EFTA Document EFTA01457965

tbrul Pcdttitql, Faro Ot Pt lull Irrrattincrit vuWC ihtti An:54as paspxtios favtir..^ Hvin43roviclyai ;don Long or short, Mark G. Roberts? The Head of Real Estate Strategy and Research considers immediate and longer-term investment issues Could global non-listed real estate continue to outperform? 523 According to MSCI, global non-listed ungeared property generated a total return of 9.9% in 2014. With real interest rates likely to stay low in historical terms, total returns are likely to remain ahead of their longer-term average of 7.5%. U.S. returns are benefiting from higher GDP growth while European returns are gaining from declining unemployment, rising tenant demand and limited new construction. Australia, South Korea and Japan are likely to enjoy above-average performance but decelerating economic growth poses a threat to Chinese property markets. Hong Kong and Singapore office markets have pricing risk. Are U.S. listed real-estate returns likely to prove as attractive? Listed real-estate investment trusts (REITs) utilize a higher degree of gearing which can increase the volatility of returns relative to the non listed market Between 1993 and 2014 there were 13 periods during which U.S. interest rates (as defined by the Treasury yield) were rising. During those periods, the S&P 500 Index rose by an average of 10% while U.S. REITs increased by an average of 2.6% and the Barclays Aggregate U.S. Bond Index declined by 2.7%. In the year that followed a rate increase, however, REITs' returns averaged 16%, higher than the S&P 500 Index's average total return of 9.7% and the Barclays Aggregate U.S. Bond Index's 9.6% return. The Implication is that, in the near term, U.S. REITs may prove volatile. But won't dividend yields help offset this? pea Higher dividend yields can serve to offset this volatility. FiElTs currently provide a very attractive dividend yield of 3.87% which exceeds both the S&P 500 Index dividend yield of 1.97% and the 10-year U.S.-Treasury yield of 2.42%.' This higher dividend yield can dampen downside risk and underpin future outperformance. In addition, we estimate U.S. REITs are trading at a 10% discount to their net asset value. Offers and sales of alternative investments are subject to regulatory requirements and such investments may be 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. Is sustainability going to play an increasing role in property investment? After the advent of the internee in the mid-1990s, landlords quickly learned that the provision of intemet access was not an option to gain competitive advantage. Instead it was a required amenity necessary to avoid building obsolescence. Today, some of the same things can be said of sustainable building practices. Tenants, regulators and investors alike vie the benefits of sustainable building practices. Lower energy costs, more efficient use of water resources and the need to avoid overbuilding in lower-density areas will likely make sustainable practices commonplace and of continuing importance to investors. More broadly, will technology have an impact on long-term infrastructure investing? Bea Yes - consider, for example, the interaction between climate-change policies in Europe and energy-storage, energy- efficiency and zero-emission technologies Smart-grid systems will help boost the share of renewable energy capacity, by creating a more efficient energy network, aligning more closely peak demand and production. Although at an early stage, energy storage has a positive long-term outlook to address the problems of grid bottlenecks and intermittent renewable power with implications for infrastructure investment. Olga roprt!viettIS AI pOSII YO XISYVOr row:awns a retnatrie ant,555 ' All dividend yields are quoted as of 7/10/15. 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 subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. C It) Mor I Atroncio E054,wildiuguft 2015 i5 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0117702 CONFIDENTIAL SDNY_GM_00263886 EFTA01457965