A Global Perspective

Commercial Real Estate:
A Global Perspective
Presenters:
David Lee, Brian Dausch, Nina Jones, Eric Moffett, and Ted Robson

Agenda
• Background on Global Commercial Real Estate Asset Class
• Regional Performance
• What Are Valuations Telling Us?
• Topical Items
– Commercial Real Estate Debt Market
– Recovery Possibilities
• Q and A With the Panel
2

Growth in Equity Market Capitalization
of Global Listed Real Estate
Represented by the FTSE EPRA/NAREIT Developed Real Estate
Index 1989 – YTD 2009
1,000
900
Market Cap
800
700
600
500
400
300
200
100
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 9/09
Source: FTSE EPRA/NAREIT Developed Real Estate Index.
3

As of September 2009
The Global Listed Real Estate Market
by Country
Value of Listed Real Estate in Major Markets
Germany
1%
Belgium
1%
Netherlands
2%
France
6%
United Kingdom
7%
Singapore
4%
China
4%
Sweden
1%
Switzerland
1%
Other
1%
United States
36%
Australia
11%
Hong Kong
13%
Japan
11%
Canada
4%
Source: T. Rowe Price, FTSE, EPRA, and NAREIT
Note: Only countries with at least 1% (rounded) are included in the illustration.
4

The Global Listed Real Estate Market
by Property Type
As of September 30, 2009
Industry Diversification
FTSE EPRA/NAREIT Developed Real Estate Index
Hotels/Lodging
2%
Industrial
4%
Healthcare
5%
Shopping Center
8%
Self Storage
2%
Office & Industrial
2%
Triple Net
1%
Other Real Estate
1%
Diversified
39%
Apartment
Residential
10%
Regional Mall
12%
Office
14%
Source: T. Rowe Price, FTSE, EPRA, and NAREIT
5

Correlations Among Asset Classes
Correlation Matrix
March 1990 – September 2009
Cash
Global
Bonds
Global
Stocks
Global
Real
Estate
North
American
Real Estate
European
Real Estate
Asian
Real
Estate
Cash
1.00
0.01
0.00
-0.07
-0.02
-0.10
-0.06
Global Bonds
0.01
1.00
0.28
0.37
0.25
0.45
0.29
Global Stocks
0.00
0.28
1.00
0.77
0.54
0.65
0.71
Global Real Estate
-0.07
0.37
0.77
1.00
0.74
0.78
0.86
North American Real Estate
-0.02
0.25
0.54
0.74
1.00
0.64
0.41
European Real Estate
-0.10
0.45
0.65
0.78
0.64
1.00
0.51
Asian Real Estate
-0.06
0.29
0.71
0.86
0.41
0.51
1.00
Source: Zephyr Style Advisor, T. Rowe Price.
Past performance cannot guarantee future results.
The above categories are representative of the following indices: Cash – Citigroup 3-month Treasury Bill; U.S. Bonds – Barclays Capital U.S.
Aggregate Bond Index; Non-U.S. Bonds – Barclays Capital Global Aggregate Ex USD; U.S. Large-Cap Stocks – S&P 500 Index; U.S. Small-Cap
Stocks – Russell 2000; Non-U.S. Stocks – MSCI EAFE Index; Global Real State – FTSE EPRA/NAREIT
Developed Real Estate Index; North American Global Real Estate – EPRA/NAREIT North America; European Real Estate – EPRA/NAREIT Europe;
Asian Real Estate – EPRA/NAREIT Asia.
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As of September 30, 2009
Global Real Estate Stocks –
Regional Performance
100%
80%
60%
YTD Performance
Absolute
Relative to Domestic Equities
40%
20%
0%
-20%
-40%
Hong Kong Singapore Continental
Europe
World United States United
Kingdom
Australia
Japan
Source: Thomson Financial DataStream, UBS Estimates.
7

As of September 30, 2009
Global Real Estate Stocks –
Regional Performance
100%
80%
60%
One-Year Performance
Absolute
Relative to Domestic Equities
40%
20%
0%
-20%
-40%
Hong Kong Singapore Continental
Europe
World Japan United
Kingdom
United
States
Australia
Source: Thomson Financial DataStream, UBS Estimates.
8

As of September 30, 2009
Global Real Estate Stocks –
Regional Performance
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Five-Year Performance
Absolute
Relative to Domestic Equities
-20%
Hong Kong Singapore Continental
Europe
Japan United States World United
Kingdom
Australia
Source: Thomson Financial DataStream, UBS Estimates.
9

Developers Have Outperformed Investors
As of October 30, 2009
60%
UBS Global Real Estate Index Performance
Local Currency Total Returns
YTD 1YR 3YR 5YR
40%
20%
0%
-20%
UBS Global Developers UBS Global Index UBS Global Investors
Source: S&P, Thomson Financial DataStream, FTSE, and UBS estimates
10

Are the Stocks Trading at Fair Value?
Premium/(Discount) to NAV
30%
Global
40%
Global Developers
20%
Global Investors
10%
20%
0%
0%
-10%
-20%
-20%
-30%
-40%
-40%
-50%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
-60%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: SNL, UBS estimates
11

A Closer Look at Valuations by Region
Premium/(Discount) to NAV
80%
60%
Australia
1
40%
20%
Continental Europe
40%
20%
0%
0%
-20%
-20%
-40%
-40%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
-60%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
40%
20%
U.K.
40%
20%
U.S.
2
0%
-20%
0%
-40%
-20%
-60%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
-40%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: SNL, UBS estimates
1 NTA for Australia; NTA does not equal NAV, as it is measured by a third-party appraiser and does not include non-rental income streams.
2 P/NAV for U.S. starting at the end-April consists of calculated weighted average using both consensus and UBS estimates.
12

A Closer Look at Valuations by Region
20%
0%
-20%
-40%
-60%
-80%
Premium/(Discount) to NAV
Hong Kong
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
Japan Developers
JREIT
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
1
Singapore Developers
SREIT
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: SNL, UBS estimates
1 RNAV for Singapore Developers. RNAV estimate is the mark-to-market net asset value and includes fair value estimates as well as value estimates
in its derivation. RNAV is used to derive our PTs for developer stocks.
13

Topical Items
• State of commercial real estate debt
• How a recovery might play out
14

CMBS Issuance Peaked 2005 – 2007
350
300
CMBS Issuance by Year
All Non-U.S.
All U.S.
250
USD Billions
200
150
100
50
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bloomberg
15

CMBS Getting the Headlines…
As of April 22, 2009
Annual Maturities ($ Billions)
350
300
250
200
150
100
50
Bank/Thrift
Insurance Company
CMBS – Floating Rate
CMBS – Fixed Rate
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
…however, 84% of loans maturing over the next five years
are at banks.
Source: Deutsche Bank CMBS Research report, Intex, Trepp, MBA, Federal Reserve
16

CMBS Maturities by Vintage
As of August 2009
The First Big Wave of “Bad Crop” CMBS Loans
Matures in 2011/2012
100%
90%
80%
70%
60%
0.1
2.3
5.4
21.4
35.6
41.3
9.1
7.1
12.5
19.0
3.1
9.5
Vintage Bucket
2006 – 2008
2004 – 2005
2001 – 2003
2000 or before
50%
128.3
129.7
40%
30% 0.2
20%
1.0
10%
0%
2009*
Total: $4b
5.7
7.6
2010
$40b
7.9
9.4
22.7
39.9
78.7
20.9 18.6
1.8 0.3
0.6 1.6 3.9 0.6 0.3 0.7 0.5
0.5 0.4 0.3 0.9
2011
$65b
2012
$71b
2013
$43b
2014
$54b
2015
$98b
2016
$131b
2017
$131b
0.5
0.5
1.6
2018
$6b
7.2
1.8
1.9
2019+
$20b
Source: Credit Suisse, Trepp
2009 includes only loans maturing in the remainder of 2009.
17

CMBS Delinquencies on the Rise
All Properties
CMBS 30+ Day Delinquencies
6.5
6.0
30+ Day Delinquencies
5.5
60+ Day Delinquencies
5.0
Special Servicing
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2002 2003 2004 2005 2006 2007 2008 2009
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Special Servicing %
Source: Morgan Stanley, Intex and Trepp
Conduit/Fusion CMBS loans only
18

Government Programs May Help Stabilize CRE
Residential and Commercial Real Estate Prices
August 2001 through August 2009
215
195
S&P/Case-Shiller Composite-20
Home Price Index
Commercial Property Price Index
175
Index Price
155
135
115
95
75
Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09
Source: Census Bureau, National Association of Realtors, Haver Analytics, S&P, Case-Shiller, Moody’s Investors Service, Bloomberg
19

Spreads Have Narrowed in Recent Months
CMBS and REIT Spreads
3,500
3,000
2,500
OAS
2,000
1,500
1,000
500
0
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09
Key
Name
Last
Minimum
Maximum
Mean
SD
U.S. CMBS A (Returns,
Unhedged)
992.9
80.5
12/29/2006
3235.0
04/24/2009
1238.8
1212.5
U.S. CMBS AAA Super
Duper (Returns, Unhedged)
425.5
64.2
01/19/2007
1505.3
11/21/2008
410.6
356.0
U.S. Credit REITS (Returns,
Unhedged)
347.4
72.0
01/26/2007
1251.3
01/02/2009
423.2
339.3
U.S. Credit Corp A
(Returns, Unhedged)
184.6
76.5
02/16/2007
595.2
10/17/2008
255.4
152.2
Source: Barclays
20

Government Programs/Market Assistance
• TALF — government funding program designed to improve market
liquidity and reduce cost of CMBS financing
– Legacy TALF — extended to March 31, 2010
– New Issue TALF — extended to June 30, 2010
• IRS refinement to REMIC rules permit performing loans facing potential
defaults (term or maturity) to be modified proactively
• Federal regulators issued policy statement entitled “Prudent Commercial
Real Estate Loan Workouts” which states that:
“…renewed or restructured loans to borrowers who have the ability to repay their debts
according to reasonable modified terms will not be subject to adverse classification
solely because the value of the underlying collateral has declined to an amount that is
less than the loan balance.”
• PPIP — program using funding from the Treasury, Federal Deposit
Insurance Corporation, Federal Reserve, and private investors to acquire
legacy loans and securities off the balance sheets of financial firms
Key:
TALF—Term Asset Backed Securities Loan Facility
REMIC—Real Estate Mortgage Investment Conduit
PPIP—Public-Private Investment Program
21

Strong Cap Rate Correction
Period ended September 30, 2009
10.0%
9.5%
Nominal Cap Rates Over Time
9.0%
8.5%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
Baa Yield
GSA Average
6.1%
5.0%
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
Source: Green Street Advisors
22

Will Past be Prologue?
Value of $100 Invested in U.S. REITs and Direct Real Estate
September 1989 – September 1999
$350
$300
Listed Real Estate
Direct Real Estate
$250
$200
$150
$100
$50
$0
Sep-89 Sep-91 Sep-93 Sep-95 Sep-97 Sep-99
Source: Zephyr Style Advisor
Listed Real Estate = FTSE NAREIT Equity REIT Index (Total Return)
Direct Real Estate = NCREIF Property Index (Total Return)
23

A Dose of Realism, But a Sense of Optimism
NAREIT Equity REIT Index
170
150
130
110
90
13%
12%
11%
10%
9%
Vacancy Rates and Cap Rates
NAREIT Total
Return
Vacancy
Cap Rates
70
8%
1988Q1 1988Q4 1989Q3 1990Q2 1991Q1 1991Q4 1992Q3 1993Q2 1994Q1 1994Q4
NAREIT Equity REIT Index
1,200
1,000
800
600
400
200
16%
14%
12%
10%
8%
6%
Vacancy Rates and Cap Rates
NAREIT Total
Return
Vacancy
Cap Rates
0
2007Q1 2007Q4 2008Q3 2009Q2
4%
Source: Morgan Stanley Research, FactSet, NCREIF, NAREIT, SNL, PPR
Note: Vacancy rate forecast from PPR
24

Questions and Answers

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