EFTA01459026.pdf

tbro:PcdttC41, Faro aa'tit Ptiw, Irrrattincrit w,WC ihtti Asse...ltss paspxtios Hvan'Xfoviclyai ;don Long or short, Mark G. Roberts? The Head of Real Estate Strategy and Research looks at global sectoral trends. Are commercial real-estate fundamentals generally still Will governments continue to support infrastructure investment? attractive? En Each dollar spent by governments on infrastructure can ain Across the globe, we currently see a positive spread translate into much greater gains in GDP and employment. between long and short interest rates, implying that a recession However, budget constraints are limiting public investment, - with its obvious negative implications for tenant demand and and governments have started putting greater emphasis on rents - is not likely. In addition, outside of a few markets, the attracting private capital in infrastructure. We see this trend amount of new construction remains low. As a result, vacancy continuing, with governments "crowding in" private-sector rates are declining and rent levels are increasing, likely leading Investment, through improving regulatory frameworks and to higher earnings growth. We continue to favor a pro-cyclical public-private-partnership structures. This is likely to create investment strategytargeted at offices and logistics, areas which further opportunities for institutional investors seeking typically perform well as economic growth increases. long-dated, inflation-hedged income streams and portfolio diversification. But is caution advisable on specific markets? EZI In the United States, the decline in oil prices is expected to Do you have a positive outlook for listed infrastructure? have knock-on effects for certain property sectors in Houston. BM We recently completed a top-down analysis on listed In the United Kingdom, the regions are in an upwards market infrastructure as well as real-estate securities and how they cycle and we prefer these markets over central London, where have performed in different economic environments, with a the increase in new construction against a background of higher focus on GDP and interest-rate levels relative to their average. base rates could lead to lower relative returns. Finally, pricing This suggests that, in the current environment, global listed appears aggressive in Singapore and vacancy rates are expected infrastructure securities would perform broadly in line with the to increase which could create downside risks for capital values. MSCI World Index for equities if there was a 25-basis-point rise in the major developed economies' interest rates. For the Would listed real estate be resilient to an abrupt rise in interest upcoming year, we expect global listed infrastructure securities rates? to generate total returns in the range of 7%. Listed real estate may appear interestingly valued compared to the broader equity market or Treasury yields. U.S. Mara represents a positive arnwer RE ITs (real estate investment trusts) are also currently trading at reixosetrts a imairte ari*wor a discount of around 2% to the underlying net asset value (NAV) of property held by these companies. (Over the long term, they Past performance is not indicative of future returns. typically trade at a 5% premium.) When stock valuations become No assurance can be given that any forecast, investment disconnected like this from the private market, we typically see objectives and/or expected returns will be achieved. Allocations increased share buy-backs and higher levels of mergers-and- are sublect to change without notice. Forecasts are based on acquisitions activity, providing a catalyst for prices to move assumptions, estimates, opinions and hypothetical models that higher. Still, we are mindful of the impact that a sudden upwards may prove to be incorrect. move in interest rates could have on the asset class. U.S. REITs would probably move on par with the S&P 500 Index if there was Offers and sates of alternative investments are subject to only a 25-basis-point rise in rates — but a larger unexpected rise regulatory requirements and such investments may he available would likely lead to underperforrnance only to investors who are "Qualified Purchasers- as defined by the U.S. Investment Company Act of 1940 and "Accredited Investors" as defined in Regulation D of the 1933 Securities Act. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. *Vow taioncal ectvonI Onat-em, 201!, 0 17 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0119226 CONFIDENTIAL SDNY_GM_00265410 EFTA01459026