2014 NDT Fund Conference REIT Overview

Transcription

1 2014 NDT Fund Conference REIT Overview Presented by: Michael J. Stavar VP - Marketing, Consultant, & Institutional Sales mstavar@chiltoncapital.com (713)

2 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 2

3 Real Estate Cycle PHASE II - EXPANSION PHASE III - HYPERSUPPLY Declining vacancy New construction Increasing vacancy New construction Long-Term Occupancy Average Declining vacancy No new construction Increasing vacancy More completions PHASE I - RECOVERY PHASE IV - RECESSION 3

4 Historic Low Supply 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1Q70 1Q72 1Q74 % of Total Commercial Real Estate Inventory 1Q76 1Q78 1Q80 1Q82 1Q84 1Q86 1Q88 1Q90 1Q92 1Q94 1Q96 1Q98 1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12 Current % of Total Stock % of Stock Hist. Avg. Source: CBRE and Citi Investment Research and Analysis, as of 3/31/14 4

5 REIT Occupancy 94.5% 94.0% 93.5% 93.0% 92.5% Historical Average 92.6% 92.0% 91.5% 91.0% 90.5% 90.0% 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 Source: Company reports and Citi Investment Research, as of 12/31/13 5

6 Year Over Year NOI Growth 7% 6% 5% 4% 3% Historical Average 2.9% 2% 1% 0% -1% -2% -3% 4Q1998 3Q1999 2Q2000 1Q2001 4Q2001 3Q2002 2Q2003 1Q2004 4Q2004 3Q2005 2Q2006 1Q2007 4Q2007 3Q2008 2Q2009 1Q2010 4Q2010 3Q2011 2Q2012 1Q2013 4Q2013 Source: Company reports and Citi Investment Research, as of 12/31/13 6

7 Historical Payout Ratio 95% 90% 85% 80% 81 75% 75 70% 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 AFFO Payout Ratio Historical Avg. Source: Citi Research, Company Reports, as of 3/31/14 7

8 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 8

9 Real Estate Benefits Hard asset you can touch Ability to value Income stream Inflation protection Hybrid of equity and fixed income Stabilizes portfolio due to low correlation Increases risk-adjusted returns for a traditional portfolio 9

10 GM Building (New York, NY) Boston Properties (BXP) The north end of the lobby was originally used as a showroom for GM cars FAO Schwartz occupies retail space on lower floors, and was featured in the movie Big starring Tom Hanks BXP was able to acquire from a distressed private owner for $2.8 billion in 2008 Recent sale by BXP s partner valued building at $3.4 billion, making it the most valuable office building in North America Home to the flagship cube Apple store 10

11 Historical Real Estate Correlations Correlation coefficients based on monthly data, January May 2013 FTSE NAREIT Equity REIT S&P 500/Citigroup Growth (Large-Cap Growth) 44.7% Standard & Poor s 500 (Large-Cap) 55.6% S&P 500/Citigroup Value (Large-Cap Value) 62.8% 11

12 Historical Real Estate Returns vs. S&P 500 As of 3/31/14 YTD 1 year 3 years 5 years 10 years 15 years 20 years 1/1/1972 FTSE NAREIT Equity REITs 10.0% 4.2% 10.7% 28.2% 8.2% 11.4% 10.6% 12.0% S&P % 21.9% 14.7% 21.2% 7.4% 4.5% 9.5% 10.5% investment Growth 12,850,000 12,100,000 11,350,000 10,600,000 9,850,000 9,100,000 8,350,000 7,600,000 6,850,000 6,100,000 5,350,000 4,600,000 3,850,000 3,100,000 2,350,000 1,600, , , FTSE NAREIT Equity REITs S&P 500 Source: Morningstar Direct, as of 3/31/14 12

13 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 13

14 Real Estate Investments Direct Real Estate Investment (RE Partnership) Private (Non-Traded) REIT Public REIT Equity REIT Mortgage REIT 14

15 Direct Real Estate Investing Pros Cons Potential High Reward One Layer of Fees Concentration Risk Geographic Risk Tenant Risk Property Type Risk Capex Headaches No Liquidity 15

16 Private REITs Pros Cons High Yield Diversification, hopefully by property type, tenant, and geography Return of Capital High Fees External management teams with low or no skin in the game Lack of transparency Low Returns No Liquidity Questionable NAV 16

17 Public Mortgage REITs Pros Cons Low Depreciation, so Very High Dividend Payout Diversification Subject to Stock Market Volatility Lack of Transparency Borrow Short, Buy Long Highly Interest Rate-Sensitive External Management Valuation Poor Total Returns 17

18 Public Equity REITs Pros Cons Dividend Yield with low payout ratio Instant Liquidity Subject to Stock Market Volatility Diversification by property type, tenant, and geography Superior Returns Low Fees Management Ownership Transparency & Oversight 18

19 The Shores (Santa Monica, CA) Douglas Emmett (DEI) DEI owns and operates approximately 15.1 million sq. ft. of office space and 2,900 apartment units in Los Angeles and Honolulu Occupancy of The Shores has historically stayed at or above 99% DEI s multifamily portfolio remains fully leased, with average asking rents 7.4% higher than the end of the 3rd quarter last year 19

20 The Galleria (Houston, TX) Simon Property Group (SPG) 26 million shoppers annually, making it the 5th most visited mall in the country SPG has plans underway to add room for 35 new stores by moving Saks to the Galleria III space SPG is the largest publicly traded commercial real estate owner 20

21 Self Storage Facilities (Various Locations) Public Storage (PSA) Operates in over 2,200 locations in the U.S. and Europe Has more than 142 million net rentable sq. ft. of real estate Based on the number of tenants, PSA is among the largest landlords in the world Uses primarily perpetual preferred stock to finance growth 21

22 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 22

23 How Does a REIT Create Value? Growth in NOI via rent or occupancy increases, or lower operating expenses Accretive Expansion via Acquisition, Development, or Redevelopment Higher Quality Tenant Base Portfolio Recycling Cap rate compression 23

24 Total REITs - Historial price to NAV Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan % 130% 120% 110% 100% 90% 80% 70% 130% 120% 110% 96% 100% 90% 80% 70% Source: FactSet and BofA Merrill Lynch Global Research, as of 4/11/

25 Funds from Operations (FFO) Public REITs must pay 90% of Net Income FFO = Net Income + Depreciation AFFO = FFO - Non Revenue Enhancing Capitalized Expenditures A REIT s ability to pay dividends is dependent upon Adjusted Funds from Operations (AFFO) Payout Ratio = Dividend/AFFO Can measure dividend spread vs. a base rate Typically 10 Year Treasury Note or BBB Corporate Bonds 25

26 (%) Dividend Yield vs 10 Year Treasury Yield r = REIT Dividend Yield 10 Year Treasury Source: Citi Research, FactSet, and YieldBook, as of 4/11/ Dec-94 Oct-95 Aug-96 Jun-97 Apr-98 Feb-99 Dec-99 Oct-00 Aug-01 Jun-02 Apr-03 Feb-04 Dec-04 Oct-05 Aug-06 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14 26

27 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 27

28 Risks of Investing in Real Estate Interest Rates Declining Economic Growth Obsolescence Management Team Decisions Debt Structure 28

29 Periods of Rising Interest Rates asset classes ranked by annualized* total returns in periods of rising rates Dec. 76 to Feb. 80 Jun 80 to Sep. 81 Feb. 83 to Jun. 84 Aug. 86 to Sep. 87 Jul. 89 to Apr. 90 Sep. 93 to Nov. 94 Jan. 96 to Mar. 97 Sep. 98 to Jan. 00 May 03 to Jun. 06 Dec. 08 to Mar. 10 Aug. 10 to Mar. 11 Jul. 12 to Jun. 13* REITs 15.3% REITs 2.2% REITs 21.1% Equities 28.7% Bonds 1.3% Equities 1.8% REITs 26.4% Equities 28.2% REITs 25.5% MLPs 67.4% Equities 52.5% MLPs 61.7% Equities 1.8% Equities 1.4% Equities 7.3% REITs 4.9% Equities -2.7% Bonds -3.0% Equities 18.7% Bonds -0.6% MLPs 16.6% REITs 29.3% MLPs 42.6% Equities 18.9% Bonds -0.9% Bonds -7.3% Bonds 2.5% Bonds -0.7% REITs -10.1% REITs -8.9% MLPs 12.9% MLPs -1.5% Equities 11.3% Equities 25.9% REITs 32.5% REITs 7.0% Bonds 2.0% REITs -5.1% Bonds 1.9% Bonds 6.2% Bonds -1.3% Bonds -2.0% Source: Bloomberg. Uses end of month data only. REITs represented by NAREIT All Equity REITs Index: MLPs represented by Alerian MLP Index: Equities represented by S&P 500 Index: Bonds represented by Barclays US Aggregate Bond Index *Period of July June 2013 not annualized 29

30 Effect of Rising Rates on REITs Period of Rising Interest Rates Period 10 UST Out/(Under) As of 6/28/2013 Oct 93 - Dec 94 Feb 96 - Sep 96 Oct 98 - Feb 00 Nov 01 - Apr 02 Jun 03 - Jun 04 Jun 05 - Jun 06 Jan 09 - Jan 10 Oct 10 - Apr 11 Historical Average Rate Chg (bps) REITs (%Chg) -10.9% 10.1% -6.5% 15.2% 21.5% 19.7% 50.1% 9.0% 13.5% S&P 500 (%Chg) 2.2% 3.9% 41.8% 3.3% 15.8% 5.9% 36.2% 15.3% 15.9% Performance (bps) (1,310) 614 (4,820) 1, ,379 1,092 (628) (239) May 2 - June 28, 2013* % 0.9% (861) Subsequent REIT Relative Performance vs. S&P D (bps) (517) (613) 811 1,949 1, , D (bps) (1,416) (711) 1,572 1,487 1,534 1,034 1, Yr (bps) (3,015) (2,904) 5,222 2,450 3,241 (1,437) 2, As of June 28,

31 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 31

32 REITs - Key Takeaways for 2014 and Beyond Provides income and growth in a liquid vehicle with high transparency High predictability of dividend increases extending beyond 2016 Short lease sectors poised for strong NOI growth Elongated cycle due to low supply Well positioned for positive surprises in employment Ideal core allocation for the real estate sector within a multi asset class portfolio 32

33 Peer Group Rankings Performance Relative to Peer Group (Gross of Fees)* As of Date: 3/31/2014 Peer Group (5-95%): Separate Accounts/CITs - U.S. - Real Estate Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile Return Q14 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years Since Inception 1/1/2005 Chilton Capital Management REIT Composite Cohen & Steers Realty Total Return CenterSquare REIT Separate Account Invesco US REITs MSCI US REIT Trailing Returns (Gross of Fees)* As of Date: 3/31/2014 Chilton Capital Management REIT Composite Cohen & Steers Realty Total Return CenterSquare REIT Separate Account Invesco US REITs MSCI US REIT GR USD Count 1Q14 1 Year Peer group 2 Years percentile Peer group 3 Years percentile Peer group 4 Years percentile Peer group 5 Years percentile Peer group 6 Years percentile Peer group 7 Years percentile Peer group percentile Since Inception Peer group percentile *Information presented is provided as Supplemental Information to the fully compliant GIPS presentation 33

34 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 34

35 10 Year Rolling Sharpe Ratio Sharpe Ratio (arith) % S&P % MLCorpGov 20% REIT 60% S&P % MLCorpGov As of 5/31/

36 Historical Returns Comparison FTSE NAREIT All Equity REITs Unlevered Core Properties (NPI) Core Private Equity Funds (ODCE) Value-Added Fund(NCREIF/ Townsend) Opportunistic Funds (NCREIF/ Townsend) 1-Year Year Year Year Year Year Year N/A 30-Year N/A N/A 35-Year N/A N/A 40-Year N/A N/A N/A N/A Note: Data as of March 31, 2013 for publicly traded REITs; 2013Q1 for unlevered core properties (NCREIF NPI) and core private equity real estate funds (NCREIF ODCE); and 2012Q3 for value-added and opportunistic private equity real estate funds (NCREIF/Townsend Fund Indices). Fees and expenses are assumed to average 50 bps per year for an actively managed US publicly traded REIT portfolio and 115 bps per year for unlevered core property investments; fees for private equity real estate fund investments are as reported by NCREIF. Source: REIT.com, as of 3/31/13 36

37 Mortgage REITs vs. Equity REITs As of 3/31/14 YTD 1 year 3 years 5 years 10 years 15 years 20 years 1/1/1972 FTSE NAREIT Equity REITs 10.0% 4.2% 10.7% 28.2% 8.2% 11.4% 10.6% 12.0% FTSE NAREIT Mortgage REITs 11.2% -7.5% 7.9% 16.4% -3.6% 6.4% 6.5% 5.2% The FTSE NAREIT Equity REITs index is a free-float adjusted, market capitalization-weighted index of all Equity REITs not designated as Timber REITs or Infrastructure REITs. The FTSE NAREIT Mortgage REIT Index is a free-float adjusted, market capitalization-weighted index of U.S. Mortgage REITs. Mortgage REITs include all tax-qualified REITs with more than 50 percent of total assets invested in mortgage loans or mortgage-backed securities secured by interests in real property. Source: Morningstar Direct, as of 3/31/14 37

38 REIT Implied Cap Rate vs 10 Year Treasury Yield / / / / / / / / / / / / / / / /2013 (%) r = 0.6 Implied Cap Rate 10 Year Treasury Source: Citi Research, FactSet, Citi YieldBook, as of 4/11/

39 Spread Between Implied Cap Rate vs. 10 Year Treasury Yield 8.0% 7.0% Average Spread = 360 bps 6.0% 6.2% 5.0% 4.9% 4.0% 3.0% 2.0% 3.6% 3.4% 2.3% 1.0% 1.0% 0.0% r = 0.6 Oct-98 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Average Plus 1 SD Plus 2 SD Minus 1 SD Minus 2 SD Yield Spread Source: Citi Research, FactSet and YieldBook, as of 4/11/

40 Spread Between Implied Cap Rate vs. BBB Corporate Yield 4.0% 3.5% 3.0% 2.5% 2.0% 1.0% 0.0% -1.0% 2.0% 1.5% 0.5% -0.5% -2.0% -3.0% r = 0.8 Oct-98 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Average Plus 1 SD Plus 2 SD Minus 1 SD Minus 2 SD Yield Spread Source: Citi Research, FactSet, and YieldBook, as of 4/11/

41 Spread Between REIT Dividend Yield and 10 Year Treasury Yield 8.0% Average Spread = 120 bps 6.0% 4.0% 3.7% 2.0% 2.5% 0.0% 1.2% 1.2% -0.1% -2.0% -1.3% -4.0% r = / /1995 8/1996 6/1997 4/1998 2/ / /2000 8/2001 6/2002 4/2003 2/ / /2005 8/2006 6/2007 4/2008 2/ / /2010 8/2011 6/2012 4/2013 2/2014 Average Plus 1 SD Plus 2 SD Minus 1 SD Minus 2 SD Yield Spread Source: Citi Research, FactSet and YieldBook, as of 4/11/

42 Spread Between REIT Dividend Yield and BBB Corporate Yield 2.0% Average Spread = -70 bps 1.0% 1.0% 0.0% 0.1% -0.2% -1.0% -0.7% -1.6% -2.0% -2.5% -3.0% -4.0% r = / /1995 8/1996 6/1997 4/1998 2/ / /2000 8/2001 6/2002 4/2003 2/ / /2005 8/2006 6/2007 4/2008 2/ / /2010 8/2011 6/2012 4/2013 2/2014 Average Plus 1 SD Plus 2 SD Minus 1 SD Minus 2 SD Yield Spread Source: Citi Research, FactSet, and YieldBook, as of 4/11/

43 Agenda Current Real Estate Fundamentals Benefits of Adding Real Estate to a Traditional Portfolio Real Estate Investment Options Nuances of REITs Risks Key Takeaways Appendix Biography 43

44 Biography Michael J. Stavar, VP - Marketing, Consultant & Institutional Sales experience: 36 years Mr. Stavar joined Chilton Capital Management in April 2010 to head marketing and business development with corporate plan sponsors, institutional consultants and financial intermediaries. He began his career in public accounting in 1976 with Deloitte Haskins and Sells, and was later associated with Peat, Marwick & Mitchell. He then joined BASF Corporation and in 1983 started managing its $1.5 billion pension portfolio and $1.0 billion defined contribution plan. In 1993 he was recruited by Mellon Bank to serve as Chief Investment Officer for their $40 billion securities lending business. In 1997 he worked for Allegheny Technologies Incorporated and managed its $3.7 billion US and UK pension plans. After several years on the plan sponsor side, he moved in 2000 to the buy side of the investment business becoming a partner and portfolio manager for Gulf Investment Management, a $2.6 billion investment firm. The firm was later acquired by OppenheimerFunds, Inc., one of the largest investment firms in the country, where he continued for the next seven years as portfolio manager and head of marketing for institutional and consultant relationships. Mr. Stavar is a graduate of Fairleigh Dickinson University and holds both BS and MBA degrees. He is a Certified Public Accountant (CPA), member of the American Institute of Certified Public Accountants and a Certified Financial Planner (CFP). Mr. Stavar is also a member of the National Football League Players Association Financial Advisor Registration Program. 44