Yield Optimization Strategies

April 24, 2008

CIO – AMLI Residential (www.amli.com) RentWizard – Sold to RealPage in 2003 RentCheque – 2nd generation implementation

CEO – Yield Dynamics, Inc. YieldWizard – “A NEW GENERATION OF SOFTWARE FOR EQUIPMENT

RENTAL YIELD MAXIMIZATION”

CEO – Yield Technologies, Inc. (www.yieldco.com) RevenueRaptor – Revenue optimization framework

Steve Small

PRESENTER BACKGROUND

Agenda

The Business Opportunity

Statistical Concepts

Yield Optimization at AMLI

Revenue Management is Real MoneyRevenue Management is Real Money

RegionAMLI

Properties NCREIF Index

Rolling 1 Year NOI Return Variance

Houston 6.40% 5.72% 0.68%

Austin 6.02% 5.48% 0.54%

Dallas 6.24% 5.51% 0.73%

Atlanta 6.21% 5.45% 0.77%

Chicago 5.84% 5.20% 0.64%

Denver 5.80% 5.03% 0.78%

Kansas 6.55% 6.17% 0.38%

Southern California 5.17% 4.47% 0.71%

New Jersey 6.40% 5.35% 1.05%

Seattle 6.06% 5.02% 1.04%

Florida 5.10% 4.80% 0.30%

Total Portfolio 6.01% 5.21% 0.79%

AMLI’s property data is computed using the NCREIF formulas, summarized by market and compared against the lowest meaningful index

Simple compounded rate of the most recent four quarters is used for comparison

Data in the chart to the right is for 2Q06 through 1Q07

AMLI vs. NCREIF – Annual NOI Growth

Wachovia REIT Performance

Revenue Management is Real MoneyRevenue Management is Real Money

Global Perspective

Revenue Management is more than a pricing system.

It’s about finding incremental opportunities.

People and process first; Technology second.

Key aspects: Install business transparency. Feedback business results and metrics in real-time. Make it easy to for customers to do business with you. Invest in your Internet presence. Take a disciplined statistical approach to capital investment

and pricing.

KEY ASPECTS

Transforming the Enterprise

Is it Actionable?

Is it understandable to the organization?

Can everyone participate?

Yield Optimization is about actionable ways to improve marketing, product mix, customers, and business processes.

YIELD OPTIMIZATION

Agenda

The Business Opportunity

Statistical Concepts

Yield Optimization at AMLI

Improved revenue on operations

Find the optimal price at which you can maintain target utilization…

It is instructive to understand elasticity of the conversion ratio for demand. Elasticity measures the responsiveness of quantity demanded to a change in price, with all other factors held constant.

ELASTICITY

Computing price elasticity of demand (Sensitivity)

E d p ercentage change in q uantity d em and ed

p ercentage change in p r ice

% .Q

8 5 1 0 0

1 0 0

1 5

1 0 00 1 5 o r 1 5 %

%$ 2. $ 2 .

$ 2 .

$ 0.

$ 2 .P

2 0 0 0

0 0

2 0

0 010%

%

%.

Q

P

1 5 %

1 0 %1 5 0

Interpreting the value of elasticity

Response to Price Changes

Responsive

Unresponsive

Proportional

Value of

Elasticity

Ed > 1

Ed < 1

Ed = 1

Demand Elasticity

Elastic

Inelastic

Unitary elastic

Magnitudes of Change

%QD > %P

%QD < %P

%QD = %PType of

Elasticity

Elastic

Inelastic

Substitutes Available

Many

Few

The main determinant of demand elasticity is the availability of substitutes

ELASTIC or INELASTIC

Factors affecting the price elasticity of demand

Availability of substitutes: the more possible substitutes, the greater the elasticity.

Degree of necessity or luxury: luxury products tend to have greater elasticity.

Proportion of the purchaser's budget consumed by the item: products that consume a large portion of the purchaser's budget tend to have greater elasticity.

Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavior.

Permanent or temporary price change: a one-day sale will elicit a different response than a permanent price decrease.

Predicting changes in total revenue

Along the elastic range of the demand curve, an increase in price leads to a decrease in total revenue.

This graph shows the relationship between elasticity along a linear demand curve and total revenue. Note the following:

Along the inelastic range, an increase in price leads to an increase in total revenue.

Revenue is maximized when Ed=1.

Agenda

The Business Opportunity

Statistical Concepts

Yield Optimization at AMLI

Consistent Message and Processes

“HUGO” - OUR HEGDEHOG

Tier Report

PORTFOLIO AT A GLANCE

Performance Dashboards

If you don’t measure it, You will no be able to effectively manage it

Instills competition with peer team members

Focuses attention on Key Performance Indicators that you want to affect

MONITOR ORGANIZATION IN REAL TIME

Key Performance Indicators

DASHBOARDS

Measures Individual Performance

DASHBOARDS

KPIs Presented “Over Time”

STORE DASHBOARD

Market Survey

PROPERTY OVERVIEW

Leasing, Marketing & Servicing

Real-Time Internet Unit Pricing & Availability

On-Line Leasing

AMLITrak

PhoneTrak

The New AMLI.com

BE MORE CONNECTED

Real Time on AMLI.com

UNIT PRICING & AVAILABILITY

Pricing Matrix

DELIVERY OF MULTIPLE LEASE TERM PRICING

AMLI is a Leader

AMLI IS 3X THE RENT.COM AVERAGE (2006)

REIT Performance metrics (YTD 2006)

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Lead to Lease Conversion – weighted average per property

AMLITrak

CRM LEAD FOLLOW-UP SYSTEM

Prospects

RECORDED IN DBMS & EMAILED TO COMMUNITY

Responses

COACHED & RECORDED

Follow-up Reminder

IS QUEUED

Another Follow-up Reminder

BY EMAIL TO COMMUNITY STAFF

Creates an e-mail Response

ALSO COACHED

Also Creates a Future Reminder

IF PROSPECT LEASES ELSEWHERE

AMLI PhoneTrak

CAPTURES CALLER DATA AND PROVIDES UNIT AVAILABILITY

AMLI PhoneTrak

CAPTURES CALLER DATA AND PROVIDES UNIT AVAILABILITY

AMLI PhoneTrak

Is a Virtual Call Center

AMLI Community Sales Staff Knows Product and Customers Better

Measures Call Follow-up and Responsiveness

Captures Better Customer Traffic and Demographics Data

BENEFITS

AMLI PhoneTrak

TOOL FOR COMMUNITY STAFFING DECISIONS

AMLIPhoneTrak

TRACKS CALLS GOING TO ANSWERING SERVICE

Revenue Management

Revenue Management Is giving the right customer the right product at the right time for the right price

Goal is to maximize rental revenues through the proper balance of occupancy and rental rates

AMLI Residential

RENT CHEQUE

Comparison to Other Industries

REVENUE MANAGEMENT

Airline Hotel Apartment Rentals

Relatively fixed capacityHard to add extra seat to a plane or extra planes to a

route

Hard to build extra hotel room quickly

Hard to build extra apartments quickly

Perishable inventoryYesterdays empty seat

cannot be re-sold today, it has no value

Yesterdays empty hotel room cannot be re-sold today, it

has no value

If an apartment goes empty for a day, that day's value is

lost forever

Advanced ReservationsMost people book flights well

before the day of travel

Most people book hotel rooms well before the day of

travel

Nobody signs a lease and moves in the same day!

Time variable demandSummers are busier, holiday

times are peak times

Resorts are busy in the summer, conference hotels

busy during the week..

People prefer to move in at the start of the month.

Summer is preferd over winter

Appropriate cost & Pricing Structure

Marginal cost (fuel, food and overhead) is very low

compared to fix cost (the airplane lease)

The cost of cleaning a room (marginal cost) is very small compared to the total cost

structure

There is virtually no marginal cost in the apartment industry

Segmentable marketsBusiness travel is shorter

notice, generally weekdays only

Corporate travelers vs. Leisure travelers

Corporate housing vs. new family rentals vs. lease

renewals

ExamplesConcept

Replaces Traditional “Market Rent and Concessions” Approach

Simplifies Pricing for the Customer and the Leasing Staff

Easy to Implement, Manage & Measure

“Gross Potential Rent” is a meaningless number

Revenue Management

NET EFFECTIVE RENT PRICING

Revenue Mgmt Roadmap

TRANSITION PLAN

Concept Previously Transition End State

Pricing Frequency "When we got around to it" 2 or 3 times a weekDaily, or as required (after each

new transaction?)

Separate logic cases

Information pulled from disparate reports

64 256 and beyond

Information Delivery

"Pull" "Push" Integrated / Automatic

Ownership No forced ownership Opt in Opt Out

Prices Generated New leases only New leases only New and Renewal

ComplianceManual checking, time

consumingManual checking, time

consuming

Sophisticated compliance validation and exception

reporting

Fees & Other Income

No Fee focus, (admin, app.. Etc) No Fee focus, (admin, app.. Etc)Automated auditing and

compliance management of all fees and other income

Revenue Opportunity

NET EFFECTIVE VS. CONCESSION BURN-OFF

$900

$950

$1,000

$1,050

$1,100

$1,150

$1,200

Market Rent

Weekly

Monthly

Bi Monthly

Revenue Opportunity

MAXIMUM CAPTURE VS. FREQUENCY

100.00%

99.72%

98.67%

97.75%

97%

98%

99%

100%

Daily Weekly Monthly Bi-Monthly

Actual Pricing

EXAMPLE OF “PUSH” REPORTING

Metrics

A LITTLE OF THE MATH INVOLVED

Occupancy Change

0

30

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tto

NrNuVrVu

VuVu

Adjusted Availability

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UTt

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Traffic Index

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Traffic

Outcomes

64 UNIQUE SOLUTIONS

Traffic Index

Adjusted AvailabilityOccupancy Change

Lease

s

Seasonality

Seasonal lease expirations adjustment

Anatomy of a Lease

OPTIMIZING EACH LEASE FOR MAXIMUM REVENUE

Front loaded vacancy

Turn cost amortization

Pricing Matrix

DELIVERY OF MULTIPLE LEASE TERM PRICING

Steve Small – AMLI Residential (www.amli.com) ssmall@amli.com or steve@yieldco.com 312-283-4900

AMLI Residential

CONTACT INFORMATION