The Nordics. Four countries, four currencies. Dr. Marcus Cieleback 27th March 2013

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1 The Nordics Four countries, four currencies Dr. Marcus Cieleback 27th March 2013 PATRIZIA Immobilien AG PATRIZIA Bürohaus Fuggerstraße Augsburg Germany T F immobilien@patrizia.ag

2 Central bank rates: Mirror image of the situation in the financial sector 6 % 5 % 4 % 3 % 2 % 1 % 0 % 01/ / / / / / 2012 Fed ECB Norges Bank Sveriges Riksbank BoE Source: Federal Researve, ECB, Norges Bank, Riksbank, Bank of England 2

3 Low interest rates, but turning at the long end and access to credit is challenging Short term rates Long term rates 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan/ 00 Jan/ 03 Jan/ 06 Jan/ 09 Jan/ 12 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan/ 00 Jan/ 03 Jan/ 06 Jan/ 09 Jan/ 12 EURIBOR 3M CIBOR 3M DE GVB 10Y DK GVB 10Y STIBOR 3M NIBOR 3M SE GVB 10Y NO GVB 10Y Source: EZB, Riksbank, Norges Bank, 3

4 Nordics: Much more than the capital cities DATA USED IN THE DEMAND SIDE ANALYSIS ON NUTS 3 LEVEL: Economic growth (history and forecast) Population and population forecast Population density Employment and employment forecast Distribution of NUTS 3 Regions in the Nordics 100% 80% 60% 40% 20% 0 0% well above average above average average below average well below average Source: PATRIZIA 4

5 The Nordics: A Eurozone perspective THE NORDICS ARE OFTEN SEEN AS ONE INVESTMENT REGION, BUT IN FACT THE INVESTOR INVESTS IN 4 CURRENCIES The ERM II means, that de facto an investors from the Euro Zone has no currency risks when investing in Denmark Investment returns in Norway and in Sweden are more volatile due to currency movements 12.0 Krona/EUR 11.5 Krona/EUR 11.0 Krona/EUR 10.5 Krona/EUR 10.0 Krona/EUR 9.5 Krona/EUR 9.0 Krona/EUR 8.5 Krona/EUR Exchange rates Monitoring developments in the currency markets and a hedging strategy is a core component of investments in the Nordic countries 8.0 Krona/EUR 7.5 Krona/EUR 7.0 Krona/EUR Jan/ 99 Jan/ 01 Jan/ 03 Jan/ 05 Jan/ 07 Jan/ 09 Jan/ 11 Jan/ 13 SEK/EUR NoK/EUR DKK/EUR 5

6 What exactly does Currency Risk mean? 42 % 36 % 30 % 24 % 18 % 12 % 6 % 0 % -6 % -12 % Data: PATRIZIA, IPD Denmark USD GBP EUR Office Residential Retail

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9 Historical Mean Total Returns Mean Total Returns by Asset Class, Currency and Country Euro Pound Office Denmark Local Retail Sweden 15% Office Finland US-Dollar 13% Retail Norway 11% 9% Office Norway 7% Retail Finland 5% Office Sweden Retail Denmark Residential Denmark Residential Sweden Residential Finland Source: PATRIZIA 9

10 Total Return Volatility Euro Pound Local US-Dollar Retail Norway Retail Finland Total Returns Volatility by Asset Class, Currency and Country Retail Sweden Office Denmark 19% 17% 15% 13% 11% 9% 7% 5% 3% 1% Office Finland Office Norway Office Sweden Retail Denmark Residential Denmark Residential Sweden Residential Finland Source: PATRIZIA 10

11 Reward-to-Variability Ratio (Sharpe ratio) RETURN / VOLATILITY = UNITS OF RETURN FOR A UNIT OF RISK IN % Office Residential Retail 4% 4% 4% 3% 3% 3% 2% 1% 0% 2% 1% 0% 2% 1% 0% SHARPE RATIO OFFICE RESIDENTIAL RETAIL Denmark Finland Norway Sweden Denmark Finland Sweden Denmark Finland Norway Sweden EUR 2,10% 2,42% 0,74% 0,63% 0,82% 3,86% 1,05% 3,09% 2,15% 0,98% 0,88% Local 2,07% 2,42% 1,27% 0,86% 0,82% 3,86% 2,03% 3,09% 2,15% 1,97% 1,36% GBP 1,06% 0,82% 1,29% 1,10% 1,03% 1,01% 2,31% 1,02% 1,06% 1,55% 1,57% USD 0,90% 0,77% 0,72% 0,66% 0,78% 1,00% 0,83% 0,91% 0,86% 0,83% 0,75% Source: PATRIZIA 11

12 Clusteranalysis DENMARK FINLAND SWEDEN NORWAY OFFICE RESIDENTIAL RETAIL Cluster Group Independent Market Source: PATRIZIA 12

13 Investors Comparison: Efficient Frontier for international Investors 15.5 % 14.5 % 13.5 % Expecterd Total Return [%] 12.5 % 11.5 % 10.5 % 9.5 % 8.5 % 7.5 % 1 % 3 % 5 % 7 % 9 % 11 % 13 % 15 % 17 % 19 % Expected Volatility [%] Source: PATRIZIA Research / IPD 13

14 Summary RISK AVERSE PORTFOLIO ALLOCATION COUNTRY ASSET CLASS EUR LOCAL GBP USD FI Office 11% 13% 0% 0% NO Office 0% 0% 21% 0% DK Residential 0% 0% 9% 0% FI Residential 61% 61% 15% 100% SE Residential 0% 0% 55% 0% DK Retail 27% 26% 0% 0% RETURNS BUT SPECIALLY VOLATILITIES HAVE DIFFERENT PATTERNS WHEN CONSIDERING CURRENCY RISKS. IT IS NOT ENOUGH FOR INVESTORS IN UNHEDGEDINVESTMENTS TO LOOK ONLY AT THE RESPECTIVE NATIONAL MARKETS WHEN DETERMINING THEIR OPTIMUM INVESTMENT STRATEGY. A PORTFOLIO INVESTMENT STRATEGY SHOULD EVALUATE CURRENCY VOLATILITIES IN ORDER MAXIMIZE THE SHARPE-RATIO AND GENERATE THE OPTIMUM ALLOCATION. Source: PATRIZIA 14

15 Contact DR. MARCUS CIELEBACK HEAD OF RESEARCH PATRIZIA Immobilien AG PATRIZIA Bürohaus Fuggerstraße Augsburg Germany T F M marcus.cieleback@patrizia.ag 15

16 Disclaimer This publication is purely for general information and not a prospectus. The information contained in this report is based on publicly available sources that we believe to be reliable. We cannot guarantee the correctness or completeness of information. All statements of opinion reflect the current estimations of the author and do not necessarily reflect the opinion of PATRIZIA Immobilien AG or its associated companies. The opinions expressed in this publication may change without prior notice. The research reports and presentations ( analyses ) produced by PATRIZIA Immobilien AG contain selected information and cannot be regarded as complete and correct. The analyses are based on publicly accessible information and data ( information ), which are regarded as reliable. However, PATRIZIA Immobilien AG has not verified the correctness or completeness of the information and does not accept any liability for this. PATRIZIA Immobilien AG will not bear liability for any damage arising from incomplete or incorrect information, and PATRIZIA Immobilien AG will bear no liability for direct and/or indirect damage and/or secondary damage. In particular, PATRIZIA Immobilien AG will bear no liability for statements, projections or other details contained in these analyses relating to the companies examined, their associated companies, strategies, economic, market and/or competitive position, legal conditions etc. Although the analyses are produced with the greatest care, the possibility of errors or incompleteness cannot be eliminated. PATRIZIA Immobilien AG, its shareholders and employees bear no liability for the correctness or completeness of the statements, estimations, recommendations or conclusions derived from information contained in the analyses. If an analysis is provided as part of an existing contractual relationship, e.g. financial consultancy or a similar service, liability of PATRIZIA Immobilien AG is limited to gross negligence and intent. If fundamental information is omitted, PATRIZIA Immobilien AG shall be liable for simple negligence. The liability of PATRIZIA Immobilien AG to compensate for typical and foreseeable damage is limited according to the extent of the damage. The analyses do not represent an offer, or an invitation to submit an offer for the purchase or sale of a property, a property portfolio, a security or any other investment commitment. The opinions contained in the analyses may change without prior notice. All rights reserved. PATRIZIA Immobilien AG has taken internal organization and regulative precautions to avoid possible conflicts of interest and to disclose these when they arise. 16