EFTA Document EFTA01459026

Long or short, Mark G. Roberts? The Head of Real Estate Strategy and Research looks at global sectoral trends. Are commercial real-estate fundamentals generally still attractive? ain Across the globe, we currently see a positive spread between long and short interest rates, implying that a recession - with its obvious negative implications for tenant demand and rents - is not likely. In addition, outside of a few markets, the amount of new construction remains low. As a result, vacancy rates are declining and rent levels are increasing, likely leading to higher earnings growth. We continue to favor a pro-cyclical investment strategytargeted at offices and logistics, areas which typically perform well as economic growth increases. But is caution advisable on specific markets? EZI In the United States, the decline in oil prices is expected to have knock-on effects for certain property sectors in Houston. In the United Kingdom, the regions are in an upwards market cycle and we prefer these markets over central London, where the increase in new construction against a background of higher base rates could lead to lower relative returns. Finally, pricing appears aggressive in Singapore and vacancy rates are expected to increase which could create downside risks for capital values. Would listed real estate be resilient to an abrupt rise in interest rates? Listed real estate may appear interestingly valued compared to the broader equity market or Treasury yields. U.S. RE ITs (real estate investment trusts) are also currently trading at a discount of around 2% to the underlying net asset value (NAV) of property held by these companies. (Over the long term, they typically trade at a 5% premium.) When stock valuations become disconnected like this from the private market, we typically see increased share buy-backs and higher levels of mergers-and- acquisitions activity, providing a catalyst for prices to move higher. Still, we are mindful of the impact that a sudden upwards move in interest rates could have on the asset class. U.S. REITs would probably move on par with the S&P 500 Index if there was only a 25-basis-point rise in rates — but a larger unexpected rise would likely lead to underperforrnance tbro:PcdttC41, Faro aa'tit Ptiw, Irrrattincrit w,WC ihtti Asse...ltss paspxtios Hvan'Xfoviclyai ;don Will governments continue to support infrastructure investment? En Each dollar spent by governments on infrastructure can translate into much greater gains in GDP and employment. However, budget constraints are limiting public investment, and governments have started putting greater emphasis on attracting private capital in infrastructure. We see this trend continuing, with governments "crowding in" private-sector Investment, through improving regulatory frameworks and public-private-partnership structures. This is likely to create further opportunities for institutional investors seeking long-dated, inflation-hedged income streams and portfolio diversification. Do you have a positive outlook for listed infrastructure? BM We recently completed a top-down analysis on listed infrastructure as well as real-estate securities and how they have performed in different economic environments, with a focus on GDP and interest-rate levels relative to their average. This suggests that, in the current environment, global listed infrastructure securities would perform broadly in line with the MSCI World Index for equities if there was a 25-basis-point rise in the major developed economies' interest rates. For the upcoming year, we expect global listed infrastructure securities to generate total returns in the range of 7%. Mara represents a positive arnwer reixosetrts a imairte ari*wor Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are sublect to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Offers and sates of alternative investments are subject to regulatory requirements and such investments may he available only to investors who are "Qualified Purchasers- as defined by the U.S. Investment Company Act of 1940 and "Accredited Investors" as defined in Regulation D of the 1933 Securities Act. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL *Vow taioncal ectvon I Onat-em, 201!, 0 17 DB-SDNY-0119226 SDNY_GM_00265410 EFTA01459026