EFTA01389056.pdf

18 October 2016 REITs US REIT 3O16 Earnings Preview Pricing in the private markets proving resilient Private market pricing as measured via cap rate or price indices has remained resilient, despite volatile Treasury rates, CMBS market concerns, macroeconomic uncertainty, recently moderating fundamental trends, and still weak investment volumes. The recent widening of CMBS spreads, continued declines in investment volumes, and tightening lending standards for CRE overall bear watching. Given the lagging nature of real estate and anecdotal data suggesting still wide bid/ask spreads, we don't want to be complacent about the potential for falling asset values. That said, we note the financing environment remains healthy overall, cap rate spreads to the 10-year remain wide by historical standards, and DB's house view calls for a muted economic outlook that should keep the 10-year relatively contained. We also think that global uncertainties will keep interest in U.S. CRE elevated given what we believe is a still attractive risk/reward opportunity versus global alternatives. [Figure II: National investment volume growth yry Figure 12: National cap rate trends 1000% 603 003% 44% 500 341, 41% 0 OD% 27%4% 10%d 703% 400 in iror., 606% tr. 500% 303 400% •414 303% 100 IA I I I IN •:a . CO% 10) 103%' 000% 400% ........ MY/Yeti,. Sal alas wows, 00Rile Spvaato1Or —Cw Rat — Avg Cap Rau kg Spread • Investment volumes remain weak, down 23% in • Weak volumes have had little impact on cap August and 15% YTD, though record volumes in rates, which were down 10bps m/m and 23bps 2015 are making comparisons difficult y/y in August at 6.09% • Retail (-35%), Office (-20%), and Industrial (-17%) • Cap rates fell mfm for all the major property volumes fell the most in August, Apartment types in August: Industrial (-2bps) experienced volumes fell 11% the smallest decline, while Office cap rates fell the most (-33bps) • YTD, Industrial (-28%), Retail (-17%), and Office (- 12%) have experienced the biggest y/y volume • The cap rate spread to the 10-year is about declines while Apartments (+5%) delivered a y/y 70bps wide of long run averages volume gain, mostly via Garden style deals sates babas &in% Awe 0448./ M.Sc. warrears•Wes Source dais Bar* Awl Coed a mn Deutsche Bank Securities Inc. Page 9 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0093260 CONFIDENTIAL SDNY_GM_00239444 EFTA01389056