. OLP 53 1.7 0.18 0.07 0.51 0.24 -0.03% -0.04% 0.20% 0.07%44 Realty Income Corporation O 454 1.2 0.17 0.30 0.32 0.22 -0.21% 1.01% 0.99% 0.87%45 Manufactured Home Communities, Inc. MHC 568 2.2 0.00 1.00 0.00 0.00 -0.52% 3.84% -0.86% -0.40%46 Sun Communities, Inc. SUI 585 1.9 0.00 0.00 0.00 1.00 -1.04% -0.47% -1.10% 6.27%47 Amli Residential Properties Trust AML 504 2.1 0.00 0.00 0.53 0.47 -0.88% -0.60% 1.63% 1.93%48 Apartment Investment & Management AIV 835 3.7 0.12 0.71 0.13 0.05 -0.16% 2.18% -0.20% -0.22%49 Archstone-Smith Trust ASN 2,282 1.8 0.09 0.73 0.15 0.03 -1.41% 12.79% -0.51% -1.71%50 Associated Estates Realty Corporation AEC 418 2.6 0.04 0.00 0.04 0.93 -0.45% -0.26% -0.47% 3.00%51 AvalonBay Communities Inc. AVB 712 1.7 0.38 0.62 0.00 0.00 1.29% 3.52% -1.45% -0.93%52 BRE Properties, Inc. BRE 784 1.7 0.00 1.00 0.00 0.00 -0.93% 6.90% -1.54% -0.72%53 Camden Property Trust CPT 604 2.0 0.14 0.09 0.69 0.08 -0.43% -0.41% 2.96% -0.45%54 Equity Residential EQR 2,986 2.0 0.18 0.47 0.23 0.11 -0.14% 8.39% 1.49% 0.23%55 Essex Property Trust, Inc. ESS 417 1.9 0.00 1.00 0.00 0.00 -0.45% 3.31% -0.74% -0.35%56 Gables Residential Trust GBP 760 2.7 0.00 0.00 1.00 0.00 -1.08% -0.93% 4.53% -1.03%57 Home Properties, Inc. HME 249 3.0 0.77 0.00 0.00 0.23 0.68% -0.16% -0.31% 0.18%58 Mid-America Apartment Communities, MAA 611 2.5 0.20 0.00 0.79 0.01 -0.16% -0.73% 2.86% -0.82%59 Post Properties, Inc. PPS 959 2.4 0.09 0.03 0.88 0.00 -0.95% -1.05% 5.47% -1.42%60 Summit Properties Inc. SMT 635 2.5 0.70 0.00 0.30 0.00 1.80% -0.62% 0.57% -0.90%61 Tarragon Realty Investors, Inc. TARR 29 2.9 0.12 0.07 0.68 0.14 -0.02% -0.02% 0.10% 0.00%62 Town and Country Trust, The TCT 383 5.4 1.00 0.00 0.00 0.00 0.83% -0.14% -0.27% -0.24%63 United Dominion Realty Trust, Inc. UDR 1,967 2.3 0.60 0.01 0.39 0.00 4.67% -2.00% 3.36% -2.98%64 Forest City Enterprises FCE.A 4,418 6.7 0.51 0.15 0.03 0.31 2.99% 0.47% -2.09% 2.82%65 BODDIE NOELL PROPERTIES INC BNP 103 4.2 1.00 0.00 0.00 0.00 0.29% -0.05% -0.10% -0.09%66 Colonial Properties Trust E CLP 948 3.4 0.11 0.00 0.89 0.00 -0.60% -0.89% 3.89% -1.01%67 Cousins Properties Incorporated E CUZ 557 1.9 0.25 0.07 0.68 0.00 0.03% -0.50% 2.93% -1.03%68 Crescent Real Estate Equities Company E CEI 1,731 2.0 0.05 0.22 0.65 0.07 -2.22% 0.82% 7.98% -1.17%69 First Union Real Estate Investments E FUR 441 2.9 0.00 0.00 0.00 1.00 -0.53% -0.24% -0.56% 3.18%70 Glenborough Realty Trust Incorporated GLB 186 1.9 0.36 0.27 0.15 0.22 0.22% 0.23% -0.06% 0.24%71 Income Opportunity Realty Investors IOT 64 2.8 0.72 0.00 0.28 0.00 0.17% -0.05% 0.04% -0.08%72 Lexington Corporate Properties, Inc. LXP 309 3.3 0.30 0.37 0.23 0.09 0.14% 0.37% 0.10% -0.05%73 Pennsylvania Real Estate Investment PEI 178 3.8 0.99 0.00 0.01 0.00 0.54% -0.09% -0.17% -0.16%74 Sizeler Property Investors, Inc. E SIZ 278 3.1 0.00 0.00 1.00 0.00 -0.34% -0.30% 1.44% -0.33%75 Transcontinental Realty Investors, Inc TCI 245 3.1 0.18 0.10 0.62 0.10 -0.07% -0.09% 0.68% -0.07%76 Vornado Realty Trust E VNO 565 2.0 0.62 0.19 0.11 0.08 1.72% 0.28% -0.41% -0.34%77 Washington Real Estate Investment Trust E WRE 318 1.6 1.00 0.00 0.00 0.00 2.28% -0.39% -0.75% -0.68%

Debt 72.32% 50.62% 55.65% 63.48%

WEIGHTTicker Asset TA/E

Fraction of Locations

54

Page 55: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-2: Pure-play Portfolio for geographic locations, 1998

1998-Location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 248 1.5 0.56 0.44 0.00 0.00 0.51% 0.46% -0.34% -0.29%2 Arden Realty Group, Inc. ARI 1,284 1.9 0.00 1.00 0.00 0.00 -0.94% 5.48% -1.43% -0.94%3 Boston Properties, Inc. BXP 1,673 9.6 0.65 0.35 0.00 0.00 0.64% 0.35% -0.36% -0.32%4 Brandywine Realty Trust BDN 621 1.5 1.00 0.00 0.00 0.00 2.74% -0.60% -0.86% -0.87%5 CarrAmerica Realty Corporation CRE 2,744 1.8 0.23 0.52 0.19 0.06 0.38% 5.30% 0.24% -1.14%6 Corporate Office Properties Trust OFC 194 16.6 0.82 0.00 0.00 0.18 0.06% -0.02% -0.03% 0.01%7 Equity Office Properties Trust EOP 11,752 1.8 0.30 0.36 0.18 0.16 4.99% 12.03% 0.01% 5.44%8 Highwoods Properties, Inc. HIW 2,722 1.9 0.54 0.00 0.46 0.01 3.54% -2.42% 4.82% -3.17%9 HRPT Properties Trust HRP 2,136 1.7 1.00 0.00 0.00 0.00 8.16% -1.77% -2.56% -2.59%

10 Mack-Cali Realty Corporation CLI 2,593 2.2 0.83 0.08 0.08 0.01 5.83% -0.79% -1.24% -2.14%11 Parkway Properties, Inc. PKY 369 1.5 0.29 0.00 0.68 0.02 0.11% -0.46% 1.50% -0.52%12 Prentiss Properties Trust PP 1,240 1.8 0.29 0.26 0.25 0.20 0.41% 0.66% 0.54% 1.02%13 Prime Group Realty Trust PGE 741 3.3 0.00 0.07 0.07 0.86 -0.45% -0.17% -0.41% 2.97%14 SL Green Realty Corp. SLG 383 2.2 1.00 0.00 0.00 0.00 1.14% -0.25% -0.36% -0.36%15 Bedford Property Investors, Inc. BED 434 1.3 0.00 0.92 0.02 0.06 -0.50% 2.56% -0.68% -0.12%16 Duke Realty Corporation DRE 2,176 1.8 0.06 0.00 0.11 0.83 -1.91% -1.82% -1.57% 15.63%17 Kilroy Realty Corporation KRC 758 1.9 0.00 1.00 0.00 0.00 -0.56% 3.24% -0.84% -0.55%18 Liberty Property Trust LRY 2,094 2.2 0.80 0.02 0.09 0.08 4.56% -1.19% -0.95% -0.55%19 PS Business Parks Inc. PSB 29 1.1 0.15 0.71 0.14 0.00 -0.01% 0.14% -0.01% -0.05%20 Reckson Associates Realty Corp. RA 1,113 2.5 1.00 0.00 0.00 0.00 2.89% -0.63% -0.91% -0.92%21 AMB Property Corp. AMB 2,506 1.5 0.22 0.39 0.20 0.19 0.13% 3.56% 0.36% 2.49%22 CenterPoint Properties Trust CNT 699 1.8 0.00 0.00 0.00 1.00 -0.79% -0.54% -1.08% 6.14%23 EastGroup Properties, Inc. EGP 413 1.6 0.09 0.29 0.57 0.04 -0.27% 0.25% 1.23% -0.39%24 First Industrial Realty Trust, Inc. FR 2,272 2.7 0.23 0.07 0.21 0.48 -0.03% -0.72% 0.15% 5.51%25 Monmouth Real Estate Investment Corp. MNRTA 45 2.3 0.80 0.00 0.03 0.17 0.09% -0.03% -0.03% 0.02%26 Acadia Realty Trust AKR 255 5.2 0.85 0.00 0.15 0.00 0.25% -0.07% -0.01% -0.11%27 Agree Realty Corporation ADC 130 2.4 0.07 0.01 0.15 0.76 -0.08% -0.08% -0.04% 0.63%28 Developers Diversified Realty DDR 1,392 2.1 0.35 0.11 0.22 0.32 0.66% -0.31% 0.23% 2.40%29 Federal Realty Investment Trust FRT 1,317 2.4 0.81 0.09 0.04 0.06 2.71% -0.32% -0.89% -0.50%30 Kimco Realty Corporation KIM 1,344 1.8 0.42 0.03 0.21 0.33 1.16% -0.93% 0.21% 2.79%31 Malan Realty Investors, Inc. MAL 216 6.4 0.02 0.02 0.00 0.96 -0.06% -0.04% -0.09% 0.52%32 New Plan Excel Realty Trust, Inc. NXL 1,261 1.7 0.41 0.10 0.29 0.20 1.11% -0.49% 0.99% 1.02%33 Pan Pacific Retail Properties, Inc. PNP 487 1.6 0.02 0.97 0.01 0.00 -0.38% 2.36% -0.60% -0.43%34 Ramco-Gershenson Properties Trust RPT 485 3.8 0.17 0.00 0.26 0.57 -0.08% -0.20% 0.08% 1.03%35 Regency Centers Corporation REG 827 1.6 0.06 0.12 0.76 0.06 -0.74% -0.43% 3.61% -0.73%36 Saul Centers, Inc. BFS 261 6.9- 0.92 0.00 0.08 0.00 -0.22% 0.06% 0.04% 0.08%37 Tanger Factory Outlet Centers, Inc. SKT 416 3.4 0.41 0.07 0.35 0.16 0.19% -0.11% 0.25% 0.08%38 Weingarten Realty Investors WRI 947 2.4 0.00 0.29 0.67 0.03 -0.72% 0.35% 2.33% -0.68%39 CBL & Associates Properties, Inc. CBL 1,245 3.8 0.39 0.04 0.48 0.09 0.43% -0.44% 1.21% -0.27%40 General Growth Properties, Inc. GGP 2,098 4.2 0.21 0.37 0.19 0.23 0.00% 1.02% 0.00% 1.06%41 Glimcher Realty Trust GRT 1,164 2.3 0.48 0.02 0.13 0.36 1.04% -0.64% -0.36% 2.17%42 Macerich Company, The MAC 1,505 7.0 0.12 0.74 0.08 0.06 -0.13% 1.21% -0.25% -0.10%43 Mills Corporation, The MLS 927 9.4 0.38 0.23 0.22 0.17 0.13% 0.07% 0.04% 0.09%44 Rouse Company, The RSE 3,590 7.7 0.56 0.19 0.17 0.09 1.31% 0.13% -0.05% -0.24%45 Simon Property Group, Inc. SPG 7,663 4.9 0.23 0.11 0.32 0.33 -0.03% -0.84% 2.44% 5.88%46 Taubman Centers, Inc. TCO 557 1.0 0.31 0.25 0.09 0.35 0.41% 0.51% -0.66% 2.32%47 Alexander's, Inc. ALX 235 18.0 1.00 0.00 0.00 0.00 0.08% -0.02% -0.03% -0.03%48 Commercial Net Lease Realty, Inc. NNN 537 1.5 0.23 0.17 0.49 0.11 0.02% -0.05% 1.35% -0.12%49 One Liberty Properties, Inc. OLP 58 1.8 0.22 0.06 0.40 0.31 0.00% -0.04% 0.08% 0.10%50 Realty Income Corporation O 577 1.3 0.15 0.33 0.31 0.21 -0.22% 0.67% 0.63% 0.71%51 Manufactured Home Communities, Inc. MHC 864 3.1 0.00 1.00 0.00 0.00 -0.39% 2.29% -0.60% -0.39%52 Sun Communities, Inc. SUI 691 2.1 0.00 0.00 0.00 1.00 -0.67% -0.45% -0.91% 5.17%53 Amli Residential Properties Trust AML 680 2.5 0.00 0.00 0.63 0.37 -0.55% -0.50% 1.42% 1.10%54 Apartment Investment & Management AIV 2,101 2.0 0.12 0.67 0.17 0.05 -0.66% 5.11% -0.13% -0.94%55 Archstone-Smith Trust ASN 2,806 1.8 0.09 0.62 0.28 0.02 -1.39% 6.63% 1.84% -2.30%56 Associated Estates Realty Corporation AEC 554 3.1 0.02 0.00 0.03 0.95 -0.33% -0.26% -0.44% 2.70%57 AvalonBay Communities Inc. AVB 1,318 1.7 0.32 0.65 0.00 0.02 0.90% 3.82% -1.67% -0.94%58 BRE Properties, Inc. BRE 1,342 1.9 0.00 1.00 0.00 0.00 -0.99% 5.77% -1.50% -0.98%59 Camden Property Trust CPT 1,324 1.9 0.12 0.10 0.68 0.09 -0.66% -0.64% 4.33% -0.62%60 Cornerstone Realty Income Trust TCR 474 1.5 0.85 0.00 0.15 0.00 1.63% -0.48% -0.07% -0.68%61 Equity Residential EQR 7,095 1.9 0.17 0.43 0.26 0.13 -1.10% 9.40% 3.62% 1.49%62 Essex Property Trust, Inc. ESS 739 1.9 0.00 1.00 0.00 0.00 -0.56% 3.25% -0.85% -0.56%63 Gables Residential Trust GBP 981 2.2 0.00 0.00 1.00 0.00 -0.91% -0.96% 4.49% -1.26%64 Home Properties, Inc. HME 544 3.6 0.77 0.00 0.00 0.23 0.68% -0.21% -0.33% 0.31%65 Mid-America Apartment Communities, MAA 1,194 2.6 0.17 0.01 0.80 0.02 -0.25% -0.87% 3.47% -1.06%66 Post Properties, Inc. PPS 1,781 2.4 0.05 0.05 0.90 0.00 -1.16% -1.19% 6.59% -2.02%67 Roberts Realty Investors, Inc. RPI 118 4.4 0.00 0.00 1.00 0.00 -0.05% -0.06% 0.27% -0.07%68 Summit Properties Inc. SMT 825 3.1 0.56 0.00 0.33 0.11 0.73% -0.43% 0.48% -0.08%69 Tarragon Realty Investors, Inc. TARR 37 3.8 0.08 0.19 0.61 0.12 -0.01% 0.00% 0.05% 0.00%70 Town and Country Trust, The TCT 366 7.3 1.00 0.00 0.00 0.00 0.32% -0.07% -0.10% -0.10%71 United Dominion Realty Trust, Inc. UDR 2,314 2.2 0.58 0.01 0.41 0.00 3.04% -1.64% 3.03% -2.47%72 Forest City Enterprises FCE.A 2,963 10.5 0.44 0.18 0.03 0.36 0.50% 0.07% -0.55% 1.25%73 BODDIE NOELL PROPERTIES INC BNP 166 3.0 1.00 0.00 0.00 0.00 0.36% -0.08% -0.11% -0.11%74 Colonial Properties Trust E CLP 1,397 2.8 0.10 0.00 0.90 0.00 -0.59% -1.01% 4.32% -1.33%75 Cousins Properties Incorporated E CUZ 618 1.7 0.29 0.08 0.63 0.00 0.17% -0.40% 2.06% -0.91%76 Crescent Real Estate Equities Company E CEI 4,180 1.9 0.04 0.23 0.63 0.09 -3.29% 0.79% 11.92% -1.52%77 First Union Real Estate Investments E FUR 820 3.1 0.25 0.24 0.27 0.24 0.05% 0.18% 0.28% 0.60%78 Glenborough Realty Trust Incorporated GLB 866 1.5 0.21 0.44 0.17 0.17 0.04% 1.58% -0.11% 0.71%79 Income Opportunity Realty Investors IOT 90 3.6 0.06 0.43 0.40 0.12 -0.03% 0.06% 0.07% 0.00%80 Lexington Corporate Properties, Inc. LXP 467 2.3 0.27 0.44 0.21 0.08 0.11% 0.55% 0.09% -0.12%81 Pennsylvania Real Estate Investment PEI 166 4.1 0.77 0.00 0.19 0.04 0.18% -0.06% 0.01% -0.06%82 Sizeler Property Investors, Inc. E SIZ 276 3.3 0.00 0.00 1.00 0.00 -0.17% -0.18% 0.84% -0.24%83 Transcontinental Realty Investors, Inc TCI 319 3.7 0.15 0.14 0.64 0.08 -0.06% -0.05% 0.48% -0.09%84 Vornado Realty Trust E VNO 2,524 1.9 0.60 0.20 0.12 0.08 4.24% 0.60% -0.92% -0.85%85 Washington Real Estate Investment Trust E WRE 469 1.9 1.00 0.00 0.00 0.00 1.63% -0.35% -0.51% -0.51%

Debt 61.66% 45.80% 53.43% 64.88%

Ticker Asset TA/EFraction of Locations WEIGHT

55

Page 56: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-3: Pure-play Portfolio for geographic locations, 1999

1999-Location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 530 2.7 0.61 0.38 0.01 0.00 0.44% 0.31% -0.28% -0.29%2 Arden Realty Group, Inc. ARI 2,332 1.7 0.00 1.00 0.00 0.00 -1.73% 8.42% -2.53% -1.37%3 Boston Properties, Inc. BXP 5,235 5.5 0.67 0.33 0.00 0.00 2.41% 1.09% -1.34% -1.41%4 Brandywine Realty Trust BDN 1,912 2.6 0.99 0.00 0.00 0.01 3.23% -0.94% -0.91% -1.20%5 CarrAmerica Realty Corporation CRE 3,793 2.1 0.19 0.56 0.19 0.06 -0.35% 5.02% 0.10% -1.23%6 Corporate Office Properties Trust OFC 564 3.3 0.95 0.00 0.00 0.05 0.69% -0.21% -0.22% -0.15%7 Equity Office Properties Trust EOP 14,261 2.0 0.30 0.39 0.17 0.14 2.85% 10.86% -1.36% 3.73%8 Highwoods Properties, Inc. HIW 4,314 2.3 0.44 0.00 0.44 0.11 2.31% -2.82% 4.79% -0.96%9 HRPT Properties Trust HRP 3,064 1.7 0.95 0.03 0.02 0.00 7.45% -1.94% -1.83% -3.17%

10 Mack-Cali Realty Corporation CLI 3,452 2.4 0.79 0.13 0.08 0.01 4.54% -0.52% -0.90% -2.26%11 Parkway Properties, Inc. PKY 592 1.8 0.38 0.00 0.61 0.01 0.30% -0.53% 1.37% -0.77%12 Prentiss Properties Trust PP 1,871 2.2 0.28 0.26 0.26 0.20 0.19% 0.50% 0.51% 1.11%13 Prime Group Realty Trust PGE 1,165 3.3 0.00 0.03 0.03 0.93 -0.59% -0.28% -0.95% 4.65%14 SL Green Realty Corp. SLG 778 1.5 1.00 0.00 0.00 0.00 2.25% -0.65% -0.62% -0.88%15 Bedford Property Investors, Inc. BED 598 1.7 0.00 0.93 0.02 0.05 -0.45% 1.96% -0.60% -0.12%16 Duke Realty Corporation DRE 2,854 1.8 0.08 0.00 0.25 0.67 -1.74% -1.94% -0.33% 13.57%17 Kilroy Realty Corporation KRC 1,106 2.3 0.00 1.00 0.00 0.00 -0.60% 2.92% -0.88% -0.47%18 Liberty Property Trust LRY 2,933 2.3 0.74 0.02 0.13 0.12 3.62% -1.46% -0.41% 0.00%19 Mission West Properties MSW 520 15.6 0.00 1.00 0.00 0.00 -0.04% 0.20% -0.06% -0.03%20 PS Business Parks Inc. PSB 709 1.4 0.21 0.58 0.20 0.00 -0.02% 1.44% 0.09% -0.74%21 Reckson Associates Realty Corp. RA 1,855 2.6 0.87 0.10 0.03 0.00 2.56% -0.36% -0.72% -1.19%22 AMB Property Corp. AMB 3,563 2.0 0.20 0.39 0.24 0.16 -0.31% 2.75% 0.64% 1.52%23 CenterPoint Properties Trust CNT 818 2.0 0.00 0.00 0.00 1.00 -0.69% -0.41% -1.27% 5.83%24 EastGroup Properties, Inc. EGP 568 1.8 0.06 0.33 0.57 0.04 -0.28% 0.27% 1.14% -0.52%25 First Industrial Realty Trust, Inc. FR 2,554 2.4 0.25 0.10 0.22 0.43 -0.03% -0.60% -0.14% 5.29%26 Monmouth Real Estate Investment Corp. MNRTA 56 2.0 0.68 0.00 0.07 0.25 0.07% -0.03% -0.03% 0.06%27 ProLogis Trust PLD 4,331 1.9 0.11 0.52 0.26 0.11 -1.53% 5.51% 1.27% 0.27%28 Acadia Realty Trust AKR 529 3.4 0.81 0.00 0.09 0.10 0.51% -0.20% -0.09% -0.04%29 Agree Realty Corporation ADC 150 2.8 0.07 0.01 0.14 0.79 -0.07% -0.06% -0.08% 0.57%30 Developers Diversified Realty DDR 2,127 2.4 0.31 0.14 0.18 0.37 0.27% -0.19% -0.33% 3.67%31 Equity One, Inc. EQY 153 1.9 0.12 0.08 0.73 0.06 -0.05% -0.09% 0.42% -0.14%32 Federal Realty Investment Trust FRT 1,484 2.8 0.80 0.10 0.04 0.06 1.71% -0.29% -0.54% -0.40%33 Kimco Realty Corporation KIM 3,051 1.9 0.37 0.10 0.20 0.33 1.07% -0.85% -0.20% 5.40%34 Kramont Realty Trust KRT 225 2.8 0.96 0.00 0.04 0.00 0.33% -0.10% -0.07% -0.14%35 Malan Realty Investors, Inc. MAL 257 5.0 0.01 0.02 0.00 0.97 -0.08% -0.04% -0.16% 0.71%36 New Plan Excel Realty Trust, Inc. NXL 1,385 1.8 0.40 0.09 0.29 0.22 0.71% -0.52% 0.68% 1.09%37 Pan Pacific Retail Properties, Inc. PNP 706 1.8 0.01 0.98 0.01 0.00 -0.46% 2.29% -0.68% -0.39%38 Ramco-Gershenson Properties Trust RPT 544 3.7 0.16 0.00 0.25 0.59 -0.09% -0.18% -0.02% 1.10%39 Regency Centers Corporation REG 1,240 2.3 0.09 0.32 0.49 0.09 -0.41% 0.48% 1.53% -0.36%40 Saul Centers, Inc. BFS 271 7.3- 0.92 0.00 0.08 0.00 -0.15% 0.05% 0.02% 0.07%41 Tanger Factory Outlet Centers, Inc. SKT 472 4.1 0.39 0.06 0.40 0.15 0.10% -0.11% 0.23% 0.02%42 Weingarten Realty Investors WRI 1,107 2.1 0.00 0.25 0.72 0.04 -0.66% 0.08% 2.65% -1.03%43 CBL & Associates Properties, Inc. CBL 1,855 4.5 0.37 0.03 0.47 0.13 0.32% -0.53% 1.13% -0.10%44 General Growth Properties, Inc. GGP 4,027 4.4 0.20 0.36 0.22 0.23 -0.23% 1.20% 0.08% 1.78%45 Glimcher Realty Trust GRT 1,558 3.2 0.41 0.12 0.15 0.31 0.44% -0.17% -0.24% 1.52%46 Macerich Company, The MAC 2,322 4.0 0.12 0.60 0.09 0.20 -0.40% 1.82% -0.68% 1.03%47 Mills Corporation, The MLS 970 12.3 0.33 0.28 0.24 0.15 0.04% 0.06% 0.04% 0.04%48 Rouse Company, The RSE 5,155 8.2 0.57 0.22 0.13 0.08 1.21% 0.20% -0.22% -0.28%49 Simon Property Group, Inc. SPG 13,277 3.9 0.33 0.11 0.27 0.28 1.74% -1.88% 2.13% 8.71%50 Taubman Centers, Inc. TCO 1,481 2.8 0.33 0.22 0.12 0.32 0.24% 0.21% -0.46% 1.81%51 Alexander's, Inc. ALX 317 45.5 1.00 0.00 0.00 0.00 0.03% -0.01% -0.01% -0.01%52 Commercial Net Lease Realty, Inc. NNN 686 1.8 0.24 0.17 0.46 0.12 0.03% -0.08% 1.00% -0.13%53 One Liberty Properties, Inc. OLP 83 1.6 0.35 0.04 0.32 0.28 0.03% -0.06% 0.06% 0.13%54 Realty Income Corporation O 759 1.7 0.23 0.25 0.29 0.23 -0.03% 0.23% 0.37% 0.76%55 Manufactured Home Communities, Inc. MHC 1,177 3.8 0.00 1.00 0.00 0.00 -0.39% 1.90% -0.57% -0.31%56 Sun Communities, Inc. SUI 821 2.4 0.00 0.00 0.00 1.00 -0.59% -0.34% -1.06% 4.89%57 Amli Residential Properties Trust AML 786 2.3 0.00 0.00 0.61 0.39 -0.48% -0.52% 1.20% 1.27%58 Apartment Investment & Management AIV 4,268 2.2 0.19 0.44 0.27 0.09 -0.40% 3.60% 1.48% -0.60%59 Archstone-Smith Trust ASN 5,060 1.9 0.17 0.48 0.32 0.03 -0.71% 5.45% 3.50% -3.70%60 Associated Estates Realty Corporation AEC 841 3.2 0.09 0.04 0.11 0.77 -0.29% -0.22% -0.46% 2.75%61 AvalonBay Communities Inc. AVB 4,030 1.7 0.54 0.38 0.00 0.08 4.03% 3.71% -3.76% -0.30%62 BRE Properties, Inc. BRE 1,631 2.1 0.00 1.00 0.00 0.00 -0.97% 4.69% -1.41% -0.76%63 Camden Property Trust CPT 2,348 2.0 0.08 0.36 0.50 0.06 -0.96% 1.31% 3.38% -1.30%64 Cornerstone Realty Income Trust TCR 552 1.6 0.61 0.00 0.39 0.00 0.74% -0.51% 0.79% -0.77%65 Equity Residential EQR 10,700 2.0 0.19 0.29 0.34 0.18 -1.24% 3.90% 6.73% 4.97%66 Essex Property Trust, Inc. ESS 932 2.4 0.00 1.00 0.00 0.00 -0.49% 2.39% -0.72% -0.39%67 Gables Residential Trust GBP 1,586 2.8 0.00 0.00 1.00 0.00 -0.68% -1.03% 4.34% -1.75%68 Home Properties, Inc. HME 1,012 2.8 0.81 0.00 0.00 0.19 1.16% -0.44% -0.57% 0.49%69 Mid-America Apartment Communities, MAA 1,366 2.6 0.17 0.01 0.80 0.02 -0.14% -0.86% 3.08% -1.34%70 Post Properties, Inc. PPS 2,067 2.0 0.08 0.05 0.87 0.00 -0.80% -1.49% 6.91% -3.06%71 Roberts Realty Investors, Inc. RPI 125 4.7 0.00 0.00 1.00 0.00 -0.03% -0.05% 0.21% -0.08%72 Summit Properties Inc. SMT 1,199 3.3 0.51 0.00 0.40 0.09 0.56% -0.53% 0.80% -0.30%73 Tarragon Realty Investors, Inc. TARR 357 4.7 0.21 0.18 0.53 0.07 0.00% -0.02% 0.25% -0.09%74 Town and Country Trust, The TCT 432 13.7 0.91 0.00 0.09 0.00 0.12% -0.04% -0.01% -0.06%75 United Dominion Realty Trust, Inc. UDR 3,755 2.7 0.39 0.16 0.37 0.08 1.26% -0.33% 2.54% -1.21%76 BNP Residential Properties, Inc. BNP 221 3.9 1.00 0.00 0.00 0.00 0.25% -0.07% -0.07% -0.10%77 Colonial Properties Trust E CLP 1,755 2.9 0.10 0.00 0.90 0.00 -0.40% -1.09% 4.18% -1.82%78 Cousins Properties Incorporated E CUZ 753 2.0 0.20 0.16 0.65 0.00 -0.05% -0.18% 1.71% -0.96%79 Crescent Real Estate Equities Company E CEI 5,043 2.1 0.06 0.21 0.66 0.08 -2.28% -0.27% 10.74% -3.08%80 First Union Real Estate Investments E FUR 787 5.2 0.25 0.22 0.28 0.25 0.01% 0.04% 0.10% 0.31%81 Glenborough Realty Trust Incorporated GLB 1,879 2.3 0.27 0.25 0.32 0.16 0.16% 0.38% 1.02% 0.43%82 Income Opportunity Realty Investors IOT 89 3.8 0.04 0.41 0.44 0.10 -0.02% 0.04% 0.05% -0.01%83 Lexington Corporate Properties, Inc. LXP 647 3.2 0.39 0.32 0.17 0.13 0.18% 0.21% -0.03% 0.06%84 Pennsylvania Real Estate Investment PEI 482 3.5 0.83 0.00 0.14 0.03 0.47% -0.18% -0.01% -0.19%85 Sizeler Property Investors, Inc. E SIZ 286 3.8 0.00 0.00 1.00 0.00 -0.09% -0.14% 0.59% -0.24%86 Transcontinental Realty Investors, Inc TCI 382 4.2 0.13 0.14 0.67 0.07 -0.05% -0.06% 0.42% -0.13%87 Vornado Realty Trust E VNO 4,426 2.5 0.66 0.16 0.09 0.10 4.33% -0.25% -1.24% -0.36%88 Washington Real Estate Investment Trust E WRE 559 2.2 1.00 0.00 0.00 0.00 1.11% -0.32% -0.31% -0.44%

Debt 65.98% 51.49% 55.14% 63.55%

WEIGHTTicker Asset TA/E

Fraction of Locations

56

Page 57: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-4: Pure-play Portfolio for geographic locations, 2000

2000-Location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 643 2.4 0.60 0.39 0.00 0.00 0.46% 0.26% -0.26% -0.29%2 AmeriVest Properties, Inc. AMV 30 4.8 0.00 0.64 0.21 0.15 -0.01% 0.02% 0.00% 0.00%3 Arden Realty Group, Inc. ARI 2,570 1.9 0.00 1.00 0.00 0.00 -1.78% 6.22% -1.56% -0.93%4 Boston Properties, Inc. BXP 5,435 4.7 0.68 0.32 0.00 0.00 2.48% 0.66% -1.17% -1.32%5 Brandywine Realty Trust BDN 1,830 2.3 0.99 0.00 0.00 0.01 2.95% -1.02% -0.76% -1.02%6 Brookfield Property Corporation BPO 8,111 4.2 0.40 0.56 0.00 0.04 1.43% 3.83% -2.18% -0.87%7 CarrAmerica Realty Corporation CRE 3,479 2.1 0.18 0.58 0.19 0.05 -0.54% 3.65% 0.45% -0.93%8 Corporate Office Properties Trust OFC 721 3.8 0.96 0.00 0.00 0.04 0.69% -0.24% -0.20% -0.16%9 Equity Office Properties Trust EOP 14,046 2.1 0.23 0.58 0.10 0.09 -0.56% 14.67% -3.05% 0.20%

10 Glenborough Realty Trust Incorporated GLB 1,795 2.3 0.28 0.27 0.31 0.14 0.17% 0.34% 0.89% 0.14%11 Highwoods Properties, Inc. HIW 4,016 2.1 0.44 0.00 0.45 0.12 2.02% -2.18% 4.27% -0.84%12 HRPT Properties Trust HRP 2,953 1.9 0.92 0.06 0.02 0.00 5.10% -1.41% -1.22% -2.05%13 Mack-Cali Realty Corporation CLI 3,630 2.5 0.82 0.11 0.06 0.01 4.13% -0.91% -0.72% -1.83%14 Parkway Properties, Inc. PKY 649 2.0 0.32 0.00 0.57 0.11 0.16% -0.36% 1.02% -0.20%15 Prentiss Properties Trust PP 1,995 2.4 0.31 0.27 0.24 0.18 0.27% 0.35% 0.45% 0.73%16 Prime Group Realty Trust PGE 1,444 3.9 0.00 0.03 0.03 0.94 -0.50% -0.19% -0.89% 4.06%17 SL Green Realty Corp. SLG 1,071 2.1 1.00 0.00 0.00 0.00 1.94% -0.67% -0.49% -0.70%18 Bedford Property Investors, Inc. BED 671 2.2 0.00 0.94 0.02 0.04 -0.39% 1.26% -0.32% -0.06%19 Duke Realty Corporation DRE 5,486 2.1 0.07 0.00 0.26 0.67 -2.34% -2.24% -0.37% 18.71%20 Kilroy Realty Corporation KRC 1,321 2.8 0.00 1.00 0.00 0.00 -0.61% 2.14% -0.54% -0.32%21 Liberty Property Trust LRY 3,118 2.4 0.75 0.02 0.12 0.11 3.29% -1.41% -0.32% -0.07%22 Mission West Properties MSW 713 7.1 0.00 1.00 0.00 0.00 -0.13% 0.46% -0.11% -0.07%23 PS Business Parks Inc. PSB 904 1.6 0.28 0.57 0.15 0.00 0.10% 1.13% 0.03% -0.63%24 Reckson Associates Realty Corp. RA 2,724 2.4 0.89 0.09 0.02 0.00 3.59% -0.87% -0.89% -1.48%25 AMB Property Corp. AMB 3,622 2.0 0.20 0.43 0.23 0.14 -0.43% 2.48% 0.82% 0.94%26 CenterPoint Properties Trust CNT 1,083 2.3 0.00 0.00 0.00 1.00 -0.63% -0.32% -1.25% 5.43%27 EastGroup Properties, Inc. EGP 632 1.7 0.06 0.33 0.57 0.04 -0.29% 0.28% 1.20% -0.51%28 First Industrial Realty Trust, Inc. FR 2,527 2.4 0.27 0.10 0.25 0.39 0.11% -0.46% 0.24% 3.67%29 Keystone Property Trust KTR 875 4.7 0.84 0.06 0.00 0.10 0.55% -0.17% -0.21% -0.01%30 Monmouth Real Estate Investment Corp. MNRTA 79 2.2 0.57 0.00 0.05 0.38 0.06% -0.04% -0.05% 0.13%31 ProLogis Trust PLD 5,848 2.0 0.11 0.52 0.27 0.11 -1.96% 5.38% 2.33% 0.21%32 Acadia Realty Trust AKR 571 3.7 0.81 0.00 0.09 0.10 0.43% -0.19% -0.06% -0.03%33 Agree Realty Corporation ADC 158 3.0 0.06 0.01 0.14 0.78 -0.05% -0.04% -0.06% 0.45%34 Developers Diversified Realty DDR 2,321 2.7 0.28 0.20 0.19 0.32 0.15% 0.10% -0.07% 2.32%35 Equity One, Inc. EQY 212 2.3 0.05 0.07 0.85 0.03 -0.07% -0.07% 0.50% -0.19%36 Federal Realty Investment Trust FRT 1,534 3.1 0.78 0.11 0.05 0.06 1.34% -0.30% -0.37% -0.28%37 Kimco Realty Corporation KIM 3,007 1.9 0.36 0.13 0.22 0.29 0.90% -0.49% 0.28% 3.65%38 Malan Realty Investors, Inc. MAL 253 5.4 0.01 0.02 0.00 0.97 -0.06% -0.03% -0.12% 0.53%39 New Plan Excel Realty Trust, Inc. NXL 2,953 1.8 0.40 0.11 0.28 0.21 1.30% -0.77% 1.31% 1.73%40 Pan Pacific Retail Properties, Inc. PNP 785 2.1 0.01 0.99 0.00 0.00 -0.48% 1.70% -0.42% -0.26%41 Ramco-Gershenson Properties Trust RPT 551 3.8 0.14 0.00 0.24 0.62 -0.07% -0.13% -0.03% 0.91%42 Saul Centers, Inc. BFS 300 9.4- 0.91 0.00 0.09 0.00 -0.11% 0.04% 0.01% 0.05%43 Tanger Factory Outlet Centers, Inc. SKT 490 4.5 0.39 0.05 0.42 0.14 0.09% -0.09% 0.21% 0.00%44 Weingarten Realty Investors WRI 1,309 2.0 0.00 0.30 0.67 0.03 -0.68% 0.36% 2.61% -1.03%45 CBL & Associates Properties, Inc. CBL 2,019 4.8 0.38 0.02 0.37 0.24 0.30% -0.41% 0.60% 0.53%46 General Growth Properties, Inc. GGP 4,955 3.9 0.17 0.38 0.23 0.22 -0.46% 1.38% 0.49% 1.78%47 Glimcher Realty Trust GRT 1,586 3.5 0.36 0.14 0.15 0.35 0.26% -0.12% -0.19% 1.41%48 Macerich Company, The MAC 2,404 3.9 0.10 0.62 0.10 0.18 -0.48% 1.52% -0.40% 0.80%49 Mills Corporation, The MLS 1,039 17.3 0.32 0.27 0.27 0.14 0.02% 0.02% 0.05% 0.02%50 Rouse Company, The RSE 4,427 6.9 0.57 0.20 0.15 0.08 1.05% -0.02% 0.01% -0.27%51 Simon Property Group, Inc. SPG 14,223 4.4 0.32 0.13 0.29 0.27 1.26% -1.12% 2.40% 6.11%52 Taubman Centers, Inc. TCO 1,597 3.3 0.30 0.24 0.15 0.31 0.13% 0.15% -0.18% 1.27%53 Alexander's, Inc. ALX 366 29.3 1.00 0.00 0.00 0.00 0.05% -0.02% -0.01% -0.02%54 Commercial Net Lease Realty, Inc. NNN 750 1.9 0.20 0.20 0.46 0.14 -0.06% 0.00% 0.90% 0.01%55 One Liberty Properties, Inc. OLP 86 1.7 0.51 0.02 0.29 0.18 0.07% -0.05% 0.05% 0.03%56 Realty Income Corporation O 905 1.7 0.21 0.27 0.31 0.22 -0.08% 0.23% 0.54% 0.66%57 Manufactured Home Communities, Inc. MHC 1,160 5.5 0.00 1.00 0.00 0.00 -0.27% 0.96% -0.24% -0.14%58 Sun Communities, Inc. SUI 911 2.7 0.00 0.00 0.00 1.00 -0.46% -0.23% -0.91% 3.95%59 Amli Residential Properties Trust AML 805 2.3 0.00 0.02 0.62 0.36 -0.39% -0.30% 1.12% 0.91%60 Apartment Investment & Management AIV 5,685 2.5 0.22 0.41 0.24 0.13 -0.21% 2.77% 1.25% 0.62%61 Archstone-Smith Trust ASN 5,302 2.1 0.26 0.42 0.27 0.05 0.34% 3.10% 2.33% -1.90%62 Associated Estates Realty Corporation AEC 883 3.7 0.10 0.04 0.13 0.73 -0.18% -0.15% -0.30% 1.92%63 AvalonBay Communities Inc. AVB 4,155 1.8 0.57 0.37 0.00 0.06 3.81% 2.05% -2.66% -0.77%64 BRE Properties, Inc. BRE 1,709 2.1 0.00 1.00 0.00 0.00 -1.07% 3.73% -0.94% -0.56%65 Camden Property Trust CPT 2,488 2.4 0.08 0.38 0.47 0.06 -0.73% 1.06% 2.51% -0.91%66 Cornerstone Realty Income Trust TCR 869 1.5 0.67 0.00 0.33 0.00 1.28% -0.71% 0.89% -1.03%67 Equity Residential EQR 11,716 2.1 0.26 0.29 0.29 0.15 0.73% 3.03% 5.32% 2.26%68 Essex Property Trust, Inc. ESS 1,062 2.7 0.00 1.00 0.00 0.00 -0.50% 1.75% -0.44% -0.26%69 Gables Residential Trust GBP 1,471 2.9 0.00 0.00 1.00 0.00 -0.48% -0.58% 3.40% -1.37%70 Home Properties, Inc. HME 1,504 3.0 0.86 0.00 0.00 0.14 1.51% -0.60% -0.60% 0.25%71 Mid-America Apartment Communities, MAA 1,299 2.8 0.18 0.01 0.80 0.02 -0.06% -0.51% 2.37% -1.02%72 Post Properties, Inc. PPS 2,350 2.2 0.09 0.05 0.85 0.00 -0.55% -0.91% 5.88% -2.60%73 Roberts Realty Investors, Inc. RPI 127 5.7 0.00 0.00 1.00 0.00 -0.02% -0.03% 0.15% -0.06%74 Summit Properties Inc. SMT 1,217 3.7 0.54 0.00 0.38 0.08 0.50% -0.39% 0.60% -0.26%75 Town and Country Trust, The TCT 481 21.8 0.91 0.00 0.09 0.00 0.07% -0.03% -0.01% -0.03%76 United Dominion Realty Trust, Inc. UDR 3,688 2.8 0.40 0.17 0.35 0.08 1.11% -0.23% 1.99% -0.88%77 Colonial Properties Trust E CLP 1,864 3.8 0.09 0.00 0.91 0.00 -0.25% -0.57% 2.95% -1.27%78 Cousins Properties Incorporated E CUZ 933 2.1 0.18 0.17 0.65 0.00 -0.07% -0.09% 1.75% -0.92%79 Crescent Real Estate Equities Company E CEI 4,951 2.4 0.06 0.21 0.66 0.07 -1.61% 0.17% 8.01% -2.29%80 First Union Real Estate Investments E FUR 461 2.7 0.23 0.23 0.31 0.23 -0.01% 0.04% 0.16% 0.24%81 Forest City Enterprises FCE.A 3,814 9.9 0.49 0.17 0.03 0.30 0.46% -0.03% -0.50% 1.04%82 Glenborough Realty Trust Incorporated GLB 1,795 2.3 0.28 0.27 0.31 0.14 0.17% 0.34% 0.89% 0.14%83 Income Opportunity Realty Investors IOT 91 3.8 0.04 0.36 0.52 0.08 -0.02% 0.02% 0.07% -0.02%84 Lexington Corporate Properties, Inc. LXP 656 3.2 0.37 0.29 0.18 0.16 0.13% 0.11% 0.02% 0.13%85 One Liberty Properties, Inc. OLP 86 1.7 0.51 0.02 0.29 0.18 0.07% -0.05% 0.05% 0.03%86 Pennsylvania Real Estate Investment PEI 548 4.1 0.84 0.00 0.13 0.03 0.40% -0.17% -0.01% -0.15%87 Sizeler Property Investors, Inc. E SIZ 286 4.0 0.00 0.00 1.00 0.00 -0.07% -0.08% 0.47% -0.19%88 St. Joe Company JOE 1,822 1.9 0.05 0.00 0.95 0.00 -0.65% -1.08% 5.90% -2.46%89 Transcontinental Realty Investors, Inc TCI 714 4.0 0.13 0.15 0.64 0.08 -0.08% -0.05% 0.67% -0.19%90 Vornado Realty Trust E VNO 5,479 2.7 0.66 0.17 0.08 0.09 4.23% -0.50% -1.02% -0.41%91 Washington Real Estate Investment Trust E WRE 608 2.4 1.00 0.97%92 Capital Automotive REIT E 0.25 0.16 0.44 0.16 0.04% -0.07% 0.62% 0.06%

Debt 67.82% 56.22% 55.30% 68.39%

Ticker Asset TA/EFraction of Locations WEIGHT

57

Page 58: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-5: Pure-play Portfolio for geographic locations, 2001

2001-Location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 781 2.4 0.60 0.39 0.00 0.00 0.52% 0.28% -0.30% -0.33%2 AmeriVest Properties, Inc. AMV 42 3.7 0.00 0.64 0.21 0.15 -0.01% 0.02% 0.00% 0.01%3 Arden Realty Group, Inc. ARI 2,706 2.0 0.00 1.00 0.00 0.00 -1.48% 5.25% -1.53% -0.94%4 Boston Properties, Inc. BXP 6,226 3.6 0.68 0.32 0.00 0.00 3.46% 0.87% -1.68% -1.88%5 Brandywine Realty Trust BDN 1,825 2.4 0.99 0.00 0.00 0.01 2.58% -0.83% -0.67% -0.90%6 Brookfield Property Corporation BPO 8,624 4.1 0.40 0.56 0.00 0.04 1.49% 3.53% -2.28% -0.88%7 CarrAmerica Realty Corporation CRE 3,073 1.9 0.18 0.58 0.19 0.05 -0.41% 3.00% 0.49% -0.92%8 Corporate Office Properties Trust OFC 795 4.1 0.96 0.00 0.00 0.04 0.63% -0.21% -0.18% -0.15%9 Equity Office Properties Trust EOP 18,794 2.3 0.23 0.58 0.10 0.09 -0.22% 14.69% -3.41% 0.16%

10 Glenborough Realty Trust Incorporated GLB 1,371 2.1 0.28 0.27 0.31 0.14 0.15% 0.21% 0.79% 0.10%11 Highwoods Properties, Inc. HIW 3,702 2.1 0.44 0.00 0.45 0.12 1.73% -1.90% 4.17% -0.80%12 HRPT Properties Trust HRP 2,900 1.9 0.92 0.06 0.02 0.00 4.67% -1.20% -1.12% -1.92%13 Mack-Cali Realty Corporation CLI 3,677 2.5 0.82 0.11 0.06 0.01 3.80% -0.78% -0.63% -1.74%14 Maxus Realty Trust Inc. MRTI 17 1.7 0.00 0.00 0.35 0.65 -0.01% -0.01% 0.01% 0.07%15 Parkway Properties, Inc. PKY 655 2.0 0.32 0.00 0.57 0.11 0.14% -0.35% 1.06% -0.21%16 Prentiss Properties Trust PP 2,118 2.6 0.31 0.27 0.24 0.18 0.25% 0.25% 0.46% 0.69%17 Prime Group Realty Trust PGE 1,439 4.0 0.00 0.03 0.03 0.94 -0.45% -0.20% -0.88% 3.86%18 SL Green Realty Corp. SLG 1,161 2.1 1.00 0.00 0.00 0.00 1.94% -0.62% -0.50% -0.71%19 Bedford Property Investors, Inc. BED 634 2.1 0.00 0.94 0.02 0.04 -0.33% 1.08% -0.31% -0.07%20 Duke Realty Corporation DRE 5,460 2.0 0.07 0.00 0.26 0.67 -2.22% -2.26% -0.39% 18.62%21 Kilroy Realty Corporation KRC 1,457 3.3 0.00 1.00 0.00 0.00 -0.48% 1.71% -0.50% -0.31%22 Liberty Property Trust LRY 3,396 2.6 0.75 0.02 0.12 0.11 3.05% -1.26% -0.25% -0.01%23 Mission West Properties MSW 827 8.1 0.00 1.00 0.00 0.00 -0.11% 0.40% -0.12% -0.07%24 PS Business Parks Inc. PSB 931 1.6 0.28 0.57 0.15 0.00 0.12% 0.97% 0.05% -0.63%25 Reckson Associates Realty Corp. RA 2,998 2.7 0.89 0.09 0.02 0.00 3.27% -0.73% -0.81% -1.38%26 AMB Property Corp. AMB 4,426 2.5 0.20 0.43 0.23 0.14 -0.32% 1.97% 0.84% 0.86%27 CenterPoint Properties Trust CNT 1,155 2.2 0.00 0.00 0.00 1.00 -0.66% -0.37% -1.46% 6.10%28 EastGroup Properties, Inc. EGP 666 1.8 0.06 0.33 0.57 0.04 -0.26% 0.21% 1.25% -0.54%29 First Industrial Realty Trust, Inc. FR 2,618 2.5 0.27 0.10 0.25 0.39 0.10% -0.48% 0.27% 3.59%30 Keystone Property Trust KTR 963 5.8 0.84 0.06 0.00 0.10 0.45% -0.13% -0.18% 0.00%31 Monmouth Real Estate Investment Corp. MNRTA 86 2.1 0.57 0.00 0.05 0.38 0.06% -0.04% -0.05% 0.14%32 ProLogis Trust PLD 5,946 2.0 0.11 0.52 0.27 0.11 -1.66% 4.42% 2.40% 0.11%33 Acadia Realty Trust AKR 524 2.9 0.81 0.00 0.09 0.10 0.46% -0.19% -0.06% -0.03%34 Agree Realty Corporation ADC 166 3.2 0.06 0.01 0.14 0.78 -0.05% -0.04% -0.06% 0.44%35 Chelsea Property Group, Inc. CPG 901 3.3 0.34 0.42 0.15 0.09 0.12% 0.28% -0.01% -0.01%36 Developers Diversified Realty DDR 2,332 3.0 0.28 0.20 0.19 0.32 0.14% 0.03% -0.05% 2.09%37 Equity One, Inc. EQY 239 2.3 0.05 0.07 0.85 0.03 -0.07% -0.08% 0.58% -0.22%38 Federal Realty Investment Trust FRT 1,621 3.5 0.78 0.11 0.05 0.06 1.14% -0.24% -0.31% -0.23%39 Kimco Realty Corporation KIM 3,171 1.9 0.36 0.13 0.22 0.29 0.87% -0.55% 0.35% 3.81%40 Kramont Realty Trust KRT 764 3.4 0.84 0.00 0.14 0.02 0.61% -0.25% 0.03% -0.27%41 Malan Realty Investors, Inc. MAL 244 6.2 0.01 0.02 0.00 0.97 -0.05% -0.02% -0.10% 0.43%42 New Plan Excel Realty Trust, Inc. NXL 2,894 1.9 0.40 0.11 0.28 0.21 1.14% -0.73% 1.33% 1.64%43 Pan Pacific Retail Properties, Inc. PNP 1,298 2.1 0.01 0.99 0.00 0.00 -0.64% 2.32% -0.66% -0.43%44 Ramco-Gershenson Properties Trust RPT 560 4.0 0.14 0.00 0.24 0.62 -0.07% -0.12% -0.03% 0.86%45 Regency Centers Corporation REG 3,035 2.5 0.08 0.39 0.44 0.09 -0.80% 1.05% 2.74% -0.66%46 Saul Centers, Inc. BFS 334 10.7- 0.91 0.00 0.09 0.00 -0.09% 0.03% 0.01% 0.04%47 Tanger Factory Outlet Centers, Inc. SKT 487 5.4 0.39 0.05 0.42 0.14 0.07% -0.07% 0.19% 0.00%48 Weingarten Realty Investors WRI 1,518 2.4 0.00 0.30 0.67 0.03 -0.60% 0.23% 2.58% -1.04%49 CBL & Associates Properties, Inc. CBL 2,116 4.9 0.38 0.02 0.37 0.24 0.28% -0.40% 0.64% 0.53%50 General Growth Properties, Inc. GGP 5,284 4.1 0.17 0.38 0.23 0.22 -0.39% 1.12% 0.52% 1.73%51 Glimcher Realty Trust GRT 1,590 3.7 0.36 0.14 0.15 0.35 0.22% -0.12% -0.17% 1.31%52 Macerich Company, The MAC 2,337 3.8 0.10 0.62 0.10 0.18 -0.40% 1.26% -0.39% 0.76%53 Mills Corporation, The MLS 1,126 23.5 0.32 0.27 0.27 0.14 0.02% 0.01% 0.04% 0.01%54 Rouse Company, The RSE 4,176 6.6 0.57 0.20 0.15 0.08 0.95% -0.03% 0.04% -0.24%55 Simon Property Group, Inc. SPG 13,938 4.5 0.32 0.13 0.29 0.27 1.09% -1.11% 2.37% 5.62%56 Taubman Centers, Inc. TCO 1,908 3.9 0.30 0.24 0.15 0.31 0.13% 0.10% -0.18% 1.27%57 Alexander's, Inc. ALX 403 22.8 1.00 0.00 0.00 0.00 0.06% -0.02% -0.02% -0.02%58 Commercial Net Lease Realty, Inc. NNN 762 1.9 0.20 0.20 0.46 0.14 -0.05% -0.03% 0.93% 0.00%59 Realty Income Corporation O 935 1.8 0.21 0.27 0.31 0.22 -0.07% 0.16% 0.54% 0.61%60 Manufactured Home Communities, Inc. MHC 1,104 6.6 0.00 1.00 0.00 0.00 -0.18% 0.65% -0.19% -0.12%61 Sun Communities, Inc. SUI 967 2.9 0.00 0.00 0.00 1.00 -0.42% -0.23% -0.92% 3.85%62 Amli Residential Properties Trust AML 866 2.2 0.00 0.02 0.62 0.36 -0.41% -0.35% 1.27% 0.98%63 Apartment Investment & Management AIV 7,700 3.1 0.22 0.41 0.24 0.13 -0.14% 2.51% 1.47% 0.63%64 Archstone-Smith Trust ASN 5,020 2.2 0.26 0.42 0.27 0.05 0.34% 2.23% 2.14% -1.68%65 Associated Estates Realty Corporation AEC 820 4.2 0.10 0.04 0.13 0.73 -0.14% -0.12% -0.25% 1.56%66 AvalonBay Communities Inc. AVB 4,397 1.8 0.57 0.37 0.00 0.06 3.65% 1.82% -2.64% -0.70%67 BRE Properties, Inc. BRE 1,718 2.1 0.00 1.00 0.00 0.00 -0.88% 3.10% -0.90% -0.55%68 Camden Property Trust CPT 2,431 2.5 0.08 0.38 0.47 0.06 -0.61% 0.79% 2.45% -0.91%69 Cornerstone Realty Income Trust TCR 800 1.5 0.67 0.00 0.33 0.00 1.06% -0.58% 0.85% -0.91%70 Equity Residential EQR 12,264 2.2 0.26 0.29 0.29 0.15 0.78% 2.33% 5.66% 2.17%71 Essex Property Trust, Inc. ESS 1,282 3.3 0.00 1.00 0.00 0.00 -0.43% 1.52% -0.44% -0.27%72 Gables Residential Trust GBP 1,453 3.0 0.00 0.00 1.00 0.00 -0.42% -0.55% 3.27% -1.32%73 Home Properties, Inc. HME 1,872 3.0 0.86 0.00 0.00 0.14 1.71% -0.64% -0.71% 0.35%74 Mid-America Apartment Communities, MAA 1,304 3.0 0.18 0.01 0.80 0.02 -0.05% -0.47% 2.26% -0.97%75 Post Properties, Inc. PPS 2,551 2.5 0.09 0.05 0.85 0.00 -0.49% -0.89% 5.81% -2.57%76 Roberts Realty Investors, Inc. RPI 132 6.1 0.00 0.00 1.00 0.00 -0.02% -0.02% 0.15% -0.06%77 Summit Properties Inc. SMT 1,340 4.0 0.54 0.00 0.38 0.08 0.47% -0.36% 0.65% -0.27%78 Town and Country Trust, The TCT 499 24.9 0.91 0.00 0.09 0.00 0.06% -0.02% 0.00% -0.03%79 United Dominion Realty Trust, Inc. UDR 3,454 2.8 0.40 0.17 0.35 0.08 0.95% -0.26% 1.93% -0.82%80 BNP Residential Properties, Inc. BNP 231 5.2 1.00 0.00 0.00 0.00 0.15% -0.05% -0.04% -0.06%81 Catellus Development Corp. CDX 2,276 3.3 0.02 0.73 0.10 0.15 -0.68% 1.77% -0.38% 0.59%82 Colonial Properties Trust E CLP 1,944 4.3 0.09 0.00 0.91 0.00 -0.22% -0.51% 2.75% -1.18%83 Cousins Properties Incorporated E CUZ 1,116 2.5 0.18 0.17 0.65 0.00 -0.06% -0.13% 1.85% -0.97%84 Crescent Real Estate Equities Company E CEI 4,532 2.6 0.06 0.21 0.66 0.07 -1.22% -0.07% 6.85% -2.01%85 First Union Real Estate Investments E FUR 463 3.8 0.23 0.23 0.31 0.23 0.00% 0.02% 0.12% 0.16%86 Forest City Enterprises FCE.A 4,030 8.8 0.49 0.17 0.03 0.30 0.50% -0.05% -0.58% 1.22%87 Income Opportunity Realty Investors IOT 97 2.4 0.04 0.36 0.52 0.08 -0.03% 0.03% 0.11% -0.03%88 Lexington Corporate Properties, Inc. LXP 668 3.3 0.37 0.29 0.18 0.16 0.12% 0.08% 0.02% 0.13%89 One Liberty Properties, Inc. OLP 128 2.4 0.51 0.02 0.29 0.18 0.07% -0.05% 0.05% 0.03%90 Pennsylvania Real Estate Investment PEI 577 4.0 0.84 0.00 0.13 0.03 0.40% -0.16% 0.00% -0.15%91 Sizeler Property Investors, Inc. E SIZ 285 4.3 0.00 0.00 1.00 0.00 -0.06% -0.08% 0.45% -0.18%92 St. Joe Company JOE 1,115 2.0 0.05 0.00 0.95 0.00 -0.37% -0.64% 3.62% -1.51%93 Vornado Realty Trust E VNO 6,370 3.1 0.66 0.17 0.08 0.09 3.92% -0.46% -0.92% -0.33%94 Washington Real Estate Investment Trust E WRE 632 2.4 1.00 0.00 0.00 0.00 0.89% -0.28% -0.23% -0.33%95 Capital Automotive REIT E CARS 1,022 3.5 0.25 0.16 0.44 0.16 0.03% -0.08% 0.62% 0.05%

Debt 67.90% 60.09% 58.48% 68.27%

WEIGHTTicker Asset TA/E

Fraction of Locations

58

Page 59: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-6: Pure-play Portfolio for geographic locations, 2002

2002-Location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 962 2.9 0.55 0.45 0.00 0.00 0.42% 0.33% -0.30% -0.29%2 AmeriVest Properties, Inc. AMV 88 3.5 0.00 0.58 0.34 0.08 -0.03% 0.04% 0.04% -0.01%3 Arden Realty Group, Inc. ARI 2,761 2.1 0.00 1.00 0.00 0.00 -1.47% 4.85% -1.41% -0.96%4 Boston Properties, Inc. BXP 7,254 3.9 0.67 0.33 0.00 0.00 3.30% 0.82% -1.70% -1.67%5 Brandywine Realty Trust BDN 1,960 2.8 1.00 0.00 0.00 0.00 2.25% -0.78% -0.60% -0.70%6 Brookfield Property Corporation BPO 8,076 3.7 0.43 0.54 0.00 0.04 1.58% 3.17% -2.28% -0.78%7 CarrAmerica Realty Corporation CRE 2,776 2.4 0.22 0.58 0.14 0.06 -0.15% 1.98% -0.01% -0.43%8 Corporate Office Properties Trust OFC 984 3.7 1.00 0.00 0.00 0.00 0.84% -0.29% -0.23% -0.26%9 Equity Office Properties Trust EOP 25,808 2.3 0.25 0.55 0.10 0.09 0.22% 17.61% -4.04% 1.09%

10 Glenborough Realty Trust Incorporated GLB 1,388 2.1 0.43 0.33 0.07 0.17 0.49% 0.35% -0.46% 0.69%11 Highwoods Properties, Inc. HIW 3,648 2.3 0.51 0.00 0.39 0.10 1.93% -1.68% 3.16% -0.85%12 HRPT Properties Trust HRP 2,805 1.7 0.92 0.08 0.00 0.00 4.70% -1.23% -1.39% -1.62%13 Mack-Cali Realty Corporation CLI 3,747 2.6 0.90 0.08 0.02 0.00 3.94% -1.02% -1.03% -1.44%14 Maxus Realty Trust Inc. MRTI 38 3.1 0.00 0.00 0.43 0.57 -0.01% -0.01% 0.02% 0.07%15 Parkway Properties, Inc. PKY 841 2.2 0.28 0.06 0.56 0.10 0.09% -0.27% 1.21% -0.28%16 Prentiss Properties Trust PP 2,031 2.5 0.32 0.25 0.27 0.15 0.31% 0.14% 0.70% 0.40%17 Prime Group Realty Trust PGE 1,522 4.7 0.00 0.05 0.00 0.95 -0.32% -0.16% -0.91% 3.57%18 SL Green Realty Corp. SLG 1,372 1.9 1.00 0.00 0.00 0.00 2.30% -0.80% -0.62% -0.72%19 Bedford Property Investors, Inc. BED 636 2.3 0.00 1.00 0.00 0.00 -0.31% 1.02% -0.30% -0.20%20 Duke Realty Corporation DRE 5,330 1.9 0.10 0.00 0.25 0.65 -1.51% -2.34% -0.67% 18.70%21 Kilroy Realty Corporation KRC 1,457 3.3 0.00 1.00 0.00 0.00 -0.49% 1.60% -0.46% -0.32%22 Liberty Property Trust LRY 3,553 2.5 0.73 0.02 0.13 0.12 2.93% -1.35% -0.17% 0.46%23 Mission West Properties MSW 910 8.4 0.00 1.00 0.00 0.00 -0.12% 0.39% -0.11% -0.08%24 PS Business Parks Inc. PSB 1,170 2.0 0.29 0.59 0.12 0.00 0.11% 1.01% -0.03% -0.64%25 Reckson Associates Realty Corp. RA 2,994 2.9 0.98 0.00 0.02 0.00 3.26% -1.15% -0.76% -1.07%26 AMB Property Corp. AMB 4,761 2.7 0.20 0.46 0.20 0.14 -0.28% 1.96% 0.52% 0.94%27 CenterPoint Properties Trust CNT 1,183 2.3 0.00 0.00 0.00 1.00 -0.51% -0.37% -1.51% 6.00%28 EastGroup Properties, Inc. EGP 684 1.8 0.00 0.42 0.57 0.01 -0.36% 0.33% 1.27% -0.67%29 First Industrial Realty Trust, Inc. FR 2,621 2.6 0.20 0.14 0.28 0.38 -0.14% -0.28% 0.47% 3.36%30 Keystone Property Trust KTR 828 3.1 0.85 0.00 0.00 0.15 0.67% -0.27% -0.31% 0.25%31 Monmouth Real Estate Investment Corp. MNRTA 119 2.4 0.50 0.08 0.07 0.36 0.05% -0.03% -0.06% 0.17%32 ProLogis Trust PLD 5,604 2.1 0.10 0.53 0.26 0.10 -1.54% 3.88% 2.27% -0.09%33 Acadia Realty Trust AKR 494 2.8 0.79 0.00 0.00 0.21 0.42% -0.18% -0.23% 0.29%34 Agree Realty Corporation ADC 168 3.2 0.06 0.01 0.10 0.83 -0.04% -0.04% -0.09% 0.48%35 Chelsea Property Group, Inc. CPG 1,099 3.1 0.31 0.38 0.14 0.17 0.10% 0.27% -0.06% 0.33%36 Developers Diversified Realty DDR 2,497 3.0 0.24 0.20 0.21 0.34 0.02% -0.01% 0.03% 2.52%37 Equity One, Inc. EQY 669 2.4 0.00 0.03 0.97 0.00 -0.24% -0.25% 1.84% -0.80%38 Federal Realty Investment Trust FRT 1,838 3.1 0.83 0.11 0.01 0.06 1.44% -0.33% -0.54% -0.16%39 Kimco Realty Corporation KIM 3,385 1.8 0.32 0.23 0.21 0.24 0.63% 0.17% 0.47% 3.20%40 Kramont Realty Trust KRT 769 3.5 0.83 0.00 0.16 0.02 0.54% -0.24% 0.07% -0.24%41 Malan Realty Investors, Inc. MAL 225 11.3 0.00 0.00 0.00 1.00 -0.02% -0.01% -0.06% 0.23%42 New Plan Excel Realty Trust, Inc. NXL 2,623 1.8 0.30 0.13 0.40 0.17 0.45% -0.63% 2.81% 0.65%43 Pan Pacific Retail Properties, Inc. PNP 1,340 2.2 0.01 0.99 0.00 0.00 -0.66% 2.22% -0.63% -0.45%44 Ramco-Gershenson Properties Trust RPT 553 4.1 0.11 0.00 0.27 0.62 -0.06% -0.11% -0.01% 0.84%45 Regency Centers Corporation REG 3,109 2.6 0.09 0.37 0.44 0.09 -0.73% 0.89% 2.78% -0.67%46 Tanger Factory Outlet Centers, Inc. SKT 476 6.2 0.34 0.03 0.43 0.20 0.04% -0.07% 0.16% 0.05%47 Weingarten Realty Investors WRI 2,096 2.3 0.04 0.30 0.63 0.03 -0.71% 0.33% 3.59% -1.62%48 CBL & Associates Properties, Inc. CBL 3,373 6.5 0.35 0.02 0.39 0.23 0.28% -0.47% 0.89% 0.63%49 General Growth Properties, Inc. GGP 5,647 3.7 0.14 0.44 0.23 0.18 -0.64% 1.64% 0.70% 1.53%50 Glimcher Realty Trust GRT 1,759 4.4 0.30 0.17 0.18 0.35 0.10% -0.06% -0.10% 1.26%51 Macerich Company, The MAC 2,295 3.8 0.07 0.71 0.08 0.14 -0.44% 1.37% -0.39% 0.47%52 Mills Corporation, The MLS 1,329 7.7 0.31 0.27 0.27 0.16 0.05% 0.04% 0.14% 0.09%53 Rouse Company, The RSE 4,880 7.4 0.47 0.17 0.21 0.15 0.65% -0.15% 0.26% 0.38%54 Simon Property Group, Inc. SPG 13,811 4.3 0.30 0.12 0.32 0.26 0.91% -1.34% 3.48% 5.41%55 Taubman Centers, Inc. TCO 2,141 5.0 0.34 0.20 0.24 0.21 0.19% -0.02% 0.23% 0.55%56 Alexander's, Inc. ALX 583 12.9 1.00 0.00 0.00 0.00 0.14% -0.05% -0.04% -0.04%57 Commercial Net Lease Realty, Inc. NNN 1,007 1.8 0.18 0.21 0.49 0.12 -0.10% -0.03% 1.47% -0.17%58 Realty Income Corporation O 1,004 1.5 0.21 0.24 0.34 0.21 -0.07% 0.09% 0.87% 0.71%59 Manufactured Home Communities, Inc. MHC 1,100 6.3 0.00 1.00 0.00 0.00 -0.19% 0.64% -0.18% -0.13%60 Sun Communities, Inc. SUI 994 3.0 0.00 0.00 0.00 1.00 -0.33% -0.24% -0.97% 3.85%61 Amli Residential Properties Trust AML 919 2.2 0.00 0.05 0.54 0.41 -0.39% -0.29% 1.05% 1.33%62 Apartment Investment & Management AIV 8,323 3.1 0.24 0.45 0.16 0.15 -0.02% 2.99% -0.04% 1.82%63 Archstone-Smith Trust ASN 8,550 2.2 0.33 0.46 0.16 0.06 1.30% 4.14% 0.54% -1.59%64 Associated Estates Realty Corporation AEC 775 4.5 0.10 0.01 0.16 0.74 -0.10% -0.13% -0.20% 1.38%65 AvalonBay Communities Inc. AVB 4,664 2.0 0.60 0.37 0.00 0.02 3.43% 1.54% -2.27% -1.34%66 BRE Properties, Inc. BRE 1,876 2.4 0.00 1.00 0.00 0.00 -0.87% 2.85% -0.83% -0.56%67 Camden Property Trust CPT 2,450 2.7 0.08 0.40 0.46 0.05 -0.57% 0.78% 2.30% -1.02%68 Cornerstone Realty Income Trust TCR 981 2.9 0.67 0.00 0.33 0.00 0.62% -0.36% 0.56% -0.54%69 Equity Residential EQR 12,236 2.3 0.27 0.31 0.27 0.15 0.80% 2.32% 4.74% 2.33%70 Essex Property Trust, Inc. ESS 1,329 3.4 0.00 0.99 0.01 0.00 -0.43% 1.39% -0.38% -0.28%71 Gables Residential Trust GBP 1,589 3.1 0.00 0.00 1.00 0.00 -0.42% -0.54% 3.46% -1.48%72 Home Properties, Inc. HME 2,064 3.1 0.87 0.00 0.00 0.13 1.76% -0.70% -0.75% 0.44%73 Mid-America Apartment Communities, MAA 1,263 3.2 0.20 0.00 0.79 0.01 -0.02% -0.42% 2.08% -0.96%74 Post Properties, Inc. PPS 2,538 2.8 0.17 0.03 0.80 0.00 -0.15% -0.85% 4.81% -2.29%75 Roberts Realty Investors, Inc. RPI 166 6.5 0.00 0.00 1.00 0.00 -0.02% -0.03% 0.17% -0.07%76 Summit Properties Inc. SMT 1,296 3.7 0.63 0.00 0.37 0.00 0.60% -0.38% 0.69% -0.59%77 United Dominion Realty Trust, Inc. UDR 3,348 3.2 0.38 0.22 0.30 0.09 0.66% 0.01% 1.28% -0.36%78 BNP Residential Properties, Inc. BNP 225 5.4 1.00 0.00 0.00 0.00 0.13% -0.05% -0.04% -0.04%79 Colonial Properties Trust E CLP 2,015 4.0 0.09 0.00 0.91 0.00 -0.25% -0.54% 3.13% -1.40%80 Cousins Properties Incorporated E CUZ 1,212 2.6 0.20 0.12 0.68 0.00 -0.04% -0.23% 2.03% -1.06%81 Crescent Real Estate Equities Company E CEI 4,142 2.9 0.04 0.22 0.68 0.05 -1.04% 0.01% 5.97% -2.22%82 First Union Real Estate Investments E FUR 186 1.5 0.00 0.00 0.00 1.00 -0.12% -0.09% -0.36% 1.43%83 Income Opportunity Realty Investors IOT 92 2.6 0.12 0.00 0.88 0.00 -0.01% -0.04% 0.21% -0.10%84 Lexington Corporate Properties, Inc. LXP 822 2.8 0.42 0.22 0.16 0.19 0.23% 0.01% -0.01% 0.35%85 One Liberty Properties, Inc. OLP 133 2.4 0.45 0.03 0.41 0.11 0.05% -0.05% 0.11% -0.02%86 Pennsylvania Real Estate Investment PEI 603 3.3 0.99 0.00 0.01 0.00 0.57% -0.20% -0.14% -0.18%87 Sizeler Property Investors, Inc. E SIZ 278 2.9 0.00 0.00 1.00 0.00 -0.08% -0.10% 0.65% -0.28%88 Vornado Realty Trust E VNO 6,777 2.6 0.67 0.16 0.08 0.09 4.61% -0.81% -1.18% 0.19%89 Washington Real Estate Investment Trust E WRE 708 2.2 1.00 0.00 0.00 0.00 1.03% -0.36% -0.28% -0.32%90 Capital Automotive REIT E CARS 1,200 3.3 0.20 0.19 0.45 0.16 -0.04% -0.05% 0.83% 0.07%

Debt 64.89% 59.30% 65.06% 65.53%

Ticker Asset TA/EFraction of Locations WEIGHT

59

Page 60: REIT-Based Pure-Play Portfolios...A REIT-based pure-play portfolio is defined as an optimal combination of long and short positions in publicly traded REITs, such that the portfolio

Table G-7: Pure-play Portfolio for geographic locations, 2003

2003 - location

REITs East West South Mwest East West South Mwest1 Alexandria Real Estate Equities, Inc. ARE 1,159 2.4 0.56 0.44 0.00 0.00 0.61% 0.44% -0.47% -0.44%2 AmeriVest Properties, Inc. AMV 157 3.6 0.00 0.63 0.32 0.05 -0.05% 0.08% 0.06% -0.03%3 Arden Realty Group, Inc. ARI 2,832 2.3 0.00 1.00 0.00 0.00 -1.33% 4.25% -1.24% -0.77%4 Boston Properties, Inc. BXP 8,427 3.9 0.67 0.33 0.00 0.00 3.78% 0.86% -2.15% -2.09%5 Brandywine Realty Trust BDN 1,919 2.8 1.00 0.00 0.00 0.00 2.15% -0.73% -0.68% -0.78%6 Brookfield Property Corporation BPO 8,329 3.6 0.44 0.52 0.00 0.04 1.85% 2.95% -2.45% -0.93%7 CarrAmerica Realty Corporation CRE 2,816 2.8 0.23 0.59 0.13 0.05 -0.10% 1.59% -0.09% -0.34%8 Corporate Office Properties Trust OFC 1,126 3.9 1.00 0.00 0.00 0.00 0.90% -0.31% -0.29% -0.33%9 Equity Office Properties Trust EOP 25,247 2.3 0.26 0.55 0.10 0.09 0.41% 15.76% -3.92% 1.13%

10 Glenborough Realty Trust Incorporated GLB 1,434 2.3 0.48 0.31 0.06 0.15 0.59% 0.24% -0.46% 0.49%11 Highwoods Properties, Inc. HIW 3,395 2.2 0.53 0.00 0.37 0.09 1.86% -1.55% 2.61% -0.76%12 HRPT Properties Trust HRP 3,206 1.7 0.82 0.10 0.06 0.01 4.59% -1.14% -1.02% -2.00%13 Koger Equity, Inc. KE 805 2.3 0.14 0.00 0.86 0.00 -0.14% -0.35% 1.87% -0.77%14 Mack-Cali Realty Corporation CLI 3,796 2.6 0.90 0.08 0.02 0.00 3.96% -1.05% -1.24% -1.63%15 Maxus Realty Trust Inc. MRTI 37 3.3 0.00 0.00 0.42 0.58 -0.01% -0.01% 0.02% 0.06%16 Parkway Properties, Inc. PKY 764 2.0 0.28 0.05 0.58 0.08 0.06% -0.29% 1.22% -0.31%17 Prentiss Properties Trust PP 2,122 2.5 0.31 0.26 0.30 0.14 0.19% 0.16% 0.87% 0.24%18 Prime Group Realty Trust PGE 1,409 5.7 0.00 0.05 0.00 0.95 -0.28% -0.11% -0.58% 2.60%19 SL Green Realty Corp. SLG 1,473 2.0 1.00 0.00 0.00 0.00 2.31% -0.79% -0.73% -0.84%20 Trizec Properties, Inc. TRZ 5,579 3.0 0.50 0.09 0.32 0.09 1.94% -1.11% 2.33% -0.62%21 Bedford Property Investors, Inc. BED 694 2.5 0.00 1.00 0.00 0.00 -0.29% 0.94% -0.28% -0.17%22 Duke Realty Corporation DRE 5,349 2.0 0.10 0.00 0.26 0.63 -1.74% -1.99% 0.22% 16.46%23 Kilroy Realty Corporation KRC 1,507 3.4 0.00 1.00 0.00 0.00 -0.47% 1.50% -0.44% -0.27%24 Liberty Property Trust LRY 3,627 2.7 0.72 0.02 0.13 0.13 2.66% -1.23% -0.29% 0.37%25 Mission West Properties MSW 929 8.4 0.00 1.00 0.00 0.00 -0.12% 0.38% -0.11% -0.07%26 PS Business Parks Inc. PSB 1,157 1.7 0.28 0.55 0.17 0.00 0.09% 0.92% 0.19% -0.71%27 Reckson Associates Realty Corp. RA 2,908 3.1 0.99 0.00 0.01 0.00 2.89% -1.00% -0.83% -1.09%28 AMB Property Corp. AMB 4,992 3.0 0.20 0.47 0.19 0.14 -0.35% 1.90% 0.35% 0.90%29 CenterPoint Properties Trust CNT 1,306 2.5 0.00 0.00 0.00 1.00 -0.60% -0.32% -1.27% 5.86%30 EastGroup Properties, Inc. EGP 702 2.0 0.00 0.40 0.59 0.01 -0.36% 0.27% 1.21% -0.54%31 First Industrial Realty Trust, Inc. FR 2,630 3.0 0.21 0.15 0.27 0.37 -0.17% -0.20% 0.43% 2.81%32 Keystone Property Trust KTR 672 2.8 0.78 0.00 0.07 0.15 0.53% -0.24% -0.16% 0.14%33 Monmouth Real Estate Investment Corp. MNRTA 149 2.5 0.44 0.07 0.10 0.39 0.05% -0.03% -0.05% 0.21%34 ProLogis Trust PLD 5,924 2.1 0.11 0.53 0.26 0.11 -1.74% 3.92% 2.28% 0.29%35 Acadia Realty Trust AKR 411 2.5 0.84 0.00 0.00 0.16 0.39% -0.16% -0.20% 0.13%36 Chelsea Property Group, Inc. CPG 1,703 3.7 0.32 0.37 0.15 0.15 0.13% 0.31% -0.04% 0.33%37 Developers Diversified Realty DDR 2,777 2.9 0.39 0.15 0.24 0.23 0.54% -0.27% 0.43% 1.32%38 Equity One, Inc. EQY 730 2.1 0.11 0.01 0.87 0.00 -0.18% -0.33% 1.94% -0.79%39 Federal Realty Investment Trust FRT 1,999 3.1 0.80 0.14 0.01 0.05 1.48% -0.27% -0.64% -0.33%40 Heritage Property Investment Trust HTG 2,060 2.3 0.36 0.00 0.12 0.52 0.38% -0.72% -0.74% 4.43%41 Kimco Realty Corporation KIM 3,757 2.0 0.36 0.23 0.19 0.21 0.87% 0.16% 0.27% 2.53%42 Kramont Realty Trust KRT 779 3.1 0.85 0.00 0.13 0.01 0.64% -0.27% -0.01% -0.29%43 Malan Realty Investors, Inc. MAL 208 7.9 0.00 0.00 0.00 1.00 -0.03% -0.02% -0.06% 0.29%44 New Plan Excel Realty Trust, Inc. NXL 3,515 2.2 0.31 0.12 0.40 0.17 0.41% -0.67% 2.77% 0.72%45 Pan Pacific Retail Properties, Inc. PNP 1,424 2.2 0.01 0.99 0.00 0.00 -0.67% 2.18% -0.63% -0.41%46 Ramco-Gershenson Properties Trust RPT 698 3.5 0.11 0.00 0.24 0.65 -0.12% -0.15% -0.02% 1.30%47 Regency Centers Corporation REG 3,062 2.5 0.12 0.38 0.42 0.08 -0.66% 0.84% 2.47% -0.55%48 Tanger Factory Outlet Centers, Inc. SKT 478 5.3 0.45 0.08 0.32 0.15 0.08% -0.05% 0.11% 0.03%49 Urstadt Biddle Properties Inc. UBA 393 1.8 0.89 0.03 0.02 0.07 0.58% -0.20% -0.21% -0.07%50 Weingarten Realty Investors WRI 2,424 2.6 0.05 0.28 0.64 0.03 -0.76% 0.24% 3.51% -1.37%51 CBL & Associates Properties, Inc. CBL 3,795 5.1 0.40 0.02 0.37 0.21 0.47% -0.64% 1.07% 0.76%52 General Growth Properties, Inc. GGP 7,281 4.7 0.16 0.42 0.25 0.17 -0.58% 1.38% 0.91% 1.36%53 Glimcher Realty Trust GRT 1,632 3.8 0.30 0.16 0.20 0.35 0.07% -0.09% 0.01% 1.25%54 Macerich Company, The MAC 3,662 3.5 0.07 0.70 0.10 0.13 -0.80% 2.22% -0.44% 0.69%55 Mills Corporation, The MLS 2,155 3.5 0.28 0.30 0.33 0.10 0.07% 0.20% 0.82% -0.12%56 Rouse Company, The RSE 6,386 5.7 0.51 0.15 0.21 0.13 1.19% -0.35% 0.40% 0.35%57 Simon Property Group, Inc. SPG 14,905 4.3 0.33 0.16 0.29 0.22 1.10% -0.80% 2.99% 4.47%58 Taubman Centers, Inc. TCO 2,270 6.1 0.35 0.20 0.24 0.20 0.16% -0.02% 0.21% 0.41%59 Agree Realty Corporation ADC 178 3.4 0.08 0.01 0.10 0.81 -0.04% -0.03% -0.07% 0.46%60 Alexander's, Inc. ALX 665 9.7 1.00 0.00 0.00 0.00 0.21% -0.07% -0.07% -0.08%61 AmREIT Inc. AMY 74 1.9 0.00 0.05 0.88 0.07 -0.04% -0.03% 0.21% -0.05%62 Commercial Net Lease Realty, Inc. NNN 954 1.7 0.29 0.18 0.43 0.10 0.10% -0.11% 1.15% -0.19%63 Realty Income Corporation O 1,080 1.5 0.21 0.24 0.34 0.20 -0.11% 0.08% 0.94% 0.76%64 Manufactured Home Communities, Inc. MHC 1,163 6.5 0.00 1.00 0.00 0.00 -0.19% 0.60% -0.18% -0.11%65 Sun Communities, Inc. SUI 1,164 3.6 0.00 0.00 0.00 1.00 -0.36% -0.20% -0.77% 3.55%66 Amli Residential Properties Trust AML 921 2.3 0.00 0.05 0.58 0.38 -0.42% -0.26% 1.11% 1.09%67 Apartment Investment & Management AIV 10,317 3.3 0.25 0.45 0.16 0.14 -0.07% 3.24% 0.10% 1.80%68 Archstone-Smith Trust ASN 8,855 2.3 0.37 0.44 0.14 0.05 1.83% 3.58% -0.10% -1.60%69 Associated Estates Realty Corporation AEC 735 4.9 0.10 0.01 0.14 0.74 -0.10% -0.10% -0.15% 1.18%70 AvalonBay Communities Inc. AVB 4,951 2.3 0.59 0.39 0.00 0.02 3.06% 1.51% -2.25% -1.44%71 BNP Residential Properties, Inc. BNP 272 6.9 1.00 0.00 0.00 0.00 0.12% -0.04% -0.04% -0.04%72 BRE Properties, Inc. BRE 2,109 2.5 0.00 1.00 0.00 0.00 -0.91% 2.90% -0.85% -0.52%73 Camden Property Trust CPT 2,610 3.1 0.09 0.40 0.46 0.05 -0.56% 0.67% 1.98% -0.75%74 Cornerstone Realty Income Trust TCR 1,015 3.5 0.64 0.00 0.36 0.00 0.48% -0.30% 0.48% -0.46%75 Equity Residential EQR 11,811 2.3 0.25 0.37 0.27 0.12 -0.06% 3.36% 4.31% 0.82%76 Essex Property Trust, Inc. ESS 1,620 3.3 0.00 0.99 0.01 0.00 -0.52% 1.66% -0.46% -0.31%77 Gables Residential Trust GBP 1,584 3.7 0.02 0.00 0.98 0.00 -0.39% -0.42% 2.70% -1.01%78 Home Properties, Inc. HME 2,456 3.4 0.88 0.00 0.00 0.12 1.89% -0.73% -0.85% 0.27%79 Mid-America Apartment Communities, MAA 1,239 3.7 0.18 0.00 0.81 0.01 -0.08% -0.34% 1.71% -0.70%80 Post Properties, Inc. PPS 2,508 3.0 0.17 0.02 0.80 0.00 -0.23% -0.76% 4.19% -1.80%81 Roberts Realty Investors, Inc. RPI 179 8.0 0.00 0.00 1.00 0.00 -0.02% -0.02% 0.15% -0.05%82 Summit Properties Inc. SMT 1,337 3.4 0.65 0.00 0.35 0.00 0.66% -0.41% 0.65% -0.63%83 United Dominion Realty Trust, Inc. UDR 3,276 3.3 0.37 0.24 0.32 0.07 0.50% 0.05% 1.31% -0.54%84 Colonial Properties Trust E CLP 2,130 4.0 0.10 0.00 0.90 0.00 -0.31% -0.54% 3.08% -1.23%85 Cousins Properties Incorporated E CUZ 1,248 3.1 0.21 0.12 0.68 0.00 -0.06% -0.20% 1.66% -0.79%86 Crescent Real Estate Equities Company E CEI 4,288 3.2 0.04 0.25 0.66 0.06 -1.15% 0.14% 5.21% -1.57%87 First Union Real Estate Investments E FUR 172 1.6 0.00 0.00 0.00 1.00 -0.12% -0.07% -0.26% 1.20%88 Forest City Enterprises FCE.A 5,077 7.2 0.53 0.19 0.04 0.24 0.79% -0.07% -0.74% 1.34%89 Lexington Corporate Properties, Inc. LXP 902 2.7 0.39 0.20 0.22 0.20 0.19% -0.03% 0.11% 0.37%90 One Liberty Properties, Inc. OLP 180 2.0 0.38 0.09 0.44 0.09 0.05% -0.05% 0.19% -0.05%91 Pennsylvania Real Estate Investment PEI 704 3.7 0.95 0.00 0.04 0.01 0.55% -0.20% -0.14% -0.19%92 Sizeler Property Investors, Inc. E SIZ 288 2.8 0.00 0.00 1.00 0.00 -0.10% -0.10% 0.67% -0.25%93 Vornado Realty Trust E VNO 9,018 3.4 0.73 0.13 0.07 0.07 -0.63% 0.21% 0.20% 0.23%94 Washington Real Estate Investment Trust E WRE 756 2.3 1.00 0.00 0.00 0.00 0.21% -0.68% 0.20% 0.12%95 Capital Automotive REIT E CARS 1,542 4.1 0.21 0.19 0.45 0.14 0.20% 0.20% -1.30% 0.48%96 Entertainment Properties Trust E EPR 730 2.1 0.04 0.49 0.47 0.00 0.23% 0.12% 0.48% -2.22%

Debt 66.98% 61.22% 65.61% 70.43%

WEIGHTTicker Asset TA/E

Fraction of Locations

60