Description
Real Estate, Lodging and Leisure
Market Monitor
Winter 2016
MOSS ADAMS CAPITAL LLC
. Contents
Industry Hot Topics
3
Economic Overview
5
Single Family Housing
7
Commercial Real Estate
8
Real Estate M&A Transactions
11
Real Estate Capital Markets
14
Moss Adams Overview
16
Moss Adams Capital Overview
17
Contact Information
19
Real Estate, Lodging & Leisure
2
MOSS ADAMS CAPITAL LLC
. Industry Hot Topics
Economy
•
Despite recent stock market volatility, the United States macro economy is performing well on both an absolute basis and relative
to the fragile global economy; the Fed raised interests rates by 0.25% reflecting its confidence in the U.S. economy.
– Job growth remains robust; the unemployment rate fell to 5.0% as of December, the lowest level since 2007.
– GDP expanded at an annualized rate of 2.4% in 3Q-2015; full year GDP to be on par with the 20-year average.
– Inflation is expected to remain low; the latest CPI reading was 0.5% for the 12 months ended November 2015.
– Consumer spending is playing a notable role in the economic resurgence; healthy job gains and lower gasoline prices leading
to a measured increase in discretionary consumer spending.
Capital Markets
•
•
Global real estate private fund managers raised $107 billion in 2015, the largest financing year since the Great Recession.
Cumulative real estate private equity commitments are approximately $250 billion with $130 billion targeting the U.S.
– Foreign Investment in Real Property Tax (FIRPTA) reform may further attract inbound foreign pension capital to the U.S.
– Opportunistic and value-add strategies in favor, as fund managers search for yield.
– Platform investments and M&A gaining favor with investors looking to deploy in a “priced to perfection” asset environment.
– Build-to-suit and sale-leaseback strategies readily available for corporate owners/occupiers seeking to monetize assets.
Real estate debt markets are increasingly competitive on rates, risk-tolerance and proceeds.
– $100 billion of CMBS issued in 2015 with $125 billion projected for 2016; AAA spreads over swaps increased to +/- 140 bps.
– Construction debt is plentiful; structured finance solutions are readily available for transitional/special situations.
Single Family Housing Sector
•
•
•
•
New housing starts remain well below the 1.0 million long-term average (768,000 as of November), leading to supply shortages.
Mortgage rates remain historically low (4.0% for a 30-year fixed as of December).
Median single family housing values are up 6.3% YOY as of November 2015.
Homebuilders begin to target entry-level buyers (i.e. Millennials), which remains an underserved market segment.
Apartment/Multifamily Sector
•
•
•
Apartment vacancies remain close to 10-year lows, but have crept up to 4.4% in 4Q-2015 as new supply becomes available.
Strong job growth, new household formations and limited household savings bode well for sustained positive performance.
Trend towards urban infill continues, but suburban development formats gain traction to attract price sensitive renters.
Real Estate, Lodging & Leisure
3
MOSS ADAMS CAPITAL LLC
. Industry Hot Topics
Healthcare Sector
•
•
•
•
Healthcare real estate values remain a top performer, prompted by fundamental demand and availability of financing solutions.
Lab space fundamentals continue to remain strong particularly in San Diego, San Francisco, Seattle and Boston.
Senior housing starting to see higher cap rates as new supply begins to weigh on NOI outlook.
Hospitals continue to offer attractive returns, but understanding the long-term strategy is paramount due to the secular trend
towards consolidation, outpatient services and “retail” clinic facility formats.
Industrial Sector
•
•
•
Strong tenant demand pushing up rents and occupancies; new supply absorbing well but new development is ticking up.
The appetite for top tier industrial properties continues to remain strong; demand for lower quality properties starting to soften.
Pay attention to slowing global industrial production which could impact mid-term demand for U.S. warehouse space.
Lodging and Leisure Sector
•
•
•
Short-term NOI growth forecasts are expected to outperform other sectors, but decelerating.
Demand is broad based; business, leisure, transient and group demand are all up due to improved corporate profitability,
household wealth/income growth and international air travel.
Strong U.S. dollar beginning to impact international travel to the United States.
Office Sector
•
•
•
Office outlook continues to improve as tenant demand follows job growth; rents, occupancies and absorption are accelerating
against the backdrop of currently modest levels of new supply in most markets.
New development pipelines expanding; concerns about supply-demand imbalances in the Bay Area, Houston and Washington, D.C.
Select redevelopment of suburban office parks underway to mirror mixed-use amenities of urban centers.
Retail Sector
•
•
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Tenants seek high-quality space; occupancies and rents pushing to new highs for the best product.
eCommerce will continue to create headwinds for brick and mortar retail, particularly strip/mall growth.
Shopping mall assets with an ecosystem of tenants adopting an omni-channel format are the most attractive.
Real Estate, Lodging & Leisure
4
MOSS ADAMS CAPITAL LLC
. Economic Overview
GDP and Inflation
Solid U.S. economic performance is a bright spot against weakening global expectations.
•
The annualized GDP Growth Rate was 2.4% for 3Q-2015; full year 2015 GDP projections are expected to be 2.4%.
•
CPI will continue to remain at or below the long-term average for the foreseeable future.
Real GDP Growth Rate (%)
Actual GDP
4.1
Forecast GDP
CPI Inflation Rate (%)
20 Year Average (2.5%)
Actual
Forecast
20 Year Average (2.3%)
3.8
3.3
2.8
1.8
2.7
2.6
2.3 2.2 2.4 2.4 2.5
2.5
1.8
4.1
1.6
1.0
3.4
3.3 3.4
-0.3
2.5
2.4
1.6
3.0
2.7
1.9
1.5
1.7
2.0
1.5
2.3
1.2
0.8
0.1
-2.8
Source: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics; Moss Adams Capital
Real Estate, Lodging & Leisure
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MOSS ADAMS CAPITAL LLC
.
Economic Overview Unemployment and Consumer Confidence 292,000 new jobs were created in December 2015; the unemployment rate ticks down to 5.0%. • • • The unemployment rate was 5.0% as of December, the lowest rate since the beginning of the Great Recession. Roughly 2.7 million new jobs were created in 2015. The Consumer Confidence Index has improved from one year ago, despite a mild correction in 4Q-2015 due to stock market volatility . Unemployment Rate (%) Actual Forecast 130 20 Year Average (6.0%) Consumer Confidence Index 128.6 120 9.9 7.3 5.7 6.0 5.7 5.4 4.9 3.9 4.4 5.0 110 110 9.3 96.5 100 8.5 7.9 90 6.7 5.6 80 80.7 5.0 4.8 4.8 70 60 64.6 50 40 30 38.6 Source: U.S. Bureau of Labor Statistics, Federal Reserve Board, The Conference Board; Moss Adams Capital Real Estate, Lodging & Leisure 6 MOSS ADAMS CAPITAL LLC . Single Family Housing Single Family Housing – Key Indicators • Existing home sales reached a seasonally adjusted annual rate of 5.32 million as of October 2015, a slight decrease from 2Q-2015. • Single Family Housing starts were 768,000 as of November 2015 (seasonally adjusted), still below the long-term average of one million units. • The S&P Case-Schiller National Index has experienced 41 consecutive months of positive year-over-year gains and registers 175.7 as of October 2015 (31.5% above the February 2012 trough of 134.0). • The NAHB/Wells Fargo Housing Market Index was 62 in November, 7.0% higher than November 2014, though still well off of levels seen pre-recession. S&P Case-Schiller Index Housing Starts Builder Confidence 2,000 80 180 1,800 70 160 1,600 140 5,000,000 120 4,000,000 100 3,000,000 80 2,000,000 1,000,000 0 60 40 Housing Starts 6,000,000 S&P Case-Schiller Index 200 7,000,000 Existing Home Sales 8,000,000 1,400 1,200 50 1,000 40 800 30 600 400 20 200 0 60 0 20 10 0 NAHB/Wells Fargo Housing Market Index Existing Home Sales Source: S&P Capital IQ; National Association of Realtors; National Association of Home Builders; Moss Adams Capital Real Estate, Lodging & Leisure 7 MOSS ADAMS CAPITAL LLC . Commercial Real Estate Commercial Property Values Major property sector values exceed prior peak levels; rate of appreciation is beginning to slow. Change in Values Major Sector CPPI Index Commercial Property Price Index (United States) Top Tier Assets 180 170 160 7% 150 140 Year Over Year 130 120 110 100 16% 90 80 CPPI (Major Sectors) Apt Healthcare Industrial Lodging Office Retail Since 2007 Peak Source: GreenStreet Advisors; Moss Adams Capital Real Estate, Lodging & Leisure 8 MOSS ADAMS CAPITAL LLC . Commercial Real Estate Public REIT Total Return Performance All but two REIT indices have outperformed the S&P 500 over the long-run; recent volatility noted. Apartment Healthcare Industrial Retail Lodging Office S&P 500 Index 500% 400% Retail 365.1% Healthcare 319.1% 300% Apartment 243.1% 200% Office 136.1% 100% S&P 500 45.0% Industrial 42.9% 0% Lodging 23.1% -100% Source: S&P Capital IQ; Moss Adams Capital Real Estate, Lodging & Leisure 9 MOSS ADAMS CAPITAL LLC . Commercial Real Estate NOI Forecasts by Sector Net Operating Income (NOI) growth is expected to exceed inflation across all commercial property sectors at a healthy clip; however, forward expectations have been curtailed from a year prior. NOI Forecasts 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% '16F '17F Apartment Health Care '18F Industrial Lodging Office '19F Retail Source: CBRE Econometric Advisors, Green Street Advisors, ULI Consensus Forecast, Moss Adams Capital Real Estate, Lodging & Leisure 10 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions Expect further interest from REITs, Sovereign Wealth Funds and Hedge Funds to acquire real estate in scale. • M&A transaction volume for 2015 was the highest it has been since before the Great Recession. • Median implied EBITDA multiples paid for real estate, lodging and leisure enterprises decreased slightly in 2015 to 21.0x compared to 21.5x in 2014 due in part to decelerating NOI growth expectations. Closed Transaction Multiples By Sector (2011 – 2015) Apartment Healthcare Industrial Retail Lodging Office Median Revenue Multiple 11.0x 13.5x 10.3x 12.1x 4.2x 11.6x Median EBITDA Multiple 23.8x 19.4x 22.4x 21.6x 13.7x 19.3x Real Estate M&A Multiples Closed Enterprise Level Transactions Median Implied Multiple 25x 20x 15x 10x 5x 0x '07 '08 '09 '10 '11 Revenue Multiple '12 '13 '14 '15 EBITDA Multiple Source: S&P Capital IQ; Moss Adams Capital Real Estate, Lodging & Leisure 11 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions 2012 to 2016 YTD – Select Enterprise Level Transactions Date Acquirer/Investor Target Target Industry Transaction Size EV Multiple TTM Revenue TTM EBITDA 01/05/2016 Invel Real Estate (Netherlands) II BV NBG Pangaea Real Estate Investment CO SA Retail $629.0 - - 12/17/2015 Northwood Investors LLC CeGeREAL SA. (ENXTPA:CGR) Office $206.9 14.6x - 12/15/2015 DRA Advisors LLC Inland Real Estate Corp. (NYSE:IRC) Retail $2,111.9 10.3x 16.9x 12/08/2015 Blackstone Real Estate Advisors Greystar Equity Partners VII Multi-Family $2,000.0 - - 12/03/2015 American Homes 4 Rent (NYSE:AMH) American Residential Properties, Inc. (NYSE:ARPI) Multi-Family $1,405.5 12.0x 34.2x 11/16/2015 Marriott International, Inc.
(NasdaqGS:MAR) Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) Lodging $14,048.7 4.2x 11.4x 11/08/2015 Weyerhaeuser Co. (NYSE:WY) Plum Creek Timber Co. Inc.
(NYSE:PCL) Industrial/Natural Resources $11,725.5 7.2x 22.4x 10/26/2015 Starwood Capital Group ERP Operating Limited Partnership Multi-Family $5,365.0 - - 10/22/2015 Starwood Capital Group; Milestone Apartments Real Estate Investment Trust (TSX:MST.UN) Landmark Apartment Trust, Inc. Multi-Family $1,783.9 6.7x 14.5x 10/16/2015 Harrison Street Real Estate Capital, LLC Campus Crest Communities, Inc. (NYSE:CCG) Multi-Family $1,507.2 9.4x 31.5x 10/08/2015 Blackstone Real Estate Advisors BioMed Realty Trust Inc. (NYSE:BMR) Healthcare $7,897.0 12.0x 20.0x 09/08/2015 Blackstone Real Estate Advisors Strategic Hotels & Resorts, Inc.
(NYSE:BEE) Lodging $5,896.4 4.5x 18.5x 07/29/2015 Global Logistic Properties Limited (SGX:MC0) Industrial Income Trust Inc. Industrial $4,276.1 13.4x 22.0x 07/21/2015 MPT Operating Partnership, L.P. Capella Healthcare, Inc. Healthcare $1,524.2 1.9x 14.3x 07/01/2015 Chambers Street Properties (NYSE:CSG) Gramercy Property Trust Inc. (NYSE:GPT) Office $2,540.0 14.4x 27.5x 06/22/2015 Lone Star Funds Home Properties Inc. (NYSE:HME) Multi-Family $7,155.3 10.4x 17.4x 06/01/2015 Prologis, Inc.
(NYSE:PLD) KTR Capital Partners, LLC Industrial $5,900.0 - - NorthWest Real Estate Investment Trust (TSX:NWH.UN) Foncière de Paris SIIC Société Anonyme (ENXTPA:FDPA) NorthWest International Healthcare Properties Real Estate Investment Trust Healthcare $614.7 15.2x 19.2x Foncière des 6ème et 7ème Arrondissements de Paris Office $1,092.6 18.7x 26.9x 04/29/2015 Growthpoint Properties Limited Acucap Properties Ltd. Retail $1,559.5 23.3x 22.1x 04/01/2015 Omega Healthcare Investors Inc. (NYSE:OHI) Aviv REIT, Inc. Healthcare $2,752.3 16.1x 19.4x 03/31/2015 Klepierre SA (ENXTPA:LI) Corio NV Retail $9,466.5 13.2x - 02/27/2015 American Realty Capital Hospitality Trust, Inc. Equity Inns Lodging Portfolio Lodging $1,800.0 - - 02/27/2015 GIC Pte. Ltd.
and Global Logistic Properties Limited (SGX:MC0) IndCor Properties, Inc. Industrial $8,100.0 - - 02/18/2015 EDENS, Inc.; Edens Limited Partnership AmREIT, Inc. $765.5 14.6x 28.2x 05/15/2015 05/14/2015 Retail Source: S&P Capital IQ Real Estate, Lodging & Leisure 12 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions 2012 to 2016 YTD – Select Enterprise Level Transactions Date Acquirer/Investor Target Target Industry 01/16/2015 Ventas, Inc. (NYSE:VTR) American Realty Capital Healthcare Trust, Inc. 12/16/2014 Intercontinental Hotels Group plc (LSE:IHG) Kimpton Group Holding, LLC 12/03/2014 NorthStar Realty Finance Corp. (NYSE:NRF) Griffin-American Healthcare REIT II, Inc 11/21/2014 AustFunding Pty Ltd. 11/19/2014 Healthcare Transaction Size EV Multiple TTM Revenue TTM EBITDA $2,446.6 14.1x 29.8x $430.0 - 21.5x Healthcare $3,914.6 12.8x 21.6x Mirvac Industrial Trust Industrial $167.7 5.4x - Health Care REIT, Inc. (NYSE:HCN) HealthLease Properties Real Estate Investment Trust Healthcare $898.7 16.5x - 05/16/2014 American Realty Capital Properties, Inc. (NasdaqGS:ARCP) Cole Credit Property Trust, Inc. Retail $159.1 11.8x 14.4x 05/05/2014 Holloway Lodging Corporation (TSX:HLC) Royal Host Inc. Lodging $142.8 2.3x 13.1x 04/01/2014 Essex Property Trust Inc.
(NYSE:ESS) BRE Properties Inc. Multi-Family $4,366.0 15.1x 23.8x 03/07/2014 Canada Pension Plan Investment Board; Dexus Property Group (ASX:DXS) Commonwealth Property Office Fund Office $3,078.0 10.4x - 02/10/2014 Kite Realty Group Trust (NYSE:KRG) Inland Diversified Real Estate Trust, Inc. Retail $2,314.7 12.3x 20.7x 02/07/2014 American Realty Capital Properties, Inc. (NasdaqGS:ARCP) Cole Real Estate Investments, Inc. Retail $10,944.4 11.8x 22.8x 10/14/2013 Brookfield Office Properties Inc. MPG Office Trust, Inc. Office $2,116.0 9.2x 19.8x 08/09/2013 Icade S.A. (ENXTPA:ICAD) Silic SA Office $3,873.7 12.8x 18.9x 07/08/2013 Primonial REIM Tesfran, S.A. Office $295.0 7.2x 8.1x 05/16/2013 Plaza Retail REIT (TSX:PLZ.UN) KEYreit Retail $313.4 11.7x - 04/04/2013 H&R REIT (TSX:HR.UN); H&R Finance Trust Primaris Retail Real Estate Investment Trust Retail $4,551.7 10.9x 21.0x 02/27/2013 Avalonbay Communities Inc. (NYSE:AVB); ERP Operating Limited Partnership Archstone-Smith Trust Multi-Family $6,476.1 20.2x 32.8x 01/25/2013 LondonMetric Property Plc (LSE:LMP) Metric Property Investments Plc Retail $414.8 19.1x 29.8x 01/22/2013 Spirit Realty Capital, Inc.
(NYSE:SRC) Cole Credit Property Trust II Inc. Retail $7,400.0 - - 11/30/2012 Blackstone Real Estate Advisors BRE Select Hotels Corp. Lodging $1,069.7 4.2x 12.6x 06/29/2012 PD Kanco LP; Starlight Apartments Inc. TransGlobe Apartment Real Estate Investment Trust Multi-Family $621.6 11.0x 19.4x 06/12/2012 Northwest Value Partners Inc. GT Canada Medical Properties Real Estate Investment Trust Healthcare $68.1 10.2x - 04/13/2012 GIC Pte. Ltd.; Public Sector Pension Investment Board; Macquarie Capital Group Limited Charter Hall Office Trust $1,714.8 9.9x - 04/02/2012 Ventas, Inc. (NYSE:VTR) Cogdell Spencer Inc. $789.7 4.4x 17.7x Lodging Office Healthcare Source: S&P Capital IQ Real Estate, Lodging & Leisure 13 MOSS ADAMS CAPITAL LLC .
Real Estate Capital Markets Private Equity • SEC Registered Approximately $100 billion of new closed-end private real estate capital was raised in 2015, a level last seen at the height of the prior upcycle. • M&A attractiveness is expected to continue as REITs, sovereign wealth and hedge funds eye opportunities to acquire scale and generate synergies. – Opportunistic funds raised $54 billion, • Privatization of select REITs continues due to strong Net Asset Values (NAV) relative to weakening share prices. – Value-add funds raised $22 billion. Global real estate “dry powder” was $250 billion as of 2015 year-end. • The United States remains the most desirable market for investors with approximately $130 billion of institutional capital commitments targeting the region. • Debt • The Fed raised interest rates by 0.25% at its December 2015 meeting, signaling an improving economy; immediate impact to real estate expected to be offset by good fundamentals (occupancies and rents). • Lending cap on Fannie and Freddie eased; the GSEs originated over $34 billion of multifamily loans through 3Q-2015. • The S&P U.S. REIT index posted a one-year total return loss of 1.36% as of 4Q-2015, correlated in part to a broad correction in equities markets. • REIT return expectations beginning to look less attractive relative to fixed income investments. • Over $100 billion of CMBS issued in 2015, above the $89.9 billion issued in 2014 and approaching prior peak levels. • Spreads of AAA rated CMBS over swaps widened to approximately 140 bps as of December; higher spreads reflect impact of the recent Fed rate hike. • Tighter underwriting standards, greater transparency and fewer tranches persist for “CMBS 2.0” issuances. • Balance sheet lenders are competitive on rate, proceeds and terms across all asset types and markets. • Estimates range from $100 billion to $125 billion of CMBS to be issued in 2016. • Legislative changes may impose higher liquidity requirements on regulated lenders. • Refinancing of approximately $324 billion of vintage 2006 and 2007 CMBS to continue. Source: Morningstar, Trepp, Commercial Mortgage Alert, WSJ, S&P Capital I.Q., Prequin, Pension Real Estate Association, Real Estate Finance Intelligence, Moss Adams Capital Real Estate, Lodging & Leisure 14 MOSS ADAMS CAPITAL LLC . Real Estate Capital Markets Keys to Attracting Capital for Mid Market Owners/Operators Controlled Opportunities • Identify specific, controlled investment opportunities, both new and on the balance sheet. Execution Capabilities • Demonstrate competence through an experienced team and detailed asset plans. Track Record • Detail case studies over time. Present performance that links to the identified growth plan. Co-investment • Cash aligns interests. A customary range is five to ten percent of the total equity. Real Estate, Lodging & Leisure 15 MOSS ADAMS CAPITAL LLC . Moss Adams Overview Three Affiliated Professional Services Firms Moss Adams Capital LLC Moss Adams LLP  Full service investment bank and strategic advisor:  Fully integrated accounting, tax and business advisory firm: – Institutional Capital: equity and debt, – Mergers and Acquisitions (M&A), – 100+ year old nationally recognized firm, – Strategic Advisory, – 2,200+ people in 27 offices, – Special Situations Advisory: Recapitalization and Restructuring. – 19,000+ middle market clients.  Senior, experienced specialists.  Specialists in corporate, platform and asset based project finance.  Real estate accounting best practices.  FINRA registered broker-dealer; member of SIPC.  Over 1,000 Real Estate Clients.  Global affiliates in 100+ countries via Praxity. Key Attributes Moss Adams Wealth Advisors LLC  Focus on middle-market owners, operators, occupiers and developers of real estate.  SEC registered independent advisory firm.  $2.0+ billion in Assets Under Management.  Dedicated industry expertise.  High net worth and business advisory services include:  Direct and constant senior level attention.  Independent client-centered solutions. – Real Estate, Lodging & Leisure Financial Planning, – 16 Investment Management, –  Longstanding relationships with leading private, public and institutional investors, lenders and strategic partners. Estate and Tax Planning. MOSS ADAMS CAPITAL LLC . Moss Adams Capital Overview Full Service Mid Market Investment Bank Corporate Finance Comprehensive Industry Coverage  Institutional Capital Formation – Equity and Debt Aerospace, Defense & Government Services Food, Beverage & Agriculture Healthcare Services & Products Infrastructure & Construction Paper, Plastics, & Packaging Real Estate, Lodging & Leisure  Strategic planning Business & Marketing Services Industrials / Niche Manufacturing  Strategic and capital alternatives assessments Automotive & Dealer Services Consumer, Retail & Apparel  Sale-leaseback and build-to-suit financing Technology, Communications, & Media Transportation & Logistics  Merger and acquisition advisory  Exclusive sales and divestitures  Management buy-outs  Recapitalizations  Restructuring and special situations advisory Highlights and Accomplishments  Completed more than 250 transactions  Access to key decision-makers among institutional investor universe  Coverage of relevant strategic partners  Average of 20 years of investment banking experience among senior leaders Real Estate, Lodging & Leisure 17 MOSS ADAMS CAPITAL LLC . Moss Adams Capital Overview Local, National and Global Reach Our affiliation with CFxB consists of 150+ Corporate Finance Professionals across the U.S. and in over 25 countries. more than 25 countries MNP Corporate Finance 10 offices MNP LLP 70 offices Mazars Canada 1 office Mazars Europe 140 offices Mazars M&A 20 offices CH Reynolds CF 1 office Mazars Asia 25 offices Moss Adams Capital 3 offices Moss Adams LLP 27 offices Weiser Mazars 6 offices William Buck CAA 6 offices Mazars Middle East 15 offices BKD Corporate Finance 4 offices BKD LLP 33 offices Mazars South America 20 offices Real Estate, Lodging & Leisure Mazars Africa 40 offices 18 MOSS ADAMS CAPITAL LLC . Contact Us Contributing Authors: Robert Miranda Vice President (949) 221-4021 robert.miranda@mossadams.com Bradley Erhart Associate (949) 517-9452 bradley.erhart@mossadams.com Moss Adams Capital LLC 999 3rd Avenue Suite 2800 Seattle, WA 98104 2040 Main Street Suite 900 Irvine, CA 92614 Richard Anderson Managing Director (949) 221-4006 rich.anderson@mossadams.com Tyler Dale Vice President (949) 221-4030 tyler.dale@mossadams.com Andrew Suen Vice President (949) 517-9428 andrew.suen@mossadams.com Wiley Kitchell Managing Director (206) 302-6780 wiley.kitchell@mossadams.com Scott Porter Vice President (206) 306-6326 scott.porter@mossadams.com James Parr Analyst (949) 221-4099 james.parr@mossadams.com Harman Wales Managing Director (206) 302-6770 jet.wales@mossadams.com James Rothenberger Vice President (206) 302-6777 james.rothenberger@mossadams.com Daniel Seubert Analyst (206) 302-6775 daniel.seubert@mossadams.com Real Estate, Lodging & Leisure 19 MOSS ADAMS CAPITAL LLC .
Economic Overview Unemployment and Consumer Confidence 292,000 new jobs were created in December 2015; the unemployment rate ticks down to 5.0%. • • • The unemployment rate was 5.0% as of December, the lowest rate since the beginning of the Great Recession. Roughly 2.7 million new jobs were created in 2015. The Consumer Confidence Index has improved from one year ago, despite a mild correction in 4Q-2015 due to stock market volatility . Unemployment Rate (%) Actual Forecast 130 20 Year Average (6.0%) Consumer Confidence Index 128.6 120 9.9 7.3 5.7 6.0 5.7 5.4 4.9 3.9 4.4 5.0 110 110 9.3 96.5 100 8.5 7.9 90 6.7 5.6 80 80.7 5.0 4.8 4.8 70 60 64.6 50 40 30 38.6 Source: U.S. Bureau of Labor Statistics, Federal Reserve Board, The Conference Board; Moss Adams Capital Real Estate, Lodging & Leisure 6 MOSS ADAMS CAPITAL LLC . Single Family Housing Single Family Housing – Key Indicators • Existing home sales reached a seasonally adjusted annual rate of 5.32 million as of October 2015, a slight decrease from 2Q-2015. • Single Family Housing starts were 768,000 as of November 2015 (seasonally adjusted), still below the long-term average of one million units. • The S&P Case-Schiller National Index has experienced 41 consecutive months of positive year-over-year gains and registers 175.7 as of October 2015 (31.5% above the February 2012 trough of 134.0). • The NAHB/Wells Fargo Housing Market Index was 62 in November, 7.0% higher than November 2014, though still well off of levels seen pre-recession. S&P Case-Schiller Index Housing Starts Builder Confidence 2,000 80 180 1,800 70 160 1,600 140 5,000,000 120 4,000,000 100 3,000,000 80 2,000,000 1,000,000 0 60 40 Housing Starts 6,000,000 S&P Case-Schiller Index 200 7,000,000 Existing Home Sales 8,000,000 1,400 1,200 50 1,000 40 800 30 600 400 20 200 0 60 0 20 10 0 NAHB/Wells Fargo Housing Market Index Existing Home Sales Source: S&P Capital IQ; National Association of Realtors; National Association of Home Builders; Moss Adams Capital Real Estate, Lodging & Leisure 7 MOSS ADAMS CAPITAL LLC . Commercial Real Estate Commercial Property Values Major property sector values exceed prior peak levels; rate of appreciation is beginning to slow. Change in Values Major Sector CPPI Index Commercial Property Price Index (United States) Top Tier Assets 180 170 160 7% 150 140 Year Over Year 130 120 110 100 16% 90 80 CPPI (Major Sectors) Apt Healthcare Industrial Lodging Office Retail Since 2007 Peak Source: GreenStreet Advisors; Moss Adams Capital Real Estate, Lodging & Leisure 8 MOSS ADAMS CAPITAL LLC . Commercial Real Estate Public REIT Total Return Performance All but two REIT indices have outperformed the S&P 500 over the long-run; recent volatility noted. Apartment Healthcare Industrial Retail Lodging Office S&P 500 Index 500% 400% Retail 365.1% Healthcare 319.1% 300% Apartment 243.1% 200% Office 136.1% 100% S&P 500 45.0% Industrial 42.9% 0% Lodging 23.1% -100% Source: S&P Capital IQ; Moss Adams Capital Real Estate, Lodging & Leisure 9 MOSS ADAMS CAPITAL LLC . Commercial Real Estate NOI Forecasts by Sector Net Operating Income (NOI) growth is expected to exceed inflation across all commercial property sectors at a healthy clip; however, forward expectations have been curtailed from a year prior. NOI Forecasts 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% '16F '17F Apartment Health Care '18F Industrial Lodging Office '19F Retail Source: CBRE Econometric Advisors, Green Street Advisors, ULI Consensus Forecast, Moss Adams Capital Real Estate, Lodging & Leisure 10 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions Expect further interest from REITs, Sovereign Wealth Funds and Hedge Funds to acquire real estate in scale. • M&A transaction volume for 2015 was the highest it has been since before the Great Recession. • Median implied EBITDA multiples paid for real estate, lodging and leisure enterprises decreased slightly in 2015 to 21.0x compared to 21.5x in 2014 due in part to decelerating NOI growth expectations. Closed Transaction Multiples By Sector (2011 – 2015) Apartment Healthcare Industrial Retail Lodging Office Median Revenue Multiple 11.0x 13.5x 10.3x 12.1x 4.2x 11.6x Median EBITDA Multiple 23.8x 19.4x 22.4x 21.6x 13.7x 19.3x Real Estate M&A Multiples Closed Enterprise Level Transactions Median Implied Multiple 25x 20x 15x 10x 5x 0x '07 '08 '09 '10 '11 Revenue Multiple '12 '13 '14 '15 EBITDA Multiple Source: S&P Capital IQ; Moss Adams Capital Real Estate, Lodging & Leisure 11 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions 2012 to 2016 YTD – Select Enterprise Level Transactions Date Acquirer/Investor Target Target Industry Transaction Size EV Multiple TTM Revenue TTM EBITDA 01/05/2016 Invel Real Estate (Netherlands) II BV NBG Pangaea Real Estate Investment CO SA Retail $629.0 - - 12/17/2015 Northwood Investors LLC CeGeREAL SA. (ENXTPA:CGR) Office $206.9 14.6x - 12/15/2015 DRA Advisors LLC Inland Real Estate Corp. (NYSE:IRC) Retail $2,111.9 10.3x 16.9x 12/08/2015 Blackstone Real Estate Advisors Greystar Equity Partners VII Multi-Family $2,000.0 - - 12/03/2015 American Homes 4 Rent (NYSE:AMH) American Residential Properties, Inc. (NYSE:ARPI) Multi-Family $1,405.5 12.0x 34.2x 11/16/2015 Marriott International, Inc.
(NasdaqGS:MAR) Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) Lodging $14,048.7 4.2x 11.4x 11/08/2015 Weyerhaeuser Co. (NYSE:WY) Plum Creek Timber Co. Inc.
(NYSE:PCL) Industrial/Natural Resources $11,725.5 7.2x 22.4x 10/26/2015 Starwood Capital Group ERP Operating Limited Partnership Multi-Family $5,365.0 - - 10/22/2015 Starwood Capital Group; Milestone Apartments Real Estate Investment Trust (TSX:MST.UN) Landmark Apartment Trust, Inc. Multi-Family $1,783.9 6.7x 14.5x 10/16/2015 Harrison Street Real Estate Capital, LLC Campus Crest Communities, Inc. (NYSE:CCG) Multi-Family $1,507.2 9.4x 31.5x 10/08/2015 Blackstone Real Estate Advisors BioMed Realty Trust Inc. (NYSE:BMR) Healthcare $7,897.0 12.0x 20.0x 09/08/2015 Blackstone Real Estate Advisors Strategic Hotels & Resorts, Inc.
(NYSE:BEE) Lodging $5,896.4 4.5x 18.5x 07/29/2015 Global Logistic Properties Limited (SGX:MC0) Industrial Income Trust Inc. Industrial $4,276.1 13.4x 22.0x 07/21/2015 MPT Operating Partnership, L.P. Capella Healthcare, Inc. Healthcare $1,524.2 1.9x 14.3x 07/01/2015 Chambers Street Properties (NYSE:CSG) Gramercy Property Trust Inc. (NYSE:GPT) Office $2,540.0 14.4x 27.5x 06/22/2015 Lone Star Funds Home Properties Inc. (NYSE:HME) Multi-Family $7,155.3 10.4x 17.4x 06/01/2015 Prologis, Inc.
(NYSE:PLD) KTR Capital Partners, LLC Industrial $5,900.0 - - NorthWest Real Estate Investment Trust (TSX:NWH.UN) Foncière de Paris SIIC Société Anonyme (ENXTPA:FDPA) NorthWest International Healthcare Properties Real Estate Investment Trust Healthcare $614.7 15.2x 19.2x Foncière des 6ème et 7ème Arrondissements de Paris Office $1,092.6 18.7x 26.9x 04/29/2015 Growthpoint Properties Limited Acucap Properties Ltd. Retail $1,559.5 23.3x 22.1x 04/01/2015 Omega Healthcare Investors Inc. (NYSE:OHI) Aviv REIT, Inc. Healthcare $2,752.3 16.1x 19.4x 03/31/2015 Klepierre SA (ENXTPA:LI) Corio NV Retail $9,466.5 13.2x - 02/27/2015 American Realty Capital Hospitality Trust, Inc. Equity Inns Lodging Portfolio Lodging $1,800.0 - - 02/27/2015 GIC Pte. Ltd.
and Global Logistic Properties Limited (SGX:MC0) IndCor Properties, Inc. Industrial $8,100.0 - - 02/18/2015 EDENS, Inc.; Edens Limited Partnership AmREIT, Inc. $765.5 14.6x 28.2x 05/15/2015 05/14/2015 Retail Source: S&P Capital IQ Real Estate, Lodging & Leisure 12 MOSS ADAMS CAPITAL LLC . Real Estate M&A Transactions 2012 to 2016 YTD – Select Enterprise Level Transactions Date Acquirer/Investor Target Target Industry 01/16/2015 Ventas, Inc. (NYSE:VTR) American Realty Capital Healthcare Trust, Inc. 12/16/2014 Intercontinental Hotels Group plc (LSE:IHG) Kimpton Group Holding, LLC 12/03/2014 NorthStar Realty Finance Corp. (NYSE:NRF) Griffin-American Healthcare REIT II, Inc 11/21/2014 AustFunding Pty Ltd. 11/19/2014 Healthcare Transaction Size EV Multiple TTM Revenue TTM EBITDA $2,446.6 14.1x 29.8x $430.0 - 21.5x Healthcare $3,914.6 12.8x 21.6x Mirvac Industrial Trust Industrial $167.7 5.4x - Health Care REIT, Inc. (NYSE:HCN) HealthLease Properties Real Estate Investment Trust Healthcare $898.7 16.5x - 05/16/2014 American Realty Capital Properties, Inc. (NasdaqGS:ARCP) Cole Credit Property Trust, Inc. Retail $159.1 11.8x 14.4x 05/05/2014 Holloway Lodging Corporation (TSX:HLC) Royal Host Inc. Lodging $142.8 2.3x 13.1x 04/01/2014 Essex Property Trust Inc.
(NYSE:ESS) BRE Properties Inc. Multi-Family $4,366.0 15.1x 23.8x 03/07/2014 Canada Pension Plan Investment Board; Dexus Property Group (ASX:DXS) Commonwealth Property Office Fund Office $3,078.0 10.4x - 02/10/2014 Kite Realty Group Trust (NYSE:KRG) Inland Diversified Real Estate Trust, Inc. Retail $2,314.7 12.3x 20.7x 02/07/2014 American Realty Capital Properties, Inc. (NasdaqGS:ARCP) Cole Real Estate Investments, Inc. Retail $10,944.4 11.8x 22.8x 10/14/2013 Brookfield Office Properties Inc. MPG Office Trust, Inc. Office $2,116.0 9.2x 19.8x 08/09/2013 Icade S.A. (ENXTPA:ICAD) Silic SA Office $3,873.7 12.8x 18.9x 07/08/2013 Primonial REIM Tesfran, S.A. Office $295.0 7.2x 8.1x 05/16/2013 Plaza Retail REIT (TSX:PLZ.UN) KEYreit Retail $313.4 11.7x - 04/04/2013 H&R REIT (TSX:HR.UN); H&R Finance Trust Primaris Retail Real Estate Investment Trust Retail $4,551.7 10.9x 21.0x 02/27/2013 Avalonbay Communities Inc. (NYSE:AVB); ERP Operating Limited Partnership Archstone-Smith Trust Multi-Family $6,476.1 20.2x 32.8x 01/25/2013 LondonMetric Property Plc (LSE:LMP) Metric Property Investments Plc Retail $414.8 19.1x 29.8x 01/22/2013 Spirit Realty Capital, Inc.
(NYSE:SRC) Cole Credit Property Trust II Inc. Retail $7,400.0 - - 11/30/2012 Blackstone Real Estate Advisors BRE Select Hotels Corp. Lodging $1,069.7 4.2x 12.6x 06/29/2012 PD Kanco LP; Starlight Apartments Inc. TransGlobe Apartment Real Estate Investment Trust Multi-Family $621.6 11.0x 19.4x 06/12/2012 Northwest Value Partners Inc. GT Canada Medical Properties Real Estate Investment Trust Healthcare $68.1 10.2x - 04/13/2012 GIC Pte. Ltd.; Public Sector Pension Investment Board; Macquarie Capital Group Limited Charter Hall Office Trust $1,714.8 9.9x - 04/02/2012 Ventas, Inc. (NYSE:VTR) Cogdell Spencer Inc. $789.7 4.4x 17.7x Lodging Office Healthcare Source: S&P Capital IQ Real Estate, Lodging & Leisure 13 MOSS ADAMS CAPITAL LLC .
Real Estate Capital Markets Private Equity • SEC Registered Approximately $100 billion of new closed-end private real estate capital was raised in 2015, a level last seen at the height of the prior upcycle. • M&A attractiveness is expected to continue as REITs, sovereign wealth and hedge funds eye opportunities to acquire scale and generate synergies. – Opportunistic funds raised $54 billion, • Privatization of select REITs continues due to strong Net Asset Values (NAV) relative to weakening share prices. – Value-add funds raised $22 billion. Global real estate “dry powder” was $250 billion as of 2015 year-end. • The United States remains the most desirable market for investors with approximately $130 billion of institutional capital commitments targeting the region. • Debt • The Fed raised interest rates by 0.25% at its December 2015 meeting, signaling an improving economy; immediate impact to real estate expected to be offset by good fundamentals (occupancies and rents). • Lending cap on Fannie and Freddie eased; the GSEs originated over $34 billion of multifamily loans through 3Q-2015. • The S&P U.S. REIT index posted a one-year total return loss of 1.36% as of 4Q-2015, correlated in part to a broad correction in equities markets. • REIT return expectations beginning to look less attractive relative to fixed income investments. • Over $100 billion of CMBS issued in 2015, above the $89.9 billion issued in 2014 and approaching prior peak levels. • Spreads of AAA rated CMBS over swaps widened to approximately 140 bps as of December; higher spreads reflect impact of the recent Fed rate hike. • Tighter underwriting standards, greater transparency and fewer tranches persist for “CMBS 2.0” issuances. • Balance sheet lenders are competitive on rate, proceeds and terms across all asset types and markets. • Estimates range from $100 billion to $125 billion of CMBS to be issued in 2016. • Legislative changes may impose higher liquidity requirements on regulated lenders. • Refinancing of approximately $324 billion of vintage 2006 and 2007 CMBS to continue. Source: Morningstar, Trepp, Commercial Mortgage Alert, WSJ, S&P Capital I.Q., Prequin, Pension Real Estate Association, Real Estate Finance Intelligence, Moss Adams Capital Real Estate, Lodging & Leisure 14 MOSS ADAMS CAPITAL LLC . Real Estate Capital Markets Keys to Attracting Capital for Mid Market Owners/Operators Controlled Opportunities • Identify specific, controlled investment opportunities, both new and on the balance sheet. Execution Capabilities • Demonstrate competence through an experienced team and detailed asset plans. Track Record • Detail case studies over time. Present performance that links to the identified growth plan. Co-investment • Cash aligns interests. A customary range is five to ten percent of the total equity. Real Estate, Lodging & Leisure 15 MOSS ADAMS CAPITAL LLC . Moss Adams Overview Three Affiliated Professional Services Firms Moss Adams Capital LLC Moss Adams LLP  Full service investment bank and strategic advisor:  Fully integrated accounting, tax and business advisory firm: – Institutional Capital: equity and debt, – Mergers and Acquisitions (M&A), – 100+ year old nationally recognized firm, – Strategic Advisory, – 2,200+ people in 27 offices, – Special Situations Advisory: Recapitalization and Restructuring. – 19,000+ middle market clients.  Senior, experienced specialists.  Specialists in corporate, platform and asset based project finance.  Real estate accounting best practices.  FINRA registered broker-dealer; member of SIPC.  Over 1,000 Real Estate Clients.  Global affiliates in 100+ countries via Praxity. Key Attributes Moss Adams Wealth Advisors LLC  Focus on middle-market owners, operators, occupiers and developers of real estate.  SEC registered independent advisory firm.  $2.0+ billion in Assets Under Management.  Dedicated industry expertise.  High net worth and business advisory services include:  Direct and constant senior level attention.  Independent client-centered solutions. – Real Estate, Lodging & Leisure Financial Planning, – 16 Investment Management, –  Longstanding relationships with leading private, public and institutional investors, lenders and strategic partners. Estate and Tax Planning. MOSS ADAMS CAPITAL LLC . Moss Adams Capital Overview Full Service Mid Market Investment Bank Corporate Finance Comprehensive Industry Coverage  Institutional Capital Formation – Equity and Debt Aerospace, Defense & Government Services Food, Beverage & Agriculture Healthcare Services & Products Infrastructure & Construction Paper, Plastics, & Packaging Real Estate, Lodging & Leisure  Strategic planning Business & Marketing Services Industrials / Niche Manufacturing  Strategic and capital alternatives assessments Automotive & Dealer Services Consumer, Retail & Apparel  Sale-leaseback and build-to-suit financing Technology, Communications, & Media Transportation & Logistics  Merger and acquisition advisory  Exclusive sales and divestitures  Management buy-outs  Recapitalizations  Restructuring and special situations advisory Highlights and Accomplishments  Completed more than 250 transactions  Access to key decision-makers among institutional investor universe  Coverage of relevant strategic partners  Average of 20 years of investment banking experience among senior leaders Real Estate, Lodging & Leisure 17 MOSS ADAMS CAPITAL LLC . Moss Adams Capital Overview Local, National and Global Reach Our affiliation with CFxB consists of 150+ Corporate Finance Professionals across the U.S. and in over 25 countries. more than 25 countries MNP Corporate Finance 10 offices MNP LLP 70 offices Mazars Canada 1 office Mazars Europe 140 offices Mazars M&A 20 offices CH Reynolds CF 1 office Mazars Asia 25 offices Moss Adams Capital 3 offices Moss Adams LLP 27 offices Weiser Mazars 6 offices William Buck CAA 6 offices Mazars Middle East 15 offices BKD Corporate Finance 4 offices BKD LLP 33 offices Mazars South America 20 offices Real Estate, Lodging & Leisure Mazars Africa 40 offices 18 MOSS ADAMS CAPITAL LLC . Contact Us Contributing Authors: Robert Miranda Vice President (949) 221-4021 robert.miranda@mossadams.com Bradley Erhart Associate (949) 517-9452 bradley.erhart@mossadams.com Moss Adams Capital LLC 999 3rd Avenue Suite 2800 Seattle, WA 98104 2040 Main Street Suite 900 Irvine, CA 92614 Richard Anderson Managing Director (949) 221-4006 rich.anderson@mossadams.com Tyler Dale Vice President (949) 221-4030 tyler.dale@mossadams.com Andrew Suen Vice President (949) 517-9428 andrew.suen@mossadams.com Wiley Kitchell Managing Director (206) 302-6780 wiley.kitchell@mossadams.com Scott Porter Vice President (206) 306-6326 scott.porter@mossadams.com James Parr Analyst (949) 221-4099 james.parr@mossadams.com Harman Wales Managing Director (206) 302-6770 jet.wales@mossadams.com James Rothenberger Vice President (206) 302-6777 james.rothenberger@mossadams.com Daniel Seubert Analyst (206) 302-6775 daniel.seubert@mossadams.com Real Estate, Lodging & Leisure 19 MOSS ADAMS CAPITAL LLC .
