JPM Capital Mkt Discussion 2010

8/8/2019 JPM Capital Mkt Discussion 2010

1/15

Murray Mccabe, Global Co-head, Real Estate Investment Banking

December 2009

C O M M E R C I A L R E A L E S T A T E - A C H A N G I N G L A N D S C A P E

S T R I C T L

Y

P R I V A T E

A N D

C O N F I D E N T I A L


2/15

Agenda

1

REIT market trends Whats next? 1

Views from a commercial real estate lender Is it getting better? 10

C O M M E R C I A L R E A L E S T A T E -

A

C H A N G I N G

L A N D S C

A P E


3/15

Current state of the commercial real estate industry

Our current position appears to be at 6 oclockin themidst of deleveraging and approaching the growth phase

12

9

6

3

Decline phase/economic

uncertainty/job

losses

Growthphase

Systemicdecline in

capital markets/property values

Frothyvaluation/

overleveraging/

speculationphase

The next few years will be ugly

Declines in property valuations will continue - likely to be moresevere than past cycles

Worsening operating fundamentals

Debt maturity problem is massive and refinancing will requiresignificant new equity

Banks are in de-leveraging mode and continue to write downassets

refinancings and recapitalizations will be the themeHalf of the maturing debt should be refinanceable through thetraditional debt marketsbank, CMBS, bond, insurance and GSE

However, there may be up to $1 trillion of debt that will not qualifyfor refinancing, thus creating a potential $1 trillion capital gap

This capital gap will likely be filled through both permanentimpairments and a massive re-equitization of the industry, whichwill spur the creation of a new set of capital providers

and the road to recovery has been delayed

Wide disconnect exists between buyers and sellers

Creditors are pushing out maturity dates

Foreclosure process takes significant time with crowded courts

November 2009

March2009

Deleveraging/workout phase

2 R E I T M A R K E T T R E N D S

W H A T S

N E X T ?


4/15

NewPensionEntrants

PublicEquity

Follow-Ons

IPO

PPIPTALF

OppFunds

SWF

BlindPool

Vehicles

New DebtFinance

Companies

$500 billion of commercial real estate debt matures annually now through 2012

Banks remain over-committed to real estate, undercapitalized and limited ability to fill any re-financing gap

Half of the maturing debt should be refinanceable through the traditional debt marketsbank, CMBS, bond,insurance and GSE

However, there may be up to $1 trillion of debt that will not qualify for refinancing, thus creating a potential $1trillion capital gap

A substantial recapitalization of the real estate industry is required

$2 Trillion

TraditionalDebt MarketRefinancing

Capital Gap Solutions

This capital gap will be filledthrough permanent impairmentsand a massive re-equitization of theindustry and spur the creation of a

new set of capital providers

PermanentImpairment

PermanentImpairment


W H A T S

N E X T ?


5/15

Opportunities

Weve seen this movie before and know that one persons distress is anothers opportunity

Further deleveraging required

Refinancing of existing debtBuyside opportunities to emerge

Non-traditional financing markets are forming

An IPO wave?

Industry consolidation will occur


W H A T S

N E X T ?


6/15

REIT Debt/EBITDAREIT Debt/EBITDA

6.5x

5.8x

5.1x

4.8x

5.3x

5.6x

7.0x6.9x

6.7x

7.5x

6.5x

7.2x

7.6x

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

L T M

2 0 0 9

Balance sheet repair has been the name of the game

Source: SNLNote: LTM as of 06/30/2009

$4.7$8.1

$12.6$9.2

$15.4

$9.1$7.2

$18.2

2002 2003 2004 2005 2006 2007 2008 2009TD

Real estate bond issuance ($bn)Real estate bond issuance ($bn)

$12.4$10.3

$15.8 $16.4$18.2

$8.7$3.4

$8.3

2002 2003 2004 2005 2006 2007 2008 2009TD

Source: SNL Excludes mortgage REITs

Source: SNL

Source: SNL

Real estate convert issuance ($bn)Real estate convert issuance ($bn)

$0.4 $1.7 $1.5$1.9

$7.6

$11.8

$2.0 $2.2

2002 2003 2004 2005 2006 2007 2008 2009TD

Real estate equity issuance ($bn)Real estate equity issuance ($bn)


W H A T S

N E X T ?


7/15

$642$286 $101

$1,387

$5,674

$3,656

$1,912

$123

$1,154$1,624

Jan Feb Mar Apr May Jun Jul Aug Sep Oct# of dealsAvg deal size ($mm):% of mkt cap% dis. file/offer

% offer/30-day

REIT follow-on issuance has been the primary source of capital

U.S. REIT follow-on issuance 2009YTD 1U.S. REIT follow-on issuance 2009YTD1

Volume ($bn)

Overnight (54%)

Marketing typeMarketing type

15$37823%

-6.0%

15.6%

13$28136%

-10.9%

8.1%

6$31928%

-11.1%

-5.5%

1$12399%

-13.5%

23.2

6$19216%-7.3

8.3%

10$16234%

-9.8%

0.1%

3$21421%

-7.6%

2.5%

1-day (22%)

Wall-crossed (19%)

Avg deal size ($mm): $250% mkt cap: 20%ADTVx: 13x% file/offer: -7.3%




2+-days (5%)

11.3%

25.4%

5.6%

-9.0%

28.4%

8.9%

-11.8%

33.1%

-6.9%

File/offer Offer/current RMZ-adj. offer/current

All offerings > 25% mkt cap


8/15

Pricing Performance Valuation Debt / Market Cap

PricingDate Issuer

Size($mm)

% mktcap

Discount(File/Offer)

Offer/Current(RMZ adj)

ImpliedCap Rateat Issue 1

CurrentImplied

Cap Rate 1 Pre-

Offer

ProForma

at Offer Current

10/22/09 Macerich Co 400 17 -2.7 7.0 8.5 8.4 73.8 69.5 70.509/15/09 Cousins Properties Inc. 334 88 -10.7 -11.8 10.0 9.5 64.2 48.3 49.709/01/09 Health Care REIT 372 8 -5.4 10.1 7.8 7.4 35.0 32.4 30.306/09/09 CBL & Associates 400 82 -20.6 51.5 10.2 9.8 85.0 82.4 72.706/05/09 Boston Properties Inc 863 14 -5.7 25.3 7.3 6.6 53.2 46.7 45.605/27/09 Brandywine Realty Trust 254 46 -8.8 67.8 10.9 9.4 79.3 73.4 65.705/12/09 SL Green Realty Corp 406 34 -5.8 103.3 8.9 7.5 79.4 74.9 64.005/07/09 Simon Property Group 1,150 9 -8.8 37.7 8.9 7.6 59.3 56.9 51.105/05/09 HCP, Inc. 440 8 -7.9 41.0 8.1 6.6 58.9 57.0 40.304/24/09 Host Hotels & Properties 500 14 -7.0 60.2 7.8 7.9 61.4 56.1 49.904/22/09 Vornado Realty Trust 742 11 -8.5 41.3 8.6 7.4 63.1 61.7 54.4

04/21/09 Regency Centers 325 14 -4.7 10.9 9.3 8.1 51.6 49.2 46.604/17/09 Weingarten Realty 459 37 -9.1 44.2 10.1 8.2 63.7 57.4 44.904/16/09 Duke Realty Corporation 575 51 -9.4 55.9 11.0 9.5 67.1 60.1 57.304/08/09 ProLogis 1,154 65 -3.2 89.8 10.1 8.4 83.7 72.7 67.304/07/09 Ventas Inc 312 9 -6.0 67.7 9.1 7.0 44.1 44.0 29.304/03/09 Kimco Realty Corp 747 39 -5.2 92.4 11.1 8.6 73.5 64.2 55.503/25/09 AMB Property Group 576 48 -7.7 90.9 11.1 8.1 71.3 64.1 47.703/20/09 Simon Property Group 543 7 -8.4 118.5 10.3 7.6 69.6 68.1 51.1

Mean All Deals YTD 2 276 28% -9.0% 33.8% 9.4% 8.1% 65.1% 60.0% 52.3%

Source: Dealogic as of 10/23/09; excludes offerings


9/15


10/15

On the verge of a REIT IPO wave?

Historical real estate IPOs (1980Present) 1Historical real estate IPOs (1980Present)1

Capital raised ($mm)Total capital raised from real estate IPOs

Economic downturnCapital appreciation index NCREIFNCREIF capital appreciation index

NAREIT price index

0 0 1 2 2 14 11 8 7 0 0 3 6 48 37 12 14 29 15 1 1 0 6 8 34 11 8 8 0 1

Number of US IPOs > $50mm

Source: SDC Data, NCREIF. Represents all US IPOs in the real estate sector greater than $50mm; excludes mortgage REITs

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

75

100

125

150

175

200

225

250

275

300

325

9 , 0 4 8

1 , 3 8 1 2

, 1 0 9

2 , 2 8 6

1 3 4

1 7 5

8 , 9 1 2

2 0 0

2 , 6 3 7

3 , 6 0 9

3 , 9 4 6

3 , 1 2 8

6 , 5 2 7

6 , 4 6 8

1 1 0

1 3 3

1 5 8

1 , 9 9 1

9 1 4 1 ,

0 6 4

6 1 0

1 , 1 7 7

3 4 1 8 3

4


W H A T S

N E X T ?


11/15

Agenda

10

Views from a commercial real estate lender Is it getting better? 10

REIT market trends Whats next? 1

C O M M E R

C I A L R E A L E S T A T E -

A

C H A N G I N G

L A N D S C A P E


12/15

Loan maturities by year ($bn)Loan maturities by year ($bn)

Sources: Trepp, Giliberto-Levy, Federal Reserve, FDIC, PPR

$237 $221 $211 $205

$128$117

$109 $103

$31 $32$29

$27

$43$55 $57

$65$66 $63

$60$36

$0

$100

$200

$300

$400

$500

$600

2009F 2010F 2011F 2012F

Bank Permanent Bank Cons truction Life Insurer CMBS Other

$1.9trn of U.S. CRE and construction loans will require refinancing through 2012The market will support some level of refinancing

The banking industry is highly vulnerable to the downturn in the commercial realestate market

$496 $478$466

$451

11 V I E W S F

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I T G E T T I N G B E T T E R ?


13/15

Bank balance sheet capacity has eroded significantly, as much as $10 trillion

Global financials reduction in asset base ($bn)Global financials reduction in asset base ($bn)

49,300

6,3004,300

47,300

4,700

42,600

Asset base Impact of$510bn

w rite-dow n

Impact ofraising $350bn

capital

Asset base (current) Impact of delevering at 9% Asset base @ 9% cap ratio

Total reduction in

capacity of $2,000bn

Capacity further reduced

at a 9% capital ratio

Sources: Bloomberg; J.P. Morgan Includes the 75 largest global banks/brokers by announced write-downs; Assumes current core capital ratio of 8.1% for the selected firms

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14/15

as a result, non-traditional financing markets are forming

Banks remained over-exposed to real estate and undercapitalized and will not be capable of filling the $1 trillioncapital gap

A new shadow lending market will formNew finance REITs like Starwood Finance and private funds like Ladder Capital have been formed to takeadvantage of the distress in real estate credit

Given value declines and tighter underwriting standards, many refinancings will require equity infusions

Company Strategy ManagerTarget/ActualProceeds ($mm)

Commercial

Starwood Property Commercial Loans Starwood Capital $932 Closed 8/11Brookfield Realty Capital Commercial Loans Brookfield $500Ladder Capital Realty Commercial Loans TowerBrook/GI Partners $400Colony Financial Commercial Loans Colony Capital $250 Closed 9/23Petra Real Estate Commercial Loans Petra Capital $200CWCapital Realty CMBS CW Financial Services $250Transwestern Realty CMBS/Commercial Loans Transwestern $500Apollo Commercial CMBS/Commercial Loans Apollo $200 Closed 9/23CreXus Investment CMBS/Commercial Loans Annaly $200 Closed 9/16

Residential/Commercial

AG Financial RMBS/CMBS Angelo Gordon $300Bayview Mortgage RMBS/CMBS/Loans Bayview/Blackstone $500Foursquare Capital RMBS/CMBS/Loans AllianceBernstein $500

Note: Does not include Residential Mortgage REITs

Filed Mortgage REITsFiled Mortgage REITs

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15/15

Commercial real estate lending will be slow to heal

12 years 34 years 5 years

Lender workoutsbecome active

Refinancings withexisting lenders

Impairments take shape

Limited new money loans

Equity resurfaces

Asset prices start to find parity

New money loans frombroader market underway

Significant trading of assets asloans come due

Highly active capital market

New lending returns from mostparticipants

Construction lending returns

CMBS market re-functioning in"new form"

Financing structuresevolve again

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