Why REITs – Experience. There is a difference June 2013

Why REITs
June 2013
There is a difference – Experience.
Table of Contents
I.
The Investment Case for Global Real Estate Securities..……………………………………………..…….3
II.
Global Real Estate Market Outlook..…………………………………………………………………………..……13
Appendices
A.
Benchmark Comparison…………...……...….………………….…………………....…………...…..…...……17
B.
Biographies……..…………………...……...….………………….…………………....…………...…..…...……18
C.
Notice & Disclaimer……..……………………..………..……...……………….…….………………………..…20
John White, Managing Director
Public Real Estate Securities – Asia-Pacific
+852.3976.6888
[email protected]
Please see appendix for important disclaimers and other important information.
In addition, please note that this presentation does not constitute (i) an offer to sell, or the solicitation of an offer to buy, any interests in any investment vehicle, or (ii) a solicitation for any investment advisory or asset
management services of Heitman or any of its affiliates. Any such offer or solicitation, if made, will only be made by means of a placement memorandum (in the case of an investment vehicle) or a proposed investment
advisory agreement (in the case of advisory or asset management services). Further, this presentation is subject to correction, completion and amendment without notice.
2
The Investment Case for Global Real Estate Securities
 Attractive asset class characteristics
− Offer diversification by geography and property type
− Provide exposure to high-quality assets in major markets in a listed liquid format
− Serve as inflation protection over the long-term
 Competitive risk-adjusted total returns accompanied by stable dividend income
 Volatility returned to pre-GFC levels
 Portfolio diversification benefit
 Near- and medium-term outlook is positive for real estate securities
Global real estate securities can play a positive role
in multi-asset portfolios
Please see appendix for important disclaimers and other important information.
The Investment Case for Global Real Estate Securities
3
Diversification by Geography
 Opportunity to gain exposure to underlying real estate assets in high growth markets
 FTSE EPRA/NAREIT Developed Index consists of real estate securities of US$1 trillion
in market capitalization with over 299 companies globally
FTSE EPRA/NAREIT Developed Index by Geography
North America
~US$540 billion
United States:
Canada:
47.0%
4.4%
North
America
50%
Asia-Pacific
36%
Asia-Pacific
Europe
14%
~US$380 billion
Hong Kong:
Japan:
Australia/New Zealand:
Singapore:
9.7%
14.0%
7.7%
4.5%
Europe
~US$135 billion
United Kingdom:
Eurozone:
Scandinavia:
4.6%
6.9%
1.2%
Source: FTSE/EPRA NAREIT Developed Index as of 3/31/2013.
$1053 Billion, $851Billion investor/rental companies, $202 Billion development stocks ($196 Billion of which are located in Asia-Pacific).
The Investment Case for Global Real Estate Securities
4
Diversification by Property Type
 Diversification across operating platforms (REITs and developers) and property types
 In addition to traditional property types, provides exposure to hard-to-invest-in
specialty areas: healthcare, data centers, student housing, and self-storage
FTSE EPRA/NAREIT Developed Index
Breakdown by Property Type
Retail
26%
Diversified
29%
Office
14%
Specialty
1%
Health
Care
8%
Self-Storage
3%
Hotel/Resort &
Entertainment
3%
Residential
11%
Industrial
6%
Source: FTSE/EPRA NAREIT Developed Index as of 3/31/2013.
The Investment Case for Global Real Estate Securities
5
Expanded Opportunity Set
 As the number of listed companies grows, investors can gain access to an ever larger
set of properties through listed vehicles
FTSE EPRA/NAREIT Developed Index
1000
360
Pre-Crisis Peak in Property Valuation
900
340
Markets fall on Eurozone crisis
800
Market Capitalization ($ Billions)
320
700
GFC
300
600
500
280
400
260
300
240
200
220
100
NA Market Cap
APAC Market Cap
EU Market Cap
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
200
Mar-06
0
Number of Stocks in Index
Source: FTSE/EPRA NAREIT Developed Index as of 3/31/2013.
The Investment Case for Global Real Estate Securities
6
Exposure to Prime Assets in Major Global Markets
 A large proportion of high-quality office/retail assets are owned by listed real estate
companies in major global markets
% of Property Market Owned By Listed Real Estate Companies
(Office unless otherwise specified)
London - City and West End
15%
Paris - CBD and & La Defense
15%
Stockholm Golden Triangle
35%
Australia - Top 5 Cities
39%
Tokyo - Marounichi
40%
Hong Kong
58%
Singapore
61%
US - Regional Malls
80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Source: The Economist Intelligence Unit, JLL, CBRE, Cushman and Wakefield, Knight Frank, Heitman Research
The Investment Case for Global Real Estate Securities
7
Potential Hedge Against Inflation
 Listed real estate returns have grown faster than inflation over the long term
 Rent structures with long leases and expense pass-through provide some protection
against unexpected inflation and “event risk”
 Inflation-indexed rents and upward only rent reviews in some major markets should
help protect income from adverse inflationary effects
 However, short-term severe market imbalances leave investors open to losses due to
inflation
Index Level 2003 = 100
250
236
200
150
120
100
50
0
2003
2004
2005
2006
2007
2008
FTSE EPRA/NAREIT Developed Index Total Return, 2003 = 100
2009
2010
2011
2012
2013
Advanced Economies Inflation Index, 2003 = 100
Source: FTSE, IMF, Heitman Calculations.
Note: Advanced Economies composed of 35 countries as defined by the IMF. Please refer to www.imf.org for more details.
The Investment Case for Global Real Estate Securities
8
Attractive Short- & Long-Term Total Returns
10-Year Total Returns
(Global Real Estate Securities vs. Global Equities vs. Global Bonds)
Total Returns
450%
400%
1 Year
3 Year
5 Year
10 Year
FTSE EPRA/NAREIT Developed
21.1%
14.2%
3.5%
13.0%
MSCI World Index
15.0%
8.7%
3.5%
8.3%
7.8%
6.9%
6.9%
5.3%
BofA ML Global Corporate Index
350%
300%
250%
200%
150%
100%
50%
FTSE EPRA/NAREIT Developed Index
MSCI World Index
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
0%
BofA ML Global Corporate Index
Source: Heitman and FTSE EPRA/NAREIT, Morgan Stanley. Ten years as of 3/31/2013.
Note: MSCI World Index and BofA ML Global Corporate Index are represented in local currency. FTSE EPRA/NAREIT Developed Index is represented in USD.
BofA ML Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.
The Investment Case for Global Real Estate Securities
9
Historically Stable Dividend Income
Income Return and Price Appreciation
60%
40%
40.7%
5.4%
20%
42.4%
38.0%
38.3%
3.5%
4.5%
4.9%
28.7%
3.9%
20.1%
33.5%
32.0%
15.4%
37.5%
31.7%
4.2%
3.9%
23.8%
15.6%
10.7%
3.4%
0%
5.0%
4.0%
-10.0%
-9.2%
-7.0%
-5.6%
6.3%
0.8%
5.4%
-20%
-50.2%
-40%
-47.7%
-60%
2003
2004
2005
2006
2007
Price Return
2008
2009
2010
2011
2012
YTD 2013
Income Return
Source: FTSE EPRA/NAREIT as of 3/31/2013.
Note: FTSE EPRA/NAREIT Developed Index, represented in USD.
The Investment Case for Global Real Estate Securities
10
Volatility Has Returned To Normalized Levels
 Volatility of listed real estate equities should continue to be lower than general
equities as:
− Property companies have taken advantage of global capital market liquidity to deleverage
and strengthen balance sheets
− Real estate securities benefited from a focus on income-oriented business models rather
than riskier development-oriented business models; the additional stability of cash flows
should lead to more stable prices
Rolling 60-Day Volatility
80
70
Global Financial Crisis
60
50
40
Eurozone Crisis
30
20
10
FTSE EPRA/NAREIT Developed Index
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
0
MSCI World Index
Source: Bloomberg as of 3/31/2013.
The Investment Case for Global Real Estate Securities
11
Potential Diversification Benefits
 Adding global real estate securities to a portfolio of global stocks and bonds¹ can
increase returns for a given level of risk
Average Annualized Quarterly Return
10%
Efficient Frontier with 0%/10%/20% Allocation to Global Real Estate Securities
10-Year Analysis as of Q1 2013
80% Stocks
9%
90% Stocks
100% Stocks
8%
20% to GRES
80% Bonds
7%
10% to GRES
90% Bonds
6%
0% to GRES
100% Bonds
5%
4%
2%
4%
6%
8%
10%
12%
Standard Deviation of Returns
14%
16%
18%
20%
Source: MCSI, Merill Lynch, FTSE-EPRA NAREIT, Heitman Research as of 3/31/2013.
1. Underlying portfolio consists of MSCI World Index and BofA ML Global Corporate Index. Investors assumed to gain exposure to
Global Real Estate Securities through the FTSE EPRA/NAREIT Developed Index. Quarterly data from 2003.
The Investment Case for Global Real Estate Securities
12
Favorable Real Estate Market Outlook Driven By…
 Positive capital market conditions
− Continued low interest rates
− Efficient access to equity and debt capital
 Constructive real estate fundamentals
− Limited new supply in most markets
− Improving demand drivers (job creation, consumer confidence, GDP growth)
 Expanding investor allocations
− Demand for hard, real assets with inflation protection
− Continued search for yield
 Generally supportive macro environment
− Real, sustainable, but far from robust, recovery in North American macro economy
− Muddle through in Europe with reduced tail risks but little economic dynamism to show; UK
will continue its stagnation although assets in London should continue to perform well
− Solid growth from China, aggressive policy out of Japan, weak economy and rate cuts from
Australia; while Singapore's economy will continue to limp forward but stocks listed there
allow exposure to robust growth in the ASEAN nations
Global Real Estate Market Outlook
13
Global Real Estate Market Outlook
UBS Global Index
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
-10%
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
REITs Trading at a Modest Discount to NAV
Discount/Premium to NAV
30%
20%
10%
0%
Average: -3.3%
-2.5%
-20%
-30%
-40%
-50%
10 Year Average
Source: UBS Global Real Estate Research as of 3/31/2013.
14
Attractive Dividend Yields
 Dividend yields in the FTSE EPRA/NAREIT Developed Index are substantially higher
than the government bond yield
9%
8%
7%
6%
5%
4%
3.8%
3%
2%
1.8%
1%
FTSE EPRA/NAREIT Forward Dividend Yield
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
0%
Average 10 Year Government Bond Yield¹
Source: Heitman Research, FTSE EPRA/NAREIT as of 3/31/2013.
1. Simple average of largest six countries in the index
Global Real Estate Market Outlook
15
Positive Dividend Growth Trends
Dividend Growth – FTSE EPRA/NAREIT Developed Index
3/31/12 Dividend Growth
3/31/13 Dividend Growth
Forecast 2013 Dividend Growth
5-Year Dividend Growth
12%
10.0%
10%
7.7%
8%
7.3%
7.0%
6.4%
5.9%
6%
4.2%
4%
5.0% 4.8% 5.0%
5.0%
6.6%
5.6%
5.0%
4.1% 4.3%
3.8%
3.6% 3.5%
5.9%
3.1%
2%
1.6%
0.0%
0%
Australia/
New Zealand
Asia Ex-Japan
0.0% 0.0%
Japan
US
Canada
Continental
Europe
UK
Universe
 Dividend growth is positive and is directly related to earnings growth
− Payout ratios for Asia-Pac regions are stable with moderate growth expected from embedded
rental growth and development completions
− Strong dividend growth in North American market driven by low payout ratios and recovering
real estate markets
− Increase in European growth rates from conservative business models of dominant index
constituents with exposure to prime assets and prime locations in Europe
Source: Heitman Research, FTSE EPRA/NAREIT.
Dividend growth numbers are the weighted averages by region or universe.
Global Real Estate Market Outlook
16
Appendix: Comparison of MSCI World Index
and FTSE EPRA/NAREIT
 Investors in global equities do not gain full exposure and diversification benefits of
placing dedicated funds into listed real estate
 There are more than three times as many real estate companies in the FTSE
EPRA/NAREIT Developed Index as there are in the MSCI World Index
Total market cap of
all securities 1
MSCI World
FTSE EPRA/NAREIT Developed
US$27.4 trillion
US$1.1 trillion
1,608
299
No. of all stocks
Total market cap of
real estate securities
US$873 billion 2
3.19%(2)
US$1.1 trillion
100%
9442)
5.85%(2)
299
100%
No. of real estate securities
Source: MSCI, FTSE EPRA/NAREIT as of 3/31/2013.
1. MSCI World Index and FTSE EPRA/NAREIT Developed are free-float adjusted
2. As defined by the ICB Supersector industry classifications within MSCI World.
Appendix: Benchmark Comparison
17
Senior Management
Kathy Sandstrom is Senior Managing Director of Heitman’s Global Real Estate Securities group and an equity owner of the firm. As head of
the group, Kathy is responsible for the execution of all of Heitman’s securities business initiatives. Kathy is a member of Heitman’s Global
Management Committee, as well as the firm’s Board of Managers. Kathy began her career at Heitman in 1996 as a member of the f irm’s
investor accounting group. Over the course of her tenure, Kathy has held a variety of roles. Most recently she led the firm’s North American
Client Service & Marketing group, overseeing business development and client relationships for North American institutional investors and
their consultants. Kathy received a BA in accounting from the University of West Florida. She is a CPA and a member of the Pension Real
Estate Association.
Mark Abramson is Managing Director and the Lead Portfolio Manager for Heitman's European real estate securities strategies; along with Tim
Pire and John White, he also serves as a Portfolio Manager for the firm's global real estate securities strategies. Prior to joining Heitman,
Mark was senior managing director at Bear Stearns & Co., where he was a sell-side equity research analyst for 11 years. In that time, Mark
had the unusual opportunity to cover companies in various industry sectors in Europe, the U.S., Asia and Latin America. He achieved the
noteworthy distinction of a #1 sector ranking in 1997 in the prestigious Institutional Investor magazine survey of Wall Street analysts, as well
as other awards and recognition since then for his analysis. For his last seven years at the investment bank, Mark focused on the global
hospitality and leisure industries, including coverage of specialist REITs in North America and other hospitality oriented real estate
companies in Europe and Asia. He was the only investment analyst among his Wall Street peer group to have been top-ranked in both the
European and the U.S. markets for his research on the hospitality sector. Mark's investment recommendations have been widely cited in
international financial press and other media, and he has been regularly invited to present his market insights at industry conferences,
universities and other venues. Mark's academic training focused on economics and international public policy at the Johns Hopkins
University (BA), American University (MA) and the University of Maryland (post-graduate studies). He is based in Heitman’s Munich office.
Tim Pire, CFA is Managing Director and the Lead Portfolio Manager for Heitman's North American real estate securities strategies; along with
Mark Abramson and John White, he also serves as a Portfolio Manager for the firm's global real estate securities strategies. Tim is an equity
owner of the firm and has been analyzing REIT securities at Heitman since 1992. As one of the industry's most seasoned REIT analysts, Tim
brings a unique perspective to the Portfolio Management team through his previous association with Lyon, Skelte & Speirs as an associate
appraiser. As an appraiser, Tim was responsible for visiting, analyzing and valuing retail, apartment, office and industrial properties, primarily
in the Pacific Northwest. Tim holds an MS in Real Estate with an emphasis in Finance, and a BBA in Business with an emphasis in Finance,
both from the University of Wisconsin-Madison. Among other professional affiliations, Tim is on the Board of Advisors for the Center of Real
Estate of the University of Wisconsin-Madison School of Business. He is also on the Real Estate Board of Advisors for the Stephen L. Hawk
Center for Applied Security Analysis of the University of Wisconsin-Madison School of Business and is a member of the National Association
of Real Estate Investment Trusts. He is based in Heitman’s Chicago office.
Appendix: Biographies
18
Senior Management
John White is Managing Director and the Lead Portfolio Manager for Heitman's Asia-Pacific real estate securities strategies. He is an equity
owner of the firm and a member of Heitman’s Management Committee. Aong with Tim Pire and Mark Abramson, he also serves as a
Portfolio Manager for the firm's global real estate securities strategies. John has over 20 years of experience in the public and private equity
and debt real estate markets across the Asia-Pacific region. Prior to joining Heitman in 2010, John was co-head of real estate securities at
Challenger (Heitman’s Asian JV partner for real estate securities) for five years; he was also senior investment manager, real estate
securities at HSBC Asset Management from 2001. Before moving to investment management, John worked in investment banking as a
senior property analyst at HSBC and as a manager—real estate credit at ANZ Banking Group in Australia and in South-East Asia. He began
his career as a real estate valuer at Landauer and Chesterton. John holds a BBus in Land Economy and a Graduate Diploma in Applied
Finance and Investment. He is a member of the Royal Institute of Chartered Surveyors, the Asian Public Real Estate Association, the
Australian Property Institute and the Financial Services Institute of Australasia. He is based in Heitman’s Hong Kong office.
Appendix: Biographies
19
Notice and Disclaimer
Important Notice and Disclaimer
−
This confidential presentation and the information set out herein (the “Presentation”) is summary in nature only and is qualified in its entirety by the information set
out in the confidential private placement memorandum or other formal disclosure document (the “Disclosure Document”) relating to the potential opportunity
described herein (the “Opportunity”).
−
This Presentation has been provided to the recipient by Heitman or an affiliate as sponsor (the “Sponsor”) and is only intended to assist sophisticated professional
investors in deciding whether they wish to consider reviewing the Disclosure Document. This Presentation is meant for use in one-on-one presentations with
sophisticated professional investors. However, the contents of this Presentation are not to be construed as investment, legal or tax advice and do not consider the
particular circumstances specific to any individual recipient to whom this Presentation has been delivered. The recipient should obtain advice from the appropriate
qualified experts. Further, the Sponsor is not acting in the capacity of a fiduciary of any recipient of this Presentation.
−
This Presentation is furnished on a strictly confidential basis to sophisticated professional investors. None of the information contained herein may be reproduced
or passed to any person or used for any purpose other than for the purpose of considering the Opportunity. No approach of any kind may be made by any officer,
employee or adviser of the recipient of this Presentation to any officer, employee, customer or supplier of the Sponsor without the prior written approval of the
Sponsor. Notwithstanding the foregoing, recipients (and each employee, agent or representative of any recipient) may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of an investment described herein and all materials of any kind (including opinions or other tax analyses)
that are provided that relate to such tax treatment or tax structure, except to the extent maintaining such confidentiality is necessary to comply with any applicable
securities laws. The foregoing language is not intended to waive any confidentiality obligations otherwise applicable, except with respect to the information and
materials specifically referenced in the preceding sentence. By accepting delivery of this Presentation, each prospective investor agrees to the foregoing.
−
Any opinions, forecasts, projections or other statements, other than statements of historical fact, that are made in this Presentation are forward-looking
statements. Although the Sponsor believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of
assumptions, risks and uncertainties. Accordingly, neither the Sponsor nor any of its affiliates makes any express or implied representation or warranty, and no
responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other
information set out in this Presentation or any further information, written or oral notice, or other document at any time supplied in connection with this
Presentation, and nothing contained herein or in the Disclosure Document shall be relied upon as a promise or representation regarding any future events or
performance. Past returns from investment in real estate (or real estate related investments) are no guarantee that the same (or enhanced) returns from real
estate (or real estate related investments) will be achieved in the future.
−
The recipient’s attention is specifically drawn to the risk factors identified by the Sponsor relating to the Opportunity as set out in the Disclosure Document or any
other documents provided to the recipient. The Sponsor also advises that the potential investment described herein is speculative, involves a degree of risk and
there is no guarantee of performance or a return of any capital with respect to any investment.
−
By accepting delivery of this Presentation, the recipient accepts the terms of this notice and agrees, upon request, to return all materials received by the recipient
from the Sponsor, including this Presentation without retaining any copies thereof.
Appendix: Notice & Disclaimer
20
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