Commercial Real Estate Performance More Income-Driven in Second Quarter

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1 FOR IMMEDIATE RELEASE: CONTACT: Sara Rutledge Commercial Real Estate Performance More Income-Driven in Second Quarter CHICAGO, IL, July 25, 2016 The National Council of Real Estate Investment Fiduciaries (NCREIF) has released second quarter 2016 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 7,353 commercial properties totaling $505.3 billion of market value. The returns are detailed in the attached Snapshot Report. The moderating trend in NPI total returns continued on a steady income return and slowing appreciation. The NPI total return was 2.03% in second quarter 2016, down from 2.21% last quarter and 3.14% in the second quarter The second quarter 2016 total return consisted of a 1.19% income return and 0.84% appreciation. The quarterly income return was marginally higher than the prior quarter, but has been trending down since 2010 with property values rising faster than income. With appreciation slowing, the income return has accounted for a larger share of NPI total returns in The annual NPI total return for the year-ending second quarter 2016 was 10.64% and consisted of a 4.88% income return and 5.56% appreciation. For longer-term context, the annualized average total return for the past five years was 11.52% and 7.40% over the past decade. Total by Asset Class

2 The NPI is an unlevered index and, given the longevity of low interest rates, higher returns could be achieved by investors utilizing leverage. Half of the properties in the NPI utilize leverage. Total leveraged returns for these 3,673 properties were 2.84% in second quarter 2016 and 15.30% for the trailing year, comparing more favorably to other asset classes. Industrial and retail remain the leading performers for the quarter and the trailing year. Both property types had total returns above 2% for the quarter and both were the only property types with double-digit total returns for the trailing year. Apartment and office total returns are trending close together with apartments slightly leading for the quarter and the year. However, with sub-2% quarterly returns and annual total returns of 9.74% for apartment and 9.31% for office, both property types continued to trail the NPI. Although improved versus last quarter, hotels were again the weakest property type with a 1.46% quarterly total return on two consecutive quarters of depreciation. Annual hotel total returns were 9.46%, outpacing the office return, while trialing the overall NPI. NPI Total by Property Type Property fundamentals remain healthy in second quarter 2016 with occupancy edging up further to 93.2% for a new 15-year high and above average trailing year net operating income (NOI) growth of 3.6%. Occupancy was up across property types for the year, although results varied over the quarter with apartment and office occupancy up 40 basis points (bps) each, industrial flat, and retail down 20 bps. Industrial occupancy, at 95.5%, remains the highest of all property types. NOI growth decelerated from a 5.5% annual pace through second quarter 2015 due primarily to slower office NOI growth. Transaction volume for NPI properties totaled $9 billion in second quarter 2016, for a 25% increase in volume over the same quarter a year ago. The implied valuation cap rate edged modestly higher, at 4.60% in the second quarter 2016 versus 4.55% last quarter. Over the past year, retail was the only property type to experience cap rate compression and office, with a 12 bps increase, had the largest annual cap rate change.

3 About the NCREIF Property Index The NPI consists of 7,353 investment-grade income-producing properties with a market value of $505.3 billion. The market value breakdown by property type is 36.9% office, 24.5% apartment, 23.2% retail, 14.2% industrial and 1.1% hotel properties. The NPI includes property data covering over 195 MSAs. In addition, within in each property type, data are further stratified by sub-type. These data enhance the ability of institutional investors to evaluate the risk and return of commercial real estate across the United States. Webinar NCREIF will hold a webinar on Thursday, August 4, at 1 pm Central Time to discuss an overview of the NCREIF Property Index (NPI) and the NCREIF Fund Index Open End Diversified Core Equity (NFI-ODCE), the Farmland and Timberland Indices, as well as a detailed discussion of the results and interesting data from the NCREIF Property Value Trends report. The conference call is being webcast live and can be accessed here. An online replay of the webcast will be available on NCREIF s website at The National Council of Real Estate Investment Fiduciaries (NCREIF) is an association of professionals with significant involvement and interest in pension fund real estate investments who come together to address vital industry issues and to promote research on the asset class. ### This press release contains information which is confidential and proprietary information of NCREIF. Information in this press release may only be reported in whole or in part with specific reference to NCREIF or the NCREIF Property Index as its source. Underlying data and text has been obtained from sources considered to be reliable; however, the information provided herein is provided as is and NCREIF does not guarantee and expressly disclaims the accuracy, adequacy, or completeness of any data or information contained in the press release. NCREIF shall not be responsible for any errors, omission, inaccuracies or other defects in the data and information contained herein, or for any actions taken in reliance thereon. NCREIF will not be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of or inability to use the data or information contained in this press release or for any loss or damage of any nature caused to any person as a result of that use or inability to use such data or information. This release is for informational purposes only and is not intended to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security, or a recommendation of the services supplied by any money management organization. Copyright NCREIF All Rights reserved. NCREIF -200 E. Randolph Street, Suite 5135-Chicago, IL 60601

4 NCREIF Property Index Property Type Subindexes Regional Subindexes NPI Flash 2nd Quarter 2016 Market Value ($ M) Percent of Total Properties 2nd Quarter st Quarter 2016 One Year Total Index 505, ,353 Total % Income Appreciation Apartment 124, ,626 Total % Income Appreciation Hotel 5, Total % Income Appreciation Industrial 71, ,089 Total % Income Appreciation Office 186, ,398 Total % Income Appreciation Retail 117, ,126 Total % Income Appreciation East 168, ,720 Total % Income Appreciation Midwest 45, Total % Income Appreciation South 102, ,997 Total % Income Appreciation West 188, ,701 Total % Income Appreciation Page 1

5 NPI Flash 2nd Quarter 2016 NCREIF Property Index Methodology Calculations are based on quarterly returns of individual properties before deduction of investment management fees. Each property s return is weighted by its market value. Income and Capital Appreciation changes are also calculated. Universe of Properties All properties have been acquired on behalf of tax-exempt institutions and held in a fiduciary environment. All Data Contributing Members of NCREIF must submit all properties held in the U.S. (including properties in taxable accounts and in all lifecycles ), but only qualifying properties enter the NPI. Qualifying properties include: - Wholly owned and joint venture investments. - Existing properties only-no development projects. - Only investment-grade, income-producing, operating properties: apartments, hotels, industrial, office, and retail. The database increases quarterly as participants acquire properties and as new members join NCREIF. Sold properties are removed from the Index in the quarter the sales take place (historical data remains). Each property s market value is determined by real estate appraisal methodology, consistently applied. Rates of Return Total Return: includes appreciation (or depreciation), realized capital gain (or loss) and income. It is computed by adding the Income return and Capital Appreciation return on a quarterly basis. Income Return: measures the portion of total return attributable to each property s net operating income or NOI. It is computed by dividing NOI by the average quarterly investment for the quarter. NOI Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 NOI Capital Appreciation Return: measures the change in market value adjusted for any capital improvements or partial sales for the quarter. (Ending Market Value - Beginning Market Value) + Partial Sales - Capital Improvements Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 NOI The underlying data and text has been obtained from sources considered to be reliable; the information is believed to be accurate, but is not guaranteed. This report is for information purposes only and is not to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security or a recommendation of the services supplied by any money management organization. Past performance is no guarantee of future results. Page 2