EFTA01388594

18 October 2016 REITs US REIT 3O16 Earnings Preview Rising yields weighing on REIT stocks Following a strong start to 2016 that saw the RMZ deliver a 19% total return through 8/1, the REITs have since traded off, down 10% through 10/14. The decline coincides with a 30bps rise in the 10-year yield and an increase in the probability of a December rate hike to 66% from 37%. While painful, the move has reset valuations which now appear much healthier. Our coverage is now trading at a 5.6% implied cap rate, a 7% discount to consensus NAV (8% discount to DBe), roughly in-line with historical FF0 and FAD multiples, and a still wider (44bps) dividend yield spread to the 10-year. As we have stated in the past, we think the REITs remain in macro limbo, with expectations regarding yields and overall risk appetites, trumping bottom up trends. However, the DB house view, which calls for muted GDP growth, a stable 10- year environment, no recession through 2017, and REIT valuations now much less aggressive, we think the stocks have a little room to run if 3Q can exceed low expectations. !HOURS 21: NTM RIFF() 00x st dev (torn avg Figure 22: NTM P/FAD OM 0114,14/16 Ovia It of 1014/16 el el (P 5 55 5v v a a 5 5 5 5 5 5 5 5 5 5 5 g5 5 5 5 5 555. 555 E§555.i 555.i 555.§ § 5 5 Oli carries -Avg -maw m .2gagv .211dir ........oecenrigg -Ay •21100. 400% Din is Said on consensus fl an Son. Deisch flint MA IFigure 23: Dividend Yield Spread to 10-year den is Ana on most. esVmstes Swum Dtagne - SAL J 'Nuns 24: Premium/Discount to NAV 2 Current - Avg • 44bps 110% • 100% SO% tt 00% f 40% 1 .100% • .150% Ogg es of 1011406 Cs al 10/14/16 00% 5 3 54 5 S 5 r-a-..-a-v.a-v- 5 -a vE§ 50%01 —Ng —Medea •2sietv tan .2 st Or. 20% Data n based a consensus simnel Sara. Deutseho Ant. SAC Page 12 .7 1% discount 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 a -v. -a- sr- 55555 E§ 5 5 E 5 CO3C0wergge —Avg —Medan *2 Mari Ow On is &sedan consensus OVEMitOS Mn. Nosh* MS Mit Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092232 CONFIDENTIAL SDNY_GM_00238416 EFTA01388594