cityvarasto oyj & ub real assets · 3.why is the reit way the right way? …also for self...

08/10/2019

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FEDESSA London 2019Aki Kostiander CIO, UB Real Assets

Member of the Board at Cityvarasto Oyj (Finland)

October 2019

Table of Contents

1. UB Real Assets & Cityvarasto Oyj

2. What is a REIT?

3. Why is the REIT Way the Right Way? …also for Self Storage!

4. Metrics of the Listed Self Storage Market

5. Valuations & Outlook

6. Economic Outlook

This slide is a part of a PowerPoint presentation prepared by UB Asset Management Ltd. The presentation contains 43 slides and no slide should be disassociated from the presentation as whole. Past performance is no guarantee of future returns. Pls. read the disclaimer on the last page. 2

Cityvarasto Oyj & UB Real Assets

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UB Real Assets

• Dedicated Nordic Real Assets manager• Listed REIT & Infrastructure• Direct Property• Direct Forestry

• Over 15 years experience• First fund launched in 2004• Respectable track record• AUM ca. 1€ billion

• Experienced investment team• 11 portfolio managers & analysts


Leading Real Assets Manager in the Nordics

Helsinki

Stockholm

Oslo


NEXT GENERATION SELF STORAGE


Cityvarasto Groupself storage facilities

rented vans

pick up points

employees

shareholders

satisfied customers

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M€ turnover 2019

M€ ebitda 2019

business acquisitions

ha floor area

M€ real estatemarket value

up to ebitda

Cityvarasto Group


Full Automation

Rent online

Open by phone

First webshop in the world for self storage

What is a REIT?

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Listed property companies


Roughly four categories of listed property companies

REITs

Companies with a REIT statusProperty Investors

DevelopersConstruction companies

Companies which operations resembles REIT company, but does not have a REIT status

Operations and profits are more originated from disposal of assets rather than rents (REIT style operations)

Core operations are focused in the early phases of the property life cycle

Focus on owning and managing properties Speculative Cyclical

Offices

Shopping malls

Warehouses

Hotels

Industrial properties

Housing

Data centers

Health care facilities

Self storages

What is a REIT company?


Tax exempt, rent income generating company

2 Fully (or partly) exempt from corporate tax

4 Shareholder pays the tax from the received dividend

3 Significant part of the annual income must be distributed as dividend

1 Owns and operates rent income generating properties

Legal form (Finland)

The REIT can only invest in residential property.

Capital requirements (Germany)

The equity must not fall below 45% of the immovable property value. Can not invest in residential property.

Listing requirements (France)

Must be listed on a French regulated stock market

Restrictions on investors (Italy)

No shareholder shall hold, directly or indirectly, more than 60% of the voting rights

Asset tests (UK) At least 75% of the total value of assets must relate to the property rental business

Income tests (UK) At least 75% of the profits must relate to the property rental business

Activity tests(Hong Kong)

The REIT is prohibited from investing in vacant land or engaging in or participating in property development activities

Distribution requirements(United States)

The REIT must distribute at least 90% of its ordinary taxable income each year

Excerpts from REIT regulation in different countries:

Source: Worldwide Real Estate Investment Trust (REIT) Regimes (PWC, 2017)

REITs ‐ A Global Asset Class


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Selected REIT companies


Public StorageNew York Stock Exchange

Market cap: $45 blnNumber of properties: 2500Property type focus: Self StorageGeographical focus: US

HCP Inc.New York Stock Exchange

Market cap: $13,2 blnNumber of properties: 800+Property type focus: Health careGeographical focus: North America

Prologis Inc.New York Stock Exchange

Market cap: $40,8 blnNumber of properties: 3000+Property type focus: LogisticsGeographical focus: Global

SL GreenNew York Stock Exchange

Market cap: $7,9 blnNumber of properties: 100+Property type focus: OfficeGeographical focus: New York

Why is the REIT Way the Right Way? …also for Self Storage!

“REITs have had remarkably consistent returns”


“…here’s something your money guy may not have told you: No, stocks may not produce the best long‐term returns. That distinction may go instead to real‐estate investment trusts, or REITS.”

In “Historical Returns of the Market Portfolio,” issued last year, researchers Laurens Swinkels of Erasmus University, Rotterdam, Trevin Lam of Rabobank, and Ronald Doeswijk, looked at the performance of worldwide financial assets for the modern era, from 1960 to 2015.

“Real‐estate investments overall have beaten stocks by more than a full percentage point per year, on average, since 1960, according to recent analysis conducted by researchers in the Netherlands.”

Source: MarketWatch, Nov 3, 2018

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The outstanding long term performance of REITs


Equity REITs 11.8 % p.a.

Performance of Self Storage REITs even better!


Self Storage13.4 % p.a.

Equity REITs 10.6 % p.a.

Why is the REIT Way the Right Way for Self Storage?


• Because of their size, Self‐Storage REITs have developed sophisticated operating platforms that, we believe, are propelling operating results above the industry. Our guess (we emphasize guess) is that these systems add 100 to 200 bps to revenue growth per year.

• This incremental growth is extremely hard to generate, and more private owners are turning to REITs to manage properties.

• The systems can't create demand, but they canincrease market share and determinewhich customers are likely to bemore valuable over time(longer length of stay).

Source: Stifel, August 2019

R E I TR E I T

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Metrics of the Listed Self Storage Market

Listed Self Storage REITs and companies


Company Country MarketCap (Bln)

YearListed

Public Storage (REIT) USA $45.1 1985

Extra Space Storage (REIT) USA $15.6 2004

Cube Smart (REIT) USA $6.9 2004

Life Storage (REIT) USA $4.9 1995

National Storage (REIT) USA $3.1 2015

Shurgard Self Storage (Corp) BEL $2.9 2018

Big Yellow (REIT) UK $2.2 2000

Safestore (REIT) UK $1.7 2007

National Self Storage REIT AUS $1.0 2013

Storage Vault Canada (Corp) CAN $0.9 2008

Lok’nStore Group (Corp) UK $0.2 2000

Self Storage Group (Corp) NOR $ 0.2 2017

Source UB Real Assets, Bloomberg

Debt Load (LTV)


25%

31%

26%

6%

23%

32%

16%

0% 5% 10% 15% 20% 25% 30% 35%

Cube Smart (US)

Extra Space Storage (US)

Life Storage (US)

Public Storage (US)

Big Yellow (UK)

Safestore (UK/EU)

Shurgard (EU)

Average 22.5 %

Source UB Real Assets

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Cost of Debt


4.4 %

3.5 %

4.4 %

4.2 %

3.2 %

2.2 %

3.0 %

0.0 % 0.5 % 1.0 % 1.5 % 2.0 % 2.5 % 3.0 % 3.5 % 4.0 % 4.5 % 5.0 %

Cube Smart (US)


Life Storage (US)

Public Storage (US)

Big Yellow (UK)

Safestore (UK/EU)

Shurgard (EU)

Average 3.3 %Source UB Real Assets

Maturity of Debt


6.0

4.6

7.6

6.6

5.2

6.3

6.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

Cube Smart (US)


Life Storage (US)

Public Storage (US)

Big Yellow (UK)

Safestore (UK/EU)

Shurgard (EU)

Average 6.1 %Source UB Real Assets

Profitability (EBITDA Margin)


61.0 %

69.0 %

58.0 %

69.0 %

67.0 %

57.0 %

57.7 %

0.0 % 10.0 % 20.0 % 30.0 % 40.0 % 50.0 % 60.0 % 70.0 % 80.0 %

Cube Smart (US)


Life Storage (US)

Public Storage (US)

Big Yellow (UK)

Safestore (UK/EU)

Shurgard (EU)

Average 62.7 %

Source UB Real Assets

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Valuations & Outlook

Outlook for Self Storage in the US


• Cap rates have declined across the U.S. as a result of growing investor demand and to a lesser degree the recent step down in interest rates.

• Elevated operating expense growth continues to be a burden for every operator as labor cost pressures mount. Further, smaller operators face growing costs to remain competitive against increasingly sophisticated large‐scale operators, specifically the REITs.

Source: Green Street Advisors, August 2019

US SS Property Yield

US SS Implied Cap Rate

Outlook for Self Storage in the US


• Elevated levels of new supply over the past three years continues to overwhelm many of the US markets. 5.4 million square meters (3.4%% of existing stock) is being delivered or is under construction in 2019

• Despite the slowing revenue growth, cap rates remain low (valuations high), largely because institutional investors continue to aggressively buy assets.

• Many owners and investors are eagerly awaiting a possible wave of distressed selling because of the excess supply

• Although there remains little sign of any widespread distress. It can be assumed that if distress were to bring a wave of new stock to market it is unlikely values would fall significantly given the dry powder on the sidelines and the REITs growing appetite for external growth.

• “As in prior cycles, development will continue until rent growth turns negative, NOI doesn’t meet“pro‐forma” and lenders stop lending. We started to see this in 2018. We expect 2019 may be the apex of this development cycle.” PSA, Annual Report 2018

Source: Green Street Advisors, Stifel, PSA

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Outlook for Self Storage in Europe


0.0

50.0

100.0

150.0

200.0

250.0

2016 2017 2018 2019

FTSE EPRA NAREIT Europe Listed Property Index European Listed Self Storage

European Listed Self Storage Indexed:Big YellowSafestoreSelf Storage Group (2017‐)Shurgard (2018‐)

European Listed Property Stocks

+ 53 %

Source UB Real Assets, Bloomberg

Self Storage REITs – UK Yields


UK Self Storage Property Yield

UK SS Implied Cap Rate

ca. +1.3 %

Premium to Net Asset Value (P/NAV)


13%

33%

2%

20%

39%

47%

23%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Cube Smart (US)


Life Storage (US)

Public Storage (US)

Big Yellow (UK)

Safestore (UK/EU)

Shurgard (EU)

EU Average +36 %

US Average +17 %Source UB Real Assets

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The Future? …It’s all about automation


Economic Outlook

”The Canary In The Coal Mine” – S‐Korea Exports


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Business confidence indicators


Bearish

Inflation decelerating


Euro CPIUS CPI

..but US Core Inflation still on target


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US at full employment


Asian currencies are being devalued ..Trade War


Aasian crisis

IT bubble

Financial CrisisChina& QE Trade

War

How is China doing?


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Germany? Economy decelerating fast ..recession?


Italy 2 and 10 year yields


Investors (read: the Central Banks) are todayPAYING interest to e.g. Italy (..for loans up to5 years) in order to lend THEM money ...tofinance their budget DEFICITS!

Modern Monetary Theory (MMT)...


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DISCLAIMERUB Asset Management Ltd does not distribute or sell any funds or shares mentioned on this report. Information on this report is for informational useonly and should be considered neither investment advice nor recommendation to invest nor a solicitation or recommendation to acquire units in theFunds or shares mentioned. The UB funds are administered by UB Fund Management Company Ltd. Regarding information on any specific mutual fundthe reader is advised to contact UB Fund Management Co. Ltd directly. UB Asset Management Ltd and UB Fund Management Co. Ltd belong to the sameUB Group. UB Asset Management Ltd and UB Fund Management Company Ltd are supervised by the Finnish Financial Supervisory Authority. UB PFFinland, UB REIT and Infrastructure mutual funds are UCITS funds except for the UB Real REIT Fund, which is classified as a special fund according tochapter 12 of the Finnish Act on Common Funds. Foreign laws may preclude investors abroad from investing in UB funds. It is on the responsibility ofeach investor, whether based in Finland or abroad, to make sure that the investments in UB funds will be made in accordance with all applicable laws.Historical performance is not a guarantee of future returns and cannot be used to predict future risk or return characteristics of any fund or portfoliomentioned in this report. UB Asset Management Ltd or the UB group (hereinafter referred to as UB) has made every effort to carefully research allinformation in this presentation. The information, on which the conclusions and other information such as e.g. market data, are based on has beenobtained from sources which UB believes to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialized press and stockresearch providers as well as the relevant companies which are potential investments for UB’s investment portfolios. Opinions expressed in this financialanalysis are UB’s current opinions as of the issuing date indicated on this presentation. This material does not claim completeness regarding all theinformation on the financial instruments or markets or developments referred to in it. This material is intended as general information to the recipientand nothing contained in this presentation constitutes investment advice, nor is it to be relied on in an investment decision. On no account should thedocument be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. It isrecommended to discuss possible investment decisions with your customer service officer as differing views and opinions may exist with regard to themutual funds, stocks or other financial instruments referred to in this document. This document is not a solicitation or an offer to buy or sell thementioned instruments or investment alternatives. The document may include certain descriptions, statements, estimates, and conclusions underliningpotential market and company development. These reflect assumptions, which may turn out to be incorrect. UB and/or its employees accept no liabilitywhatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content. UB and/or itsemployees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. UB and/or itsemployees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to performcapital market or underwriting services. This material is intended only for the recipients and is not allowed to be redistributed without writtenpermission from UB. The UB funds mentioned in this presentation are managed by UB Fund Management Company Ltd. Key investor informationdocuments (KIIDs) and fund prospectuses and relevant material can be obtained from UB Fund Management Company Ltd in Finnish and in Swedish. ThePortfolio manager of the Fund is UB Asset Management Ltd. Historical performance is not a guarantee of future returns and can not be used to predictfuture risk or return characteristics of any fund or portfolio mentioned in this presentation. Remarks regarding foreign investors: The preparation of thisdocument is subject to regulation by Finnish law. The distribution of this document in other jurisdictions may be restricted by law, and persons intowhose possession this document comes should inform themselves about, and observe, any such restrictions. This presentation is not allowed to bedistributed in the United States of America. UB Rahastoyhtiö Oy / UB Fund Management Ltd. Aleksanterinkatu 21 A, 00100 Helsinki, Finland.

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