State of the U.S. Retail Market 2015 Q1 Review and Forecast Copyright 2015 CoStar Realty Information, Inc. No reproduction or distribution without permission. The following information includes projections and analyses that are based on various assumptions by CoStar concerning future events and circumstances, as well as historical and current data maintained in CoStar s database, obtained from public sources or provided by proprietary sources. Actual results may vary materially from the projections presented. The information in this presentation speaks only as of the date(s) referenced and is provided as is. CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose. You should not construe any of the information herein as investment, tax, accounting or legal advice. page 1
Agenda Economy Fundamentals The Value Of A Brand Investment Trends page 2
Economy page 3
U.S. Poised For Stronger Growth Contributions To GDP Growth 6% Contribution to GDP Growth 4% 3.6% 3.5% 2% (2%) (4%) (6%) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Consumption Business Investment Residential Investment Change in Inventories Government Net Exports Total GDP Sources: Moody's Analytics; BEA; CoStar Portfolio Strategy As of Feb 2015 page 4
Strongest Job Growth In A Decade U.S. Total Nonfarm Employment 500 Monthly Jobs Gained / Lost 3-Month Moving Average Growth (Y/Y) 3% 300 2% 100 1% (100) (1%) (300) (2%) (500) (3%) (4%) (700) (5%) (900) 05 06 07 08 09 10 11 12 13 14 15 (6%) Jobs Gained/Lost Growth (Y/Y) Sources: Moody's Analytics; BLS; CoStar Portfolio Strategy As of February 2015 page 5
Job Growth is Solid Employment Fully Recovered 4% Employment Growth (Y/Y) Total Employment (Millions) 160 3% 2% 150 1% 6.5 Years 140 (1%) 130 (2%) (3%) 120 (4%) 110 (5%) (6%) 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Total Employment Growth Employment 100 Sources: Moody's Analytics; Conference Board; BLS; CoStar Portfolio Strategy As of 14Q4 page 6
Employment Growth For Young and Experienced Change in Employment By Age Cohort 1,500 Change in Employed by Age Cohort (000s) 1,000 500 0 (500) (1,000) (1,500) (2,000) (2,500) 08 09 10 11 12 13 14 15 20-34 Yrs. 35-44 Yrs Old 45-54 Yrs Old 55-64 Yrs Old Sources: CoStar; BLS; Moody's Analytics page 7
Rising Incomes Helps Lift Retail Spending Personal Income and Retail Sales Growth 1 Y/Y Growth and Savings Rate 8% 6% 4% 2% (2%) (4%) (6%) (8%) 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 Savings Rate Real Retail Sales Real Personal Income Sources: Bureau of Economic Analysis; U.S. Census Bureau; NBER; CoStar Portfolio Strategy page 8
Spending Less On Gas, More On Other Items Retail Sales And Retail Sales, Ex Gas 9% Y/Y Change 8% 7% 6% 5% 2000-07 Average 4% 3% 2% 1% Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Retail Sales, Ex Auto Retail Sales, Ex Auto and Ex Gas Sources: U.S. Census Bureau; CoStar Portfolio Strategy As of Mar-15 page 9
Households Are Borrowing Again (Sort of) Change In Household Consumer Debt And Retail Sales 2 Annual % Change 15% 1 5% (5%) (1) 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 Retail Sales Per Household Sources: Federal Reserve; CoStar Debt Per Household As of 14Q4 page 10
Market Fundamentals page 11
Vacancies Receding National Retail Fundamentals 1.2% Supply and Demand (Q/Q) Vacancy 9% 1. 8% 0.8% 7% 0.6% 6% 0.4% 0.2% 5% 0. 4% (0.2%) 06 07 08 09 10 11 12 13 14 15 Quarterly Supply Growth Quarterly Demand Growth Vacancy 3% Source: CoStar Portfolio Strategy page 12
Competitive Vacancies Tighter Than Ever National Index Retail Vacancies 8% Vacancy Rate 7% 6% 5% 4% 3% 2% 06 07 08 09 10 11 12 13 14 15 Total Vacancy Competitive Vacancy (excl. >4 bldgs) Source: CoStar Portfolio Strategy page 13
Vacant Space Concentrated in Weakest Trade Areas Non-Competitive Inventory By Market Tier And Trade Area Demographic 3 25% 2 15% 1 5% Tier 1 Markets <$2.5B $2.5-4B >$4B 3/31/2015 3 25% 2 15% 1 5% Tier 2 Markets <$2B $2-3B >$3B 3/31/2015 3 25% Tier 3 Markets 3 25% Tier 4 Markets 2 15% 1 2 15% 1 5% <$1.5B $1.5-2B >$2B 3/31/2015 5% <$1.5B $1.5-2B >$2B 3/31/2015 Sources: CoStar Group; Neustar page 14
Phoenix High Vacancy Centers and Demographics page 15
Nashville High Vacancy Centers and Demographics page 16
Cleveland High Vacancy Centers and Demographics page 17
Las Vegas Phoenix Detroit Sacramento Memphis Inland Empire Chicago Atlanta Kansas City Cleveland Saint Louis Cincinnati Jacksonville Dallas - Fort Worth Fort Lauderdale Milwaukee Nashville Oklahoma City Indianapolis Tampa Philadelphia Palm Beach County Orlando New Orleans Columbus OH Richmond Norfolk Hartford Northern New Jersey Denver Houston Charlotte San Antonio Minneapolis Raleigh Baltimore Seattle Portland, OR Los Angeles Washington - NoVA - MD Austin Stamford New York Orange County Long Island East Bay San Diego Pittsburgh Salt Lake City San Jose Miami Boston Honolulu San Francisco Good Retail Can Be Found Everywhere Competitive Vacancy Rates By Market 1 Vacancy Rate 8% 6% 4% 2% Total Vacancy Source: CoStar Portfolio Strategy Competitive Vacancy (excl. >4 vacant bldgs) page 18
Leveling Off Rent Growth And Level 20 Asking Rent ($/SF) Y/Y Growth 8% 6% 19 4% 18 2% 17 (2%) 16 (4%) (6%) 15 06 07 08 09 10 11 12 13 14 15 Asking Rent ($/SF) Annual Rent Growth (8%) Source: CoStar Portfolio Strategy page 19
A Product Of Demographics Retail Rents Vs. Saturation $45 Avg. Asking Rent $40 $35 $30 $25 New York Honolulu San Francisco Miami San Jose Los Angeles $20 Fort Lauderdale $15 $10 Inland Empire Phoenix Chicago Atlanta New Orleans $5 30 35 40 45 50 55 60 65 Retail SF/Capital Source: CoStar Portfolio Strategy page 20
A Product Of Demographics Retail Rents Vs. Saturation $45 Avg. Asking Rent $40 $35 $30 $25 New York Honolulu San Francisco San Jose Los Angeles Miami Tourism Metros $20 Fort Lauderdale $15 $10 Inland Empire Phoenix Chicago Atlanta New Orleans $5 30 35 40 45 50 55 60 65 Retail SF/Capital Source: CoStar Portfolio Strategy page 21
Austin Orlando Denver Phoenix Palm Beach Houston Dallas - FW Raleigh Charlotte San Francisco Seattle Nashville Atlanta Ft. Lauderdale Indianapolis Las Vegas San Diego Jacksonville San Antonio Orange County Oklahoma City Washington, D.C. East Bay Portland Minneapolis Inland Empire Tampa Sacramento Salt Lake City Los Angeles Honolulu Richmond San Jose New York Boston Cincinnati Stamford Baltimore New Orleans Columbus Memphis Miami Northern NJ Philadelphia Long Island Kansas City Chicago Norfolk Hartford Saint Louis Detroit Pittsburgh Milwaukee Cleveland Keeping Pace With Developers Change In Per Capita Retail By Metro 3% 2% 1% (1%) (2%) (3%) (4%) % Change (11Q4-14Q4) Retail inventory growing faster than population! (5%) (6%) Population growing faster than retail inventory! West South East Midwest Sources: Census Bureau; CoStar Portfolio Strategy page 22
What s Underway Selected Top Development Projects 15Q1 American Dream at Meadowlands East Rutherford, NJ 2.8 million SF super regional mall being developed by Triple Five Development Corp. 2016 Expected Delivery Liberty Center West Chester, OH 657,000 SF lifestyle center being developed by Steiner & Assoc. 2015 Expected Delivery World Trade Center Retail New York, NY 300,000 SF regional mall Westfield Group 2015 Expected Delivery Brickell City Centre Miami, FL 500,000 SF regional mall being developed by Swire Properties 2016 Expected Delivery Teterboro Landing Teterboro, NJ 425,000 SF power center being developed by Catellus Development Corp. 2015 Expected Delivery The Source Buena Park, CA 400,000 SF Lifestyle Center being developed by M + D Properties 2015 Expected Delivery page 23
New York Nashville Milwaukee Miami Honolulu Orange County Northern NJ Memphis Cincinnati Oklahoma City Inland Empire Palm Beach Seattle Columbus Atlanta Detroit New Orleans Long Island Cleveland Jacksonville Where's It All Going? Supply Growth & Under Construction By Metro 1.8% 1.6% % Of Inventory 6.3 M 000s SF 2,000 1,800 1.4% 1.2% 1. 0.8% 0.6% 0.4% 1,600 1,400 1,200 1,000 800 600 400 0.2% 200 0. 0 West South East Midwest Source: CoStar Portfolio Strategy RBA Under Construction page 24
Construction Concentrated in the Best Locations Retail SF Underway By Market Tier and Trade Area Demographic (% of Total) 25% Tier 1 Markets 25% Tier 2 Markets 2 2 15% 15% 1 1 5% 5% <$2.5B $2.5-4B >$4B 3/31/2015 <$2B $2-3B >$3B 3/31/2015 25% Tier 3 Markets 25% Tier 4 Markets 2 2 15% 15% 1 1 5% 5% <$1.5B $1.5-2B >$2B 3/31/2015 <$1.5B $1.5-2B >$2B 3/31/2015 Sources: CoStar Group; Neustar page 25
Which Is a Big Change From Last Cycle Retail SF Underway By Market Tier and Trade Area Demographic (% of Total) 25% Tier 1 Markets 25% Tier 2 Markets 2 2 15% 15% 1 1 5% 5% <$2.5B $2.5-4B >$4B 12/31/2006 3/31/2015 <$2B $2-3B >$3B 12/31/2006 3/31/2015 25% Tier 3 Markets 25% Tier 4 Markets 2 2 15% 15% 1 1 5% 5% <$1.5B $1.5-2B >$2B 12/31/2006 3/31/2015 <$1.5B $1.5-2B >$2B 12/31/2006 3/31/2015 Sources: CoStar Group; Neustar page 26
Value Of A Brand page 27
Pricing Versus Demographics NNN Restaurant Trades Since 1/1/2014 1,200 Sale Price ($/SF) 1,000 800 600 400 200 0 0 1 2 3 4 5 3-Mi. Buying Power ($B) Source: Neustar; CoStar Portfolio Strategy page 28
Burger King NNN Restaurant Trades Since 1/1/2014 1,200 Sale Price ($/SF) 1,000 800 600 400 200 0 0 1 2 3 4 5 3-Mi. Buying Power ($B) Burger King Source: Neustar; CoStar Portfolio Strategy page 29
McDonald s NNN Restaurant Trades Since 1/1/2014 1,200 Sale Price ($/SF) 1,000 800 600 400 200 0 0 1 2 3 4 5 3-Mi. Buying Power ($B) McDonalds Source: Neustar; CoStar Portfolio Strategy page 30
Starbucks NNN Restaurant Trades Since 1/1/2014 1,200 Sale Price ($/SF) 1,000 800 600 400 200 0 0 1 2 3 4 5 3-Mi. Buying Power ($B) Starbucks Source: Neustar; CoStar Portfolio Strategy page 31
Jack In The Box NNN Restaurant Trades Since 1/1/2014 1,200 Sale Price ($/SF) 1,000 800 600 400 200 0 0 1 2 3 4 5 3-Mi. Buying Power ($B) Jack In The Box Source: Neustar; CoStar Portfolio Strategy page 32
Starbucks Jack in The Box Taco Bell Wendys IHOP Burger King Applebees Arby's KFC McDonalds Pizza Hut The Value Of A Brand Achieved Vs. Expected Pricing For NNN Transactions 4 3 Premium/Discount 31% 25% 2 1 Fair Pricing (1) (2) (3) -22% -23% (4) -37% Source: Neustar; CoStar Portfolio Strategy page 33
Investment Trends page 34
Investment Ramping Up Retail Pricing And Volume Metrics 200 Repeat Retail Sales Index (Value Weighted) Quarterly Investment Volume ($B) 16 180 160 140 120 14 12 10 100 8 80 60 40 20 6 4 2 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0 Investment Volume Repeat Sales Index Average Quarterly Investment Volume Source: CoStar Portfolio Strategy page 35
Return To Normal Retail Investment Volume And Average Cap Rate 1 Average Cap Rate Quarterly Investment Volume ($B) 16 9% 14 12 8% 10 7% 8 6% 6 4 5% 2 4% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Investment Volume Avg Cap Rate Average Quarterly Investment Volume 0 Source: CoStar Portfolio Strategy page 36
Salt Lake City Honolulu Palm Beach County Charlotte Atlanta Fort Lauderdale Columbus OH Tampa Orlando Kansas City Las Vegas Phoenix Dallas - Fort Worth Sacramento Oklahoma City Nashville Indianapolis Detroit Denver San Jose Jacksonville Houston Los Angeles Seattle Portland, OR Inland Empire Norfolk Richmond Milwaukee Minneapolis Austin Cincinnati Chicago Miami Washington - NoVA - MD Raleigh Philadelphia Baltimore Northern New Jersey East Bay Cleveland San Francisco San Diego Stamford Memphis Saint Louis New York San Antonio Orange County Boston Pittsburgh Long Island New Orleans Hartford Markets Are Liquid Again Recent Inventory Turnover Relative To Long-Term Avg. 8% Four-Quarter Inventory Turnover 7% 6% 5% 4% 3% 2% 1% Last 4 Qs Average Since 2006 West South East Midwest Source: CoStar Portfolio Strategy page 37
Selected Top Retail Deals 1Q 2015 Esquire Theater Chicago, IL 58 E Oak St Convexity Properties sold the redeveloped 51,000 square foot property to Ponte Gadea Group for $176.0 million. $3,451/SF Ala Moana Center Honolulu, HI 1450 Ala Moana Boulevard GGP sold a 25% interest in this mixed use center to AustraliaSuper for $885.96 million that values the 1.73 million square feet at $2,045/SF. Kimstone Portfolio 5.7 MM Sq. Ft across the states of CA, FL, GI, MA, MD, NV, PA, TX, VA & WA 66.667% Interest Sale The Blackstone Group sold it s 67% interest to it joint venture partner for $925.0 Million. Gross value of $244/SF and a 5.82% Cap Jersey Gardens & University Park Village Elizabeth, NJ and Fort Worth, TX WP Glimcher sold the two-asset, 1.5 million square foot portfolio to Simon Property Group for $1.09 billion. $735/SF and a 4.8% cap rate. Showcase Mall, Las Vegas 3769 Las Vegas Boulevard 7+months after the Unilev /Walton St Capital joint venture sold the 1 st part of the Showcase Mall they sold the second 95,714 SF portion to the same group of Jordache Enterprises, Regal Home and Gindi Capital for $139.5 million. $1,457 /SF and a 5. cap rate. Streets of Woodfield, Schaumburg, IL 601 N Martingale Rd A joint venture of Junius RE Partners and Cypress Equities sold the 692,540 square foot center to The Blackstone Group for $168.5 million, down from its original price of $200 MM. Sold 98% leased at a 6.4% cap rate ($243/SF) page 38
Thank You! page 39