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An Investor's Guide to US Commercial Real Estate

Real Estate Team, Manulife Asset Management Private Markets

October 2017

2 For Institutional/Investment Professional Use Only. Not For Distribution To The Public.

An Investor's Guide to US Commercial Real Estate October 2017

Executive SummaryUS commercial real estate has been a rewarding option for investors in recent years, with property prices having more than doubled from their post-financial crisis low in 2009.

Since then, the asset class has been delivering consistently high returns with relatively low volatility – factors that will likely appeal to investors looking for alternative sources of returns in what continues to be a low-yield, low rate environment.

In this report, our real estate team identifies the main characteristics of commercial real estate as an asset class and the role it can play in a wider portfolio as an inflation hedge and/or a diversification tool. The team also explains how the ‘income’ component can act as a cushion from a returns perspective in the event of an economic slowdown.

In addition to illustrating how US commercial real estate has fared against other property markets globally and select US asset groups, the team also explains how demand and supply factors could cause the sector to diverge from the economic cycle.

In the second part of the report, we take a closer look at the key segments of the market and the specific risks associated with the asset class, such as location, tenant profile and others.

In summary, we believe US commercial real estate – being the largest and most liquid market within the asset class – is an attractive investment that can appeal to investors with a long investment horizon. Most importantly, we think fundamentals are in place that will enable the asset class to provide meaningful returns to investors.



US Economy

The United States is the world’s biggest economy. At more than US$18 trillion, it accounts for nearly a quarter of the world's total output and is nearly a third bigger than the next biggest economy, China. According to the World Bank, in GDP terms, the US economy is roughly equivalent to the combined economies of China, Japan and Germany.1 This perhaps provides context behind the somewhat overused, but still-relevant saying – when America sneezes, the rest of the world catches a cold.

Exhibit 1: Contextualizing US Economic Strength

The US economy derives a lot of strength from its position as a world leader in technology as well as its much-celebrated entrepreneurial culture, which is supported by flexible labor markets. We expect the United States to remain one of the world’s most competitive economies and our economics team expects US GDP to grow at a faster pace than all developed European countries and Japan over the next five years.2

The challenges confronting the US economy are well documented – relatively high debt levels, anemic productivity growth and an aging population among others. Many would recall the IMF’s recent decision to trim its 2017 and 2018 growth forecast for the country.3 Despite challenges, we believe the US economy is fundamentally sound – unemployment levels remain low, the financial sector has staged a robust recovery after the global financial crisis,4 and at 2%, the country’s growth outlook appears reasonably steady.

In our view, investing in US Commercial Real Estate is a good way of gaining direct exposure to the US economy.

1 World Bank, based on data made available on April 17, 2017.2 See Manulife Asset Management, Global Intelligence, Spring 2017 for further details.3 A summary of the IMF’s report can be found at the organization’s website.4 Bloomberg, as of June 19, 2017.

Source: World Bank, as of April 17, 2017.

18.03

24.32

11.06

4.383.36

2.86 2.42 2.09 1.82 1.80 1.55

US$

(Tr

illio

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United States

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14.84

5.914.54 3.85 3.26 2.83 2.46 2.39 2.09

Total GDP Percentage of Global GDP

https://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017



5 Landlords are typically able to pass on rising prices to their tenants through higher rents and recovery of operating expenses. Higher costs of construction, on the other hand, typically acts as a cap on supply, which can boost asset prices. These mechanisms allow commercial real estate returns to increase along with rising prices, acting as a hedge. However, its effectiveness as a hedging tool compared to other asset classes remains a matter of debate.

Why Real Estate?

Characteristics

Direct investment in commercial real estate as a concept is not new. Although it has gained in popularity in recent years for a variety of reasons – chief among them, the flood of cheap money as a result of the quantitative easing introduced by global central banks in the months after the financial crisis, and the fall in yields which prompted investors to seek out alternative sources of income.

As an asset class, commercial real estate offers investors many benefits relative to other types of assets. For one, we believe it offers investors attractive return potential that is reasonably insulated from the kind of daily volatility that stocks and bonds can experience. This is largely because private real estate does not trade on the public markets. As a result, the value of direct investment into commercial real estate can be relatively sheltered from short-term market sentiments.

A key characteristic of private real estate that can partially explain its relatively higher return is illiquidity - commercial real estate does not trade on the public markets and it can take a considerable amount of time for a sale to be effected. While this may not suit those with a short investment horizon where short-term liquidity might be a priority, long-term investors could take advantage of the liquidity premium that the asset class provides.

In addition, it shares an important characteristic with fixed income assets – the opportunity for income generation in the form of rents. This allows plan sponsors to match their expected income to their liability stream over a specific period of time. Commercial real estate can also be used as a tool to hedge against inflation5 and as a means to provide diversification in a portfolio given its low correlation to other asset classes. The asset class can also be leveraged to enhance returns.

Investing in commercial real estate can either take the form of direct investment (i.e. acquiring a portfolio of properties) or indirect investment, via private funds/publicly traded real estate investment trusts (REITs). Many institutional investors look for alternatives to investing directly in real estate assets due to the large amount of capital required to build a diversified portfolio and the expertise and staff needed to analyze and monitor the assets on an ongoing basis. Private funds are often considered because they typically offer similar benefits to that of direct investments.

Investing in REITs is another way to gain exposure to the asset class. However, investors should bear in mind that ultimately, REITS are publicly-listed products – they share similar risk characteristics with other publicly-traded offerings and tend to have a higher correlation with the overall market. As alluded to earlier, liquidity can be attractive, but it does carry a cost.



Performance

Exhibit 2 shows that direct investment in US commercial real estate has outperformed other mainstream US asset classes on a risk-adjusted basis over the past 25 years. During this period, the average total return of US commercial real estate was 9.2%, with a Sharpe ratio6 (a measure for calculating risk-adjusted return) of 0.8. The 85% confidence interval, a measure of volatility, for the same period was -2.5% to 20.8% (see exhibit 3).

In comparison, the average total return of the S&P 500 Composite during the same period was 10.7%. However, the Sharpe ratio was lower at 0.5 with the 85% confidence interval between -14.6% and 36.1% (see Exhibit 3). In other words, US commercial real estate delivered better risk-adjusted returns and experienced lower volatility relative to the S&P 500 Composite Index. Similarly, the asset class also performed favorably when compared to the Bloomberg Barclays US Corporate Bond Index and the Dow Jones Equity REIT Total Return Indices on a risk-adjusted basis.

Exhibit 2: Risk Return Measures Of US Commercial Real Estate Compared To Other US Asset Classes

Total Return, Annual, 25-Year (1992 to 2016) Average Volatility Sharpe Ratio Lowest Highest

Private Real Estate (NCREIF Property Index, NPI)i 9.2% 8.1% 0.8 -22.1% 20.2%

Corporate Bond (Bloomberg Barclays US Corporate Bond Index)ii 6.7% 6.1% 0.6 -6.8% 23.8%

Public Real Estate (Dow Jones Equity REIT Index)iii 13.8% 21.5% 0.5 -57.9% 106.5%

Public Equity (S&P 500 Total Return Index)iv 10.7% 17.6% 0.5 -38.1% 49.8%

Source: NCREIF, Bloomberg, Manulife Asset Management, as of Q4 2016.

i The NCREIF Property Index is a market value weighted index of unlevered property-level return of the institutional investment asset class in the US.ii The Bloomberg Barclays US Corporate Bond Index is a market value weighted total return index of public US institutional quality corporate bonds.iii The Dow Jones Equity REIT Index is designed to measure all publicly traded real estate investment trusts in the Dow Jones US stock universe classified as equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy.iv The S&P 500 is the gauge of large-cap US equities. The index assets comprise approximately US$2.2 trillion. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Exhibit 3: Total Return, Annual, 25-Year-Average and 85% Confidence Interval

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Higher Bound

Lower Bound

Average Return

Public Equity(S&P 500 Total Return Index)

Public Real Estate(Dow Jones Equity REIT Index)

Perc

ent

(%)

Corporate Bond(Bloomberg Barclays

US Corporate Bond Index)

Private Real Estate(NCREIF Property Index, NPI)

Source: NCREIF, Bloomberg, Manulife Asset Management, as of Q4 2016.

6 Since private real estate is not valued as frequently as public equities and bonds, standard calculations can underestimate volatility and overestimate the Sharpe ratio of private real estate compared to public assets. However, the above comparison is still valid for long-term investors who are not concerned with short-term volatility.



Stability

Investing in commercial real estate can also shield investors from fluctuations in revenues and expenses stemming from economic cycles and inflation. As landlords, investors can choose to pass operating expense obligations to their tenants. The fact that the relationship between landlords and tenants is bound by contracts and lease agreements also provides investors with a greater sense of certainty and stability with regards to income projection. This is demonstrated in Exhibit 4 – growth in Net Operating Income (NOI) of US commercial real estate has been fairly consistent with a long-term rate of around 2.5%, with relatively small instances of negative growth.

Exhibit 4: Net Operating Income (NOI) per Square Feet, US Commercial Real Estate

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NO

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NOI Growth NOI Index (1985 = 100)

Average Growth2.5%

Source: NCREIF, Manulife Asset Management, as of March 2017.

As a result, the income returns generated by US commercial real estate have been both strong and consistent, accounting for 84% of total returns, on average, over the past 25 years, as shown in Exhibit 5 below.

Exhibit 5: Income Return vs. Capital Growth, US Commercial Real Estate IndexIncome Return

84% of total return Appreciation Return 16% of total return

Source: NCREIF-NPI Value Weighted Return, as of March 2017.

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Diversification

Investing in private commercial real estate can also help improve the diversification of portfolios. As you can see in Exhibit 6, US private real estate has a low correlation with other US asset types. This suggests that the allocation to commercial real estate can lower the overall volatility of a portfolio.

Exhibit 6: Correlation Of US Private Real Estate With Other Asset Types

(Estimated using quarterly total returns, from Q1 1992 to Q4 2016)

Private Real Estate Corporate Bond Public Equity Public Real Estate

Private Real Estatei 1.00

Corporate Bondii -0.16 1.00

Public Equityiii 0.19 0.13 1.00

Public Real Estateiv 0.19 0.32 0.56 1.00

Source: NCREIF, Bloomberg, Manulife Asset Management, as of Q4 2016. i Private Real Estate (NCREIF, NPI). ii Corporate Bond (Bloomberg Barclays US Corporate Bond Index).iii Public Real Estate (Dow Jones Equity REIT Index). iv Public Equity (S&P 500 Total Return Index).



How Does US Real Estate Stack Up Against International Real Estate?

US commercial real estate investments have also outperformed most international markets over the past 16 years in terms of total return. The asset class outperformed the global index in 12 out of 16 years between 2001 and 2016, topping the best performers’ ranking in two of those years.

Exhibit 7 - Total Return by Market, All Properties Benchmark

-25.0 -20.0 -15.0 -10.0

-5.0 0.0 5.0

10.0 15.0 20.0 25.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Global US Canada Europe ex. UK UK Asia-Pacific

Source: NCREIF, as of Q4 2016.

In our view, the three main advantages the US commercial real estate industry has over global markets are:

I. Market Size and Liquidity: The US commercial real estate market is the largest and most liquid national market in the world. According to data compiled by JLL, investment volume in US commercial real estate during 2016 was more than the sum of the next eight biggest markets (see Exhibit 8). A bigger market typically leads to more investment opportunities, more efficient asset pricing, and better exit opportunities for investors.

Exhibit 8 - Direct Commercial Real Estate Investment – Largest Markets, 2016

Source: JLL, as of March 2017.

Investors have been taking note. In addition to increased demand by local investors, foreign investors have also increased their activity in US commercial real estate. Over the last five years, foreign investors have acquired, on average, US$56 billion of commercial real estate per year. This figure is almost four times the average annual foreign investment that was made in the US between 2001 and 2005.

266

59 5534 33 29 19 16 14 13 11 10 10 10 9 7 5 5 5 5

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Total US$259 billion



Exhibit 9 - Direct Commercial Real Estate Investment in the US by Foreign Investors – All Markets

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'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Foreign Investment

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Average US$14 billion

Average $US56 billion

Source: Real Capital Analytics, as of March 2017.

II. Diverse Markets: Each major market in the US has its own unique economic characteristics and responds to different market drivers. This offers investors the opportunity to create a diversified real estate portfolio within an asset class across multiple markets.

III. Attractive Spread Over Benchmark: While the average market capitalization rate7 has been on decline for most of the last 10 years, it has been matched by the fall in long-term interest rates. The spread of the average capitalization rate to 10-year US Treasury bond yields was 271 bps as of mid-year 2017, below the average spread of 295 bps and 215 bps higher than the lowest spread observed over the last 20 years, which could provide a cushion for future rate increases.

Exhibit 10 - Average Capitalization Spread Over US Treasury Yield

Source: NCREIF, Bloomberg, Manulife Asset Management, as of June 2017.

7 Capitalization rates, or cap rates, represent the annual yield or percentage return of a real estate asset once all operating expenses are accounted for ([Cap rate] = [Net Operating Income] / [Market Value]). Similar to bonds valuation, capitalization rates and real estate values have an inverse relationship - as the capitalization rates decline the value of the real estate assets tend to increase.

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9.5

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Cap Rate US Treasury 10 Year Bond Yield

Average Spread 295 bps

Perc

ent (

%)

Q1 to Q2271 bps



Capital Markets

Acquisitions and Pricing

Investor appetite for US commercial real estate has been very healthy in recent years, with average annual transactions of US$430 billion for the past five years. Although volumes peaked in 2015, they continued to be strong in 2016 and the first half of 2017. Full year transaction volume in 2016 was US$496 billion, the third highest annual volume and US$213 billion for the first half of 2017, the fourth highest first half volume over the past 15 years (see Exhibit 11).

Exhibit 11 - Transaction Volume, US Commercial Real Estate

Source: Real Capital Analytics and Manulife Asset Management, as of June 2017.

Understandably, strong investor interest translated into robust price appreciation. As of mid-2017, CoStar’s value-weighted commercial repeat sales index (CCRSI) came in at 207, over 20% higher than its previous peak achieved in 2007. Multi-family properties enjoyed the strongest price appreciation (averaging 13%), followed by Industrial properties (10%) for the past five years (see Exhibit 12).

Exhibit 12- CoStar Commercial Repeat Sale Indices (CCRSI)

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Ind

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US Office US Industrial US Retail US Multi-family

Source: CoStar, as of June 2017.

‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 17 (H1)

Forecast

US$

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s

700

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100

0



Debt Markets

Financial institutions have been very accommodative in providing debt financing for commercial real estate in recent years. In the past five years, commercial banks alone underwrote on average more than US$120 billion of net new commercial real estate loans.8 However, we believe overall lending markets remain disciplined. Although the market for underwriting have been very competitive, the relative cost of mortgages remain elevated compared to levels achieved prior to the financial crisis.

In the last five years, mortgage rate spreads to 10-Year US Treasury ranged between 2% and 3%. In comparison, the spread was as low as 1% back in 2006 (see Exhibit 13). Lenders are also demanding a lower loan-to-value (LTV) ratio. Average LTV of properties included in NPI index have been in 45% to 50% range for 16 years up to financial crisis. Over the past two years, the average LTV of the index has remained below 45%, despite availability of mortgages and historically low rates (see Exhibit 14).

As interest rates are expected to rise over the next five years, we expect borrowing cost to increase as well. However, given the strength of the US economy and market fundamentals, we believe there is support for spreads to tighten, resulting in a smaller increase in borrowing costs compared to base rates. It is worth noting that strong valuations and increased development activity, particularly in multi-family sector, have been highlighted as risk areas in financial markets by the Federal Reserve recently.9 We believe this risk is limited and that it does not apply to large financial institutions. Nevertheless, we expect lower liquidity and higher cost of debt for riskier loans, relate to land development and construction in the medium-term.

Exhibit 13- Mortgage Rates Exhibit 14- Loan to Value of NPI Index

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Spread to 10 Year US Treasury

Commercial Mortgage Rate

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3025

3540455055606570

Source: Real Capital Analytics, as of May 2017. Source: NCREIF, as of June 2017.

8 Federal Reserve Bank of St. Louis, Commercial Real Estate Loans, All Commercial Banks, as of June 2017.9 Reuters: Fed Harps Again On Growing Risk In US Commercial Real Estate, February 14, 2017.

https://www.reuters.com/article/us-usa-fed-realestate/fed-harps-again-on-growing-risk-in-u-s-commercial-real-estate-idUSKBN15T2UV



Property Type Fundamentals

Office Space

Exhibit 15 below shows that demand for office space has a high correlation with office using employment growth. On average, the US economy added 530,000 new office using employment per year between 2011 and 2016, resulting in more than 470 million square foot (sq ft) of net new demand for office space. Compared to previous cycles, the ratio of space demand per new employee has fallen significantly in recent years. The ratio of office demand per employee in the last five years was 150 sq ft per employee – much lower than the 215 sq ft per employee that was recorded between 1993 and 1995 (a similar point in the cycle).10 The trend is indicative of employers becoming more efficient in utilizing office space and increasingly adopting flexible work arrangements. Open plan office space and modern amenities are some of the key requirements for employers to achieve efficiency and accordingly we expect demand for spaces offering those to outpace the rest of the market.

Exhibit 15: Office Demand for Space and New Employment

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2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Net Office Absorption Total Employment Annual Growth Office-Using Employment Annual Growth

Forecast

Ab

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n, M

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t

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Gro

wth

Source: CoStar, as of Q2 2017.

Outlook:

Developers were slow to react to growing demand during the early years of the current recovery cycle. As a result, demand has outstripped supply - on average - by 34 million sq ft per year. Vacancy fell to 10.1% in the first quarter of 2017, the lowest reading in 16 years. In line with strong occupancy, rent growth has also accelerated to over 4% (on average) over the past three years.11

As new buildings become available over the next five years, supply is expected to outpace demand by an annual average of 18 million sq ft. This is likely to raise the vacancies rate by 70 bps by 2021.12 In recent years, employers have managed to reduce their need for office space via 'flexible work space arrangements' and increasing the number of work spaces per floor. However, that is beginning to change given the current state of the labor market. With currently low unemployment levels, particularly for educated labor, we can see employers working on improving the work environment as a means of attracting and retaining quality staff. We believe these developments can result in improved demand for space per employee.

10 CoStar Portfolio Strategy, Manulife Asset Management, as of Q2 2017.11 CoStar Portfolio Strategy, as of Q2 2017.12 CoStar, as of Q2 2017.



Exhibit 16: Office Supply, Demand, and Vacancy Rate

Net Absorption Net Completions Vacancy

Vac

ancy

Ab

sorp

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n &

Co

mp

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Feet

1985 1989 1993 1997 2001 2005 2009 2013 2017 2021

Forecast

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Industrial

Demand for industrial space has historically followed economic growth, but demand has surprised to the upside during current cycle, as evident in Exhibit 17. Net absorption in 2016 hit at a record level of 235 million sq ft while the economy was growing at 2.0%. To put it into context, the last time the industrial market was experiencing a similar level of demand was in 1999 when the economy was growing at close to 5.0%.

The primary demand driver in the current cycle can be traced to the rise of e-commerce – particularly as the industry pushes to reduce costs and cut delivery time while increasing the variety of goods available. This changing dynamic can also be seen in the rise in inventory-to-sales ratio, which has been edging higher in the past six years (see Exhibit 18). As a result, demand for industrial spaces that suit e-commerce logistics (from large spaces in super-regional markets to small last-mile fulfilment centers) has performed well in this cycle.

12 CoStar, as of Q2 2017

Exhibit 17: Industrial Demand and GDP Growth Exhibit 18: Business Inventories to Sales Ratio

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Source: CoStar, Bureau of Economic Analysis, as of Q1 2017. Source: Federal Reserve Bank of St. Louis, as of Q1 2017.



Outlook:

The vacancies rate in the Industrial space fell below 5% by the end of 2016 – a low not seen in more than 30 years (see Exhibit 19). In line with high occupancies, rent growth has also been very strong, averaging over 6.0% over the past three years.

As the market matures, demand is forecast to fall to 120 million sq ft in 2021, approximately half of what it was in 2016. Coupled with strong supply, vacancies are forecast to rise by over 100 bps by the end of 2021.11 However, in our view, well located quality assets in Top 20 industrial markets will remain in demand and continue to perform well.

Exhibit 19: Industrial Supply, Demand, and Vacancy Rate


Multi-Family

Although multi-family development has picked up in recent years, US housing remains undersupplied overall, particularly in the workforce housing segment. Although 8.3 million new households have been formed since 2010, only 4.9 million new housing units were delivered during that time.13 In other words, there is a shortage in housing supply. Unsurprisingly, this has been supportive of the rental market which has also benefitted from a fall in homeownership rate, a rise in the ratio of single person households, and more empty-nesters opting for apartment living.

That said, it is true that the increased supply in recent years has helped to close the supply gap. However, a disproportionate number of new developments are high-end, amenity-rich projects that are out of reach to mid-to-lower income households. In fact, the majority of properties under construction require prospective renters with an annual income of more than US$75,000 and over half of them require an annual income of over US$100,000. Given that close to 80% of renters earn less than US$75,000,13 the current supply does not address the needs of the largest share of renters.

12 CoStar, as of Q2 2017

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13 CoStar National Apartment Market Analysis and Forecast, as of Jul 2017.



Exhibit 20: Estimated Income Required to Rent

36%

77%85%

18%

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56%

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All Apartments Built Since 2013 Under Construction

Requiring Income of > US$75,000 Requiring Income of >US$100,000

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90


Outlook:

As per current delivery schedules, supply of multi-family properties is expected to remain strong through 2018, when it is expected to peak with the delivery of close to 300,000 units.13 However, given the supply profile, the mid to low-end segment of the market is expected to remain under-supplied and accordingly, enjoy stronger fundamentals and rent growth.

As vacancies continue to rise, we also expect developers to delay project completions resulting in a slightly more even supply over the next three years. In our view, higher construction and borrowing costs are likely to reduce actual supply three years out, helping to improve overall fundamentals beyond 2018.

Exhibit 21: Apartment Supply, Demand, and Vacancy Rates

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Net Absorption 12 Months Net Completions 12 Months Vacancy

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350




What Are The Risks?

A key distinguishing trait of commercial real estate is that investable assets are extremely heterogeneous. Each asset occupies a unique physical location and has a unique tenant profile with differing factors such as age, quality and function. These features can produce an array of risk factors that can have an impact on income and asset value.

Vacancy levels, average lease length, tenant credit quality and covenant strength are all risk factors that can affect income. Understandably, buildings with lower vacancy, longer lease length, higher tenant credit quality and stronger covenants backing leases are less likely to suffer loss of income and are typically considered less risky as a result.

As with all asset classes, supply and demand play a big part in determining market risk. Factors such as market average vacancies, the number of projects under construction, supply barriers and macroeconomics can impact expected future income. Investors should also be cognizant of issues such as capital market forces, changing regulations and, increasingly, environmental issues. These factors can have an effect on expected returns.

However, we believe these risks can be mitigated via a thorough investment process aimed at helping investors assess their goals and plan better, including:

Market Research and Strategic Planning: Maintaining up-to-date market insight to assess factors that differentiate markets and incorporating those views into the strategic investment plan.

Due Diligence and Acquisition: Examining matters related to the suitability of acquisition candidates, including risk/return targets, engineering and technical issues, asset management/operations, and legal considerations.

Asset Management: Developing a strategic plan for each portfolio asset to maximize value and monitor and manage matters such as occupancy and leasing, operating budgets, engineering and technical conditions, and capital expenditure.

Portfolio Management: Analyzing the portfolio impact of different asset types in different markets, identifying target portfolio allocation using efficient frontier analysis, and allocating capital as per the target portfolio.

Conclusion

There are many reasons why US commercial real estate – as an asset class – appeals to investors. As mentioned before, the US is home to the largest and most liquid commercial real estate market in the world and has consistently offered investors healthy returns. This continues to be underpinned by strong economic fundamentals. In addition, historical data suggests an allocation to commercial real estate can improve overall risk-adjusted portfolio performance, which helps to explain the increased investor demand from both domestic and foreign investors. In an environment where rates remain anemic and yields elusive, we believe it makes sense for investors to give the asset class some serious thought. In our view, the US economy and the US commercial real estate market are well positioned to support continued strong returns for investors.

Investing involves risks, including the loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets.

Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.

The information provided herein does not take into account the suitability, investment objectives, financial situation or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material, intended for the exclusive use by the recipients who are allowable to receive this document under the applicable laws and regulations of the relevant jurisdictions, was produced by and the opinions expressed are those of Manulife Asset Management as of the date of this publication, and are subject to change based on market and other conditions. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Asset Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations, and is only as current as of the date indicated. The information in this document including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Asset Management disclaims any responsibility to update such information.

Neither Manulife Asset Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Asset Management™, nor any of their affiliates or representatives is providing tax, investment or legal advice. Past performance does not guarantee future results. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Asset Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Asset Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Unless otherwise specified, all data is sourced from Manulife Asset Management.

Manulife Asset Management

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