GLOBAL REAL ESTATE SECURITIES MARKET COMMENTARY Q3 2016 EXECUTIVE SUMMARY GLOBAL REAL ESTATE STOCKS ARE UP 10% THROUGH SEPTEMBER Real estate shares moved higher during Q3 to finish up over 10% yearto-date through September. Property companies have outperformed broad equities and bonds year-to-date with performance underpinned by attractive dividend yields and stable earnings growth. REAL ESTATE EARNINGS AND VALUES CONTINUE TO GROW We expect third quarter earnings to come in largely as expected as a “bottom-up” view of the world through the lens of property company earnings indicates that the real estate business is relatively healthy. Real estate fundamentals are strong as a result of stable to improving occupancies, higher rents, and active transaction markets. GLOBAL PROPERTY STOCKS OFFER PROSPECTS FOR POSITIVE TOTAL RETURN OVER THE NEXT 12 MONTHS We have a positive outlook for global real estate. We expect global property companies to continue to attract investors seeking dividend yield supported by stable earnings growth in a low growth world. With dividend yield in ~4% range globally, and earnings growth in the 6% range this year and next, listed real estate companies are well positioned in a low interest rate, moderate growth economic environment. Subdued development starts, a low inflation environment, and a wide spread between initial yields on real estate and high quality bonds should support investor demand for real estate. U.S. REITS BECAME THE 11TH GICS (GLOBAL INDUSTRY CLASSIFICATION STANDARD) SECTOR ON SEPTEMBER 1ST Equity REITs reached an important milestone on September 1st when they moved from the Financials Sector of the GICS classification standard into a new 11th sector called Real Estate. GICS is the leading global listed equity classification system, maintained by S&P Dow Jones Indices and MSCI, Inc. and, as such, is a significant acknowledgement by leading index providers that real estate investment trusts deserve a distinct representation among the now eleven major equity groups. By becoming a standalone sector, U.S. REITs will demand a more visible asset allocation decision by institutional investors who will have to be more specifically dedicate resources to cover the sector. We believe that this will be positive for REIT demand over time.
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Exhibit 1: Global Real Estate Securities Performance as of September 30, 2016 Q3 2016
1.3%
1 Year
14.9%
3 Year
7.7%
5 Year
12.3%
7 Year
10.0%
10 Year
3.4%
Source: FTSE EPRA/NAREIT Developed Index in USD - Net of Withholding Tax as of 09/30/2016. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.