Fourth Quarter 2013 NCREIF Indices Review 1 Panelist Overview Jeff Fisher NCREIF Data & Research Consultant Jeffrey Havsy Director of Research, NCREIF Ken Riggs President Real Estate Research Corporation (RERC) 2 Today we will be presenting what we see in the NCREIF data, trends and changes; all comments about future expectations are the personal views of the speakers and not a reflection of a NCREIF opinion or forecast. 3 NCREIF Overview Current Quarter Index Composition Contributors Properties / Funds Market Value ($ Billions) Inception Date Sold Properties Leverage 2013 Q4 Total Return 1 Year Return NPI NPI Leveraged Props NFIODCE Farmland Timberland 64 7,029 354 1978 Q4 237 Unlevered 2.5% 11.0% 57 4,067 238 1983 Q1 112 46% 3.8% 16.7% 21 21 138 1978 Q4 54 22% 3.2% 14.0% 5 546 4 1990 Q4 8 Unlevered 9.3% 20.9% 10 457 23 1987 Q1 5 Unlevered 5.9% 9.7% Return for ODCE is Gross of Fees. 4 NCREIF Farmland and Timberland Indices Income Capital Total 25% Farmland Trailing 4 Quarter Returns 20% 15% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 Income 5.5% 7.3% 7.0% 8.1% 8.7% Capital 0.8% 1.4% 7.9% 10.0% 11.5% Total 6.3% 8.8% 15.2% 18.6% 20.9% 10% 5% 0% 2009 Q4 Income Capital 2010 Q4 2011 Q4 2012 Q4 2013 Q4 Timberland Trailing 4 Quarter Returns Total 12% 10% 8% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 6% Income 1.5% 2.5% 2.7% 2.7% 2.8% 4% Capital -6.2% -2.6% -1.1% 5.0% 6.7% Total -4.7% -0.1% 1.6% 7.8% 9.7% 2% 0% -2% -4% -6% -8% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 5 NPI and ODCE vs. Other Asset Classes Fourth Quarter 2013 Total Return Index Comparison 12% 10.5% 10% 8% 6% 4% 3.8% 3.2% 2.5% 2% 0.0% 0% 0.0% -0.7% -0.5% -0.2% -2% NFI-ODCE NPI NPI leveraged Barclays Capital Gvt Bond Index Barclays Capital U.S. Gvt/Credit Index Consumer NAREIT Equity S&P 500 Index Price Index REIT Index T-Bills (90 day) 6 NPI and ODCE vs. other Asset Classes: 1 and 10 year returns Total Return Index Comparison as of December 31, 2013 35% 32.4% 30% 1 year 25% 10 Year 20% 15% 16.8% 14.0% 12.3% 11.0% 10% 7.2% 8.6% 8.6% 4.5% 4.1% 5% 7.4% 1.4% 2.4% 2.9% 0.1% 1.6% 0% -2.6% -5% NFI-ODCE NPI NPI Leveraged Barclays Capital Gvt Bond Index -2.4% Barclays Capital U.S. Gvt/Credit Index Consumer NAREIT Equity S&P 500 Index Price Index REIT Index T-Bills (90 day) 7 Financial Markets 8 NCREIF Indices Composition 2013 Fourth Quarter Market Value Other, 3% Retail, 18% Apartment 23% NFI-ODCE Office, 35% East 34% West 37% Hotel, 2% Industrial, 18% South 19% Midwest 10% Total Ending Market Value: $138 Billion Retail 23% NPI Office 36% Apartment 25% Industrial 14% East 35% West 35% Hotel 2% South 21% Midwest 9% Total Ending Market Value: $354 Billion 9 NPI vs. ODCE Return Comparison NPI ODCE 4.0% 3.5% Last Five Quarter Returns 3.0% 2.5% NPI ODCE 2.0% 1.5% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2.6% 2.7% 2.8% 2.6% 2.5% 2.3% 2.6% 3.7% 3.4% 3.1% ODCE Equal-weight 1.0% 0.5% 0.0% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 NPI ODCE 20% 10% 0% Annual Returns NPI ODCE 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 -17.0% 13.1% 14.3% 10.7% 11.0% 16.1% 16.0% 11.0% 13.4% -30.7% ODCE Equal-weight -10% -20% -30% -40% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 10 NPI Performance Property Returns Apartment Hotel Industrial Office Retail National ODCE Non-ODCE 4Q 2013 2.2% 2.7% 1.9% 2.5% 3.3% 2.7% 2.6% 2.1% 3.0% 2.5% 2.7% 2.4% ODCE Non-ODCE ODCE Non-ODCE 1 Year 3 Year 9.7% 10.8% 12.3% 12.4% 8.0% 7.5% 9.8% 8.9% 13.3% 11.8% 13.1% 12.3% 10.6% 9.4% 11.6% 10.8% 14.0% 12.3% 13.2% 12.5% 11.4% 10.8% 12.3% 11.8% ODCE Non-ODCE 5 Year 7.9% 6.2% 3.9% 2.0% 4.6% 5.4% 4.4% 4.3% 7.4% 7.6% 5.8% 5.6% 11 4th Quarter of 2013 ODCE Return Non-ODCE Weight Return Weight Apartment 2.20% 25.04% 2.70% 25.03% Hotel 1.90% 2.47% 2.50% 2.19% Industrial 3.30% 13.55% 2.70% 13.69% Office 2.60% 39.00% 2.10% 33.65% Retail 3.00% 19.94% 2.50% 25.45% ODCE has more in office and got a higher return on the office properties in ODCE funds. ODCE has less in retail but got a higher return on the retail properties in the ODCE funds. 12 Capital Return Occupancy 20134 20131 20122 20113 20104 20101 20092 20083 20074 20071 20062 20053 20044 20041 20032 20023 20014 20011 20002 19993 19984 -6% 19981 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -4% 19972 19963 19954 19951 19942 19933 19924 NPI Returns Quarterly Nominal Returns 8% 6% 4% 2% 0% -2% Total Quarterly Return -8% Average Return -10% 0.06 0.96 0.04 0.02 0.94 0 0.92 -0.02 0.9 -0.04 0.88 -0.06 -0.08 0.86 -0.1 0.84 -0.12 0.82 13 6% 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NPI Spread over 10 Year Treasuries NPI Return Spread over Treasuries 4% Spread over Treasuries 2% 0% -2% -4% -6% -8% -10% 14 25% 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 Standard Deviation of Props in NPI Annualized 20% 15% 10% 5% 0% 15 19781 19791 19801 19811 19821 19831 19841 19851 19861 19871 19881 19891 19901 19911 19921 19931 19941 19951 19961 19971 19981 19991 20001 20011 20021 20031 20041 20051 20061 20071 20081 20091 20101 20111 20121 20131 NPI Price Indices NPI 105 95 2008 NPI Price Index 470 420 370 320 270 220 170 120 70 Property Types 110 Price Indices 100 Apartment Office Retail Industrial 90 85 80 75 70 65 60 2009 2010 2011 2012 2013 16 NCREIF Value/Price Indices and Consumer Price Index 17 NPI Plus 8% 6% NPI+ 4% 2% 0% -2% -4% -6% -8% -10% 18 NCREIF Fund Index Open-End Diversified Core (ODCE) Leverage and Cash Balances 40% 8% 35% 7% 30% 6% 25% 5% 20% 4% 15% 3% 10% 2% 5% 0% 2005 Q1 Leverage 2006 Q2 Cash Balance-right axis 2007 Q3 2008 Q4 1% 2010 Q1 2011 Q2 2012 Q3 0% 2013 Q4 19 NCREIF Property Index (NPI) Property Type Total Returns – Annual Returns Over Last Five Years Apartment Hotel Industrial Office Retail 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 20 NCREIF Property Index (NPI) Region Total Returns – Annual Returns Over Last Five Years East Midwest South West 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 21 NCREIF Property Index (NPI) Four Quarter Implied Appraisal Cap Rates 8% 7% 6.9% 6.3% 6.0% 5.9% 5.7% 2011 2012 2013 6% 5% 4% 3% 2% 1% 0% 2009 5% 4.0% 4% 4% 3.4% 4.1% 2010 Rate Spread over 10 year Treasuries 3.4% 3% 2.7% 3% 2% 2% 1% 1% 0% 2009 2010 2011 2012 2013 22 NCREIF Property Index (NPI) Cap Rate Relative to Long-Term Trend Cap Rates - 4 qtr moving ave 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Implied Cap Rate Equals Current Quarter NOI Divided by Current Quarter Market Value Multiplied by 4 Cap Rat4 5.5% Average 5.0% 4.5% 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4.0% Cap Rates Spread to Treasuries 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Spread -6.0% 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -8.0% 23 RERC Historical Rates 24 RERC Historical Spreads 25 NCREIF Property Index (NPI) Property Type Implied Appraisal Cap Rate 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 8% 7% 6% 5% 4% 3% 2% 1% 0% Apartment Industrial Office Retail Implied Cap Rate Equals Current Quarter NOI Divided by Current Quarter Market Value Multiplied by 4 26 NCREIF Property Index (NPI) Region Implied Appraisal Cap Rate 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 8% 7% 6% 5% 4% 3% 2% 1% 0% East Midwest South West Implied Cap Rate Equals Current Quarter NOI Divided by Current Quarter Market Value Multiplied by 4 27 NCREIF Property Index (NPI) and ODCE 100% Occupancy Fourth Quarter Occupancy-Last 5 Years NPI Occupancy 95% 90% 88.1% 88.5% 88.3% 88.3% ODCE Occupancy 89.3% 89.0% 89.8% 89.9% 2011 Q4 2012 Q4 91.2% 90.6% 85% 80% 2009 Q4 95% 2010 Q4 2013 Q4 94% 93% NPI Occupancy 90.9% 92% 91% 90% 89.8% 89.9% 90.0% Occupancy Last Five Quarters ODCE Occupancy 91.1% 90.3% 91.2% 90.7% 91.2% 90.6% 2013 Q3 2013 Q4 89% 88% 87% 86% 85% 2012 Q4 2013 Q1 2013 Q2 28 NCREIF Property Index (NPI) Occupancy by Property Type Fourth Quarter Occupancy-Last 5 Years 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 95% 90% 85% 80% 75% 70% 65% 60% Apartment 2012 Q4 2013 Q1 2013 Q2 Hotel 2013 Q3 Industrial 2013 Q4 95% Office Retail Occupancy Last Five Quarters 90% 85% 80% 75% 70% 65% 60% Apartment Hotel Industrial Office Retail 29 NCREIF Property Index (NPI) Occupancy by Region Third Quarter Occupancy-Last 5 Years 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 95% 90% 85% 80% East 2012 Q4 2013 Q1 2013 Q2 Midwest 2013 Q3 South West 2013 Q4 95% 90% 85% 80% East Midwest South West 30 NCREIF Property Index (NPI) NOI Growth – Rolling Four Quarters (Excluding Hotels) 8% 6% 4% 3.7% 3.7% 2012 Q4 2013 Q4 3.1% 2% 0.7% 0% -2% -4% -2.9% 2009 Q4 2010 Q4 2011 Q4 31 NCREIF Property Index (NPI) NOI Growth by Property Type - Four Quarter Total Apartment 15% Industrial Office Retail 10.8% 9.4% 10% 6.2% 5% 2.5% 1.2% 1.2% 5.4% 2.2% 3.2% 2.9% 3.1% 3.6% 3.0% 0.7% 0% -0.4% -5% -2.5% -3.5%-3.0% -5.7% -10% -7.8% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 32 NCREIF Property Index (NPI) NOI Growth by Region- Four Quarter Total East Midwest South West 8% 6% 6.8% 6.2% 5.8% 5.6% 4.6% 4% 1.9% 2% 0.3% 3.9% 3.1% 3.0% 2.2% 1.2% 2.0% 1.9% 0.7% 0.2% 0% -2% -4% -6% -2.5% -4.0% -5.1% 2009 Q4 -2.2% 2010 Q4 2011 Q4 2012 Q4 2013 Q4 33 Rent Growth (rent collected) Rolling Four Quarter Rent Growth 8% Rent Growth - Nation 6% 4% 2% 0% -2% -4% 34 Rent Growth by Property Type 2013 Q4 Annual Rent Growth 7% 6% 5% 4% 3% 2% 1% 0% Apartment Hotel Industrial Office Retail 35 NCREIF Property Index (NPI) – Current Quarter Detail Fund Type Total Returns Property Size Total Returns 4.0% 5% $135 3.5% $52 $140 $27 3.0% 4% 2.5% $173 $181 3% 2.0% 2% 1.5% 2.6% 2.5% 1% 2.7% 2.8% ODCE Open End 2.8% 2.2% 1.0% 0.5% 0% > $100 million 0.0% <= $100 million Appraisal Type Total Returns Separate Account Closed Ownership Returns 5% 4% $183 4% 3% $148 3% $136 $218 $22 2% 2% 2.8% 2.88% 2.19% 1% 1.99% 1% 2.4% 0% Joint Venture 0% External Internal Wholly Owned Not Appraised Number on top of bar represents market value data in billions of dollars 36 NCREIF Value Index 37 NCREIF Property Index (NPI) Current Quarter Basis Point Return Impact Apartment Industrial Return Impact (BP) Industrial Return Impact (BP) Apartment 2 3 2 1 1 0 -1 -2 0 NY-NJ-New York TX-Fort Worth -3 GA-Atlanta TX-Dallas CA-Los Angeles IL-Chicago DC-VA-MD Office Return Impact (BP) Office 2.0 6 1.5 4 1.0 2 0.5 0 0.0 -2 -0.5 -4 -1.0 Retail MD-Baltimore CA-Riverside Return Impact (BP) Retail OR-WAPortland -1.5 -6 NY-NJ-New York CA-San Francisco TX-Austin CA-Santa Ana DC-VA-MD FL-Orlando CO-Denver CA-Oakland NJ-Edison NY-NJ-New York 38 Leveraged Returns NCREIF Property Index (NPI) NPI Returns 5% Levered Property Analysis 5% 4% 4% Leverage Returns vs. NPI 3% 3% 2% 2% 1% 1% Number and Market Value of Leveraged Properties Market Value 2012 Q4 4350 49% 240 4300 49% 235 4250 48% 4200 48% 4150 47% 220 4100 215 4050 210 205 4000 200 3950 195 3900 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q2 2013 Q3 2013 Q4 50% 245 225 2013 Q1 Loan To Value Property Count on Right Side 230 Billions 0% 47% 46% 46% 45% 49% 48% 47% 46% 46% 45% 44% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 39 -8% -10% -12% Property Sales (% of NPI) vs. NPI Capital Return 0% -2% -4% -6% Capital Return Percent Sold Year 2013 Q4 2012 Q4 2011 Q4 2010 Q4 2009 Q4 2008 Q4 2007 Q4 2006 Q4 2005 Q4 2004 Q4 2003 Q4 2002 Q4 2001 Q4 200 2000 Q4 1999 Q4 1998 Q4 1997 Q4 1996 Q4 1995 Q4 Properties # of Properties Market Value 6,000 150 5,000 4,000 100 3,000 50 2,000 1,000 0 4% 4.5% 2% 4.0% 3.5% 3.0% 2.5% Market Value (millions) 250 Percent Sold 6% 1985 Q4 1986 Q4 1987 Q4 1988 Q4 1989 Q4 1990 Q4 1991 Q4 1992 Q4 1993 Q4 1994 Q4 1995 Q4 1996 Q4 1997 Q4 1998 Q4 1999 Q4 2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 Capital Return Transactions Property Sales 4Q Moving Ave. 8,000 7,000 0 5.0% 2.0% 1.5% 1.0% 0.5% 0.0% 40 NTBI Compared to NPI Total Return Rolling Four Quarter Returns NTBI NPI 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 41 Availability & Discipline of Capital 42 RERC Value Outlook 43 Summary of Fourth Quarter 2013 Results • ODCE/NPI Performance Gap Narrows • Property Type Returns Continue to Diverge • Industrial Leading Property Type for NPI • Hotels Show Signs of Life • Apartments Continue to Slow • Fundamentals Mixed • Occupancy Flat • NOI Growth Up • Rent Growth Slows • Transaction Volume Increasing 44 Upcoming NCREIF Events NCREIF Winter Conference 2014 Phoenix, AZ Arizona Biltmore March 12 - 14, 2014 NCREIF Summer Conference 2014 Lansdowne (near Washington DC), VA Lansdowne Resort June 24 - 26, 2014 Visit www.ncreif.org for more information 45 Appendix 46 NCREIF Fund Index Open-End Diversified Core (ODCE) Return Composition Income Capital Total 4.0% 3.5% Last Five Quarter Returns 3.0% 2.5% Income Capital Total 2.0% 1.5% 2012 Q4 1.3% 1.0% 2.3% 2013 Q1 1.3% 1.3% 2.6% 2013 Q2 1.3% 2.4% 3.7% 2013 Q3 2013 Q4 1.3% 1.3% 2.1% 1.8% 3.4% 3.1% 1.0% 0.5% 0.0% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 Income Capital Total 3.0% NCREIF Property Index (NPI) 2.5% Last Five Quarter Returns Income Capital Total 2012 Q4 1.4% 1.2% 2.6% 2013 Q1 1.4% 1.3% 2.7% 2013 Q2 1.4% 1.4% 2.8% 2.0% 2013 Q3 1.4% 1.2% 2.6% 2013 Q4 1.3% 1.2% 2.5% 1.5% 1.0% 0.5% 0.0% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 47 NCREIF Fund Index Open-End Diversified Core (ODCE) Return Composition Income Capital Total 20% 10% Rolling Four Quarter Returns 0% Income Capital Total -10% -20% 2009 Q4 6.0% -34.9% -30.7% 2010 Q4 6.6% 9.1% 16.1% 2011 Q4 5.5% 10.0% 16.0% 2012 Q4 2013 Q4 5.4% 5.3% 5.4% 7.8% 11.0% 13.4% -30% -40% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 Income 15% 10% Rolling Four Quarter Returns Income Capital Total 2010 Q4 6.8% 6.1% 13.1% 2011 Q4 6.1% 7.8% 14.3% Total 20% NCREIF Property Index (NPI) 2009 Q4 6.2% -22.1% -17.0% Capital 2012 Q4 5.8% 4.6% 10.7% 2013 Q4 5.6% 5.2% 11.0% 5% 0% -5% -10% -15% -20% -25% 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 48
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