PERPETUAL LIFE REIT REPORT s Black Creek Diversified Property Fund Blackstone Real Income Trust Cole Real Income Strategy (Daily NAV) Griffin Essential Asset REIT II Jones Lang LaSalle Income Property Trust 3Q 2017
TABLE OF CONTENTS Equity Raise 1 Investment Returns 2 Investments 3 Distributions 4 Debt Financing 5 Performance Metrics 6 Total Burdens 7 DISCLAIMER The analysis and opinions contained in this Report ("Report") are those of Summit Investment Research ("Summit"). Summit utilizes financial data from reports filed with the SEC and certain third-party real estate data in completing our analysis. We do not include opinions and private information from the sponsor or manager of the perpetual life REIT. This Report is not intended to and does not provide or constitute investment advice. Any errors in this Report and any analysis or commentary are the responsibility of Summit. This Report is sold for internal-use only for investment research and education. This Report, in whole or part, including specific data and analysis, cannot be shared or distributed without a license agreement from Summit. Any sharing or distribution of this Report, or any part thereof, without the express written consent of Summit is strictly prohibited. 2017 Summit Investment Research This report is not intended to and does not constitute investment advice. This report is provided to assist with education on the non-listed investments.
PERPETUAL LIFE REIT EQUITY RAISE EQUITY RAISE HISTORY $2,000 Annual Equity Raise $2,000 Quarterly Equity Raise $1,600 $1,600 $ in Millions $1,200 $800 $400 $0 $1,185 $1,183 $634 $227 $210 $66 2012 2013 2014 2015 2016 3Q17 YTD $ in Millions $1,200 $800 $400 $0 $539 $490 $424 $141 $174 $272 $172 $253 $222 $269 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Perpetual life REITs raised $1.2 billion equity for 3Q17 YTD. Perpetual life REITs are on pace for strong equity fundraising growth in 2017. With several lifecycle non-listed REITs in process of converting to perpetual life REITs, perpetual life REITs should see continued growth in 2018. In 3Q17, perpetual life REITs posted their third highest quarterly fundraising ever of $423 million. Perpetual life REITs had raised $539 million in 4Q16 with the launch of Blackstone Real Income and strong equity fundraising by Jones Lang LaSalle Income. TOP EQUITY FUNDRAISERS Top Equity Fundraisers - 3Q17 Top Equity Fundraisers - 3Q17 TTM Strategy 3Q17 Strategy 3Q17 TTM Blackstone Real Income Diversified $353 Blackstone Real Income Diversified $1,248 Cole Real Income Strategy Net Lease $35 Jones Lange LaSalle Income Property Diversified $246 Jones Lange LaSalle Income Property Diversified $23 Cole Real Income Strategy Net Lease $157 Black Creek Diversified Property Fund Diversified $10 Griffin Capital Essential Asset REIT II Net Lease $123 Griffin Capital Essential Asset REIT II Net Lease $3 Black Creek Diversified Property Fund Diversified $72 Diversified $0 Diversified $11 Total - All s $424 Total - All s $1,857 In 3Q17, Blackstone raised $353 million equity capital, which was 83% of all equity capital raised by perpetual life REITs. Cole Real Income had the second highest equity raise with only $35 million followed by Jones Lang LaSalle Income Property with $23 million. Since its 4Q16 launch, Blackstone Real Income has dominated perpetual life REIT fundraising. For 3Q17 TTM, Blackstone raised $1.2 billion, which represents 67% of 3Q17 TTM equity raise. Jones Lang LaSalle had the second highest fundraising at $246 million. REDEMPTION HISTORY $2,000 Annual Redemptions 10 Redemptions - Percent of Total Equity $1,600 8 $ in Millions $1,200 $800 6 4 $400 $0 $263 $296 $310 $181 $80 $70 2012 2013 2014 2015 2016 3Q17 YTD 2 4% 3% 7% 9% 7% 6% 2012 2013 2014 2015 2016 3Q17 YTD The majority of redemptions for the past five years have been with Black Creek Diversified Property Fund, which converted from a traditional to a perpetual life REIT. For 3Q17 YTD, Black Creek had the highest total redemptions with $111 million, which is 36% of all redemptions. Redemptions declined from 7% of equity in 2016 to 6% for 3Q17 YTD. Redemption percentage has declined primarily due to the strong equity raise of Blackstone with no redemptions in 2017. With many perpetual life REIT conversions in process, redemptions will jump in 2018. 2017 Summit Investment Research Page 1
PERPETUAL LIFE REIT INVESTMENT RETURNS SUMMIT PERPETUAL LIFE RETURN INDEX 1 Annual Returns 10. Quarterly Returns 10. 5. 0. 6.8% 7.1% 8.5% 4.7% 5.7% 2013 2014 2015 2016 2Q17 YTD (Annualized) 5. 0. - 1.9% 2. 1.7% 1.3% 1.9% 1.6% 1. 1.6% 1.8% 0. 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Over the past two years, perpetual life REIT annual returns have declined from their highs of 8.5% in 2015. For 3Q17 YTD, perpetual life REITs reported a 5.7% annualized return, which is a slight increase from 4.7% in 2016. Returns, however, still exceed distributions. Except for 1Q16, perpetual life REITs have reported fairly consistent quarterly returns above 1. over the past two years. Their limited liquidity protects returns against the high volatility of liquid listed REITs. In 3Q17, perpetual life REITs reported 1.8% returns. HIGHEST TOTAL RETURNS Highest Total Returns - 3Q17 Highest Total Returns - 3Q17 TTM Blackstone Real Income Jones Lange LaSalle Income Property Cole Real Income Strategy Black Creek Diversified Property Fund Strategy 3Q17 Strategy 3Q17 TTM Diversified 3.5% Blackstone Real Income Diversified 7.1% Diversified 2.1% Diversified 7. Diversified 1.9% Jones Lange LaSalle Income Property Diversified 6.9% Net Lease 1.2% Cole Real Income Strategy Net Lease 4.3% Diversified 0.2% Black Creek Diversified Property Fund Diversified 3.3% Total - All s 1.8% Total - All Perpetual Life NREITs 5.9% In 3Q17, returns ranged from a high of 3.5% for Blackstone Real Income and a low of 0.2% for Black Creek Diversified Property Fund, which was the only perpetual life REIT to report NAV declines. In 3Q17, perpetual life REITs had a 1.8% average return. For 3Q17 TTM, Blackstone Real Income reported the highest returns of 7.1% followed by at 7.. Overall for 3Q17 TTM, perpetual life REITs reported an average 5.9% return, which is slightly below their long-term annual average of 6.6%. INVESTMENT RETURN AND VOLATILITY COMPARISON Investment Returns Summit PL NLR Return Index FTSE NAREIT - All REITs FTSE NAREIT - All Equity REITs 3Q17 YTD 1-Year 4.28% 5.85% 6.74% 3.62% 6.04% 2.57% 3-Year 5-Year 6.31% 6.57% 10.29% 9.86% 10.18% 9.97% S&P 500 14.24% 18.61% 10.81% 14.22% Volatility 1.42% 10.01% 10.41% 11.32% The investment returns for 2017 YTD are the nine-month period ending 9/30/17. 1-Year returns are returns from 10/1/16 to 9/30/17. 3-Year returns are the average annual returns for the three-year period ending 3Q17. 5-Year returns are the average annual returns for the five-year period ending 3Q17. Volatility represents the standard deviation of annual returns for the previous five-year period. Perpetual life REITs have posted a long-term average annual return of 6.57%, which is well below the long-term returns for listed REITs and S&P 500 of 9.97% and 14.22% respectively. Perpetual life REITs, however, have significantly lower volatility than both listed REITs and S&P 500. Perpetual life REITs have annual volatility of only 1.42%, while listed REITs and S&P 500 have significantly higher annual volatility of 10.41% and 11.32% respectively. 2017 Summit Investment Research Page 2
PERPETUAL LIFE REIT INVESTMENTS TOTAL INVESTED ASSETS $ in Millions $15,000 $12,000 $9,000 $6,000 $3,000 $0 Total Invested Assets (AUM) $9,724 $5,242 $4,009 $4,049 $4,433 $3,263 2012 2013 2014 2015 2016 3Q17 Highest Total Invested Assets Blackstone Real Income Black Creek Diversified Property Fund Jones Lang LaSalle Income Property Griffin Capital Essential Asset REIT II Cole Real Income Strategy Total - All s Strategy Diversified Diversified Diversified Net Lease Net Lease Diversified 3Q17 $2,991 $2,509 $2,255 $1,126 $661 $182 $9,724 Perpetual life REITs had a significant increase in invested assets from $5.2 billion in 2016 to $9.7 billion in 3Q17, due largely to Blackstone's acquisition of $2.4 billion in real estate properties and the addition of Griffin Capital Essential Asset REIT II as a perpetual life REIT. Blackstone Real Income, which has acquired $2.4 billion in real estate properties in 2017, is now the largest perpetual life REIT with $3.0 billion in assets. Black Creek Diversified Property Fund has $2.5 billion, while Jones Lang LaSalle Income Property has $2.3 billion. INVESTMENT ALLOCATIONS - 3Q17 10 8 6 4 2 Investment Allocations - 3Q17 3 24% 25% 17% 4% 1% Retail Industrial Apartments Office Hotels Other Highest Investment Allocations - 3Q17 Blackstone Real Income Black Creek Diversified Property Fund Jones Lang LaSalle Income Property Griffin Capital Essential Asset REIT II Cole Real Income Strategy Highest Sector Apartments Office Retail Office Retail Office Percent 66% 52% 3 68% 81% 32% *Highest sector is the highest allocation to a specific commercial real estate sector. As of 3Q17, perpetual life REITs have the highest allocation to the office sector at 3 followed by the apartment sector at 25%. Since 4Q15, the most significant change in allocations has been a shift to apartments from 6% to 25% at 3Q17 largely due to Blackstone. While most have a diversified strategy, perpetual life REITs have different investment allocations, which dictates their risk profiles. Blackstone has its highest allocation to apartments, while three perpetual life REITs focus on office and two focus on retail. INVESTMENT ALLOCATIONS - 4Q15 10 8 Investment Allocations - 4Q15 Highest Investment Allocations - 4Q15 Black Creek Diversified Property Fund Highest Sector Office Percent 53% 6 4 42% 39% Jones Lange LaSalle Income Property Cole Real Income Strategy Retail 33% Retail 75% Office 4 2 12% 6% 1% Retail Industrial Apartments Office Hotels Other *Highest sector is the highest allocation to a specific commercial real estate sector. As of 4Q15, perpetual life REITs have the highest allocation to the retail at 42% followed by the office sector at 39%. Black Creek had $1.1 billion invested in retail, while Jones Lang LaSalle and Cole Real had $390 million and $212 million respectively invested in retail. While most have a diversified strategy, perpetual life REITs have different investment allocations with dictates their risk profiles. Black Creek and RREEF have the highest allocation to office assets, while Jones Lange and Cole Real have the highest allocation to retail. 2017 Summit Investment Research Page 3
PERPETUAL LIFE REIT DISTRIBUTIONS DISTRIBUTION RATES 10. Historical Distribution Rates 10. Distribution Rates - 3Q17 8. 8. 6. 4. 3.5% 3.6% 3.8% 3.9% 4.1% 4.6% 6. 4. 2. 3.6% 5. 5.4% 5.5% 4.4% 4.8% 2. 0. 2012 2013 2014 2015 2016 3Q17 0. Black Creek Blackstone Real Cole Real Griffin Jones Lang Capital EA II LaSalle RREEF Property *Distribution rates are annualized rates for commissioned shares (Class T, S, A) Average distribution rates for perpetual life REITs increased from 4.1% in 2016 to 4.6% in 3Q17. Perpetual life REITs have remained conservative with their distribution policies by maintaining distribution rates that are fully supported by funds from operations. Distribution rates for perpetual life REITs, which averaged 4.6%, ranged from a high 5.5% for GCEAR II to a low 3.6% for Black Creek for 3Q17. Blackstone Real posted a 5. distribution rate, while Jones Lang LaSalle had a 4.4% annualized distribution rate. DISTRIBUTION COVERAGE 15 12 118% Historical Distribution Coverages 135% 125% 118% 118% 12 15 12 136% Distribution Coverages - 3Q17 136% 123% 98% 98% 9 9 6 76% 6 3 3 2012 2013 2014 2015 2016 3Q17 Black Creek Blackstone Real Cole Real Griffin Jones Lang Capital EA II LaSalle RREEF Property *Distribution coverage is modified FFO divided by distributions declared. Perpetual life REITs continue to report full coverage of their distributions from funds from operations. Traditional non-listed REITs historically have had distribution coverage issues. In 3Q17, perpetual life REITs reported a 12 average distribution coverage. Most perpetual life REITs reported full distribution coverage in 3Q17. Lack of distribution coverage reduces net asset values. Black Creek had the highest coverage of 136%. RREEF Property was the only perpetual life REIT that didn't cover or effectively cover its distribution in 3Q17. PORTFOLIO CAP RATES 1 Historical Portfolio Cap Rates 1 Portfolio Cap Rates - 3Q17 10. 10. 6.9% 6.8% 6.9% 6.9% 6.7% 6.6% 6.7% 6.2% 7.3% 6.8% 6.6% 6.4% 5. 5. 0. 2012 2013 2014 2015 2016 3Q17 0. Black Creek Blackstone Real Cole Real Griffin Jones Lang Capital EA II LaSalle RREEF Property Perpetual life REITs have reported declining portfolio cap rates over the past two years. Cap rates on acquisitions and portfolio rent growth are the two factors impacting portfolio cap rates. For 3Q17, perpetual life REITs had a lower portfolio cap rate of 6.6%. For 3Q17, portfolio cap rates are relatively consistent among perpetual life REITs. Cole Real reported the highest portfolio cap rate of 7.3%, largely due to a high ratio of investments in small markets. Blackstone had the lowest portfolio cap rate due to its apartments. 2017 Summit Investment Research Page 4
PERPETUAL LIFE REIT DEBT FINANCING LEVERAGE RATIOS 10 Historical Leverage Ratios 10 Leverage Ratios - 3Q17 8 8 6 4 51% 39% 43% 4 34% 45% 6 4 45% 59% 38% 4 39% 49% 2 2 2012 2013 2014 2015 2016 3Q17 Black Creek Blackstone Real Cole Real GCEAR II Jones Lang LaSalle RREEF Property Perpetual life REITs continue to maintain moderate leverage. The leverage ratio for perpetual life REITs increased from 34% in 2016 to a moderate 45% in 3Q17. The leverage ratio for perpetual life REITs is consistent with the average leverage of listed REITs. All perpetual life nreits maintained low (less than 4) to moderate (4-6) leverage ratios in 3Q17. Moderate leverage ratios minimize financing risk. Cole Real had the lowest leverage ratio at 38%, while Blackstone had the highest leverage ratio at 59%. SHORT-TERM & VARIABLE RATE DEBT RATIOS 10 Historical Short-Term & Variable Debt Ratios 10 Short-Term & Variable Debt Ratios - 3Q17 8 7 68% 8 73% 73% 7 7 6 4 2 54% 43% 34% 38% 3 31% 26% 27% 25% 17% 2012 2013 2014 2015 2016 2Q17 Short-Term Debt Ratio Variable Rate Debt Ratio 6 4 2 48% 47% 37% 9% 4% Black Creek Blackstone Cole Real Real Short-Term Debt Ratio 16% 5% GCEAR II Jones Lang RREEF LaSalle Property Variable Rate Debt Ratio Short-term debt ratios for perpetual life REITs declined from 54% in 2016 to a high 25% in 3Q17. Variable rate debt ratios increased sharply from 27% in 2016 to a high 38% in 3Q17. The high short-term and variable rate debt ratios represent significant financing risks. At 3Q17, Cole Real maintained the lowest financing risk among perpetual life REITs with a low 4% short-term debt ratio and variable rate debt ratio. GCEAR II and RREEF Property have the highest financing risks with both high short-term and variable debt ratios. INTEREST RATES 1 Historical Interest Rates 1 Interest Rates - 3Q17 10. 10. 5. 3.9% 4.7% 4.4% 4. 3.5% 3.6% 5. 3.4% 3.7% 3.7% 3.3% 3.5% 3.1% 0. 2012 2013 2014 2015 2016 2Q17 0. Black Creek Blackstone Real Cole Real GCEAR II Jones Lang LaSalle RREEF Property The average interest rates for perpetual life REITs increased slightly to 3.6% in 3Q17, which is a significant decline from 4.7% in 2013. For 3Q17, average cap rate spreads, which is the difference between portfolio cap rates and interest rates, remained a high 3.. In 3Q17, the interest rates ranged from a low 3.1% for RREEF Property to a high 3.7% for Blackstone Real. All perpetual life REITs, except for Blackstone Real, maintained cap rate spreads above 3. in 3Q17. Blackstone reported a lower 2.4% cap rate spread in 3Q17. 2017 Summit Investment Research Page 5
PERPETUAL LIFE REIT PERFORMANCE METRICS INVESTMENT METRICS Investment Portfolio Details 3Q17 Equity Raised Cumulative Equity Invested Assets # Prop. Sq. t or Units Occ. % Lease Term Portfolio Cap Rate ($ in millions) ($ in millions) ($ in millions) Black Creek Diversified Property $10 $2,441 $2,509 53 8,569k 9 5.0 6.69% Blackstone Real Income Trust $353 $1,248 $2,991 85 10,286 93% N/A 6.15% Cole Real Income Strategy (dnav) $35 $428 $661 135 4,061k 99% 10.5 7.32% Griffin Essential Asset REIT II $2 $727 $1,126 27 7,300k 10 10.6 6.82% Jones Lang LaSalle Income Property $14 $1,415 $2,256 54 10,957k 94% 6.1 6.58% $0 $101 $182 8 857k 10 6.4 6.38% 3Q17 Equity Raised is the gross equity raised in millions, including DRIP and redemptions, for 3Q17. Cumulative Equity is the total gross equity raised in millions, including DRIP and redemptions, as of 3Q17. Invested Assets is the total invested assets in millions, which includes all real estate and real estate-related investments as of 3Q17. # Prop. (Number of Properties) is the number of properties in the portfolio as of 9/30/17. Sq. t or Units (Square t or Units) is the total square feet of the properties, reported in thousands, or the total number of units for apartment, hotel, and parking lot portfolios. Occ. % (Occupancy Percent) is the current portfolio occupancy percent as of 9/30/17. Lease Term is the average remaining lease term for the portfolio as of 9/30/17. Portfolio Cap Rate is the current portfolio investment yield as of 9/30/17. PERFORMANCE METRICS Perpetual Life Non-Listed REIT Dist. Rating Distribution Coverage Distribution MFFO Rate Coverage Fin. Rating Leverage Ratio Financing Risk Summary Interest Rate Short-Term Variable Rate Debt Ratio Debt Ratio Black Creek Diversified Property 3.64% 136% 45% 3.44% 48% 47% Blackstone Real Income Trust 4.97% 98% 59% 3.71% 9% 37% Cole Real Income Strategy (dnav) 5.41% 98% 38% 3.65% 4% Griffin Essential Asset REIT II Jones Lang LaSalle Income Property 5.5 136% 4 3.3 73% 73% 4.35% 123% 39% 3.51% 5% 16% 4.76% 76% 49% 3.11% 7 7 Dist. Rating (Distribution Rating) evaluates the sustainability of the current distribution. Green (High Performance/Low Risk) indicates the distribution is fully covered and there are no significant current risks to distribution sustainability. Yellow (Moderate Performance/Moderate Risk) indicates the distribution is not fully covered either in the current quarter or an annualized basis and/or there are significant current risks to distribution sustainability. Red (Low Performance/High Risk) indicates that the current distribution is not sustainable or the distribution has had significant reductions since inception. Distribution Rate is the annualized distribution rate on common or Class A shares as of 9/30/17. MFFO Coverage (Modified Funds from Operations Coverage) represents the percent of the distribution covered by modified funds from operations for 3Q17. Fin. Rating (Financing Risk Rating) evaluates the financing risk of the current leverage for the non-listed REIT. The risk ratings for leverage ratio are high (above 6), moderate (4-6), and low (below 4), and the risk ratings for short-term debt and variable rate debt are high (above 25%), moderate (1-25%), and low (below 1). Green (Low Risk) indicates the non-listed REIT has low to moderate leverage and low short-term and low variable rate debt risks. Yellow (Moderate Risk) indicates the non-listed REIT has moderate financing risk from a high leverage ratio, moderate to high short-term debt risk, and/or moderate to high variable rate debt risk. Red (High Risk) indicates the non-listed REIT has high financing risk due to a high leverage ratio, high short-term debt risk, and/or high variable rate debt risk. Leverage Ratio is percentage of real estate debt of the non-listed REIT divided by total investments. Interest Rate is the weighted average interest rate on the non-listed REIT's real estate debt. Short-Term Debt Ratio is the percentage of debt with maturities in the current year and next two years. Variable Rate Debt Ratio is the percentage of real estate debt subject to floating interest rates, excluding interest rate swaps. 2017 Summit Investment Research Page 6
PERPETUAL LIFE REIT TOTAL FEE BURDENS TOTAL FEE BURDENS Perpetual Life Non-Listed REITs Commission Shares (Transaction-Based Advisors) Share Class Sales Comm. & DM Upfront or Upfront Annual 5 Years Transaction Transaction Annual Annual 5 Years 5 Years Annual Sales s Org. & Offering Costs Distrib. Sales Burden Acq. s/ Expenses Finance Real s Asset Mgmt. Prop. Mgmt. Real Burden Total Burden Cole Real Income Strategy (Daily NAV) A 6.5 0.75% 0.5 9.75% 1.0 0.0 0.9 0.0 5.5 15.25% T 5.5 1.0 1.0 9.5 1.0 0.0 1.0 0.0 6.0 15.5 Black Creek Diversified Property Fund T 3.5 1.36% 0.85% 9.11% 1.0 0.0 1.1 0.0 6.5 15.61% Jones Lang LaSalle Income Property Trust A 8.25% 0.34% 0.0 8.59% 1.0 0.0 1.25% 0.0 7.25% 15.84% Blackstone Real Income Trust T 3.5 0.85% 0.85% 8.6 1.0 0.0 1.25% 0.0 7.25% 15.85% No Commission Shares (-Based Advisors/Wrap Accounts) Black Creek Diversified Property Fund D 0.0 1.36% 0.0 1.36% 1.0 0.0 1.1 0.0 6.5 7.86% Cole Real Income Strategy (Daily NAV) W 2.75% 0.75% 0.0 3.5 1.0 0.0 0.9 0.0 5.5 9.0 Jones Lang LaSalle Income Property Trust M 1.5 0.34% 0.0 1.84% 1.0 0.0 1.25% 0.0 7.25% 9.09% Blackstone Real Income Trust D 0.0 0.85% 0.25% 2.1 1.0 0.0 1.25% 0.0 7.25% 9.35% I 2.75% 1.0 0.0 3.75% 1.0 0.0 1.0 0.0 6.0 9.75% Institutional Shares Cole Real Income Strategy (Daily NAV) I 1.25% 0.75% 0.0 2.0 1.0 0.0 0.9 0.0 5.5 7.5 Jones Lang LaSalle Income Property Trust M-I 0.25% 0.34% 0.0 0.59% 1.0 0.0 1.25% 0.0 7.25% 7.84% Black Creek Diversified Property Fund I 0.0 1.36% 0.0 1.36% 1.0 0.0 1.1 0.0 6.5 7.86% Blackstone Real Income Trust I 0.0 0.85% 0.0 0.85% 1.0 0.0 1.25% 0.0 7.25% 8.1 I 2.75% 1.0 0.0 3.75% 1.0 0.0 1.0 0.0 6.0 9.75% *s are calculated as a percentage of gross equity, based on the assumptions below, to determine the Total Burden TM for investors over a five-year period. Total Burden TM Definitions Sales Commissions & Dealer Manager s: Sales commissions are an upfront fee reported as a percentage of gross offering proceeds. Dealer Manager s are either upfront fees as a percentage of gross offering proceeds or annual fees typically paid as a percentage of net asset value. Annual dealer manager fees are totaled for five years for the Sales Burden. Organization & Offering Costs ("O&O"): All non-listed REITs present O&O as an upfront fee that is a percentage of gross offering proceeds. O&O percentages represent either a cap on advisor reimbursements for actual O&O incurred by the advisor or the sponsor's estimate of O&O expenses to be paid by the non-listed REIT. O&O costs include contingent payments. Distribution : Non-listed REITs with class T shares pay a portion of the sales commission as an annual distribution fee, which is also referred to as a Stockholder Servicing by some non-listed REITs. Most non-listed REITs have a general cap on overall underwriting compensation including the distribution fee of 1, and some non-listed REITs provide specific distribution fee caps based on a percentage, such as 4., or period of time, such as five years. In most cases, the upfront sales commission and annual distribution fee are limited to 7% Sales Burden: Represents the total fee impact of sales commissions, dealer manager fees, and O&O expenses over a five-year period of time as a percent of gross equity. Acquisition s & Expenses: Most non-listed REITs have both acquisition fees and acquisition expense reimbursements reported typically as a percent of gross investments or invested assets. Acquisition expense percentages are based on either an expense cap or an expense estimate. An assumption for the leverage ratio is utilized to determine the impact of acquisition fees and expenses as a percentage of gross equity. Leverage ratio assumptions range from 4 to 6 based primarily on the leverage ratios of prior non-listed REITs from Finance s: Only a few non-listed REITs still charge finance fees. Leverage adjustments (see Acquisition s) are used to determine the fee impact as a percent of gross equity. Asset Management : Percentage of net asset value. Property Management : Typically reported as a percentage of gross revenues. Both income adjustments and leverage adjustments (see Acquisition s) are necessary to determine the fee impact as a percent of gross equity. An assumption for an average cap rate, which is 7., is utilized to convert the fee impact as a percent of gross revenue to gross assets, then the leverage adjustment converts the fee impact to a percent of gross equity. Also, for non-listed REITs that only report a "market" rate, this analysis uses typical fees for that property Real Burden: Represents the total fee impact of acquisition fees, finance fees, and asset & property management fees over a five-year period of time as a percent of gross equi Total Burden TM : Represents the total combined fee impact of all sales fees and all real estate fees over a five-year period of time as a percent of gross equity. Summit's Total Burden provides an invaluable comparative metric for understanding the total fee impact for individual investors in a non-listed REIT. Higher fees can significantly reduce potential 2017 Summit Investment Research Page 7
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