SKAGEN m2. Statusrapport Oktober 2014

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1 SKAGEN m2 Statusrapport Oktober 2014

2 Hovedtrekk oktober 2014 Globale eiendomsaksjer var opp 10,7 prosent i oktober, mens SKAGEN m 2 var opp 9,1 prosent, noe som innebar en mindreavkastning målt mot referanseindeksen på 1,6 prosentpoeng. Hittil i år er SKAGEN m 2 opp 23,3 prosent, mot referanseindeksens 25,4 prosent. De beste markedene hittil i år er Thailand og Indonesia, samt USA på grunn av en sterk amerikansk dollar. USA var det sterkeste markedet i oktober. Det svakeste markedet hittil i år er fortsatt Japan. På månedens siste dag ble vi overrasket av at sentralbanken i Japan annonserte en ny runde kvantitative lettelser tidligere enn forventet. Det innebærer at sentralbanken vil øke sin pengemengde med 725 milliarder dollar. I tillegg annonserte det statlige japanske pensjonsfondet at de vil redusere sin vekt i japanske obligasjoner (fra 60 til 35 prosent) til fordel for aksjer (fra 24 til 50 prosent). På lang sikt vil eiendomsaksjer tjene på dette dersom inflasjonen tiltar etter mange år med deflasjon. På kort sikt vil det være bra på grunn av økt etterspørsel etter eiendom. Dette tiltaket førte til et hopp i den japanske eiendomsindeksen på ca. 12% på en dag, noe som innebar at vi tapte 1 prosentpoeng relativ avkastning på en dag. Samtidig gjorde vår nylige posisjonering i Japan gjennom Mitsubishi Real Estate Office Fund og Mitsui Fudusan sitt til å dempe det relative tapet og bidra til god absolutt avkastning. En sterk amerikansk dollar forklarer også en del av mindreavkastningen til SKAGEN m 2 i oktober. 6 av våre aksjer ga en avkastning på mer enn 10 prosent i oktober, hvorav 4 var amerikanske selskaper. I tillegg steg den amerikanske dollaren 4,8 prosent mot den norske kronen, og 1 prosent mot euro. Aksjen som ga best avkastning målt i lokal valuta var SL Green som er den største kontorbyggeieren i New York med en markedsverdi på 11 milliarder amerikanske dollar. Dette indikerer at investorer har vendt tilbake til det noterte eiendomsmarkedet. De to neste aksjene på listen var begge indiske, Phoenix Mills and Oberoi Realty, noe som først og fremst var drevet av det positive sentimentet i det indiske aksjemarkedet. Aksjene som leverte svakest avkastning var det brasilianske kjøpesenterselskapet General Shopping, den russiske boligutvikleren Etalon og Ananda Development fra Thailand. Etter god avkastning hittil i år begynte det brasilianske eiendomsmarkedet å falle i begynnelsen av september som følge av et svakt sentiment og bekymringer knyttet til valgt som ser ut til å ha vært berettiget. General Shopping led av svekket valuta som følge av manglende tiltro til de politiske tiltakene som er implementert for å bedre det økonomiske klima i Brasil. De 10 største posisjonene utgjør nå 32,5 prosent av fondet. SKAGEN m 2 består av 55 selskaper og 7 prosent kontanter. 2

3 Avkastning, oktober 2014 A Oktober Hittil i kv. Hittil i år Siden start* SKAGEN m2 9,1% 9,1% 23,3% 14,3% MSCI ACWI Real Estate 10,7% 10,7% 25,4% 20,0% Meravkastning -1,6% -1,6% -2,1% -5,7% Note: All returns beyond 12 months are annualised (geometric return) * Inception date: 31 October

4 Markedenes utvikling i september i NOK 2014 (%) Sør-Afrika USA Tyrkia Kina (lokal) Australia Kina (Hong Kong) Indonesia MSCI Eiendomsindeks Hong Kong UK Japan SKAGEN M2 Canada Singapore Tyskland Brasil Thailand Vekstmarksindeksen Verdensindeksen Frankrike India Philippinene Norge

5 Markedenes utvikling så langt i år i NOK 2014 (%) Thailand Indonesia Philippinene USA Tyrkia Australia 33 Sør-Afrika Tyskland UK MSCI Eiendomsindeks Hong Kong Singapore SKAGEN M2 India Canada Brasil Verdensindeksen Kina (Hong Kong) Vekstmarksindeksen Frankrike Norge Kina (lokal) Japan

6 Største bidragsytere, september 2014 Største positive bidragsytere Største negative bidragsytere Selskap NOK (000) General Growth Properties Brandywine Realty Trust HCP PS Business Parks Selskap NOK (000) General Shopping Brasil SA Etalon Group Ltd GDR -629 Ananda Development PCL-Nvdr -196 Affine SA -141 Apartment Investment & Man SL Green Realty Corp Ashford Hospitality Trust Mitsui Fudosan Co Ltd Columbia Property Trust Inc Phoenix Mills Ltd Total verdiskapning: NOK 48.9 millioner Note: Bidrag til absolutt avkastning 6

7 Største bidragsytere hittil i 2014 Største positive bidragsytere Største negative bidragsytere Selskap NOK (000) Ashford Hospitality Trust Apartment Investment & Man General Growth Properties HCP Ananda Development Phoenix Mills Deutsche Wohnen Brandywine Realty Trust SL Green Realty Selskap NOK (000) Franshion Properties China Hovnanian Enterprice DLF Dic Asset General Shopping Brasil Etalon Group -968 Yuexiu Property -854 Ashford Hospitality Prime -616 Lippo Malls Indonesia -446 Summarecon Agung Total verdiskapning: NOK millioner Note: Bidrag til absolutt avkastning 7

8 Største bidragsytere, oktober 2014 Største positive bidragsytere Company NOK (000) General Growth Properties Brandywine Realty Trust HCP PS Business Parks Apartment Investment & Man SL Green Realty Corp Ashford Hospitality Trust Mitsui Fudosan Co Ltd Columbia Property Trust Inc Phoenix Mills Ltd Selskapet leverte sterke resultater, og noe av frykten om innvirkning av e-handel ser ut til å avta. Selskapet er fortsatt i stand til å investere i utviklingsprosjekter i eksisterende kjøpesenter med forventet avkastning på 8-11 prosent. Avkastningen i norske kroner påvirkes av styrkelsen av den amerikanske dollaren. Høy direkteavkastning uten behov for kontanter for å fullføre pågående utviklingsprosjekter som markedet har fryktet. Ingen selskapsspesifikke nyheter, men den svært gode utviklingen kan forklares med den amerikanske sentralbanken sine signaler om at rentene vil forbli lave lenger enn forventet. I tillegg til bidro en dollarstyrkelse vesentlig. Selskapet leverte resultater i tråd med forventningene, og erklærte et ekstraordinært utbytte knyttet til gevinst fra salg av to kontorbygg for å unngå skatt på selskapsnivå. Vellykket reposisjonering av selskapet vises tydelig i kontantstrøm og resultat. Det generelle boligmarkedet har også vært sterkere. Veldig sterke resultater og etterspørsel fra investorer. Dette selskapet har en opportunistisk stil og holder til i Midtown Manhattan. Selskapet er den største eieren av kontorbygg i New York. Leverte bedre resultater enn forventet med god margin. Omsetning per tilgjengelige rom var opp 12,4 prosent mot forventet 8,5 prosent. Ny posisjon i m2 i oktober, og utgjør 2 prosent av fondet. Vi kjøpte på det som mer eller mindre var den svakeste kursen i løpet av det siste året etter et fall på ca. 25 prosent hittil i år. Annonseringen fra den japanske sentralbanken om ytterligere monetær stimulanse, og annonseringen fra det statlige japanske pensjonsfondet, GPIF, førte til et rally i det japanske eiendomsmarkedet. Selskapet leverte resultater langt over forventningene, og er billig Ingen selskapsspesifikke nyheter Note: Bidrag til absolutt avkastning 8

9 Største bidragsytere, oktober 2014 Største negative bidrtagsytere Company NOK (000) General Shopping Brasil Etalon Group -629 Ananda Development -196 Affine SA -141 Det negative økonomiske sentimentet øker, og utfallet av presidentvalget førte til frykt for gale politiske tiltak for å bedre økonomien General Shopping har utstedt gjeld i amerikanske dollar, og har tapt på dollarstyrkingen. Ingen selskapsspesifikke nyheter. Den økonomiske utviklingen i Russland og det tvilsomme politiske klimaet har dratt aksjemarkedet ned, i tillegg til at rubelen ha stupt. Ingen spesifikke nyheter. Det thailandske eiendomsmarkedet har vært et av de sterkeste i år og Ananda har levert mye bedre avkastning enn markedet, slik at et fall som dette er forventet etter en sterk oppgang. Selskapet leverte resultater i tredje kvartal i tråd med forventningene Note: Bidrag til absolutt avkastning 9

10 Viktigste endringer hittil i 2014 Q1 Q2 Ca Immobillien Ny Surya Semesta Ut General Growth Ny Lippo Karawaci Ut Unibail-Rodamco Ny Segro Ut CBL Properties Ny Bumi Serpong -- Br Properties -- Yuexiu Ut Torunlar Ut Lippo Malls Ut DLF India Ut IJM Land Ut Colombia Property Trust Ny Atrium Ljungberg Ny Capitalmalls Asia Ut Nomura office Ny Indiabulls -- Etalon Group Ny Ashford Hospitality Prime Ut DIC Asset Ny Lexington -- Bekasi Fajar ++ General Growth -- CBL ++ Franshion Properties -- Shimao Property -- + Holding increased -- Holding decreased 10

11 Viktigste endringer hittil i 2014 Q3 Westgrund NY Ananda Development -- DiC Asset ++ Siam Future Ut Oberoi Realty Ny Indiabulls Ut CSI Properties Ny Century Property Group -- CBL Properties ++ BR Malls -- Etalon Group ++ Ticon Industrial -- PS Business Park ++ Deutsche Wohnen -- Brandywine ++ Ticon Property Fund Ut HCP ++ Q4 Mitsui Fudosan Ny Franshion Properties -- Entra Ny Parkway Life -- Soho China ++ Lexington -- + Holding increased -- Holding decreased 11

12 Største kjøp og salg i oktober 2014 Kjøp Salg Mitsui Fidusan (8801 JP) (Ny) Sden selskpet ble etablert i 1941 har Mitsui Fudosan vært en aktiv leder i den japanske eiendomssektoren, og har på en suksessfull måte utviklet nye forretningsmuligheter i ulike eiendomssegmenter og har dermed skaffet seg en dominant posisjon i markedet. Selskapet har en godt integrert og balansert vekstmodell med utvikling og investering i eiendom spredt over ulike segmenter (kontor, bolig, logistikk, hoteller og eiendomsfond). Forvaltningsvirksomheten (parkeringsplassutleie og eiendomsforvaltning) gir stabil inntjeningsvekst over tid, og sammen med andre stabile inntekter fra forretningseiendommer balanserer det volatiliteten i utviklingssegmentet. 8 prosent av selskapets eiendommer er i utlandet. Det har en sterk balanse etter sin første emisjon på 23 år i sommer. Det er tiltakende aktivitet i eiendomsmarkedet i Tokyo, leiene øker og ledigheten faller. Selskapet har blant de mest attraktive yieldspreadene i området (310 basispunkter i oktober 14). Verdsettelsen har falt fra premie til rabatt målt mot NAV i løpet av året. Pågående kvantitative lettelser fra sentralbanken og aksjekjøp fra det statlige japanske pensjonsfondet gir støtte til eiendomsmarkedet. Franshion Properties. Vi har solgt ned posisjonen betydelig på grunn av svak utvikling siden børsnotering av eiendommer i juli i år. Utviklingsvirksomhet i den kinesiske eiendomssektoren har opplevd motvind i form av lavere volumer og priser dette året. Dette har påvirket Franshion negativt, i tillegg til et negativt sentiment både mot eiendomssektoren og økonomien generelt i Kina. Selskapet handles fortsatt til lave multipler og har et stort potensiale, men for å redusere risikoen ved ytterligere negative nyheter, så solgrte vi oss ned i Franshion og økte posisjonen vår i mer stabile SOHO China. Parkway REIT. Vi solgte ned på grunn av utilfredsstillende utvikling og ufordelaktig beskatning for fondet. Lexington. Vi har redusert vår posisjon i Lexington. Selskapet er boligutleier i randsoner, noe som betyr at de produserer høy kontantstrøm men har lav prisvekst. Vi ønsker å fokusere på verdiskapende selskaper i det lange løp foran god kontantstrøm. Entra. ENTRA investerer i og forvalter en kontorportefølje over hele Norge, og i hovedsak Oslo. De har 108 eiendommer på til sammen 1.3 million m2 med en markedsverdi på 27,8 milliarder kroner. Kontorbyggene ligger i hovedsak i Oslo, og i mindre grad i Stavanger, Trondheim og Bergen, og leies i hovedsak ut til offentlig sektor (73 %).. 12

13 Største poster i SKAGEN m2 ved utgangen av oktober Postens størrelse Kurs P/NAV siste Div. Yield 2014e EBITDA 2014e/EV General Growth Properties Inc 3,9% 25,79 100% 2.5% 4.9% Brandywine Realty Trust 3,9% 15,46 100% 3.9% 7.1% HCP Inc 3,4% 43,97 131% 5.0% 6.0% Columbia Property Trust Inc 3,4% 25,21 80% 4.8% 6.9% Ashford Hospitality Trust 3,2% 11,17 90% 4.3% 7.5% PS Business Parks Inc 3,1% 84,39 105% 2.4% 5.8% Global Logistic Properties 3,0% 2,75 92% 1,9% 3,7% Deutsche Wohnen AG 2,8% 17,63 144% 2.6% 4.8% Apartment Investment & Man 2,8% 35,36 100% 2.9% 5.7% Mercialys SA 2,8% 17,58 100% 3.2% 5.8% Vektet topp % 104% 3.5% 5.8% Vektet topp % 4.4% 6.4% Referanseindeks 3.4% 13

14 Geografisk fordeling SKAGEN m2 vs. referanseindeksen (%) 53 Fond Indeks Asia ex Japan EMEA Frontier Markets Japan Kjerne EU Nord Amerika Norden Perifer EU Oceania Sør Amerika Kontanter 14

15 Selskapsresultater og annen informasjon - på engelsk

16 Key earnings releases and corporate news October Mercialys, France (2.8%) Unibail Rodamco, France. (2.0%) Resilience in LFL rental growth and positive guidance. Summary: Mercialys published its 9M14 turnover results. Rental revenues came in at EUR 114.5m, up 1.5% in line with expectations. Mercialys has continued strong LFL rental growth on the standing portfolio at +2.9%, again 2.6 percentage points over indexation (+0.3%). Management also raised its FY14 forecast of LFL rental growth to +2.5 percentage points from +2.0 percentage points over inflation. This compares with an impact from reviews at +1.7% and +2.3% over inflation in FY12 and FY13 respectively. Tenant sales in 3Q in Mercialys centres have still been more resilient than the shopping centre market index, approximately 90bps outperformance. Footfall in Mercialys shopping centres grew by +0.9% cumulatively to end-august 2014, compared with a -0.6% decline for the CNCC shopping centre index. Implications for the investment case: Again a solid set of numbers from Mercialys. The growth in rents achieved on lease renewals and relets is among the highest in sector. Positive with upward guidance in FY organic growth despite the harsh French economic development. 3Q14 revenues and disposal of smaller malls Summary: UL reported sales of EUR 1.4bn (up 10% YoY) of which gross rental income (GRI) came in at EUR 1.25bn (up 8.4% YoY) in line with expectations. Growth was mainly driven by leasing, deliveries and acquisitions (Centr O and Mfi).Tenant sales in UL s shopping centres were up +2.7% in the first 9 months of 2014 outperforming national sales indices by 2.3 percentage points according to the company (numbers include extensions). Strong growth in Spain and Central Europe offset weak numbers in the Nordics. GRI for office division were up 6.8% YoY primarily due to strong leasing activity reducing vacancy in France to 4.7%. GRI of convention & Exhibition increased by 4.6%. UL continued to actively manage its balance sheet with the issuance of a EUR 750m bond at a record low level of 1.375% (3x oversubscribed). UL also completed a tender offer for five of the outstanding bonds (total EUR 1bn). UL also announced that Wereldhave is acquiring a EUR 850m French shopping centre portfolio from UL with a 5.5% net initial yield. Implications for the investment case: Solid numbers in line with expectations and no big surprises, the report was on the positive side. GRI development is good in light of the current deflationary environment. UL always gives limited information in this report regarding other metrics so no other conclusions can be drawn. The disposal of smaller centres is positive since UL continues to focus on core strategy. On the refinancing, UL is again taking advantage of low long-term interest rates to cut its average cost of debt while raising its average maturity. The overall effect will be a positive impact on recurring cash flows, a reduction in NAV (due to the premium paid to redeem the bonds in the tender offer), no impact on NAV and an increase in net debt. This is in line with what the company has communicated: focus on cash flow first not NAV. This is a strategy that we like. 16

17 Key earnings releases and corporate news October Atrium Ljungberg, Sweden (1.0%) 3Q14 report in line with expectations Summary: For 3Q14, rental income came in at SEK 500m with an operating surplus of SEK 363 m (margin of 72.5%), both numbers above market expectations. Profit before value changes was SEK 228m, slightly below market due to higher financial costs. During the period there were no value changes on properties, while falling swap rates during the quarter generated negative value changes on derivatives of SEK 116m (but without CF effect). Company generated good cash flow of SEK 188 m from operations during the quarter. Occupancy rate was 93%, slightly lower YoY. Still a solid balance sheet with an LTV of 45%. Company re-iterated its intention to invest SEK 1 bn this year. NAV/share stands at in line with current stock price. Implications for the investment case: OK numbers from AL, no big surprises and development portfolio is going according to plan. Occupancy improving in all major projects, but in Sickla Front (previously the new HQ for AkzoNobel) the occupancy rate is still 0% awaiting court decision. AL is in a process (court process beginning of 2015) to claim money for Akzo and is very likely to win, meaning that this should not create any losses for AL. Company left its recurring earnings guidance unchanged at SEK 815m for This would imply SEK 163m in Q4, or a 23% drop YoY, which is not likely. We expect a higher number as does the market. Oberoi, India (1.2%) 2Q15 report in line with expectations Summary: Oberoi reported its 2Q15 results. Presales (driven by Exquisite) were up 21% YoY but down 27% in the quarter (partly seasonal effect). EBITDA was up 15% in the quarter and margin came in at 60.3%, up 5.8 percentage points YoY. Net profit was up 10% YoY and in the quarter. Annuity business (mall, office and hotel) had a steady performance with revenues up 5% YoY. Positive during the quarter was 1) that the Mulund land parcel was cleared for development after the state government's decision to withdraw its review petition 2) the tie-up with Ritz Carlton for (first in India) for Oasis-Worli Hotel and residencies 3) good construction process at Esquire. Oberoi is still net cash positive however declined to Rs 1.23 bn vs. Rs 2.36 bn in Jun14. Implications for the investment case: Company has 3 upcoming launches which will be very important for the company over the next 12 months and also as an indicator of local market sentiment that seems to be improving. If launches are successful (no delays or economic downturns, etc.) they will likely lead to a presales recovery and earnings/cf boost for Oberoi that are in pole position (prime location projects across Mumbai area, superior execution track record and brand), to benefit from a potential Mumbai market turnaround. Too early to talk about a turnaround but worst of Mumbai's pre-sales slowdown and regulatory delays seem to be behind them. REIT legislation process drove the RE market a couple of months ago but has stalled after some disappointment over tax benefits and high expectations. On top of this the market has corrected on question marks over Mr Modi s ability to implement reforms like infrastructure etc. that are vital for RE market. 17

18 Key earnings releases and corporate news October Keppel Land, Singapore (1.0%) Q3 results in line with expectations, improved income from fund management. Summary: Keppel Land provided results in line with weak expectations on the residential development market in China and Singapore. The result was down 14.7% on an adjusted basis excluding extraordinary gains and 3.3% without adjustments YTD. Lower contribution from residential development and hotel business in Vietnam on the negative side and lower interest expenses, favourable FX and higher fund management income on the positive side. Implications for the investment case: They are struggling with a tough market at the moment. However, we like that the management income increased 15% and is 16% of net income and increasing. They will also divest more of their development project to their managed funds, improving recurring income and freeing up cash. The company is trading at a discount to NAV at 30% on weak market expectations. We like our holding and expect increased recurring income long term. Brandywine, US (3.9%) Q3 results in line with expectations, improved expectations and guidance. Summary: Brandywine, American sub office, provided results in line with guidance, but maybe above market expectations due to a positive movement in share price after conference call. The company issued equity at the top of the market and reduced leverage to 37% and secured financing for all remaining development projects during It also paid off some debt. This makes the company quite flexible regarding future opportunities. Most metrics improved meaning that they will obviously increase the FFO significantly next year when the rest of their development portfolio comes into operation. Implications for the investment case: We keep our holding at 3.5 to 4% of the portfolio. This company is not only a sub office company, but has a lot of central brand-new offices and is misunderstood as a sub office play. They are trading at an 8% FFO yield, expected to increase up to 10% within two years with low leverage which means that they can improve FFO further. Citycon, Finland (1.9%) Q3 in line with whispering numbers. Improving going forward Summary: Citycon reported Q3 in line due to worse expectations than analyst numbers. The company has been struggling with a weak Finnish economy and also has some exposure to the Baltic region that has caused some headwinds lately. After their equity issue in Q2, their balance sheet is quite healthy and they also announced a buyout of JV partner for ca.115m (8% of MC). The revenue was affected by disposition and no development coming into operation, but the administration cost was also down to 4.2m, 10% decline and they also improved their financial result due to equity issue, but seem to improve cash earnings per share. Like for like rental growth was 1.4% and occupancy remained at 95.7%. Implications for the investment case: Taking into account the weak Finnish economy, the results are quite healthy. The share price has been under quite substantial pressure, causing a NAV discount of 20% on low leverage. We bought some shares on weak expectations. 18

19 Key earnings releases and corporate news October GGP, US (3.9%) PS Business, US (3.1%) CBL, US (2.1%) Q3 results above expectations on revenue and cost Summary: GGP provided Q3 results above expectations on both higher revenue and lower operation costs due to good Q3 weather (lower electricity bills). The company increased SS Net operating income 5.4% compared to guidance of 3.5%, mainly due to lower operational costs. Leasing spreads for commencing leases in 2014 are up 17.6% due to high demand for class A space from international retailers expanding into US. They also get demand from e-commerce operators developing omni-channel strategies. Implications for the investment case: The demand for class A space is extremely healthy due to the developing e-commerce landscape experiences demand from e-commerce operators converting into omni-channel strategies and limited supply together with demand abroad. The tenant sales are still not picking up meaningfully, but the supply side is limited and pushing up rents. When or if tenant sales increase, the rent may get another push up. We keep the company as our biggest holding as a relative winner and longterm value creator. Q3 results in line with expectations, special dividend. Summary: PS Business Park provided results in line with expectations. They declared a special dividend based on gain from sale of 2 buildings due to lack of acquisition opportunities and too much cash on their balance sheet (one of the most conservative balance sheets among peers (60 eq, 30 % pref)). They stated that it was difficult to acquire repositioning assets (business model is to buy cheap empty or low occupancy buildings to reposition) and therefore prefer to optimize their existing portfolio. Implications for the investment case: They improved the occupancy of their repositioning portfolio (acquired last year) from 69 to 77.5% YoY, and their total portfolio from 90.2 to Most likely, the metrics of their portfolio will continue to improve due to few new acquisitions. The company develops as expected and is set to outperform in bad markets or rising interest rate climate. We keep our holding at current level. Q3 results above expectations, improved expectations and guidance. Summary: CBL, a b-mall operator, provided results ahead of expectations and raised guidance. Their 2014 FFO yield is 12% implying that the market expects their malls to be on a downward trend for years. However, they have been reluctant to sell 20% of their portfolio until now, which has been a good move based on increasing prices for b-malls. FFO per share was up 5.8% due to new development, increased rental leases and lower operating costs (cost-friendly weather). Releasing spread was 17.6 %, which was quite impressive based on the market s expectations. Implications for the investment case: The company is an obviously M&A target, and some activists have started to focus on cheap mall owners to separate the bad part of the company, releasing the full potential of the remaining company. CBL has been focused on capital allocation and has been reluctant to implement measures that create short-term gain at the expense of long-term performance. We keep our holding at 2% of portfolio. 19

20 Key earnings releases and corporate news October Deutsche Wohnen, Germany (2.8%) Etalon, Russia (0.9%) EMLAK, Turkey (1.3%) Refinancing of EUR 1.36bn boosts cash flow. Summary: DW announced it has refinanced EUR 1.36 bn. The interest rates were fixed at around 1.9% p.a. for approximately 70% of the nominal amount of the loans; the remaining 30% of the loans are at a variable interest rate. Taking the recently issued convertible bond into consideration, this means an average interest rate of less than 1.5% p.a. for the EUR 1.76 bn total financing volume. The average cost of interest for DW will now decline from 3.4% to 2.5% pa from DW indicated that transaction will lead to an interest saving of around EUR 39m per year. On a more negative note, the unwinding of existing interest rate hedges will cost DW EUR 100 m in Implications for the investment case: Higher free cash flow is good. DW is best in class in operational and financial efficiency and works actively with these matters. DW s high average interest costs have been a drag in comparison to peers that have already refinanced. 1H 2014 results, IFRS and back loaded numbers Summary: Etalon announced its first IFRS financial statement for 1H 2014, which significantly affected YoY comparison for this period due to differences in recognised sales. The construction cycle specifics (the bulk of deliveries are skewed towards the end of the year) and the new IFRS revenue recognition practice were the reasons for perceived poor visible result 1H14, but this was no surprise for the market. Contract sales during 9M 2014 increased by 28% YoY to RUB 26.7 bn. EBITDA for 1H 2014 was RUB 1.7m, compared to RUB 4.2m in 1H 2013, due to the factors set out above. Profit margins for 1H 2014 were affected by the higher share of lower-margin construction services revenue, combined with the practice of more evenly balanced recognition of SG&A expenses across reporting periods. Net cash of the group was RUB 349m, and free cash flow turned positive in 1H supported by the strong cash collections in the period. Implications for the investment case: Operating results were reasonably good despite the macro challenges the Russian economy is facing. Etalon is on track to deliver its full-year construction and sales guidance announced at the beginning of the year. Third quarter indicated a positive trend. Q314 report, top line and operational result in line with expectations Summary: EMLAK generated revenues of TL 646m, up 94% QoQ but down 28% YoY due to a one-off land sale last year. EMLAK s gross margins declined to 36% (from 38% YoY) mainly due to increasing share of unit sales which typically have lower margins compared to land sales. Although average unit sales price has more than doubled to TL 611k in Q314 (up 142% YoY), the unit sales segment s gross margin is unchanged vs. land sales segment s gross margin of 44%. EBITDA was TL 205m (almost tripling QoQ) but down YoY with a margin of 32% subsequently down YoY. Bottom line was hit by a jump in financial expenses caused by a payable to TOKI due to land purchase. EMLAK s net cash position of TL 2.3bn stayed flat on a quarterly basis. Implications for the investment case: 3Q14 operational results were OK. Quarters tend to be bumpy among housing developers depending on varying project deliveries. A positive was that pre-sales revenues continue to grow (expected to come through the P&L in 1-3 years time when project is finished). For 2014 pre-sales, EMLAK is highly confident in its guidance of 10k units (pre-sales volumes at 6.2k as at Q3) with the launch of new projects in the pipeline in 4Q13. If this guidance is not met, stock will be hurt but we think they will deliver with the new launch coming up due to attractiveness and high demand (unit price good indicator). 20

21 Key earnings releases and corporate news October Entra, Norway (1.5%) Ashford, US (3.2%) Colombia Property Trust, US (3.1%) Q3 results in line with expectations, should improve performance going forward. Summary: Entra reported Q3 pre issue. The rental income increased 13%, and the GLA increased 6.8%.They don t provide any like-for-like growth. Occupancy was reduced from 95.2 to 94.1% QoQ. Rental income increased from to QoQ, up 1.2%, compared to an increase in GLA of 2.2%. They reported a long-term NAV of 83 and short-term NAV is 74, pre issue and approximately 78 and 71 after IPO, meaning that the shares trade in line with NAV. The big difference in long-term and short-term NAV is tax and derivative issues. The administrative cost is approximately 13%, and should be reducible. Implications for the investment case: The shares trade in line with NAV. Assuming cost cuts, reduced interest level going forward and some dilution from disposition, the company should be able to increase running FFO to 4.5 per share by end of 2015, implying an FFO yield above 6%, which should be fairly cheap. We want to own exposure in some prime cities worldwide and keep the holding as long as it does not become too expensive. Q3 result outperformance, REVPAR %. Summary: Ashford provided results well above expectations. Revpar increased 12.4% lfl and 12.9 % not like-for-like compared with expected 8.5%. The recovery in the US market continues due to lack of available loans for construction (the final stage of bull in credit?) causing a 5% increase in room rates in addition to increased occupancy. The company refinanced a lot of debt and has 325m of free company cash + 107m in restricted cash due to their non-recourse company structure. Most likely, the cash will be used to buy out a JV partner, but all this cash has been on their balance sheet for quite a while. They bought two hotels for USD 60m during the quarter and will refinance their JV that may create up to additional USD 200m company cash. Hopefully, some of the cash will also be returned to shareholders before the end of the cycle. Implications for the investment case: The transformation from internally to externally managed company has been delayed and was one of the triggers. We don t like this transformation (the management argues that you can create an internally managed company by owning the management company, which will not be allowed due to compliance), but will own the company at today s price. The refinancing of JV should result in an FFO15 yield of 11%. We will not sell shares at these prices (except meeting withdrawal from the fund), but will be cautious due to the cyclical nature of hotel industry. Q3 results clearly above expectations, reposition without dilution. Summary: Colombia Property Trust, an American office focused REIT, provided result above expectations and raised guidance. The company is going through a repositioning process from mixed office towards CBD office. The share of CBD office has been raised from 51 to 57% last 6 months. The company is trading at FFO yield of 8% and has been able to transform the company up to now without diluting the earnings on disposition. Implications for the investment case: This is a high FFO yield with a low LTV at 32% trading at a discount of 20% to peers. The company is an obvious value case and has been able to perform better than expected through the transformation process. The company has not yet attracted interest yet since IPO one year ago. They bought back shares at the same level as they are trading at the moment. 21

22 Key earnings releases and corporate news October SL Green, US (2.4%) Q3 results above expectations, releasing spread at 17% and improved guidance. Summary: SL Green, biggest midtown Manhattan office player, provided results well above expectations and whispering numbers. The clean Q3 FFO, excluding penalty fees regarding refinancing, was USD 1.55, compared with average expectations of This was achieved by better releasing cash spreads at 17% (meaning that new leases start 17% higher than expiring lease), higher occupancy and generally favourable markets. Their opportunistic loan book shrank 7.5% to USD 1.4bn (MC USD 11bn) with a yield of 10.5%. The debt portfolio is used to achieve assets or get an extremely attractive running yield if the borrower pays back the loan. Implications for the investment case: They are called the company that never sleeps due to their opportunistic approach and high level of activity. Their model seems to produce substantial long-term return, buying high yield debt to acquire assets, buy troubled assets, reposition and own some stable runners long-term. We increased our target from USD 115 to USD

23 The largest companies in SKAGEN m2 as of October 14 General Growth Properties (GGP), founded in 1954, is a real estate investment trust (REIT) that owns, leases, manages and develops shopping centers. The company is the second largest mall operator in the world. The company holds interests in 120 malls, 7 office properties and 6 other properties generating an average of USD 564 in tenant sales per square foot (malls). Brandywine Realty Trust is a self-administered, self-managed and fully integrated real estate investment trust. The Company is engaged in the ownership, management, leasing, acquisition, and development of primarily suburban office properties. It also owns an interest in and operates a commercial real estate management services company. 209 buildings of total 24.1m sqf (2.1m m2). 182 office, 19 industrial and 5 mixed use in addition to 4 redevelopment / use properties. They are also part of 19 unconsolidated JVs. HCP is a fully integrated self- administered real estate investment trust that acquires, manages, and invests in health care (largest sector of the U.S. economy in rel. to GDP) real estate located in the US and Mexico. HCP is well diversified across healthcare property types: senior housing (35% of NOI), skilled-nursing facilities (31%), medical office (13%), life science/labs (15%), and hospitals (6%). HCP has USD 22 bn in AUM, a well balanced portfolio of 1163 properties. Company has generated ~16% compound annual return since IPO 1985, and have 29 years of consecutive dividend growth. Columbia Property Trust, Inc. focuses on the acquisition, development, ownership, leasing, and operation of office properties. Own 59 office buildings, total 16.5m sqf (1.6m m2) valued at USD5.1b. The company was listed without any equity issue in oct.13 to provide liquidity for shareholders. Bought back shares during 4q after listing. Core focus is 16 main cities throughout US. 50 % CBD and 50 suburban exposure. Occupancy 92 % Financial, 91 % physical. From external managed to internal management. Ashford Hospitality Trust is a real estate investment trust (REIT) focused on investing opportunistically in the hospitality industry across all segments and at all levels of the capital structure primarily within the United States. Invests opportunistically in the whole capital structure including lending to other hotel owners. Ashford Hospitality Trust owns 115 hotels (directly and in JV with Prudential). 23

24 The largest companies in SKAGEN m2 as of October 14 (cont.) PS Business Parks, Inc. is a self-advised and self-managed real estate investment trust that acquires, develops, owns 29 m sqf (2.7 m2) and operates commercial properties, primarily multi-tenant office industrial or "flex" space in 102 business parks in 8 states. The companies main exposure are towards California. Flex (52%), industrial (30%) and office (18%). Total occupancy 90%. GLP is Asia's largest provider of modern logistics facilities. The company owns, manages and leases over 600 completed properties spread across more than 60 cities in China, Japan & Brazil forming an efficient network with assets strategically located in key hubs, industrial zones and urban distribution centers. The USD 17bn property portfolio comprises of 23 million sqm serving more than 700 customers. The Japan portfolio is mostly completed and stabilized providing strong operating cash flow to fund the group's growing business in China. The company also set up a China fund at the end of 2013 to enable recycling in the Chinese market in line with the Japanese model. This business model leads to a more effective capital structure, recurring income and capital recycling (listing of J-REIT & CLF fund) Deutsche Wohnen is one of the leading listed residential companies in Germany. Its operational focus is on managing and developing its residential property portfolio. The portfolio currently comprises around 150k units in total, of which 108k is in Berlin after the acquisition of GSW. Core regions are particularly located in Greater Berlin, Rhine-Main, the Rhineland and Central Germany as well as in medium-sized German cities like Hanover/Brunswick/Magdeburg. Company offers high income predictability with low vacancy rate (2.4%). Generally good quality assets in growth regions. LTW 55% and an average loan cost of 3.3%. Apartment Investment & Management is a US REIT focussed on multi-family rental buildings, with some 66,000 apartments in top 20 markets. The number of apartments has been dramatically reduced since 2004 from over 160,000 (net owned) in 100 markets to today s number, of which 56 are so called Conventional and 10 Affordable. Sold of a lot apartments in and used USD1b on share buybacks. The company bought back 24% of outstanding shares from 2q06 until Oct. 08, but had to issue equity at lower price in 09. Current strategy was implemented in 2005 and is to sell 2 apartments to buy 1 with better location and higher quality. Mercialys is a French shopping center investment company with a portfolio size of EUR 2.8bn focusing on retail properties 100% located in France. With 120 locations across France, totaling a gross leasable area of 800k sqm, Mercialys is one of the major players in the France shopping center sector. The company owns, renovates and redevelops centers in close collaboration with Groupe Casino. Mercialys was created with the transfer of 146 properties from Casino in 2005 when Casino decided to take its real estate business public via a placement. Today Casino owns 40%. Mercialys opted for the SIIC legal status in

25 Additional information

26 Why invest in listed property and SKAGEN m2? Q. Why invest in listed property? Listed global real estate securities provide exposure to property but with the benefits of liquidity. Listed global real estate securities offer the ability to invest in property around the world, with the flexibility to gain exposure to opportunities that would otherwise be difficult to access. Listed global real estate securities enhance diversification Q. Why effects SKAGEN in your m2? portfolio. The fund offers a great opportunity have access to global listed real estate and use SKAGEN s unique investment philosophy, finding investments that are unpopular, undervalued and under researched. 26

27 SKAGEN m² Broad mandate: Daily traded mutual equity fund, investing globally in listed real estate securities, including REITs, REOCs (Real Estate Operating Companies) and developers. m 2 Recommended investment horizon: Minimum 5 years. Dividends: No dividend payout; fund proceeds are reinvested at the fund level. Benchmark: MSCI ACWI Real Estate Net Return IMI. Fee model: Fixed annual fee 1.5 %*, no entry or exit fees. Minimum first subscription: EUR 150. Launch date: 31 October *Better/worse performance in terms of unit NAV growth relative to benchmark growth is split 90/10 between unit holders and the management company. Maximum annual fee is 3% and minimum fee is 0.75%. 27

28 For more information please visit: Our latest Market report Information abut SKAGEN m2 on our web pages Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager s skill, the fund s risk profile and subscription and management fees. The return may become negative as a result of negative price developments. SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers viewpoint at a given time, and this viewpoint may be changed withut notice. The report should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this rapport or are part of the fund's portfolio.