RESEARCH INTERNATIONAL LISTED REAL ESTATE INVESTMENT OPPORTUNITIES ABROAD COMPLEMENT A U.S. PROPERTY ALLOCATION JULY 2015 Exposure to Institutional Quality Commercial Real Estate – Listed real estate offers investors immediate exposure to prime properties in major gateway cities world-wide. The sector has become an attractive and effi cient alternative to direct real estate investment given the increasingly competitive investment environment. Diversifi cation Benefi ts − Long-term data suggests an allocation to international listed real estate may provide meaningful diversifi cation benefi ts due to a relatively low degree of correlation with U.S. real Investors’ increasing demand for fi xed- estate, both public and private. income alternatives has led them to embrace real estate as a key component Competitive Income-Oriented Total of their mixed-asset portfolio. As a result, Returns − Long- and short-term data institutional capital fl ows towards the demonstrate that a strategic commitment sector have fl ourished in recent years. This to international listed real estate has has not simply been a U.S. phenomenon. delivered strong performance results There has been an infl ux of capital into relative to international equities and commercial real estate across the globe, bonds. This performance has been particularly into stable, income generating underpinned by an attractive, stable prime real estate located in major gateway current income stream. cities. Due to the recognition of commercial real estate as a separate asset class and rising demand for strong current income, competition for investing in property has risen. Given the direct commercial real estate market’s highly competitive nature as well as its fi nite inventory of core real estate available for sale, investors are increasingly investing in listed REITs as a liquid proxy for direct real estate. The Benefi ts of International Listed Real Estate | Page 1 RESEARCH EXPOSURE TO INSTITUTIONAL QUALITY COMMERCIAL REAL ESTATE Investors have the option of accessing an investment in a portfolio of listed international international institutional quality commercial REITs is that it provides investors with immediate real estate via direct sole ownership, joint exposure to hundreds of high quality properties, venture-type direct ownership or indirect with a vast proportion located in prime locations. ownership through commingled real estate The following illustration (Exhibit 1) refl ects funds. Alternatively, one of the key advantages of examples of properties held by four high profi le gaining exposure to commercial real estate via international REITs. Exhibit 1: Properties Held by Four High Profi le REITs Tokyo Mitsubishi Estate The Marunouchi Building: Tokyo’s prestigious Marunouchi business district and the economic center of Japan. Unparalleled business environment with easy access to transportation located between the Imperial Palace and Tokyo Station, the busiest railway within Japan. London Land Securities Group One New Change Shopping Centre: London’s premium shopping destination, located next to St Paul’s Cathedral in London. Hong Kong Hongkong Land Holdings Exchange Square Building: Located in the heart of Hong Kong’s central business district, the Exchange Square Building leases high-quality offi ces, prime retail shops and is home to the Hong Kong Stock Exchange. Sydney GPT Group Australia Square: One of Australia’s most iconic prime offi ce properties situated in the core of Sydney’s CBD, spanning George Street, Bond Street, Pitt Street and Curtin Place. The Benefi ts of International Listed Real Estate | Page 2 RESEARCH Investing via listed real estate enables investors to avoid many of the challenges Advantages of Listed REIT Structures: associated with investing via direct ownership or through commingled funds. As the market • Instant access to high quality underlying has recognized this, along with the merits of commercial property portfolios investing in listed real estate, the listed sector • Exposure to selected geographic has blossomed internationally and has become markets and property sectors that are a major player in the real estate investment diffi cult to access via direct real estate and occupier markets. While REIT legislation investment has existed in the U.S. since 1960, most major • Potential for positive arbitrage between overseas developed markets and numerous public and private market real estate emerging markets have enacted legislation prices in more recent decades. The following chart • Strong corporate governance and (Exhibit 2) refl ects those countries outside the transparency U.S. in which REIT legislation exists today. • Daily liquidity and real-time pricing Exhibit 2: Growth of the International Listed Real Estate Markets Countries with Countries Considering Listed REITs & REIT Like Structures Listing REITs Netherlands Australia New Zealand Canada Belgium 1969 FBI 1971 A-REIT 1993 LPT 1994 REIT 1995 SICAFI China Brazil Costa Rica Dubai - UAE Turkey Greece Singapore Japan Korea 1995 1999 1999 S-REIT 2000 J-REIT 2001 K-REIT India* Philippines* Thailand Taiwan France Hong Kong South Africa 2002 REIT 2003 REIT 2003 SIIC 2003 REIT 2003 *Philippines and India’s legislation is in place, but not yet Bulgaria Malaysia Israel United Kingdom Germany implemented. 2004 SPIC 2005 REIT 2006 REIT 2007 2007 G-REIT Italy Mexico Ireland Finland Spain 2007 REIT 2011 2013 2013 2013 Source: FTSE EPRA/NAREIT and CBRE Clarion The Benefi ts of International Listed Real Estate | Page 3 RESEARCHRESEARCH The increasing volume of IPO’s and is expected to continue over the medium term. secondary offerings over the past decade The following chart (Exhibit 3) illustrates the has dramatically expanded the opportunity magnitude of the increase in the investment set for real estate investors internationally. universe of international listed real estate This securitization trend may be at a more companies over the past 10 years as well advanced stage of growth in the U.S., but the as the changing and increasingly diverse volume of growth in parts of Europe and Asia composition of the universe. Exhibit 3: Growth of the International Listed Real Estate Universe International Listed Real Estate 2014 Market Growth Diversifi cation by Geography Market Number of 6% Canada Capitalization Companies 3% Other Americas 2004 $452 358 28% Hong Kong/China 14% Japan 2014 $1,608 786 7% Singapore % Increase 272% 119% 6% Australia 11% Other Asia 6% United Kingdom 5% France 1% Netherlands/Belgium 9% Other Europe Source: CBRE Clarion Investable Universe as of 12/31/2014 4% Other Middle East/Africa DIVERSIFICATION BENEFITS Commercial real estate is broadly recognized correlation between regions within the context for its portfolio diversifi cation benefi ts due to of an international listed real estate mandate. its low correlation to other asset classes. An The combination of these attributes support allocation to international listed real estate the rationale for including international listed may further enhance portfolio diversifi cation real estate as part of a mixed-asset portfolio of due to (1) a relatively low correlation to U.S. investments with existing exposure to U.S. real real estate, both public (Exhibit 4) and private estate. (20-Year correlation of 0.11*); and (2) Lower Exhibit 4: International Listed Real Estate Correlation to U.S. Real Estate 0.80 Source: MSCI US REIT Index, FTSE EPRA/NAREIT Developed Europe Real Estate vs U.S. Real Estate Asia Index, FTSE EPRA/NAREIT Asia Real Estate vs U.S. Real Estate Developed Europe Index in USD. Correlation coefi cient 0.60 International Real Estate vs U.S. Real Estate is the degree to which movements of two variables are related. 1.00 is perfect correlation. An index is 0.40 unmanaged and not available for direct investment. Past performance is no guarantee of future results. 0.20 * US Private Equity Real Estate as measured by the NCREIF Property Index. Correlation 0.00 of 0.11 is calculated by comparing the total return of the FTSE EPRA/NAREIT Developed ex-US Index with -0.20 the NCREIF Property Index. 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 The Benefi ts of International Listed Real Estate | Page 4 RESEARCH An international strategy also compliments property market fundamentals have had a U.S. real estate holdings, whether public larger impact on company performance. or private, given that different geographic Moderate correlations between many of the property markets often behave in an listed property regions across the globe also asynchronous manner depending on where support the notion of adopting an international they are in the commercial property cycle. approach to compliment a U.S. strategy as Although listed market correlations increased opposed to a region-specifi c REIT investment materially during the Global Financial Crisis, strategy (Exhibit 5). In our view, investing they have declined to more normalized levels in an international strategy allows for active recently as the global economy and capital management via tactical geographic allocation markets environment have improved and local which can optimize performance results. Exhibit 5: Regional Property Markets Exhibit Low Correlations - Past 20 Years Australia France Hong Kong U.K. Japan Australia 1.00 France 0.66 1.00 Hong Kong 0.61 0.54 1.00 U.K. 0.68 0.76 0.42 1.00 Japan 0.54 0.46 0.44 0.47 1.00 Source: FTSE EPRA/NAREIT Developed Property Index as of 03/31/2015 in USD. Correlation coeffi cient is the degree to which movements