Bruce Choate Kirk Johnson VITAL STATISTICS: Watson Land Company ADDRESS: 22010 South Wilmington Ave. Suite 400 Carson, CA 90745 PHONE: 310-952-6400 FAX: 310-522-8788 WEB SITE: www.watsonlandcompany.com KEY EXECUTIVES: Bruce Choate, president & CEO; Kirk Johnson, executive vice president; Roger von Ting, CFO

By Jennifer D. Duell

Few REITs have a history as rich as Watson Land Company, which can trace its roots back to one of California’s largest Spanish land grants, the Rancho San Pedro.

“We’ve been stewards of the land for centuries,” says Bruce Choate, president and CEO of the Carson, Calif.-based privately held REIT that owns industrial facilities throughout Southern California. “It’s our legacy, and it’s really important to us. It gives us a different perspective compared to other REITs.”

Choate says that Watson Land’s heritage is the heart of the company’s vision, which is to be committed to its customers and community. That heritage has even influenced the name of its buildings—Legacy BuildingsSM—which are highly flexible, class A structures with distinctive architectural detail designed to work equally well for manufacturing or distribution companies.

“We have a long-term perspective when it comes to the quality of our assets and the communities in which we operate,” Choate says. “We rarely sell any of our buildings and our employees are encouraged to become involved in the community.”

A King’s Gift That Keeps Giving

More than 200 years ago, the King of Spain, Charles III, bequeathed 75,000 acres in what is now southern Los Angeles County to Juan Jose Dominguez as a reward for his long and faithful service as a soldier in the Spanish Colonial Army.

The land holdings were passed to Dominguez family descendants until Maria Dolores Dominguez married James Alexander Watson in 1855. Their marriage marked the birth of what is known today as Watson Land.

Entrance to the 7 million square foot Watson Industrial Center in Carson, Calif.

Watson Land was first incorporated in 1912 as Watson Estate Company and given its current moniker in 1927. Until the early 1960s, Watson Land used its holdings for agriculture and oil production, but in 1963 the company began developing its land to meet Southern California’s changing market. Since then, the REIT has built its real estate portfolio around the region’s growing logistics industry, according to Choate.

Today, the REIT owns approximately 14 million square feet of class A industrial buildings throughout Southern California and has another 5 million square feet under construction or in design, Choate says. In total, Watson Land controls assets worth approximately $2 billion.

Unlike other REITs that count large institutional investors as shareholders, Watson Land’s shareholders are mostly individuals, families or non-profit organizations. “As the original shareholders in the company passed away, they’ve bequeathed their shares to family members or charities,” Choate says. “We usually have more than 100 non-profit shareholders show up at our annual meeting to tell us about the ways they’ve been able to use their dividends.”

He says that Watson Land’s investors encourage the REIT to have a long-term outlook because most of them have inherited their stock.

During the last five years, Watson Land’s annual total shareholder return averaged close to 25 percent, according to Green Street Advisors, Inc.’s annual valuations. From 2001 to 2005, total shareholder return exceeded the FTSE NAREIT All REIT Index in every year except 2003.

Lobby area in the corporate headquarters for Leiner Health Products in Carson, Calif.

Gathering Land
About four years ago, Choate and the rest of the Watson Land executive team faced an unfamiliar and unwelcome situation—the REIT was running out of land from its original Spanish land grant.

“This was a real watershed event for the company because we had to decide what to do for the future,” Choate says. “After evaluating a number of scenarios, we concluded that we’re pretty good at what we do. The only missing component was the land. For the first time, we needed to go out and acquire more.”

Over the past 18 months, Watson Land has added approximately eight years’ worth of land—about 17 million square feet of land, enough for about 8 million square feet of buildings—to its development pipeline. “We’ll be in good shape if we can maintain five to 10 years’ supply of land, because we plan to build 1 million to 1.5 million square feet of product annually over the next 10 years,” says Kirk Johnson, executive vice president of Watson Land, adding that the REIT’s current land inventory can accommodate roughly 4 million square feet of industrial space.

The REIT recently obtained land through two significant purchases. In late 2005, the REIT acquired 100 acres in the Redlands area of unincorporated San Bernardino County in the Inland Empire. The land, which was formerly two orchards, will find new life as Watson Commerce Center Redlands and will accommodate roughly 2.1 million square feet of Watson Land’s signature Legacy Buildings.

Hitachi Transport’s Legacy Building #716 in the Dominguez Technology Center.

In late 2006, Watson Land acquired five dairy farms totaling 143 acres in two separate transactions. Roughly 60 acres of dairy farm land will be transformed into Watson Commerce Center Chino and will offer 1.3 million square feet of Legacy Buildings. The remaining acreage will also become a master-planned park with up to 1.5 million square feet of industrial space.

Exploring New Markets
Watson Land isn’t looking to acquire land just in Southern California. For the first time in its 200-year history, the REIT plans to expand outside its backyard. “Fifteen years ago, I would have said that we’re in the real estate business. However, it increasingly feels like we’re in the goods moving business,” Choate says, explaining that the REIT’s tenants are distributing their products globally, which requires the REIT to be in more locations than just Southern California. “Now we spend more time studying logistics and trying to make sure that we’re in the right place, at the right time, with the right product.”

HUDD Distribution’s automated material handling system.

Choate says the advantages of focusing on one specific geographic area are overcome by the disadvantages. “Being in one specific area means that we’re not in the position to serve tenants when they need to open new locations,” he says. “As our tenants start to expand, we need to be in other markets.”

Under Choate’s direction, Johnson and his team have studied the U.S. logistics network including ports, rail and highway infrastructure and have identified potential expansion markets for Watson Land. In 2007, the Watson Land team plans to visit Fort Myers, Fla., Houston, Norfolk, Va., Oakland, Calif., Savannah, Ga. and Seattle with an eye toward land acquisitions.

As part of Watson Land’s expansion plans, the REIT also is considering the idea of bringing on financial partners. “As we grow into new markets, joint ventures are a way to diversify the way we fund our projects. It would help us mitigate risk,” Choate says.

Choate says he believes that Watson Land’s existing tenant base will help. “Our tenant base, will lend us some local expertise,” he says. “We might be somewhat disadvantaged going into transactions, but over time our model will take care of us.”