PowerPoint Presentation

Real Estate Development Industry

Senior Analyst: Chris Woo

Junior Analysts: Nakul Pandav, Joseph Padellaro, SteveXiarhos, Eric Des Lauriers

$C:\Users\john\Desktop\logo_bufc.jpg$

Real estate development is a multifaceted business, encompassing activitiesthat range from the renovation and re-lease of existing buildings to the purchaseof raw land and the sale of improved land or parcels to others.

Developers buy land, finance real estate deals, build or have builders buildprojects, create, imagine, control and orchestrate the process of developmentfrom the beginning to end.

Industry Definition

NYSI:TCI – 44.67 M

NASDAQ:AVHI – 198.73 M

NASDAQ:STRS – 75.45 M

NYSE:HHC – 2.72 B

NYSE:FOR– 592.69 M

NYSE:CTO – 184.86 M

$C:\Users\john\Desktop\logo_bufc.jpg$

Financials

11,120 B

(100%)

Real Estate

2,040 B

(18.3%)

Real Estate Management& Development

1,100 B

(9.9%)

Real EstateDevelopment

370.87 B

(3.3%)

Small-CapReal EstateDevelopment

5.9 B (.053%)

Real Estate Development Industry Breakdown

HHC

2,720 M

STRS

75 M

AVHI

198 M

TCI

44 M

CTO

184 M

FOR

592 M

Other

$C:\Users\john\Desktop\logo_bufc.jpg$

Geographic Breakdown and Market Segmentation

Multi-FamilyHousingConstruction Market

Single-FamilyHousingconstructionMarket

CommercialBuildingMarket

NonbuildingConstruction Market

$C:\Users\john\Desktop\logo_bufc.jpg$

Process Flow: Revenue Generation Process

Land

Real EstateDevelopment Firms

DevelopBuildingProgram &Design

ObtainNecessaryPublic Approval& Financing

Build Structure /Utilize outsideContractors

Lease

Manage

Sell

Commercial RealEstate Market

Residential RealEstate Market

70% ofIndustryRevenue

18% ofIndustryRevenue

DirectSale ofLand

Residential Market End User: Home Construction Firms

Commercial Market End User: Retail Shops & Office Lessee

$C:\Users\john\Desktop\logo_bufc.jpg$

Executive Summary

Industry: Real Estate Development

Recommendation: Overweight

Low 30-year Mortgage Rate & Decreasing Home Supply willIncrease Demand for New Homes

Increasing Home Builder Confidence & Housing Starts willcreate new business in the upcoming months

Decreasing Unemployment and Increasing Disposable Incomewill bolster consumer spending and commercial real estate rev.

Low interest rates will benefit internal financing activities andencourage investors

Key Industry Drivers

$C:\Users\john\Desktop\logo_bufc.jpg$

Drivers for the Residential Real Estate Market

$C:\Users\john\Desktop\logo_bufc.jpg$

Lower 30-year Mortgage Rates & Home Supply Decreasing as Demand for New Homes Increases

•Home supply decreasing at a 2 year CAGRof 5.24%

•The 30-year mortgage will continue to staylow with the help of the Fed. (QE3) Until2015

•Increasing consumer sentiment inconjunction with continuingly low mortgagerates suggest that the demand for homes willrise

Decreasing Supply of ExistingHomes and Increased Demand areSubstantially Increasing the Needfor New Home Construction

Home Supply CAGR: -5.24%

30-Year Mortgage 4 YearCAGR: -10.59%

$C:\Users\john\Desktop\logo_bufc.jpg$

Increasing Home Builder Confidence & Housing Starts

•NAHB Builder confidence index hit a fouryear high this October reaching 46

•Residential Construction companies are themain end user in the real estate developmentindustry

•Real estate development revenue andhousing starts have a regressioncorrelation of 91.6%

•IBIS projects housing starts will reach 1226and Industry Rev. will reach 23,000 by 2014

Growing Demand For New Homes may Potentially IncreaseIndustry Revenue by 9.4% YOY until 2014

*Real Estate Development Rev . & Housing Starts Projected by Ibis World

Housing StartsProjected YOY Growth:25.25%

$C:\Users\john\Desktop\logo_bufc.jpg$

Historical Growth in Quantity of Homes Sold

$C:\Users\john\Desktop\logo_bufc.jpg$

Historical Price and Quantity of Homes

•Historically from 1963-2002 (Start of Sub-Prime Crisis)home sales have increased at a 40 year CAGR of 1.39%

•According to the Case-Shiller Index, homes inthe US have lost 15% of their price value since2008 and have since normalized around 130

Using the Linear Trendline CAGR from 1963-2012 we can expect aminimum YOY growth of 1.21% in Homes Sold

Linear Trendline CAGR: 1.21%

$C:\Users\john\Desktop\logo_bufc.jpg$

Drivers for the Commercial Real Estate Market

$C:\Users\john\Desktop\logo_bufc.jpg$

Low Interest Rates and a Recovering Economy

•Lower interest rates will allow for more affordablefinancing of projects and acquisition of land

•Increased disposable income will will help to bolster theretail portion of the commercial real estate market

•Decreasing unemployment represents the overallrecovery of consumer spending

End Commercial Real Estate Users aremainly companies in the Retail Industry

Disposable Income is projected to grow 1.95% YOY until 2015,which would directly decrease retail vacancy rates

2008-2012 CAGR: -7.56%

2008-2012 CAGR: .79%

29%

17%

46%

Gross Rent from Office Buildings

Gross Rent from IndustrialProperties

Other

Gross Rent fromRetail Buildings

*Disposable Income Projected by Ibis World

$C:\Users\john\Desktop\logo_bufc.jpg$

Risks

Impacts of Fiscal Cliff on Real Estate Development Industry

•With the combination of expiring tax cuts, new taxes, and automated spending cuts, the domesticeconomy could decline into another projected recession (4% to 5% decrease in GDP)

•As a result of a decrease in GDP, disposable income, consumer sentiment, and builderconfidence may decrease

Potential Inflow of Shadow REOs into the Market

•Banks and other lenders could potentially flood the market with Shadow REOs, which wouldnegatively impact the price of existing homes on the market

•The increase in supply of homes caused by the REOs could skew projections based on thedecreasing supply of existing homes

Dependency on Homebuilders

•High dependency on Homebuilders, which are largely driven by macro economic factors, longterm interest rates, federal intervention, and expected rental yields

•High volatility in this industry especially over the last 5 years due to the recession