JPMCB Strategic Property Fund - OkMRF SPF JPM.pdf2017/02/15 · for 2016 and we successfully...

JPMCB Strategic Property FundQuarterly Report: December 31, 2016

FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

JPMCB Strategic Property Fund1 pursues a pure core investment strategy designed to deliver

a relatively high level of current income combined with moderate appreciation potential. It

owns and seeks attractive offi ce, retail, residential and industrial investments in major markets

throughout the U.S. with high quality physical improvements, stabilized occupancies, excellent

locations and competitive positions within their markets.

The Fund executes its strategy by maintaining a strong balance sheet, investing in the portfolio

to drive income return, acquiring new assets for long-term growth and pruning assets with less

long-term potential. The Fund’s size, quality, consistent pure core strategy, high occupancy, low

lease rollover, solid income, conservative leverage and staggered debt maturities position it to

perform well over the long term.

ON THE COVER AND ABOVE: ROYAL HAWAIIAN CENTER, HONOLULU, HI Royal Hawaiian Center is a 335,667 -square-foot Class A urban shopping center located in Waikiki Beach in Honolulu. The Fund is augmenting the already strong tenant base by replacing underperforming tenants to strengthen retail offerings, diversify merchandising mix and increase sales productivity.

A B O U T

1 Commingled Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank, N.A. (“Strategic Property Fund”, “SPF” or “the Fund”).

J .P. MORGAN ASSET MANAGEMENT 1

STRATEGIC PROPERTY FUND delivered a fourth quarter 2016 total gross return of 2.2%, comprised of income of 1.0% and appreciation of 1.1%. The total net return was 1.9%.

F I N A N C I A LH I G H L I G H T SAS OF DECEMBER 31, 2016

Net Asset Value : $30,515,363,858

Unit Value: $3,019.87

Gross Asset Value:1 $41,229,984,564

Number of Direct Real Property Interests:2

170

Number of Accounts: 424

1 Net Assets refl ected gross of Fund’s share of debt at fair value of approximately $10.7 billion.

2 Direct real property interests and land investments.

3 SPF’s inception date.4 Performance results are gross of investment management fees. Past performance is not a guarantee

of comparable future results. Actual account performance will vary depending on individual portfolio applicable fee schedule. Total return is calculated based on time-weighted rate of return methodology.

5 The NFI-ODCE (NCREIF Fund Index-Open End Diversifi ed Core Equity) is a fund-level capitalization weighted, time weighted return index and includes property investments at ownership share, cash balances and leverage (i.e. returns refl ect the fund’s actual asset ownership positions and fi nancing strategy).

Total returns net of fees were: Current Quarter: 1.9%; One Year: 7.3%; Three Years: 10.4%; Five Years: 11.4%; Ten Years: 5.5%; Fifteen Years: 7.8%; Since Inception: 8.7%. Net returns are based on the highest applicable fee rate for this strategy. The deduction of an advisory fee reduces an investor’s return.

Investment performanceAS OF DECEMBER 31, 2016

(%) Current quarter

One year

Three years

Five years

Tenyears

Fifteenyears

Since Jan. 983

SPF4 Total 2.2 8.4 11.5 12.5 6.5 8.9 9.8

NFI - ODCE5 Total 2.1 8.8 12.1 12.2 5.8 8.2 9.0

F O U R T H Q U A R T E R 2 0 1 6

Percen

tTotalIncome Appreciation

0

5

10

15

1.0

2.2

1.1

8.4

4.4

3.8

11.5

4.8

6.4

12.5

5.0

6.5

5.4

7.2

1.1

8.9

5.9

2.8

9.8

6.5

3.0

2 JPMCB STRATEGIC PROPERTY FUND | FOURTH QUARTER 2016

Strategic Property Fund delivered a fourth quarter 2016 total gross return of 2.2% and a trailing one year total gross return of 8.4%. The Fund continued to deliver a durable income return of 1.0% for the quarter and 4.4% for the trailing one year period. We anticipate the total gross return for 2017 to be in the range of 6-8%. At quarter end, the gross asset value (GAV) of the Fund was $41.2 billion and net asset value (NAV) was $30.5 billion.

Fourth quarter appreciation was driven primarily from appreciation in the West Coast office assets as well as two of the large regional malls, NorthPark and Royal Hawaiian Center. Rising Treasurys in the fourth quarter resulted in a positive mark to market on the debt. Negative contributors in the fourth quarter included Southeast Financial Center, an office asset located in Miami, FL that sold less for than its carrying value, and Houston Center, our Houston office holding that was devalued to reflect the deteriorating market.

In 2017, SPF will focus on reinvesting in the current portfolio to ensure the existing assets maintain dominant positions in their respective marketplaces across all sectors. Most notably, the Fund has significant redevelopment programs in progress at two of our California malls, University Towne Center and Valley Fair Mall, where we are undertaking renovation and expansion projects with a focus on high-end retail, new restaurant concepts and entertainment.

Acquisition activity will likely be slow in the first half of the year, as investors digest the changing landscape in borrowing costs, softened capital demand for office product and generally slowed rent growth in the multifamily sector as a result of increased delivery of supply. SPF will look to take advantage of any attractive pricing opportunities for high quality assets that may arise as a result. The Fund will focus selective acquisition efforts in the industrial and residential sectors, where we are currently underweight. This may come in the form of core assets or new development opportunities. SPF’s current development exposure is 2.7% of GAV.

Disposition activity in 2017 is anticipated to reflect a more normalized year, with approximately 5% of the NAV of the Fund targeted for sale. Assets anticipated to transact will be across product types, versus the 2016 strategy, which was focused on office sales to help the Fund meet its objective of reducing the overall exposure in the sector.

The Fund ended the calendar year with a cash position of 5.3% of NAV. Reducing the Fund’s leverage was one of our top priorities for 2016 and we successfully brought it down from 27.2% at the end of 2015 to 26.0%. On the liquidity front, we raised over $1.6 billion and accepted $2.4 billion of funded capital during the calendar year. As of December 31, 2016, the contribution queue stood at $489.7 million, approximately 1.6% of the Fund’s net asset value. Investors seeking to increase their Strategic Property Fund position can expect new commitments to be called in approximately three months.

Strategic Property Fund also remains a valuable source of liquidity to our clients, as we distributed $ 3.0 billion to fulfill withdrawal requests for redemptions, management fees and distributable cash flow. The Fund continues to fully satisfy all outstanding redemption requests and is currently operating without a redemption queue.

Thank you for your continued support of Strategic Property Fund and the Real Estate Americas team.

T O O U R V A L U E D C L I E N T S

Kimberly A. AdamsPortfolio Manager

Ann E. ColePortfolio Manager

ON THIS PAGE:

10 Hudson Yards

New York, NY


REAL ESTATE CAPITAL MARKETS The fourth quarter of 2016 has brought with it a host of changes. A surprising presidential election outcome lead to an increase in equity market volatility as investors and analysts scrambled to determine who the winners and losers would be as a new administration takes office. It appears for now that the consensus expectation is the economy as a whole will be the winner as equity markets were up over 4% in the two months between Election Day and year end. The pro-growth sentiment has carried over to bond markets as well. The 10 year treasury rate was up 80 bps from Election Day to the end of the year as investors priced in increasing inflation expectations from fiscal stimulus spending and a labor market with little slack.

The effect on the commercial real estate market hasn’t been as pronounced, but is still being felt. Cap rates have moved up incrementally, which is likely a reaction to the sharp uptick seen in interest rates. To be clear, the increase in cap rates is far smaller than the interest rate climb, but it does indicate that investors are factoring the broader economic changes into their pricing expectations. Similar to the first half of the year, transaction volumes are down and investors appear to be shifting their focus out of the major markets to secondary ones. Real Capital Analytics is reporting core deal volume in the top six markets was down 9% in 2016 while it was up 4%

in secondary markets. It appears that investors are chasing yields as they move out along the risk spectrum in an effort to meet return requirements.

Despite these headwinds, commercial real estate prices are climbing, thanks to the strength of the underlying fundamentals. With year over year NFI-ODCE same store NOI growth at 3.7% as of 4Q16; cash flow growth is more than offsetting these other factors. The NFI-ODCE index appreciated by 2.7% in 2016 which is in line with our expectations of moderating appreciation gains to more inflation-like levels. When combined with an income return a little shy of 5%, total returns for commercial real estate were 7.5% in 2016, which still compares well to other asset classes.

REAL ESTATE SECTOR REVIEW

Market Overview – Retail Sector Once again, malls posted strong NOI growth in 2016, adding yet another period of robust operating performance from this resilient subsector. In contrast to this strong NOI growth is a more mixed picture for tenant sales. Same store sales growth is lagging NOI growth by a significant margin and in some centers is even negative. This disconnect between sales and rents means that occupancy costs, or the ratio of a tenant’s rent to their sales, are climbing to levels which would typically

Direct real property interest only, excluding land investments.

Fund’s diversification is based upon investments’ net equity value.

Direct Real Property Diversification AS OF DECEMBER 31 , 2016DOLLARS IN MILLIONS

WEST $11,902.6 41.7%Offi ce 4,391.5 15.4%Industrial 1,040.6 3.6%Residential 2,132.6 7.5%Retail 4,337.9 15.2%

MIDWEST $1,474.8 5.2%Offi ce 568.2 2.0%Industrial 455.3 1.6%Residential 336.8 1.2%Retail 114.5 0.4%

TOTAL $28,580.7 100.0% Offi ce 11,951.0 41.7%Industrial 2,921.9 10.2%Residential 6,178.7 21.7%Retail 7,529.1 26.4%

EAST $8,754.9 30.5%Offi ce 5,100.0 17.7%Industrial 56.0 0.2%Residential 2,489.5 8.7%Retail 1,109.4 3.9%

SOUTH $6,448.4 22.6%Offi ce 1,891.3 6.6%Industrial 1,370.0 4.8%Residential 1,219.8 4.3%Retail 1,967.3 6.9%

National Real Estate Overview


N AT I O N A L R E A L E S TAT E O V E R V I E W

raise concerns, particularly in higher-end centers. This shift is not happening in isolation, and in large part is more of a question of how a store’s value is measured. With the rise of e-commerce, retailers are shifting from the traditional notion that sales alone determine the value-add of a particular location. As brick and mortar retailers transition their business over to an omnichannel one, stores are serving as more than just sales centers. In addition to selling goods, retail locations are now viewed as advertising space to help promote internet sales as well as an easy to access center to help streamline the return of unwanted online purchases. In short, as stereotypical brick and mortar retailers build out a larger online presence, they are becoming increasingly indifferent to the actual channel of the sale. This additional value-add of storefronts means that tenants are willing to pay more for locations they feel promote their brand and help integrate their various sales channels.

This shift in strategy is having effects outside of just occupancy costs. The fluid sales dynamic and rising cost of opening a storefront means that in many cases retailers do not need or cannot justify multiple store locations in a particular trade area. They are instead focusing on going deeper as opposed to broader when planning their footprint. This will serve as an additional headwind for class B and C malls where a tenant may feel they will not get the visibility they need and a windfall

to fortress malls with the most foot traffic, as retailers are likely to shutter multiple inferior sites to make the economics at the top locations work.

When focusing on neighborhood and community centers, necessity and services still reign supreme and have been one of the only areas that landlords have been able to gain traction in the market. Restaurants, financial services, personal services, new exercise concepts as well as traditional gyms and even medical services such as dentists, chiropractors, podiatrists and veterinarians are a few examples of services that can’t be replaced online and generate trips to the center which all tenants benefit from. A central and convenient location for these centers is just as if not more critical than the other sectors. With e-tailers offering free two day shipping on everything from paper towels to a toothbrush, if your asset is not quick and easy to get to, consumers will likely just wait the day or two for their product to be delivered as opposed to heading out to the store.

Grocery stores also seem to be one of the last bastions of goods sales that haven’t transitioned online yet. Whether due to the additional logistical complexities of delivering perishable items, or just how engrained an experience going to a physical grocery store has become, these formats have so far fended off most attempts at e-competition, at least for now. Even the mighty Amazon has had trouble gaining traction with online

Diversification by Property TypeAS OF DECEMBER 31, 2016

Diversification by RegionAS OF DECEMBER 31, 2016

Direct real property interest only, excluding land investments.

Diversification is based upon investments’ net equity value.

Percen

t

0

20

40

60

80

100

East South West Midwest

SPF NFI-ODCE

30.5

22.6

41.7

5.2

30.7

19.0

40.6

9.7

Percen

t

0

20

40

60

80

100

Office Industrial Residential Retail

SPF NFI-ODCE

Hotel Other

41.7

10.2

21.7

26.4

36.9

14.7

24.3

20.2

3.20.7



sales of perishables, so much so that they are now opening their first brick and mortar grocery store in Seattle, albeit with a slight spin on pickup and check out.

Although e-commerce is having a profound effect on the retail industry, both tenants and landlords are adapting to the new landscape. Focusing on commodity goods that can easily be replicated online is a losing proposition and services, necessity goods and experiences are some of the ways they are striking back and seek to protect their market share.

Market Overview – Residential Sector Multifamily rent growth continues to slow in 2016. After peaking at 5.1% in 3Q15, year over year rent growth has decelerated to 3.3% as of December 2016. The construction pipeline and affordability issues driving the deceleration have been visible for some time, but recently, they seemed to become more problematic. This is particularly true in downtown cores where the delivery of new luxury towers is commonplace. Nationally, completions in 2016 will be at the highest level since 1988 and deliveries in 2017 will only fall slightly behind. The flip side of the increased construction is the demand generated by the urbanization trend across the country, which in large part has been driven by millennials rushing into CBDs. As these individuals navigate their way through early adulthood, they have flocked to cities and shunned ownership to a greater extent than previous

generations. The effect of this has been strong multifamily rent growth over the last six years. Although this growth is now cooling off, particularly in CBDs where construction has been concentrated, the 3.3% year over year rent growth is still 120bps ahead of inflation. Even with the supply, new buildings are filling up and although flattening, occupancy is holding up. This demand is encouraging and if developers can maintain a bit of discipline going forward, multifamily rent growth could stabilize at healthy levels.

Within CBDs, looking at assets at the lower end of the rent scale could present an opportunity. This segment of the market has experienced little if any construction and the lower price point helps alleviate some of the affordability issues being encountered by their luxury counterparts. Select suburban locations are also worth a look. Many of these areas have a strong anti-development attitude as well as top schools and high home values. The schools provide a strong draw for families and the high cost of ownership and tight lending standards makes renting the only option available to young families who have not yet had the time to save for the down payment or build the credit profile necessary to purchase a home. Additionally, the emphasis on maintaining good schools and limiting construction in these communities is unlikely to change soon. These policies are viewed as a way to protect home values as well as quality of life and will be difficult to overcome.

Real Estate Diversification by Life CycleAS OF DECEMBER 31, 2016

Real Estate Diversification by Investment StructureAS OF DECEMBER 31, 2016

Direct real property interests and land investments.

Fund’s diversification is based upon investments’ net equity value.

Development $0.8 Billion2.8%Leasing $0.2 Billion0.7%

Operating $27.6 Billion96.5%

Wholly owned$12.7 Billion44.4%

Joint venture$15.9 Billion

55.6%



In this cycle, institutional capital has been focused in large part on luxury CBD buildings and for good reason. These assets have performed excellently so far. However, the benefits of multiple expansions are mostly past and incrementally adding exposure to other apartment subsectors with different supply and demand dynamics could prove beneficial. This additional diversification should be complementary in rounding out a portfolio which may be heavily weighted to high-rise luxury towers.

Market Overview – Industrial Sector Industrial market fundamentals continue to improve nationwide. In contrast to some of the other sectors where we are seeing a deceleration and flattening, the improvement in industrial fundamentals is holding steady and in the case of rent growth, even accelerating. Both availability and year over year rent growth are at their most favorable levels since the late 90s tech boom. This performance is not surprising, considering the growth in the biggest underlying driver, e-commerce.

E-commerce sales have been growing at 18% annually for the last 15 years and with year over year growth of nearly 16% as of 3Q16, the pace doesn’t seem to be slowing. Adoption is growing and delivery times are shrinking. The effect of this is logistics providers are looking to get closer to consumers. This proximity not only makes shorter delivery times possible, it also makes them cheaper. Due to this, demand for infill warehouse continues to rise. Although rents in these properties are higher than those of larger and more efficient

buildings further away, the access and cost savings they provide outweigh the increased rent for many retailers. Limited available land and competition from other uses including office and even single-family housing means that space in these locations is hard to come by. Demand is now so strong and development sites so scarce, that one developer is beginning construction on the first multi-story warehouse project in the U.S., just south of Downtown Seattle. As the convenience of online shopping improves, acceptance will grow and infill warehouse locations should continue to reap the benefits.

With fundamentals in the sector so strong, investors are looking to increase their allocations. Getting the scale necessary to meaningfully shift weights has proven challenging for many and those in a rush to ramp-up are focusing their efforts on portfolio sales. For experienced operators and developers, this presents an opportunity to monetize gains on large portions of their holdings in one fell swoop. For purchasers, this is a chance to get immediate exposure, but at a cost. Due to the demand, these large transactions are trading at a premium to the value of the underlying real estate. In many cases, portfolios for sale are also being filled with underperforming buildings as sellers look to unload their more challenging assets on buyers who are willing to accept a few poor assets in return for a large increase in exposure to the sector. These deals can still be beneficial to investors, but they require expertise and discipline to properly underwrite. Underperforming assets need to be identified and pulled out and if sellers are unwilling to remove these buildings, the buyer needs to be willing to walk away or take the necessary steps to appropriately measure and price the risk.

SOUTH FLORIDA LOGISTICS CENTER, MIAMI, FL PARK LANE SEAPORT, BOSTON, MA



As consumer trends gravitate towards more online purchases, the industrial sector will continue to benefit. The shrinking of delivery times means more merchandise will have to be available for immediate delivery and distribution hubs will move closer to the end consumer. All of these trends paint a bright picture for warehouse demand, particularly in dense infill locations.

Market Overview – Office Sector The office market’s pace of improvement slowed in 2016. The fourth quarter vacancy rate was lower than it was last year, but at just 20 bps below where the market stood in 4Q15, the pace of the decline has slowed to a crawl over the last few quarters. Absorption was still firmly positive, but decelerated and has been barely outpacing completions.

Large CBD markets lost more leasing momentum than the suburbs. A bleak corporate profit picture has been weighing on leasing decisions. Large multinational companies were the ones frequently pulling on the reins and this principally hurt the larger gateway markets where these tenants tend to congregate. New York, Washington, D.C. and Downtown Los Angeles all saw annual absorption flatten or dip negative. In 2016, even San Francisco, the most dynamic office market in this recovery, experienced its first quarter of meaningful negative net absorption since 2010. Investors have also

pulled back and deal volume is down from a year ago. Pricing continues to climb, but gains are moderating and bidder pools are thinning, particularly for the largest deals.

This slowing of investor demand has created an opportunity which hasn’t existed since the early years of the recovery. Opportunities now exist to access well-leased, core properties in top markets, without getting into bidding wars. Well-capitalized investors even have the chance to purchase some of the largest properties in the market, at pricing and with deal terms that have been all but nonexistent over the last few years. These large asset purchases present a unique opportunity to capitalize on an investment strategy which has proven to outperform over time, but up until recently has become a crowded trade diminishing a portion of the upside potential.

The underlying drivers also appear to be moving back in favor of gateway office markets and large core deals. With the end of the third quarter came a strong bounce in corporate earnings, and a surprising presidential election outcome in November has brought forth the promise of substantial fiscal stimulus and a pro-growth, deregulatory administration focused on reinvigorating the nation’s corporations and economy. These are all factors, which at least in the short to medium-term, bode well for office demand. Capital flows to the sector could also get a bounce from investors reallocating from fixed income in anticipation of the impact rising long term rates will have on their bond capital values.

WATER GARDEN, SANTA MONICA, CA PACIFIC PLACE, SAN FRANCISCO, CA


Portfolio Activity

Current quarter One Year 2017 (Estimate)Income 1.0% 4.4% 4.00 – 4.50%Appreciation 1.1% 3.8% 2.00 – 3.50%Total 2.2% 8.4% 6.00 – 8.00%

Valuation of real estate investments and net realized dispositions resulted in total appreciation of $100.8 million (34 bps) for the quarter. The retail and residential sectors provided the largest outperformance, contributing 89% of the sectors’ total appreciation. Value gains during the quarter were led by improvements in operating fundamentals, primarily rental growth and leasing velocity. The key drivers of appreciation by sector are summarized below. The marking debt to market adjustment resulted in appreciation of $233.9 million (78 bps). The valuation activity of direct real estate during the quarter are as follows:

Retail Residential Industrial Offi ce$mm 56.6 32.7 30.9 -20.5Bps 19 11 10 -7

The following are the leveraged total returns by sector for the fourth quarter:

Retail Residential Industrial Offi ceIncome 1.2% 1.0% 1.2% 1.0%Appreciation 1.7% 1.1% 1.1% 1.0%Total 2.9% 2.1% 2.3% 2.0%

RETAIL SECTOR HIGHLIGHTSThe retail sector was the top performer during the quarter as the Fund’s Class A malls continue to generate steady returns from increased market rents. Our redevelopment efforts in this sector progressed well during the fourth quarter and we saw strong leasing momentum at several properties.

NorthPark Center in Dallas, TX experienced the largest value increase in the sector due to a decrease in cap rates and increased market rents. The property has executed approximately 35 new leases and renewals since the start of the year, the majority of which have been signed at higher rents to higher quality credit tenants. During the fourth quarter, the property signed approximately 10 new leases and renewals for 14,880 total square feet with tenants such as NARS, Roberto Cavalli, Shinola and Williams Sonoma.

Royal Hawaiian Center in Honolulu, HI continues to increase in value due to strong leasing activity and sales performance. As of November 30, 2016, the sales per square foot average for the property increased to $ 2,000 , ranking this center as an A++ equivalent mall. Several new leases were executed during the quarter, most significantly the expansion of Hermès, which will be completed in December 2018. The retailer will create a new three-story flagship store totaling 12,301 square feet

Top 10 Markets AS OF DECEMBER 31, 2016

Leasing by Property Type

Percent leased is calculated based on weighted net asset value.The 3Q16 leasing percentages shown above reflect revised percentages and differ from what was shown in the 2016 Annual Report.

Direct real property interest only, excluding land investments. Diversification is based upon the investments’ net equity value.

Percent

0

20

40

60

80

100

Office4Q163Q16

Industrial4Q163Q16 4Q163Q16

Residential4Q163Q16

Retail4Q163Q16

Total

90.3 90.896.1 97.1

93.5 92.091.891.791.592.6

0

3

6

9

12

15

Perc

ent

New York,

NY

Washingto

n, DC

San Fr

ancis

co, C

A

Dallas

, TX

Los A

ngeles

, CA

San Dieg

o, CA

Boston, M

A

Houston, T

X

Riversi

de, CA

San Jo

se, C

A

6.1

2.2

5.8

3.53.1

1.1

2.2

2.3

1.80.9

2.0

2.2

0.3

3.7

0.1

1.3

2.6

1.1

1.6

1.4

9.7

2.9

0.6

Residential RetailOffice Industrial

13.3

10.29.8

8.3

6.4 6.4

4.4

2.1

1.90.2

1.4

3.3

5.6 5.4

0.8

2.2

2.2

5.2

2.1

0.3


P O R T F O L I O A C T I V I T Y

with their lease expiring in 2033. Opportunities being explored to redevelop the top level of the mall to accommodate an additional entertainment component represent future value add potential for SPF.

University Towne Center in La Jolla, CA signed eight new leases during the quarter in preparation for the expansion scheduled for a Fall 2017 opening. A few of the leases include Arhaus for 22,054 square feet, Swarovski for 850 square feet and Jo Malone for 825 square feet. In addition, existing tenants such as PBTeen, MAC, The Body Shop and Johnny Rockets signed lease renewals for approximately 10-year terms.

RESIDENTIAL SECTOR HIGHLIGHTSThe Fund has experienced some rent increases in select markets.

Park Lane Seaport in Boston, MA had an increase in value due to increasing residential base rents reflecting recent leasing activity and additional renovated units soon to be delivered. The Boston market has an abundant and growing supply of high quality residential units ; however, the unit renovation program currently underway at Park Lane enables the property to differentiate itself and realize higher rents. Indeed, the rent growth at the property has proven to be stronger than the general Seaport market.

Viridian in Greenwood Village, CO also experienced appreciation due to increased market rents and an increase in rent growth year over year. The assumption changes were also supported by sales of four comparable properties in the Denver area that occurred throughout the past year, reflecting investor appetite for suburban product that is demonstrating stronger rent growth than that in the CBD.

The Fund generated $88.2 million of net proceeds from the sale of Equinox Apartments in Seattle, WA, with a realized IRR of 8.5% and equity multiple of 1.6x. The 204-unit rental community is well-located in Eastlake, Seattle which has a strong, growing economy, driven by a broad base of vibrant industry sectors such as aerospace, manufacturing and high-technology.

INDUSTRIAL SECTOR HIGHLIGHTSIndustrial assets continue to provide consistent returns as quality, well-located supply is limited and demand for industrial exposure in key logistic markets increases.

South Bay Industrials in Compton, CA experienced the largest appreciation in the sector as the underlying assets continue to see capital markets compression and increasing rents quarter over quarter. The renewals are outperforming as vacancy is at a historic low of 0.5% for the South Bay market and tenants are limited with their relocation options. Due to the limited land sites for industrial development, land values in the Greater Los Angeles market have increased 30% year over year.

The Fund’s Texas portfolios experienced the largest activity of leases executed during the quarter in the industrial sector. Of note, American Tire Distributors, Inc. signed a new lease of 756,000 square feet for a ten-year term at Alliance Texas in Fort Worth, TX. In addition, Scentsy, Inc. signed a new 10-year lease of 115,989 square feet and MTC America Enterprises, Inc. signed a five-year lease renewal of 6,484 square feet at Dugan Texas in the Dallas Metro Area .

Leasing Expiration by Property Type

AS OF DECEMBER 31, 2016

Calculated based on square feet, excludes residential and development properties.

0

5

10

15

20

25

Perc

ent

8.1 8.810.4 9.1

2017

5.98.3

6.7 7.0 8.5 9.310.8 9.6

2018 2021

6.99.4 10.8

9.1

2019

7.3

22.2

8.3

12.9

2020

Industrial TotalRetailOffice



The Fund invested $24.5 million to acquire a 162,088-square-foot building ( Building 6) in Phase II of South Florida Logistics Center in Miami, FL. The project is a continuation of the five fully leased industrial buildings that were acquired in September 2016.

OFFICE SECTOR HIGHLIGHTSThe office sector experienced strong performance due to increasing market rents, particularly in the California assets. Some of the performance was offset by the current market conditions in Houston. Overall rents continue to decline even within the context of aggressive concessions. The Houston office assets detracted 40 bps from overall Fund performance on an unlevered basis over the course of 2016.

Water Garden I and II in Santa Monica, CA experienced outsized appreciation due to the changes in market rent assumptions. Rental rates have continued to increase at Water Garden I due to the completion of the refresh project, which continues to drive leasing traffic to the asset. Water Garden II was able to capture more of the positive impact of the increase in rents as the property currently has higher vacancy rates and a shorter weighted average lease term.

Century Park in Los Angeles, CA experienced an increase in value due to improved market rent assumptions. Century Plaza Towers and 2000 Avenue of the Stars were appraised with increased market rent assumptions at varying rates throughout both properties.

Sunnyvale City Center in Sunnyvale, CA had increased market rents based on recent leasing activity. Tenant interest in this property continues to be strong as Red Hat, Inc. signed a new seven-year lease for 28,389 square feet and Radware, Inc. signed a new four-year lease for 5,631 square feet. These rents were 68% and 137%, respectively, higher than the tenants previously occupying the space.

China Basin, located in San Francisco, CA, signed lease renewals for a total of 178,152 square feet which includes a 124,282-square-foot, 15-year renewal for the Regents of the University of California. This consists of primarily lab space that would have been extremely capital intensive to re-tenant, so the renewal is a critical achievement at that asset.

Franklin Park II in Franklin, TN increased in value as the project is nearing its delivery and stabilization date. The property is currently 75% leased with Schneider Electric as the major tenant (approximately 60% of the building).

The Fund ended the year closing on several office disposition deals that generated a total of $1.2 billion in net proceeds . Of note, Southeast Financial Center in Miami, FL generated $506.4 million of net proceeds, with a 3.2% realized IRR and 1.3x equity multiple. The property is a 55-story 1.1 million-square-foot office tower in Downtown Miami and was 85% leased at the time of sale. The trade was executed at 89% of the carrying value. The Bluffs at Playa Vista in Playa Vista, CA consist s of two Class A, five-story low-rise office buildings totaling 486,673 square feet. The sale generated

Total Leverage AS OF DECEMBER 31, 2016DOLLARS IN MILLIONS

Total Gross Assets Fund’s Leverage Percentage:Total balance sheet assets $30,516 Total Fund's T1 total leverage $10,714 Fund's share of mortgage loans & other liabilities 11,111 Total gross assets $41,627 Fund's outstanding line of credit – Fund's Leverage Percentage1 25.7%Total Gross Assets $41,627

1 Leverage calculated based on outstanding principal in accordance with PREA NCREIF Reporting Standards which may differ from the Fund’s reported leverage.



$409.0 million of net proceeds, with a 12.2% realized IRR and 1.8x equity multiple. The Fund also received $251.3 million of net proceeds from the sale of Foundry III in San Francisco, CA, a 10-story, 291,039-square-foot, newly constructed trophy office building, which delivered a 19.6% realized IRR and 1.9x equity multiple.

As a result the Fund’s office exposure was reduced to 41.7% as of year-end, a 660 bps decrease from year-end 2015.

BALANCE SHEET As of December 31, 2016, the Fund’s leverage ratio stood at 26.0%, remaining at the lower end of our target range, and the weighted average interest rate was 4.1%.

The Fund ended the calendar year with a cash position of 5.3% of NAV. During the quarter, the Fund accepted $280.6 million of new capital from investors and distributed $1.2 billion for withdrawal requests for management fees, distributable cash flow and redemptions. As of December 31, 2016, the contribution queue stood at $489.7 million, approximately 1.6% of the Fund’s net asset value.

Floatingrate –

swappeddebt$363

3.4%

Floating rate debt

$1,31412.3%

Fixed rate debt$9,03784.3%

Debt Diversification AS OF DECEMBER 31, 2016DOLLARS IN MILLIONS

Upcoming Debt Maturities FISCAL YEARS ENDING DECEMBER 31,

0

2

4

6

2027+2026202520242023202220212020201920182017

1.1%

4.7%

4.0%

3.4%

2.5%

% of net asset value

1.6%

3.7%

2.8%

4.4%

5.9%

1.0%

Dollars reflect outstanding principal.

FINANCIAL STATEMENTSAND NOTESFor the three-month period endedDecember 31, 2016(unaudited)


AS OF DECEMBER 31, 2016DOLLARS IN THOUSANDS, EXCEPT UNITS AND UNIT VALUE (UNAUDITED)

Statement of Net Assets

The accompanying notes are an integral part of these fi nancial statements.

ASSETS

Investments in real estate assets at fair value $28,891,690 Cash and cash equivalents 1,623,858 Other assets 552

Total assets 30,516,100

LIABILITIES

Other liabilities 736 Total liabilities 736

NET ASSETS

At fair value $30,515,364 Outstanding units 10,104,871 Unit value $3,019.87


DOLLARS IN THOUSANDS (UNAUDITED)

Statement of Operations and Changes in Net Assets

FOR THE THREE MONTHS ENDED DECEMBER 31, 2016

INVESTMENT ACTIVITY

Investment incomeIncome from investments in real estate assets $308,952 Interest and other income 854 Total investment income 309,806

General fund expenses (579)Line of credit interest and fees (545)Net investment income 308,682

Realized and unrealized gain (loss) on investmentsRealized gain from sales 162,688 Less: Previously recorded unrealized gain from sales 215,439 Net loss recognized on investments sold (52,751)

Unrealized gain on investments held at end of period 387,384 Net realized and unrealized gain on investments 334,633

Increase in net assets resulting from operations 643,315

PARTICIPANT ACTIVITY

Contributions from participants 280,576

Withdrawals by participants (1,240,012)Net participant activity (959,436)

Decrease in net assets (316,121)

NET ASSETS

Beginning of period $30,831,485

End of period $30,515,364



DOLLARS IN THOUSANDS (UNAUDITED)

Statement of Cash Flows

FOR THE THREE MONTHS

ENDED DECEMBER 31, 2016OPERATING ACTIVITIES

Net investment income $308,682 Adjustments to reconcile net investment income to net cash provided by operating activities:

Undistributed income from investments in real estate assets (114,801)Increase in other assets (283)Decrease in other liabilities (405)Net cash provided by operating activities 193,193

INVESTING ACTIVITIES

Contributions to investments in real estate assets (183,083)Distributions from investments in real estate assets 7,253 Proceeds from dispositions of investments in real estate assets 1,347,219

Net cash provided by investing activities 1,171,389

FINANCING ACTIVITIES

Contributions from participants 280,576 Withdrawals by participants (1,240,012)Proceeds from line of credit 400,000Repayment of line of credit (400,000)

Net cash used in fi nancing activities (959,436)

Net increase in cash and cash equivalents 405,146

Cash and cash equivalents, beginning of period 1,218,712

Cash and cash equivalents, end of period $1,623,858

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for line of credit interest and fees $545



AS OF DECEMBER 31, 2016DOLLARS IN THOUSANDS (UNAUDITED)

Schedule of Investments

1 Year acquired is reported in calendar years. 2 Cost amounts include undistributed income.The accompanying notes are an integral part of these fi nancial statements.

Investment NameYear Acquired1 Location Net Cost2 Net Fair Value

OFFICE10 Hudson Yards 2013 New York, NY $100,703 $223,127 101 Constitution 2007 Washington, DC 212,496 285,105 10-30 S. Wacker 2014 Chicago, IL 305,441 352,246 111 North Canal 2015 Chicago, IL 202,660 215,922 125 W55th Street 2013 New York, NY 287,881 407,494 1345 Avenue of the Americas 2014 New York, NY 637,401 670,694 1501 K Street 2006 Washington, DC 325,475 332,456 1918 Eighth Avenue 2011 Seattle, WA 160,983 284,907 195 Broadway 2013 New York, NY 400,187 514,487 200 Fifth Avenue 2011 New York, NY 349,104 586,231 2000 Avenue of the Stars 2004 Los Angeles, CA 63,478 265,157 224 Building 2012 Portland, OR 65,675 82,991 225 Franklin Street 2014 Boston, MA 157,084 165,072 425 Lexington 2013 New York, NY 361,243 371,088 60 State Street 2014 Boston, MA 141,395 166,320 818 Stewart Street 2011 Seattle, WA 65,994 93,429 888 Walnut Street 2007 Pasadena, CA 133,277 106,706 Advanta Offi ce Commons 2010 Bellevue, WA 116,925 95,765 Alliance Texas 2010 Fort Worth, TX 19,858 24,283 Back Bay - 222 Berkeley 2015 Boston, MA 210,737 220,616 Back Bay - 500 Boylston 2015 Boston, MA 237,043 234,961 Brewery Blocks 2007 Portland, OR 79,085 97,778 Century Plaza Towers 1997 Los Angeles, CA 167,162 562,657 China Basin 2011 San Francisco, CA 266,227 562,583 Corporate Center Offi ce Park 1998-99/2007 Franklin, TN 63,497 73,926 Four Houston Center and Shops 2004 Houston, TX 180,107 137,975 Franklin Park 2011 Franklin, TN 80,848 102,325 La Jolla Commons 2011 San Diego, CA 236,101 388,482 Landmark Center 2011 Boston, MA 382,418 351,819 Market Square 2015 San Francisco, CA 241,324 251,646 McKinney & Olive 2014 Dallas, TX 72,305 112,606 Metropolitan Midtown 2013 Charlotte, NC 38,988 52,840 Network Drive 2012 Burlington, MA 257,240 295,859 One and Two Houston Center 2004 Houston, TX 481,569 425,193 One Memorial Drive 2014 Cambridge, MA 108,592 118,366 Park Place at Bay Meadows 2007 San Mateo, CA 167,373 190,798 Sunnyvale City Center 2007 Sunnyvale, CA 156,919 322,670 Sunnyvale Town Center 2015 Sunnyvale, CA 270,878 287,424 Terminus 2013 Atlanta, GA 88,116 132,720 The Crescent 2004 Dallas, TX 251,205 369,501 The Water Garden 1995 Santa Monica, CA 12,360 193,393 Three Houston Center 2005 Houston, TX 271,015 331,762 Trammell Crow Center 2004 Dallas, TX 135,200 108,552 Two Franklin Park 2011 Franklin, TN 56,764 72,424


Schedule of Investments (cont.)AS OF DECEMBER 31, 2016DOLLARS IN THOUSANDS (UNAUDITED)



OFFICE (CONT.)Van Ness 2012 Boston, MA 36,061 103,573 Water Garden II 2001 Santa Monica, CA 304,625 605,098 Total Offi ce $8,961,019 $11,951,027

INDUSTRIALAlliance Center North 1 2014 Fort Worth, TX $5,321 $13,876 Alliance Texas 2010 Fort Worth, TX 612,701 814,301 Andrew Corporation Building 2007 Chicago Metro Area, IL 65,019 43,932 Best Buy Distribution Center 2007 Chicago Metro Area, IL 21,276 20,507 Big 5 Distribution Center 2006 Riverside, CA 48,183 65,994 DCT Industrial Portfolio 2007 Various 234,284 221,511 Dugan Texas 2000 Dallas Metro Area, TX 143,426 191,873 Gateway 673 2015 Pontoon Beach, IL 35,438 35,500 Greater Los Angeles Industrials 1994-95, 1999 Various, CA 179,780 361,399 Kimball Business Park 2016 Chino, CA 55,450 55,308 Kraft Industrial Portfolio 2006 Aurora, IL 129,424 144,291 Metro Chicago Industrial Portfolio 2007 Chicago Metro Area, IL 72,495 57,005 Pico Rivera 2016 Pico Rivera, CA 44,963 44,135 Pompano Business Center 2007 Pompano Beach, FL 32,784 21,018 PortSouth Bryla 2014 Carteret, NJ 28,044 33,225 Procter & Gamble Distribution Center 2013 Edwardsville, IL 103,725 107,896 South Bay Industrials 1996 Compton, CA 49,958 114,443 South Florida Logistics Center 2016 Miami, FL 230,557 229,725 Thousand Oaks 2016 Thousand Oaks, CA 26,621 26,398 Vineyard Industrial I 2015 Ontario, CA 167,920 196,543 Vineyard Industrial II 2015 Ontario, CA 112,390 122,973 Total Industrial $2,399,759 $2,921,853

RESIDENTIAL100 at Capitol Yards 2012 Washington, DC $98,572 $107,522 1330 Boylston 2008 Boston, MA 41,937 77,552 20 on Hawthorne 2013 Portland, OR 15,402 15,424 3500 Westlake 2013 Austin, TX 41,049 40,360 70 at Capitol Yards 2012 Washington, DC 173,280 184,063 850 Lake Shore Drive 2016 Chicago, IL 70,951 70,248 909 at Capitol Yards 2012 Washington, DC 99,815 106,531 Apollo on H Street 2014 Washington, DC 67,706 86,015 Aqua 2010 Chicago, IL 110,724 152,180 Ascent at City Center 2010 Houston, TX 30,815 46,223 Broadstone Waterfront 2012 Scottsdale, AZ 67,555 88,500





RESIDENTIAL (CONT.)Capitol at Chelsea 2002 New York, NY 89,057 239,129 Coast 2011 Chicago, IL 43,928 101,152 Cordoba Phase I & II 2010, 2011 Doral, FL 67,378 87,866 Domain at City Centre 2010 Houston, TX 86,363 83,371 Edgewater 2014 Philadelphia, PA 121,937 128,720 Elizabeth Square 2010 Charlotte, NC 42,812 60,749 Fairways at Raccoon Creek 2007 Littleton, CO 59,091 88,873 Fenway Triangle 2006 Boston, MA 38,874 101,012 Gaslight Commons 2003 South Orange, NJ 49,954 78,223 Grand Isle 2011 Murrieta, CA 23,532 39,299 Grey House 2016 Houston, TX 79,462 76,891 Ink Block 2016 Boston, MA 125,299 131,242 Jacaranda 2011 Fullerton, CA 32,944 43,308 Laguna Niguel Apartments 2006 Laguna Niguel, CA 18,678 25,736 Lakeside at LaVillita 2009 Irving, TX 37,276 50,154 Landings at LaVillita 2006 Irving, TX 54,662 66,025 Liberty Towers 2011 Jersey City, NJ 162,526 222,506 Lincoln Las Colinas 2014 Irving, TX 123,788 136,579 Midtown Green 2014 Raleigh, NC 44,773 48,730 Midtown 5 2013 Miami, FL 49,026 59,829 Mosaic South End 2011 Charlotte, NC 48,797 61,937 Mountain Gate 2006 Littleton, CO 62,817 122,645 Nalle Woods 2010 Austin, TX 42,845 56,356 One City Place 2004 White Plains, NY 127,652 149,455 Outlook DTC 2015 Denver, CO 15,583 14,478 Palazzo Park La Brea Portfolio 2007 Los Angeles, CA 221,537 260,815 Park Lane Seaport Residential 2010 Boston, MA 190,887 271,410 Pasadena Apartments 2006 Pasadena, CA 11,770 16,989 Paseo at Winter Park 2013 Winter Park, FL 8,337 16,119 Polo Lakes Apartments 2002 Wellington, FL 58,679 77,467 Promenade Rio Vista 2003-2004 San Diego, CA 171,255 259,510 Rancho Santa Margarita 2006 Rancho Santa Margarita, CA 13,596 15,573 Seacliff 2006 Huntington Beach, CA 24,754 33,399 St. Johns Wood Apartments 1998 Fairfax, VA 36,650 60,200 Stack House 2015 Seattle, WA 79,855 86,965 Stevenson Ranch 2006 Stevenson Ranch, CA 21,777 26,770 Strata 2010 San Francisco, CA 86,412 153,908 Sunnyvale Town Center 2016 Sunnyvale, CA 63,679 62,972 Temecula Phase I & II Apartments 2006 Temecula, CA 23,233 30,236 Terra Vista 2006 Rancho Cucamonga, CA 16,922 21,159 The Cameron 2011 Franklin, TN 50,562 63,559 The Circle at Hermann Park - Amalfi 2011 Houston, TX 44,253 43,463





RESIDENTIAL (CONT.)The Circle at Hermann Park - Esplanade 2006 Houston, TX 30,977 35,783 The Devon Four25 2011 Raleigh, NC 48,888 66,433 The Devon Seven12 2010 Raleigh, NC 31,948 37,631 The District 2013 Washington, DC 78,455 77,999 The Laurel 2015 Dallas, TX 22,895 22,148 The Lofts at Rio Salado 2007 Phoenix, AZ 87,959 77,105 The Lofts CityCentre 2013 Houston, TX 32,086 20,319 The Lofts Portfolio 2013 San Diego, CA 96,618 117,186 The Louisa 2007 Portland, OR 41,633 61,072 The Reserve at 4S Ranch 2012 San Diego, CA 151,295 178,263 The Walkway 2015 Minneapolis, MN 32,941 13,195 Third and Valley 2013 South Orange, NJ 22,601 34,361 Triangle Lofts 2010 Austin, TX 46,689 45,453 Triangle Residences Portfolio 2006/2007 Austin, TX 100,180 97,603 Trinity Bluff Portfolio 2011/2012 Fort Worth, TX 79,931 94,271 Tupelo Alley 2014 Portland, OR 35,625 42,502 Valencia 2006 Valencia, CA 18,039 28,883 Van Ness 2012 Boston, MA 30,145 46,215 Vantage 2013 Jersey City, NJ 74,559 111,827 Venue 2010 San Francisco, CA 72,206 113,692 Viridian 2006 Greenwood Village, CO 58,415 107,380 Total Residential $4,785,103 $6,178,718

RETAILBrewery Blocks 2007 Portland, OR $29,076 $43,127 Bridgewater Commons 1999 Bridgewater, NJ 30,832 138,362 Del Amo Fashion Center 2004 Torrance, CA 237,620 310,697 Donahue Schriber Realty Group 2002 Various 746,848 862,571 Edens 2000 Various 749,715 1,109,615 Metropolitan Midtown 2013 Charlotte, NC 58,200 59,727 North Hills 2014 Raleigh, NC 58,414 62,066 NorthPark Center 2014 Dallas, TX 481,054 624,564 Ontario Mills 2004 Ontario, CA 123,050 426,163 Pacifi c Place 2014 San Francisco, CA 411,135 452,577 Park Meadows Mall 1999 Littleton, CO 4,549 247,198 Perimeter Mall 2002 Atlanta, GA 43,226 204,344 River Oaks 2016 Houston, TX 446,527 460,829 Rookwood Portfolio 2007 Norwood, OH 101,510 90,736 Royal Hawaiian Center 2014 Honolulu, HI 364,205 536,228 Shadow Creek Ranch Town Center 2008 Pearland, TX 45,998 56,408 Shadow Lake Towne Center 2007 Papillion, NE 53,140 23,813 Shops at Merrick Park 2000 Coral Gables, FL 96,765 178,676 Sunnyvale Town Center 2016 Sunnyvale, CA 5,602 5,511 Towson Town Center 1999 Towson, MD 29,130 142,246





RETAIL (CONT.)University Towne Center 1999 La Jolla, CA 354,554 556,191 Valley Fair Mall 1999 San Jose Metro Area, CA 392,849 897,623 Winter Park Village 2006 Winter Park, FL 41,379 39,864 Total Retail $4,905,378 $7,529,136

LAND INVESTMENTS2000 Ross Avenue 2014 Dallas, TX $31,223 $31,435 Downtown Doral 2007 Doral, FL 9,176 5,283 Sunnyvale Town Center 2016 Sunnyvale, CA 34,688 34,280 Total Land Investments $75,087 $70,998

OTHER INVESTMENTSBrewery Blocks Garage 2007 Portland, OR $29,699 $40,195 Park Lane Seaport Garage 2010 Boston, MA 27,343 40,801 Van Ness Garage 2012 Boston, MA 37,355 48,948 Other Real Estate Investments N/A N/A 54,026 110,014 Total Other Investments $148,423 $239,958

Total Investments $21,274,769 $28,891,690


Notes to Financial Statements

1. DESCRIPTION OF FUND The Commingled Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank, N.A. (the “Fund”) is designed as a funding vehicle for tax-qualified pension, profit-sharing and employee benefit plans. Its investments are composed primarily of real estate investments owned directly or through partnership interests. JPMorgan Chase Bank, N.A. (“JPMCB”) is the trustee of the Fund (the “Trustee”). As Trustee, JPMCB manages the Fund and provides administrator services to the Fund.

The Fund is a collective investment trust fund established, operated and maintained by the Trustee under a declaration of trust. The Fund is a group trust within the meaning of Internal Revenue Service Revenue Ruling 81 – 100, as amended. The Fund is available only to certain qualified and governmental retirement plans and collective investment funds and is not offered to the general public. The Fund is required to comply with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Trustee is subject to the supervision and regulation by the Office of the Comptroller of the Currency including Regulation 9 of the Rules and Regulations of the Comptroller of the Currency.

The accompanying unaudited financial statements should be read in conjunction with the audited Annual Report as of September 30, 2016. Operating results for the three month period ended December 31, 2016 are not necessarily indicative of results that may be expected for the year ending September 30, 2017.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Revenue Recognition The Fund accounts for investments in real estate assets at fair value. Income from investment properties is recorded in accordance with the equity method of accounting. Unrealized gains and losses are computed using the cost of the investments and their fair value. Since the Fund records its investments at fair value, no depreciation or amortization expense on real property interests is recognized. Interest income from mortgage loans receivable is recognized as revenue when earned in accordance with the terms of the underlying loan agreement which approximates the effective interest method. Loans in default are placed on non-accrual status. While on non-accrual status, loans are either accounted

for on a cash basis, in which interest income is recognized only upon actual receipt, or on a cost recovery basis, in which receipts reduce carrying value, based on the Trustee’s judgment as to collectability of principal.

B. Investment Valuation Estimated fair value of net equity investments in real estate assets, which includes working capital of the underlying investments, are determined by the Trustee at each valuation date .

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three valuation techniques that can be used to value investments in real estate assets: the market, income or cost approach. The appropriateness of each valuation technique depends on the type of asset or business being valued. As part of the Trustee’s valuation process, properties are externally appraised generally on an annual basis, conducted by reputable, independent appraisal firms, and signed by appraisers that are members of the Appraisal Institute, with the professional designation MAI. In addition, the Trustee may cause additional appraisals to be performed as warranted by specific asset or market conditions. All external appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practices (“USPAP”). Property valuations and the salient valuation- sensitive assumptions of each direct investment property are reviewed by the Trustee quarterly and values are adjusted if there has been a significant change in circumstances related to the investment property since the last valuation. Fair value adjustments for interim capital expenditures are only recognized to the extent that the valuation process acknowledges a corresponding increase in fair value. Quarterly direct real estate valuations are reviewed by an independent firm .

The Trustee’s valuation methodology utilized in determining fair value is consistent with Generally Accepted Accounting Principles (“GAAP”) and the practices prevailing within the real estate appraisal and real estate investment management industries. Key inputs and assumptions used to determine fair value include among others, rental revenue and expense amounts and the related revenue and expense growth rates, terminal capitalization rates and discount rates. Development investments are valued using cost incurred to date as a primary input until substantive progress is achieved in terms


N O T E S T O F I N A N C I A L S TAT E M E N T S

of mitigating construction and leasing risk at which point a discounted cash flow approach is more heavily weighted. Key inputs and assumptions in addition to those noted above used to determine the fair value of development investments include construction costs, and the status of construction completion and leasing.

The fair value of mortgage loans payable for investment level debt is considered in connection with the valuation of net equity investments in real estate assets. Estimated fair values are derived using original term borrowing rates in conjunction with market oriented leveraged equity yields available at respective valuation dates, which are Level III inputs. The discounted cash flow method is used, which applies certain key assumptions including market interest rates, interest spreads, credit risk, liquidity and other factors. The estimated fair values of investment level debt are embedded in the fair values of the real estate assets, which are recorded in “Investments in real estate assets at fair value” on the Statement of Net Assets. At times, the Fund may assume debt in connection with the purchase of real estate.

The Trustee will also estimate the fair value of the Fund’s investments in privately held closed end funds based upon the Fund’s share of the investments’ fair values using information provided in the investments’ reporting on a quarterly basis. In the opinion of the Trustee, these estimated values are reasonable approximations of fair value as of December 31 , 2016. The estimate of fair value may vary significantly from the price achieved in a sale and this difference may be material to the financial statements.

The Trustee does not anticipate that there will be any reliable commercial pricing service to independently value the mezzanine investments made by the Fund, nor does it anticipate that an active secondary market will develop for the purchase or sale of these investments. In the absence of such a service or such a market, the Trustee estimates the fair value of mezzanine investments in the Fund quarterly based upon pricing from new mezzanine investments and activity in the broader capital market provided by independent dealers and/ or originators of mezzanine investments. Additionally, the underlying collateral supporting each mezzanine investment is internally valued quarterly. Key inputs and assumptions used to determine the fair value of mezzanine investments include loan to value ratios of the underlying collateral, discount rates and cap rates.

The Fund invests in the Commingled Pension Trust Fund (Liquidity) of JPMorgan Chase Bank, N.A. (the “JPMCB Liquidity Fund”). The JPMCB Liquidity Fund invests in traditional money market investments, with the goal of current income, preservation of principal, providing liquidity and maintaining a stable net asset value of $1.00 per unit. Investments in the JPMCB Liquidity Fund are valued at its net asset value per unit as of the report date.

C. Use of Estimates The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America that are applicable to real estate investment companies. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Trustee to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

D. Participant Withdrawal Policy Fund participants may withdraw from the Fund once per quarter subject to available cash, as determined by the Trustee. A written withdrawal request is required 45 days prior to quarter end.

To the extent that withdrawal requests exceed available cash, distributions are made on a pro rata basis. Available cash is defined as excess cash after provision for outstanding future capital commitments and other operating reserves. During the three months ended December 31, 201 6, approximately $1.2 billion were withdrawn by participants. A further withdrawal of $473.0 million was made in January 2017 in full satisfaction of withdrawal requests as of December 31, 2016.

E. Income Taxes The Fund is generally exempt from Federal income taxes under provisions of section 501(a) of the Internal Revenue Code. Accordingly, no provision for Federal income tax has been made.



Uncertain tax positions are assessed by the Trustee to determine whether a tax position of the Fund is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. As of December 31, 2016, there are no uncertain tax positions requiring recognition in the financial statements.

The Fund files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Fund is subject to examination by federal, state, local, and foreign jurisdictions, where applicable.

The Fund classifies interest and penalties, if any, relating to uncertain tax positions of the underlying investments in “Income from investments in real estate assets ” on the Statement of Operations and Changes in Net Assets. There were no interest or penalties related to uncertain tax positions recorded in the financial statements for the three months ended December 31, 201 6.

F. Cash and Cash Equivalents Cash and cash equivalents held in the Fund include investments in the JPMCB Liquidity Fund and through other financial institutions. These investments consist of short-term marketable securities such as Treasury bills and commercial paper.

G. Related Parties The Trustee pays for certain fund expenses on behalf of the Fund, including printing fees and fees for services provided to the Fund by the Trustee or its affiliates (fund administrative fees).

H. Fund ExpensesInvestment management fees are charged directly to investors in the Fund and accordingly are not reflected within the Fund’s net asset value.

The Fund pays other administrative and operating expenses, which include expenses for audit, tax return preparation, and other services provided to the Fund by third parties.

3. FUND INVESTMENTS The authoritative guidance for fair value measurements defines fair value, expands disclosure requirements and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Fund’s market assumptions.

These two types of inputs create the following fair value hierarchy:

Level I - Quoted prices for identical instruments in active markets.

Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level III - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data, when available, and minimizes the use of unobservable inputs when determining fair value.

Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.



As of December 31, 201 6, all investments are measured at fair value on a recurring basis using Level III inputs. See below for a reconciliation of the assets and liabilities measured at fair value on a recurring basis using Level III inputs for the three months ended December 31, 201 6.

DOLLARS IN THOUSANDS

Beginning balance, October 1, 201 6 $29,613,645 Net realized and unrealized gain 334,633 Income from investments in real estate assets 308,952 Acquisitions / Contributions 183,083 Dispositions / Distributions (1,548,623)Ending balance, December 31, 2016 $28,891,690

Unrealized gain for the period related to investments held at December 31, 2016 $387,384

The following table shows quantitative information about unobservable inputs related to the Level III fair value measurements used to derive values at December 31, 2016 . Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurements respectively.


Type Asset class Fair value Valuation technique Unobservable inputs RangeWeighted

average

DIRECT REAL ESTATE Offi ce $12,004,856 Income Approach—Discounted Cash Flow Discount Rate 5.5% - 9.3% 6.5%Terminal Capitalization Rate 4.8% - 7.9% 5.7%

Debt Service—Discounted Cash Flow Credit Spreads 1.6% - 2.2% 1.7%Loan to Value Ratio 25.6% - 56.4% 41.5%

Industrial 2,840,147 Income Approach—Discounted Cash Flow Discount Rate 5.0% - 8.0% 6.3%Terminal Capitalization Rate 4.4% - 6.8% 5.8%


Residential 6,013,776 Income Approach—Discounted Cash Flow Discount Rate 5.5% - 8.3% 6.3%Terminal Capitalization Rate 4.0% - 6.3% 5.1%


Retail 7,535,140 Income Approach—Discounted Cash Flow Discount Rate 5.8% - 8.8% 6.3%Terminal Capitalization Rate 4.5% - 7.5% 5.7%


Land 70,998 Sales Comparison Value per Square Foot $18.6 - $315.4DEVELOPMENT INVESTMENTS

186,815 Market Value 1

OTHER INVESTMENTS 239,958 Market Value 1 Income Approach—Discounted Cash Flow Discount Rate 6.5% - 7.0% 6.8%

Terminal Capitalization Rate 5.3% - 6.0% 5.7%Debt Service—Discounted Cash Flow Credit Spreads 1.6% 1.6%

Loan to Value Ratio 31.9% 31.9%

Total $28,891,690

1 The market value approach represents assets/liabilities that refl ect subjective estimates by management based on the investment’s specifi c facts and circumstances.



4. REAL ESTATE INVESTMENTS The Fund enters into real estate partnerships with various joint venture partners that provide management, leasing and construction-related services to the properties in which the Fund has an ownership interest. Certain of the Fund’s investments may include equity participation by other funds advised by the Trustee or its affiliates.

The following is a combined summary of financial position and results of operations of real estate investments as of and for the three months ended December 31, 201 6. The Fund’s share of net assets is presented within “Investments in real estate assets at fair value” on the Fund’s Statement of Net Assets as of December 31, 201 6 and the related share of net investment income is presented within “Income from investments in real estate assets” on the Statement of Operations and Changes in Net Assets for the three months ended December 31, 201 6.


Real Estate Investments Assets and Liabilities

December 31, 2016

Real estate at fair value $59,179,091 Other assets 870,706 Total assets 60,049,797 Mortgage loans payable at fair value 17,782,445 Other liabilities 586,713 Total liabilities 18,369,158

Net assets $41,680,639

Fund's share of net assets $28,891,690

Real Estate Investments Operations

For the three months ended December 31,

2016Total rental and other revenues $995,462 Operating expenses 561,805 Net investment income 433,657

Fund’s share of net investment income $308,952

5. INVESTMENT LEVEL DEBT The Fund’s share of fixed and floating mortgage loans had a fair value of approximately $10.715 billion, with an outstanding principal balance of approximately $10.714 billion. Different assumptions or changes in future market conditions could significantly affect estimated values. As of December 31, 201 6, there was no recourse to the Fund. At December 31, 201 6, the weighted average interest rate based on outstanding principal was 4. 1%.

The five-year principal repayment schedule is as follows:

DOLLARS IN MILLIONS

Fiscal Years Ending September 30, Fund’s Share ($) Percent2017 332 3.1%2018 1,420 13.3%2019 1,232 11.5%2020 767 7.1%2021 1,049 9.8%Thereafter 5,914 55.2%Total 10,714 100.0%

6. LINE OF CREDIT On March 2 1, 201 6, the Fund amended its existing unsecured revolving credit facility (the “Facility”) from an unrelated financial institution and increased the Facility borrowing capacity to $800 million. The Facility expires on August 2 5, 2018, with a one-year extension option. The interest rate on borrowing is tiered based upon the leverage to the Fund. The Facility contains restrictive covenants that, among other matters, require the Fund to maintain certain financial ratios. As of December 31, 201 6, the Fund was in compliance with all restrictive covenants. In October 2016, the Fund borrowed $400M and subsequently repaid in full during the same period. There was no outstanding balance as of December 31, 2016.



7. CONCENTRATION OF RISK ON DIRECT REAL ESTATE INVESTMENTS

At December 31, 201 6, the Fund had real estate investments located throughout the United States and invested in four property types. The diversification based on the estimated fair values within the National Council of Real Estate Investment Fiduciaries (“NCREIF”) regions and property types are as follows:

DOLLARS IN BILLIONS

Fair Value PercentREGION East $8.8 30.5%

South 6.4 22.6%West 11.9 41.7%Midwest 1.5 5.2%

Total $28.6 100.0%

SECTOR Offi ce $12.0 41.7%Industrial 2.9 10.2%Residential 6.2 21.7%Retail 7.5 26.4%

Total $28.6 100.0%

Direct real property interest only.

8. RISKS AND UNCERTAINTIES

Valuation and Liquidity riskThe Fund may invest in real estate and related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily available.

Diversification riskThe assets of the Fund are concentrated in the real estate sector which may expose the investment portfolio to more rapid changes in value than would be the case if the Fund were to maintain a wide diversification among investments.

Financing riskThere is no guarantee that the Fund’s borrowing arrangements or other arrangements for obtaining leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Fund. Unfavorable economic conditions also could increase funding costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Fund. In addition, a decline in fair value of the Fund’s assets may have particular adverse consequences in instances where the Fund borrowed money based on the fair value of those assets. A decrease in fair value of those assets may result in the lender requiring the Fund to post additional collateral or otherwise sell the assets at a time when it may not be in the Fund’s best interest to do so. In the event the Fund is required to liquidate all or a portion of its portfolio quickly, the Fund may realize significantly less than the value at which it previously recorded those investments.



9. COMMITMENT AND CONTINGENCIES As of December 31, 2016, the Fund had outstanding equity obligations of approximately $ 387.9 million in connection with planned real estate investments.

10. FINANCIAL HIGHLIGHTS The following tables summarize the Fund’s financial highlights for the three months ended December 31, 2016. They consist of per unit operating performance, total return, fund-level operating expense and net investment income ratios, as well as outstanding units.

Fund per share operating performance

For the Three Months Ended December 31,

2016

Net asset value per unit at beginning of period $2,956.04

Income from investment operationsNet investment income 30.64Net realized and unrealized gain on investments 33.19Total from investment operations $63.83

Net asset value per unit at end of period $3,019.87

Total return1,2 2.2%Net investment income return1,2 1.0%

Ratios to weighted average net assetsFund level operating expenses2,3 0.01%Net investment income2,3 4.11%

1 Total return and net investment income return are calculated based on a time-weighted rate of return methodology. Monthly rates of return are geometrically linked to derive the returns refl ected above and are not annualized.

2 Investment management fees are charged directly to participants in the Fund and accordingly are not refl ected within the Fund’s total return and net investment income return or income and expense ratios.

3 Annualized for periods less than one year.

Outstanding units

For the Three Months Ended December 31,

2016

Outstanding units at the beginning of the period 10,430,004

Increase in units due to contributions by participants 94,351

Decrease in units due to withdrawals by participants (419,484)

Outstanding units at the end of the period 10,104,871

11. SUBSEQUENT EVENT S Except as otherwise disclosed, no material subsequent events have occurred through February 14, 2017, the date the financial statements were available to be issued.

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us

Report of Independent Auditors

To the Trustee of the Commingled Pension Trust Fund (Strategic Property) of J.P. Morgan Chase Bank, N.A.

We have reviewed the accompanying interim financial information of the Commingled Pension Trust Fund (Strategic Property) of J.P. Morgan Chase Bank, N.A. (the “Fund”) which comprise the statement of net assets, including the schedule of investments, as of December 31, 2016, and the related statements of operations and changes in net assets and of cash flows for the three-month period ended December 31, 2016.

Management's Responsibility for the Interim Financial Information

The Fund’s management is responsible for the preparation and fair presentation of the interim financial information in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of the interim financial information in accordance with accounting principles generally accepted in the United States of America.

Auditor's Responsibility

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in accordance with accounting principles generally accepted in the United States of America.

February 14, 2017

ON THIS PAGE:

Century Plaza Towers

Los Angeles, CA

The Commingled Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank N.A. is a collective trust fund established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The fund is not required to fi le a prospectus or registration statement with the SEC, and accordingly, neither is available. The fund is available only to certain qualifi ed retirement plans and governmental plans and is not off ered to the general public. Units of the fund are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

This quarterly report is intended to report solely on the investment strategies and opportunities of the JPMorgan Chase Bank, N.A. Strategic Property Fund (“the Fund”). Additional information is available upon request. Information herein is believed to be reliable, but J.P. Morgan Asset Management does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results. Total return assumes the reinvestment of income. Indices are not available for actual investment and are provided for illustrative purposes only. The material is not intended as an off er or solicitation for the purchase or sale of any fi nancial instrument. The investments and strategies discussed herein may not be suitable for all investors; if you have any doubts you should consult your J.P. Morgan Asset Management Client Advisor or Portfolio Manager. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. You should consult your tax or legal adviser about the issues discussed herein. Indices do not include fees or operating expenses and are not available for actual investment. The investments discussed may fl uctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse eff ect on the value, price or income of investments.

The Target Return has been established by J.P. Morgan Investment Management Inc. “J.P. Morgan” based on its assumptions and calculations using data available to it and in light of current market conditions and available investment opportunities and is subject to the risks set forth herein and to be set forth more fully in the Memorandum. The target returns are for illustrative purposes only and are subject to signifi cant limitations. An investor should not expect to achieve actual returns similar to the target returns shown above. Because of the inherent limitations of the target returns, potential investors should not rely on them when making a decision on whether or not to invest in the strategy. The target returns cannot account for the impact that economic, market, and other factors may have on the implementation of an actual investment program. Unlike actual performance, the target returns do not reflect actual trading, liquidity constraints, fees, expenses, and other factors that could impact the future returns of the strategy. The manager’s ability to achieve the target returns is subject to risk factors over which the manager may have no or limited control. There can be no assurance that the Fund will achieve its investment objective, the Target Return or any other objectives. The return achieved may be more or less than the Target Return. The data supporting the Target Return is on file with J.P. Morgan and is available for inspection upon request.

The Fund could experience a loss when selling investments to meet redemption requests by participating plans. The risk of loss increases if the redemption requests are unusually large or frequent, occur in times of overall market turmoil or declining prices for the investments sold, or when the investments the Fund wishes to or is required to sell are illiquid.

It should not be assumed that Fund positioning in the future will be profi table or will equal past performance.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. and its affi liates worldwide. Those businesses include, but are not limited to, JPMorgan Chase Bank, N.A., J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated, and J.P. Morgan Alternative Asset Management, Inc.

© 2017 JPMorgan Chase & Co.

FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

J.P. Morgan Asset Management—Global Real Assets 270 Park Avenue, New York, NY 10017jpmorgan.com/assetmanagement

Kimberly A. AdamsManaging Director Strategic Property Fund Portfolio Manager Tel: +1-312-732-6366 Fax: +1-312-732-6391 [email protected]

Ann E. Cole Managing Director Strategic Property Fund Portfolio Manager Tel: +1-212-648-2152 Fax: +1-917-464-7449 [email protected]

Portfolio Management

Business Development and Client Strategy Team

Bernie McNamaraManaging DirectorHead of Business Development and Client StrategyTel: +1-212-648-2099Fax: [email protected]

Lawrence OstowManaging DirectorBusiness Development and Client StrategyTel: +1-212-648-2146Fax: [email protected]

Josh Braunstein Vice PresidentBusiness Development and Client StrategyTel: +1-212-648-1752Fax: [email protected]

Alexia GottschalchManaging Director Head of Business Development and Client Strategy, Real Estate Americas Tel: +1-212-648-0739Fax: +1-212-648-2261 [email protected]

Melissa AnezinisExecutive DirectorBusiness Development and Client StrategyTel: +1-312-732-7915Fax: [email protected]

Jaclyn WeinmanVice PresidentBusiness Development and Client StrategyTel: +1-212-648-0471Fax: [email protected]

Rebekah BrownExecutive Director Business Development and Client Strategy Tel: +1-212-648-2041 Fax: +1-212-648-2261 [email protected]

Caitlin RussellAssociate Business Development and Client Strategy Tel: +1-212-648-2480 Fax: +1-212-648-2261 [email protected]

Client R elations T eam

Klayre IngertonExecutive Director Client RelationsTel: +1 212-648-2191 Fax: +1 [email protected]

Emily DeLuca AssociateClient RelationsTel: +1 212-648-1096Fax: +1 212-648-2261 [email protected]

Hannah Kim Vice PresidentClient RelationsTel: +1 212-648-1349Fax: +1 212-648-2261 [email protected]

Rebecca KimAnalystClient RelationsTel: +1 212-648-2569 Fax: +1 [email protected]

Genie PuseyVice PresidentClient RelationsTel: +1 212-648-0627Fax: +1 [email protected]

Josh YoungAnalystClient RelationsTel: +1 212-648-2173Fax: +1 [email protected]

C O N T A C T S

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