1Q2020 Real Estate Performance City of Phoenix Employees Retirement - - PowerPoint PPT Presentation

1Q2020 Real Estate Performance

City of Phoenix Employees’ Retirement System (COPERS)

September 3, 2020 Presented remotely by Mark Bartmann & Dan Krivinskas

Portfolio Overview

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Investment COPERS Commitment Structure Investment Period Expiration Commitment Unfunded Commitment % Funded 1 Status 2 Morgan Stanley Prime 3Q 2006 Open N/A $90,500,000 $0 100.0% Stabilized JPMorgan SPF 2Q 2007 Open N/A $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 RECAP III 1Q 2012 Closed Expired $30,000,000 $6,339,855 78.9% Nearly Liquidated Wheelock Street I 2Q 2012 Closed Expired $20,000,000 $3,724,018 81.4% Nearly Liquidated Northwood Series IV 1Q 2014 Closed Expired $20,000,000 $14,230,492 28.9% Harvesting Wheelock Street II 3Q 2014 Closed Expired $30,000,000 $8,700,665 71.0% Nearly Liquidated Northwood Series V 1Q 2015 Closed Expired $30,000,000 $10,155,798 66.2% Harvesting 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 SC Core Fund 3Q 2016 Closed N/A $30,000,000 $47,806 99.8% Stabilized Wheelock Street V 4Q 2016 Closed Expired $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% Core Non-Core

Performance Summary

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Note: Sub-Portfolio and Total Portfolio composite performance figures include data from liquidated investments not shown in table

Investment Market Value % of RE Portfolio % Funded 1 % Realized3 SI IRR (Gross) 4 SI IRR (Net) 5 Net Equity Multiple 6 Morgan Stanley Prime $82,009,284 23.1% 100.0% 51.3% 6.4% 5.4% 1.70x JPMorgan SPF $77,115,664 21.7% 100.0% 47.0% 3.5% 4.2% 1.52x $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 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 $196,273,177 55.2% 66.5% 51.0% 13.9% 9.6% 1.26x $355,398,125 100.0% 77.2% 50.3% 7.5% 5.9% 1.40x Core Total Core Portfolio Total Portfolio Total Non-Core Portfolio Non-Core

Performance Summary

4 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%

• Net IRR 4 Net EM 5

Time-Weighted Returns (Gross)

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%

Diversification

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• 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

Global United States

Leverage Profile

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• Modest use of leverage across the Real

Estate Portfolio

• Non-Core Portfolio LTV Ratio of around

50% remains modest, despite slight increases from valuation adjustments

Total Portfolio Loan-toValue (LTV) 7: 41.4% Core Portfolio LTV: 20.5% Non-Core Portfolio LTV: 51.6% Weighted-Average Interest Rate: 3.4%

Fee Summary 8

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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

Type 1Q2020 Quarterly Avg. Asset Mgmt.

0.32% 0.29%

Incentive

• 0.66%

0.10%

Other

0.00% 0.00% Total

• 0.35%

0.39% RE Portfolio Fees (% of Market Value)

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.

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Appendix

1Q20 Portfolio NAV Summary

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Note that figures may not sum to ending values due to differences in fee accruals and payment Investment Opening Value Net Income Net Appreciation Capital Called Capital Distributed Ending Value Morgan Stanley Prime 82,323,513 $ 463,807 $ 34,586 $ 812,622 $ 82,009,284 $ JPMorgan SPF 76,675,524 $ 581,329 $ 417,118 $ 192,789 $ 751,422 $ 77,115,664 $ 158,999,037 $ 1,045,136 $ 451,704 $ 192,789 $ 1,564,044 $ 159,124,948 $ JDM Partners I 26,578,181 $ 1,144,124 $ (5,521,293) $ 22,201,012 $ RECAP III 4,352,092 $ (16) $ (148,368) $ 4,203,708 $ Wheelock Street I 2,240,162 $ (5,922) $ (115,035) $ 2,119,205 $ 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 $ RECAP IV 22,127,784 $ (910) $ (1,703,097) $ 1,248,704 $ 132,560 $ 21,539,920 $ HSI V 18,543,271 $ 715,034 $ (5,621,894) $ 594,356 $ 1,827,476 $ 12,403,292 $ SC Core Fund 23,692,222 $ (2,716,675) $ 1,257,311 $ 8,298,217 $

• $

30,531,076 $ Wheelock Street V 19,556,138 $ (56,171) $ (2,376,421) $ 17,123,546 $ 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 $ Ascentris Value Add Fund III 1,502,681 $ (95,941) $ (778,353) $ 12,574,768 $

• $

13,203,155 $ 193,855,436 $ (480,919) $ (21,635,084) $ 29,169,326 $ 4,635,581 $ 196,273,177 $ 352,854,473 $ 564,217 $ (21,183,380) $ 29,362,115 $ 6,199,625 $ 355,398,125 $ Core Total Core Portfolio Total Non- Core Portfolio Total Portfolio Non- Core

Definitions & Footnotes

1 Commitment Funded Percentage (“% Funded”) – The percentage of the investor’s commitment that has been called by the manager to date, less any

capital returned during the investment period that is deemed to be recallable.

2 Investment Status Definitions:

• Recently Closed-Investment is awaiting first capital call designated for investment purposes
• Investing- Investment actively making commitments to new underlying investments; within stated investment period
• Stabilized- Investment is fully invested and unlikely to make near-term return of capital distributions
• Harvesting- Investment is actively divesting
• Nearly Liquidated- Investment is substantially divested of assets (typically > 80% realized)
• Liquidated- Investment has divested of all assets and either holds cash or no balance at all

3 Realization Percentage (“% Realized”) – The percentage of an investment’s cumulative distributions to date relative to the total value of the fund,

measured as a sum of the cumulative distributions to date and the remaining investment value.

4 Since Inception Gross Internal Rate of Return (“SI-IRR GROSS”) – Reflects the implied discount rate equating the present value of an investment’s

cash outflows and the remaining market value to the present value of the investment’s cash inflows, excluding any impact of fees charged or accrued.

5 Since Inception Net Internal Rate of Return (“SI-IRR NET”) - Reflects the implied discount rate equating the present value of an investment’s cash

• utflows and the remaining market value to the present value of the investment’s cash inflows, accounting for the impact of fees.

6 Net Equity Multiple (“NET EM”) – The sum of cumulative distributions and remaining investment value divided by total paid-in-capital, accounting

for the impact of fees.

7 Loan-to-Value Ratio (“LTV %”) – Ratio of all outstanding direct debt obligations divided by the fair value of the fund’s gross real estate asset value. 8 Fee Summary – Fees percentages shown reflect fees paid relative to beginning portfolio market value.

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Disclaimer of Warranties and Limitation of Liability

This document was prepared by Alignium, LLC (“Alignium”) and includes information and data from some or all of the following sources: investment managers, custodian banks, client staff, specialty investment consultants, actuaries, plan administrators/record-keepers, index providers, as well as other third-party sources as directed by the client or as we believe necessary or appropriate. Alignium makes no warranties and disclaims responsibility for the accuracy or completeness of information or data provided or methodologies employed by any external source. Alignium has taken reasonable care to ensure the accuracy of the information or data but disclaims responsibility for the accuracy of information or data received from outside sources. This document is provided for the client’s internal use only and does not constitute a recommendation by Alignium or an offer of, or a solicitation for, any particular security and it is not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets.

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