Presentation on: Investing in Real Estate

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Presentation onInvesting in Real Estate
Alan Supple Senior Portfolio StrategistUrdang
Capital Management/BNY Mellon Asset
Management Engaged Investor Trustee
ForumManchester, UK5 November 2009
Prepared for Professional Investors only
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Agenda

• Forms of real estate investment
• Real estate in a diversified portfolio
• Why go global?
• Pros and cons of investment forms
• Prospects for global real estate
• Criteria for real estate manager selection

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Forms of real estate investment
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Real estate in a diversified portfolio

• Adding real estate to an investment portfolio can
  provide benefit through returns that are
  diversified
• Low correlation with many other asset classes -
  i.e. returns from real estate follow different
  patterns from many other investment types
• adding real estate has the potential to improve
  returns without increasing the overall portfolio
  risk
• Increased volatility in the financial markets has
  seen returns from real estate securities move
  much more in line with broad equity markets (e.g.
  FTSE 100 or SP 500 indices)
• But returns remain very distinct from those
  provided by bonds
• Real estate provides diversity of returns across
  different property types
• e.g. office vs. industrial vs. retail properties
• These properties respond differently to changes
  in economic conditions
• Solid cash flows current income backed by
  stable rental income

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Why go global?

• Investing across regions can offer varied sources
  of returns
• Real estate is a local business
• Returns can be very different across countries or
  regions
• Investing globally allows the investor to take
  advantage of region-specific investment
  opportunities
• Emerging market growth China, Brazil
• Stable value opportunities developed markets
  (USA/UK/Europe)
• Universe of investment opportunities is expanding
  globally
• More investment options
• More sources of diversification

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Potential drawbacks to going overseas

• Potential Lack of Transparency
• Price discovery and market data for UK real
  estate among the best
• Corporate governance and reporting standards vary
  considerably globally
• More difficult to find appropriate benchmarks for
  performance
• Higher transaction costs
• More difficult to monitor/evaluate investments
  requires in-house expertise
• Potential exposure to foreign exchange risk
• Liquidity issues

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Pros and cons of investment forms
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Prospects for global real estate

• Real estate fundamentals will decline well into
  2010
• Commercial real estate lending was too aggressive
  bad loans writedowns will continue some
  borrowers will be unable to refinance
• Cash flows from rental income will decline or at
  best stay flat
• Real estate values will decline at a slower rate,
  and should stabilise in 2010
• Demand should pick up again in 2011/12
• New real estate development has ground to a halt
• Once inventory of existing projects are complete
  and leased, development should start up again
• We will move into a real estate investing
  environment with lower debt levels, and lower
  expected returns
• More focus on rental income security, less on
  capital gains from property price appreciation

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Prospects for global real estate (contd)

• Decoupling of global markets will have enormous
  impact on returns
• Asia (ex-Japan) and emerging markets will be near
  term winners, but volatile
• Low growth in U.S., UK and Europe will shift
  investors focus to income
• Private real estate investors have had trouble
  raising new equity
• Conversely listed REITs are shaping up to be in
  best position for next few years
• Strong balance sheets (new equity raised) and
  experienced management
• Should be able to take advantage of distress in
  the real estate markets
• Should have the financial strength to develop new
  properties as demand for space returns

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Criteria for real estate manager selection

• Long track record of real estate specialisation
• Stability of investment team
• Global footprint
• Real estate is a local business and a presence in
  regions is important
• Demonstrated consistency of investment philosophy
  and process
• Preferably an understanding and experience across
  various investment forms
• Strong financial backing
• Institutional client focus and understanding of
  fiduciary responsibilities
• Prudent risk and operational controls

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Important information
This is a financial promotion and is not intended
as investment advice. The information provided
within is for use by professional investors and
should not be relied upon by retail
investors. All information relating to Urdang
Securities Management (Urdang) has been prepared
by Urdang for presentation by BNY Mellon Asset
Management International Limited (BNYMAMI). Any
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Mellon Corporation. CP4385-30-10-2009(1D)