State Board of Administration
Real Estate Asset Class Review
Steve Spook, Senior Investment Officer-Real Estate Lynne Gray, Senior Portfolio Manager-Principal Investments
Michael Fogliano, Senior Portfolio Manager-Externally Managed Investments
Investment Advisory Council Meeting March 6, 2017
Organizational Chart Ashbel Williams
ED & CIO
STEVE SPOOK
Sr. Investment Officer-RE
LYNNE GRAY Sr. Portfolio Manager Principal Investments
TOM PROCTOR Portfolio Manager
CHRIS MARINO Portfolio Manager
DAVE BURLAK Portfolio Manager
TED BOLLMANN Portfolio Manager
KIM BUCKLEY Sr. RE Research
Analyst III
LAURA FROST Sr. RE Operations
Analyst III
MICHAEL FOGLIANO Sr. Portfolio Manager
Ext. Managed Investments
JEFF SMITH Portfolio Manager
SARA GEIGER Portfolio Manager
AMANDA PORTER Sr. Investment
Analyst III
TIFFANY WILLIAMS Administrative Asst.
Dennis MacKee Acting Deputy Executive
Director
3
PAUL GROOM Deputy
General Counsel
Governance • Executive Director & CIO (ED & CIO)
• Delegated authority by Trustees to manage the investment of Florida Retirement System assets.
• Approves RE Annual Investment Work Plan. • Approves all new investment managers, direct owned
acquisitions/dispositions/financings, new commingled fund investments, investment manager agreements, and joint ventures.
• Deputy Executive Director (DED) • Provides guidance and input for above Real Estate activities. • Concurrence required prior to submission to ED & CIO.
• Senior Investment Officer-Real Estate (SIO-RE) • Delegated authority by ED & CIO to effectuate the preceding and perform
ownership responsibilities.
4
Real Estate Consultant
• Real Estate Consultant • Prepares quarterly and annual performance reports • Investment provider monitoring and annual review • Fund due diligence • Research • Ad hoc projects
5
Real Estate Benchmark
* (NFI) National Council of Real Estate Investment Fiduciaries Fund Index, (ODCE) Open-end Diversified Core Equity ** (REIT Index) Financial Times Stock Exchange, European Public Real Estate Association, National Association of Real Estate Investment Trusts
Core Non-Core Public
(76.5% NFI-ODCE*) + [13.5% (NFI-ODCE + 150 bps)] + (10% REIT Index**)
(Net of fees)
6
Strategic Role of Real Estate
• Designed to provide: – Attractive risk adjusted
returns – Diversification for total
fund – Income focused – Inflation hedge
Risk-Adjusted Returns
Income
Inflation Hedge
Diversification
7
Broad Strategies PRIVATE REAL ESTATE
8
82% Core (Strategic) 18% Non-Core (Tactical) • Income focused • Institutional quality • Stabilized (high occupancy) • Low immediate capital needs • Low leverage (less than 50%) • Domestic
• Most return from appreciation • More value (creation) to include:
• Lease-up • Development • Redevelopment • Repositioning • Recapitalization
• Higher leverage • Includes International
Real Estate Portfolio
Real Estate 9.1%
Strategic Investments 8.3%
Private Equity 6.6%
Cash 1.2%
Global Equities 56.7%
Fixed Income 18.2%
FRS Pension Plan As of 12/31/2016 REAL ESTATE
$13,093,866,288
TARGET: 10%
9
TOTAL FRS $144,431,235,712
Source: 12/31/2016 SBA IBP Report
Real Estate Portfolio (as of 9/30/2016)
10
Principal Investments 62.1%
Pooled Funds 28.0% REIT
9.9%
Externally Managed 37.9%
Source: 3Q2016 Townsend Performance Report
Private Market Portfolio
22.3%
13.2% 18.3%
32.3%
13.9%
24.1%
14.5% 19.9%
37.6%
3.9% 0%
10%
20%
30%
40%
Apartment Industrial Retail Office Other *
* Other includes Agriculture, Student Housing, Senior Housing, Hotel, Land
Property Type Diversification Allocation Policy Target NFI-ODCE +/- 15%
(as of 9/30/2016)
SBA Exposure ODCE
11
Private Market Portfolio
27.3%
6.3%
17.4%
44.4%
4.9%
30.3%
9.6%
19.6%
40.5%
0.0% 0%
10%
20%
30%
40%
50%
East Midwest South West Other
Geographic Diversification Allocation Policy Target NFI-ODCE +/- 15%
(as of 9/30/2016)
SBA Exposure ODCE
12
Real Estate Portfolio Leverage
13
$1,366
$6,435
$7,801
$10,644
$17,080
$18,445
$2,563
$2,563
$2,165
$4,728
$4,728
LTV 0.0%
LTV 39.8%
LTV 32.9%
LTV 20.4%
LTV 27.7%
LTV 25.6%
Public Portfolio
Pooled Funds
Externally Managed
Principal Investments
Private Investments
Total Portfolio
Millions Leverage Q3 MV Q3
ODCE LTV 22.1%
Principal Investments Leverage • The portfolio’s leverage as of 3Q16 is at an all time high of 20.4%, versus the NFI-ODCE benchmark leverage of 22.1%. • Leverage has steadily increased since the end of 2012 and increased by 290 bps over the last 12 months. • As of today, leverage is 24%.
14 Leverage as of 9/30/16. Source: The Townsend Group
19.0% (4Q03 Prior Peak)
7.1% (4Q06 Low)
17.5% (3Q15)
20.4% (3Q16)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Mar
-01
Sep-
01
Mar
-02
Sep-
02
Mar
-03
Sep-
03
Mar
-04
Sep-
04
Mar
-05
Sep-
05
Mar
-06
Sep-
06
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Sep-
09
Mar
-10
Sep-
10
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Mar
-15
Sep-
15
Mar
-16
Sep-
16
Principal Investment's Leverage Over Time
Principal Investments Leverage
15
$12 $56 $54 $71 $96
$471
$121
$326 $391
$119 $60
$141
$233
$13
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
MILLIONS
Debt Maturities
Fixed Rate Floating Rate
Investment Portfolio Guidelines - Portfolio Leverage limited to 25% Loan To Value (LTV)
- Individual Asset Level limited to 50% LTV
- JV Individual Asset limited to 70% LTV
- Nonrecourse to the SBA
ODCE Leverage 22.1%
74% 26%
Fixed Rate Floating Rate
PI Leverage 20.3% $2.2 B
Real Estate Returns Data Through September 30, 2016
12.2% 13.4%
14.8%
7.2%
9.9% 11.3% 11.6%
5.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
One Year Return Three Year Return Five Year Return Ten Year Return
SBA Real Estate RE Portfolio Benchmark16
Peer Performance
• SBAF’s five-year net performance versus its peers (67 institutional real estate investors) ranks in the 91st percentile.
• It is important to note, peer portfolio's will vary by investment strategy, investment type, risk appetite and portfolio inception dates.
17 Source: The Townsend Group *Performance as of September 30, 2016.
*as of 3Q2016 Five-Year Net Return
Peer Performance
SBAF’s five-year net performance versus its peers, 23 institutional real estate investors with Real Estate Investments exceeding $2 billion, is the top ranking plan.
It is important to note, peer portfolio's will vary by investment strategy, investment type, risk appetite and portfolio inception dates. 18 Source: The Townsend Group
*Performance as of September 30, 2016.
Five Year Net Return Real Estate Leverage
6.0% 19%9.1% 13%9.3% 39%9.5% 39%
10.5% 11%11.0% 42%11.1% Not Available11.2% 39%11.3% 13%11.7% 41%11.9% 42%11.9% 34%12.1% 35%12.1% 33%12.2% 36%12.2% 37%12.4% 30%12.5% 30%12.6% 33%12.6% 37%12.9% 26%13.4% 41%13.8% 25%
FY 2016-2017 Activities • Continued to invest in traditional core property types. Four investments, including JV partner
buy-outs, totaling $200 million NAV. • Continued to diversify through non-correlated property types. Four investments, including a
self-storage portfolio, two student housing projects, and a medical office building totaling $291 million NAV.
• Five dispositions totaling $822 million NAV. • Portfolio leverage increased due to refinancing, new acquisitions utilizing leverage, and sale
of two unleveraged assets. • New commitments to value-add/opportunistic funds, one global and one domestic totaling
$125 million. • Full redemption from one open-end fund. • Hired two new core separate account managers.
19
20
Lynne Gray Senior Portfolio Manager
Real Estate Principal Investments Portfolio
Principal Investments Portfolio
21
Objective Provide returns that, with an acceptable level of risk, meet or exceed the National Council of Real Estate Investments Fiduciaries Fund Index – Open End Diversified Core Equity (NFI-ODCE).
Investments Primarily high quality, well-located, stable real estate properties: Apartment, Office, Industrial, Retail and Specialty Sector. The specialty sector includes Agriculture, Student Housing, Senior Housing, and Self Storage. Non-core strategies, such as development, are permitted.
Data through 09/30/16
Principal Investments Portfolio
22
10.8% 12.2%
13.9%
9.1%
11.4% 11.3%
9.2%
11.3% 11.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1 Year 3 Year 5 YearPI Total Net NFI ODCE Total Net NPI Total Net
Investment Portfolio Guidelines Guidelines for Managing and Monitoring
Portfolio-Level and Asset-Level Risk
23
Risk Profile
Investment Manager Leverage Single
Investment
Sector Geography
Risk Profile
Core 92.6%
Non-Core 7.4%
24
NAV $8.6 billion as of 09/30/16
Investment Portfolio Guidelines Target Range
Core 92.5% 85% - 100% Non-Core 7.5% 0% - 15%
Sector Diversification
25
Apartment 20.7%
Industrial 13.5%
Retail 18.7%
Office 34.5%
Agriculture 6.8%
Senior Housing 3.2%
Student Housing 2.6%
Specialty 12.7%
% of Net Asset Value
Agriculture
26
Row $98.6M
17%
Almonds 25%
Pistachios 25%
Walnuts 8% Apples
1% Citrus 18%
Grapes 6%
$481.2M 83%
Market Value
Permanent
Row 8,567 55%
15,197
45%
Acres
Permanent
Boston, MA • Office (1) • Retail (12) • Senior Hsg (5)
Providence, RI • Senior Hsg (4)
Chicago, IL • Industrial (3)
Pittsfield, MA • Senior Hsg (1)
Columbia, MO • Student Hsg (1)
Barnstable, MA • Senior Hsg (3)
Cincinnati, OH • Industrial (7) • Senior Hsg (7)
Lansing, MI • Student Hsg (1)
Dayton, OH • Senior Hsg (1)
Orlando, FL • Industrial (1) • Student Hsg (1)
New York, NY • Apartments (1) • Industrial (1) • Office (2) • Retail (1)
Washington, DC • Apartments (1) • Office (4) • Retail (1)
Atlanta, GA • Apartments (2) • Industrial (7)
Memphis, TN • Industrial (3) • Retail (1)
Naples, FL • Senior Hsg (1)
Houston, TX • Apartment (1) • Industrial (2) • Office (1) • Student Hsg (1)
Greenville, SC • Retail (1) • Senior Hsg (1)
Dallas, TX • Industrial (4)
Austin, TX • Apartments (1) • Retail (1)
Miami, FL • Industrial (1)
W Palm Beach, FL • Retail (1)
Boulder, CO • Apartments (1)
Denver, CO • Industrial (1) • Office (1) • Senior Hsg (2)
Seattle, WA • Apartments (2) • Retail (1) • Senior Hsg (1)
Longview, WA • Senior Hsg (3)
Portland, OR • Senior Hsg (1)
Las Vegas, NV • Student Hsg (1)
San Francisco, CA • Apartments (2) • Office (1) • Retail (3)
Los Angeles, CA • Apartments (1) • Industrial (4) • Office (2)
Santa Ana, CA • Apartments (1)
San Diego, CA • Apartments (1) • Retail (1)
Phoenix, AZ • Office (1)
Milwaukee, WI • Student Hsg (1)
Akron, OH • Student Hsg (1) • Office (1)
Ontario, CA • Industrial (2) • Senior Hsg (3) Johnson City, TN
• Office (2)
Excludes Agriculture
Property Locations
27 Ft. Lauderdale, FL • Apartments (2) • Industrial (6)
Davenport, IA • Office (1)
Champaign, IL • Industrial (1)
Nashville, TN • Office (1)
Oxford, MI • Student Hsg (1)
Tallahassee, FL • Office (1)
Auburn, AL • Student Hsg (1)
Reno, NV • Student Hsg (1)
St. Petersburg, FL • Senior Hsg (1)
Tampa, FL • Apartments (1) • Senior Hsg (1) • Student Hsg (2)
Polk County, FL (1) • Citrus
Baker/Miller County, GA (1) • Cotton • Corn • Wheat • Peanuts
Ashley County, AR (1) • Cotton • Soybeans
Bureau, IL (1) • Corn • Soybeans
Walla Walla County, WA (1) • Apples
Madera County, CA (1) • Pistachios • Almonds • Wine Grapes
San Luis Obispo County, CA (1) • Wine Grapes
Quitman County, MS (1) • Corn • Cotton
Douglas County, WA (1) • Apples • Pears • Cherries
Tehama County, CA (2) • Walnuts • Pistachios
Kern County, CA (7) • Almonds • Navel Oranges • Pistachios
Sacramento County, CA (1) • Walnuts
Tulare County, CA (2) • Pistachios • Navel, Valencia Oranges
Ventura County, CA (1) • Lemons • Avocados • Mandarins
Fresno County, CA (4) • Pistachios • Table Grapes • Almonds • Navel Oranges • Nectarines
Sunflower County, MS (1) • Cotton • Rice • Soybeans
Poinsett County, AR (1) • Rice • Soybeans
Agriculture Locations
West 82%
South 16%
Midwest 1%
East 0%
% of Net Asset Value 28
Principal Investments vs Benchmark
29
20.7% 13.5%
18.7%
34.5%
12.7%
24.1%
14.5%
19.9%
37.6%
3.9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Apartment Industrial Retail Office Specialty
Diversification by Property Type
PI Exposure ODCE
28.7%
4.5%
18.5%
48.3% 30.3%
9.6%
19.6%
40.5%
0%
10%
20%
30%
40%
50%
60%
East Midwest South West
Diversification by Geography
PI Exposure ODCE
% of Net Asset Value
Investment Portfolio Guidelines Range: ODCE +/- 15%
% of Net Asset Value
Manager Concentration
30
Externally Mgd Investments
38%
26%
12%
17% 0% 1% 2% 2% 2%
Principal Investments
62%
% of Net Asset Value Investment Portfolio Guidelines
< 35% AUM per Manager
8 Separate Account Managers
Metro & Investment Exposure
31
Top Ten Markets
Metropolitan Division % PI NAV
1 San Francisco, CA 16.7%
2 Los Angeles, CA 11.7%
3 Washington, DC 11.5%
4 New York, NY 8.8%
5 Boston, MA 5.6%
6 San Diego, CA 4.2%
7 Seattle, WA 3.8%
8 Ft. Lauderdale, FL 2.6%
9 Atlanta, GA 2.1%
10 Nashville, TN 1.9%
Five Largest Investments
Property Type Location % PI NAV
1 Office San Francisco, CA 6.0%
2 Office Los Angeles, CA 4.5%
3 Apartment San Francisco, CA 3.6%
4 Retail San Francisco, CA 3.2%
5 Apartment New York, NY 3.1%
Investment Portfolio Guidelines
- Metropolitan Division exposure less than 15% of NAV* - Single investment exposure less than 7% of NAV*
* at the time of acquisition
Summary of Investments
32
Property Type # of Properties Net Asset Value Square Feet # Units # Beds Acres
Agriculture 23 $585,975,559 33,764
Apartment 17 $1,769,327,603 5,717,305 6,147
Industrial 53 $1,153,618,124 26,979,493
Office 17 $2,957,136,099 6,697,803
Retail 23 $1,600,182,630 3,173,556
Senior Housing 34 $226,166,027 3,863
Student Housing 13 $274,803,480 2,933 7,901
Operational Metrics
33
2016 2017 2018 2019 2020 2021
Total SF 580,542 2,238,109 2,973,133 2,471,854 3,366,338 4,585,579
Retail 30,375 146,803 176,025 221,167 493,392 559,268
Office 155,167 567,867 821,556 227,417 323,617 315,433
Industrial 395,000 1,523,439 1,975,552 2,023,270 2,549,329 3,710,878
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
Commercial Lease Expirations
8.9%
18.2%
13.3%
9.8% 11.8%
91% 96% 92% 94% 86% 95% 94%
0%
20%
40%
60%
80%
100%
Apartment Industrial Office Retail Senior Hsg Student Hsg StablePortfolio
Avg
Portfolio Average Occupancy
2.3%
Apartment $68.6M
16%
Office $145.1M
33%
Industrial $55.8M
13%
Retail $66.9M
15%
Agriculture $37.M
8%
Senior Housing $41.7M
10%
Student Housing $24.M
5%
Net Operating Income 12 Months Ended 09/30/16
Total NOI $439.1M
34
Investment Management
Active Portfolio Management • Investment Strategy
• Acquisitions / Dispositions
• Asset Management
• Financing Activity
Third Party Service Providers Investment Manager Property Management Companies Leasing Companies Investment Brokers
SBA Accounting Valuation Program
SBA General Counsel Legal Matters
PRINCIPAL INVESTMENTS
Entity Board of Directors Audit & Tax Program
Investment Hold / Sell Analysis
35
Disposition
Strategic Portfolio Refinement
Investment Performance
Market Conditions
Portfolio Considerations
Continued Hold
Apartment
Seattle, WA
Arlington, VA
Ft. Lauderdale, FL
Property Sub-Types - Garden - Mid-Rise - High-Rise
Key Considerations - Urban core districts - Transit Oriented Location - Amenity Base - High Barriers to entry - Build to core strategy
36
Industrial
37 Inland Empire, CA
Property Sub-Types - Warehouse - Distribution Center
Key Considerations - Location near major population
centers and major distribution hubs - Areas of strong demand driven by e-
commerce
Rutherford, New Jersey
Orlando, FL
Office
Santa Monica, CA
38
New York, NY
Washington, DC
Property Sub Types - Mid-Rise - High-Rise
Key Considerations - Location (live/work/play)
environment - Physical condition (ceiling height,
floor plates, floor plans)
Retail
39
San Francisco, CA
Boston, MA
Property Sub Types - Urban and High Street Retail - Lifestyle Center - Power and Community Centers
Key Considerations - Trade Area Demographics - Metro Area - Tenant Sales Performance - Anchor Quality - Competitive Position - Supply Constraints
Memphis, TN
Student Housing
40
Property Sub Types - Purpose Built - Cottage Style
Key Considerations - University - Proximity to Campus - Vintage - Amenities
Senior Housing
41
Property Sub Types - Independent Living - Assisted Living - Skilled Living
Triple net leased properties Longview, WA
Naples, FL Cincinnati, OH
Agriculture
42
Almond Trees - CA
Table Grapes - CA
Property Sub Types - Permanent Crops - Row Crops
Key Considerations - Commodity Demand - Location - Water Supply
Nectarines - CA
Self Storage
43
Key Considerations - JV Partner Experience - Property Location - Surrounding HH Income - Population Density
Canton, OH
Sacramento, CA
Decatur, AL
44
Michael Fogliano Senior Portfolio Manager
Real Estate Externally Managed Portfolio
Real Estate Externally Managed Portfolio Investment types
• Pooled funds • REIT separate accounts
Objectives • Provide excess returns • Enhance diversification • Access to non-core investments
Portfolio make-up: Portfolio value $5.2 billion, 40 investments, 23 investment managers • Open-end funds: $2.6 billion, 10 investments, 7 investment managers • Closed-end funds: $1.3 billion, 26 investments, 14 investment managers • REITs: $1.3 billion, 4 investments, 4 investment managers 45
Pooled Funds
Open-End Pooled Funds Pros Cons
• Relatively fast exposure • Superior diversification • Lower risk (leverage typically does not exceed
30%) • Liquidity, subject to investor governance and
market conditions • Attractive cash returns • Improved transparency
• Little control over execution of strategy • The manager is not responsible for the timing of
the exit
46
Closed-End Pooled Funds Pros Cons
• Greatest number of investment strategies • Diversification by strategy and manager • Alignment of interests
• Least control • Least liquidity • Higher fees • Little control of execution of strategy
Closed-End Funds • Over 600 closed-end funds are actively raising capital today
47 Source: Townsend
Developed Americas,
412 Developed Europe,
100
Global, 27
Emerging Americas, 22
Emerging Asia, 22
Developed Asia, 21
Unidentified, 18
Frontier, 2 Emerging Europe,
2
Closed-End Private RE Funds
REITs A REIT, or Real Estate Investment Trust, is a company that invests in real estate or mortgages. A REIT stock is traded on the exchanges, which allows anyone to gain access to large commercial real estate equity or debt strategies.
REITs Pros Cons
• High liquidity • High diversification • Global exposure • Low fees • Not perfectly correlated with private real estate
• More volatile • Subject to local currency fluctuations
48
Externally Managed Portfolio by Investment Type
49
NAV $5.2 B
REITs 26%
Closed-End Funds
24%
Open-End Funds 50%
NAV ($5.2B + Callable Capital ($0.9B)
Closed-End Funds 36%
REITs 22%
Open-End Funds 42%
As of 9/30/16 Source: Townsend
Externally Managed Portfolio Returns Data through September 30, 2016
50
2.3%
12.3% 12.7% 13.7%
1.8%
11.1% 11.0%
12.2%
1.8%
9.9% 11.3% 11.6%
1.8%
9.1%
11.4% 11.3%
0%2%4%6%8%
10%12%14%16%
3Q16 One Year Three Year Five Year
Externally ManagedPortfolio Total Net Return
Externally Managed PortfolioCustom Weighted Index
SBAF PrimaryBenchmark
ODCE TotalNet Return
Source: Townsend
Externally Managed Pooled Fund Returns Data through September 30, 2016
51
11.6%
14.4% 13.9%
10.1%
12.5% 12.4%
9.1%
11.4% 11.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
One Year Three Year Five Year
SBA Pooled Funds Portfolio Net NFI-ODCE Gross NFI-ODCE NetSource: Townsend
Externally Managed Pooled Fund Returns Data through September 30, 2016
52
Core vs. Non-Core Performance
Source: Townsend
Non-Core Returns
9.2%
11.7% 11.8%
9.1%
11.4% 11.3%
0%2%4%6%8%
10%12%14%16%18%20%
One Year Three Year Five Year
Core Externally Managed Net NFI-ODCE Net
Core Returns
14.4%
17.6% 16.5%
11.7%
14.1% 14.4%
10.7%
13.1% 13.0%
0%2%4%6%8%
10%12%14%16%18%20%
One Year Three Year Five YearNon-Core Externally Managed Net NFI-ODCE Value Weight +150 BPS Gross
NFI-ODCE Value Weight +150 BPS Net
Pooled Funds
53
Office 32%
Retail 17%
Industrial 13%
Hotel 6%
Other 7%
Pooled Funds by Property Type
Residential 25%
East 24%
South 20%
West 36%
Midwest 7%
Pooled Funds by Geography
Domestic 87%
International 13%
Source: Townsend As of 9/30/16
International Pooled Funds Data through September 30, 2016
* Hotel assets in various unspecified locations. ** "Other" is comprised of small (<$1m) exposures to Argentina, Canada, Latvia, Romania, Slovakia and Ukraine.
$87.3 M $.08 M
$35 M
$34.5 M
$162.6 M $21.2 M
$184.7 M
$1.6 M
International Pooled Funds by Property Type
Apartment Health Care Hotel*Industrial Office Other**Retail Student Housing
$0.3 M
$75.2 M
$289 M $12.1 M
$109.3 M
$22.3 M
$4.9 M $0.8 M $13.1 M
International Pooled Funds by Geography
Developed Americas Developed AsiaDeveloped Europe Emerging AmericasEmerging Asia Emerging EuropeEmerging Middle East and Africa FrontierOther
Source: Townsend 54
Externally Managed REIT Returns Data through September 30, 2016
55
1.8%
14.6%
8.8%
13.2%
1.3%
14.9%
7.7%
12.3%
0%2%4%6%8%
10%12%14%16%
3Q16 One Year Three Year Five Year
SBA REIT Portfolio Net SBA Custom REIT BenchmarkSource: Townsend
REIT Portfolio
56
55% 25%
16%
2% 2% Regional Allocations
North America Asia PacificEurope OtherCash
19%
21%
26%
12%
6%
11%
2% 1% 2% Sector Allocations
Real Estate Holding & Devel. Industrial & Office REITsRetail REITs Residential REITsDiversified REITs Specialty REITsHotel & Lodging REITs OtherCashSource: Mercer
Externally Managed Portfolio Portfolio Management
• Determine steps required to tweak portfolio for optimal performance
• Review property type, geographic exposure and risk profile to make appropriate portfolio acquisitions and dispositions
• Invest time and effort in understanding new markets
• Review open-end funds for redemptions, and explore the secondary market when considering disposition of a closed-end fund
• Review other options to enhance portfolio including club deals, co-investments, and secondaries
• Risk rate select assets
57
Externally Managed Portfolio
Current Investment Bias
• Focus on diversification
• Increase exposure to offshore funds
• Re-up with superior managers 58
Pooled Fund Life Cycle
59
ACQUISITIONS - Source Opportunities External SBAF Staff
• Real Estate Consultant • Placement agents (Industry brokers)
• Industry contacts • Existing partner relationships • Industry conferences and roundtables
Pooled Fund Life Cycle
60
ACQUISITIONS - Screen Opportunities
• Starts with a conversation via referral source • Review offering materials • Discussions with real estate consultant • Conference call with manager • Face-to-face meeting • If still interested, initiate underwriting
Pooled Fund Life Cycle
61
ACQUISITIONS –Thorough Underwriting Approach
• Engage real estate consultant • Send the newly created SBAF Supplemental Due Diligence Questionnaire to
potential fund manager • Assess fund strategy to current market conditions • Review organizational stability and platform • Review prior fund performance & fund terms • Assess deal pipeline & seed assets (attempt to visit several seed assets) • Review RE consultant reports
Pooled Fund Life Cycle
62
ACQUISITIONS –Thorough Underwriting Approach (continued)
• Review background checks on key employees • Perform reference checks • Create on-site interview questions for face-to-face meeting with manager;
(Questions accumulated from all due diligence to that point) • Assess and measure risks for acceptability and attempt to mitigate
Pooled Fund Life Cycle
63
ACQUISITIONS – Negotiate
• Management and Incentive fees • Co-investment rights • Accounting & reporting needs (Accounting DDQ) • Transfer rights • Fund restrictions • Obtain an Advisory Board seat • Underwriting works with internal and external counsel to vet legal and business
issues • Request manager confirmation of compliance with SBAF’s policies & Florida
statutes
Pooled Fund Life Cycle
64
INVESTMENT MONITORING
• Review quarterly financials and manager reports • Compare acquisitions to fund strategy & restrictions/guidelines • Compare fund performance to fund objectives • Review fund amendments, extension requests, etc. • Attend annual investor/advisory board meetings • Review quarterly reports from Townsend • Produce internal quarterly reports for enhanced asset & portfolio management
Pooled Fund Life Cycle
65
INVESTMENT MONITORING (continued)
• Quarterly calls with managers • Frequent calls with Townsend on manager issues, market views and potential new
managers • Quarterly calls with existing managers and potential managers on their market
views • Calls with market research specialists for unbiased market views • Monitored by External Investment Management Oversight group • Monitored by Internal Audit
