FOR INSTITUTIONAL / WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY | NOT FOR RETAIL USE OR DISTRIBUTION

The APAC Core Real Estate RealizationOctober 2015

ABOUT J .P. MORGAN ASSET MANAGEMENT—GLOBAL REAL ASSETS

J.P. Morgan Asset Management – Global Real Assets has more than $86 billion in assets under management and more than 400 professionals in the U.S., Europe and Asia Pacific, as of June 30, 2015. With a 45-year history of successful investing, J.P. Morgan Asset Management – Global Real Assets’ broad capabilities provide many of the world’s most sophisticated investors with a global platform of real estate, infrastructure and transportation strategies driven by local investment talent with disciplined investment processes consistently implemented across asset types and regions. The Global Real Assets team is part of J.P. Morgan Asset Management’s Alternatives Investments business, which collectively manages over $120 billion in client assets across real assets, hedge funds, credit and private equity.

October 2015

PORTFOLIO DISCUSSION

EXECUTIVE SUMMARY

INSTITUTIONAL INVESTORS HAVE LONG REALIZED THAT A BIAS in portfolios toward their home markets can be detrimental intimes of economic crisis and market stress. In their public equity portfolios, many investors allocate approximately 55% of their assets to international markets to solve for this dilemma1. However, many of these same investors maintain a persistent domestic market bias in real estate portfolios, with approximately 15% of real estate allocations invested internationally2.

A broad geographic exposure in core real estate offers growth similar to equities and yield opportunities like those in fixed income, with the potential for additional diversification as well. This is especially true for core real estate in the Asia Pacific region (APAC), which can diversify an investor’s entire portfolio horizontally across asset classes, and vertically within real estate sectors and geographies. For institutional portfolios with real estate allocations currently dedicated to the U.S. or Europe, the broad opportunity in APAC core real estate not only provides diversification, but can deliver enhanced risk-adjusted results.

In this paper we highlight the case for APAC core real estate, which offers scale, stability, liquidity and transparency on par with the core markets of the U.S. and Western Europe, and which we believe is underrepresented in investor portfolios:

• APAC is the world’s largest real estate region globally, as measured by investedstock. The region presents broad opportunities for core real estate.

• The key 15 core APAC markets by our definition are mature and stable – withstrong fundamentals on par with those in the U.S. and Western Europe.

• APAC tenants are large, stable enterprises, with strong credit ratings. In fact,more Fortune Global 500 companies make their headquarters in APAC than ineither the U.S. or Europe.

• Economic growth in APAC, albeit slower, is forecasted to be double that of theU.S. and Europe. This attractive fundamental is coupled with the rapid growthof the region’s middle class and the wealth of developed economies.

• APAC core markets are attractively or fairly priced today by historical andglobal relative value comparisons.

AUTHORS

Pulkit SharmaPortfolio ConstructionGlobal Real Assets Omni

Bernie McNamaraPortfolio ConstructionGlobal Real Assets Omni

1, 2 Source: “The erosion of the real estate home bias”, IPD, November 2014. MSCI Asset Owner Survey, Towers Watson survey. These surveys cover the developed markets of U.S., Japan, UK, Australia, Canada and Switzerland. The percent allocation represents average allocation across these regions and the allocation percentage has been rounded to the nearest multiple of five for simplicity purposes.

Elysia TseResearch and StrategyReal Estate Asia Pacific

J.P. Morgan Asset Management | 1

CONTRIBUTORS

Doug DoughtyBusiness DevelopmentGlobal Real Assets

Ryan HolganPortfolio ConstructionGlobal Real Assets Omni

Adam PillayPlatform SpecialistReal Estate Asia Pacific

Dennis WongResearchReal Assets Asia Pacific

2 | The APAC Core Real Estate Realization

Market size and opportunitiesThe large regional APAC economy – making up about 30% of global GDP3 – is supported by the world’s largest commercial real estate market, as measured by invested stock. APAC currently claims 36% of the US$14 trillion global market4 – ahead of both the U.S. and Europe (Exhibits 1a and 1b).

Among the 38 countries and territories within APAC, eight countries comprise 90% of the region’s invested real estate stock. J.P. Morgan Asset Management considers these eight countries our current APAC core real estate market universe and has identified 15 cities within these countries that currently clear the risk-return bar for core investors:

• Australia (Sydney, Melbourne, Brisbane, Perth)

• Japan (Tokyo, Osaka, Nagoya, Fukuoka)

• Hong Kong

• Singapore

• New Zealand (Auckland)

• South Korea (Seoul)

• Taiwan (Taipei)

• China Tier 1 (Beijing, Shanghai)

APAC’s lead in real estate scale over North America and Europe should only widen: based on expected GDP growth in emerging and developed economies, J.P. Morgan Asset Management – Global Real Assets estimates that the region’s overall real estate stock should grow by more than five-fold over the next 20 years.

Return characteristicsAPAC core real estate may offer prospective returns that are competitive with core markets in the United States and Europe. As a whole, the region was more resilient during the downturn following the global financial crisis, and has more

36%

34%

30%

NORTHAMERICA

EUROPE

ASIAPACIFIC

JAPAN 37%

CHINA 28%

AUSTRALIA 8%

SO. KOREA 7%

SINGAPORE 3%

HONG KONG 3%TAIWAN 2%

NZ 1%OTHER 9%

EXHIBIT 1a.GLOBAL REAL ESTATE MARKET: INVESTED STOCK1

EXHIBIT 1b.APAC REAL ESTATE MARKET: INVESTED STOCK1,2

1 Source: DTZ Research, “Money into Property 2014”. DTZ defines invested stock as commercial real estate held by investors in the relevant country.

2 JPMAM – Global Real Assets, based on GDP proxy as of 2013.

consistently delivered stable performance in excess of inflation than U.S. and European real estate markets.

Returns versus equities and fixed incomeAPAC core real estate seeks to provide investors with opportunities to earn two to three times the current yields available on many fixed income and equity investments in the global markets (Exhibit 2a). Moreover, in many APAC markets, core real estate yields are comparable to those available in gateway core markets of the U.S. and Europe, enabling investors to diversify and supplement the income streams of their real estate allocations. At the same time, APAC real estate returns have demonstrated significantly lower volatility than public equities – in both the APAC and global markets – reflecting the diversification benefits available to investors interested in reducing equity market beta and volatility (Exhibit 2b).

3 World Bank Development Indicators, data as of 2013F 4 “Money into Property 2014”, DTZ

Notes: Following metrics are used for yield comparison: fixed-income yields are represented by “yield to worst” (YTW); dividend yields for equities, and unlevered all property yields for real estate.

Sources: Bloomberg, Barclays, IPD, IPD/CBRE/JPMAM – Global Real Assets Research. Financial assets yields are as of 4Q 2014, property yields are as of 4Q 2014. Volatility analysis is as of 4Q 2014.

EXHIBIT 2b. LOWER VOLATILITY VS. EQUITIES

30%

20%

10%

0%

10%

20%

30%

40%

Dec99

Dec00

Dec01

Dec02

Dec03

Dec04

Dec05

Dec06

Dec07

Dec08

Dec09

Dec10

Dec11

Dec12

Dec13

Dec14

Qua

rterlyRe

turns(%)

APAC EquitiesGlobal EquitiesAPAC Core Real Estate

EXHIBIT 2a. HIGHER YIELDS VS. STOCKS AND BONDS

Yield(%

)

0%

1%

2%

3%

4%

5%

6%

7%

8%

APACAgg

GlobalFixedIncome

GlobalEquities

APACEquities

U.S. RealEstate

JapanRealEstate

UK RealEstate

AustraliaRealEstate

J.P. Morgan Asset Management | 3

Resilience when economies falterThe global financial crisis focused investors’ attention on downside performance – the true measure of diversification, both within broader portfolios and in their real estate allocations. APAC core real estate may offer such additional diversification when it matters most: during the last 15 years, in the five quarters that real estate performance was at its weakest – from December 2008 through December 2009 – APAC core real estate demonstrated better resilience than the U.S. market, in that returns were either positive or meaningfully less negative (Exhibit 3a). The results versus European property were similar, as APAC core real estate provided downside resilience in a majority of the worst quarters (Exhibit 3b).

EXHIBIT 3a: 5 WORST QUARTERS FOR U.S. REAL ESTATE

12%

8%

4%

0%

4%

8%

U S Real Estate EU Real Estate APAC Real Estate

Higher frequency of inflationoutperformanceReal estate’s potential ability to protect portfolio purchasing power from inflation – through increasing rents – is one of the primary attractions of the asset class, and in this regard APAC core real estate distinguishes itself. Over the last 15 years, APAC real estate has consistently delivered returns above domestic inflation in the U.S. (Exhibit 4a) and Europe (Exhibit 4b), showing a higher frequency of inflation outperformance than both property in other markets and conventional financial assets.

EXHIBIT 3b: 5 WORST QUARTERS FOR EUROPEAN REAL ESTATE

12%

8%

4%

0%

4%

8%

EU Real Estate U S Real Estate APAC Real Estate

Sources: NCREIF (U.S. Real Estate), IPD/CBRE/JPMAM – Global Real Assets Research (EU Real Estate), JLL/JPMAM – Global Real Assets Research (APAC Real Estate). Data time horizon = 1Q 2000 to 4Q 2014. Note that the data represents direct private unleveraged property performance.

EXHIBIT 4a. INFLATION SENSITIVITY – U.S. INVESTOR PERSPECTIVE

0%

20%

40%

60%

80%

100%

U.S.Equities

U.S.FixedIncome

U.S.Real Estate

EuropeReal Estate

APACReal Estate

CPI + 3% CPI + 4% CPI + 5%

EXHIBIT 4b. INFLATION SENSITIVITY – EUROPEAN INVESTOR PERSPECTIVE

0%

20%

40%

60%

80%

100%

EuropeEquities

EuropeFixedIncome

U.S.Real Estate

EuropeReal Estate

APACReal Estate

CPI + 3% CPI + 4% CPI + 5%

Notes: The bars represent the number of times the respective asset class outperforms a benchmark of CPI + X% over a rolling five-year period. Europe CPI is represented by year-over-year UK Headline RPI.

Sources: Bloomberg, U.S. Equities: S&P 500, U.S. Fixed Income: Barclays U.S. Aggregate, EU Equities: FTSE 300, EU Fixed Income: Barclays EU Aggregate, NCREIF (U.S. Real Estate), IPD/CBRE/JPMAM – Global Real Assets Research (EU Real Estate), JLL/JPMAM – Global Real Assets Research (APAC Real Estate). Data time horizon = 1Q 2000 to 4Q 2014. Note that the data represents direct private unleveraged property performance. All performance is measured in local currency.

4 | The APAC Core Real Estate Realization

Low correlation

APAC core real estate exhibits a low correlation to the public equity and debt markets, as expected, but is unique in the diversification it offers versus other core real estate holdings – that is, it shows low correlations with the U.S. and European real estate markets. Correlation also is fairly low among many APAC markets – unlike the Western markets, where real estate

returns tend to show higher correlations even among different regions of the U.S. and Europe (Exhibit 5).

This additional dimension of diversification results from the diversity of the APAC economies, as well as the varied timing, length and amplitude of their real estate cycles (Exhibit 6).

EXHIBIT 6. ASIA PACIFIC MARKETWAVES

TK OFFICE(3-WARDS)TK OFFICE

(23-WARDS)

TK RETAIL

TKINDUSTRIAL

SYD OFFICE

MEL OFFICE

AUK OFFICE

SYD RETAIL,BEN OFFICE MEL RETAILBNE RETAIL

AUK RETAIL SYD INDUSTRIAL

MEL INDUSTRIAL

PER RETAIL, BNE INDUSTRIALPER OFFICE & INDUSTRIAL

AUK IND

BJ OFFICE

SH OFFICE

HK OFFICE

SG OFFICE & RETAIL,

BJ RETAIL

SH RETAIL & INDUSTRIALHK RETAIL

BJ INDUSTRIAL

HK INDUSTRIAL

SG INDUSTRIAL

MARKETEQUILIBRIUM

MARKETEQUILIBRIUM

DECELERATING MARKETRISING MARKET

FALLING MARKET RECOVERING MARKET

Source: Jones Lang LaSalle REIS, JPMAM – Global Real Assets Research. As of 1Q 2015.

EXHIBIT 5. UNIQUE INTER- AND INTRA-REGIONAL DIVERSIFICATION AMONG APAC CORE REAL ESTATE MARKETS

High (+1.0)Low (Negative)

U.S

.Eu

rope

Asi

a Pa

cific

1995 - 2014 U.S. U.S. East U.S.South

U.S.West Europe

Central/East

Europe

CoreEurope Nordics Periphery

Europe APAC Australia HongKong Japan New

Zealand Singapore

U.S.

U.S. East

U.S. South

U.S. West

Europe

Central/East Europe

Core Europe

Nordics

Periphery Europe

APAC

Australia

Hong Kong

Japan

New Zealand

Singapore

Sources: NCREIF, IPD, CBRE, JLL, and J.P. Morgan Asset Management – Global Real Assets Research. Annual data as of December 2014. All data is denominated in local currency. Note: The real estate historical return series are unlevered. Past performance is not indicative of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. The above table is for illustrative and discussion purposes only.

J.P. Morgan Asset Management | 5

Mature, diverse APAC marketsThe APAC region is diverse, and includes mature, advanced economies such as Japan, Australia and New Zealand, as well as the “Asian Tigers”— Hong Kong, Singapore, South Korea and Taiwan. Developed economies within APAC are as wealthy as their Western counterparts, and in some case more so, driving the need for core real estate across the retail, industrial and services sectors. Singapore and Hong Kong rank in the top 10 wealthiest countries by GDP based on purchasing-power-parity (PPP) per capita, and Australia, Taiwan, Japan, South Korea and New Zealand all stand among the top 35 globally5. The foundation of APAC’s economic strength is based on the vibrant trade within the region, which has exceeded 50% of its total import-export volume since 2009 – greater than its commerce with Western economies.

As the region’s economy matures, we shall not be surprised to see a slower growth rate going forward, which can be favorable for core real estate investing. Slowing yet steady growth is often accompanied by a corresponding expansion in real estate market size, reduction in volatility, and greater diversity of institutional real estate ownership. Tokyo, Hong Kong and Singapore are good examples of this evolution.

Large, stable and credit tenantsThe weight of APAC countries in global business and the region’s progressive growth profile have attracted multi-national corporations in large numbers, helping to build the scale, maturity and diversity of its commercial real estate markets: in 2013, over 1,400 large companies with revenues of US$1 billion or greater had offices in the APAC region – more than twice as many large enterprises as in either the U.S. or European markets6. Total revenues generated by these APAC large companies were nearly equal to the top lines of large companies in North America and Europe combined7. Moreover, 196 companies in the Fortune Global 500 are based in the region. Such high-quality tenants generate stable cash flows, creating solid current valuations and upside potential for core APAC properties.

6 MGI CompanyScope Database, October 2013, McKinsey Global Institute7 MGI CompanyScope Database, October 2013, McKinsey Global Institute5 World Economic Outlook Database April 2015, IMF

6 | The APAC Core Real Estate Realization

Relative value in APAC property

Core real estate investing is a strategic proposition, and in theory long-term returns are less dependent on the timing of investments than they are in the cases of value-added or opportunistic investing. In the current climate, however, relative value analyses – current yield spreads8 of APAC core real estate markets versus other global markets, and current

yield spreads versus their respective historical average spreads – suggest that APAC core markets are attractively or fairly priced today (Exhibit 7). A closer look at fundamentals reveals that some markets may yet have room to run. For example, in the majority of APAC core office markets net effective rents are well off their peaks (Exhibit 8).

Notes: 1 For the best available global comparison, Sydney office is represented by Sydney CBD (1998-1Q 2015); Melbourne office is represented by Melbourne CBD (1998-1Q

2015); Tokyo office is represented by the Central 5 wards (1996-1Q 2015); Singapore office is represented by the Raffles area (1998-1Q 2015); Hong Kong office is represented by Central (1996-1Q 2015); Seoul office is represented by the CBD, Yeouido and Gangnam business district (2001-1Q 2015); Taipei office includes Xinyi (2001-1Q 2015); San Francisco office is represented by all submarkets (2004-2014); New York is represented by Midtown (2001-1Q 2015); Paris office is represented by the Paris Ile-de-France area (2003-2014); and London office is represented by London Central (2003-2014).

2 Yields for Australia office are defined as the ratio of the net passing income deducting incentives (if any) and the sale price or estimated value; yields for Tokyo, Hong Kong and Singapore office are defined as the ratio of the sale price or estimated value (net of transaction costs) and the current income being paid under the market effective rent assuming full occupancy and deducting operating expenses and incentives (if any); yields for the U.S. office are defined as the ratio of the net operating income and its capital cost (i.e. the original purchase price); yields for European office are based on the ratio of net market rental income (net of tax and any other expenses) and the gross market value (including transaction costs).

3 Asia Pacific office yield data is sourced from Jones Lang LaSalle REIS as of 1Q 2015, with the exception for Auckland which is as of 4Q 2014. San Francisco prime office yield data is sourced from Real Capital Analytics as of 4Q 2014, and New York prime office yield is sourced from Jones Lang LaSalle as of 1Q 2015; European prime office yield is sourced from CBRE as of 4Q 2014. Risk-free rates for all countries are based on 10-year bond yield extracted via DataStream as of 1Q 2015.

8 Yield spread refers to current yield versus the respective country risk-free rate, represented by the 10-year government bond yield.

EXHIBIT 7. YIELD SPREADS HIGHER IN MANY APAC CORE MARKETS1,2,3

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

Prim

e of

fice

net y

ield

spr

ead

(vs.

risk

-free

rate

)

ASIA PACIFIC U.S. & EUROPE

Above Above Above Neutral Neutral Neutral Below Above Below Above

vs.historicallong-termspread

Above Above

Melbourne Auckland Sydney Toyko Seoul Singapore Taipei Hong Kong Paris London San Francisco New York

J.P. Morgan Asset Management | 7

EXHIBIT 8. FURTHER UPSIDE? NET EFFECTIVE RENTS REMAIN WELL OFF HISTORICAL HIGHS FOR MANY APAC CORE MARKETS

-10%

-72%

-21%-12%

-55%

-2%

-40%

-25%

-41%

0%

20%

40%

60%

80%

100%

Auckland Brisbane Hong Kong Melbourne Perth Seoul Singapore Sydney Tokyo

Ren

t ind

ex

Current

Cyclical Peak

Note: Sydney, Melbourne, Brisbane, Perth, Auckland, Tokyo, Beijing, Shanghai, Hong Kong, Singapore, and Seoul office markets are represented by Sydney CBD, Melbourne CBD, Brisbane CBD, Perth CBD, Auckland CBD, Tokyo Central 5 wards, Beijing CBD, Shanghai CBD, Hong Kong Central, Singapore Raffles, and Seoul CBD, respectively.

Source: Current prime office net effective rents, as of 1Q 2015, with the exception of Auckland which is as of 4Q 2014 Jones Lang LaSalle REIS. Cyclical high and low are based on the period between 2004-1Q 2015, with the exception of Auckland which is based on the period between 2004-2014.

Risks in core APAC markets are comparable to Western markets

The APAC real estate market is large, diverse and growing, and the core sectors of many cities today offer risk profiles comparable to large Western markets. To quantify such measures, J.P. Morgan Asset Management – Global Real Assets has developed a rigorous Target Market Analysis framework for rating city and country on both risk and return. Exhibit 9

summarizes the Target Market Analysis framework, taking into account the long-term structural characteristics and real estate fundamentals, medium-to-long-term capital market evaluations, and risk profiles (including legal and financial system, transparency, liquidity, volatility, and other factors) for the 15 key APAC markets.

EXHIBIT 9. TARGET MARKET ANALYSIS (TMA)

* The number of factors adopted for the above target market analysis may vary for different sectors.

Risk Overlay(~7 factors*)

Long-Term Structural

Characteristics(~6-7 factors*)

Long-Term Real Estate

Fundamentals(~6-7 factors*)

Medium-to-Long Term Capital Markets Fundamentals

(~3 factors) Target Markets

and Sectors

8 | The APAC Core Real Estate Realization

In terms of APAC market risk, top scores are earned by the advanced economies of Australia, New Zealand, Japan and Hong Kong, as most rank highly on all variables. Scores for the other markets vary, although all rate highly on real estate market liquidity.

Ratings on transparency for the APAC core markets are in line with those of the developed markets of the U.S. and Europe. According to global measures compiled by Jones Lang LaSalle, Australia and New Zealand are designated highly transparent (comparable to the United States, Canada, the United Kingdom, France and the Netherlands) while Japan, Singapore and Hong Kong are rated on a par with large Western European centers, such as Switzerland and Germany.

This list of markets meeting core risk standards can and will expand over time, as other APAC markets mature economically, politically and legally. In fact, a number of other APAC cities and sectors already demonstrate many desired market traits and could soon appear on the APAC core list.

The currency questionInvesting outside an institution’s home market can introduce risk from changes in exchange rates versus the base currency. In the case of APAC real estate, however, currency risk can be reduced through diversification across multiple markets and currency exposures. Additionally, over a long investment horizon, mean reversion in currency values serves to lower the volatility as the investment hold period increases. An illustration of the potential for mitigation in currency risk through time appears in Exhibit 10.

EXHIBIT 10. ANNUALIZED VOLATILITY OF CURRENCY IMPACT FOR VARIOUS LEVELS OF CURRENCY EXPOSURE

0%

2%

4%

6%

8%

10%

12%

14%

1 2 3 4 5 6 7 8 9 10 11 12

Annu

alized

Volatility

(Stand

ardDe

viation)

Number of Hold Periods (Years)

100% Japanese Yen 100% Chinese Yuan

100% Australian Dollar APAC Core RE Market

Notes: Volatility estimates are based on historical United States dollar denominated currency exchange rates data between 2000 and 2015. Annualized return volatility calculated using annualized returns on monthly exchange rates. APAC Core RE Market Portfolio weights: 42% Japanese Yen, 32% Chinese Yuan, 10% Australian Dollar, 8% South Korean Won, 4% Singapore Dollar, 4% Hong Kong Dollar, 1% New Zealand Dollar.

J.P. Morgan Asset Management | 9

Summary: APAC may offer enhanced risk-adjusted returnsIn combination, the favorable attributes of APAC core real estate – low correlation with the U.S. and European markets, greater downside resilience and inflation outperformance – may improve the risk-adjusted return of a variety of portfolios. Over the past 15 years, adding APAC core real estate to home market-centric allocations for illustrative U.S. or European investors (allocating 75% to the home market and the balance to either the U.S. or Europe) would have resulted in meaningfully higher returns and lower volatility, and thus higher returns per unit of risk (Exhibit 11 ). Furthermore, the addition of APAC core real estate may mitigate some of the downside risk associated with developed market real estate portfolios, reducing the maximum drawdown in each scenario.

In aggregate, the Asia Pacific region is large and vibrant, with some of the best opportunities for core real estate invest-ment in today’s global economy. But it’s not solely an emerg-ing markets story: many parts of APAC’s property sector have already reached core quality on par with the West. Whether due to distance, or unfamiliarity, U.S. and European institu-tions have largely overlooked the opportunities, but we believe that investors who include APAC core real estate in their strategic real estate allocations are likely to see better investment outcomes.

EXHIBIT 11. THE CASE FOR ADDING APAC CORE REAL ESTATE IN THE PORTFOLIO

Illustrative 15-year historical analysis: diversified core portfolios of direct private unleveraged property performance

Europe Real EstateU.S. Real Estate

Asia Real Estate

U.S. Centric RE + 25% APAC Real Estate Europe Centric RE + 25% APAC Real Estate

75%50%

25%

75%

25%

25%50%

25%

25%

25%

Risk/Return Characteristics

Historical Return 8.2% 8.5% 7.1% 8.0%

Historical Volatility 8.8% 8.4% 7.6% 7.8%

Return per unit of Risk 0.9 1.0 0.9 1.0

Max Drawdown -21% -16% -15% -13%

Notes: The exhibit represents returns of diversified portfolios of direct real estate properties. The analysis shows returns on an unleveraged and gross returns basis for comparison purposes.

Sources: NCREIF (U.S. Real Estate), IPD/CBRE/JPMAM – Global Real Assets Research (European Real Estate), JLL/JPMAM – Global Real Assets Research (APAC Real Estate). Data time horizon = 2000 to 2014.

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