Beaver Run Resort Breckenridge, CO August 9, 2013

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1 Beaver Run Resort Breckenridge, CO August 9, 2013 ICSC Rocky Mountain Idea Exchange Breckenridge 2013 Market knowledge. Insight on trends. Expert forecasts.

2 Garrick Brown Director of Research Cassidy Turley Northern California and ChainLinks Retail Advisors National Retail ICSC Rocky Mountain Idea Exchange Breckenridge 2013 Market knowledge. Insight on trends. Expert forecasts.

3 Today s Topics Macro-Economic Outlook Colorado Snapshots The Macro Retail Landscape For Research Reports and Weekly Retail Commentary me! gbrown@ctbt.com Or Garrick.Brown@Cassidyturley.com

4 2013/2014 Macro Economic Outlook Policy vs. Housing

5 U.S. GDP: It s A 2% Recovery Contributions to GDP: 7% 6% 5% 4% 3% 2% 1% 0% 1% 2% 3% 2000 Consumption Investment Gov t Net Exports Inventories Real GDP Growth SO FAR 2004 Real Estate Boom Q1 13 Q Q Q2 13 GDP Tracker Q % 3.5% GDP w/o Gov t Drag = 3.4% 3.1% 2.7% 1.0% 2.5% Source: U.S. Bureau of Economic Analysis

6 GDP Forecast Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q US Economy Real GDP Growth, % Job Growth, ths ,168 1,919 2,230 Office using Job Growth, ths Unemployment Rate Retail Services Growth, % Inflation, % CCI Fed Funds Rate year Gov't Bond GDP GROWTH ISM Manufacturing Index West Texas Intermediate Office Sector 3.6% Net Absorption, msf Vacancy 16.0% 15.8% 15.7% 15.4% 15.3% 15.2% 15.0% 14.9% 15.7% 15.1% 14.3% Asking Rents $21.65 $21.72 $21.72 $21.69 $21.83 $21.92 $22.02 $22.13 $21.70 $21.98 $22.42 BACK TO NORMAL Industrial Sector Net Absorption, msf Vacancy 9.3% 9.3% 9.1% 8.9% 8.8% 8.6% 8.4% 8.3% 9.1% 8.5% 7.9% Asking Rents $5.05 $5.04 $5.04 $5.00 $5.03 $5.06 $5.09 $5.12 $5.03 $5.07 $5.12 Retail Sector Net Absorption, msf Vacancy 10.9% 10.8% 10.8% 10.7% 10.6% 10.4% 10.4% 10.3% 10.8% 10.4% 10.1% Asking Rents $19.00 $19.03 $19.05 $19.08 $19.09 $19.11 $19.12 $19.14 $19.04 $19.12 $19.17 Apartment Sector Net Absorption, ths. sf Vacancy 5.0% 4.8% 4.7% 4.5% 4.5% 4.5% 4.4% 4.4% 4.8% 4.5% 4.5% Asking Rents $1,070 $1,082 $1,091 $1,097 $1,104 $1,122 $1,127 $1,136 $1,085 $1,122 $1,160

7 Upward Bias: Equities Stocks Rise, CRE Follows Suit Rising PE Ratios: Trillion Dollars $ Better Apr 1993 Feb 1994 Dec 1994 Oct 1995 Aug 1996 Jun 1997 Apr 1998 Feb 1999 Dec 1999 Oct 2000 Aug 2001 Jun 2002 Apr 2003 Feb 2004 Dec 2004 Oct 2005 Aug 2006 Jun 2007 Apr 2008 Feb 2009 Dec 2009 Oct 2010 Aug 2011 Jun 2012 Apr 2013 business growth More profits More jobs More real estate demand Value of Private non residential, (Mil. $, SAAR) DJIA 30 Industries Source: Moody s, Cassidy Turley

Confidence at Recovery High Consumer Confidence Index, 1985=100, SA 85 80 75 70 65 Higher taxes Cyprus crisis Sequester Previous Recovery High =

8 Confidence at Recovery High Consumer Confidence Index, 1985=100, SA Higher taxes Cyprus crisis Sequester Previous Recovery High = 72 (Feb 2011) Expected Actual Expect More.. JOBS BUSINESS 17% 12% 60 Feb 13 Mar 13 Apr 13 May 13 Jun 13 $ April May 2013 Source: The Conference Board

9 Risks on the Decline Probability the U.S. will be in recession in 6 months, % 78% Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr U.S. Business Cycles: Average Expansion = 8 years 8 yrs. 10 yrs. 6 yrs. Recession GDP Growth, % Source: Moody s Analytics; U.S. Bureau of Economic Analysis 9

10 Momentum Tracker Job Growth: April 2013 vs. April 2012, % Change Salt Lake City Tampa Denver Louisville Phoenix Atlanta Baltimore 378 Metros 281 Job Gains Represent the change in ranking since Momentum Tracker Houston 4.1% Indianapolis 1.5% Salt Lake City 4.0% Orlando 1.4% Austin 3.7% Portland 1.4% Nashville 3.5% Oakland 1.4% Tampa 3.4% Boston 1.3% Dallas 2.9% San Antonio 1.3% Bismarck 2.9% Newark 1.3% San Jose 2.7% Philadelphia 1.1% San Francisco 2.6% Sacramento 1.0% Denver 2.6% Raleigh 1.0% Louisville 2.6% Cincinnati 1.0% Phoenix 2.3% Worcester 1.0% Seattle 2.3% Chicago 0.9% Las Vegas 2.3% Pittsburgh 0.9% Charlotte 2.2% DC Metro 0.8% San Diego 2.1% Kansas City 0.6% Atlanta 2.0% Memphis 0.6% Edison 2.0% St. Louis 0.5% Oklahoma City 2.0% New Orleans 0.5% Los Angeles 1.9% Milwaukee 0.1% Baltimore 1.9% Detroit 0.1% Minneapolis 1.7% Cleveland 0.1% Riverside 1.7% Dayton 0.5% Source: Bureau of Labor Statistics

899k Jan - May 783k Jan - Apr Japanese Tsunami 570k Jun - Sept Extreme Weather

11 Still A Summer Swoon? Job growth starts the year strong then sputters 851k Jan - May 889k Jan - May 899k Jan - May 783k Jan - Apr Japanese Tsunami 570k Jun - Sept Extreme Weather 543k Jun - Sept Greek Bailout Arab Spring S&P Downgrade Fiscal Cliff 261k Jun - Sept Source: Bureau of Labor Statistics

12 Price of Policy Changes/Sequester Discretionary Spending, trillions $1.6 $1.5 Recovery Act $1.4 $1.3 $1.2 Stimulus fades Sequester implemented March 1, 2013 $1.1 $1.0 $0.9 Debt ceiling deal Aug reduced spending by $1 trillion over next 10 years 2014 last year of decline for discretionary spending Discretionary Spending No Sequester Sequester pulled back Source: White House, Cassidy Turley

13 Cuts: Pain Beyond the Majors Drop in Federal Employment since 2011, % chg. Mount Vernon, WA -19.0% Great Falls, MT -8.9% Corvallis, OR Minneapolis -15.3% -4.3% Oshkosh, WI Idaho Falls, ID -19.4% New York -10.6% Detroit -2.5% Napa, CA -3.5% -38.0% Chicago Provo, UT Boulder, CO -3.7% Cincinnati San Francisco -7.9% -6.5% -4.8% DC Metro -4.5% -2.2% Wichita, KS -10.3% Hickory, NC -15.2% Phoenix Gadsden, AL -1.9% -45.0% San Diego 0% Longview, TX Dallas -16.9% -2.8% Micro Metro Victoria, TX -16.3% Metro Area Naples, FL -15.3% Source; Bureau of Labor Statistics

14 Monetary Stimulus Federal Reserve buying $40 billion in treasury securities each month 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1, End of QE1 End of QE2 QE3 Debate is Good News But QE3 will most likely last through 2013 QE3 U.S. Monetary Base (U.S. $bil., LHS) Source: U.S. Board of Governors of the Federal Reserve System

15 Housing is Finally Back!

16 Upward Bias: Housing Economic Impact Housing Surge Impact On CRE Housing adds 80 bps to GDP Growth in Q1; residential investment added 30bps wealth effect added 50 bps 1% Source: Cassidy Turley 33% of GDP Growth in Q1 is Linked to Housing Q42012Q12012Q22012Q32012Q42013Q1 Case Shiller, U.S. Home Price Index Home sales are highest in 6 years Home prices rising at a rate of 10% Housing starts expected to double over next 2 years Spending Job Growth Demand Spending: Every $1 increase in home values boosts consumer spending by 10 cents Economic Growth: Housing contributes 1% to GDP during recoveries Job Growth: Legal, financing, construction, insurance, warehousing all link to housing

17 Annual Household Formation 2,500 F O R E C A S T 2,000 1,500 33% of GDP Growth in Q1 is Linked to Housing 20 Year Average 3 Million Units 1, Million Million Units of Pent-Up Demand Source: National Association of Homebuilders, Census Bureau, Cassidy Turley Research

18 Multifamily Market is Underbuilt 240,000 1 Home = 3.05 Jobs Forecast 9% 8% 190,000 7% 140,000 6% 5% 90,000 4% 3% 40,000 2% 1% 10, % Source: Reis; NBER Recession Net Absorption, # units New Supply (# units) Renter Household Formation Vacancy Rate, %

19 But Housing Will Trump Policy

20 Colorado Snapshot Public Vs. FEDERAL Private Sector Job Dependence Clearly Visible 60,000 New Jobs Added Over Last Year! Seventh Fastest Job Growth in Unemployment Rate June 2013 the Colorado Nation Since Recession 7.0% Boulder 6.1% Fort Collins 6.2% Denver 7.3% Grand Junction 9.0% Colorado Springs 9.1% Pueblo 10.5%

21 Employment Heating Up Employment Increased by 2.7% Over Past Year Construction Exploding 75% of Gains in Last Three Months Employment 12 Month Change +/ Construction 8.0% Leisure & Hospitality 5.5% Professional & Business Services 4.6% Education & Health Services 2.9% Government 2.0% Other Services 1.7% Trade, Transportation & Utilities 0.9% Manufacturing 0.8%

22 Rocky Mountain Highs 1. Strong Economic Growth Statewide GDP Currently at 2.1% but Upward Revision Expected 2. Strong Job Growth 3. In-Migration (70k People Moved to Colorado over Past Year) 4. Local Housing Didn t Take Major Hits During Downturn but Poised for More Growth 5. More Construction Jobs Coming = Lower Unemployment = Virtuous Cycle

23 Denver Emerging Hottest of the Second Tier Retail Markets

24 2013 Retail Big Picture Tech Changes Everything

25 2013 Macro Economic Outlook We Always Over Estimate the Change That Will Occur Over the Next Two Years and Underestimate the Change That Will Occur in the Next Ten. Bill Gates, The Road Ahead 1996

26 CRE Demand Metrics CRE Demand Metrics Net Absorption in 2013 vs. Pre-recession Annual Averages Annualized Pre-recession Average Retail (msf) Office (msf) Industrial (msf) Apartment (000's) Source: Cassidy Turley, Reis

27 Industrial Space is the Winner! Occupancy Growth MSF (Q4-2012) MSF (Q1-2013)

28 What s Hot? Bulk Warehouse! Big Box on Fire New Bulk Warehouse Newly built 250k or larger 28 ceiling heights or greater ESFR sprinkler system Multiple loading points Near interstates

29 Anatomy of Mega Bulk

30 Bigger is Better Mega Bulk Warehouse Product (Combo Distribution/E- Commerce Fulfillment Centers) Driving Demand. The Old Bulk Warehouse The New Bulk Warehouse D.C. to Supply 20 or More Stores D.C. to Supply 20 or More Stores/Fulfillment Center to Handle 20,000+ Daily Direct Orders 100,000 SF + 300,000 SF + Located near Interstates, Rail or Ports Heavier Load Floors/24 Clear or More Sprinkler Systems/HVAC a PLUS 20 or More Dock Doors & Cross Dock Capabilities aplus Extra Land for Trucks/Parking a PLUS Located near Interstates, Rail or Ports and Generally MUST be Near UPS or FedEx Hubs Even Heavier Load Floors/32 Clear or More ESFR/HVAC a NECESSITY Cross Dock Capabilities and 50+ Dock Doors a NECESSITY Extra Land to Support 1,000 Workers or More and Extra Truck Parking a NECESSITY

31 The Amazon Effect Distribution Center Footprint 2016 Occupancy DC = 90MSF $50B in Sales 2012 Amazon Products = 50% Beta testing same day delivery in 10 select markets Likely to launch limited national within next 12 months Currently Occupancy DC = 50MSF Typical Size of one DC = 1MSF

32 CRE Demand Metrics CRE Demand Metrics Net Absorption in 2013 vs. Pre-recession Annual Averages Annualized Pre-recession Average Retail (msf) Office (msf) Industrial (msf) Apartment (000's) Source: Cassidy Turley, Reis

33 E-Commerce Annual Retail Sales Growth Online vs. Traditional 2,500 20% 2,000 1,777 1,877 1,915 2,014 2,105 2,189 15% Growth in $B 1,500 1,000 10% 5% Y/Y Change % % -5% U.S. Retail U.S. Online Retail Retail % Change Online % Change Excludes motor vehicles, gas stations, food and beverage stores, health & personal care, food services & drink places. Source: Citi Research; Department of Commerce

34 Impact of Smartphones & Tablets Source:???

35 U.S. Online Retail Sales By Category Other 22% Computer & consumer electronics 22% Food & beverage 2% Toys & hobby 3% Office equipment & supplies 4% Health & personal care 5% Furniture & home furnishings 7% Auto & parts 8% Books music video 9% Apparel & accessories 18% Source:????

36 U.S. Chain Store Sales Up, But Source: ICSC

37 The Impact of E-Commerce Mall Non Anchor Sales Productivity Sales PSF YTD Apparel and Shoes $357 $379 $364 Women's Ready to Wear Total $285 $292 $283 Women's Accessories and Specialties $543 $582 $555 Men's Apparel $333 $356 $352 Children's Apparel $341 $352 $299 Family Apparel $358 $380 $363 Women's Shoe Stores $451 $473 $546 Men's Shoe Stores $509 $543 $569 Family Shoe Stores $323 $337 $329 Athletic Shoe Stores $360 $409 $423 Children's Shoe Stores $410 $473 $458 Apparel and Accessories Misc. $808 $976 $925 Source: ICSC

38 Is Showing Mall Non Anchor Sales Productivity Sales PSF YTD Furnishings $947 $1,108 $1,189 Home Furniture and Furnishings $382 $423 $401 Home Entertainment and Electronics $1,487 $1,778 $1,980 Other GAFO Type $526 $558 $573 Stationery/Cards/Gifts/Novelty $306 $318 $312 Books $207 $200 $141 Sporting Goods/Bicycles $249 $276 $287 Toys/Educational/Hobby $427 $478 $485 Personal Care $645 $720 $760 Jewelry $1,002 $1,053 $1,095 Other GAFO Type Miscellaneous $435 $427 $417 Total GAFO Type $437 $469 $466 Source: ICSC

39 On U.S. Mall Sales Mall Non Anchor Sales Productivity Sales PSF YTD Food Service $554 $579 $583 Fast Food $536 $547 $535 Food Court $829 $879 $881 Restaurants $489 $513 $522 Other Non GAFO Categories $265 $276 $275 Specialty Food Stores $572 $624 $609 Drug/HBA $523 $527 $495 Personal Services $356 $360 $355 Theaters $99 $99 $96 Mall Entertainment $98 $99 $110 TOTAL NON GAFO Type $385 $403 $407 GRAND TOTAL $426 $455 $454 Source: ICSC

40 E-Commerce Changing Everything U.S. Retail E-Commerce Sales as a Portion of Total U.S. Retail Sales 4,000 3,500 3,000 2,500 6% 7% 7% 7% 8% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 2,000 1,500 1,000 Likely to reach 30% of all retail sales by Source: Deloitte

41 Good News/Bad News

42 Announced Retail Store Closings 3,000 2,500 2,000 Retail closures/failures are actually down 1,500 1, Q Q Q Q Q Q Q Q Q Q Q Q Q Source: ICSC, PNC

43 Announced Retail Store Openings 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Q Planned openings are up Slightly Q Q Q Q Q Q Q Q Q Q Q Q Source: ICSC, PNC

44 Who Is Growing? Growth 2013/2014 Growth at the Far Ends of Economic Spectrum Luxury Retailers Back Discounters Exploding Mid-Priced Retailers Shrinking (Mostly)

45 Growing Disparity in Class Translates 2013 Bottom 90%: 52.1%

46 Who Is Growing? Growth 2013/2014 Retailers NOT Competing With Online Sales Restaurants Grocery/Food Related Service Related

47 E-Commerce Impacting Retailer Growth Planned Unit Growth by Retail Sector (Next 12 Months) 17,208 42% 15,935 The retail marketplace will change more in the next 5 years than it has in the past 20. 3,437 1,655 1,052 1, Restaurant Other Apparel Dollar Home Grocery Drug

48 What Are They Looking For? No new Rooftops to follow Good Future Growth Prospects Growing Retailers Looking for Sure Things High Density Population Higher Levels of Jobs Higher Levels of Income

49 What Are They Looking For? CLASS A EVERYWERE CLASS B DEMAND SPILLING OVER IN STRONGER MARKETS CLASS C Mom and Pops Bottom Feeders

50 Where Are They Looking? HOT! WARM! MODERATE!

2013 2014 Retailer Growth Hot Fitness/Health/Spa Concepts Drug Stores Thrift Stores DECLINING Grocery (Smaller Format Concepts) Discount Grocers Ethnic

51 Retailer Growth Hot Fitness/Health/Spa Concepts Drug Stores Thrift Stores DECLINING Grocery (Smaller Format Concepts) Discount Grocers Ethnic Grocers Organic Grocers Upscale Grocers Fast Food Fast Casual Automotive Discounters Dollar Stores Off-Price Apparel Pet Supplies Sporting Goods Wireless Stores Banks

52 Who s Hot?

53 Retailer Growth Not! Bookstores Video Stores Do-It-Yourself Home Stores DECLINING Mid-priced apparel Mid-priced grocery (particularly unionized) Office Supplies Stationary/Gift Shops Shipping/Postal Stores And Casual Dining (Older, Struggling Concepts Shrinking) DECLINING

54 Who s Not?

55 And the Bad News... Retailers Shrinking Footprints Sharp Contraction Among Segments With Heavy E- Commerce Competition Office Supplies Consumer Electronics Bookstores Negative to Flat Growth Mid-Priced Hard Goods Mid-Priced, Unionized Grocery (Especially Smaller & Regional)

56 Garrick s Crystal Ball

57 Landlords Adapting Experiential Retail Make Shopping Centers the Center of the Community Movies Concerts Fashion Shows DIY Workshops Cooking Demos Wine/Food Events Yoga/Fitness

58 Landlords Adapting Omni-Channel Use of Space Creative Use of Vacant Space Window Shopping

59 Retailers Strike Back Experiential Retailing Interactive Displays More Store Events

60 Retailers Strike Back Omni-Channel Retailing Focusing on Building E- Commerce Platforms

61 Retailers Strike Back Omni-Channel Retailing In-Store Digital Touch Screens Greater Coordination Bricks and Mortar/E- Commerce

62 Retailers Strike Back Omni-Channel Retailing Building Same Day Delivery Capabilities

63 Retailers Strike Back Tracking Consumer Behavior on Their Smartphones Offering Free Wi-Fi and tracking it

64 Retailers Strike Back Omni-Channel Retailing/Experiential Retailing Better Use of M- Commerce

65 Retailers Strike Back Omni-Channel Retailing/Experiential Retailing Better Use of M- Commerce BIG BROTHER WANTS TO SELL YOU TOILET PAPER

66 But What Does it Mean for Real Estate?! CLASS A Luxury CLASS B Mid-Price Discount/Dollar CLASS C

67 But What Does it Mean for Real Estate?! LUXURY Malls MID-PRICE Sales of $350 PSF DISCOUNT/DOLLAR

68 Mall Vacancy Holding 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Big Difference Between Class Mall Vacancy Class A All Others Source: Costar/Cassidy Turley Research Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 2013

Less Impacted by E-Commerce Tenant Mixes

69 Feeling Good in the Neighborhood Largely Business as Usual for Neighborhood Centers Grocery/Drug Anchors Less Impacted by E-Commerce Tenant Mixes Traditionally: Restaurants Service Mom-and-Pop (Coming Back W/Home Values)

70 Continued Slow Improvement 13.0% Neighborhood Center Vacancy 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% Slow Return of Mom and Pops Will Accelerate Pace Neighborhood Center Vacancy Source: Costar/Cassidy Turley Research Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 2013

71 But Otherwise The New Shopping Center: More Food-Related More Service-Oriented More Entertainment Mixed-use Live at the Mall Built-in Demos More Office/Retail Blending of Formats

72 Power Centers Must Adapt Replace Shrinking Concepts With Food Related Retailers Fewer Large Tenants Growing Nearly ALL Single Concept Box Users Looking to Shrink Pure Power Centers Will Need to Shift to Quasi-Neighborhood or Quasi-Lifestyle

73 But Not Down Yet Target/Walmart Anchored Centers Immune Discounters Taking Vacant Boxes NO NEW CENTERS ON MARKET

74 Power Center Vacancy Actually Falling 10.0% 9.0% Power Center Vacancy Power Centers Adapting 8.0% 7.0% 6.0% 5.0% Power Center Vacancy 4.0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Costar/Cassidy Turley Research

75 Landlord Outlook for 2014 Continued Gradual Improvement Shortage of Class A Space Escalating Improvement of Fundamentals for Neighborhood Centers Lack of Construction/New Product Inhibit Growth in CA Coastal Markets New Development Pick Up by Late 2014 Rental Rate Growth for Class A Rental Rate Growth for Class B+ Class C? Forget About It..

76 Get on my mailing list Or ICSC Rocky Mountain Idea Exchange Breckenridge 2013 Market knowledge. Insight on trends. Expert forecasts.

Joseph L. Carter Executive Vice President November 2014

Joseph L. Carter Executive Vice President November 2014 Trends In Banking The problems created by the financial down turn are in the rearview mirror. The national economy remains sluggish and loan growth