THE INCREASING OPPORTUNITY in Listed and Private Infrastructure Markets Q1 2018

Infrastructure is one of the fastest growing asset classes globally, with investors’ target allocations increasing signifi cantly over recent years. Traditionally provided almost exclusively by governments or owned by strategic corporate entities, infrastructure across the globe is increasingly built, fi nanced, and operated by the private sector and fi nancial investors. JEREMY ANAGNOS, CFA CBRE Clarion Securities Since the mid-1980s, there has been a transformation in the ownership of the world’s economic infrastructure. Investors seeking the long-term, stable returns CIO – Listed Infrastructure that come from owning and managing infrastructure assets are leading this transformation.

While less mature and smaller than other asset classes such as private equity and real estate, infrastructure investment is large and growing. Equity assets under management (AUM) for unlisted infrastructure fund managers recently reached $418 billion, a 16% CAGR over the past ten years.1 The reason for the growth in AUM is the unique profi le of the asset class that makes this a particularly attractive opportunity for institutional investors: STEPHEN DOWD CBRE Caledon Asset Fundamentals Head of Private Infrastructure As long-lived, real assets delivering essential services, infrastructure has a distinct risk-return profi le that institutional investors value. Specifi cally, the assets tend to generate stable, long-term, often infl ation-linked cash fl ows that translate into steady income across economic cycles that match investors’ long-term liabilities.

Market Fundamentals There is a growing global need to upgrade existing infrastructure, as well as expanding demand for new infrastructure. Additionally, a scarcity of capital from traditional sponsors such as local and federal governments is creating an investment gap that private capital is increasingly addressing. Infrastructure demand and supply EXHIBIT 1: $3.7 TRILLION ANNUAL INVESTMENT IN ECONOMIC INFRASTRUCTURE NEEDED fundamentals are creating a growing global market opportunity for THROUGH 2035 TO KEEP PACE WITH PROJECTED GROWTH institutional investors. It is estimated that approximately $69.4 trillion needs Average Annual Need, 2017-2035 Aggregate Spending, 2017-2035 to be invested in global infrastructure by 80 In constant 2017 dollars, $ trillion $ trillion 2035.2 70

According to the McKinsey Global 60 Power 20.2 Institute, the world needs to spend 50 Roads 18 $3.7 trillion annually through 2035 on transportation, power, water, and 40 Telecommunications 10.4 telecommunication systems to support 30 current economic growth projections, Water 9.1 as depicted in Exhibit 1. This fi gure, 20 Rail 7.9 which is equivalent to about 4.1% of 10 global GDP, is for networked economic Airports 2.1 infrastructure, a subset of McKinsey’s 0 Ports 1.6 broader defi nition of infrastructure, 1 which includes social infrastructure 0 5 10 15 20 25 as well as real estate and backbone Source: McKinsey & Company systems for oil, gas, and mining.3 GROWTH IN DEMAND IS A SECULAR TREND

Growth in demand is coming from two Regarding supply, the scarcity of capital sources: (i) the growing need to upgrade from traditional sponsors such as and improve existing infrastructure in governments and strategic corporations the more mature and slower growing oror consconstructiontruction companiescompanies is creating OEOECDCD countries,countries, and (ii)(ii) the need a widening fi nancing gap and fforor new infrastructureinfrasttruccture in developing ggrowingrowing market opportunity for private cocountriesuntries drivendriven by economic, iinvestment.nvestment. popopulation,pup lation, anandd ururbanizationbanization ttrends.rer nds. IInn recent years, constrained governmentg budgets and competing interestsin for sscarcecarce public fundsfunds have ledled to chronic uunder-investmentnder-investment forfor maintainingm exexistingxisi ting assets and buildingbuil new iinfrastructure.nfrastructure. Across the globe,glo there is a clclearear trendtrt end in the declining percentagesp of GGDPDP sspentpep nt on ininfrastructure.frastructur Growing fi nanancialncial demandsded mands on governments,go cocombinedombined withwith their restrictrestrictede ability to raraiseise taxestaxes andand debt, suggestsuggest that this is a sesecularecular trend.trend.

CBRE Global Investors THE INCREASING OPPORTUNITY in Listed and Private Infrastructure | 2 A ROBUST MARKET FOR PRIVATE CAPITAL INVESTMENT

Infrastructure assets are increasingly changing hands has been increasing over the years. The increased interest between private buyers, facilitating a growing marketplace allows investors to benefi t from the attractive investment removed from direct government involvement. (Exhibit characteristics of the infrastructure asset class. Governments 2) The confl uence of public sector budget shortfalls and can realize proceeds from the privatization of assets, limit increasing private investor appetite for infrastructure assets future funding obligations, and reap the potential upside has resulted in governments shifting infrastructure investment from the experience and expertise of the private sector in the and operating responsibilities to the private sector. The structuring and execution of projects and asset operations. involvement of private capital in infrastructure investment

EXHIBIT 2: DEAL FLOW IS INCREASINGLY ACTIVE

Global Quarterly Infrastructure Deals, Q1 2013 - Q1 2018

900 160 815 825 800 140 712 716 676 700 658 660 665 672 671 625 637 120 599 603 600 561 547 523 100 504 500 475

399 80 400 60 300

40 200

100 20

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017

No. of Deals Aggregate Deal Value ($bn)

Source: Preqin March 2018

CBRE Global Investors THE INCREASING OPPORTUNITY in Listed and Private Infrastructure | 3 KEY INVESTMENT THEMES

The infrastructure investment universe is broad and Renewable Energy: Secular Tailwinds and Cost Parity encompasses a range of sectors. Our defi nition of Renewable power is well-entrenched and riding strong infrastructure narrows the universe to the marriage of essential tailwinds as the world transitions towards clean energy that assets with predictable cash fl ows. These long-duration assets will promote growth for many years. Robust customer demand are diffi cult to replace and benefi t from their monopolistic is a key factor that is bolstering renewable development position by having defi ned revenue streams. Infrastructure as corporations have been expanding their renewable sectors include transportation assets (e.g. – ports, airports, procurement, much of it voluntarily driven. Cost effi ciencies toll roads, and railroads), electric distribution grids (e.g. - and technological breakthroughs are also poised to make utilities), midstream assets (e.g. pipelines for oil and natural unsubsidized renewable energy, primarily wind and solar, gas), systems to support communication networks (e.g. an economic reality. Wind and solar energy are attracting wireless towers and data centers), and social infrastructure investment, and the projected growth of capacity at the (e.g. schools, prisons, hospitals). expense of coal are supportive of the long-term investment opportunity. (Exhibit 3) Importantly, the private sector, as While the need for investment in infrastructure spans all opposed to government, is leading the way in renewable sectors, two key sectors to highlight based on the current energy investment, accounting for 92% of the $263 fundamentals, regulatory, societal, and capital market trends, billion4 invested in 2016. Opportunities for infrastructure are renewable energy and communication infrastructure. investors are global and favor those with scale and development expertise. EXHIBIT 3: RENEWABLE ENERGY GROWTH AT THE EXPENSE OF COAL Global Average Annual Net Capacity Additions

2010-2016

2017-2040

0% 20% 40% 60% 80% 100%

Solar Wind Coal

Source: World Energy Outlook 2017, IEA

CBRE Global Investors THE INCREASING OPPORTUNITY in Listed and Private Infrastructure | 4 Communication Infrastructure: Enabling Technological Innovation Our world has rapidly become one of data which enables digital technology. In fact, 90% of the world’s data was created in the past two years.5 Fiber networks, data centers, and cell towers are the essential communication infrastructure assets that support the exponential growth in data and computing. Forecasts suggest the need for such critical infrastructure will only grow stronger as the world marches towards the Internet of Things (IoT), 5G, Artifi cial Intelligence (AI), Virtual and Augmented Reality (AR/ VR), Autonomous Vehicles (AV), Cloud Computing and new use cases yet to be developed.

The ongoing capital needs faced by carriers, broadband and content players, and technology fi rms to develop these new services will increasingly lead to an ownership/leasing model. This will continue to drive growth and investment opportunity for owners and investors of communication infrastructure. EXHIBIT 4: GROWTH IN DATA IS AN UNABATED TREND WITH A LONG SECULAR TAIL IP Traffi c Growth (2016-2021) 278K

24% CAGR 228K (2016-2021) 186K 151K 122K 96K

2016 2017 2018 2019 2020 2021

Source: Cisco VNI, 2017. One petabyte is one quadrillion bytes.

CONCLUSIONS

There is signifi cant need for new and updated infrastructure in both developed and developing economies. This translates into a broad and growing range of infrastructure investment opportunities. The capital investment need is increasingly being met by investor demand. As a relatively less mature asset class, infrastructure can present experienced investors with unique competitive advantages for capturing value through differentiated strategies.

Institutional investors seeking alternatives to traditional asset classes, while also desiring income and low volatility are making new and increasing existing allocations to infrastructure. These investors have multiple ways in which to access the asset class, including directly buying assets, investing in closed-end or open-end funds, co-investing alongside fund managers, or through listed infrastructure securities.

CBRE Global Investors THE INCREASING OPPORTUNITY in Listed and Private Infrastructure | 5 CBRECCBBRREE GlobalGlolobbaal IInInvestorsnvveeststorors THETHTHE IININCREASINGNCCRREAEASSIINGNG OOPPORTUNITYPPPPOORRTTUUNNIITYTY inin PPrivaterir vaatete aandnndd LListedissteted InIInfrastructurenfrfraasstrtruuccturere | 6 IMPORTANT DISCLOSURES

1 Preqin June 2017 2 McKinsey Global Institute, Bridging Infrastructure Gaps, has the World made Progress?, October 2017. 3 Ibid. 4 14 January 2018. Investments in Renewables Bringing Record Capacity Online. Retrieved From www.irena.org. 5 Loechner, Jack. 22 December 2016. 90% of Todays Data Created in Two Years. Retrieved from www.mediapost.com

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