INVESTMENT STRATEGY & COMMERCIAL REAL ESTATE OUTLOOK

Transcription

1 INVESTMENT STRATEGY & COMMERCIAL REAL ESTATE OUTLOOK Kevin White, CFA, SVP, Investment Strategy and Research THE VIEWS EXPRESSED IN THIS PRESENTATION ARE THOSE OF THE PRESENTER AS OF THE DATE OF THE PRESENTATION AND ARE SUBJECT TO CHANGE. THE FORWARD- LOOKING STATEMENTS IN THIS PRESENTATION ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES, FORECASTS AND PROJECTIONS, AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THESE FORWARD-LOOKING STATEMENTS, AND YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY SUCH STATEMENTS. FOR FINANCIAL Cole Capital: ADVISOR An American USE ONLY. Realty 2014 Capital Cole Capital Properties Advisors. Company All Rights Reserved. 1

2 THE CRISIS IS FINALLY OVER! Joseph Interpreting Pharaoh's Dream (Arthur Reginald, 1894) FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 2

3 THE VIRTUOUS CIRCLE Saving Hiring Corporate Investment Corporate Profits Consumers Spend Taxes FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 3

4 12% BANKS ARE LENDING AGAIN TOTAL BANK CREDIT (YEAR-OVER-YEAR, 12-MONTH MOVING AVERAGE) 10% 8% 6% 4% 2% 0% -2% -4% Sources: Bank Credit (Federal Reserve); Inflation (BLS); ARCP calculations Data as of July 31, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 4

5 140% HOUSEHOLD DEBT BURDENS ARE LOW 19% HOUSEHOLD DEBT (% OF DISPOSABLE INCOME) 130% 120% 110% 100% 90% 80% 70% Household Debt Financial Obligations Ratio 18% 17% 16% 15% HOUSEHOLD FINANCIAL OBLIGATIONS RATIO (% OF DISPOSABLE INCOME) 60% % Source: Federal Reserve Data as of March 31, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 5

6 700% HOUSEHOLD FINANCES ARE IN DECENT SHAPE 10% 9% HOUSEHOLD NET WORTH (% OF DISPOSABLE INCOME) 650% 600% 550% 500% 450% Net Worth Savings Rate 8% 7% 6% 5% 4% 3% 2% PERSONAL SAVINGS RATE 1% 400% % Sources: Federal Reserve (Household Net Worth); Bureau of Economic Analysis (Personal Savings Rate) Data as of March 31, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 6

7 4% FEDERAL FINANCES ARE IMPROVING Forecast 80% 2% 70% FEDERAL DEFICIT (% OF GDP) 0% -2% -4% -6% -8% -10% Deficit Debt 60% 50% 40% 30% 20% 10% FEDERAL DEBT HELD BY TE PUBLIC (% OF GDP) -12% % Source: Congressional Budget Office Data as of August 27, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 7

8 14% 13% CORPORATE PROFITS HAVE REBOUNDED 12% CORPORATE PROFITS (% OF GDP) 11% 10% 9% 8% 7% 6% Source: Bureau of Economic Analysis (Profits) Data as of June 30, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 8

9 JOB CREATION HAS BEEN HEALTHY Fuels Consumer Spending Demand for commercial real estate FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 9

10 5% 4% THE ECONOMY SHOULD PICK UP IN 2015 Forecast 3% 2% GDP GROWTH 1% 0% -1% -2% -3% -4% Source: Moody's Analytics Data as of July 31, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 10

11 EXPANSIONS SINCE WORLD WAR II Avg Since CURRENT EXPANSIONS SINCE WORLD WAR II Source: Moody's Analytics Data as of June 30, EXPANSION LENGTH (YEARS) FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 11

12 600 YIELD CURVE SIGNALS NO RECESSION IN SIGHT YIELD CURVE (10-YEAR TREASURY YIELD MINUS FEDERAL FUNDS RATE, BPS) Recession Spread Source: Moody's Analytics Data as of June 30, 2014; Pink dots indicate inverted yield curve preceding recession; yellow dots indicate inverted yield curve and recession false alarm FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 12

13 10% FOR COMMERCIAL REAL ESTATE, THE ECONOMY IS ONLY HALF THE STORY 25% GDP GROWTH (YEAR-OVER-YEAR) 8% 6% 4% 2% 0% -2% -4% -6% -8% GDP Commercial Real Estate Total Returns 20% 15% 10% 5% 0% -5% -10% -15% -20% PRIVATE COMMERCIAL REAL ESTATE TOTAL RETURNS (YEAR-OVER- YEAR) -10% Sources: NCREIF Property Index (Commercial Real Estate Total Returns); Bureau of Economic Analysis (GDP) Data as of June 30, 2014; Past performance is no guarantee of future results. -25% FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 13

14 250 COMMERCIAL CONSTRUCTION IS NEAR ITS LOWEST LEVEL IN DECADES 3.0% REAL COMMERCIAL REAL ESTATE CONSTRUCTION (2009 $B SAAR) Commercial Construction Share of GDP 2.5% 2.0% 1.5% 1.0% 0.5% COMMERCIAL CONSTRUCTION (SHARE OF GDP) % Source: Bureau of Economic Analysis Data as of June 30, Includes commercial and health-care buildings. FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 14

15 RENT GROWTH IS RETURNING 8% RENT GROWTH IS RETURNING 6% RENT GROWTH (YEAR-OVER-YEAR) 4% 2% 0% -2% -4% Average of Retail, Office, Industrial -6% Source: REIS; Cole Capital Data as of June 30, FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 15

16 COMMERCIAL REAL ESTATE OFFERS YIELD, RELATIVE STABILITY, AND THE POTENTIAL TO HEDGE INFLATION 2013 Average Income Yield Historical Volatility ( ) Correlation With Inflation ( ) CRE 5.8% 8.3% 0.58 Bonds 3.2% 4.9% 0.16 Stocks 2.0% 19.3% 0.01 Sources: S&P 500 (Stocks); Barclays U.S. Aggregate (Bonds); NCREIF Property Index (Commercial Real Estate); average income yield = 2013 monthly average (stocks/bonds) and 2013 quarterly weighted average (commercial real estate) Data as of December 31, Past performance is no guarantee of future results. FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 16

17 25% 20% HIGHER INTEREST RATES CORRELATED WITH HIGHER RETURNS NCREIF TOTAL RETURNS (YEAR-OVER-YEAR) 15% 10% 5% 0% -5% -10% -15% -20% Correlation to 10-Year-Treasury = 0.21 NCREIF Total Returns Period of Rising Interest Rates -25% Sources: NCREIF (NCREIF Total Returns); Federal Reserve (10-Year Treasury) Data as of June 30, 2014; Past performance is no guarantee of future results. FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 17

18 6% E-COMMERCE IS, AS OF YET, ONLY A MINOR HEADWIND 5% E-Commerce Share 4% E-COMMERCE SHARE 3% 2% 1% 0% Source: U.S. Census Bureau Data as of June 30, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 18

19 E-COMMERCE IS TAKING A BIGGER PIECE OF A GROWING PIE 2001 $8 $75 Brick-and-Mortar E-Commerce 2014 $826 $1,240 Source: U.S. Census Bureau Note: Billions. Data as of June 30, 2014 FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 19

20 JOB CREATION IS OFFICE-INTENSIVE 110 JOB CREATION IS OFFICE INTENSIVE 108 Office Jobs Non Office Jobs 106 JOB INDEX (2003=100) Source: U.S. Bureau of Labor Statistics Data as of June 30, FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 20

21 INVENTORIES ARE IN CHECK 1.6 INVENTORIES ARE IN CHECK INVENTORY-TO-SALES RATIO Source: U.S. Bureau of Labor Statistics Data as of June 30, 2014; black lines used to show trend FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 21

22 130 REAL CRE PRICES ARE SLIGHTLY ABOVE THEIR LONG-RUN AVERAGE REAL PRICE INDEX (ADJUSTED FOR CONSTRUCTION COSTS) Real Price Index Average Sources: NCREIF (Price); Engineering News-Record (Construction Costs) Data as of June 30, FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 22

23 PRICE INDICES (2000=100) Apartment Retail Industrial Office COMMERCIAL PROPERTY PRICE INDICES Source: Real Capital Analytics Data as of June 30, 2014; (indexed to 100 as of December 2000) FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 23

24 MAJOR VERSUS NON-MAJOR MARKET PRICES 190 PRICE INDICES (2000=100) Major Markets (All-Property) Non-Major Markets (All-Property) Sources: Real Capital Analytics Data as of June 30, 2014; (indexed to 100 as of December 2000) FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 24

25 SECONDARY MARKETS OFFER COMPELLING YIELDS 10.0% 9.5% SECONDARY MARKETS OFFER COMPELLING YIELDS 9.0% CAP RATES 8.5% 8.0% Major Markets Non-Major Markets 7.5% 7.0% 6.5% 6.0% Source: Real Capital Analytics Data as of June 30, Cap rates are equal-weighted across the office, industrial and retail sectors. FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 25

26 States With Strong Demographics SECONDARY TECH, ENERGY, AND POPULATION-DRIVEN MARKETS Sources: Census Bureau; Cole Capital Data as of June 30, Areas in green are preferred, in red are disfavored, and in yellow are viewed with caution. FOR FINANCIAL ADVISOR USE ONLY Cole Capital Advisors. All Rights Reserved. 26

27 THANK YOU Cole Capital: An American Realty Capital Properties Company