San Joaquin County Employees Retirement Association C Courtland - PowerPoint PPT Presentation

San Joaquin County Employees’ Retirement Association C Courtland Partners, Ltd. tl d P t Ltd Institutional Real Asset Advisor Real Estate Strategy and Proposed Implementation Plan – June 2017

Table of Contents 1- Real Estate Strategy, Courtland Portfolio Model, and Proposed Implementation Plan 2- Real Estate Securities 3 3- Real Estate Market Conditions R l E t t M k t C diti 1 | Courtland Partners, Ltd.

Strategy and Implementation 1 – Real Estate Strategy, Courtland Portfolio Model, and Proposed Implementation Plan Model, and Proposed Implementation Plan 2 | Courtland Partners, Ltd.

SJCERA Current Real Estate Exposure Total SJCERA Plan Assets Total SJCERA Plan Assets $2.5 billion $2.5 billion Real Estate Equity MV, 12/31/16 (mil) % of SJCERA Private - Core, Value and Opportunistic $ 255.8 10.2% Over 20% of the Public - Domestic and International $ 57.5 2.3% SJCERA Plan is Total $ 313.3 12.5% invested in real estate Real Estate Debt MV, 12/31/16 (mil) % of SJCERA related assets Doubleline (Mortgage Backed Securities) $ 71.6 2.9% PRIMA (Commercial Mortgages) $ 96.7 3.9% Mesa West Funds (Leveraged Com. Mortgages) $ 27.3 1.1% Total $ 195.6 7.9% Real Estate Equity Real Estate Debt  Estimated Unfunded Commitments = $58 mil.  Interest income is being distributed as earned • Includes $30 million GAP VIII commitment  New $50 million commitment to Mesa West IV  Distrib tions are e pected to increase  Distributions are expected to increase: will increase exposure • 2007-2009 vintage funds • Assets ready for disposition 3 | Courtland Partners, Ltd.

SJCERA Private Real Estate Portfolio E i tin Cl Existing Closed-End Managers - Potential for Investment in Next Fund d End M n r P t nti l f r In tm nt in N t F nd Manager New Fund in the Market? Attractive Opportunity? Almanac Later in 2017 Yes Angelo Gordon 2018 Yes Colony Probably within next 18 months Maybe SteelWave No N/A Sarofim No N/A Greenfield No N/A Miller Global Yes Unlikely Walton Street No N/A 4 | Courtland Partners, Ltd.

Results of 2016 Implementation Plan 2016 Objective Result Comments Private Real Estate: Maintains portfolio’s Commit up to $60 million in Private • $30 million commitment to opportunistic Real Estate, adding Value-Added or GAP VIII exposure Opportunistic to the portfolio Public Real Estate: • No activity in 2016 None Monitor and consider rebalancing where appropriate 5 | Courtland Partners, Ltd.

Policy Risk/Return Targets Investment and Portfolio Risk/Return Ranges Actual Projected Target Risk/Return Nominal Net Return Exposure Exposure Tactical Policy 12/31/16 Per Model** Allocation Range Core 6.0%-8.0% 48% 61% 40% 10-70% Value 9.0%-11.0% 28% 22% 40% 10-60% Opportunistic 13.0%+ 24% 17% 20% 10-40% REITs* 18% 23% 0-30% 0-30% * Domestic REITs included as Core; International REITs included as Value. ** Projected exposure includes $30 million commitment to GAP VIII and does not include any new 2017/2018 allocations. Maintain the Target Tactical Allocation: Core 40%, Value 40% and Opp. 20%  Consistent with activity over past few years y p y  Continue to believe this long-term target best meets SJCERA’s objectives for real estate  Continue to seek managers with a strong current income component 6 | Courtland Partners, Ltd.

Courtland Portfolio Model  Courtland sent out questionnaires to each manager requesting portfolio data forecasted over the 2017 – 2020 periods based on in place business plans.  Expected capital calls  Expected capital distributions E t d it l di t ib ti  Property type diversification  Geographic diversification  Courtland compiled this data into a financial model to determine portfolio exposures  C tl d il d thi d t i t fi i l d l t d t i tf li (e.g., risk/return strategies, property type, geographic) over the next several years.  The results on the following slides illustrate the projected portfolio with and without new investment allocations over the next several years.  The Model does not make any income accrual or appreciation assumptions for individual investments.  Current real estate exposure is 12.5%. Assuming no new investments are made the exposure is projected to be 11% (2017), 10% (2018), 10% (2019), and 9% (2020). 7 | Courtland Partners, Ltd.

SJCERA Historical Capital Contributions Gross Capital Contributions Since Inception 80 $ $ Millions 70 60 50 40 30 20 10 10 - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Courtland Partners • For private and public real estate equity investments only 8 | Courtland Partners, Ltd.

Portfolio Model- Allocation Exposures Portfolio With New 2017 and 2018 Allocations 2016 2020 2020 w. New 70% 70% 61% 60% 48% 47% 50% 40% 33% 28% 28% 30% 24% 22% 20% 17% 20% 10% 0% Core Value Opportunistic Note: Core includes U.S. REITs; Value includes Non-U.S. REITs ; Excludes Mortgages  Model assumes $60 million in allocations to Value and $30 million in allocations to Opportunistic in 2017 and 2018. No future year allocations are assumed at this time. Opportunistic in 2017 and 2018 No future year allocations are assumed at this time  If all $90 million is allocated to Value, the exposures would be 47% Core, 40% Value, and 13% Opportunistic.  Current real estate exposure is 12.5%. Assuming proposed 2017-2018 allocations are made the exposure is projected to be 11% (2017) 11% (2018) 12% (2019) and are made the exposure is projected to be 11% (2017), 11% (2018), 12% (2019), and 12% (2020). 9 | Courtland Partners, Ltd.

2017 and 2018 Proposed Implementation Plan Long Term Long-Term Potential New Potential New Target 2017 and 2018 Allocations Managers Objectives Continue to monitor domestic None None Core 40% REITs. Value 40% Consider opportunities with a Up to $90 million Up to three managers strong current income component and long-term return potential. Consider unique opportunities q pp Up to $30 million p Up to one manager p g Opportunistic Opportunistic 20% 20% that expect to capitalize on market opportunity. Standard monitoring of $0 N/A REITs 0%-30% allocation for potential modifications. Consider funds with Part of value and International 0%-20% international exposure. opportunistic Consider moving some of the domestic REIT position into international REIT. Up to $90 million Up to $90 million T t l Total • Maintain flexibility within REITs based upon market conditions • No region/sector specific needs that must be addressed with new allocations; however, monitor industrial exposure levels when considering new opportunities • Courtland will bring opportunities for SJCERA’s consideration throughout the year and will consider opportunities with existing managers 10 | Courtland Partners, Ltd.

Portfolio Model - Property Type Exposures Portfolio With New 2017 and 2018 Allocations *Includes mixed-use, self-storage, operating companies, senior housing, CMBS, private debt, land, timber, and healthcare. ** Impact of potential increased allocations is not material on expected exposure due to the generic funds included in the model. 11 | Courtland Partners, Ltd.

Portfolio Model - Geographic Exposures Portfolio With New 2017 and 2018 Allocations *Impact of potential increased allocations is not material on expected exposure due to the generic funds included in the model. 12 | Courtland Partners, Ltd.

Portfolio Model - Public/Private Exposure Portfolio With New 2017 and 2018 Allocations • Public market values held steady throughout the modeling process 13 | Courtland Partners, Ltd.