Real Estate and Other Real Assets: The Cost of Familiarity

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1 Real Estate and Other Real Assets: The Cost of Familiarity September 5, 2013 Joseph K. Azelby, Head of Global Real Assets, J.P. Morgan Asset Management

2 Mixed-use Office/Retail Beijing, China Familiarity breeds contempt New Build LNG Tanker Korean Built

3 Mixed-use Office/Retail Beijing, China Familiarity breeds complacency New Build LNG Tanker Korean Built

4 The cost of familiarity Mixed-use Office/Retail Beijing, China New Build LNG Tanker Korean Built

5 The cost of familiarity Mixed-use Office/Retail Beijing, China New Build LNG Tanker Korean Built

6 The cost of familiarity Mixed-use Office/Retail Beijing, China New Build LNG Tanker Korean Built

7 The cost of familiarity Mixed-use Office/Retail Beijing, China New Build LNG Tanker Korean Built

8 The cost of familiarity Mixed-use Office/Retail Beijing, China New Build LNG Tanker Korean Built

9 Mixed-use Office/Retail Beijing, China Just because something has lower return, does not mean it has lower risk. Just because something has a higher return, does not mean it has higher risk.

10 Cost of Familiarity: The well-known cap rate compression phase in core real estate 6,000 Real estate has become a familiar investment in institutional portfolios in recent decades 11% Increased capital allocation has lead to a steady decline in real estate cap rates NPI Number of Properties 5,000 4,000 3,000 2,000 1, NPI Cap Rates (%) 10% 9% 8% 7% 6% 5.8% 5% Source: NCREIF NPI = NCREIF Property Index, J.P. Morgan Asset Management. As of June 2013.

11 a similar trend is beginning to take place in infrastructure Increasing allocations to infrastructure has lead to a rise in the number of infrastructure funds Infrastructure discount rates have a declining trend 60 14% Number of Infrastructure Funds % 12% 11% 10% 9% 0 8% Infrastructure Discount Rate (annual est.) Source: Preqin, Data as of February 27, Sources: Bloomberg and JPMAM GRA Infrastructure Research estimates

12 The unfamiliar tend to deliver higher returns and have higher perceived risk Office Building New York, NY Mixed-use Office/Retail Madrid, Spain Mid-Income Housing New Delhi, India New Build Oil Drilling Rigs Korean Built More Familiar Lower Perceived Risk/Return Profile Higher Less Familiar New Build LNG Tanker Korean Built Office Building London, UK Mixed-use Office/Retail Beijing, China These examples represent some of the investments in Real Assets funds (Brazil Real Estate Gávea strategy is not a Global Real Assets fund). However, you should not assume that these types of investments will be available to or, if available, will be selected for investment by any fund in the future.

13 U.S. Core Real Estate: 425 Lexington Avenue Office Building New York, NY Asset: Class A office building adjacent to Grand Central Terminal Lease Detail: 99.8% leased to strong credit tenants with weighted average lease term of 16.1 years Projected Unlevered IRR: 6.2% Purchase Price: USD 630 million Investment Highlights: One of the newest high rise office towers in Midtown Manhattan; near mass transit, fine dining and retail Illustrative growth of USD 100 at the Projected Unlevered IRR for 10 years 220 Value (USD) USD Year The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, if available, will be selected for investment in the future. There can be no guarantee of future success.

14 European Core Real Estate: 8 Canada Square Office Building London, UK Asset: More than 1.1 million-sq-ft Grade A office in the centre of Canary Wharf Lease Detail: Long-term secure cash flows; 100% leased to HSBC (strong credit tenant) through mid-2027 Projected Unlevered IRR: 6.0% Purchase Price: million Investment Highlights: Very high specification with column-less floorplates Illustrative growth of USD 100 at the Projected Unlevered IRR for 10 years 220 Value (USD) USD Year The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, if available, will be selected for investment in the future. There can be no guarantee of future success.

15 European Real Estate: Iconic Property in Madrid Mixed-use Office/Retail Madrid, Spain Asset: Historic building located in a prime retail destination in Madrid Lease Detail: 90% leased Projected Unlevered IRR: 7.0% Purchase Price: 250 million Investment Highlights: Prime retail asset in an excellent location, at 25% to 30% discount from similar properties in London or Paris Illustrative growth of USD 100 at the Projected Unlevered IRR for 10 years $220 Value (USD) $180 $140 USD 197 $ Year The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, if available, will be selected for investment in the future. There can be no guarantee of future success.

16 China Real Estate: Project Aqua Mixed-use Office/Retail Beijing, China Asset: Class A office/retail in new Tier 1 CBD of Beijing, within third ring road Market: Office rental growth with low expected vacancy Projected Levered IRR: 20.0% Leverage: 40% construction financing Development Budget: USD 400 million Investment Highlights: sponsored with Beijing Capital Land, a top developer with strong commercial development track record and government relationships Illustrative growth of USD 100 at the Projected Levered IRR for 10 years 700 Value (USD) USD Year Note: This project is preliminary identified as a potential investment. These opportunities subject to change based upon existing market conditions, available investment opportunities and applicable current laws and regulations. The IRR shown above is calculated based upon internal JPMIM data and is gross of management fees, incentive allocation and estimated fund level expenses. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, If available, will be selected for investment in the future. There can be no guarantee of future success.

17 India Real Estate: Amrapali Silicon City Mid-Income Housing New Delhi, India Asset: 43.7-acre housing project in a key suburb of New Delhi with 4,642 apartment units targeting the middle-income buyer segment Sales: 47% presold 1 at time of acquisition Projected Levered IRR: 25.0% Leverage: 40% construction financing Development Budget: USD 238 million Investment Highlights: Investment partnership with a leading New Delhi development firm specializing in first-time middle-income home buyers Illustrative growth of USD 100 at the Projected Levered IRR for 10 years Value (USD) Year USD Based on original development size of 7.85 msf. The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, if available, will be selected for investment in the future. There can be no guarantee of future success.

18 Global Maritime: LNG Tanker Ships LNG Tanker Ships Korean New Builds Asset: Latest fuel-saving eco-design LNG tankers under construction in premier South Korean shipyard Charter Detail: 10 year charter contracts with a Top 5 global gas producer (with 10 year extension option) Projected Levered IRR: 15.6% Leverage: 70% Loan-to-Cost Investment Highlights: 50/50 joint venture with world class ship operator. LNG is fastest growing fossil fuel (5% growth per annum through 2025) Illustrative growth of USD 100 at the Projected Levered IRR for 10 years 500 Value (USD) USD Year Note: This project is preliminary identified as a potential investment. These opportunities subject to change based upon existing market conditions, available investment opportunities and applicable current laws and regulations. The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, If available, will be selected for investment in the future. There can be no guarantee of future success.

19 Global Maritime: Deepwater Semisubmersible Drilling Rigs Oil Drilling Rigs Korean New Builds Asset: Among the most technologically advanced drilling rigs built to date and capable of operating worldwide Charter Detail: 50/50 partnership with leading Nordic maritime company in a 10 year charter strategy (asset useful life of 30 years) Projected Levered IRR: 19.7% Leverage: 70% Loan-to-Cost Investment Highlights: Elevated demand for oil, driven by emerging market growth and industrialization, is driving high oil prices, with exploration and production moving to increasingly remote regions Illustrative growth of USD 100 at the Projected Levered IRR for 10 years 700 Value (USD) Year USD 604 Note: This project is preliminary identified as a potential investment. These opportunities subject to change based upon existing market conditions, available investment opportunities and applicable current laws and regulations. The IRR shown above is calculated based upon internal JPMIM data and is gross of fees. There can be no guarantee the IRR will be achieved. This example is a representative investment. However, you should not assume that this type of investment will be available to or, If available, will be selected for investment in the future. There can be no guarantee of future success.

20 It pays to get familiar with the unfamiliar Mixed-use Office/Retail Beijing, China

21 Risk Factors The following summarises certain key risk factors, as will be set out, along with other risk factors that pertain to the various real assets strategies detailed/mentioned in this presentation. Prospective investors should carefully consider the summaries below in conjunction with the risk factors sections of each of the Fund s Memorandum and relevant Feeder Memorandum and should consult with their own financial, legal and tax advisers before deciding whether to invest in the Funds or any Feeder Vehicle with respect thereto. Some of the risk factors outlined below may not be applicable to all of the Funds in this presentation. For complete information on the risks associated with a particular Fund or Feeder Entity, please refer to the Offering Memorandum for that respective Fund. General: There can be no assurance that any Fund will succeed in meeting its investment objective or target return or that there will be any return on capital or of the original capital invested. Investors will only have recourse for any losses suffered to the assets of the particular Sub-fund in which they invest. Risks Relating to the Fund s Investment Objective and Investment Strategy. An Investment in any underlying Fund is not a bank deposit, is not insured by the U.S. Federal Deposit Insurance Corporation, and is not the obligation of, or guaranteed by, JPMIM, JPMorgan Chase Bank, N.A. or any of their affiliates. An Investment in the Fund involves investment risks, including the possible loss of the principal amount invested. There can be no assurance that a Fund will achieve this Investment Objective. Although the Investment Adviser will endeavor to recommend Investments that are consistent with the Investment Objective, investments in real estate and real estate-related assets involve an inherently greater risk of loss of capital than various other types of investments, due in large part to the risk factors set forth in this Booklet and in the respective offering Memorandum. Therefore, prospective investors must recognize that, notwithstanding the Investment Objective, the Fund may be unable to preserve an Investor s capital through its program of investments in real assets. Lack of liquidity: Interests in any Fund and each Feeder Entity will not be transferable except with the consent of the Management Company, which consent may be withheld in its absolute discretion. Investors may not withdraw capital from the Fund or any Feeder Entity once they have invested, except by submitting a repurchase request. Repurchase requests will, however, only be met at the absolute discretion of the manager or general partner. Accordingly, investors in the Fund or a Feeder Entity will have no right to have their interests repurchased. Investor s may be required to bear the financial risk of their investment in the Fund or a Feeder Entity for an indefinite period of time. If an investors interest is repurchased or transferred within the first three years following the acceptance of the investor into the Fund or any Feeder Entity, a Repurchase Fee will be payable. The repurchase feature differs for each Fund. Leverage: The use of borrowing by a Fund and/or the Feeder Entities may create greater potential for loss as the available assets of the Fund and Feeder Entities may be insufficient to meet repayments and a Fund and Feeder Entities may not be able to refinance existing borrowing on equal terms or at all. Distributions: An investor will only receive cash distributions from a Fund or Feeder Entity in which it is invested if it elects to do so. If an investor does not so elect, distributions will be reinvested on its behalf in the Fund or Feeder Entity, as the case may be. However, tax may still be payable by the investor on such re-invested distributions. Distributable cash flow will be accumulated in relation to any accumulation units issued. Risks associated with real estate and infrastructure investments: An investment in any Fund or a Feeder Entity will be subject to certain risks associated with the ownership of real estate and infrastructure related investments. These risks include, among others, adverse changes to national or international economic conditions; increase in competition; changes in interest rates, property taxes and other operating expenses; legal fees and expenses incurred to protect the Fund s investments; changes in planning laws and other governmental rules and fiscal policies; casualty or condemnation losses; uninsured damages from natural disasters and acts of terrorism and limitations on and variations in rents and other income streams. These factors could give rise to fluctuations in occupancy rates, rent schedules or operating expenses. In addition, investments in real estate, infrastructure assets, and maritime tend to be long-term and illiquid. The Fund may also invest in real estate and infrastructure related securities, maritime and other real estate-related investments, which will involve risks in addition to those set out above. Risks to Returns from Real Estate Investments Other than Properties. A Fund may invest in investments other than direct real estate investments. The performance of those investments will be inherently linked to the value of the real estate from which they derive their inherent value. Accordingly, all of the risks which apply in respect of direct real estate described above and are further be described in that Fund s Memorandum will, to varying degrees, impact on the value of any other investments the Fund makes. Environmental risks: The Funds may become liable for substantial costs arising from remedying environmental problems associated with the properties it holds. The costs of any such remediation may exceed the value of the relevant property and/or the aggregate assets of the Fund. Environmental problems may also affect the use and operation of such properties.

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