1Q2020 Real Estate Performance City of Phoenix Employees’ Retirement System (COPERS) September 3, 2020 Presented remotely by Mark Bartmann & Dan Krivinskas
Portfolio Overview Investment COPERS Unfunded % Funded 1 Status 2 Investment Structure Period Commitment Commitment Commitment Expiration 3Q 2006 Open N/A Core Morgan Stanley Prime $90,500,000 $0 100.0% Stabilized 2Q 2007 Open N/A JPMorgan SPF $87,380,529 $0 100.0% Stabilized Total Core Portfolio $177,880,529 $0 100.0% JDM Partners I 1Q 2010 Closed Expired $20,000,000 $551,724 97.2% Harvesting 1Q 2012 Closed Expired RECAP III $30,000,000 $6,339,855 78.9% Nearly Liquidated 2Q 2012 Closed Expired Wheelock Street I $20,000,000 $3,724,018 81.4% Nearly Liquidated 1Q 2014 Closed Expired Northwood Series IV $20,000,000 $14,230,492 28.9% Harvesting 3Q 2014 Closed Expired Wheelock Street II $30,000,000 $8,700,665 71.0% Nearly Liquidated 1Q 2015 Closed Expired Northwood Series V $30,000,000 $10,155,798 66.2% Harvesting Non-Core RECAP IV 1Q 2015 Closed Expired $30,000,000 $4,599,077 84.7% Harvesting HSI V 2Q 2016 Closed Expired $25,000,000 $7,501,290 70.0% Harvesting 3Q 2016 Closed N/A SC Core Fund $30,000,000 $47,806 99.8% Stabilized 4Q 2016 Closed Expired Wheelock Street V $25,000,000 $5,880,097 76.5% Harvesting Focus Senior Housing I 2Q 2017 Closed 2Q 2021 $25,000,000 $15,974,345 36.1% Investing Hammes Partners III 2Q 2017 Closed 2Q 2022 $25,000,000 $20,027,310 19.9% Investing RECAP V 4Q 2018 Closed 4Q 2021 $25,000,000 $18,929,860 24.3% Investing Ascentris Value Add Fund III 3Q 2019 Closed 3Q 2023 $25,000,000 $10,537,456 57.9% Investing Wheelock Street VI 4Q 2019 Closed 1Q 2024 $20,000,000 $20,000,000 0.0% Recently Closed Total Non-Core Portfolio $380,000,000 $127,199,793 66.5% Total Portfolio $557,880,529 $127,199,793 77.2% 2
Performance Summary Net Equity % of RE SI IRR (Gross) 4 SI IRR (Net) 5 % Funded 1 % Realized 3 Investment Market Value Multiple 6 Portfolio Morgan Stanley Prime $82,009,284 23.1% 100.0% 51.3% 6.4% 5.4% 1.70x Core JPMorgan SPF $77,115,664 21.7% 100.0% 47.0% 3.5% 4.2% 1.52x Total Core Portfolio $159,124,948 44.8% 100.0% 49.3% 5.7% 4.8% 1.61x JDM Partners I $22,201,012 6.2% 97.2% 36.3% 8.4% 7.2% 1.76x RECAP III $4,203,708 1.2% 78.9% 88.9% 12.0% 8.3% 1.18x Wheelock Street I $2,119,205 0.6% 81.4% 94.6% 35.7% 24.8% 1.71x Northwood Series IV $15,930,832 4.5% 28.9% 53.7% 16.3% 11.3% 1.42x Wheelock Street II $6,971,713 2.0% 71.0% 81.2% 25.7% 16.0% 1.45x Northwood Series V $28,470,931 8.0% 66.2% 23.9% 10.5% 8.0% 1.30x Non-Core RECAP IV $21,539,920 6.1% 84.7% 28.4% 9.5% 6.2% 1.17x HSI V $12,403,292 3.5% 70.0% 31.5% 8.4% -1.0% 0.98x SC Core Fund $30,531,076 8.6% 99.8% 4.5% 4.2% 3.3% 1.06x Wheelock Street V $17,123,546 4.8% 76.5% 6.0% -2.5% -7.2% 0.91x Focus Senior Housing I $9,531,804 2.7% 36.1% 4.9% 13.8% 6.1% 1.06x Hammes Partners III $4,203,012 1.2% 19.9% 8.2% 15.3% -19.3% 0.92x RECAP V $7,839,971 2.2% 24.3% 13.3% N/A N/A N/A Ascentris Value Add Fund III $13,203,155 3.7% 57.9% 5.1% N/A N/A N/A Wheelock Street VI $0 0.0% 0.0% N/A N/A N/A N/A Total Non-Core Portfolio $196,273,177 55.2% 66.5% 51.0% 13.9% 9.6% 1.26x Total Portfolio $355,398,125 100.0% 77.2% 50.3% 7.5% 5.9% 1.40x Note: Sub-Portfolio and Total Portfolio composite performance figures include data from liquidated investments not shown in table 3
Performance Summary Performance Commentary • 1Q2020 returns primarily reflect unrealized valuation adjustments as a result of COVID-19. • HSI V (-31.2%), JDM I (-16.2%) and Wheelock II (-29.3%) were the largest negative contributors during the quarter. • JP Morgan SPF (+1.6%), MS Prime (+0.9%) and Hammes III (+3.4%) were the main contributors during the quarter. • Non-USD funds and funds that invest significant amounts of equity outside the US were significantly impacted by FX movements vs. the USD: • BRL was down 22%, GBP was down 6% and EUR was down 2% Time-Weighted Returns (Gross) Net IRR 4 Net EM 5 1Q2020 1-Yr 3-Yr 5-Yr SI Core 1.2% 6.2% 7.4% 9.0% 7.6% 4.8% 1.61x Non-Core -11.9% -3.8% 8.8% 9.5% 13.7% 9.6% 1.26x Total Portfolio -6.1% 0.5% 7.6% 9.0% 7.9% 5.9% 1.40x NCREIF ODCE 1.0% 4.9% 6.8% 8.5% 6.3% - - 4
Diversification Global United States Portfolio is well diversified by both Geography and Property Type Portfolio will continue to be primarily focused in North America (U.S.), with recent commitments to Ascentris VA III and Wheelock VI Exposure to “niche” property types with defensive cash flows such as medical office buildings and senior housing will increase as capital continues to be called in Hammes III and Focus Senior Housing Fund I 5
Leverage Profile Total Portfolio Loan-toValue (LTV) 7 : Modest use of leverage across the Real 41.4% Estate Portfolio Core Portfolio LTV: 20.5% Non-Core Portfolio LTV: 51.6% Non-Core Portfolio LTV Ratio of around 50% remains modest, despite slight Weighted-Average Interest Rate: 3.4% increases from valuation adjustments 6
Fee Summary 8 RE Portfolio Fees (% of Market Value) Quarterly Type 1Q2020 Avg. Asset 0.32% 0.29% Mgmt. Incentive -0.66% 0.10% 0.00% 0.00% Other Total -0.35% 0.39% 1Q2020 Fees Are Far Below Historical Averages Negative incentive fees for the quarter reflect reversal of prior incentive fee accruals as a result of unrealized valuation adjustments during the quarter as a result of COVD-19 The largest reversals of incentive fee accruals were in HSI V, Northwood Series IV & V, and Wheelock II 7
Subsequent Events Below are some key portfolio updates that occurred subsequent to the end of 1Q2020: 2Q2020 Core Portfolio Flash Returns: JP Morgan SPF: -2.0% (gross) Morgan Stanley Prime: -1.7% (gross) Ascentris Value Added Fund III In May, the fund called approximately $260,000 from COPERS primarily for follow-on investments at The Cascades (office in Aliso Viejo, CA) and Broadstone EaDo (multifamily in Houston, TX). HSI Fund V In June, the fund distributed $2.7M to COPERS capital as a result of the sale of Shopping Tucuruvi. In June and July, the fund called approximately $779,000 from COPERS capital to pay down the fund’s subscription line. RECAP IV In June, the fund distributed over $3.6M to COPERS from recent property sales and refinancings, including Project Bounty and Project Gold in Australia. RECAP V In June, the fund called approximately $1.6M from COPERS as a result of a recent acquisition of a prime retail asset in downtown Sydney, Australia. SC Core Fund In April, the fund made and operating income distribution to COPERS totaling approximately $530,000. The fund's initial 2Q2020 valuations reflect an increase in asset value of approximately 4% during the quarter. 8
Appendix
1Q20 Portfolio NAV Summary Investment Opening Value Net Income Net Appreciation Capital Called Capital Distributed Ending Value Core $ 82,323,513 $ 463,807 $ 34,586 $ 812,622 $ 82,009,284 Morgan Stanley Prime $ 76,675,524 $ 581,329 $ 417,118 $ 192,789 $ 751,422 $ 77,115,664 JPMorgan SPF Total Core Portfolio $ 158,999,037 $ 1,045,136 $ 451,704 $ 192,789 $ 1,564,044 $ 159,124,948 $ 26,578,181 $ 1,144,124 $ (5,521,293) $ 22,201,012 JDM Partners I $ 4,352,092 $ (16) $ (148,368) $ 4,203,708 RECAP III $ 2,240,162 $ (5,922) $ (115,035) $ 2,119,205 Wheelock Street I Northwood Series IV $ 17,933,343 $ 220,293 $ (1,570,247) $ 193,047 $ 845,603 $ 15,930,832 Wheelock Street II $ 10,585,775 $ 50,218 $ (2,493,704) $ 88,774 $ 1,259,350 $ 6,971,713 Northwood Series V $ 30,457,855 $ 311,196 $ (2,069,372) $ 214,640 $ 443,387 $ 28,470,931 Non- Core $ 22,127,784 $ (910) $ (1,703,097) $ 1,248,704 $ 132,560 $ 21,539,920 RECAP IV $ 18,543,271 $ 715,034 $ (5,621,894) $ 594,356 $ 1,827,476 $ 12,403,292 HSI V $ 23,692,222 $ (2,716,675) $ 1,257,311 $ 8,298,217 $ - $ 30,531,076 SC Core Fund $ 19,556,138 $ (56,171) $ (2,376,421) $ 17,123,546 Wheelock Street V Focus Senior Housing I $ 6,212,091 $ (8,011) $ (28,045) $ 3,355,769 $ - $ 9,531,804 Hammes Partners III $ 2,113,435 $ (37,437) $ 21,187 $ 2,190,725 $ 84,898 $ 4,203,012 RECAP V $ 7,960,406 $ (701) $ (487,753) $ 410,326 $ 42,307 $ 7,839,971 $ 1,502,681 $ (95,941) $ (778,353) $ 12,574,768 $ - $ 13,203,155 Ascentris Value Add Fund III $ 193,855,436 $ (480,919) $ (21,635,084) $ 29,169,326 $ 4,635,581 $ 196,273,177 Total Non- Core Portfolio Total Portfolio $ 352,854,473 $ 564,217 $ (21,183,380) $ 29,362,115 $ 6,199,625 $ 355,398,125 Note that figures may not sum to ending values due to differences in fee accruals and payment 10
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