2016 Global Outlook Charles...CONFIDENTIAL | NOT FOR REPRODUCTION ANNUAL INVESTOR MEETING | MAY 25,...

2016 Global Outlook

Tony Charles

June 2016

1520342 exp 06/10/2017

CONFIDENTIAL | NOT FOR REPRODUCTION 2ANNUAL INVESTOR MEETING | MAY 25, 2016

Important Notice

General. The information contained herein refers to research, but does not constitute an equity research report and is not from Morgan Stanley Equity Research. Unless otherwise indicated, the viewsexpressed are those of the research and strategy team of Morgan Stanley Real Estate Investing (“MSREI”) and may differ from those of Morgan Stanley Equity Research and other Morgan Stanley affiliates(including others within MSREI). These views may also differ from investment strategies implemented by MSREI now or in the future. The information (including facts, opinions, estimates or projections)contained herein is based on financial, economic, market and other conditions prevailing as of the date hereof. As such, it remains subject to change at any time. By providing such information, MSREIassumes no obligation to provide any update or supplement to such information following the date hereof. Although reasonable care has been taken to ensure that the information (including facts, opinions,estimates or projections) contained herein is accurate, complete and fair, no warranty, express or implied, is made as to the accuracy, completeness or fairness of such information. Certain economic andmarket information contained herein may have been obtained from third parties sources. While MSREI believes that such sources are reliable, neither MSREI nor any other Morgan Stanley affiliate hasindependently verified such information or assumes any responsibility or liability for the accuracy, completeness or fairness of such information or any omission of information.

Confidentiality. The information contained herein is highly confidential. By accepting these materials, you agree that such materials (including any data, analysis, conclusions or other information containedherein and all oral information, if any, provided by MSREI in connection herewith) may not be photocopied, reproduced or otherwise shared or distributed to any other persons, in whole or in part, without theprior consent of MSREI. Notwithstanding the foregoing, such materials and information may be provided to (a) your legal, tax, financial and other advisors who agree to maintain these materials in confidenceand (b) a government official to the extent necessary to comply with a judicial or governmental order.

Past Performance. Past performance is not indicative of future results. Any projected or target returns contained herein are being provided for informational purposes only. Investments in real estate mayresult in the loss of principal. There can be no assurance that any projected or target returns, or any returns at all, will be achieved.

Forward-Looking Statements. These materials contain projections and other forward-looking statements. Any statements that are not historical facts are forward-looking statements that involve risks and areinherently uncertain. Sentences or phrases that use such words as “believe,” “anticipate,” “plan,” “may,” “hope,” “can,” “will,” “expect,” “should,” “goal,” “objective,” “projected” and similar expressions alsoidentify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Portfolio “profiles” by property type, location, investment structure, leverage or return for blind poolor partially blind pool products should be treated as projections. Projections and other forward-looking statements, including statements regarding MSREI’s assessment of the market, are by their natureuncertain insofar as actual realized returns or other projected results can change quickly based on, among other things, unexpected market movements, changes in interest rates, legislative or regulatorydevelopments, errors in strategy execution, acts of God and other asset-level developments. There can be no assurance that projections and other forward-looking information will not change based onsubsequent developments and without further notice, and no assurance can be given as to outcome. You should not to place undue reliance on forward-looking statements, including forecasts and projections,and statements regarding the assessment of the market, which speak only as of the date referenced herein.

Targeted Purpose and Audience. These materials have been prepared for a specific purpose and a specific target audience. These materials have been designed for use on a one-on-one basis; if you arenot the intended recipient and/or plan on using these materials for other than the intended purpose, then these disclosures may not be adequate for your purposes. These materials do not purport to be all-inclusive or to contain all the information necessary to make an investigation or decision regarding MSREI or any investment in real estate. Please discuss any questions you may have with an appropriateMSREI representative.

Not an Offer. Any reference to a fund, investment or asset herein should be viewed as a reference to real estate funds in general and should not be construed as a reference to any fund, investment or assetsponsored, managed or controlled by MSREI or any other Morgan Stanley affiliate, unless otherwise specified. These materials and the information contained herein have been prepared solely forinformational purposes and do not constitute an offer, or a solicitation of an offer, to buy or sell any security, instrument or other interest in any current or future fund or investment vehicle, whether sponsoredby MSREI or any other Morgan Stanley affiliate or otherwise. Any such offer or solicitation shall be made only pursuant to a final confidential private placement memorandum for such fund or investmentvehicle, which will describe other important information about the sponsor and such fund or investment vehicle.

Limitations on Use/Distribution in Certain Jurisdictions. Offers and sales of interests in any fund referred to herein may not be registered under the laws of any jurisdiction. The distribution of thesematerials in certain jurisdictions may be restricted by law and persons into whose possession these materials come should inform themselves about, and observe, any such restrictions. Any failure to complywith these restrictions may constitute a violation of the laws of any such jurisdiction.

Investment Risk. Investments in real estate are speculative and include a high degree of risk. Investors could lose their entire investment. Investments in real estate are highly illiquid, and are only suitablefor long-term investors willing to forgo liquidity and put capital at risk for an indefinite period of time. Investments in real estate depend on specialized management skills, may not be diversified and may besubject to more abrupt or erratic price movements than the overall securities market. Other risks associated with investments in real estate may include the following: fluctuations in the value of underlyingproperties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in competition, property taxes, capitalexpenditures or operating expenses; and other economic, political or regulatory occurrences affecting the real estate industry.

Consultation of Advisors. These materials do not constitute legal, tax, financial or other advice. The legal, tax and other consequences of any proposed transaction may differ for each recipient as a result of,among other things, the particular financial situation of, and the laws and regulations applicable to, each recipient. You should consult your own legal counsel, accountants and other advisors regarding theinformation contained herein and the transactions described hereby.

Any fund managed or controlled by Morgan Stanley would be marketed and distributed in compliance with the Korean Financial Investment Services and Capital Markets Act.


MACRO

• Slower, below-trend global economic growth, held back by weakness in emerging markets

• Heightened market volatility may lead to tighter financial conditions

• Consumer and housing sectors to lead the next wave of global economic activity

CAPITAL MARKETS

• Real estate remains attractive long-term, relative to alternatives

• Transaction activity remains robust ($1.3 Tn for the TTM through 1Q 2016(1))

• Cap rates likely to stabilize or marginally increase, lowering expected future returns

FUNDAMENTALS

• Limited supply in most markets and asset types

• Strong forecasted rent growth

• Consumer and housing linked sectors likely to outperform (retail, logistics and residential)

Executive Summary

1. Real Capital Analytics, data as of Q1’2016.2. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to changes in

market or economic conditions.

Global Macro Backdrop

SECTION 1


Expansion

Recovery Repair

SlowdownU.S.

Canada

Brazil

Japan

China

Australia

India

U.K.

Germany

France

Spain

Italy

Russia

Bubble size = size of country economyAmericas Europe Asia Pacific

Sweden

Major Economies at Various Stages in the Cycle

1. Morgan Stanley Research.2. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to changes in market or economic

conditions.3. The market cycle positioning framework is the outcome of the use of an internal tool being developed by MSREI based on a consistent set of real estate metrics available on a

country-by country basis. It is aimed to help identify drivers of market performance, market positioning relative to prior cyclical peaks and troughs, turning points and implications for investing strategies. It is updated on a quarterly basis in line with the release of macroeconomic and commercial real estate data. The tool uses a mix of real estate fundamentals and capital markets metrics that are generally available in applicable countries (including rent, occupancy, cap rates and spreads and liquidity and values metrics). The majority of the metrics are based on “actuals”, versus relying on forecast data. Note that other outcomes could result if different inputs or assumptions are made. The market cycle positioning constitutes a “forward looking statement.” Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statement.


GDP Forecasts – Basecase and U.K. Leave Scenarios

2011 – 2020E

Prime City Office Rents – Remain vs Leave / Low

Growth Scenarios (1)

2009 – 2020E

Implications of Brexit

Y-o-Y, %Index, = 100 at 2009

2.0

1.2

2.2

2.9

2.3

1.7

2.3 2.2 2.1 2.1

1.6

(0.8)

(0.2)

0.9

1.5 1.5

1.8 1.7 1.6 1.5

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Basecase U.K. Basecase EuropeU.K. (leave) U.K. leave (bear)Eurozone (U.K. leave)

Forecast

80

100

120

140

160

180

200

2009 2012 2015 2018 2021 2024U.K.: Main U.K.: ExitParis: Main Paris: Low GrowthFrankfurt: Main Frankfurt: Low Growth

Forecast

1. In this scenario, central bank measures struggle to achieve traction and nominal government bond yields, economic growth, and inflation remain at exceptionally low levels in a mutually reinforcing weak-growth outlook

2. All forecasts are subject to change at any time and may not come to pass due to changes in market or economic conditions

Source: U.K. ONS, Moody’s Analytics, Morgan Stanley Research, forecasts as ofApril 27, 2016

Source: PMA, as of March 2016


Inflation

Emerging & Developed Markets

Market-Implied Change in Policy Rate over 2016

December 2015 expectations vs May 2016

Central Banks Remain Accommodative

1. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to changes in market or economic conditions.

2. Readers should be aware that forward-looking statements, and statements regarding MSREI’s assessment of the market are by their nature inherently uncertain insofar as actual realized returns or other projected results can change quickly based on, among other things, unexpected market movements, changes in interest rates, legislative or regulatory developments, acts of God, and other developments.

0.5

0.0

0.3

0.0

(0.1)

0.0

(0.2)

0.3

0.0

(0.1)

(0.2)

(0.5)

(0.4)

(0.5)

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

US Canada UK Sweden Eurozone Japan Australia

Americas Europe Asia Pacific

0

2

4

6

8

2010 2011 2012 2013 2014 2015 2016 2017

EM DM

(%) 2016 Expected Change, bps


WHICH OF THESE FOLLOWING OUTCOMES HAS NEGATIVE INTEREST RATES

ACHIEVED IN EUROPE?

A. Boosted inflation

B. Encouraged bank lending to the private sector

C. Weakened foreign inflows, depreciated the euro and stimulated exports

D. Increased investor appetite for higher yielding investments

E. None of the above

Audience Question

Structural Trends

SECTION 2


Working Age Population Growth

Annualized working age population (20 – 64) growth

Demographic Trends

Source: UN Population Division, MSREI Strategy, data as of July 2015Notes1. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to

changes in market or economic conditions.2. Readers should be aware that forward-looking statements, and statements regarding MSREI’s assessment of the market are by their nature

inherently uncertain insofar as actual realized returns or other projected results can change quickly based on, among other things, unexpected market movements, changes in interest rates, legislative or regulatory developments, acts of God, and other developments.

Aging Population

%

2.7

2.3

1.6

0.6 0.6

1.1

0.5

1.9

0.9

0.3 0.0

0.3

1.4

0.7 0.7

0.2 0.1 0.1

(0.0)

(0.4)(0.5) (0.6) (0.7)

(0.9)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mexico Brazil Australia Sweden UK U.S. France China Spain Italy Japan Germany

2000 - 2015 2015 - 2030


Increasing Urbanization Rates

2014

Demographic Trends

Source: UN Population Division, MSREI Strategy, data as of July 2015Notes1. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to



United States Mexico

Brazil

DenmarkSweden

France

Italy

Spain

Eurozone

United Kingdom

Australia

China

India

Japan

20

40

60

80

100

0 1 2 3 4 5 6 7 8 9

Bubble Size:

Newly Urbanized Population

(2004-2014, MM People)

% of Population urbanized

Ten year % change

Urbanization


Office Space Usage

U.S. & Europe

Technology Trends

Source: NAIOP, Costar, BLS, Moody’s Analytics, as of April 2016Notes1. The opinions expressed herein are those of the MSREI team as of the date of the presentation and are subject to change at any time due to



Mobility and the Sharing Economy

Square Feet per Employee

190

200

210

220

230

240

2000 2002 2004 2006 2008 2010 2012 2014

U.S. Europe


3

4

5

6

7

8

9

2011 2012 2013 2014 2015 2016A++ A (Average) B (Average)

Industrial Demand & E-commerce

Net Absorption & YoY E-commerce Sales Growth

Mall Cap Rates

Cap Rates by Quality

Technology Trends

Net Absorption, MM SF %


2. Readers should be aware that forward-looking statements, and statements regarding MSREI’s assessment of the market are by their nature inherently uncertain insofar as actual realized returns or other projected results can change quickly based on, among other things, unexpected market movements, changes in interest rates, legislative or regulatory developments, acts of God, and other developments.

Source: CBRE-EA, Census Bureau, Moody’s Analytics, data as of June 2016 Source: Green Street Advisors, MSREI Strategy, data as of 1Q 2016

E-commerce impacts

E-commerce Sales, YoY %

299

216

172

-54

-243

30

142 137

248 252 245

0

5

10

15

20

25

30

-300

-200

-100

0

100

200

300

400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Industrial Net Absorption E-commerce Sales


Airbnb’s Potential Impact to Hotel Demand

US and Europe Room Nights

Sharing Economy

Source: Morgan Stanley Research, as of November 2015

AirBnB

MM

Hotel Occupancy

%

2,796 2,866 2,926 2,982 3,044 3,115 3,189

3164 95

123

148 168183

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2014 2015 2016 2017 2018 2019 2020

Hotel Demand Airbnb Basecase Hotel Occupancy Airbnb Weaker Airbnb Stronger

1. All forecasts are subject to change at any time and may not come to pass due to changes in market or economic conditions


Bank Lending Standards

For Commercial Real Estate Loans

Construction Loans

Construction and Development Loans Outstanding

Regulatory Trends

Net % Easing Standards

1. The opinions expressed herein are those of the MSREI team as of the date of this presentation and are subject to change at any time due to changes in the market oreconomic conditions

Source: Board of Governors of the Federal Reserve, Bank of England, data as of June 2016

Source: FDIC Quarterly Banking Profile, data through December 31, 2015

197

231245

272

338

450

565

629

591

451

321

240

203 210239

275

0

100

200

300

400

500

600

700

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5(80)

(60)

(40)

(20)

0

20

40

60

2007 2008 2009 2010 2011 2012 2013 2014 2015

U.S. UK

Impact on Lending

USD, Bn

Commercial Real Estate Implications

SECTION 3


Annual Returns and Volatility

Return CAGR and Ten-Year Annual Volatility, to 1Q 2016

Real Estate Returns Remain Attractive

7.5

(6.2)

(0.0) (0.8)

4.8 5.411.5

2.7

7.5

5.00.40.8

-1.2

2.4 3.34.9

7.95.8

23.2

7.1

17.7

3.9

22.2

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

European Private RealEstate

European Public RealEstate

Hedge Funds MSCI Europe Pan-EuropeanAggregate Bond Index

Pan-European High-Yield Bonds

1 yr 5 yr 10 yr Annual Volatility

%

Source: IPD, FTSE/ERPA NAREIT, Hedge Fund Research, Inc. © HFR, Inc., MSCI, Barclays, MSREI, as of June 20161. As of 1Q 2016 based upon total return on a quarterly basis. Private Real Estate is the IPD Pan-European Index, Public Real Estate is the FTSE/ERPA NAREIT Developed

Europe REIT Index, Hedge Funds are the Fund-of-Funds index from Hedge Fund Research, Inc., Stocks are the MSCI Europe, Bonds are the Barclays Pan-European Aggregate Index, High Yield is Barclays Pan-European High Yield Bond Index. MSREI calculations

2. Past performance is not necessarily indicative of future results


Real Estate Transaction Volume (1)

Encouraging Liquidity

Source: Real Capital Analytics, data as of May 2016

USD Bn

548

161

60

151

232

282

342

388

486 459

413

240

125

170

211 196

256

308

349 312

273

167

231

382 410

440

642

549

504 483

0

100

200

300

400

500

600

700

'08 '10 '12 '14 '16Q1TTM

'08 '10 '12 '14 '16Q1TTM

'08 '10 '12 '14 '16Q1TTM

Americas: $352 Bn cross-border

CanadaChina

NorwaySingapore

Qatar

EMEA: $1018 Bn cross-border

United StatesUK

CanadaGermanyFrance

Asia Pacific: $294 Bn cross-border

Hong KongChina

SingaporeUnited States

Canada

Cross-Border Domestic Capital (Non-Development) Development Sites

Leading Cross-Border

Capital Sources:

Asia Pacific

TTM Volume as % of '07:

177%

Americas


84%

EMEA


76%


Real Estate Cycles

Cycle Duration

Market Cycle Normalizing

Years

1. Cycle model: 1) Rent: YOY, vs peak, 3 year forecast; 2) Occupancy: YOY, 1 year forecast; 3) Cap rate and spreads to 10YT: vs peak, YOY change; 4) PPSF and liquidity: vs peak, YOY change. All countries positioned reflect office assets, except for the US, which includes office, retail, apartment and industrial sectors.

Source: PMA, NCREIF, MSREI Strategy, data as 1Q 2016

12

9

12

5

87

8

2

6

7

6

3

0

2

4

6

8

10

12

14

U.S. UK Europe Japan

Longest Average Current

Market Cycle (2)

1Q 2016

Source: Source CBRE-EA, PMA, NCREIF, RCA, Bloomberg, MSREI Strategy, data as of 1Q 2016

Netherlands

Falling

Bottoming

Accelerating

Peaking

U.S.

Decelerating Weakening

Sweden

Singapore

South Korea

UK, U.S.

Spain

Italy

France

CEE

Germany

Japan

AustraliaDenmark

Austria

China

Finland

Office

Industrial

Retail

Ireland

UK

France

Germany

France

Germany

UKSpainItaly

Spain


Sydney

Melbourne

BrisbanePerth

ShanghaiHong Kong

Tokyo

Osaka

Singapore

Seoul

LondonParis

Madrid

Milan

Frankfurt

New York

DC

SF

Houston

Chicago Stockholm

(60)

(40)

(20)

0

20

40

60

(60) (50) (40) (30) (20) (10) 0 10 20 30 40 50 601Q 2016 1Q 2015

Office Markets vs. peak

By Market

Market Cycle: Arbitrage opportunities

Source: PMA, MSREI Strategy, data as of 1Q 20161. Readers should be aware that forward-looking statements, and statements regarding MSREI’s assessment of the market are by their nature

inherently uncertain insofar as actual realized returns or other projected results can change quickly based on, among other things, unexpected market movements, changes in interest rates, legislative or regulator developments, acts of God, and other developments.


Rent, % of peak (2007 – 2008)

Capital Values, % of peak (2007 – 2008)


WHICH SECTOR HAS THE BEST INVESTMENT PROSPECTS IN EUROPE OVER THE NEXT

THREE YEARS?

A. Residential

B. Retail

C. Office

D. Logistics

E. Hotels

Audience Question


Global Real Estate Environment & Opportunities

Note:The opinions are those of the MSREI team as of the date of the presentation and are subject to change at any time due to changes in market or economic conditions

• Value-add / Repositionings

• Select new developments

• Recapitalizations

• Defensive / cash flow

investments

• Core in non-core markets

• Recapitalization / distressed

opportunities

Developed markets

• Value-Add / Repositionings

• Defensive / cash flow

investments

Growth markets

• Development partnerships

UNITED STATES EUROPE ASIA

• Recovery softening, interest

rates set to rise in line with

inflation

• Volatility = tighter financing

conditions

• Fundamentals holding as new

supply remains muted

• Capital flows robust, yields

stabilizing

• Pricing divergence between

prime and non-prime

• Improving and more broad-

based macro recovery, but

structural challenges remain

• ECB QE program expanding,

consumer spending

accelerating

• Yield spreads between core

and non-core markets still

exist

• Geopolitical tensions

heightened

• Japan: Rent recovery

accelerating despite slow

growth economy

• Australia: GDP growth

slowing, property

fundamentals moderating but

yield compression continues

• China: heightened volatility as

economy transitions and

slows. Long term

fundamentals remain

favorable

UNITED STATES EUROPE ASIA

REGIONAL MARKET THEMES

TARGETED INVESTMENT STRATEGIES BY REGION

2016 Global Outlook Charles...CONFIDENTIAL | NOT FOR REPRODUCTION ANNUAL INVESTOR MEETING | MAY 25,...

Documents

Transcript of 2016 Global Outlook Charles...CONFIDENTIAL | NOT FOR REPRODUCTION ANNUAL INVESTOR MEETING | MAY 25,...