20172017

Inland Empire Retail Market Overview U.S. GDP in Seventh Year of Expansion GROWTH MODERATE BUT PICKING UP IN 2017

GDP Growth Consumer Confidence

10% 140 Consumer Confidence Index

5% 105

0% 70

-5% 35 Annualized Quarterly Percent Change Percent Annualized Quarterly

-10% 0

* Forecast GDP; consumer confidence through 1Q Sources: Marcus & Millichap Research Services, BEA, The Conference Board National Employment Rank by Metro Y-O-Y PERCENT CHANGE THROUGH FEBRUARY 2017

Top 10 Absolute Percent Bottom 10 Absolute Percent Metros Change Change Metros Change Change

Orlando 51,200 4.3% Milwaukee -2,300 -0.3%

Nashville 38,600 4.1% Cleveland 6,900 0.7%

Atlanta 97,800 3.7% Houston 21,900 0.7%

Charlotte 39,500 3.5% Chicago 39,500 0.9%

Dallas-Fort Worth 118,000 3.4% Baltimore 15,000 1.1%

Salt Lake City 38,100 3.3% Northern New Jersey 23,900 1.1%

Las Vegas 29,900 3.2% Orange County 19,000 1.2%

Inland Empire 44,100 3.2% San Jose 17,400 1.6%

Tampa 39,200 3.1% Los Angeles 75,500 1.7%

Seattle-Tacoma 56,300 2.9% New York 75,300 1.7%

U.S. Total 2,350,000 1.6% U.S. Total 2,350,000 1.6%

Sources: Marcus & Millichap Research Services, BLS Inland Empire Employment Growth vs. U.S. Employment Growth

Inland Empire United States 8%

4%

0% Y-O-Y Percent Change Percent Y-O-Y -4% Trailing 12 Months Job Growth Inland Empire: +44,100 United States: +2,350,000 -8%

2 5 8 1 4 7 0 3 6 7* 9 9 9 0 0 0 1 1 1 1 9 9 0 0 19911 1993199419 199619971 1999200020 200220032 2005200620 2008200920 2011201220 2014201520 2

* Through February Sources: Marcus & Millichap Research Services, BLS Wage Growth Advancing Ahead of Inflation Positive Driver for Retail

Wage Growth Inflation 8%

6%

4%

2% Y-O-Y Percent Change Percent Y-O-Y

0%

-2%

6 016 198 1991 1996 2001 2006 2011 2

Sources: Marcus & Millichap Research Services, BLS Total Population Growth Trends

1970s 1980s 1990s 2000s 2017*-2021*

8%

6%

4%

Average Annual Average Change 2%

+0.8% +0.7%

0% Inland Empire United States

2017*-2021*: 179,400 11,500,000

* Forecast Sources: Marcus Millichap Research Services, U.S. Census Bureau National Retail Rank by Metro Y-O-Y VACANCY RATE CHANGE

Top 10 4Q 2016 Y-O-Y Bps Bottom 10 4Q 2016 Y-O-Y Bps Metros Vacancy Change Metros Vacancy Change

West Palm Beach 4.5% -160 San Jose 5.4% 110

Detroit 8.1% -110 Milwaukee 7.0% 40

San Diego 4.0% -110 Salt Lake City 4.5% 40

Cincinnati 6.1% -100 Northern NJ 5.1% 20

Indianapolis 5.2% -100 Orange County 4.2% 20

Nashville 3.3% -100 Oakland 3.8% 10

Las Vegas 9.4% -90 Miami 3.6% 10

Fort Lauderdale 5.4% -90 Sacramento 8.2% 0

Dallas-Fort Worth 5.3% -90 Houston 5.4% 0

Inland Empire 8.5% -80 2.4% -10

U.S. Total 5.5% -50 U.S. Total 5.5% -50

Sources: Marcus & Millichap Research Services, CoStar Group, Inc. Sales Transactions

Shopping Centers  Total Sales in 2016: 1,140  2016 Average Sales Price: $2.5 MM  2016 Average Cap Rate: 6.3%  2016 Average Price Per Square Foot: 122.00

Single-Tenant Net Lease  Total Sales in 2016: 1,123  2016 Average Sales Price: $3.4 MM  2016 Average Cap Rate: 6.1%  2016 Average Price Per Square Foot: 123.00 U.S. Retail Buyer Composition

100%

18% 19% 19% 21% 18% 19% 27% 37% 6% 7% 10% 75% 11% 9% 11% Institutional 10% 8% Foreign 30% 18% 10% 22% 10% 26% 25%

50% Public Listed/REITs 16%

57% Private 52% 43% 49% 25% 41% 42% 43% Percent of Total Dollar Volume Percent of Total 33% User/Other

8% 5% 4% 4% 0% 3% 3% 3% 3% 2009 2010 2011 2012 2013 2014 2015 2016

Includes sales $2.5 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics Inland Empire Retail Transaction Activity

400

300

200

Number of Number of Transactions 100

0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16*

* Trailing 12-months through 3Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics Retail Pricing Trends

$400 Inland Empire United States

$341

$300

$200 $182 Average Price per SF Average $100

$0

04 06 14 16 2000 2001 2002 2003 20 2005 20 2007 2008 2009 2010 2011 2012 2013 20 2015 20

Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics Retail Cap Rate Trends

12% Inland Empire United States

10%

8%

Average Cap Rate Average 6.3% 6% 6.0%

4%

1 03 04 07 08 1 12 0 0 0 2000 2001 2002 20 2 2005 2006 20 2 2009 2010 20 2 2013 2014 2015 2016*

Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics Lease Transactions

Multi  Total leases in 2016 6,336,916 Gross  Total SF Available – beginning of the year 13,058,912  Total SF Available – end of the year 11,634,818  Total Absorption 1,705,233 Net  2016 Average Lease Rate 1.39

Single  Total leases in 2016 1,704,788 Gross  Total SF Available – beginning of the year 3,654,332  Total SF Available – end of the year 3,181,035  Total Absorption 296,946 Net  2016 Average Lease Rate 1.47 Retail Sales Growth by Store Type eCOMMERCE GAINING SHARE OF RETAIL SALES

February 2017 Y-O-Y Growth Electronic Shopping as % of Retail Sales Change from Feb. 2016 to Feb. 2017 14%

Nonstore Retailers 13.0% 12% Building Materials 7.3%

Health/Personal 7.0% 10% Restaurants/Bars 3.7%

Miscellaneous 3.6% 8%

Grocery 2.2% 6%

Apparel 1.6% Percent of Sales

General Merchandise 1.5% 4% Furniture & Electronics -0.5%

Sporting Goods -3.6% 2%

9 1 3 5 7 3 5 * -10% -5% 0% 5% 10% 15% 9 0 1 1 7 00 00 00 01 1995199719 20 2 2 2 2009201120 20 2

* Through October 2016 Excludes auto and gas sales Sources: Marcus & Millichap Research Services, U.S. Census Bureau Consumers Spend More on Dining Out Than on Groceries for the First Time Ever

Grocery Stores Bars and Restaurants

$60 Eat Out at Least Once Per Week:

Millennials 49% $50 Gen X 43% Boomers 35% $40

$30 Total Sales (Billions) Sales Total $20

$10

2 3 4 5 6 8 3 5 6 7 8 9 0 1 3 5 97 99 01 12 14 16 7* 99 99 9 99 9 0 00 01 0 01 0 0 01 199 199 1 199 1 1 1 1 20002 2002200 2004200 200 200 200 2 201 2 2 2 2 201 2 2

* Through February Sources: Marcus & Millichap Research Services, U.S. Census Bureau, “Outlook on the Millennial Consumer 2014” report, The Heartman Group, Pew Research, Morgan Stanley Retailers: Closing, Downsizing and Resizing

$230.3 Bil.

$165.5 Bil. Annual Department Store Retail Sales ? Peaked 1999 2015 2016 Auto Parts and Bank Branches

Auto Parts  The Four Largest Retailers: – Advance Auto Parts ‒ NAPA Auto Parts ‒ AutoZone ‒ O’Reilly Auto Parts  Sales to do-it yourself customers are slowing  Vehicles are becoming increasingly complex  Industry generated roughly $56.3 billion in revenue last year and has grown at an annual rate of 1.9% over the past 5 years, has now slowed according IBIS World.

Bank Branches  Shift to mobile distribution as the main interaction with customer means the need for fewer banks.  Bank of America to close 50 to 60 branches. Opening 50 to 60 branches about a quarter of the typical size with more technology.  Wells Fargo closing over 400 branches  JP Morgan Chase closing 300 branches Mall Retailers Closing

131 236 LOCATIONS LOCATIONS SINCE 2013 830 LOCATIONS

32 171 LOCATIONS LOCATIONS

140 LOCATIONS 120 LOCATIONS 185 LOCATIONS

60 LOCATIONS 250 LOCATIONS 60 LOCATIONS Retailers Closing

88 LOCATIONS 3 SELL DISTRIBUTION SINCE 2013 865 CENTERS 830 LOCATIONS LOCATIONS TO CLOSE 20 LOCATIONS

TO CLOSE SHOP HOUSE 185 LOCATIONS CHAIN TO CLOSE 150 TO 255 LOCATIONS

FILED 9 BANKRUPTCY LOCATIONS 70 LOCATIONS Millennials Cornerstone of Economic Outlook U.S. 2016 Population by Age

Total Spending Power*

Millennials $2.5T 5.0 66.3 Million Boomers $3.0T

4.5

4.0

Population (Millions) Population 3.5

3.0

Age * As of 2015 Note: Total Baby Boomer Population 75 million. Total Millennial Population 80 million Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Oracle Financial Services, CIO.com Millennials

 Frictionless experience, customization – “Built It For Me”  Omnipresent social/consumer  Retailer interaction socially  Gamified loyalty – connecting gaming experience and playfulness with retail marketing and message  Connected to their devise  Wants them to improve the experience  Streamlined  User-friendly process  Photo sharing, for example Starbucks is winning over millennial consumers with their mobile wallets

Source: Ketongolabl.com June 2016, Forbes 01/23/2017 Omnichannel

Retailers need to adopt the omnichannel marketing strategy, otherwise risk losing their customers. Consumers want an integrated experience to buy products through a variety of channels. Retailers who only offer a “single channel” experience will be outperformed.  Cyber Monday – $3.45 billion exceeded Black Friday $3.34 billion for first time in 2016.  Amazon – Amazon Go and Amazon Books Outlet. $$ Online $$ $$ “Brick & Mortar” Store Store $$$$$$ Complex Forecasting

Contributing factor that make it forecasting complex

Healthcare Sector Trade Policy Immigration Policy

Environmental Policy Inland Empire Logistics

Taxation Policy Infrastructure Policy Minimum Wage

Rate Increases Taxation eCommerce Automation Active Retailers Experience and Entertainment

Create vibrant environment and interesting public spaces and incorporate entertainment.  Big Al’s – Open in Ontario  Round One – Mall, Moreno Valley  KidZania moving into U.S. malls – Experiential learning center for children. Expanding into 20 major cities  Dreamscape Immersive unveils its first stores venue at the reopening Westfield Corporation’s Century City Mall in Los Angeles this fall – Virtual reality experience Retail Health Care & Wellness

This figure shows how a convergence between retail and health care is driving traditional health care providers to adopt retail approaches to marketing and customer service, while retailers are increasing their role in health care.

Source: Deloitte New Centers in the Inland Empire

 Eastvale – Smart & Final Extra,  Eastvale – Costco  Fontana – Smart & Final  Rancho Cucamonga – Sprouts  Norco and Rancho Cucamonga – Stater Bros.  North Fontana –Walmart  South Fontana – Walmart  Moreno Valley – Walmart  Menifee – Stater Bros.  Menifee – Krikorian Entertainment