Tax Reform Effect on CRE: Q4 Chartbook

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1 Thousands Economics Group Special Commentary Mark Vitner, Senior Economist (74) Hank Carmichael, Economic Analyst (74) Ariana Vaisey, Economic Analyst (74) Tax Reform Effect on CRE: Q4 Chartbook We expect tax reform to be a net positive for overall economic growth in 218 and be especially beneficial to the commercial real estate (CRE) industry. Lower tax rates on individuals, businesses and investors will produce an income effect that will boost final demand for goods and services. Most directly, the new tax law lowers individual tax rates, which will bolster take-home pay and propel consumer spending. Lower corporate tax rates will boost profitability for most businesses, leading to increased capital spending and hiring. For property owners, tax reform will boost revenue growth via stronger economic growth and also draw more capital into the industry, as lower tax rates on pass-through entities translate into higher risk-adjusted returns. For individuals, the new tax law reduces statutory rates across most of the seven income brackets. It also limits the mortgage interest deduction to a principal balance of $7,, down from $1 million; caps the deduction for state and local taxes, including property taxes, to $1,; and increases the standard deduction to $24, from $13, for joint-filers and to $18, from $9,5 for heads of households. The law also eliminates the Affordable Care Act (ACA) mandatory health insurance requirement. For businesses, the new law lowers the corporate tax rate to 21 percent from 35 percent, repeals the 2 percent Alternative Minimum Tax on corporations, and allows for the immediate expensing on investment in capital equipment. The new law also allows for deemed repatriation of foreign-source income at a rate of 15.5 percent for liquid assets and 8 percent for illiquid assets. For property owners, the new tax law allows for a 2 percent deduction for pass-through businesses such as sole proprietorships, partnerships, limited liability companies and S corporations. The new law, however, prevents this deduction for those with income over $157, if single and $315, if married, and owners who also draw a salary from the business. Figure 1 Figure 2 $9 $8 $7 Transaction Volume by Property Type In Billions of Dollars Apartment: $43.6B Office: $36.2B Industrial: $17.B Retail: $14.9B $9 $8 $7 $3 $2 Tax Cuts Relative to Current Law Billions of USD, Calendar Year Estimates Individual Taxes Pass-Through Business Taxes Corporate Taxes $9.1B $3 $2 We expect tax reform to be especially beneficial to the commercial real estate (CRE) industry. $6 $6 $2 $2 $ $4 $ $4 $1 $68.1B $31.4B $1 $3 $2 $1 $3 $2 $1 $ $ $21.4B $82.3B $153.2B $ $ CY 218 CY 219 Source: Real Capital Analytics Inc., Joint Committee on Taxation and This report is available on wellsfargo.com/economics and on Bloomberg WFRE.

2 Commercial Real Estate Chartbook: Q4 Several changes to the tax code should directly benefit CRE. We believe the Tax Cuts and Jobs Act will ultimately boost economic growth by, on net, increasing the incentive to work, save and invest via lower tax rates. Several changes to the tax code should also more directly benefit CRE. For example, the retail sector will benefit from both lower individual and business tax rates. Lower individual tax rates will boost disposable income, which should support consumer spending. The boost is well timed, coming on the heels of a strong holiday shopping season and a pronounced drop in the saving rate. The income and saving data are notoriously volatile and have a tendency to be revised significantly. With the labor market continuing to tighten, wage growth has been trending higher. Moreover, the reduction in marginal tax rates should pull more people into the labor market, further boosting overall income growth. Under the old tax law, retailers also did not receive many tax breaks and paid some of the highest effective tax rates of all industries. Lowering the corporate tax will, therefore, provide some aid to an industry whose profits have been squeezed by the persistent onslaught of online competitors. The industrial sector stands to benefit for many of the same reasons. The sector has benefited from the rise of online shopping, as many pure-play online retailers leased industrial space to serve as distribution centers in order to quickly and easily fulfill online orders. With many retailers also now integrating e-commerce into their business models and fortifying their supply chains with additional warehouses, the industrial sector should see some positive spillover effects of a lowertaxed retail sector. Stronger economic growth will boost employment growth, which will benefit the office sector. Demand for office space has been growing slowly, however, particularly outside major technology centers. Tax reform may spur more relocations. The $1, cap on State and Local Tax (SALT) deductions and the limitations on mortgage interest deductions may cause some employers to relocate their businesses away from cities or states with expensive home values and high property taxes to more affordable areas to reduce their employees living expenses. Demand for office space in relatively cheaper secondary and tertiary markets should benefit. Many relocation expenses are no longer tax deductible, however, and this may temper mobility somewhat. We expect relocations from higher-cost parts of the country to lower-cost areas to accelerate, however, as companies move to where the pool of workers they would like to hire from reside. One less obvious effect of the new tax law will be on medical office buildings, as the repeal on the ACA individual mandate might reduce the number of insured people seeking health care services. Medical buildings have been a growth area over the past decade, as smaller outpatient clinics have increasingly sprung up to satisfy the increase in demand driven by the ACA as well as an aging population. That theme helped fuel growth in the medical facilities. The removal of the individual mandate in the new tax law may take some of the wind out of the sails for these types of properties, and attention in the health care sector is shifting toward building efficiencies via mergers and cost cutting. Overall demand, however, should remain strong given the sheer volume of aging Baby Boomers spending more on health care every year. Hotels will benefit from the boost to disposable income provided by lower individual tax rates. Tourism spending in the United States had been slow to recover following the recession, as households have either shortened their vacations or put them on hold entirely for the past several years following the downturn. Early on, most of the growth in the industry came from international tourists and gains were limited to cities appealing to large numbers of overseas visitors. Domestic spending ramped up toward the middle of the decade and hotels have seen occupancy rates hit new highs this past year. Higher corporate profits resulting from lower tax rates should support business travel, which will further bolster hotel occupancy. With the standard deduction for married couples doubled to $24,, many potential home buyers will receive no additional tax benefit from buying a home should they choose not to itemize and forgo the mortgage-interest deduction. As a result, many younger households might view homeownership as less essential from a financial standpoint. With the older Millennials now in their late thirties, household formation and homeownership have been increasing. The doubling of the standard deduction alone will not reverse this trend but a larger proportion of Millennials may now rent for even longer than they would have otherwise. When you add in the lower limits on the 2

3 Commercial Real Estate Chartbook: Q4 deductibility of mortgage interest and state and local taxes, home sales now have less of a tailwind than they did previously and many potential home buyers may remain renters for a while longer. The net result is that the apartment market, which had shown signs of cooling off, is likely to get a little bit of a second wind from tax reform. The new 2 percent deduction for pass-through entities should make structures, which include sole proprietorships, partnerships and limited liability corporations, more attractive to investors and a better cash-flow investment. Additional capital flows should also apply downward pressure on cap rates, which has become a chief concern among investors as interest rates have started to tick up. The repatriation of corporate earnings will also bring profits held abroad back home to the United States; however, it is unclear exactly how business will invest these funds. In previous one-time repatriation tax holidays, companies have chosen to direct these repatriated funds primarily towards share buy-backs, dividend payouts or mergers and acquisitions, and allocated a smaller amount towards investment in R&D, equipment purchases or new structures. The new tax law makes repatriation of the estimated $2.6 trillion in foreign earnings compulsory, and combined with the lowered overall corporate tax rates, this may prompt U.S. firms to forego stashing earnings abroad and instead increase domestic investment. It is also worth noting what has not changed with the new tax law, as the old tax law allowed for several tax breaks that were favorable to the commercial real estate industry. The 131 like-kind exchanges, which defer capital gains tax on one property when it is exchanged for another, were retained for real property. The ability to deduct commercial mortgage interest is still included in the new tax law; however, if this deduction is used, then the depreciation schedule for nonresidential properties is extended by a year from a 39- to 4-year timeline. The new law also maintains the treatment of carried interest as capital gains; however, the holding period increased from one to three years. Private activity bonds, which are used to finance low-income housing, education and medical facilities, will also remain tax exempt under the new law. The historic tax reform passed into law late last year certainly holds the potential to provide a huge boost to overall economic growth and the demand for commercial real estate. We have raised our GDP forecast for 218 and 219 and look for real GDP growth to average just under 3 percent per year. Stronger economic growth should boost demand for virtually all property types, as stronger employment growth boosts demand for apartments and retailers and stronger office employment growth lifts demand for office space. Tax reform also removes some of the mystery surrounding real estate investments and clarifies how investments, which typically span several years, will be taxed. Major tax law changes are extremely difficult to enact and occur infrequently. The new law marks the first major tax overall since 1986 and addresses many concerns among real estate investors. While we would expect to see some tweaks over the next few years, most major provisions of the new tax law should remain in effect for quite some time come. Figure 3 Figure Commercial Property Price Index Index Apartment: Retail: Industrial: Office - CBD: Office - Suburban: Commercial Real Estate Vacancy Rates Percent Office Vacancy Rate: 16. Industrial Vacancy Rate: 5. Retail Vacancy Rate: 1. Apartment Vacancy Rate: Stronger economic growth should boost demand for virtually all property types Source: Real Capital Analytics Inc., Reis Inc., Costar Realty Information Inc. and 3

4 Billions Commercial Real Estate Chartbook: Q4 CRE Property Pricing & Fundamentals 1 CRE Cap Rates vs. 1-Year Treasury Yields 1 Asking rent increases moderated across all sectors on a four-quarter moving average basis in Q4. Cap rates also rose in each sector, suggesting that price appreciation is cooling somewhat. Demand for welllocated properties remains strong, however. The development pipeline remains muted. Completions slowed in Q4. The lack of development reflects years of slow economic growth, changing preferences by tenants and high development costs. Some projects were also likely put on hold following this past summer s storms, which led to some spot shortages of materials and workers. The Commercial Property Price Index suggests values may be near a peak in office, retail and industrial as price appreciation has moderated. Apartment prices continue to soar higher, however Asking Rent 4-Quarter Moving Average, Apartment: 2. Office: 1. Retail: 2. Industrial: Industrial: 6. Retail: 6. Office: 6.7% Apartment: 5. Hotel: 8. 1-Year Yield: Cap Rate vs. 1-Year Term Premium Levels; Y= Cap Rate, X= Term Premium y =.611x R² = Commercial Property Price Index Index Apartment: Retail: Industrial: Office - CBD: Office - Suburban: $12 $ $8 Origin of Capital Going in the United States For Commercial Real Estate, Billions of Dollars Rest of World: $1.B Asia: $21.5B Canada: $13.3B Middle East: $4.1B Europe: $12.9B $12 $ $8 $6 $ $4 $4 $2 $ Source: RCA Inc., Reis Inc., Costar Inc., Bloomberg LP, Federal Reserve Board and 4

5 Commercial Real Estate Chartbook: Q4 Credit Availability & Lending According to the Senior Loan Officer Opinion Survey, banks tightened lending standards for CRE loans in Q4, on an overall basis. The share of banks tightening standards for nonfarm nonresidential and multifamily residential loans shrunk in Q4, however. A larger share of banks tightened standards for construction and land development loans. Though still a minority, more banks reported stronger demand for multifamily residential, construction and land development loans in Q4. For the first time in 217, a net positive share of banks reported stronger demand for nonfarm nonresidential loans. Stronger loan demand bodes well for commercial real estate activity. While banks remain historically cautious on underwriting, the lending environment has clearly become more competitive CRE Lending All Commercial Banks, Construction and Land Development: 7. Income producing: 6. Multifamily Residential Real Estate: Commercial & Multifamily Mortgages Outstanding Percent of Total, Q Banks Tightening Standards for CRE Loans Net Percent of Banks 1 8 Agency, GSE and MBS, 1 Banks and Thrifts, Other, 13% Life Insurance, CMBS, CDO and other ABS, Total CRE (Series Ends in 213): Nonfarm Nonresidential: 1. Multifamily Residential: 15. Construction & Land Development: Demand for CRE Loans Net Percent of Banks Reporting Stronger Demand $12 $1 Loans & Leases Decomposition Billions of Dollars, Gross Loans and Leases, All Commercial Banks Farm Loans: $76.8M Total Other Loans & Leases: $1.1B Loans to Individuals: $1.5B Commercial & Industrial: $1.9B All Real Estate: $4.3B $12 $1 4 4 $8 $8 2 2 $6 $ $4 $ Total CRE (Series Ends in 213): Construction & Land Development: -8. Nonfarm Nonresidential: 2. Multifamily Residential: $ Source: FDIC, FRB, Mortgage Bankers Association and $2 5

6 Quarterly Annualized Percent Change Commercial Real Estate Chartbook: Q4 Apartments 6. Apartment Effective Rent Growth Quarter-over-Quarter Percent Change 2. The apartment vacancy rate rose 1 bps in Q4 to 4.5 percent its highest level since 212. While completions declined slightly, net absorption fell further. Even with the slight rise, vacancies remain low relative to historic norms. The recent uptrend also reflects a surge in completions in a few large markets. Vacancy rates in many secondary and tertiary markets fell to new lows. Apartment rent growth slowed to.5 percent in Q4. On a year-over-year basis, rent increases averaged 3.6 percent in 217, down from more than 5. percent in the first half of 216. Rents are rising at a faster pace in many southern markets, including Dallas, Houston and Atlanta. Stronger population and employment growth is driving demand in these areas Quarter-over-Quarter: (Right Axis) -4. Year-over-Year: 3. (Left Axis) Apartment Supply & Demand Percent, Thousands of Units Apartment Effective Revenue Growth: Q4 217, Quarterly Annualized Percent Change; Sorted by Stock Recovering Expanding 7% Suburban Maryland San Diego Oakland Central New Jersey San Francisco Riverside Baltimore Philadelphia Cincinnati Detroit Indianapolis Orange County Phoenix Los Angeles Houston Chicago Kansas City New York Metro San Antonio St. Louis Las Vegas Tampa Boston Columbus Portland Seattle Fort Worth Minneapolis Raleigh-Durham Atlanta Dallas Miami Austin Orlando Charlotte San Jose Less than 1, Units Cleveland Contracting Decelerating San Jose Northern New Jersey Washington D.C Stock Size Denver More than 2, Units 1,-2, Units Apartment Cap Rate vs. 1-Year Treasury Yield 1 3% Apartment Net Completions: 51, Units (Right Axis) Apartment Net Absorption: 33,482 Units (Right Axis) Apartment Vacancy Rate: 4. (Left Axis) NMHC Apartment Tightness Index National Multi Housing Council, Diffusion Index NMHC Market Tightness Index: Apartment: 5. 1-Year Yield: Source: Reis Inc., RCA Inc., NMHC, FRB and 6

7 Quarterly Annualized Percent Change Commercial Real Estate Chartbook: Q4 Office Office rents rose.6 percent in Q4, the fastest quarterly pace since Q Southern metros are leading the way, reflecting stronger economic growth and continued population gains. Businesses are increasingly looking to expand in lower-cost parts of the country, which has benefitted tech centers like Austin, Raleigh and Atlanta (all of which are finalists for Amazon s HQ2). The office vacancy rate remained at 16.4 percent in Q4, its average for the past 2.5 years. Net completions and absorption have been declining on a similar trajectory. Job openings and hires both fell in December, which we expect to feed into slowing office demand. A tight labor market makes it harder to sustain the recent pace of job growth, and will likely remain a headwind for the office market % Office Effective Revenue Growth: Q4 217, Quarterly Annualized Percent Change; Sorted by Stock Recovering Minneapolis Philadelphia Washington D.C. Central New Jersey Northern New Jersey Suburban Maryland Cincinnati Baltimore San Diego Orlando San Francisco Cleveland Boston Los Angeles Orange County Denver Portland Tampa Raleigh Dallas Atlanta Charlotte Seattle Austin San Jose Phoenix Detroit Fairfield County Pittsburgh Stock Size Kansas City Indianapolis Sacramento More Than Million Sq. Ft. -3% Long Island Million- Million Sq. Ft. Chicago Miami Oakland Houston Less than Million Sq. Ft. St. Louis New York Metro Suburban Virginia Contracting Decelerating Office Cap Rate vs. 1-Year Treasury Yield Expanding Office Effective Rent Growth Quarter-over-Quarter Percent Change Quarter-over-Quarter: (Right Axis) Year-over-Year: 1. (Left Axis) % 1 1 Office Supply & Demand Percent, Millions of Square Feet 3% Office Net Completions: 7.3M SF (Right Axis) Office Net Absorption: 5.5M SF (Right Axis) Office Vacancy Rate: 16. (Left Axis) Office Vacancy Rates By Type, Percent % 13% % 11% 1 1 Office: 6.7% 1-Year Yield: 2. All: 1.3% 1 & 2 Star: 7. 7% 3 Star: 1.3% 7% 4 & 5 Star: Source: Reis Inc., RCA Inc., CoStar Inc., FRB and 7

8 Quarterly Annualized Percent Change Commercial Real Estate Chartbook: Q4 Retail The retail market is healthier than headlines suggest. Vacancy rates in community centers and malls remained flat at 1. percent and 8.3 percent in Q4. Many store closings will not be evident for a few more quarters, however. Retail completions totaled 1.5 million square feet, the lowest level since 213. Retailers added just 32,2 jobs in 217, the smallest gain since the recession. Employment at general merchandise stores fell by 36,. Experienceoriented retail jobs, including restaurants, gyms and spas, posted gains, however. Only 18 major metros had positive completions in Q4, led by Phoenix, Houston and Indianapolis. These low levels of construction should keep a lid on vacancies and support slow rent growth Retail Effective Revenue Growth: Q4 217, Quarterly Annualized Percent Change; Sorted by Stock Recovering Boston Kansas City Norfolk Central New Jersey Las Vegas Suburban Maryland San Diego Suburban Virginia Los Angeles Jacksonville Long Island Charlotte Cleveland Phoenix Philadelphia San Antonio Atlanta Seattle Palm Beach Sacramento Raleigh-Durham Orange County Houston Dallas Cincinnati San Bernardino Miami Portland Orlando Denver Baltimore Chicago Columbus Stock Size Fort Lauderdale More Than 4 Million ft. - Minneapolis Detroit Fort Worth 28.5 Million-4 Million ft. Tampa Less Than 28.5 Million ft. Contracting St. Louis Decelerating - -1% 1% 3% Retail Cap Rate vs. 1-Year Treasury Yield Expanding Retail Effective Rent Growth Quarter-over-Quarter Percent Change Quarter-over-Quarter: (Right Axis) Year-over-Year: 1. (Left Axis) Retail Supply & Demand Percent, Millions of Square Feet Retail Net Completions: 1.5M SF (Right Axis) Retail Net Absorption: 1.9M SF (Right Axis) Retail Vacancy Rate: 1. (Left Axis) Commercial Real Estate Asking Rent Growth Retail: 6. 1-Year Yield: 2. - All Retail: 2. Neighborhood Center: 2.3% - Mall: 3. Power Center: 2. General Retail: Source: Reis Inc., RCA Inc., Costar Inc., FRB and

9 Quarterly Annualized Percent Change Commercial Real Estate Chartbook: Q4 Industrial Absorption increased in the industrial sector for the fourth quarter in a row and completions fell. Vacancy rates fell to an all-time low of 5. percent. Industrial demand has not relented as e-commerce drives growth in distribution and warehousing centers. Manufacturing has strengthened over the past year and capital spending plans have increased. Demand for warehouse and industrial space should also get a boost from increased homebuilding, as well as strengthening global growth and international trade. Industrial rents rose broadly in 217. Northern California posted the strongest year-to-year growth. Tech-driven markets largely led the way, but the greatest improvement going forward will likely come from manufacturing and energy-driven regions. Industrial Effective Revenue Growth: Q4 217, Quarterly Annualized Percent Change; Sorted by Stock Industrial Asking Rent Growth Quarter-over-Quarter Percent Change Industrial Asking Rent: 1.3% (Right Axis) Year-over-Year: 5. (Left Axis) Industrial Vacancy Rates & Asking Rent Growth By Type, Q4-217 Vacancy Asking Rent Growth Yr/Yr Change Recovering Philadelphia Expanding Stock Size More than 3 Million Sq. Ft. 2-3 Million Sq. Ft. Less than 2 Million Sq Ft. Phoenix Chicago Indianapolis Miami Minneapolis Milwaukee Grand Rapids Charlotte Detroit Seattle Northern New Jersey New York Denver Orlando Dallas Nashville Sacramento Columbus East Bay 6.1% % 5. Washington D.C. Inland Empire Memphis Houston Cincinnati Louisville Boston Atlanta Kansas City Long Island Greensboro Orange County Cleveland - Tampa Pittsburgh San Diego Contracting Saint Louis Baltimore Portland Decelerating % All Logistics Flex Specialized Industrial Supply & Demand Percent, Millions of Square Feet 1 Industrial Cap Rate vs. 1-Year Treasury Yield % % Industrial Net Completions: 57.1M SF (Right Axis) Industrial Net Absorption: 72.4M SF (Right Axis) Industrial Vacancy Rate: 5. (Left Axis) 1% Industrial: 6. 1-Year Yield: 2. Source: CoStar Inc., RCA, Inc., FRB, Bloomberg LP and 9

10 Commercial Real Estate Chartbook: Q4 Hotel Real RevPAR vs. Real ADR Real revenue per available room (RevPAR) rebounded to 2. percent during Q4, breaking a fivequarter streak of progressive smaller gains. Room rates rose slightly, reversing a small decline in Q3. Hotel occupancy rates reached a new high in Q4. While stronger economic growth is behind much of the gain, weather-related displacements also likely bolstered demand in parts of Texas and Florida. In addition, the earlier Jewish New Year also likely shifted some corporate travel and meetings into Q4. Economy and midscale RevPAR slowed in Q4, while upscale RevPAR growth accelerated. Economy hotels have led growth for quite some time. The improvement at upscale hotels likely reflects gains in business travel and increased meeting attendance Real RevPAR: 2. Real Room Rate: Lodging Construction Spending Year-Over-Year Percent Change Occupancy Rate Cycles Seasonlly Adjusted, Percent Peak: 65. Peak: 64.1% Peak to Date: 66.7% Trough: Trough: Trough: 54.1% 5 Average Occupancy ( ): 62. Occupancy: 66.7% Lodging Spending: Real RevPAR Growth by Chain Scale Yr/Yr Percent Change of a 3-Month Moving Avg. 1 Hotel Cap Rate vs. 1-Year Treasury Yield Hotel: 8. 1-Year Yield: Economy & Midscale: 1. Upscale & Luxury: Source: STR, U.S. Department of Commerce, FRB and

11 Economics Group Diane Schumaker-Krieg Global Head of Research, Economics & Strategy (74) (212) John E. Silvia, Ph.D. Chief Economist (74) Mark Vitner Senior Economist (74) Jay H. Bryson, Ph.D. Global Economist (74) Sam Bullard Senior Economist (74) Nick Bennenbroek Currency Strategist (212) Eugenio J. Alemán, Ph.D. Senior Economist (74) Azhar Iqbal Econometrician (74) Tim Quinlan Senior Economist (74) Eric Viloria, CFA Currency Strategist (212) Sarah House Economist (74) Michael A. Brown Economist (74) Jamie Feik Economist (74) Erik Nelson Currency Strategist (212) Michael Pugliese Economic Analyst (74) Harry Pershing Economic Analyst (74) Hank Carmichael Economic Analyst (74) Ariana Vaisey Economic Analyst (74) Abigail Kinnaman Economic Analyst (74) Shannon Seery Economic Analyst (74) Donna LaFleur Executive Assistant (74) Dawne Howes Administrative Assistant (74) Economics Group publications are produced by, LLC, a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp., LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Clearing Services, LLC, International Limited, Asia Limited and (Japan) Co. Limited., LLC. is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association., LLC. and Wells Fargo Bank, N.A. are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication., LLC does not compensate its research analysts based on specific investment banking transactions., LLC s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only., LLC does not guarantee their accuracy or completeness, nor does, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice., LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company 218, LLC. Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 27. The FCA rules made under the Financial Services and Markets Act 2 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE