GLOBAL PERSPECTIVES ON RISK & RETURN Considerations for effective investment strategy Simon Fairchild, Executive Director, MSCI 29 November 216 216 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.
AGENDA OVERVIEW OF REAL ESTATE TRENDS AT Q3 216 Canada Multinational Global cities PUTTING THE TRENDS IN CONTEXT Fundamentals Capital markets 2
THE CANADIAN MARKET Q3 216 real estate trends, part 1 of 3 3
CANADA S REAL ESTATE: HOLDING STEADY.. TOTAL RETURN HISTORY FOR CANADA ANNUALIZED STANDING INVESTMENTS % pa CAPITAL GROWTH 19.4 2 17.9 14.9 13. 14.7 1 12.4 12.7 1.3 9.3 8. 9.1 9. 1 7.1 7.4 7.9.6 INCOME RETURN TOTAL RETURN 1-YEAR ANNUALIZED TOTAL RETURN 1.1 9.6-2. - -1-1 21 Source: MSCI 22 23 24 2 26 27 28 29 21 211 212 213 214 21 216 3 YEAR YEAR 1 YEAR 4
RETAIL IS THE TOP SECTOR TOTAL RETURN BY PROPERTY TYPE AND METROPOLITAN AREA CANADA TOTAL RETURN (%) AS OF SEPTEMBER 216 ALL PROPERTY 7.4 ANNUALIZED TRENDS AS OF SEPTEMBER 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 216 Retail Residential Industrial Office Vancouver - All Toronto - All Ottawa / Hull - All Montreal - All Winnipeg - All Edmonton - All Halifax - All Calgary - All 8. 8. 6.7 6. 14.3 11.1 6.7 6.4.9 2.3.4-1.4 RANGE HIGH NEGATIVE Source: MSCI Note: Annualized trends (shaded cells) reflect range between peaks and lows.
CANADA CAPITAL GROWTH AND INCOME RETURN COMPONENTS OF TOTAL RETURN IN CANADA AS OF SEPTEMBER 216 BY PROPERTY SECTOR AND GEOGRAPHIC SEGMENT CAPITAL GROWTH (%) INCOME RETURN (%) BY SECTOR BY GEOGRAPHY ALL PROPERTY Residential Retail Industrial Office Vancouver Toronto Ottawa Montreal Winnipeg Edmonton Halifax Calgary 2.3. 4. 4.3 3.8 4.6.7.9.6.4 9.3 4.6 6.1 4.8 1.8 4.8 1.4 4.9.7.1-3.4.9-4.3 4.9-6.4.3 Source: MSCI Note: Capital growth and income return are displayed on the same scale so the bars in each column are directly comparable. 6
CITY PERFORMANCE: SHORT VERSUS MID TERM ANNUAL vs. YEAR ANNUALISED TOTAL RETURNS AS OF SEPTEMBER 216 RELATIVE GEOGRAPHIC VARIATIONS ACROSS CANADA, STANDING INVESTMENTS 1-YEAR ANNUALIZED 1 14 13 12 11 1 9 8 7 6 4 3 2 1-1 -2 Source: MSCI IMPROVING OTTAWA SLUGGISH MONTREAL HALIFAX EDMONTON = CANADA, ALL PROPERTY TYPES VANCOUVER CALGARY -YEAR ANNUALIZED TORONTO PEAKING WINNIPEG SLIPPING 7 8 9 1 11 12 13 14 7
INCOME YIELDS FOR RETAIL.ALL BELOW % RETAIL NET INCOME RECEIVABLE YIELD (%) IN CANADA AS OF SEPTEMBER OF EACH YEAR CANADA RETAIL Winnipeg - Retail Edmonton - Retail Montreal - Retail Calgary - Retail Halifax - Retail Ottawa - Retail Vancouver - Retail Toronto - Retail 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 216 4.4 4.8 4.6 4. 4.4 4.3 4.2 4.1 4.1 LATEST (%) AS OF SEPTEMBER 216 PRICIER RANGE CHEAPER Source: MSCI Note: Annualized trends (shaded cells) reflect range between peaks and lows. 8
INVESTMENT ACTIVITY IN CANADA ANNUAL NET INVESTMENT IN CANADA BY PROPERTY TYPE AND GEOGRAPHY 12 MONTHS TO SEPTEMBER OF EACH YEAR RANGE BY SECTOR BY GEOGRAPHY HIGH NEGATIVE Source: MSCI ALL PROPERTY Retail Other sectors Office Industrial Residential Hotel Toronto Calgary Montreal Edmonton Winnipeg Halifax Vancouver Ottawa 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 216 Note: Annualized trends (shaded cells) reflect range between peaks and lows. 4,.6 1,386. 1,13.9 67.7 3.4 36.4 116.1 2,27.2 482. 28.6 242.2 62.3 44.4-93. -9.6 LATEST AS OF SEPTEMBER 216 (IN CAD MILLIONS) 9
MULTINATIONAL MARKETS Q3 216 real estate trends, part 2 of 3 1
CANADA LAGGING TOTAL RETURN ACROSS GLOBAL MARKETS AS OF SEPTEMBER 216 ANNUALIZED TOTAL RETURN, ALL PROPERTY TYPES, STANDING INVESTMENTS IN LOCAL CURRENCY % pa 4 3 2 1 GLOBAL 1.7 CANADA 7.4-1 -2 OTHER NATIONAL MARKETS -3-4 Source: MSCI; KTI 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 Latest 11
STRONG MARKETS SLOWING PERFORMANCE MOMENTUM FROM DECEMBER 21 TO SEPTEMBER 216 ANNUAL TOTAL RETURN IN LOCAL CURRENCIES, ALL PROPERTY TYPES 3% 21 2 Last reported index UP as of September 216 Last reported index DOWN as of September 216 2 1 1 Ireland Spain South Africa Sweden Australia UK Portugal USA New Zealand Norway GLOBAL Thailand France Czech Republic Japan Hungary Germany Canada Netherlands Indonesia Denmark Poland Hong Kong South Korea Malaysia Switzerland Belgium Finland Singapore China Austria Taiwan Italy Source: MSCI; KTI Note: Last reported indexes for Japan, France, Italy, and South Africa shown above are as of June 216 12
LONG-RUN RISK AND SHORT-TERM RETURN RETURN/RISK*, ALL PROPERTY TYPES LATEST 1-YEAR TOTAL RETURN IN LOCAL CURRENCY VS ANNUAL STANDARD DEVIATION CALCULATED ACROSS ANNUAL TOTAL RETURN HISTORY LATEST 1-YEAR ANNUALIZED (%) 16 14 12 1 8 6 4 2 Source: MSCI; KTI SWITZERLAND GERMANY FINLAND AUSTRIA PORTUGAL NETHERLANDS BELGIUM DENMARK ITALY SWEDEN AUSTRALIA JAPAN CANADA NORWAY SOUTH KOREA NEW ZEALAND FRANCE CZECH REPUBLIC POLAND SPAIN HUNGARY USA ANNUAL STANDARD DEVIATION (%)* IRELAND *Note: Annual total return histories shown here range from a minimum of 1 years to a maximum of 1 years, depending upon individual market availability. The standard deviations of annual total returns typically understate the risk in private real estate due to the smoothness of appraisals. UK EMEA ASIA PACIFIC AMERICAS GLOBAL INDEX 2 4 6 8 1 12 14 16 18 2 13
INCOME YIELDS AT OR APPROACHING HISTORIC LOWS LATEST INCOME RETURN* RELATIVE TO LOCAL MARKET HISTORY ANNUAL INCOME RETURN BY COUNTRY, ALL PROPERTY TYPES, STANDING INVESTMENTS, AS OF SEPTEMBER 216 % pa 11 1 9 8 7 6 4 3 2 Historical Range of Annual Income Return Indonesia South Africa Thailand New Zealand Malaysia Australia Hungary Finland Belgium Portugal Poland Czech Republic China Norway South Korea Spain GLOBAL Latest Income Return* Netherlands France Canada Germany Sweden UK Singapore Italy USA Japan Austria Ireland Denmark Switzerland Hong Kong Source: MSCI; KTI *Note: Histories shown here range from a minimum of 7 years to a maximum of 1 years, depending upon individual market availability. Frequency in each market is annual year-end except for FR, IT, and ZA (semi-annual) and AU, CA, IE, JP, NZ, UK, and US (quarterly, as of date in subheading). 14
GLOBAL CITIES Q3 216 real estate trends, part 3 of 3 1
WIDE RANGE OF RETURNS IN NORTH AMERICA GLOBAL CITIES AS OF JUNE 216 ALL PROPERTY TOTAL RETURN IN LOCAL CURRENCY, STANDING INVESTMENTS EXCEPTIONAL 1%+ STRONG 1-14% MODERATE -9% WEAK -4% DECLINING <% Source: MSCI 16
CITY RETURNS RANGE FROM ALMOST 2% TO NEGATIVE COMPONENTS OF TOTAL RETURN ACROSS GLOBAL CITIES AS OF JUNE 216 ALL PROPERTY TOTAL RETURN ANNUALIZED IN LOCAL CURRENCIES % pa Capital Growth 2 1 1 19.4 17.2 1.4 1. 14. 14.2 14.1 13. 13.4 12.9 12.7 11.9 11.8 11.4 11.2 11.1 11. 1.9 1.9 1.8 1.7 1. 1.4 1.1 8.8 8.4 8.2 7.9 7.8 Income Return Total Return 7.7 7.7 6.3.8.3 4. 2.7 2.4 1. -1.1 - -1 Source: MSCI Dublin Sydney Amsterdam San Francisco Auckland Portland Vancouver Melbourne Cape Town Paris Toronto Miami London Los Angeles Brisbane Atlanta Dallas Seattle Johannesburg Denver San Diego Boston Rotterdam Philadelphia Chicago Manchester New York Tokyo Wellington Edinburgh Birmingham Montreal Washington D.C. Milan Minneapolis / St. Paul Perth Houston Rome Calgary 17
RANKING OF CITIES: ZERO TO HERO TOTAL RETURN RANKINGS ACROSS GLOBAL CITIES AS OF JUNE EACH YEAR ALL PROPERTY TOTAL RETURN ANNUALIZED IN LOCAL CURRENCIES 29 21 211 212 213 214 21 216 DUBLIN 1 SYDNEY 2 SAN FRANCISCO 4 SYDNEY 1 SAN FRANCISCO 36 Source: MSCI DUBLIN 37 18
CANADIAN CITIES: CYCLES EXIST TOTAL RETURN ACROSS GLOBAL CITIES AS OF JUNE 216 ALL PROPERTY ANNUALIZED TOTAL RETURN SHOWN IN LOCAL CURRENCIES % pa 4 3 2 1 VANCOUVER 14.1 CALGARY -1.1-1 -2-3 -4 OTHER GLOBAL CITIES Source: MSCI; KTI - 27 28 29 21 211 212 213 214 21 216 19
HIGH PROFILE: LOW INCOME RETURNS INCOME RETURN ACROSS GLOBAL CITIES AS OF JUNE 216 ALL PROPERTY INCOME RETURN IN LOCAL CURRENCY % pa 1 OTHER GLOBAL CITIES 9 8 7 6 Source: MSCI; KTI TOKYO 4.3 4 NEW YORK 4.3 LONDON 3.8 PARIS 3.7 3 27 28 29 21 211 212 213 214 21 216 2
FUNDAMENTALS OF SUPPLY & DEMAND Setting the context, part 1 of 2 21
FEW MARKETS SHOWING EXCESS DEMAND PRESSURES LATEST VACANCY RATE - FLOORSPACE* RELATIVE TO LOCAL MARKET HISTORY ANNUAL VACANCY RATE - FLOORSPACE BY COUNTRY, ALL PROPERTY TYPES, STANDING INVESTMENTS, AS OF SEPTEMBER 216 % pa 2 Historical Range of Annual Vacancy Rate - Floorspace 1-year earlier Latest Vacancy Rate - Floorspace* 2 1 1 Portugal Italy Belgium Sweden Spain Poland Ireland Canada France UK Austria USA Australia South Africa New Zealand Japan Source: MSCI; KTI *Note: Histories shown here range from a minimum of 7 years to a maximum of 1 years, depending upon individual market availability. Frequency in each market is annual year-end except for FR, IT, and ZA (semi-annual) and AU, CA, IE, JP, NZ, UK, and US (quarterly, as of date in subheading). 22
WEAK COMMODITY MARKETS IMPACTING REAL ESTATE OFFICE VACANCY RATE - FLOORSPACE ACROSS GLOBAL CITIES AS OF JUNE 216 OFFICE VACANCY RATE - FLOORSPACE IN LOCAL CURRENCY % pa 2 OTHER GLOBAL CITIES 2 1 1 HOUSTON 11.8 PERTH 11.4 CALGARY 1.6 Source: MSCI 27 28 29 21 211 212 213 214 21 216 23
GLOBAL DEVELOPMENT ACTIVITY MUTED LATEST DEVELOPMENT EXPENDITURE % AVERAGE BASE NET CV* RELATIVE TO LOCAL MARKET HISTORY ANNUAL DEVELOPMENT EXPENDITURE % AVERAGE BASE NET CV BY COUNTRY, ALL PROPERTY TYPES, ALL ASSETS, AS OF SEPTEMBER 216 Historical Range of Annual Development Expenditure % Average Base Net CV % pa Latest Development Expenditure % Average Base Net CV* 6 4 3 2 1 South Africa Netherlands Austria USA Spain Sweden GLOBAL Australia UK Canada Norway France New Zealand Denmark Switzerland Belgium Germany Italy Portugal Source: MSCI; KTI *Note: Histories shown here range from a minimum of 7 years to a maximum of 1 years, depending upon individual market availability. Frequency in each market is annual year-end except for FR, IT, and ZA (semi-annual) and AU, CA, IE, JP, NZ, UK, and US (quarterly, as of date in subheading). 24
AMSTERDAM COMING BACK TO LIFE DEVELOPMENT EXPENDITURE % AVERAGE BASE NET CV ACROSS GLOBAL CITIES AS OF JUNE 216 ALL PROPERTY DEVELOPMENT EXPENDITURE % AVERAGE BASE NET CV IN LOCAL CURRENCY % pa 8 OTHER GLOBAL CITIES 7 6 AMSTERDAM 4.7 4 3 2 1 Source: MSCI; KTI 27 28 29 21 211 212 213 214 21 216 2
CAPITAL MARKETS Setting the context, part 2 of 2 26
BREXIT IMPACT FOLLOWING THROUGH TOP 1 GLOBAL CITIES FOR REAL ESTATE TRANSACTIONS, 216 YTD RANK MARKET SALES VOLUME (US$ millions) YOY % CHG Source: Real Capital Analytics (RCA), Global Capital Trends, September 216 27
CANADIAN INVESTORS LOOKING ABROAD PURCHASE EXPENDITURE % AVERAGE BASE NET CV ACROSS GLOBAL MARKETS AS OF SEPTEMBER 216 ANNUALIZED PURCHASE EXPENDITURE % AVERAGE BASE NET CV, ALL PROPERTY TYPES, ALL ASSETS IN LOCAL CURRENCY % pa 3 3 OTHER NATIONAL MARKETS 2 2 1 1 GLOBAL 6.9 CANADA 4.1 - Source: MSCI; KTI 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 Latest 28
HISTORICALLY LOW YIELDS LATEST NET INCOME RECEIVABLE YIELD* RELATIVE TO LOCAL MARKET HISTORY ANNUAL NET INCOME RECEIVABLE YIELD BY COUNTRY, ALL PROPERTY TYPES, STANDING INVESTMENTS, AS OF SEPTEMBER 216 % pa 11 1 9 8 7 6 4 3 2 Historical Range of Annual Net Income Receivable Yield Latest Net Income Receivable Yield* Indonesia South Africa Thailand New Zealand Malaysia Hungary Australia Finland Belgium Poland Portugal Czech Republic China South Korea Norway Italy UK DELETE CELL GLOBAL DELETE CELL France Canada Germany Netherlands Spain Japan USA Austria Singapore Sweden Ireland Denmark Switzerland Hong Kong Source: MSCI; KTI *Note: Histories shown here range from a minimum of 7 years to a maximum of 1 years, depending upon individual market availability. Frequency in each market is annual year-end except for FR, IT, and ZA (semi-annual) and AU, CA, IE, JP, NZ, UK, and US (quarterly, as of date in subheading). 29
FINALLY, IT IS ALL RELATIVE.. RELATIVE PRICING TRENDS FOR SELECTED GLOBAL CITIES IN JUNE EACH YEAR SPREAD BETWEEN ALL PROPERTY NIR YIELD ON STANDING INVESTMENTS AND THE 1-YEAR NATIONAL BOND YIELD NORTH AMERICA EUROPE ASIA PACIFIC NEW YORK TORONTO LONDON PARIS TOKYO SYDNEY % 9 8 7 6 4 3 2 1-1 % 9 8 7 6 4 3 2 1-1 % 9 8 7 6 4 3 2 1-1 % 9 8 7 6 4 3 2 1-1 % 9 8 7 6 4 3 2 1-1 % 9 8 7 6 4 3 2 1-1 26 28 21 212 214 216 26 28 21 212 214 216 26 28 21 212 214 216 26 28 21 212 214 216 26 28 21 212 214 216 26 28 21 212 214 216 Source: MSCI; OECD Note: Negative spreads are shown in red where applicable. 3
WRAP UP Simon Fairchild Executive Director, MSCI 31
ABOUT MSCI For more than 4 years, MSCI s research-based indexes and analytics have helped the world s leading investors build and manage better portfolios. Clients rely on our offerings for deeper insights into the drivers of performance and risk in their portfolios, broad asset class coverage and innovative research. Our line of products and services includes indexes, analytical models, data, real estate benchmarks and ESG research. MSCI serves 97 of the top 1 largest money managers, according to the most recent P&I ranking. For more information, visit us at www.msci.com. 32
NOTICE AND DISCLAIMER This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the Information ) is the property of MSCI Inc. or its subsidiaries (collectively, MSCI ), or MSCI s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the Information Providers ) and is provided for informational purposes only. The Information may not be modified, reverse-engineered, reproduced or redisseminated in whole or in part without prior written permission from MSCI. The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION. Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-contractors. Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All Information is impersonal and not tailored to the needs of any person, entity or group of persons. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy. It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index. MSCI does not issue, sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related to the performance of any MSCI index (collectively, Index Linked Investments ). MSCI makes no assurance that any Index Linked Investments will accurately track index performance or provide positive investment returns. MSCI Inc. is not an investment adviser or fiduciary and MSCI makes no representation regarding the advisability of investing in any Index Linked Investments. Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance. The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved by any investment strategy. Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice. Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research Inc. and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com. MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc. s revenue includes fees based on assets in Index Linked Investments. Information can be found in MSCI Inc. s company filings on the Investor Relations section of www.msci.com. MSCI ESG Research Inc. is a Registered Investment Adviser under the Investment Advisers Act of 194 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI s products or services are not intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Issuers mentioned or included in any MSCI ESG Research materials may include MSCI Inc., clients of MSCI or suppliers to MSCI, and may also purchase research or other products or services from MSCI ESG Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD, FEA, InvestorForce, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor s. Global Industry Classification Standard (GICS) is a service mark of MSCI and Standard & Poor s. 33