EFTA01388587.pdf

18 October 2016 REITs US REIT 3O16 Earnings Preview REIT 3Q16 preview Set up into 30 better than s been in a long time . . Broad-based sell-off since 8/1/ 16 Since the YTD peak on 8/1, the RMZ has dropped by almost 10% versus a 1.3% drop for the S&P500. Uncertainty regarding the direction of rates remains an issue with the 10-year yield ranging from as low as 1.50% to as high as 1.80% over that time. Concerns ranging from the potential for nearer-term rate hikes, the impact of the U.S. election, and to the probability of a recession have all been cited as reasons for the weakness, but overall the market's taste for yield appears to have diminished since early August with the S&P Electric Utilities Index also falling over 7%. The pullback in the REITs could also simply reflect profit taking on a group that has outperformed for most of the year and was trading almost 2 standard deviations above historical multiple averages at the YTD peak established on 8/1. With the stocks now back in line with historical multiples, our coverage trading at an 8% discount to NAV, and with low expectations into the O, we think the setup for the group is better than it's been in a while. IFigure is YTD RMZ performance figure 2: Performance by risk bucket since 8/1/i6 250%- 00% 20 0% 150% I 10.0%1 50%: 0o% ) -20% -60% -60% 400% .120% .90% Pug Pp I 11111 111 PM Ca Liege Ca Pe On Ha ax to Pal OS( Ava ANg TWO MOO Grath Grafi ESITDAESTDA wane van >34% .4.5% .50% e50% .506 catx 1MM -150% '11114.O166,O se 4, to., o9.41 goal aset 10- l4.16 .14.9CI REIT OU) as of 10-14-16 9019noe awe00O1M Sant Ostschs Ow* Mt San Detest?.Irk al Property sector performance more nuanced The market's improving economic outlook has helped reduce near-term recession fears and pushed 10-year yields higher over the past few months, which has led to significant underperformance of Freestanding Retail (triple nets), which have fallen 11% since 8/1 but remain a top performing sector YTD at +25%. Other more economically sensitive property types like Office and Apartments, which were some of the weakest performers earlier in the year, have done "less bad" in the post 8/1 period down only 7% and 8.4%, respectively. While yield concerns have weighed on REITs overall over the past few months, performance by property type was not just yield driven, with Data Centers falling almost 8% since 8/1 after running up 36% YTD up to that point. Concerns about a near-term pullback in hyper-scale cloud demand and the lack of near-term flow through from recent leasing activity drove some profit taking in a group that remains up over 25% YTD. Malls have also fared poorly Deutsche Bank Securities Inc. Page 3 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092223 CONFIDENTIAL SDNY_GM_00238407 EFTA01388587