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Agenda Fire Pension 031113
THE RESOURCE CENTERS , LLC 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Phone (561) 624-3277 Fax (561) 624-3278 WWW.RESOURCECENTERS.COM PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND Meeting of Monday, March 11, 2013 Location: City Hall, Council Chambers Palm Beach Gardens City Hall 10500 North Military Trail Palm Beach Gardens, FL 33410 Time: 9 AM AGENDA 1. Call Meeting to Order 2. Public Comments 3. Minutes: • Regular Meeting Held on February 6, 2013 4. Investment Manager Presentation: American Realty (Richelle Hayes) 5. Investment Monitor Report: The Bogdahn Group (Troy Brown) • Memo – American Realty (structure & outlook) • Memo – Intercontinental (structure & outlook) • Index Fund Search 6. Attorney Report: Sugarman & Susskind, P.A. (Pedro Herrera) • Update on IRS Determination Letter • Update on Pending Ordinance 7. Administrative Report: Resource Centers (Audrey Ross) • Disbursements • Benefit Approvals • Ratification of Fiduciary Liability Insurance Renewal (3/10/2013) 8. Old Business 9. New Business • Donna Wisneski’s Resignation Letter 10. Other Business 11. Schedule Next Meeting: Wednesday May 1, 2013 at 1:00 P.M. 12. Adjourn PLEASE NOTE: Should any interested party seek to appeal any decision made by the Board with respect to any matter considered at such meeting or hearing, he will need a record of the proceedings, and for such purpose he may need to insure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. In accordance with the Americans With Disabilities Act of 1990, persons needing a special accommodation to participate in this meeting should contact The Resource Centers, LLC no later than four days prior to the meeting. ______________________________________________________________________ 4901 Vineland Road Suite 600 Orlando, Florida 32811 Telephone (866) 240-7932 Facsimile (863) 292-8717 www.bogdahngroup.com FROM: Troy E. Brown, CFA TO: Palm Beach Gardens Firefighters’ Pension Fund DATE: February 9, 2013 RE: American Realty- Portfolio Structure and Outlook As a follow up to our discussion in the evolving structure of the opportunities in the commercial real estate market, we asked the portfolios real estate managers the respond to the following questions. 1. 12/31/11 & 12/31/12 Property Type and regional breakdown for your fund 2. An assessment and/or commentary on what factors drove the any changes in the property type or regional exposure over the course of the year. 3. An assessment and/or commentary on the potential changes and/or focus in your fund’s strategy that you see for 2013 and beyond. This is American Realty’s response: 1. 12/31/11 and 12/31/12 Property Type and regional breakdown for your fund 2. An assessment and/or commentary on what factors drove the any changes in the property type or regional exposure over the course of the year. The only significant property type shift in 2012 was a 353 basis point reduction in the fund’s office exposure and a 393 basis point increase in the fund’s multi-family exposure. Net acquisitions of ______________________________________________________________________ 4901 Vineland Road Suite 600 Orlando, Florida 32811 Telephone (866) 240-7932 Facsimile (863) 292-8717 www.bogdahngroup.com multi-family properties were $196 million, versus $99 of office properties. This activity rebalanced the fund closer to towards its model portfolio, which over the long-term will overweight multi-family and underweight office relative to the fund’s benchmark. The 2012 acquisitions also significantly increased the fund’s exposure to both office and multi-family properties in urban infill locations, consistent with the fund’s model portfolio. The fund’s exposure to the West increased by 611 basis points in 2012, with a 379 basis point decrease in the East and smaller declines in the Midwest and South. The regional shifts were primarily due to $428 million of new acquisitions in the West, in addition to somewhat stronger value increases of existing properties in the West relative to other regions. In addition, the Core Fund sold $17 million of non-strategic assets outside the West in 2012. 3. An assessment and/or commentary on the potential changes and/or focus in your fund’s strategy that you see for 2013 and beyond. The Core Fund’s long-term strategy is unchanged. Over the long-term, the Core Fund seeks to increase exposure to multi-family and decrease exposure to office. However, given that American’s five-year return expectations are moderately higher for office than for multi-family, the pace of that shift will be very gradual, as the Core Fund should benefit from its current high exposure to the office sector over the next two years at least. American is positive about the long-term prospects for multi-family and believes that the period of slight underperformance likely will be brief. The Core Fund is currently underweight to multi- family relative to its long-term model portfolio, and therefore, we anticipate making selected investments in urban infill multi-family assets in 2013 to move the fund in-line with the long-term model portfolio and simultaneously to sell selected non-strategic multi-family assets in suburban locations. The Core Fund also intends to increase its exposure to the East region in 2013 and most likely to decrease its exposure to the South, consistent with its long-term model portfolio goals. American believes that it provides a good complement to the Retirement Board’s other real estate investment as the core strategy implemented in the portfolio utilizes high quality well-leased income producing assets located in major globally competitive industry markets nationwide and focuses on strong property fundamentals in order to control risk and low leverage to provide lower volatility of returns overall. ______________________________________________________________________ 4901 Vineland Road Suite 600 Orlando, Florida 32811 Telephone (866) 240-7932 Facsimile (863) 292-8717 www.bogdahngroup.com FROM: Troy E. Brown, CFA TO: Palm Beach Gardens Firefighters’ Pension Fund DATE: February 12, 2013 RE: Intercontinental Real Estate- Portfolio Structure and Outlook As a follow up to our discussion in the evolving structure of the opportunities in the commercial real estate market, we asked the portfolios real estate managers the respond to the following questions. 1. 12/31/11 & 12/31/12 Property Type and regional breakdown for your fund 2. An assessment and/or commentary on what factors drove the any changes in the property type or regional exposure over the course of the year. 3. An assessment and/or commentary on the potential changes and/or focus in your fund’s strategy that you see for 2013 and beyond. This is Intercontinental’s response: 1.) 12/31/11 and 12/31/12 Property Type and regional breakdown for your fund 2.) An assessment and/or commentary on what factors drove any changes in the property type or regional exposure over the course of the year. The changes seen in the table are primarily due to overall transaction activity and property value movements. Within most sectors in which USREIF owns property, but especially in the East and Midwest, there was a marked improvement in fundamentals and valuations, as evidenced by decreased cap and discount rates, as well as increased market rents. In fact, the year-over-year same store (not including acquisitions/dispositions) dollar value increase of the Fund was approximately $89.3 million (9.5%) as of 12/31/12. 12/31/2012 12/31/2011 Retail 15.2%15.7% Senior Living 9.1%9.7% Student Housing 3.9%4.2% Hotel 2.1%2.0% Industrial 13.7%13.3% Multifamily 11.7%11.5% Healthcare 8.2%6.3% Office 32.1%33.9% Other 0.4%3.5% Midwest 27.2%30.8% East 40.4%36.6% South 9.4%9.4% West 23.1%23.2% Weighted by MV @ Fund's share ______________________________________________________________________ 4901 Vineland Road Suite 600 Orlando, Florida 32811 Telephone (866) 240-7932 Facsimile (863) 292-8717 www.bogdahngroup.com Valuation Assumptions by Year: 2012 Acquisition Activity by Type and Region: o Other/East – On January 13, 2012, US REIF invested $849,523 (an approximate 13.5% share of the JV partnership) in Block 1601, Lots 50 & 58, parcel of land located in Plainsboro, NJ. o Other/Midwest - On August 30, 2012, U.S. Real Estate Investment Fund, LLC entered into a joint venture (90% ownership) purchase of 1.1 acres of land located at the northwest corner of Madison Street and Racine Avenue in Chicago, Illinois for $2,500,000. Plans call for construction of a nine-story residential tower consisting of 216 Class A apartment units, 227 parking spaces and 10,000 square feet of ground floor retail space. o Industrial/West – On September 25, 2012, U.S. Real Estate Investment Fund, LLC purchased a 582,900 square foot industrial complex located in Vacaville, California for $30,200,000. The property is the corporate headquarters for the Mariani Packing Company which is the world’s largest privately owned fruit processor. Mariani occupies 100% of the property under a 15 year lease. We valued the property using a 7.75% exit cap and an approximate 8.9% discount rate. o Healthcare/East - On December 28, 2012, U.S. Real Estate Investment Fund, LLC purchased a 68,621 square foot healthcare property, Weymouth Woods Medical Center, located in Weymouth, Massachusetts for $22,800,000. Tenants include Harvard Vanguard, Brigham and Women’s and South Shore Hospital. The property is 100% leased with long term leases that have a weighted average remaining term of 12+ years. We valued the property using a 7.25% exit cap and an approximate 7.28% discount rate. 2012 Disposition Activity by Type and Region: o Industrial/West - On April 30, 2012, US REIF sold Mabury Industrial Park located in San Jose, California, a 217,825 sq. ft. industrial building that was a part of the Silicon Valley Portfolio, for $25,036,495 to Santa Clara Valley Transportation Authority via Eminent Domain. o Office/Midwest - On June 28, 2012 the Fund sold Westport Plaza located in St. Louis, Missouri, a 699,679 sq. ft. for $33 million. 2012 2011 7.5%7.9% 2012 2011 8.5%8.9% Weighted Avg Exit Cap Rate Weighted Avg Discount Rate ______________________________________________________________________ 4901 Vineland Road Suite 600 Orlando, Florida 32811 Telephone (866) 240-7932 Facsimile (863) 292-8717 www.bogdahngroup.com 3.) An assessment and/or commentary on the potential changes and/or focus in your fund’s strategy that you see for 2013 and beyond. o Capital Activity (as of the date of this reporting): Capital Committed but Unsigned: $17,750,000 (management anticipates this to be signed within the next 90 days). Capital Signed & Committed but Uncalled: $48,200,000 Redemption Queue: $7,400,000 (approximately) o Within U.S. REIF, we do not anticipate significant reweighting in 2013. We are targeting 2-3 property acquisitions this year with our main area of focus on multifamily, office, and medical office in the East and West regions. o The Fund currently has less than a 15% non-core allocation. We are currently evaluating a potential office development which would increase the non-core allocation by a few percentage points. We do not anticipate the non-core allocation exceeding 20%. o As of 12/31/2012, leverage stood at 47% for the portfolio, a 630 basis point reduction from one year prior. During the quarter the Fund’s leverage reduced by 100 basis points. We intend to continue to reduce leverage to approximately 40%. The leverage ratio is expected to decrease over time due to: 1) principal amortization; 2) lower loan to value ratios on new acquisitions; and, 3) appreciation in property values over the long term, with selected assets potentially appreciating in the near term due to cap rate compression for core assets as a result of strong investor demand. Richelle Hayes Director, Marketing and Client Service Palm Beach Gardens Firefighters’ Pension Fund March 11, 2013 American Core Realty Fund, LLC AMERICAN REALTY ADVISORS 801 North Brand Boulevard, Suite 800, Glendale, CA 91203 | Tel: 818-545-1152 | www.americanreal.com | © 2013 American Realty Advisors®. All rights reserved. Portfolio Review INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Realty Advisors – Commitment to Excellence 1 “Our mission is to create and implement client-focused institutional real estate investment strategies designed to provide superior returns, capital preservation and growth, delivered with a high level of integrity, communication, and service.” Stanley L. Iezman Chairman & CEO Mission Statement Richelle Hayes Director, Marketing and Client Service INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT A Leader in the Real Estate Investment Management Industry 2 Size One of the largest privately-held real estate investment advisors in the U.S. Assets under management represent approximate gross market value of all assets and accounts managed by American (excluding partners’ share of equity and partners’ share of debt on partnership investments). All data above is as of September 30, 2012. Over $5.0 billion in assets under management More than 165 properties in major MSAs across the United States 280+ institutional investors Key professionals with an average of 26 years of investment management experience Commingled Fund and Separate Account Management Portfolio and Asset Management Real Estate Acquisition and Disposition Services Portfolio Takeover and Asset Enhancement Services Structured Finance Underwriting and Management Experience Over two decades of demonstrated expertise providing innovative real estate solutions Services American provides a full range of core, core-plus and value-added services Industrial Office Retail Multi-family INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Risk Management: The Foundation of Our Firm 3 Extensive experience acting as a fiduciary and Prudent Person investing in accordance with state and federal fiduciary guidelines Disciplined long-term investment strategy Risk control forms the basis of our investment process Firm risk control: —No changes in the structure of the firm —No debt on the firm’s balance sheet —Avoidance of conflicts of interest —No litigation with clients concerning investment management services provided by American Recognition of our role as a steward of the capital of plan participants and their beneficiaries Please refer to disclosures at the end of this presentation. Integration of Research Into the Investment Process INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT 4 Industry and market selection Property type weights Debt strategy Economic scenario Interest rate environment Real estate capital flows Acquisitions Macro House View Submarket selection Industry analysis Asset functionality Asset Management Dispositions Performance benchmarking Leasing strategies Capital expenditure planning Hold/sell analysis Portfolio rebalancing Re-investment strategies Portfolio Strategy INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American’s House View – Economic Outlook 5 -6 -4 -2 0 2 4 6 91 93 95 97 99 01 03 05 07 09 11 13 United States Euro area Gr o s s D o m e s t i c P r o d u c t A n n u a l P e r c e n t C h a n g e Source: IMF World Economic Outlook Database (October 2012) The Sawtooth Recovery pattern of U.S. economic growth may persist in 2013 U.S. capital markets remain active as interest rates are low. Investors are being driven toward yield Housing is recovering, which should lead to some increase in consumer confidence Overall unemployment remain a drag on the economy although job growth is more positive in highly skilled industries American’s base case scenario is for gradual economic growth to continue, supporting tenant demand for quality commercial real estate U.S. Growth Continues To Be Slow, but Strong Relative to Europe INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American’s House View – Economic Outlook 6 80 85 90 95 100 105 110 04 05 06 07 08 09 10 11 12 Professional & Business Services Biotechnology Logistics Higher Education High-Tech Finance Total In d e x o f E m p l o y m e n t b y Se c t o r ( 2 0 1 0 Q 2 = 1 0 0 ) Source: Moody's Analytics; American Realty Advisors calculations Globally Competitive Industries Lead the U.S. Labor Market Jobs are being re-shored to the U.S. in Globally Competitive Industries, particularly technology and engineering, and where productivity, supported by technology, has made it cheaper to manufacture in the U.S. Low-skilled service industry as well as public sector jobs are lagging as excess workforce still needs to be absorbed American expects a continuing shift in favor of major metros where Globally Competitive Industries are concentrated INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American’s House View – Capital Markets 7 Real Estate Remains Attractively Valued Versus Fixed Income Spreads between current valuation cap rates over 10-year Treasuries are near historic highs Capital flows into real estate will remain strong, driven by a high yield relative to fixed-income alternatives, the potential for income growth, as well as a hedge against potential inflation Spreads are widest for industrial with multi- family pricing already reflecting much of the 2010-2012 recovery American believes that a highly diversified, well-managed commercial real estate portfolio will continue to generate strong, risk-adjusted returns in the current economic environment 0 100 200 300 400 500 600 700 6 7 8 9 01 02 03 04 05 06 07 08 09 10 11 12 All Property Types Cap Rate Level (LHS) Industrial Spread Retail Spread Office Spread All Property Types Spread over 10-Year Treasuries Apartment Spread Ca p R a t e Le v e l P e r c e n t Ca p Ra t e Sp r e a d Ba s i s Po i n t s Source: Real Capital Analytics AMERICAN CORE REALTY FUND, LLC A Diversified Core Equity Real Estate Strategy THE AMERICAN CORE REALTY FUND, LLC is a diversified open-end commingled fund that invests primarily in high quality core income- producing office, industrial, retail and multi-family properties that are well located in or near major metropolitan markets/submarkets nationwide. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Investment Strategy: Diversified High-Quality Income-Producing Real Estate Assets —Geographic, property type, economic and tenant diversification designed to reduce risk —Ideally situated in strong, growing, and/or supply -constrained metropolitan areas across U.S. —Limited or no deferred maintenance No Style Drift —Consistent long-term investment in core assets: office, industrial, multi -family and retail assets Stable Income-Producing Assets —Consistent long-term tenant and buyer demand —Income helps offset the impact of weak economy Substantially Leased with Low Lease Rollover —High-quality tenant base —At-market rents with staggered leases Disciplined Use of Leverage —As of 4Q12, the Core Fund’s Debt to Total Assets was 18.7% Focused on a Pure Core Strategy to Manage Risk 9 Cupertino City Center I & II— Silicon Valley, CA MSA Please note: Use of leverage may create additional risks. Please refer to disclosures at the end of this presentation. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Fund Objectives 10 PLEASE NOTE: All investments such as the American Core Realty Fund may be subject to loss of capital and there is no guarantee that the above goals will be achieved over all time periods. *Investors may elect to receive the distribution paid in cash or to be reinvested in additional units in the Core Fund. 153 Townsend San Francisco, CA Steady Income Returns —currently pays an annual gross distribution of 6% (based on Net Asset Value*) Long-term Appreciation American is a fiduciary with respect to Florida pension plan investors in the American Core Realty Fund and will acknowledge this in writing Investment Objectives Fiduciary Responsibility City of Palm Beach Gardens Firefighters' Pension Fund INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Total Commitment: $1,750,000 with initial investment made on July 5, 2006 Drawn: $1,750,000 through December 31, 2012 Account Balance: $1,892,722.86 as of December 31, 2012 Investment Summary as of December 31, 2012 Inception-to-Date Contributions to Date $ 1,750,000 Withdrawals $ - Distributions $ - Net Income $ 268,434 Appreciation $ (125,711) Ending Net Asset Value $ 1,892,723 Contributions 2006 $210,000 2007 $790,000 2011 $750,000 11 City of Palm Beach Gardens Firefighters' Pension Fund INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Gross of Fees 4Q12 One-Year Three-Year*Five-Year* Income 1.23%5.15%5.41%5.23%5.22% Appreciation 1.27%5.90%6.82%-6.13%-2.98% Total Return 2.50%11.27%12.51%-1.14%2.13% NFI-ODCE 2.33%11.03%14.35%-1.45%2.26% Net of Fees 4Q12 One-Year Three-Year*Five-Year* Income 0.95%4.01%4.30%4.14%4.15% Appreciation 1.27%5.90%6.82%-6.13%-2.98% Total Return 2.22%10.08%11.34%-2.18%1.08% NFI-ODCE 2.07%9.93%13.32%-2.33%1.34% Performance History (as of December 31, 2012) Since Inception* (7/5/2006) Since Inception* (7/5/2006) *Annualized PERFORMANCE DISCLAIMER: The returns above are for the City of Palm Beach Gardens Firefighters' Pension Fund’s investment in the American Core Realty Fund, LLC, include leveraged returns before (gross) and after (net) the deduction of investment management fees and include the reinvestment of some income. The above performance is considered supplemental information and complements the Core Equity Real Estate Investments Composite performance in the attached Annual Disclosure Presentation. The sum of annualized component returns may not equal the total return due to the chain-linking of quarterly returns. The NFI-ODCE Equal Weight is an unmanaged index published by the National Council of Real Estate Investment Fiduciaries. NFI-ODCE returns are shown before (gross) and after (net) the deduction of any investment management fees and include leverage. Although the Fund may invest in similar property types as the NFI-ODCE, the weighting of each property type will differ from the NFI-ODCE in any measurement period. The above performance is considered supplemental information and complements the Core Equity Real Estate Investments Composite performance in the attached Annual Disclosure Presentation. Past performance is not a guarantee of future results and it is important to understand that investments of the type made by the Fund pose the potential for loss of capital over any time period. Many factors affect fund performance including changes in market conditions and interest rates in response to other economic, political, or financial developments. Investment returns, and the principal value of any investment will fluctuate, so that when an investment is sold, the amount received could be less than what was originally invested. 12 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American’s Globally Competitive Industry Analysis 13 American’s investment strategy for the American Core Realty Fund targets major metropolitan markets that attract and support our nation’s globally competitive industries. By targeting these globally competitive industries, American is positioning the Core Fund to benefit from the strongest demand growth in the U.S. economy over the long term. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Cannot be offshored easily – the core business functions need to be located in the U.S. Either exports to the rest of the world, or is an industry that mostly serves domestic demand and can’t be easily imported or replicated elsewhere Requires specialized human capital with labor skills produced by higher education and/or extensive training Is innovative and productive enough to adapt to changing demand because of high value human capital INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT What Is a Globally Competitive Industry? 14 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT The Globally Competitive Industry Market Selection Process Top 50 U.S. cities selected for population —Identify markets with Globally Competitive Industry concentrations Quantitative and qualitative filters applied to identified markets: —Census, BLS, BEA data —Migration trends (IRS data) —Walk Score rankings, MSA density, transit usage —Active air travel, tourism and Internet usage —Smarter Cities for Energy (NRDC) —Green Building Opportunity Index (Cushman & Wakefield) —Creative Class Employment (Richard Florida) —Innovation Nation (Entrepreneur Magazine) Selection of Globally Competitive Industry Markets —Proprietary analysis of tenant concentrations to determine target submarkets for office, retail, multi- family and industrial —Research of market and sector specific real estate fundamentals supported by PPR, RCA, JLL, CBRE, C&W, Marcus & Millichap, ULI and Integra Resources Qualitative Data Filters Quantitative Data Analysis Top 50 U.S. Cities Globally Competitive Industry Markets 15 American’s approach to market selection combines both quantitative and qualitative research. Our process focuses on: INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Identify Metros With High Concentrations of GCIs 16 Midwest Austin Denver Houston Dallas Atlanta South Florida No. New Jersey Minneapolis Chicago New York Washington D.C. Philadelphia Baltimore Seattle Boston Oakland San Diego $ $ $ $ Los Angeles San Jose Health Care Technology Services (primarily HQ) Transportation / Trade Education Energy Finance Government $ Orange County $ San Francisco $ INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Core Realty Fund Investment Highlights 17 Gross Asset Value (millions) $3,158 Net Asset Value (millions) $2,565 Number of Investors 247 Number of Properties 76 Cash Position (GFV) 1.0% Debt to Total Assets 18.7% Total Square Footage 13,471,919 Total Commercial Tenants 978 Units (Multi-Family) 4,678 Gross Quarterly Distribution 1.5% Undrawn Commitments (millions) $65.9 Redemption Queue (millions) $0.0 The American Core Realty Fund currently declares a gross quarterly distribution of 1.5% of Net Asset Value. Investors may elect to receive the distribution paid in cash or to be reinvested in additional units in the Core Fund. Please note: Use of leverage may create additional risks. Please refer to disclosures at the end of this presentation. Fund Snapshot (as of December 31, 2012) INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Fund Diversification 18 *Note: Based on NFI-ODCE Equal-Weight as of December 31, 2012. The NFI-ODCE is an unmanaged Equal Weighted Index published by the National Council of Real Estate Investment Fiduciaries. Portfolio diversification based on gross fair values. Above $ amounts are in millions as of December 31, 2012. Property Type % of GFV NFI- ODCE* Office 40.6% 36.4% Industrial 14.2% 16.8% Multi-family 24.1% 24.7% Retail 21.1% 17.5% Other 0.0% 4.5% Total Fund 100.0% 100.0% PROPERTY TYPE DIVERSIFICATION Region % of GFV NFI- ODCE* West 44.7% 38.5% Midwest 6.1% 10.1% South 22.9% 17.3% East 26.3% 34.1% Total Fund 100.0% 100.0% GEOGRAPHIC DIVERSIFICATION East $836.6 Midwest $192.2 South $728.7 West $1,418.1 Industrial $449.9 Multi- family $766.2 Retail $668.8 Office $1,290.6 West Midwest South East Midwest INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT 2012 Core Fund Acquisitions 2nd Quarter 2012 Property Name MSA Property Type Total Purchase Price @First San Jose/Santa Clara, CA Retail $46,550,000 111 Kent Apartments New York, New York Multi-family $56,000,000 3rd Quarter 2012 Property Name MSA Property Type Total Purchase Price Mission Hills Vons San Diego, CA Retail $28,750,000 Admiral Safeway Seattle, WA Retail $30,710,000 10825 Production Avenue Inland Empire, CA Industrial $63,925,000 4th Quarter 2012 Property Name MSA Property Type Total Purchase Price 153 Townsend San Francisco, CA Office $93,750,000 During 2012, the Core Fund acquired 13 core income-producing properties in select target markets across the United States 1st Quarter 2012 Property Name MSA Property Type Total Purchase Price Mural Apartments Seattle, WA Multi-family $42,330,000 Link Apartments Seattle, WA Multi-family $62,770,000 Weston Lakes Plaza Miami/Fort Lauderdale, FL Retail $23,800,000 18401 Von Karman Orange County, CA Office $27,700,000 The Quadrangle Dallas, TX Office $30,736,000 ALARA® North Point Apartments Atlanta, GA Multi-family $31,350,000 Rancho Cucamonga Distribution Center Inland Empire, CA Industrial $27,900,000 19 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Transaction Activity – Recent Investments 20 Admiral Safeway — Seattle, WA Globally Competitive Industry: Technology Retail Property 67,992 SF class A grocery-anchored retail center Located in Seattle’s prosperous Admiral Junction and within walking distance to Alki Beach, one of the city’s most popular beach destinations The West Seattle neighborhood is home to many younger professionals working for Seattle’s globally competitive technology companies 62-unit, 100%-leased waterfront luxury apartment complex with high-quality condominium-style features with on-site amenities including a fitness center, yoga room, pool and roof deck with unobstructed 360º views Located in the heart of Williamsburg which is particularly attractive to professionals working in Manhattan’s globally- competitive finance and technology industries. 111 Kent— Brooklyn, NY Globally Competitive Industry: Finance Multi-family Property INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Transaction Activity – Recent Investments 21 10825 Production Avenue — Inland Empire, CA Globally Competitive Industry: Transportation Industrial Property 100% leased 753,170 SF industrial building situated on 29.8 acres Convenient accessibility to Ontario International Airport, the I-10, I-15 and CA-60 freeways Strategically located in one of the nation’s most dominant and supply-constrained industrial markets Nine-story, 168,000 SF state-of-the-art Class A office building Located in the prestigious SoMa district, one of San- Francisco’s top-performing submarkets ENERGY STAR® rated asset that benefits from a highly functional floor plan and sustainability attributes that are required by today’s globally competitive companies and their employees 153 Townsend Street — San Francisco, CA Globally Competitive Industry: Professional Services Office Property INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT 2012 Core Fund Dispositions 2nd Quarter 2012 Property Name MSA Property Type Disposition Price Mann New Jersey N. New Jersey, NJ Industrial $6,634,616 3rd Quarter 2012 Property Name MSA Property Type Disposition Price Miramar Activity Road San Diego, CA Industrial $10,171,600 4th Quarter 2012 Property Name MSA Property Type Disposition Price Edinborough Corporate Center Minneapolis, MN Office $10,470,000 Colorado Midway Denver, CO Office $5,500,000 1st Quarter 2012 Property Name MSA Property Type Disposition Price Menlo Oaks Corporate Center San Francisco, CA Office $57,266,803 22 During 2012, the Core Fund strategically disposed of FIVE properties in an effort to control risk, maximize opportunity, and capture value for the Fund’s investors. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Environmentally-Conscious Investment Strategies 23 Core Fund ENERGY STAR® Assets as of 4Q12 Property Name MSA Square Feet 2012 Score 2999 Oak Road East Bay, CA 201,112 100 1515 Wynkoop Denver, CO 306,791 98 Wilshire Center Los Angeles, CA 46,579 95 200 South Los Robles Los Angeles, CA 130,818 94 Great American Tower Phoenix, CA 344,527 94 Newport Corporate Tower Orange County, CA 190,486 92 Deerbrook Corporate Center Chicago, IL 133,985 90 Energy Center Houston, TX 305,586 90 K Street Office Washington, D.C. 120,778 87 Crescent VII Denver, CO 135,044 86 18401 Von Karman Orange County, CA 112,298 85 153 Townsend Street San Francisco 167,986 85 Highland Ridge I & II Nashville, TN 341,096 84/81 1101 14th Street Washington, D.C. 119,963 80 Ballston Gateway Washington, D.C. 136,516 80 The Quadrangle Dallas, TX 194,221 80 150 N. Wacker Drive Chicago, IL 243,616 77 *Above 2012 average score is weighted by gross fair value as of December 31, 2012. American seeks to create value for our clients and investors by strategically improving the environmental performance of the assets we manage. Core Fund Highlights 3,231,402 SF of ENERGY STAR® properties with an average score of 89 Nearly one million SF of LEED-certified office properties The Core Fund’s office properties over the last year reduced greenhouse emissions by 1164 tons which equates to: —Annual greenhouse gas emissions from 220 passenger vehicles or CO2 emissions from 118,382 gallons of gasoline consumed —Carbon sequestered annually by 866 acres of forests —CO2 emissions from the electricity use of 158 homes for one year from the energy use of 54.3 homes for one year —Greenhouse gas emissions avoided by recycling 395 tons of waste instead of sending it to the landfill INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Debt Diversification and Maturity 24 Disciplined Use of Leverage —Integration of leverage with asset management strategy – use of debt enhances return in a recovering market Preference for Fixed-Rate Debt —As of 4Q12, 93% of the Core Fund’s debt was fixed rate Staggered Debt Maturities —No significant debt maturity in any one year and all future maturities are expected to be refinanced with existing anticipated cash flow Note: Debt Maturity figures above represent principal balance maturing as of December 31, 2012 and reflect the Core Fund’s effective ownership share of the debt. Above reference to 2018+ is the time period of January 1, 2017 to September 5, 2020. Debt Maturity above excludes the fund level Line of Credit, which had a balance of $77,300,000 as of December 31, 2012 and matures on July 31, 2013. Use of leverage may create additional risks. Please refer to disclosures at the end of this presentation. American takes a conservative approach to the use of leverage in real estate investing. 2013 2014 2015 2016 2017 2018+ Current debt as % of Fund GFV 2.45% 2.32% 1.71% 2.13% 1.56% 6.07% Dollar Amount (USD in millions) $77.8 $73.7 $54.3 $67.6 $49.5 $192.6 Debt Maturity Schedule (as of December 31, 2012) INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Distribution Policy 25 The Core Fund currently has a gross quarterly distribution of 1.5% (6.0% annual) Distributions are declared quarterly as a percentage of previous quarter’s Net Asset Value —American considers sources and uses of cash flow in the Core Fund on a quarterly basis and establishes the gross quarterly distribution percentage —Distributions, redemption requests, capital and operating needs, and potential acquisitions are all considered in the allocation of cash flow —The Core Fund Asset Management Fee is deducted from the gross distribution —Investors can elect to receive distributions in cash or may reinvest (during quarters when the Core Fund is accepting reinvestment), and may change this election quarterly INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American’s Competitive Advantages 26 Firm philosophy and process focused exclusively on private real estate transactions Real Estate Focus Firm is 100% owned by senior management who have extensive real estate investment management experience Working with Decision Makers American is a fiduciary to the American Core Realty Fund, LLC Fiduciary Standard Research-based investment management focusing on risk control and value realization Disciplined Process Operating real estate with hands-on expertise Active Management Over 24-year track record understanding and underwriting risk Risk Control Steady long-term performance, with experience investing in all phases of the real estate cycle Performance INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Today’s Presenter 27 Richelle Hayes Director, Marketing and Client Service 21 years of investment experience University of Central Florida: B.S. Webster University: M.B.A., M.A., Health Services Richelle Hayes is responsible for developing and expanding client and consultant relationships for American’s commingled fund clients, and is based out of American’s Orlando office. Most recently, she was Vice President of Client Services for ICC Capital Management in Orlando, where she worked closely with clients and consultants based in the Southeast. Prior to joining ICC, she was Vice President, Corporate Relations with the American Hospital Association in Florida, and was responsible for developing client relationships with senior executives of member hospitals, following various positions in financial relationship management within the national managed health care industry. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Core Realty Fund – Summary of Holdings (December 31, 2012) 28 Investment Location MSA Investment Date Property Type SF/Units Stated Ownership Net Fair Value (4) Gross Fair Value (5) ALARA Park Bridge (1) Alpharetta, GA Atlanta, GA 12/22/03 Multi-Family 352 units 100% $49,600,000 $49,600,000 Ballston Gateway Arlington, VA Washington, DC 12/23/03 Office 136,516 100% $43,473,810 $67,300,000 ALARA Highland Park (1) Dunwoody, GA Atlanta, GA 04/01/04 Multi-Family 188 units 100% $19,323,450 $19,323,450 ALARA Links at Westridge (1) Valencia, CA Los Angeles, CA 12/14/04 Multi-Family 230 units 100% $30,800,000 $59,800,000 1600 International Drive (3) Tysons Corner, VA Washington, DC 01/12/05 Office 91,928 90% $11,522,866 $19,780,200 8300 Greensboro Drive (3) Tysons Corner, VA Washington, DC 01/12/05 Office 266,692 90% $36,219,344 $57,452,490 Safari Business Center Ontario, CA Inland Empire, CA 05/17/05 Industrial 712,645 100% $53,300,000 $53,300,000 Waldorf Marketplace I Waldorf, MD Washington, DC 06/29/05 Retail 205,285 100% $57,600,000 $57,600,000 South Loop Marketplace Chicago, IL Chicago, IL 08/05/05 Retail 102,266 100% $37,000,000 $37,000,000 California Rosslynn Fullerton, CA Orange County, CA 08/05/05 Industrial 257,246 100% $27,300,000 $27,300,000 Texas Lombardy Dallas, TX Dallas, TX 08/05/05 Industrial 267,488 100% $8,400,000 $11,400,000 Texas 121 Grapevine, TX Dallas, TX 08/05/05 Industrial 130,200 100% $6,044,500 $6,044,500 Texas Century Center Irving, TX Dallas, TX 08/05/05 Industrial 120,933 100% $3,986,500 $3,986,500 Columbia Maryland Marshfield Baltimore, MD Baltimore, MD 08/05/05 Industrial 1,334,755 100% $62,700,000 $95,200,000 Marquardt Distribution Center Cerritos, CA Los Angeles, CA 12/13/05 Industrial 123,058 100% $15,000,000 $15,000,000 Highland Ridge I & II (2) Nashville, TN Nashville, TN 12/30/05 Office 341,096 70% $7,917,000 $25,837,000 200 South Los Robles Pasadena, CA Los Angeles, CA 01/01/06 Office 130,818 100% $20,045,065 $36,800,000 3555-3602 West Washington Phoenix, AZ Phoenix, AZ 01/01/06 Industrial 325,004 100% $16,700,000 $16,700,000 ALARA River Oaks (1) Nashville, TN Nashville, TN 01/01/06 Multi-Family 200 units 100% $17,939,806 $26,000,000 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Core Realty Fund – Summary of Holdings (December 31, 2012) 29 Investment Location MSA Investment Date Property Type SF/Units Stated Ownership Net Fair Value (4) Gross Fair Value (5) Piedmont Center (3) Buckhead, GA Atlanta, GA 03/16/06 Office 550,165 99% $16,941,468 $79,976,962 Mann New York (3) Ronkonkoma, NY New York, NY 03/31/06 Industrial 50,600 97% $732,879 $3,882,800 ALARA Cantebrea Crossing (1) Austin, TX Austin, TX 05/17/06 Multi-Family 288 units 100% $27,500,000 $27,500,000 Piedmont Center (3) Buckhead, GA Atlanta, GA 03/16/06 Office 550,165 99% $16,941,468 $79,976,962 100 Tournament Drive Horsham, PA Philadelphia, PA 06/13/06 Office 115,850 100% $18,000,000 $18,000,000 Miramar Activity Road San Diego, CA San Diego, CA 07/01/06 Industrial 83,520 100% $10,400,000 $10,400,000 Wilshire Center Los Angeles, CA Los Angeles, CA 07/01/06 Office 46,579 100% $12,000,000 $12,000,000 Deerbrook Corporate Center Deerfield, IL Chicago, IL 07/01/06 Office 133,985 100% $17,500,000 $17,500,000 Gateway Centre Cary, NC Raleigh, NC 07/01/06 Industrial 157,063 100% $12,800,000 $12,800,000 Peachtree Corners Distribution Center Norcross, GA Atlanta, GA 07/01/06 Industrial 356,355 100% $13,100,000 $13,100,000 ALARA at Summerfield (1) Aurora, IL Chicago, IL 08/09/06 Multi-Family 368 units 100% $34,100,000 $58,600,000 ALARA Villages of Addison (1) Dallas, TX Dallas, TX 12/28/06 Multi-Family 264 units 100% $19,600,000 $34,100,000 Weston Lakeside Cary, NC Raleigh, NC 02/22/07 Multi-Family 332 units 100% $24,900,000 $45,400,000 Kendall Mall Miami, FL Miami, FL 03/15/07 Retail 278,747 100% $79,300,000 $79,300,000 K Street Office (2) Washington, DC Washington, DC 03/19/07 Office 120,778 85% $23,617,057 $38,004,384 Waltham Corporate Center (2) Waltham, MA Boston, MA 04/12/07 Office 294,180 95% $53,390,000 $91,390,000 ALARA Canyon Creek (1) Austin, TX Austin, TX 05/01/07 Multi-Family 444 units 100% $38,300,000 $38,300,000 Great American Tower (2) (6) Phoenix, AZ Phoenix, AZ 06/06/07 Office 344,527 70%(2) / 100% (6) $33,731,969 $33,731,969 Waldorf Marketplace II Waldorf, MD Washington, DC 06/28/07 Retail 168,519 100% $42,700,000 $42,700,000 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Core Realty Fund – Summary of Holdings (December 31, 2012) 30 Investment Location MSA Investment Date Property Type SF/Units Stated Ownership Net Fair Value (4) Gross Fair Value (5) Camp Creek Lithia Springs, GA Atlanta, GA 07/27/07 Industrial 244,282 100% $10,846,500 $10,846,500 Swift Center Addison, IL Chicago, IL 07/27/07 Industrial 265,058 100% $15,200,000 $15,200,000 2999 Oak Road Walnut Creek, CA East Bay, CA 09/12/07 Office 201,112 100% $57,000,000 $57,000,000 150 North Wacker Drive Chicago, IL Chicago, IL 09/28/07 Office 243,616 100% $42,000,000 $42,000,000 Great America Tech Center Santa Clara, CA San Jose/Santa Clara, CA 12/06/07 Office 120,200 100% $27,300,000 $27,300,000 ALARA Hedges Creek (1) Tualatin, OR Portland, OR 12/27/07 Multi-Family 408 units 100% $34,600,000 $57,600,000 ALARA Harbour Pointe (1) Mukilteo, WA Seattle, WA 02/26/08 Multi-Family 230 units 100% $39,300,000 $39,300,000 Broadway Center Business Park Gardena, CA Los Angeles, CA 08/05/08 Industrial 189,714 100% $17,700,000 $17,700,000 Walnut Avenue Industrial Park Fullerton, CA Orange County, CA 08/05/08 Industrial 169,196 100% $16,500,000 $16,500,000 ALARA Greenwood Village (1) Greenwood Village, CO Denver, CO 09/26/08 Multi-Family 304 units 100% $32,900,000 $61,400,000 St. John’s Town Center North Jacksonville, FL Jacksonville, FL 01/07/10 Retail 98,900 100% $33,100,000 $33,100,000 Festival at Riva Annapolis, MD Baltimore/Towso n, MD 12/29/10 Retail 300,963 100% $111,300,000 $111,300,000 Shops at Waterford Dublin, CA East Bay, CA 01/27/11 Retail 124,826 100% $40,265,159 $65,200,000 1515 Wynkoop Denver, CO Denver, CO 06/15/11 Office 306,791 100% $127,000,000 $127,000,000 Energy Center Houston, TX Houston, TX 06/27/11 Office 305,586 100% $97,300,000 $97,300,000 Alexandria Commons Alexandria, VA Washington, DC 06/30/11 Retail 145,231 100% $43,683,527 $69,400,000 Cupertino City Center I & II Cupertino, CA San Jose/Santa Clara, CA 09/28/11 Office 311,240 100% $147,000,000 $147,000,000 Deerwood Apartments Houston, TX Houston, TX 09/30/11 Multi-Family 186 units 100% $27,800,000 $27,800,000 Crescent VII Greenwood Village, CO Denver, CO 09/30/11 Office 135,044 100% $23,500,000 $23,500,000 1900 Spring Road Oak Brook, IL Chicago, IL 09/30/11 Office 100,303 100% $12,500,000 $12,500,000 INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT American Core Realty Fund – Summary of Holdings (December 31, 2012) 31 Investment Location MSA Investment Date Property Type SF/Units Stated Ownership Net Fair Value (4) Gross Fair Value (5) Newport Corporate Tower Newport Beach, CA Orange County, CA 12/31/11 Office 190,486 100% $32,937,374 $45,500,000 Creekside Plaza Shopping Center Poway, CA San Diego, CA 12/31/11 Retail 145,963 100% $39,450,000 $39,450,000 SouthWoods Business Center Atlanta, GA Atlanta, GA 12/31/11 Industrial 531,774 100% $14,511,949 $25,500,000 ALARA State Bridge (1) Alpharetta, GA Atlanta, GA 12/31/11 Multi-Family 224 units 100% $12,393,964 $25,260,500 1101 14th Street Washington, DC Washington, DC 12/31/11 Office 119,963 100% $40,721,105 $49,700,000 Mural Apartments Seattle, WA Seattle, WA 03/22/12 Multi-Family 139 units 100% $42,500,000 $42,500,000 Link Apartments Seattle, WA Seattle, WA 03/22/12 Multi-Family 195 units 100% $63,000,000 $63,000,000 Weston Lakes Plaza Weston, FL Miami/ Fort Lauderdale, FL 03/31/12 Retail 96,342 100% $15,657,130 $27,600,000 18401 Von Karman Irvine, CA Orange County, CA 03/31/12 Office 112,298 100% $28,100,000 $28,100,000 The Quadrangle Dallas, TX Dallas, TX 03/31/12 Office 194,221 100% $32,800,000 $32,800,000 ALARA North Point (1) Alpharetta, GA Atlanta, GA 03/31/12 Multi-Family 264 units 100% $19,308,587 $34,100,000 Rancho Cucamonga Distribution Center Rancho Cucamonga, CA Inland Empire, CA 03/31/12 Industrial 434,871 100% $30,900,000 $30,900,000 @First Retail Center San Jose, CA San Jose/Santa Clara, CA 05/03/12 Retail 84,001 100% $46,800,000 $46,800,000 111 Kent Avenue Brooklyn, NY New York, NY 05/09/12 Multi-Family 62 units 100% $56,700,000 $56,700,000 Mission Hills Vons San Diego, CA San Diego, CA 7/24/2012 Retail 63,992 100% $28,600,000 $28,600,000 Admiral Safeway Seattle, WA Seattle, WA 7/24/2012 Retail 67,992 100% $30,800,000 $30,800,000 10825 Production Avenue Fontana, CA Inland Empire, CA 9/18/2012 Industrial 753,170 100% $64,200,000 $64,200,000 153 Townsend Street San Francisco, CA San Francisco, CA 12/04/2012 Office 167,986 100% $93,779,877 $93,779,877 Edinborough Corporate Center (6) Edina, MN Minneapolis, MN 12/19/2012 Office n/a 100% $9,423,000 $9,423,000 TOTAL REAL ESTATE INVESTMENTS $2,662,863,886 $3,175,770,132 (1) ALARA® is a registered service mark of American Realty Advisors and is used under license (2) Joint venture investment partnership accounted for using the equity method (3) Joint venture investment partnership (consolidated) (4) Reflects American Core Realty Fund’s effective ownership share of the gross fair value of the real estate investment less the gross fair value of the mortgage loan (5) Reflects American Core Realty Fund’s effective ownership share of the gross fair value of the real estate investment (6) Note Receivable INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Disclosures 32 This presentation is for your information only and is neither an offer to sell nor a solicitation of an offer to buy any securities or financial instruments. The information in these materials is intended solely for “Accredited Investors” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1993. Any product or service referred to herein may not be suitable for any or all persons. The information in this presentation has been obtained or derived from sources believed by American Realty Advisors (“American”) to be reliable but American does not represent that this information is accurate or complete. Any opinions or estimates contained in this presentation represent the judgment of American at the time this presentation was prepared and are subject to change without notice. Performance analysis is based on certain assumptions with respect to significant factors that may prove not to be as assumed. You should understand these assumptions and evaluate whether they are appropriate for your purposes. Performance results are often based on mathematical models that use inputs to calculate results. As with all models, results may vary significantly depending upon the value of the inputs given. Models used in any analysis may be proprietary, making the results difficult for any third party to reproduce. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Photos used in this presentation were selected based on visual appearance and are used for illustrative purposes only. Investments discussed in this presentation are expected to involve the economic and business risks generally inherent in real estate investments of the type the Fund intends to make. A major risk of owning income-producing properties is the possibility that the properties will not generate income sufficient to meet operating expenses, to service any loans that are secured by the properties or to fund adequate reserves for capital expenditures. The income from properties may be affected by many factors, including, but not limited to, fluctuations in occupancy levels, operating expenses and rental income (which in turn may be adversely affected by general and local economic conditions); the supply of and demand for properties of the type in which the Fund invests; energy shortages; compliance by tenants with the terms of their leases; collection difficulties; the enactment of unfavorable environmental or zoning laws; Federal and local rent controls; other laws and regulations; and changes in real property tax rates. The marketability and value of any properties of the Fund will depend on a number of factors beyond the control of the Fund, including, but not limited to, those previously described. Furthermore, there can be no assurance that a ready market for the properties of the Fund will exist at any particular time, since investments in real properties are generally considered to be more illiquid than publicly-traded securities. Any return to the investors on their investment will depend upon factors that cannot be predicted at the time of investment, that may be beyond the control of the Fund, or that may be uninsurable or not economically insurable (such as losses caused by earthquakes, terrorism or floods). Such factors will also affect the return to the investors on their investment. The description of certain risk factors in this presentation does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Fund. Investors should read the Fund’s confidential offering memorandum and consult with their own advisors before deciding to subscribe or invest. In addition, as the investment markets and Fund develop and change over time, an investment may be subject to additional and different risk factors. No assurance can be made that profits will be achieved or that substantial losses will not be incurred. The Fund is authorized to borrow up to 40% of the total gross value of the real estate assets owned by the Fund and is not required to reduce debt in the event the total value of its real estate declines. The use of leverage introduces the risk that cash flow from properties so encumbered, or from other sources, may not be sufficient to service the secured debt and therefore could result in the loss of equity through foreclosure. This presentation should be considered confidential and may not be reproduced in whole or in part, and may not be circulated or redelivered to any person without the prior written consent of American. This presentation is intended for Fund investors, their consultants, and prospective investors only. Past performance is not a guide to or otherwise indicative of future results. As with all investments there are associated inherent risks. The investments made by the Fund and described herein are not FDIC insured, are not bank guaranteed, are not guaranteed by American and may lose value. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Forward-Looking Statements 33 This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" or similar expressions. American Realty Advisors (“American”) cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and American assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. In addition to factors previously disclosed in the Fund’s disclosure documents and those identified elsewhere in this presentation, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies by American on behalf of the Fund and/or by others in its industry; (2) changes in political, economic or industry conditions, the interest rate environment or financial and capital markets; (3) the relative and absolute investment performance and operations of the Fund’s investments; (4) the impact of increased competition in the financial, capital and real estate markets; (5) the impact of capital improvement projects in the real estate markets; (6) the impact of future acquisitions and divestitures by the Fund, its competitors and other participants in the financial, capital and real estate markets; (7) the favorable or unfavorable resolution of legal proceedings affecting the Fund’s investments; (8) the impact, extent and timing of technological changes; (9) the impact of legislative and regulatory actions and reforms and increasing regulatory, supervisory or enforcement actions of government agencies relating to the Fund’s investments; (10) terrorist activities, which may adversely affect the general economy, real estate, financial and capital markets and specific industries; (11) the ability of American to attract and retain highly talented professionals; and (12) the impact of changes to the tax code and tax legislation in general. INSTITUTIONAL REAL ESTATE INVESTMENT MANAGEMENT Core Equity Real Estate Investments Composite 34 COMPLIANCE STATEMENT American Realty Advisors (“American”) claims compliance with the Global Investment performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. American has not been independently verified. THE FIRM American is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended, and has qualified as a Qualified Professional Asset Manager, investment manager and fiduciary under the Employee Retirement Income Security Act of 1974, as amended. THE COMPOSITE The Core Equity Real Estate Investments Composite was created on January 1, 1992 and consists of all fully discretionary open-end funds and separate accounts managed by the firm using a core investment strategy. American manages Discretionary and Non-Discretionary real estate assets for its clients. American defines a Discretionary Asset as any real estate asset where the firm manages at least a 50% ownership interest, either on behalf of a separate account client or a commingled fund managed by American, and where either (1) the firm has full control over the management of decisions associated with said asset, or (2) with respect to joint venture assets, the partner does not have full discretion. Investments are made primarily in institutional fully operational, stabilized, income-producing properties of four types (institutional office, industrial, retail and multi-family), located in diversified nationwide markets with above-average growth potential. The firm maintains a complete list and description of composites that is available upon request. BENCHMARK This composite is benchmarked against the NCREIF Property Index (NPI) published by the National Council of Real Estate Investment Fiduciaries. NPI returns are unleveraged and are shown before the deduction of investment management or other fees or expenses. However, the NPI should not be relied upon as an exact measure of comparison since the Composite is invested in substantially fewer assets and the weightings of each property type will differ between the two in any measurement period. LEVERAGE Certain assets in the composite are leveraged. Total leverage on the current assets within the Composite does not exceed 30% of the gross fair value of such assets. Both fixed rate and variable rate debt is used. Interest rate caps are considered when using variable rate debt. Loans typically require interest-only payments and sometimes have maturity dates before the loans are fully amortized. CALCULATION OF PERFORMANCE RETURNS Performance is stated in U.S. Dollars, is presented gross and net of management fees, and includes the reinvestment of some income. Net of fee returns are reduced by actual investment advisory fees and certain other expenses that may be incurred in the management of the account (which do not include incentive fees). Performance returns are computed using time- weighted returns that have been adjusted for external cash flows and by geometrically linking component returns. The sum of the income and appreciation may not equal the total return for annualized periods due to the chain-linking of quarterly returns. The dispersion columns represent the lowest and highest annual gross of fee portfolio returns. Until 2012, the dispersion data was incorrectly reported as it was calculated at the property level. Past performance is not a guarantee of future results and it is important to understand that investments of the type included above pose the potential for loss of capital over any time period. VALUATIONS The fair value of real estate is determined as the price that a willing buyer and seller would agree upon in an arm’s length transaction, without any pressure to consummate the transaction on the imposed deadline, assuming the highest and best use of each asset. The fair value does not take into account costs to consummate the transaction. Various approaches have been used to determine fair value including the cost, sales comparison and income approaches. All valuations of real estate involve subjective judgments, as the actual fair value price of real estate can be determined only by negotiations between independent parties in sales transactions. The fair value of real estate that is not subject to a current appraisal represents American Realty Advisors’ best estimate of the fair value. Real estate values are based upon independent appraisals performed for assets held by open-end commingled funds annually with restricted-scope appraisals conducted on a quarterly basis for those assets not receiving a full appraisal. Independent appraisals for separate accounts and closed-end commingled funds are conducted at least every three years as required by each account’s Investment Management Agreement. Internal valuations are conducted on a quarterly basis between appraisals. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. FEES Asset management fees vary for each fund and portfolio managed by American Realty Advisors. The fees are based on a variable that generally consists of the original acquisition cost, net asset value, net operating income or gross value. Some fee arrangements provide for the lower or higher of two variables. The low end of the range is equal to 0.45% of the acquisition cost with the high end of the range based on 0.80% of gross value. The fee structure for the largest fund that American Realty Advisors manages is dependent on the level of commitment made by the investor and ranges from 0.85% to 1.10% of net asset value. Incentive fee structures differ for each client; however, such fees are generally based upon achieving stipulated internal rate of return hurdles. COMPOSITE RETURN DATA NCREIF PROPERTY INDEX (NPI) COMPOSITE STATISTICS AT YEAR-END YEAR GROSS-OF-FEES RETURNS APPRECIATION DISPERSION LOW HIGH NET-OF-FEES TOTAL RETURN INCOME APPRECIATION TOTAL RETURN # OF ACCOUNTS** COMPOSITE ASSETS ($ MIL) TOTAL FIRM ASSETS* ($ MIL) % EXTERNALLY APPRAISED TOTAL INCOME 2011 15.73% 6.19% 9.12% 0.82% 23.10% 14.57% 6.11% 7.80% 14.26% 11 3,144 4,525 86% 2010 13.47% 6.85% 6.30% 6.11% 20.91% 12.41% 6.76% 6.05% 13.11% 9 2,571 3,423 66% 2009 (28.83%) 6.05% (33.30%) (34.25%) (4.20%) (29.52%) 6.17% (21.98%) (16.85%) 10 2,445 3,337 87% 2008 (5.48%) 4.95% (10.05%) (11.81%) 2.93% (6.31%) 5.13% (11.15%) (6.46%) 10 3,265 4,220 82% 2007 20.74% 5.50% 14.65% 10.44% 29.34% 19.71% 5.56% 9.88% 15.85% 9 3,338 4,363 53% 2006 16.07% 5.71% 9.94% 10.59% 25.73% 15.09% 6.22% 9.92% 16.60% 10 2,622 3,392 51% 2005 21.43% 6.16% 14.61% 5.53% 61.88% 20.39% 6.75% 12.68% 20.06% 12 2,038 2,523 2004 11.83% 7.37% 4.23% 7.08% 25.03% 10.79% 7.46% 6.66% 14.49% 10 1,290 1,423 2003 10.31% 8.71% 1.50% (26.17%) 24.68% 9.25% 7.97% 0.97% 9.00% 8 896 1,194 2002 7.50% 8.69% (1.12%) 0.82% 12.48% 6.46% 8.42% (1.58%) 6.75% 6 690 983 2001 7.10% 9.49% (2.23%) 2.57% 13.90% 6.23% 8.67% (1.31%) 7.28% 7 589 1,058 Annualized Returns * Assets under management represent the gross value of all assets and accounts managed by American Realty Advisors (excluding partners' share of equity and debt on partnership investments and non-real estate debt assets through 12/31/10). Prior to March 31, 2008, American reported total firm assets as the amount of assets under management plus undrawn capital commitments and noted the amount of such undrawn commitments in a footnote. Effective March 31, 2008, American restated year -end total firm assets from 2001-2007 to omit such undrawn commitments. ** Each account in the composite represents a separate account client or a commingled fund. 3 Year (2.23%) 6.37% (8.20%) (3.17%) 5 Year 1.30% 5.91% (4.41%) 0.36% 10 Year 7.14% 6.61% (0.51%) 6.16% Since Inception 9.44% 8.36% 1.02% 8.50% F:\F\W\PowerPoint\Stable Value Fund\Client Reviews\Palm Beach Gardens\2013\Palm Beach Gardens Firefighters' Pension Fund_03-01-13_DRAFT 1.pptx PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MINUTES OF MEETING HELD February 6, 2013 A meeting of the Board of Trustees was called to order at 1:03 PM. at Council Chambers, Palm Beach Gardens, Florida. Those persons present were: TRUSTEES OTHERS Rick Rhodes, Chair Audrey Ross, Administrator Tom Murphy, Secretary (arrived 1:18PM) Pedro Herrera, Attorney (arrived 1:11PM) Donna Wisneski Jim Burdick, Auditor Ed Morejon Troy Brown, Investment Consultant Mark Joyce PUBLIC COMMENTS N/A MINUTES The Board reviewed the minutes of the regular meeting held on January 14, 2013. A motion was made by Donna Wisneski to approve the minutes of the January 14, 2013 regular meeting. The motion was seconded by Ed Morejon and carried 4-0. PRESENTATION OF THE SEPTEMBER 30, 2012 AUDITED FINANCIAL STATEMENTS: CHERRY BEKAERT (JIM BURDICK) Mr. Burdick stated that effective January 1, 2013 they changed the firm name to Cherry Bekaert, LLP and dropped off the name Holland. He noted that this change was strictly due to the structure of their firm and does not have any impact to this Plan. Mr. Burdick reviewed the required communications and stated that there were no material weaknesses or deficiencies found while performing the audit. Also there were no non-compliant issues while performing the audit either. He noted that there were no new accounting standards published this year, but there will be more adopted in 2014. Mr. Burdick explained that the only question that did arise this year was to do with the DROP liabilities and how they should be recorded. Currently the DROP liabilities are being included with the Plans assets because DROP members are considered retired and therefore their monies are a liability of the pension plan as well. Ms. Wisneski commented that she did speak to Mr. Burdick regarding this prior to the meeting and her opinion is that she thinks the State will accept the report either way, but it is just the board’s preference on how they want to record the DROP liabilities because it has been done both ways in the past. Mr. Burdick commented that right now the DROP liabilities start being recorded when a member enters the DROP and he thinks it is more transparent this way. The Trustees had a lengthy discussion on the DROP liabilities and how they should be recorded in the plans financials. They concluded that they would like to continue with the same practice in the past and record the DROP liabilities as part of the Plans assets. Mr. Burdick reported that the Plans assets increased this fiscal year to $49,785,877 from $37,906,384 last year. He noted that this increase was primarily due to a great investment year. The employer contributions increased as the employee contributions 2 deceased. The administrative expenses increased mostly due to the Actuary fees, but they are still in line compared to other plans this size. Lastly Mr. Burdick commented that they are waiting on the audit representation letter before they can release the final audit, but that will not change any of the figures presented here today. The Trustees deferred approving the audit until a final copy is released. INVESTMENT MONITOR REPORT: THE BOGDAHN GROUP (TROY BROWN) Mr. Brown reviewed the Plans R&D account which is used to pay out benefit payments and account payables. He noted that if the board feels more comfortable, they can increase the cash held in that account because the account was overdrawn around the beginning of this year. Currently that account holds around $225K in cash and if the board would like to increase the amount, Mr. Brown would recommend increasing it by another $100K for a total amount of $325K. Mr. Brown commented that he does not think it is very urgent to raise the cash in the account immediately because they try to keep as much invested in the market as possible, and also the account has only been overdrawn once which was more then likely due to the holiday schedule. The Trustees discussed and stated that they would like to increase the R&D account so that future overdrafts do not occur. Also they noted that the account should be reviewed once a year to make sure that no other changes are necessary. A motion was made by Donna Wisneski to increase the Plan’s receipt and disbursement account by $100K for a total amount of $325K. The motion was seconded by Ed Morejon and carried 5-0. Mr. Brown reviewed the report for the quarter ending December 31, 2012 and stated that overall it was a great quarter. ICC outperformed for the quarter and they are coming back very strong, although they are still the reason why the Plan underperformed for the year. For the quarter the total fund net of fees outperformed the index at 1.29% versus 1%, and for the one year they are also ahead at 13.07% versus 12.76%. Six managers outperformed during the quarter and four managers underperformed. Mr. Brown commented that currently the Plan has a slight underweight to Real Estate and an overweight to fixed income. Therefore he would recommend a slight rebalance by adding a little more to Real Estate at this time. The board can have American Realty attend their next meeting to discuss and then decide at that time about adding more into Real Estate. The Trustees concurred and asked Mr. Brown to invite American Realty to their next meeting. Mr. Brown updated the board on ICC’s transition with Munder which is no longer going to occur. He briefly explained to the board why the transition did not happen, which was mostly due to management issues. Bogdahn will be meeting with ICC sometime in March to review their performance and discus their firm. Mr. Brown will more than likely have a recommendation regarding ICC sometime after that meeting. Also he noted that he will bring back other fixed income alternatives to the next meeting to be prepared in advanced for any change that may occur in the near future. The Trustees also discussed ICC’s heavy weighting in gold. They shared their thoughts and concerns with ICC and also noted that they hired ICC knowing that they are a more volatile manager and they take big swings. 3 Mr. Brown continued the discussion of adding an index fund account into the portfolio. He reminded the board that this is a way of diversifying the portfolio on the fixed income side. He explained that he would draw down both the Dana and ICC portfolios to fund the new index fund and that way no one manager would have more than a 20% position in the portfolio. Mr. Brown also noted that by adding in an index fund, it drops the management fees of the portfolio. He would recommend taking $6M from Dana and $5M from ICC to fund the index fund. Also he would recommend Vanguard for the account. Mr. Brown explained that Vanguards average return over the last 5 years is about 20%, and they are the ones that have been doing this for the longest and they are also the cheapest. He reviewed some asset allocation scenarios that he put together and explained that whatever changes they do make, he would recommend using a transition manager. The Trustees had a very lengthy discussion on the index fund and where the assets would be coming from to fund it. They asked Mr. Brown to bring back other index fund managers in addition to Vanguard to review before they make a decision. Lastly Mr. Brown updated the board on the funds performance through the end of January. He stated that the fund has earned another 3.3% in the month of January, which puts them at 4.8% for the fiscal year ending September 30, 2013. Mr. Brown noted that currently the cash account is a little over weighted and therefore he would recommend that the board move $640,000 from the Plans cash account to the Templeton Global Bond fund. The Templeton fund has been doing great and is already up another 4.4% for the fiscal year. The Trustees discussed and concurred with the recommendation. A motion was made by Mark Joyce to approve the transfer of $640K from the Plans cash account to the Templeton Global Bond account per the Consultants recommendation. The motion was seconded by Tom Murphy and carried 5-0. ATTORNEY REPORT: SUGERMAN & SUSSKIND (PEDRO HERRERA) Mr. Herrera stated that the pending Ordinance has been reviewed by legal council and will be on the City’s Council agenda for first reading tomorrow night. He noted that per the board’s direction he will attend the meeting for first reading. Mr. Herrera explained that since the Ordinance is going up for first reading, the board will need to direct the Actuary to prepare the impact statement because the City will need it by second reading. The Trustees discussed this and commented that they thought an impact statement was already completed for this Ordinance since it has been pending for years. Ms. Ross commented that she thinks that impact statements are only valid for so long and since she came on the board about 2 years ago there has not been one issued for these changes. Also if one was completed before she came on board, it would have been by the prior Actuary and now they have a different Actuary. A motion was made by Tom Murphy to direct the Actuary, Foster & Foster to prepare an impact statement regarding the pending Ordinance, contingent on passing of the first reading. The motion was seconded by Donna Wesneski and carried 5-0. Mr. Herrera commented that the City has provided the plan with a list of unused sick and vacation time for each member as of the Ordinance change on September 12, 2012. 4 Mr. Herrera explained that as a follow up from last meeting regarding the buyback discussion the board had; if a member has already purchased time and they will not be able to use the benefit in the future, then the board needs to consider refunding the member their buyback contributions. Mr. Murphy stated that the one particular member they were referring to at the last meeting will not be affected by the changes and will get to use his buyback benefit. Also it was noted that there are no other members in this situation either. Mr. Herrera passed out the revised Board Officer’s Election Procedure. He briefly reviewed the changes and noted that he removed the language that stated that the nomination of the Chair and Secretary had to be posted 30 days in advance. Mr. Herrera notified the Trustees that the Division of Retirement is holding their annual conference this year from May 20-22, 2013. Mr. Herrera briefly updated the board on the bills that are being proposed this Legislative session. He commented that some of the proposed bills will effect the Chapter 175/185 plans, but he also stated that the session hasn’t officially began yet so he will update the board as more information becomes available. ADMINISTRATIVE REPORT: RESOURCE CENTERS (AUDREY ROSS) DISBURSEMENTS The Board reviewed the disbursements presented for approval by the Administrator. A motion was made by Donna Wisneski to approve the disbursements that were presented by the Administrator. The motion was seconded by Ed Morejon and carried 5-0. BENEFIT APPROVALS The Board reviewed the applications to enter the DROP for Ed Morejon and Matt Haywood. A motion was made by Tom Murphy to approve the application to enter the DROP for Ed Morejon. The motion was seconded by Mark Joyce and carried 4-0 (Ed Morejon sustained from the vote). A motion was made by Donna Wisneski to approve the application to enter the DROP for Matt Haywood. The motion was seconded by Mark Joyce and carried 5- 0. OLD BUSINESS Ms. Ross stated that the board needs to select a Chair, Vice Chair, and Secretary according to their policy. A motion was made by Tom Murphy to nominate Rick Rhodes as Chair. The motion was seconded by Ed Morejon and carried 5-0. Mr. Rhodes accepted the nomination as Chair. 5 A motion was made by Tom Murphy to elect Rick Rhodes as Chair. The motion was seconded by Ed Morejon and carried 5-0. A motion was made by Tom Murphy to nominate Donna Wisneski as Vice Chair. The motion was seconded by Ed Morejon and carried 5-0. Ms. Wisneski accepted the nomination as Vice Chair. A motion was made by Tom Murphy to elect Donna Wisneski as Vice Chair. The motion was seconded by Ed Morejon and carried 5-0. A motion was made by Tom Murphy to nominate Mark Joyce as Secretary. The motion was seconded by Ed Morejon and carried 5-0. Mr. Joyce declined the nomination as Secretary. A motion was made by Mark Joyce to nominate Tom Murphy as Secretary. The motion was seconded by Ed Morejon and carried 5-0. Mr. Murphy accepted the nomination as Secretary. A motion was made by Mark Joyce to elect Tom Murphy as Secretary. The motion was seconded by Ed Morejon and carried 5-0. Ms. Ross stated that Foster & Foster is working on updating the Summary Plan Description. Ms. Ross updated the board on the Trustee term expiration for Rick Rhodes and commented that everything has been straightened out and his term expires on September 30, 2015. Ms. Ross notified the board the Foster & Foster will be taking over the DROP accounting effective January 1, 2013. At the last meeting the board tabled the motion to allow members to leave their money in their DROP accounts after separation of service. The Trustees discussed and Ms. Wisneki wanted to know what kind of impact this would have on the plan. Mr. Herrera commented that it would be cost neutral to the Plan and the City. The board commented that they did not see a problem with adding in this provision and ask Mr. Herrera if there is anyway we can draft this language into the current pending Ordinance. Mr. Herrera commented that he will have to check with the City council and will let the board know. A motion was made by Tom Murphy to un-table the prior motion from the last meeting, and authorize members to leave their money in their DROP accounts upon separation of service. The motion was seconded by Mark Joyce and carried 4-1. The Trustees discussed the Share accounts and allowing members to leave their money’s in there upon separation of service as well. 6 A motion was made by Mark Joyce to amend the prior motion and add in the language to allow members to leave their money in their share accounts (as well as DROP accounts ) upon separation of service, and to direct the Plans Attorney to contact the City regarding adding in this language into the current pending Ordinance. The motion was seconded by Ed Morejon and carried 4-1. There being no further business, the meeting adjourned at 4:03PM. Respectfully submitted, Tom Murphy, Secretary