E mploye e s R e tir e me nt Syste m of R hode Island Re a l E - - PowerPoint PPT Presentation

No ve mb e r 16, 2016

Re a l E sta te Re vie w E mploye e s’ R e tir e me nt Syste m of R hode Island

Pre se nte d b y: Pe nsio n Co nsulting Allia nc e , L L C

1

ERSRI Real Estate Portfolio: Performance

F und Cur r e nt Ne t Asse t Value ($) 2Q-16 Inc ome (% ) 2Q-16 Appr e c . (% ) 2Q-16 T

• tal

(% ) 1-Ye ar (% ) 3-Ye ar (% ) 5-Ye ar (% ) E R SR I Cor e Por tfolio 396,430,061 0.9 1.1 2.0 11.0 12.2 12.2

AE W Co re Pro pe rty T rust 89,661,874 1.1 1.2 2.2 10.9 11.4 11.3 He itma n Ame ric a Re a l E sta te T rust 73,924,304 0.9 1.2 2.1 11.5 n/ a n/ a JP Mo rg a n Stra te g ic Pro pe rty F und 100,968,151 0.9 0.9 1.8 10.0 11.7 11.9 Mo rg a n Sta nle y Prime Pro pe rty F und 58,763,133 0.9 1.5 2.4 11.4 13.6 13.9 Prude ntia l PRI SA 73,112,599 1.0 0.8 1.7 11.9 12.7 12.1

E R SR I Non-Cor e Por tfolio 111,550,091 1.1 1.7 2.9 17.3 16.1 12.3

Cro w Ho lding s Re ta il F und 11,986,797 2.2

• 0.1

2.1 n/ a n/ a n/ a E xe te r I ndustria l Va lue F und I I I 18,247,855 2.2 2.2 4.4 20.0 n/ a n/ a GE M Re a lty F und V 25,802,455 0.8 2.4 3.2 23.3 n/ a n/ a I C Be rke le y Pa rtne rs I I I 15,101,639

• 0.2

4.5 4.3 11.7 n/ a n/ a I C Be rke le y Pa rtne rs I V 2,932,214 n/ a n/ a n/ a n/ a n/ a n/ a JP Mo rg a n Alte rna tive Pro pe rty F und 189,400

• 4.0

2.0

• 2.0

2.4 3.7 9.4 L

• ne Sta r Re a l E

sta te F und I V 6,763,509 0.6 4.3 4.9 n/ a n/ a n/ a Ma g na Ho te l F und I I I 1,745,654 3.5

• 23.7
• 20.2
• 21.6

5.6 8.4 T riCo n Ca pita l F und VI I 1,319,598

• 0.1

2.7 2.6 2.6

• 13.3
• 8.9

Wa te rto n F und XI I 27,460,971 1.5 1.5 3.0 22.1 n/ a n/ a

E R SR I T

• tal R

e al E state Por tfolio 507,980,152 1.0 1.2 2.2 12.0 12.6 11.7 Ne t NF I-ODCE 0.9 1.0 1.9 10.8 12.0 11.7 Ove r

• r

(Unde r ) Pe r for manc e 0.3 1.2 0.6 0.0

R e al E state Por tfolio Pe r for manc e De tail – Ne t of F e e s

As of June 30, 2016

2

ERSRI Real Estate Portfolio: Capital Activity

R e al E state Por tfolio Commitme nts and R e tur ns on F unde d Commitme nts

As of June 30, 2016 Par tne r ship T

• tal

Commitme nt ($) F unde d Commitme nt ($) Unfunde d Commitme nt ($) T

• tal Distributions

($) Sinc e Inc e ption IRR (% ) Sinc e Inc e ption Multiple Cor e

AE W Co re Pro pe rty T rust (1) 60,000,000 60,000,000 10,480,447 12.7% 1.7 He itma n Ame ric a Re a l E sta te T rust 60,000,000 60,000,000 4,726,288 13.6% 1.2 JP Mo rg a n Stra te g ic Pro pe rty F und 75,000,000 75,000,000 22,218,543 6.2% 1.5 Mo rg a n Sta nle y Prime Pro pe rty F und 35,000,000 35,000,000 18,186,006 7.1% 1.9 Prude ntia l PRI SA 50,000,000 50,000,000 15,937,240 5.1% 1.6

Non-Cor e

Cro w Ho lding s Re ta il F und 24,000,000 11,861,234 12,138,766 n/ a n/ a E xe te r I ndustria l Va lue F und I I I 30,000,000 16,500,000 13,500,000 1,012,285 16.9% 1.2 GE M Re a lty F und V 50,000,000 23,809,133 26,190,867 4,385,000 14.9% 1.2 GE M Re a lty F und VI 20,000,000 20,000,000 n/ a n/ a I C Be rke le y Pa rtne rs I I I 18,000,000 16,038,326 1,961,674 4,361,760 22.4% 1.2 I C Be rke le y Pa rtne rs I V 30,000,000 3,087,000 26,913,000 n/ a n/ a JP Mo rg a n Alte rna tive Pro pe rty F und 20,000,000 20,000,000 14,727,125

• 4.6%

0.7 L

• ne Sta r Re a l E

sta te F und I V 24,260,817 6,723,540 17,537,277 n/ a n/ a Ma g na Ho te l F und I I I 4,000,000 3,403,043 596,957 4,413,302 16.8% 1.8 T riCo n Ca pita l F und VI I 15,000,000 14,571,533 428,467 3,692,644

• 19.8%

0.3 Wa te rto n F und XI I 35,000,000 23,644,184 11,355,816 1,772,825 26.0% 1.2

T

• tal

550,260,817 419,637,993 130,622,824 105,913,465

(1) An additional $10 million was committed in the fourth quarter of 2016.

3

ERSRI Real Estate Portfolio: Vintage Year Exposure

Vintage Ye ar Aggr e gate Commitme nts Inve stme nts

2008 $4,000,000

Magna Hote l F und III:

Ho spitality inve stme nt, de ve lo pme nt & manag e me nt 2009 $25,000,000

AE W Cor e Pr

• pe r

ty T r ust: Ope n-e nd

dive rsifie d c o re fund 2013 $205,000,000 AE

W Cor e Pr

• pe r

ty T r ust He itman Ame r ic a R e al E state T r ust: Ope n-e nd

dive rsifie d c o re fund

JP Mor gan Str ate gic Pr

• pe r

ty F und: Ope n-e nd

dive rsifie d c o re fund

GE M R e alty F und V: De b t &

value -add pro pe rtie s

Wate r ton F und XII:

Value -add multifamily 2014 $48,000,000

E xe te r Industr ial Value F und III: Big -b o x

ware ho use & multi- te nant lo g istic s

IC Be r ke le y Par tne r s III:

Multi-te nant industrial 2015 $48,260,817

L

• ne Star

R e al E state IV:

Glo b al distre sse d c o mme rc ial re al e state & lo ans

Cr

• w Holdings R

e tail F und: Small

ne ig hb o rho o d re tail. 2016 $60,000,000

IC Be r ke le y Par tne r s IV:

Multi-te nant industrial

GE M R e alty F und VI:

De b t & value -add pro pe rtie s

AE W Cor e Pr

• pe r

ty T r ust (1)

(1) An a ppro xima te $10 millio n c o mmitme nt was ma de in the fo urth q ua rte r o f 2016.

Cor e Non-Cor e

4

ERSRI Real Estate Portfolio: Diversification

Sources: NCREIF; As of June 30, 2016

Offic e 30.9% I ndustria l 16.8% Re ta il 19.9% Apa rtme nt 24.4% Ho te l 1.8% Othe r 6.2%

E R SR I Por tfolio Pr

• pe r

ty Se c tor Dive r sific ation

US E a st 25.0% US Midwe st 10.4% US So uth 29.1% US We st 34.1% Asia 0.2% E uro pe 1.0% Othe r U.S. 0.2%

E R SR I Por tfolio Ge ogr aphic Dive r sific ation

Offic e 38.3% I ndustria l 12.6% Re ta il 20.3% Apa rtme nt 25.2% Ho te l 0.7% Othe r 2.9%

NF I-ODCE Pr

• pe r

ty Se c tor Dive r sific ation

US E a st 32.4% US Midwe st 9.6% US So uth 19.4% US We st 38.6%

NF I-ODCE Ge ogr aphic Dive r sific ation

5

ERSRI Real Estate Portfolio: Other Characteristics

As of June 30, 2016

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Co re No n-Co re T

• ta l Po rtfo lio

E R SR I R e al E state Por tfolio L e ve r age

Po rtfo lio L e ve ra g e L e ve ra g e L imit

L

• an-to-Value R

atio (L T V)

JP Mo rg a n 19.9% AE W 17.7% He itma n 14.6% Prude ntia l 14.4% Mo rg a n Sta nle y 11.6% Othe r: Cro w Ho lding s, E xe te r, GE M, I ndustry Ca pita l, L

• ne Sta r,

Ma g na , T riCo n & Wa te rto n 21.8%

E R SR I R e al E state Por tfolio Manage r Dive r sific ation

6

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Cap R ate

Cor e R e al E state Cur r e nt Value Cap R ate s1

Co re Ca p Ra te L T Ave ra g e Ca p Ra te 10 Ye a r T re a sury Ra te

Core real estate cap rates remain low by historical standards (expensive). 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Cap R ate Spr e ad

Cor e Cap R ate Spr e ad ove r 10-Ye ar T r e asur y

Co re Ca p Ra te Spre a d to T re a surie s L T Ave ra g e Spre a d

Spre a d to the 10-ye a r T re a sury tic ke d up due to a de c line in the 10-ye a r yie ld.

1A c a p ra te is the c urre nt a nnua l inc o me o f the pro pe rty divide d b y a n e stima te o f the c urre nt va lue o f the pro pe rty . I

t is the c urre nt yie ld o f the pro pe rty. L

• w c a p ra te s indic a te hig h va lua tio ns. So urc e s:

NCRE I F , www.ustre a s.g o v

Ca p Ra te Spre a d

Market Dynamics: Core Cap Rates

7

So urc e : NCRE I F

Market Dynamics: Property Type Cap Rates

4 4.5 5 5.5 6 6.5 7 7.5 8 20082 20083 20084 20091 20092 20093 20094 20101 20102 20103 20104 20111 20112 20113 20114 20121 20122 20123 20124 20131 20132 20133 20134 20141 20142 20143 20144 20151 20152 20153 20154 20161 20162

Cur r e nt Value Cap R ate s by Pr

• pe r

ty T ype Apa rtme nt I ndustria l Offic e Re ta il

8

So urc e : NCRE I F

Market Dynamics: Transaction Volume

5,000,000,000 10,000,000,000 15,000,000,000 20,000,000,000 25,000,000,000 30,000,000,000 35,000,000,000 40,000,000,000 100 200 300 400 500 600 700 800 900 1,000 19992 19994 20002 20004 20012 20014 20022 20031 20033 20041 20043 20051 20053 20061 20063 20071 20073 20081 20083 20091 20093 20101 20103 20111 20113 20121 20123 20131 20133 20141 20143 20151 20153 20161

Pr

• pe r

ty Sale s Volume (Annualize d)

Pro ps So ld 4Q Mo v T

• ta l

MV So ld 4Q Mo v T

• ta l

9

Market Dynamics: Real Estate Fundamentals

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

U.S. Ave r age Vac anc y R ate

Office Industrial Retail Apartment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Additions to Stoc k Ove r Pr ior 4 Quar te r s as a Shar e of T

• tal Stoc k

Office Industrial Retail Apartment

So urc e : AE W

10

0% 5% 10% 15% 20% 25% 50 100 150 200 250 300 350 400 450

U.S. E xpe c te d Population Gr

• wth 2015-2050

U.S. Po pula tio n (Millio ns, L e ft Axis) 10 Ye a r Pe rc e ntag e I nc re a se (Rig ht Axis)

Market Dynamics: Expected Population Growth

15 16 17 18 19 20 21 22 23 24

U.S. Population by F ive -Ye ar Age Cohor ts (millions)

2015 2025

So urc e : AE W

11

DI SCL OSURE S: T his do c ume nt is pro vide d fo r info rmatio nal purpo se s o nly. I t do e s no t c o nstitute an o ffe r o f se c uritie s o f any o f the issue rs that may b e de sc rib e d he re in. I nfo rmatio n c o ntaine d he re in may have b e e n pro vide d by third partie s, inc luding inve stme nt firms pro viding info rmatio n o n re turns and asse ts unde r manag e me nt, and may no t have b e e n inde pe nde ntly ve rifie d. T he past pe rfo rmanc e info rmatio n c o ntaine d in this re po rt is no t ne c e ssarily indic ative o f future re sults and the re is no assuranc e that the inve stme nt in que stio n will ac hie ve c o mparable re sults o r that the F irm will be able to imple me nt its inve stme nt strate g y o r ac hie ve its inve stme nt o bje c tive s. T he ac tual re alize d value o f c urre ntly unre alize d inve stme nts (if any) will de pe nd o n a varie ty o f fac to rs, inc luding future o pe rating re sults, the value o f the asse ts and marke t c o nditio ns at the time o f dispo sitio n, any re late d transac tio n c o sts and the timing and manne r o f sale , all o f whic h may diffe r fro m the assumptio ns and c irc umstanc e s o n whic h any c urre nt unre alize d valuatio ns are b ase d. Ne ithe r PCA no r PCA’ s o ffic e rs, e mplo ye e s o r ag e nts, make any re pre se ntatio n o r warranty, e xpre ss o r implie d, in re latio n to the ac c urac y o r c o mple te ne ss o f the info rmatio n c o ntaine d in this do c ume nt o r any o ral info rmatio n pro vide d in c o nne c tio n he re with, o r any data subse que ntly g e ne rate d he re fro m, and ac c e pt no re spo nsibility, o blig atio n o r liability (whe the r dire c t o r indire c t, in c o ntrac t, to rt o r o the rwise ) in re latio n to any o f suc h info rmatio n. PCA and PCA’ s o ffic e rs, e mplo ye e s and ag e nts e xpre ssly disc laim any and all liability that may be base d o n this do c ume nt and any e rro rs the re in o r o missio ns the re fro m. Ne ithe r PCA no r any o f PCA’ s o ffic e rs, e mplo ye e s o r ag e nts, make any re pre se ntation o f warranty, e xpre ss o r implie d, that any transac tio n has be e n o r may b e e ffe c te d o n the te rms o r in the manne r state d in this do c ume nt, o r as to the ac hie ve me nt o r re aso nab le ne ss o f future pro je c tio ns, manag e me nt targ e ts, e stimate s, pro spe c ts o r re turns, if any. Any vie ws o r te rms c o ntaine d he re in are pre liminary o nly, and are b ase d o n financ ial, e c o no mic , marke t and o the r c o nditio ns pre vailing as o f the date o f this do c ume nt and are the re fo re subje c t to c hang e . T he info rmatio n c o ntaine d in this re po rt may inc lude fo rward-lo o king state me nts. F

• rward-lo o king state me nts inc lude a numb e r o f risks, unc e rtaintie s and o the r fac to rs b e yo nd the c o ntro l o f the F

irm, whic h may re sult in mate rial diffe re nc e s in ac tual re sults, pe rfo rmanc e o r o the r e xpe c tatio ns. T he o pinio ns, e stimate s and analyse s re fle c t PCA’s c urre nt judg me nt, whic h may c hang e in the future . Any table s, g raphs o r c harts re lating to past pe rfo rmanc e inc lude d in this re po rt are inte nde d o nly to illustrate inve stme nt pe rfo rmanc e fo r the histo ric al pe rio ds sho wn. S uc h tab le s, g raphs and c harts are no t inte nde d to pre dic t future pe rfo rmanc e and sho uld no t b e use d as the b asis fo r an inve stme nt de c isio n. All trade marks o r pro duc t name s me ntio ne d he re in are the pro pe rty o f the ir re spe c tive o wne rs. I ndic e s are unmanag e d and o ne c anno t inve st dire c tly in an inde x. T he inde x data pro vide d is o n an “as is” basis. I n no e ve nt shall the inde x pro vide rs o r its affiliate s have any liability o f any kind in c o nne c tio n with the inde x data o r the po rtfo lio de sc ribe d he re in. Co pying o r re distributing the inde x data is stric tly pro hibite d. T he Russe ll indic e s are e ithe r re g iste re d trade marks o r trade name s o f F rank Russe ll Co mpany in the U.S. and/o r o the r c o untrie s. T he MSCI indic e s are trade marks and se rvic e marks o f MSCI

• r its sub sidiarie s.

Standard and Po o r’ s (S&P) is a divisio n o f T he Mc Graw-Hill Co mpanie s, I nc . S&P indic e s, inc luding the S&P 500, are a re g iste re d trade mark o f T he Mc Graw-Hill Co mpanie s, I nc . CBOE , no t S&P, c alc ulate s and disse minate s the BXM I nde x. T he CBOE has a b usine ss re latio nship with S tandard & Po o r's o n the BXM. CBOE and Chic ag o Bo ard Optio ns E xc hang e are re g iste re d trade marks o f the CBOE , and SPX, and CBOE S&P 500 BuyWrite I nde x BXM are se rvic e marks o f the CBOE . T he me tho do lo g y o f the CBOE S&P 500 BuyWrite I nde x is o wne d by CBOE and may be c o ve re d b y o ne o r mo re pate nts o r pe nding pate nt applic atio ns. T he Barc lays Capital indic e s (fo rme rly kno wn as the L e hman indic e s) are trade marks o f Barc lays Capital, I nc . T he Citig ro up indic e s are trade marks o f Citic o rp o r its affiliate . T he Me rrill L ync h indic e s are trade marks o f Me rrill L ync h & Co . o r its affiliate s.

Supple me nt for r e al e state and pr ivate e quity par tne r ships:

While PCA has re vie we d the te rms o f the F und re fe rre d to in this do c ume nt and o the r ac c o mpanying financ ial info rmatio n o n pre de c e sso r partne rships, this do c ume nt do e s no t c o nstitute a fo rmal le g al re vie w o f the partne rship te rms and o the r le g al do c ume nts pe rtaining to the F

• und. PCA re c o mme nds that its c lie nts re tain se parate le g al and tax c o unse l to re vie w the le g al and tax aspe c ts and risks o f inve sting in the F

und. I nfo rmatio n pre se nte d in this re po rt was g athe re d fro m do c ume nts pro vide d by third party so urc e s, inc luding but no t limite d to , the private plac e me nt me mo randum and re late d update s, due dilig e nc e re spo nse s, marke ting pre se ntatio ns, limite d partne rship ag re e me nt and o the r supple me ntal mate rials. Analysis o f info rmatio n was pe rfo rme d b y PCA. An inve stme nt in the F und is spe c ulative and invo lve s a de g re e o f risk and no assuranc e c an b e pro vide d that the inve stme nt o b je c tive s o f the F und will be ac hie ve d. I nve stme nt in the F und is suitable o nly fo r so phistic ate d inve sto rs who are in a po sitio n to to le rate suc h risk and satisfy the mse lve s that suc h inve stme nt is appro priate fo r the m. T he F und may lac k dive rsific atio n, the re by inc re asing the risk o f lo ss, and the F und’ s pe rfo rmanc e may be vo latile . As a re sult, an inve sto r c o uld lo se all o r a substantial amo unt o f its inve stme nt. T he F und’ s g o ve rning do c ume nts will c o ntain de sc riptio ns o f c e rtain o f the risks asso c iate d with an inve stme nt in the F

• und. I

n additio n, the F und’ s fe e s and e xpe nse s may o ffse t its pro fits. I t is unlike ly that the re will be a se c o ndary marke t fo r the share s. T he re are re stric tio ns o n re de e ming and transfe rring share s o f the F

• und. I

n making an inve stme nt de c isio n, yo u must re ly o n yo ur o wn e xaminatio n o f the F und and the te rms o f the o ffe ring .