Second Quarter 2016 NCREIF Indices Review. August 4, 2016 NCREIF-SMU Summer Academy

Transcription

1 Second Quarter 2016 NCREIF Indices Review August 4, 2016 NCREIF-SMU Summer Academy

2 Panelist Overview Jeff Fisher NCREIF Data & Research Consultant Sara Rutledge NCREIF Director of Research Mike Sobolik Managing Director Research, North America Invesco Real Estate Bill Brueggeman Real Estate Department Chair Southern Methodist University

3 Disclaimer Today we will be presenting what we see in the NCREIF data, trends and changes; all comments about future expectations are the personal views of the speakers and not a reflection of a NCREIF opinion or forecast.

4 Mid-Year 2016 Overview NPI continues to moderate Total return increasingly driven by income on lower appreciation Sold property volume achieves a new trailing year high Cap rates beginning to flatten near historical low Fundamentals remain healthy Occupancy inched up again to highest level in 15 years NOI growth slowing, yet healthy 4

5 NCREIF Overview First Quarter 2016 Index Composition NPI NPI - Leveraged Properties Only NFI-ODCE Farmland Timberland Contributors Properties 7,353 3,673 2, Market Value $505.3 B $317.9 B $211.8 B $7.5 M $24.2 M Inception Date 1978 Q Q Q Q Q1 Sold Properties Leverage Unlevered 42% 22% Unlevered Unlevered Quarterly Return 2.03% 2.84% 2.13% 1.25% 0.98% 1 Year Return 10.64% 15.30% 11.82% 9.68% 3.39% 5

6 Total Return Trends by Asset Class Comparison as of June 30, % 2Q Year 10-Year 23.6% 20% 15.3% 15% 14.0% 10% 10.6% 9.8% 9.7% 11.8% 7.4% 6.4% 6.2% 7.4% 7.5% 7.4% 5% 2.0% 2.8% 1.3% 1.0% 3.4% 2.1% 2.5% 4.0% 0% NPI Leveraged NPI NCREIF Farmland NCREIF Timberland NFI-ODCE - gross of fees NAREIT Equity REIT Index S&P 500 Index 6

7 Market Value Index NPI Total Return NPI Total Return Continued Downward Trend 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 with Prices Well Above Long-Term Trend and Prior Peak Note: The Market Value Index (MVI) is an equal-weighted index and excludes expansion capital expenditures. 7

8 Quarterly NPI Return History 8-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Total Return 20Y Average -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Capital Return Income Return Income Return Capital Return

9 Quarterly Income Return as % of Total Return Income Return as % of Total: Quarters Before Capital Return Correction and Current Quarter 0 = Ending Quarter with Negative Capital Return or Current Quarter 250% 1Q Q Q Q 2016 Great Financial Crisis 200% 150% 100% Tech Bust Early 90 s Recession 50% Current 0% Quarters 9

10 GDP Growth NPI Total Return Annual Real GDP Growth and NPI Total Returns Annual GDP Growth Annual NPI Total Return 6% 5% 4% 3% 2% 1% 0% 25% 20% 15% 10% 5% 0% -5% -1% -2% -3% -4% -10% -15% -20% -25% 10

11 Office Employment Growth NPI Total Return Annual Office Employment Growth and NPI Total Returns Annual Office Job Growth Annual NPI Total Return 8% 6% 4% 2% 0% -2% -4% -6% -8% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 11

12 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2016 ODCE Net Fund Flows ($Bil) NFI-ODCE Fund Flows: Contributions and Distributions Jump, Net Flows Still over $6 Billion 4Q Rolling Total as of June 30, 2016 $20.0 Contributions Distributions/Redemptions $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 12

13 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2016 ODCE Net Fund Flows ($Bil) NPI Return NFI-ODCE Net Fund Flows vs. Total Annual NPI Return Data as of June 30, 2016 $10.0 4Q Rolling Net Fund Flows Total Annual NPI Return 25.0% $ % $ % 10.0% $ % $ % $ % -$ % -15.0% -$ % -$ % 13

14 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Annual Total Return Global Real Estate Fund Index (GREFI) by Region Data as of March 31, % US Asia Pacific Europe 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 14

15 LTV % of NPI Properties with Leverage NPI Leveraged Property Analysis Leveraged NPI Properties and Loan-to-Value 70% Loan-to-Value (4QMA) Share with Leverage 70% 60% 60% 50% 50% 40% 40% 30% 20% 30% 20% 10% 0% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Total Quarterly Returns Unlevered NPI NPI Properties with Leverage 2Q Q Q Q Q

16 Annual Total Returns Interest Rate NPI Leveraged Property Analysis Leveraged and Unleveraged Annual Total Returns 40% 12% 30% 20% 10% 10% 8% 0% -10% 6% -20% 4% -30% -40% Leveraged Unleveraged Implied Interest Rate -50% 2% 0% 16

17 Question What will be the best performing asset class in 2016? A. NCREIF Leveraged Returns B. S&P 500 Stocks C. Corporate Bonds D. REITs (NAREIT Index) 17

18 1990Q4 1991Q4 1992Q4 1993Q4 1994Q4 1995Q4 1996Q4 1997Q4 1998Q4 1999Q4 2000Q4 2001Q4 2002Q4 2003Q4 2004Q4 2005Q4 2006Q4 2007Q4 2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4 Capital Return Percent Sold 1990Q4 1991Q4 1992Q4 1993Q4 1994Q4 1995Q4 1996Q4 1997Q4 1998Q4 1999Q4 2000Q4 2001Q4 2002Q4 2003Q4 2004Q4 2005Q4 2006Q4 2007Q4 2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4 Sold Properties Sales Volume ($Bil) NPI Sale Transactions 1, Q Rolling Sold Properties 4Q Rolling Sales Volume Annual NPI Sales Transactions and Volume $40 $35 $30 $25 $20 $15 $10 $5 $0 Annual Capital Return and Share of NPI Properties Sold 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Capital Return Percent Sold 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 18

19 QMA Value Weighted Cap Rate NPI Capitalization Rates: Long-Term Trend Spread to 10-year U.S. Treasuries 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% Spread 20Y Avg 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% Implied Appraisal Cap Rates Cap Rate 20Y Avg Note: Implied Cap Rate Equals Current Quarter NOI Divided by Current Quarter Market Value Multiplied by 4. 19

20 Question What will cap rates be for the nation by the end of 2016? A. Below 4% B. 4% to 5% C. 5% to 6% D. Above 6% 20

21 QMA Cap Rate NPI Capitalization Rates: Trend by Property Type 10% Apartment Industrial Office Retail 9% 8% 7% 6% 5% 4% 21

22 2Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q NCREIF Indicators: Market Value Index (MVI) Level Annual Change MVI 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% MVI by Property Type Apartment Hotel Industrial Office Retail Note: The Market Value Index (MVI) is an equal-weighted index and excludes expansion capital expenditures. 22

23 Question When will the Market Value Index (MVI) peak? A B C D or later 23

24 NPI Total Returns: Current Quarter Detail Property Size Total Returns 2.5% 2.0% 1.5% Fund Type Total Returns 2.5% 2.0% 1.5% 1.0% 1.97% 2.13% 1.0% 2.00% 1.83% 2.14% 2.16% 0.5% 0.5% 0.0% > $100 million <= $100 million Appraisal Type Total Returns 2.5% 0.0% ODCE Open End Separate Account Ownership Returns 2.5% Closed 2.0% 1.5% 2.0% 1.5% 1.0% 2.05% 2.02% 1.94% 1.0% 2.10% 1.99% 0.5% 0.5% 0.0% External Internal Not Appraised 0.0% Joint Venture Wholly Owned 24

25 Los Angeles San Francisco Boston Dallas Denver Seattle Chicago NPI New York City Washington DC Houston NPI Total Returns: Top 10 Markets by Market Value Top 10 Markets versus All Others 2.5% 2.0% 1.5% 2.28% 1.0% 1.85% 0.5% 0.0% Top 10 Markets Other Markets 2.5% Top 10 Markets MV ($Bil) New York City $ Washington DC $ Los Angeles $ Chicago $ San Francisco $ Seattle $ Houston $ Boston $ Dallas $ Denver $ Quarterly Total Return: Top 10 and NPI 2.0% 1.5% 1.0% 0.5% 0.0% 25

26 Current Quarter Basis Point Total Return Impact by Metro Apartment Industrial Office Houston New York Washington DC Houston Washington DC Inland Empire Portland 1.74 New York Seattle Boston Retail Los Angeles Seattle Oakland Inland Empire San Jose Los Angeles San Diego San Francisco 0.82 Dallas Miami 26

27 NPI Total Returns by Property Type: 2Q % Income Capital Total 3.0% 2.9% 2.5% 2.3% 2.2% 2.0% 1.5% 1.0% 0.5% 1.2% 0.7% 1.9% 1.5% 1.3% 1.6% 1.2% 1.2% 0.6% 1.7% 1.0% 0.0% -0.5% -1.0% -0.8% Apartment Hotel Industrial Office Retail 27

28 NPI Total Returns: Current Quarter Property Type Detail Apartment by Subtype Industrial by Size/Type 3.0% 3.5% 2.5% 2.0% 1.5% 2.46% 1.0% 1.58% 1.71% 0.5% 0.0% High-rise Low-Rise Garden Office by Location/Value 2.0% 1.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Retail by Type 2.5% 2.0% 3.03% 2.86% 2.96% Local Wh. (<= 250K SF) Regional Wh. (250K-500K SF) National/Bulk Wh. (500K+ SF) 2.37% Other Industrial 1.0% 0.5% 1.86% 1.66% 1.41% 1.5% 1.0% 0.5% 2.24% 2.27% 1.90% 0.0% CBD Suburban > $100M Suburban <= $100M 0.0% Super Reg./Reg. Neighborhood/Comm. Other Retail 28

29 NPI Total Returns by Property Type: Annual Returns Over Last Five Years 16.0% 2Q Q Q Q Q % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Apartment Hotel Industrial Office Retail 29

30 Question What will be the best performing property sector in 2016? A. Apartment B. Hotel C. Industrial D. Office E. Retail 30

31 NPI Net Operating Income Growth Rolling Four Quarters 6.0% 5.0% 4.0% 3.0% 5.7% 5.5% 5.6% 2.0% 4.3% 4.1% 1.0% 0.0% 2Q Q Q Q Q

32 Q Rolling NOI Growth NPI Net Operating Income Growth Trends by Property Type 15% Apartment Industrial Office Retail 10% 5% 0% -5% -10% 32

33 NPI Rental Income Growth Rolling Four Quarters 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 3.0% 4.8% 3.9% 4.0% 4.1% 0.0% 2Q Q Q Q Q

34 Q Rolling Rent Growth NPI Rental Income Growth Trends by Property Type Apartment Industrial Office Retail 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 34

35 Question Which property type will have the highest NOI growth in 2016? A. Apartment B. Industrial C. Office D. Retail 35

36 NPI Occupancy Rate Trends 100% Occupancy Last Five Years 95% 90% 85% 89.6% 90.3% 91.2% 92.4% 93.2% Occupancy Last Five Quarters 95% 94% 93% 92% 91% 90% 89% 88% 87% 86% 85% 92.4% 92.9% 92.9% 93.0% 93.2% 2Q Q Q Q Q % 2Q Q Q Q Q

37 Occupancy Rate NPI Occupancy Rate Trends by Property Type 98% Apartment Industrial Office Retail 96% 94% 92% 90% 88% 86% 84% 82% 37

38 NCREIF Indictors: Cap Ex Ratio (CXR) and Free Cash Flow Yield (FCFY) Cap Ex Ratio, Rolling Four Quarters 2.5% 2.0% CXR (4Q roll) 20Y Avg 1.5% 1.0% 0.5% 0.0% Free Cash Flow Yield, Rolling Four Quarters 9% FCFY (4Q Roll) 8% 7% 6% 5% 4% 3% 2% 20Y Avg 38

39 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q QMA CapEx as % of NOI NCREIF Indicators: Total Capital Expenditures as Share of NOI by Property Type Apartment Industrial Office Retail 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 39

40 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2016 NCREIF Indicators: Capital Expenditure Detail as Share of NOI by Property Type Apartment 40% 35% Leasing Com. TI's Bldg Imp. 30% 25% 20% 15% 10% 5% 0% Industrial 20% Leasing Com. TI's Bldg Imp. 15% 10% 5% 0% Office Retail 25% 20% Leasing Com. TI's Bldg Imp. 20% 15% Leasing Com. TI's Bldg Imp. 15% 10% 10% 5% 5% 0% 0% 40

41 Question What will the annual NPI total return be for 2016? A. Below 7% B. 7%-to-9% C. 9%-to-11% D. Above 11% 41

42 Summary Modest appreciation impacting CRE relative performance to other asset classes, although still competitive in the long-term Elevated occupancy bodes well for property income Historically low cap rates leveling-out, yet significant shift unlikely amid low interest rate environment and relative attractiveness of US real estate Taken together, trends suggest moderate performance ahead 42

43 Upcoming NCREIF Events INREV NCREIF Training Program Chicago, IL University Club September 22 NCREIF Fall Conference 2016 New Orleans, LA The Roosevelt-Waldorf Astoria November 2-4 NCREIF Winter Conference 2017 Scottsdale, AZ The Scottsdale Resort March Visit for more information 43