INVEST IN SOMETHING REAL NOT FOR USE IN OHIO.

Transcription

1 TM INVEST IN SOMETHING REAL NOT FOR USE IN OHIO.

2 RISK FACTORS u Past performance is not a guarantee of future results. u Investing in real estate assets entails certain risks, including changes in: the economy, supply and demand, laws, tenant turnover, interest rates (including periods of high interest rates), availability of mortgage funds, operating expenses and cost of insurance. This investment will offer limited liquidity options to investors. Real estate investment trusts (REITs) are not suitable for all investors. u Further, investing in Dividend Capital Diversified Property Fund (DPF) stock involves additional and substantial risks specific to DPF, including, among others, that: i. There is no public trading market for shares of DPF s common stock, and DPF does not expect that there will ever be a public trading market for its shares, so redemption of shares by them will likely be the only way to dispose of your shares. ii. DPF s Class A, Class W and Class I share redemption program generally imposes a quarterly cap on aggregate net redemptions of its Class A, Class W and Class I share classes equal to the amount of such share classes with a value of up to 5% of the aggregate net asset value (NAV) of the outstanding shares of such classes as of the last day of the previous quarter. DPF may also amend, suspend or terminate its share redemption program at any time. As a result, DPF s shares have only limited liquidity and may become illiquid. iii. A portion of the proceeds received in the public offering of Class A, Class W and Class I shares is intended to be used to redeem Class E shares, which will reduce the net proceeds available to retire debt or acquire additional properties, which may reduce its liquidity and profitability. iv. The purchase and redemption price for shares of DPF s common stock will be based on the NAV of each class of common stock and will not be based on any public trading market. DPF s NAV will not represent DPF s enterprise value and may not accurately reflect the actual prices at which DPF s assets could be liquidated on any given day, the value a third party would pay for all or substantially all of DPF s shares, or the price that DPF s shares would trade at on a national stock exchange. The board of directors may amend DPF s NAV procedures from time to time. v. Some of DPF s executive officers and directors and other key personnel are also officers, directors, managers, key personnel and / or holders of an ownership interest in its advisor, its dealer manager, its property manager and / or other entities related to its advisor. As a result, they face conflicts of interest, including but not limited to conflicts arising from time constraints, allocation of investment opportunities and the fact that the fees its advisor will receive for services rendered to DPF will be based on DPF s NAV, the procedures for which its advisor will assist its board of directors in developing, overseeing, implementing and coordinating. vi. If DPF fails to maintain its status as a REIT, it would adversely affect its results of operations and its ability to make distributions to its stockholders. vii. The amount of distributions DPF may make is uncertain. DPF has paid, and may continue to pay in the future, distributions from sources other than cash flow from operations. The sources from which DPF may pay distributions include, without limitation, the sale of assets, borrowings or offering proceeds (including the return of principal amounts invested). The use of these sources for distributions decreases the amount of cash DPF has available for new investments, repayment of debt, share redemptions and other corporate purposes, and could reduce your overall return. Prior to 2012, DPF s distributions have historically exceeded its cash flow from operations. However, for each year since 2012, distributions were funded solely from cash flow from operations. viii. DPF s use of leverage increases the risk of loss on its investments. ix. The payment of fees by DPF to its advisor, its property manager and its dealer manager will reduce the cash available for distribution and will increase the likelihood that investors are unable to recover the amount of their investment in DPF. x. In connection with DPF s offering, it incurs fees and expenses. In particular, DPF expects to incur a dealer manager and distribution fee which are expected to reduce the amount of distributions received by certain investors and as a result will lower the overall return to such investors. Also, DPF has and expects to continue to incur organizational and offering related expenses which reduce the overall cash flow of DPF and negatively impact its NAV and could negatively impact your overall return. This material must be read in conjunction with the DPF prospectus in order to understand fully all of the implications and risks of the offering of securities to which it relates. This document must be preceded or be accompanied by a prospectus, which contains important information about DPF. This is neither an offer to sell nor a solicitation of an offer to buy the securities described in the DPF prospectus. The offering is being made only by the DPF prospectus. Neither the Securities and Exchange Commission nor any other state securities regulator has approved or disapproved of the securities or determined if the prospectus is truthful or complete. In addition, the Attorney General of the State of New York has not passed on or endorsed the merits of the offering. Any representation to the contrary is unlawful. DPF is not an investment company registered under the Investment Company Act of Specific properties depicted are owned by DPF.

3 THROUGHOUT HISTORY, WEALTH CREATION HAS BEEN DRIVEN IN PART BY THE OWNERSHIP OF PROPERTY. BENEFITS OF INVESTING IN REAL ESTATE 1

4 REAL ESTATE IS A KNOWN ENTITY AND MILLIONS OF PEOPLE ARE FAMILIAR WITH THE ASSET CLASS THROUGH OWNERSHIP OF RESIDENCES, BUSINESS OR INVESTMENT PROPERTIES. OUR BELIEF IN THE VALUE OF REAL ESTATE IS WHAT DRIVES EVERY ASPECT OF OUR BUSINESS. 2 BENEFITS OF INVESTING IN REAL ESTATE

5 REAL ESTATE THE FOURTH ASSET CLASS Despite real estate being a known entity, many investors are seriously underexposed to the commercial real estate asset class. Perhaps thinking that commercial real estate investment vehicles are beyond their reach, many investors have missed the opportunity to effectively allocate a portion of their portfolio into what many financial advisors now consider the fourth asset class in addition to stocks, bonds and cash. Institutional investors have long understood the value that alternative investments such as real estate can have on a portfolio. 1 Individual investors have come to understand the critical role that diversification plays in creating an efficient investment portfolio. With recent market challenges, both institutions and individuals are considering investment options such as real estate to help further diversify their portfolios. 2 1 Institutional investors often invest on substantially different terms and conditions than individual investors, which may include lower fees, expenses or leverage. 2 Diversification does not guarantee a profit or ensure against loss. Individual investors may need to consider their personal residence or other real estate holdings in determining whether additional investments in real estate will help them meet their diversification objectives. It is possible to have a diversified portfolio without any real estate investments. BENEFITS OF INVESTING IN REAL ESTATE 3

6 the power of real estate Dividend Capital is an innovative real estate investment management firm focused on building value through the power of real estate. With expertise across multiple real estate sectors as investors, operators and financiers Dividend Capital has experience understanding the cash flow metrics and underlying fundamentals of the real estate industry. We invite you to learn more about the commercial real estate asset class and how Dividend Capital s real estate products can help build real value potential in your portfolio. 4 BENEFITS OF INVESTING IN REAL ESTATE

7 potential benefits of commercial real estate The U.S. commercial real estate market has developed into a meaningful and mainstream asset class, not only opening its doors to a broader base of investment opportunities, but also being widely regarded as a valuable component of a well-constructed investment portfolio, offering the potential for: 3 u Current income 4 u Capital appreciation u Low correlation to stocks and bonds 5 u An inflation hedge 6 Despite these potential benefits, many individual investors have either lacked access to high-quality commercial real estate investment opportunities or have simply not properly diversified their portfolios to include targeted real estate segments beyond their areas of comfort such as personal residences, business or investment properties. 3 There can be no assurance that these objectives will be met through an investment in Dividend Capital Diversified Property Fund (DPF). 4 Current income has historically been in the form of quarterly distributions. Prior to 2012, DPF s distributions have historically exceeded its cash flow from operations. However, for every year since 2012, distributions were funded solely from cash flow from operations. 5 Correlation measures how one investment performs in relation to another. DPF shares are being sold to investors over a specified offering period at a price not subject to exchange-traded market fluctuations. The purchase price for shares of DPF common stock will be based on the net asset value ( NAV ) of each class of common stock and will not be based on any public trading market. DPF s NAV may not accurately reflect the actual prices at which its assets could be liquidated on any given day. 6 Typically, if the overall returns of an asset class exceed inflation, the asset class is considered an inflation hedge. Commercial real estate has historically provided overall returns that have exceeded inflation. There is no guarantee, however, that DPF can generate the overall returns needed to outpace inflation. BENEFITS OF INVESTING IN REAL ESTATE 5

8 WAYS TO INVEST IN COMMERCIAL REAL ESTATE Rather than directly purchasing income-producing commercial properties such as industrial warehouses, office buildings, retail shopping centers or apartment buildings, many investors have turned to professionally managed REITs, making real estate easier to own than ever. REITs are one of the most common ways to gain exposure to commercial real estate. what is a reit? u Congress created REITs in the United States in 1960 as a way to make investments in large-scale, income-producing real estate accessible to individual investors. Prior to the creation of REITs, these types of investments were limited to institutions and wealthy individuals having the financial wherewithal to undertake direct real estate investment u Most REITs do not pay corporate income tax and all REITs must annually distribute at least 90% of taxable income to shareholders making them a current income vehicle 4 7 NAV-based real estate is represented by the NCREIF Open-End Diversified Core (ODCE) Index, which is an equal weighted, time weighted index of open-end core real estate funds reported net of fees. The term core typically reflects lower risk investment strategies, utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties. Funds are weighted equally, regardless of size. While funds used in this benchmark have characteristics that differ from DPF (including differing management fees, property-type mix and leverage), DPF s management feels that the NCREIF ODCE Index is an appropriate and accepted index for the purpose of evaluating returns on investments in direct real estate funds. Investors cannot invest in this index. Comparisons shown are for illustrative purposes only and do not represent specific investments. Prices and income returns are derived based on data provided by NCREIF. Total returns presented assume reinvestment of distributions. Past performance does not guarantee future results. DPF has the ability to utilize higher leverage than is allowed for the funds in the NCREIF Fund Index, which could increase DPF s volatility relative to the Index. Additionally, an investment in DPF is subject to certain fees that are not contemplated in the NCREIF Fund Index. As such, DPF cannot make any representation that an investment in DPF will perform in line with the ODCE. 8 Sources: Bloomberg and NCREIF (National Council of Real Estate Investment Fiduciaries). Past performance is not a guarantee of future results. The S&P 500 Index is an index of the 500 largest stocks (in terms of market value), weighted by market capitalization and considered representative of the broad stock market. The Barclays Capital Aggregate Bond Index, is an index of securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI-EAFE) Index is a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada. These indices are used in comparison to DPF and the ODCE in order to illustrate the differences in historical total returns between them and NAV-based commercial real estate. The prices of securities represented by these indices may change in response to factors including: the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates and investor perceptions. All indices are unmanaged and do not include the impact of fees and expenses. An investment cannot be made directly in any index. As such, the returns of the ODCE are not indicative of returns to be attained or expected by DPF. 9 Source: NCREIF and Bloomberg. Stocks are represented by the S&P 500 Index. Bonds are represented by the Barclays Capital Aggregate Bond Index. All indices are unmanaged and do not include the impact of fees and expenses. An investment cannot be made directly in any index. See footnote #8 for more information about each index. 6 BENEFITS OF INVESTING IN REAL ESTATE

9 TOTAL RETURN As the market continues to challenge investors with its volatility, it is important to take a step back to review the long-term performance of various asset classes throughout the market s cycles. For the past 30 years, the National Council of Real Estate Investment Fiduciaries (NCREIF) Open-End Diversified Core (ODCE) Index 7 an index commonly used to measure the performance of net asset value (NAV)-based commercial real estate has generally performed strongly versus the other market indices listed below. Time Period (Years) DPF A-Share (no-load)* RETURNS AS OF DECEMBER 31, NCREIF ODCE S&P 500 Index 7 Index Barclay s Aggregate Bond Index MSCI-EAFE Index % 15.02% 1.37% 0.55% -0.39% % 13.81% 15.12% 1.44% 5.46% 5 N/A 13.66% 12.56% 3.25% 4.07% 10 N/A 6.53% 7.31% 4.51% 3.50% 15 N/A 7.94% 5.00% 4.97% 3.98% 20 N/A 9.46% 8.81% 5.34% 4.83% 25 N/A 7.55% 9.81% 6.15% 5.79% 30 N/A 7.25% 10.36% 6.75% 7.79% The chart below shows the up and down years for stocks, bonds and commercial real estate. UP AND DOWN YEARS FOR NAV-BASED REAL ESTATE, STOCKS AND BONDS 7,9 (12/31/85 12/31/15) Years NAV-Based Real Estate Stocks Bonds Up-Years (positive returns) Down-Years (negative returns) * Excludes up front sales load. The A-Share is offered with an up to 3% sales load to investors through registered broker-dealers, which will affect the returns in the chart and future returns depending on the investor s hold period. Total return represents the compound annual rate of return assuming reinvestment of all dividend distributions. Past performance is not a guarantee of future results. Performance data quoted above is historical. Current performance may be higher or lower than the performance data quoted. Performance does not include transactions fees, including sales commission, that may be applicable to you. The performance data does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares, as applicable. BENEFITS OF INVESTING IN REAL ESTATE 7

10 POTENTIAL FOR DECREASED PORTFOLIO VOLATILITY 10 Real estate investments have historically had lower risk as measured by standard deviation. 10 It is important to note that the value of the underlying assets of a REIT will fluctuate and may be worth less than the REIT initially paid for the asset. STANDARD DEVIATION AS OF DECEMBER 31, Time Period (Years) NCREIF ODCE Index 7 S&P 500 Index Barclay s Aggregate Bond Index MSCI-EAFE Index % 9.02% 2.72% 11.35% % 12.46% 2.79% 14.33% % 16.30% 3.24% 19.80% % 16.85% 3.41% 19.86% % 16.80% 3.45% 19.15% % 15.59% 3.88% 17.80% % 16.15% 4.24% 19.42% 10 DPF s share price is subject to less volatility because its per share NAV is based on the value of the real estate assets it owns and is not subject to market pricing forces as is the share price of publicly traded REITs. Although DPF s share price is subject to less volatility, DPF shares are significantly less liquid than shares of a publicly traded REIT, and are not immune to fluctuations, including downward fluctuations. STANDARD DEVIATION Standard deviation is a measurement of the variability (volatility) of a security, derived from the security s historical returns. The higher the standard deviation, the greater potential for volatility BENEFITS OF INVESTING IN REAL ESTATE

11 CORRELATION Asset classes have the potential to perform differently from one another. When one investment is underperforming, another may be outperforming. As a result, a diversified portfolio can potentially feature lower risk and higher overall return than a portfolio consisting of just one asset class. The chart below provides correlation information for NAV-based commercial real estate compared to other common asset classes. Overall, NAV-based commercial real estate has a low correlation to these other types of investments. WHAT IS CORRELATION? Correlation measures how one investment performs in relation to another, with a coefficient of +1 being a perfect, positive correlation and a coefficient of -1 being a perfect, negative correlation. When two asset classes have a correlation of +1, they will both move up or down by the same amount in the same direction. Conversely, a correlation of -1 indicates that when one asset class moves up or down, the other moves in the opposite direction by the same amount. In general, asset classes with a correlation less than 0.70 or greater than are considered to have relatively low correlation. Research indicates that NAV-based real estate has a relatively low correlation with other asset classes, and may help reduce the volatility of a stock-and-bond portfolio. NAV-BASED REAL ESTATE INVESTMENT CORRELATION 5,7,11 (12/31/85 12/31/15) NAV-Based S&P 500 Real Estate 7 Index MSCI-EAFE Index Barclay s Aggregate Bond Index FTSE NAREIT All Equity REITs Index NAV-Based Real Estate S&P 500 Index MSCI-EAFE Index Barclay s Aggregate Bond Index FTSE NAREIT All Equity REITs Index Source: NCREIF and Bloomberg. This material is for informational purposes only, and does not reflect the actual correlation of specific investments. Total returns presented assume reinvestment of distributions. An investment cannot be made directly in any index. The FTSE NAREIT All Equity REITs index contains all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. See footnote #8 for more information about each index. Data includes performance beginning 12/31/85 to 12/31/15. BENEFITS OF INVESTING IN REAL ESTATE 9

12 CORRELATION (continued) It is also important to take into consideration that, when investing in commercial real estate, there is a difference in correlation with the broader stock market between publicly traded REITs (those traded on an exchange) and those that are not traded on an exchange. As noted in the previous chart, the correlation between NAV-based real estate which is not traded on an exchange and the S&P 500 Index is 0.13, meaning there is very little correlation. The FTSE NAREIT All Equity REITs Index an index of REITs that are publicly traded has correlation to the S&P 500 Index of 0.59, meaning it is more highly correlated to the broader stock market and its fluctuations. The chart below outlines the historical rolling 36-month correlation of the FTSE NAREIT All Equity REITs Index with the S&P % 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% ROLLING 36-MONTH CORRELATION: FTSE NAREIT ALL EQUITY REITS INDEX VS. S&P 500 INDEX 5,11 (12/31/85 12/31/15) Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Average = 0.52% 10 BENEFITS OF INVESTING IN REAL ESTATE

13 INFLATION HEDGE In addition to contributing to a portfolio s diversification and income-producing ability, NAV-based commercial real estate also potentially serves as a hedge against inflation, allowing investors to get more out of each of their dollars. The chart below compares NCREIF ODCE Index annual returns with the Consumer Price Index (the most commonly used barometer to measure the cost of goods and services). The ODCE returns have generally outpaced inflation, resulting in an income stream that maintains and increases an investor s real purchasing power. 35.0% NCREIF FUND INDEX (ODCE) ANNUAL RETURNS VS. CONSUMER PRICE INDEX 7,12 (12/31/85 12/31/15) 17.5% 0.0% -17.5% -35.0% NCREIF (ODCE) Average = 7.84% Consumer Price Index Average = 2.65% 12 Source: NCREIF and U.S. Bureau of Labor Statistics. Total returns presented assume reinvestment of distributions. The Consumer Price Index is an indicator of inflation that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. Performance shown is not representative of any particular investment. An investment cannot be made directly in any index. There is no guarantee that DPF can generate the overall returns needed to outpace inflation. Data includes performance beginning 12/31/85 to 12/31/15. BENEFITS OF INVESTING IN REAL ESTATE 11

14 At Dividend Capital, we apply our experience, insights and vast knowledge of the real estate market to develop innovative investment products designed to build real value for our investors. Since the formation of their first real estate companies in 1993, the principals of Dividend Capital and their affiliates have sponsored the formation of a wide range of institutional real estate investment management and finance businesses operating throughout North America, including public and private platform companies. From inception in 1993 through December 31, 2015, these companies have developed or acquired real estate assets totaling more than $15.3 billion 13 in a diverse range of product types, including residential, retail, office, industrial and land. Our investment partners have included leading financial institutions, major state pension funds, retail investors and high net worth individuals. 13 This information includes some data pertaining to unrelated entities that the principals of Dividend Capital and their affiliates have sponsored prior to the creation of Dividend Capital. The performance of past programs is not indicative of future results. Includes assets that were under contract but not yet acquired as of December 31, BENEFITS OF INVESTING IN REAL ESTATE

15 IN REAL ESTATE EXPERIENCE MAT TERS

16 TM FOR ADDITIONAL INFORMATION, PLEASE CONTACT US AT 866.DCG.REIT ( ) NOT A DEPOSIT l NOT FDIC INSURED l NOT GUARANTEED BY THE BANK l MAY LOSE VALUE l NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY Dividend Capital Securities LLC, Distributor Member FINRA th Street, 17 th Floor Denver, CO Dividend Capital Diversified Property Fund website: dividendcapitaldiversified.com Dividend Capital website: dividendcapital.com DPF-RET-BRE-MAY16