Third Quarter 2018 NCREIF Indices Revie...•NPI return down slightly for quarter •Volatility of...
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Third Quarter 2018 NCREIF Indices Review November 14, 2018
Transcript of Third Quarter 2018 NCREIF Indices Revie...•NPI return down slightly for quarter •Volatility of...
Third Quarter 2018NCREIF Indices Review
November 14, 2018
Panelist Overview
Jeff Fisher
NCREIF Data, Research & Education Consultant
William Maher
Head of Americas Research & Strategy
LaSalle Investment Management
Special thanks to Kevin Scherer, NCREIF Consultant for Slides from NCREIF Analytics
Disclaimer
Today we will be presenting what we see in the NCREIF data, trends and changes; all comments about future expectations are the personal views of the speakers (and could be wrong!) and not a reflection of a NCREIF opinion or forecast.
Overview
• NPI return down slightly for quarter
• Volatility of total returns continue at a historic low
• Cap rates at all time (for NPI) low
• Occupancy highest since before 2001 tech bust
• Industrial still the leader of the Pac; retail struggling to keep up
• Strong Industrial NOI growth; others small to negative
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NCREIF OverviewThird Quarter 2018 Index Composition
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NCREIF Property Index
(NPI)
NPI Leveraged Property Index
NFI-ODCE (Fund Index – Gross of
Fees)
Farmland Properties
Timberland Properties
Leverage Unlevered 42% 22% Unlevered Unlevered
Quarterly Return
1.7% 1.9% 2.1% 1.3% 1.0%
1 Year Return
7.1% 8.3% 8.7% 6.9% 4.0%
2.1% 1.7% 1.9%1.3% 1.0%
0.5%
7.7%8.7%
7.1%8.3%
6.8%
4.0% 4.3%
17.9%
5.6%6.5%
7.0%
11.6%
4.0%
7.8%
12.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
NFI-ODCE NPI NPI Levered Farmland Timberland NAREIT S&P 500
Tota
l Ret
urn
9/30/2018 1-Yr 10-Yr Avg
Total Returns by Asset Class
Chart: E-001-1811
Question
• What will be the best performing asset class in 2019?• A. NCREIF Leveraged Returns
• B. Farmland
• C. S&P 500 Stocks
• D. Corporate Bonds
• E. NAREIT Index
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-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
1983 1987 1991 1995 1999 2003 2007 2011 2015
Income Return Appreciation Return Total Return
NPI Returns
Quarterly
Chart: C-261-1810
Recession due to over building
Great recession due to financial crisis
Calm before the next storm?
Tech bust and 9-11
12Note: The Market Value Index (MVI) is an equal-weighted index and excludes expansion capital expenditures.
Prices Still Rising
• SPREAD BELOW LONG-TERM AVERAGE
Real Estate Spread to Corporate Bonds
• Source: NCREIF, LaSalle Investment Management, Moody’s Economy.comBaa Yields as of 7 Novemberr 2018, NCREIF data through 3Q 2018.
• Note: Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue.
NPI Income Yield Spread to Baa Corporate Bonds
15 Year Average Spread= 31 bps
-300
-250
-200
-150
-100
-50
0
50
100
150
200
3%
4%
5%
6%
7%
8%
9%
10%
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Sp
read
(b
ps)
Yie
ld
Spread NPI Income Yield Baa Corp. Yield
Q3 Est Spread-58 bps
15 Year Average Spread = 1 bps
• CPPI UP 7.2% Y/Y IN SEPTEMBER
Moody’s/RCA Price Index Continues to Increase
Y/Y Change in Moody’s / RCA Commercial Property Price Index
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Ju
n-0
8
Jun
-09
Ju
n-1
0
Ju
n-1
1
Ju
n-1
2
Ju
n-1
3
Ju
n-1
4
Ju
n-1
5
Ju
n-1
6
Ju
n-1
7
Ju
n-1
8
% C
han
ge Y
ear-
over-
Year
• Source: Moody’s/RCA Commercial Property Price Index (CPPI).Data to September 2018
• Note: Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue.
YOY Increase as of 9/18
All Property 7.2%
Apartment 10.7%
Retail 1.8%
Industrial 6.2%
Office 7.9%
Question
• When will the Market Value Index (MVI) peak for this cycle?• A. Peaked this quarter
• B. Next quarter
• C. 2019
• D. 2020 or later
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Current Quarter Basis Point Total Return Impact by Metro
Apartment Industrial
Office Retail
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Question
• What will be the best performing property sector in 2019?• A. Apartment
• B. Hotel
• C. Industrial
• D. Office
• E. Retail
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NPI Income Returns Vs. History (as of 3Q 2018)
• Source: NCREIF, LaSalle Investment Management.
• As of 3Q 2018.
• Note: Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue.
Value Weighted
NPI Trailing Four-
Quarter Income
Return
15-Year
Income ReturnDifference
Apartment 4.3% 5.1% -0.8%
Hotels 8.2% 7.5% 0.7%
Industrial 4.9% 6.3% -1.4%
Office 4.5% 5.7% -1.2%
CBD 4.2% 5.3% -1.1%
Suburban 5.0% 6.2% -1.2%
Retail 4.6% 6.1% -1.5%
Open Air 4.9% 6.3% -1.4%
Malls 4.4% 5.9% -1.5%
All Property 4.6% 5.8% -1.2%
• RETAIL YIELDS FURTHEST FROM LONG TERM AVERAGE
Question
• What will cap rates be for the nation by the end of 2019?• A. Below 4%
• B. 4% to 5%
• C. 5% to 6%
• D. Above 6%
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Question
• Which property type will have the highest NOI growth in 2019?• A. Apartment
• B. Industrial
• C. Office
• D. Retail
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Needs updated
• MAJOR PROPERTY TYPE REITS TRADE AT DISCOUNT
Niche REIT Sectors Continue to Outperform Core Types
• Current Premium/ Discount to Gross Asset Value by Sector
19.1%
10.3%
4.3%
-0.6% -0.7% -1.8% -2.1% -3.7%-8.2% -8.3% -9.6%-10.4%
-12.8%-14.2%-20%-15%-10%
-5%0%5%
10%15%20%25%
Ne
t Le
ase
Man
uf.
Ho
me
s
He
alth
Car
e
Ind
ust
rial
Lab
Sp
ace
Dat
a C
ente
r
Self
Sto
rage
All
REI
Ts
Ho
tel
Stri
p C
en
ter
Ap
artm
ent
Mal
l
Stu
de
nt
Ho
usi
ng
Off
icePre
miu
m/D
isco
un
t to
GA
V20Y All REIT Average:
+1.0%
• Source: Green Street Advisors. Pricing as of November 1, 2018.
• Note: Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue.
Question
• What will the annual NPI total return be for 2019? (Current rolling annual return 7.1%)• A. Below 5%
• B. 5%-to-7%
• C. 7%-to-9%
• D. Above 9%
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Summary
• National returns below average and holding steady
• But continued disparity of returns across property sectors
• Cap rate drop slightly to all time low
• NOI growth good for industrial; weak to negative for all others
• Overall occupancy driven by industrial to highest since before tech bust
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Upcoming NCREIF Events
NCREIF Winter Conference 2019Arizona BiltmoreMarch 18 – 20
NCREIF Certificate Education ProgramSMU - DallasSummer, 2019
Visit www.ncreif.org for more information
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