1Q2018 Real Estate Performance City of Phoenix Employees’ Retirement System (COPERS) Data as of March 31, 2018
Portfolio Overview Investment COPERS Unfunded % Funded 1 Status 2 Investment Structure Period Commitment Commitment Commitment Expiration Core Morgan Stanley Prime 3Q 2006 Open N/A $90,500,000 $0 100.0% Stabilized JPMorgan SPF 2Q 2007 Open N/A $87,380,529 $0 100.0% Stabilized Total Core Portfolio $177,880,529 $0 100.0% 3Q 2009 Closed Expired RECAP II $9,000,000 $706,242 92.2% Nearly Liquidated JDM Partners I 1Q 2010 Closed Expired $20,000,000 $551,724 97.2% Harvesting TA Realty IX 2Q 2010 Closed Expired $9,000,000 $0 100.0% Nearly Liquidated RECAP III 1Q 2012 Closed Expired $30,000,000 $6,952,802 76.8% Nearly Liquidated Wheelock Street I 2Q 2012 Closed Expired $20,000,000 $3,724,018 81.4% Nearly Liquidated Northwood Series IV 1Q 2014 Closed 2Q 2019 $20,000,000 $8,389,432 58.1% Harvesting Non-Core Wheelock Street II 3Q 2014 Closed 2Q 2018 $30,000,000 $8,995,436 70.0% Harvesting Northwood Series V 1Q 2015 Closed 2Q 2020 $30,000,000 $8,128,040 72.9% Investing RECAP IV 1Q 2015 Closed Expired $30,000,000 $10,605,256 64.6% Investing HSI V 2Q 2016 Closed 3Q 2019 $25,000,000 $16,903,784 32.4% Investing SC Core Fund 3Q 2016 Closed 2Q 2020 $30,000,000 $20,853,387 30.5% Investing Wheelock Street V 4Q 2016 Closed 4Q 2020 $25,000,000 $19,397,628 22.4% Investing Focus Senior Housing I 2Q 2017 Closed 2Q 2021 $25,000,000 $23,015,771 7.9% Investing Hammes Partners III 2Q 2017 Closed 2Q 2021 $25,000,000 $25,000,000 0.0% Recently Closed Total Non-Core Portfolio $328,000,000 $153,223,520 53.3% Total Portfolio $505,880,529 $153,223,520 69.7% 2
Performance Summary % of RE Net Equity % Funded 1 % Realized 3 SI IRR (Gross) 4 SI IRR (Net) 5 Investment Market Value Multiple 6 Portfolio Core Morgan Stanley Prime $97,483,118 28.4% 100.0% 37.5% 6.3% 5.3% 1.58x JPMorgan SPF $93,926,989 27.4% 100.0% 30.6% 4.8% 4.2% 1.44x Total Core Portfolio $191,410,107 55.8% 100.0% 34.3% 5.6% 4.7% 1.51x RECAP II $8,953 0.0% 92.2% 100.0% 22.8% 15.1% 1.30x JDM Partners I $26,754,842 7.8% 97.2% 29.2% 10.5% 9.7% 1.91x TA Realty IX $54,986 0.0% 100.0% 99.6% 13.6% 10.4% 1.60x RECAP III $6,881,289 2.0% 76.8% 81.9% 14.0% 10.1% 1.20x Wheelock Street I $4,258,743 1.2% 81.4% 89.0% 36.5% 25.6% 1.72x Northwood Series IV $19,442,689 5.7% 58.1% 33.4% 19.8% 13.8% 1.37x Non-Core Wheelock Street II $24,804,555 7.2% 70.0% 25.0% 28.6% 18.0% 1.36x Northwood Series V $25,728,150 7.5% 72.9% 12.6% 9.9% 7.1% 1.15x RECAP IV $19,551,474 5.7% 64.6% 11.2% 13.2% 7.5% 1.12x HSI V $7,508,412 2.2% 32.4% 19.9% 16.5% 5.9% 1.04x SC Core Fund $9,840,063 2.9% 30.5% 4.7% 7.9% 7.3% 1.12x Wheelock Street V $5,087,404 1.5% 22.4% 0.0% N/A N/A N/A Focus Senior Housing I $1,663,298 0.5% 7.9% 0.0% N/A N/A N/A Hammes Partners III $0 0.0% 0.0% N/A N/A N/A N/A Total Non-Core Portfolio $151,584,858 44.2% 53.3% 47.4% 16.3% 12.2% 1.35x Total Portfolio $342,994,965 100.0% 69.7% 40.8% 7.7% 6.2% 1.42x 3
Performance Summary Time-Weighted Returns (Gross) Net IRR 4 Net EM 5 1Q2018 1-Yr 3-Yr 5-Yr SI Core 2.2% 8.7% 10.6% 12.4% 7.7% 4.7% 1.51x Non-Core 3.5% 16.7% 12.5% 12.7% 11.5% 12.0% 1.34x Total Portfolio 2.8% 12.0% 11.5% 12.6% 8.4% 6.2% 1.42x NCREIF ODCE 2.2% 8.1% 10.0% 11.4% 6.3% - - 4
Diversification Global United States North America, Portfolio is well diversified globally while maintaining a majority of capital in the U.S. Portfolio will continue to benefit from international diversification as funds in Asia-Pacific (RECAP IV), Latin America (HSI Fund V) and throughout Europe (Northwood IV &V) call capital. Continued diversification into niche property sectors through capital calls to Focus Senior Housing and Hammes Partners III will increase exposure to assets that historically exhibited defensive return characteristics. 5
Leverage Profile Very modest use of leverage across the Total Portfolio Loan-toValue (LTV) 7 : 35.5% portfolio Core Portfolio LTV: 21.0% Non-Core Portfolio LTV: 47.4% Non-Core Portfolio LTV Ratio of less than 50% reflects a focus on managers and Weighted-Average Interest Rate: 3.5% strategies that can perform without excess leverage risk Overall weighted-average interest rate of 3.5% is accretive to portfolio returns 6
Fee Summary 8 RE Portfolio Fees Gross-net return spread for 1Q2018 is higher than (% of Market Value) historical average, largely due to Incentive Fee accruals Quarterly during the quarter Type 1Q2018 Avg. Incentive Fee accruals are primarily driven by Asset 0.33% 0.29% Mgmt. appreciation gains from Northwood IV & V and Incentive 0.20% 0.10% Wheelock I Other -0.03% 0.00% Total 0.50% 0.39% 7
Subsequent Events Below are some key portfolio updates that occurred subsequent to the end of 1Q2018: 2Q2018 Core Portfolio Flash Returns: JP Morgan SPF: +1.7% (net) Morgan Stanley PRIME: +1.8% (net) Hammes III The fund’s investment commenced in 2Q2018. Wheelock Street Real Estate Fund II The fund is under contract to sell the Bonita Springs Limited Service Portfolio and 1 asset in the New England Office Portfolio. These assets are expected to generate approximately $65 million of distributable proceeds for LP’s. HSI Fund V The fund called approximately $32 million for new investments during 2Q2018 SC Core Fund The fund made three (3) investments during 2Q2018 (2 student housing properties in Japan and an office property in New Zealand) totaling approximately $60 million of 8 fund equity.
Definitions & Footnotes 1 Commitment Funded Percentage (“% Funded”) – The percentage of the investor’s commitment that has been called by the manager to date, less any capital returned during the investment period that is deemed to be recallable. 2 Investment Status Definitions: Recently Closed -Investment is awaiting first capital call designated for investment purposes Investing - Investment actively making commitments to new underlying investments; within stated investment period Stabilized - Investment is fully invested and unlikely to make near-term return of capital distributions Harvesting - Investment is actively divesting Nearly Liquidated- Investment is substantially divested of assets (typically > 80% realized) Liquidated - Investment has divested of all assets and either holds cash or no balance at all 3 Realization Percentage (“% Realized”) – The percentage of an investment’s cumulative distributions to date relative to the total value of the fund, measured as a sum of the cumulative distributions to date and the remaining investment value. 4 Since Inception Gross Internal Rate of Return (“SI-IRR GROSS”) – Reflects the implied discount rate equating the present value of an investment’s cash outflows and the remaining market value to the present value of the investment’s cash inflows, excluding any impact of fees charged or accrued. 5 Since Inception Net Internal Rate of Return (“SI-IRR NET”) - Reflects the implied discount rate equating the present value of an investment’s cash outflows and the remaining market value to the present value of the investment’s cash inflows, accounting for the impact of fees. 6 Net Equity Multiple (“NET EM”) – The sum of cumulative distributions and remaining investment value divided by total paid-in-capital, accounting for the impact of fees. 7 Loan-to-Value Ratio (“LTV %”) – Ratio of all outstanding direct debt obligations divided by the fair value of the fund’s gross real estate asset value. 8 Fee Summary – Fees percentages shown reflect fees paid relative to beginning portfolio market value. 9
Disclaimer of Warranties and Limitation of Liability This document was prepared by Alignium, LLC (“Alignium”) and includes information and data from some or all of the following sources: investment managers, custodian banks, client staff, specialty investment consultants, actuaries, plan administrators/record-keepers, index providers, as well as other third-party sources as directed by the client or as we believe necessary or appropriate. Alignium makes no warranties and disclaims responsibility for the accuracy or completeness of information or data provided or methodologies employed by any external source. Alignium has taken reasonable care to ensure the accuracy of the information or data but disclaims responsibility for the accuracy of information or data received from outside sources. This document is provided for the client’s internal use only and does not constitute a recommendation by Alignium or an offer of, or a solicitation for, any particular security and it is not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets. 10
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