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SUGI CAPITAL MANAGEMENT

Global Real Estate Securities Market

2018 Year in Review and 2019 Outlook

January 8, 2019

The information contained in this presentation is strictly confidential and intended solely for use of the persons to whom it has been delivered. It is not

to be reproduced or distributed to any other person.

This presentation contains information which is based on, or derived from, information provided by independent third-party sources. Sugi Capital

Management, Inc. (“Sugi Capital”) believes that such information is accurate and that the sources from which it has been obtained are reliable.

However, neither Sugi Capital nor any related companies or principals guarantee the accuracy, timeliness or consequential losses arising from its use. All

such information contained herein is for information purposes only and does not constitute an offer to sell or a solicitation to buy any securities and is

subject to change without prior notice. Readers should not assume that their performance will equal or exceed historical results and/or averages.

Past performance is not indicative of future performance. Except as required by applicable law, Sugi Capital is under no obligation to update this

presentation or the information herein, other than its obligation to provide quarterly portfolio performance reports to its investors.

This presentation may contain forward-looking information that involves risks and uncertainties, and readers are cautioned not to put undue reliance on

these forward-looking statements. Forward-looking statements speak only as of the dates noted, except as required by applicable law, we undertake no

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results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ

materially. Set forth for these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities

Litigation Reform Act. The information contained herein does not constitute a recommendation to buy or sell anything and should not be considered by

anyone to be a substitute for their own judgment. This is not and may not be used as a solicitation.

All references in this presentation to “$” or to dollars are references to U.S. dollars unless otherwise noted. For more information, please contact our

investors relations team at: [email protected].

Sugi Capital Management, Inc. 1

DISCLAIMERS

mailto:[email protected]

Sugi Capital Management Inc. 2

GLOBAL MARKET PERFORMANCE

2018 PERFORMANCE – EQUITIES, BONDS, REITS, OIL, AND PRIVATE REAL ESTATE

Source: S&P Global, January 8, 2019

US private real estate returned 5-6%

Most other assets fell in 2018, with REITs outperforming equities but underperforming bonds

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

1/1/2018 2/1/2018 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018 9/1/2018 10/1/2018 11/1/2018 12/1/2018

Global REITs Global Oil Global Equities US REITs US Private Real Estate US Bonds

• Global REITs = S&P Global REIT (US Dollar) Gross Total Return

• Global Oil = S&P Global Oil Index TR

• Global Equities = S&P Global BMI (US Dollar) Gross Total Return

• US REITs = S&P United States REIT (US Dollar) Gross Total Return

• US Private Real Estate = Green Street Commercial Property Return Index (CPRI)

• US Bonds = Dow Jones Equal Weight U.S. Issued Corporate Bond Index


EQUITY MARKET VOLATILITY SPIKED

0

5

10

15

20

25

30

35

40

1/2

/2

01

8

1/1

6/2

01

8

1/3

0/2

01

8

2/1

3/2

01

8

2/2

7/2

01

8

3/1

3/2

01

8

3/2

7/2

01

8

4/1

0/2

01

8

4/2

4/2

01

8

5/8

/2

01

8

5/2

2/2

01

8

6/5

/2

01

8

6/1

9/2

01

8

7/3

/2

01

8

7/1

7/2

01

8

7/3

1/2

01

8

8/1

4/2

01

8

8/2

8/2

01

8

9/1

1/2

01

8

9/2

5/2

01

8

10

/9

/2

01

8

10

/2

3/2

01

8

11

/6

/2

01

8

11

/2

0/2

01

8

12

/4

/2

01

8

12

/1

8/2

01

8

1/1

/2

01

9

Volatility rose precipitously in February 2018; had not been this high since US presidential election in November 2015

Volatility popped again in October and December 2018; remains high

VIX INDEX

• Note: The VIX index is a market estimate of expected volatility that is calculated by using the midpoints of real-time S&P 500® Index (SPX) option bid/ask quotes.

• Source: Cboe Global Markets, Inc.


GDP GROWTH EXPECTED TO SLOW

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Australia Canada China (People's

Republic of)

Euro area Japan OECD - Total United Kingdom United States

2018 2019 2020

GDP GROWTH % FORECASTS FOR 2018, 2019, AND 2020 FOR SELECT OECD COUNTRIES

Source: OECD, as if January 8, 2019


TRADE TENSIONS – IT’S NOT JUST CHINA

TRADE SNAPSHOT, DECEMBER 2018

Source: Moody’s Investors Service


CENTRAL BANKS NO LONGER EXPANDING

BALANCE SHEETS

MAJOR CENTRAL BANKS’ TOTAL ASSETS($TRILLION)


LONG-TERM BOND YIELDS STILL LOW

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1/2

/2

01

8

2/2

/2

01

8

3/2

/2

01

8

4/2

/2

01

8

5/2

/2

01

8

6/2

/2

01

8

7/2

/2

01

8

8/2

/2

01

8

9/2

/2

01

8

10

/2

/2

01

8

11

/2

/2

01

8

12

/2

/2

01

8

1/2

/2

01

9

Germany Japan US

Source: wsj.com, 1/4/19

10-YEAR BOND YIELDS (%)


US YIELD CURVE FLATTENING

Current (January 3, 2019)

10-year yield virtually

unchanged from a year ago

UNITED STATED YIELD CURVE – NOW, ONE MONTH AGO, AND ONE YEAR AGO

Source: S&P Global Market Intelligence, January 8, 2019


MOST LISTED REAL ESTATE MARKETS TRADING

AT DISCOUNT TO NAV

-80.00

-70.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

Swit

zerl

and

Be

lgiu

m

Swed

en

Jap

an

New

Zea

lan

d

Au

stra

lia

Ger

man

y

Luxe

mb

ou

rg

Au

stri

a

Sin

gap

ore

Fin

lan

d

Can

ada

Un

ite

d K

ingd

om

USA

Sou

th A

fric

a

Ire

lan

d

Spai

n

Mal

aysi

a

Fran

ce

No

rway

Me

xico

Net

her

lan

ds

Bra

zil

Ital

y

Ho

ng

Ko

ng

Un

ite

d A

rab

Em

irat

es

Ch

ina

PREMIUM/DISCOUNT TO NAV (%), BY COUNTRY



WIDE VALUATION GAPS ACROSS SECTORS, TOO

PREMIUM/DISCOUNT TO NAV (%), BY SECTOR, US REITS


(40.0)

(35.0)

(30.0)

(25.0)

(20.0)

(15.0)

(10.0)

(5.0)

-

5.0

10.0

Ma

nu

factu

red

ho

me

He

alt

h C

are

Se

lf-S

tora

ge

Ca

sin

o

Oth

er

Re

tail

In

du

str

ial

Mu

ltif

am

ily

Div

ers

ifie

d

All U

S R

EIT

s

Sp

ecia

lty

Ho

tel

Off

ice

Sh

op

pin

g C

en

ter

Re

gio

na

l M

all


DIRECT REAL ESTATE SECTOR RETURNS

DIVERGED IN 2018

GREEN STREET CPPI SECTOR-LEVEL RETURNS, DECEMBER 2018

Source: Green Street Advisors, January 7, 2019


REIT M&A MORE PREVALENT IN 2018

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2016 2017 2018

Diversified Health Care Hotel Industrial Multifamily Office Other Retail Regional Mall Shopping Center Specialty

• Prologis acquired DCT Industrial

• Brookfield Asset Management acquired Forest City Realty Trust

• Blackstone Group acquired Gramercy Property Trust


US REIT M&A BY SECTOR, 2016-2018


ALL PROPERTY STOCKS FELL, BUT ASIA

OUTPERFORMED

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

FTSE EPRA Nareit Global

Index FTSE EPRA Nareit UK FTSE EPRA Nareit Asia

FTSE EPRA Nareit

Eurozone

FTSE EPRA Nareit North

America

December 2018 4Q18 2H18 2018

Source: EPRA,, the European Public Real Estate Association, January 8, 2019

GLOBAL REAL ESTATE STOCK PERFORMANCE BY REGION


TECHNOLOGY IS DISRUPTING REAL ESTATE

Source:


REAL ESTATE IS GETTING GREENER

• GRESB undertakes a global survey each year to assess real estate company

performance vis a vis certain sustainability goals

• The 2018 global average GRESB Score increased to 68, up from 63 in 2017

• This strong improvement reflects the industry’s commitment to further integrate

best practices related to environmental, social and governance (ESG) issues

• The focus on energy efficiency strategies is reflected in the 2.47% average

reduction in energy consumption. This is coupled with an important 4.91%

reduction in greenhouse gas emissions

• The real estate industry diverted more waste from landfill: 56.5% (compared to

52.9% in 2017)

Global equity markets savaged in 2018

▪ Fourth quarter was particularly tough

▪ Equity market volatility spiked in February and then October and December

Private real estate continued to gain, but at a slower pace

Trade tensions brewing, but not just with China

Central banks, the fuel of the extended post-GFC bull market, are slowly turning off the tap

GDP expected to slow in 2019 and then again in 2020

Though many still talk of a “rising interest rate environment,” the yield curve has merely flattened, with

long-term rates only slightly higher than end of year 2017. The need for yield persists

REITs reacted negatively in 2018, performing more in line with equities than bonds or private real estate

▪ Asia outperformed Europe and North America in 2018, but all three regions delivered negative total returns

▪ Globally, property stocks now trade at 20%+- discounts to NAV on average

▪ US REITs are now at an 18% discount, ranging from an 8% premium for manufactured homes to a 37% discount for

regional malls

Technology is disrupting real estate while pressure mounts for the asset class to be greener – there will

be winners and losers

Tremendous opportunities, but new risks will challenge investors in 2019 and beyond


CLOSING THOUGHTS

THANK YOU!

For more information, contact us at:

[email protected]

Sugi Capital Management, Inc.

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