Listed real estate Preference: neutral
UBS Global Index DTR (24 Oct): 1,490 (last month: 1,500) | Recommendations
UBS View UBS Global Index DTR (6-month target): 1,600 Tactical (6 months)
¢ Since July global listed real estate has again performed well. Despite the good performance the asset class © We continue to be neutral global listed remains slightly attractive based the high dividend yield and implied property yield compared to bonds. real estate recommending to have Asia has been the strongest performer and Europe has outperformed the US year-to-date as tail risk was exposure to the Hong Kong, Singapore reduced by the ECB launching the OMT. QE3 is not an imminent performance driver but provides a support and Australia markets. The asset class is for capital values going forward and helps to keep interest levels low. overall slightly attractive on relative
¢ Due to the current search for yields, listed real estate companies are able to refinance their investments at valuation and the currant low interest lower yields with longer maturities. The implied property yields to bonds and earnings yields over five-year fie i gugeértive. but the uncertain swap rates are even more attractive due to low interest rates offering good opportunities within the global PP '
environment warrants a neutral stance.
real estate space. ° e Low to decent supply of commercial surfaces helps to push vacancy rates down which in turn increases Strategic (1 to 2 years)
the rent. We further see capital appreciation as possible in the light of overall stable fundamentals. e Real estate is supported by several factors e Asia remain the positive performance generators in our view as this is the more cyclical market, whereas in the long term. We anticipate a gradual Australia is supported by high dividend yields. Overall Europe remains comparatively weak, while the UK increase in payout ratios coupled with and the US have already priced in some market improvements. portfolio optimizations and ongoing cost-
ee : cutting. A weak economy limits strong 4 Positive scenario UBS Global Index DTR (6-month target): 1,650 rental growth, but low supply supports
¢ Improving fundamentals maintain listed real estate in fairly valued territory, despite stronger performance as occupancy rates grow faster than expected and rental income accelerate. Ongoing reflationary monetary policies across the world help to maintain favorable spreads between rental yields
high occupancy rates keeping rents up.
and bonds, maintaining real estate as a comparatively attractive asset class. Refinancing costs remain low. Preference (6 months) & Negative scenario UBS Global Index DTR (6-month target): 1,300 : : ee P : Our market preferences for listed real estate* e US, European and Chinese growth rates disappoint investor expectations and cause the comparatively high valuation levels in the US to partially correct. Furthermore, a more severe recession in Europe triggers oom neutral + ott a tightening of credit standards and cuts real estate companies from the capital market, making listed real North America estate more dependent than ever on bank financing. Real estate underperforms global equities. cont Eurose | re Note: Scenarios refer to global economic scenarios (see slide 7) on urope ee | UK | What we're watching Why it matters lapan| rr Corporate bond yields This is one of the best indicators for listed real estate as a low yield helps reduce Honakena “ee : : : : : ong Kong financing costs. A steep yield curve is furthermore asignalthatthe overall 8 8 8 > ee 2 economic environment is improving. Both are currently supportive. Singapore | eee ewe : m 6 6| lL] Rental yield and capital The rental yield is usually inflation linked, as the upcoming supply is currently low Anabela | —_ appreciation this pushes up the occupancy rates and thus increasing the rents. Capital Old m New appreciation is expected to be stable to positive. Overall are both supportive. * This is our relative preference within the global real estate : : a 4 : : : sector based on UBS Global Real Estate Index domestic total Credit markets and Lending conditions are still challenging for developers and private investors. retard, whikh’s mettheousrall eeterview financing costs Public companies by contrast have very good access to credit and capital. Source: UBS, as of 16 October 2012 Note: Past performance is not an indication of future returns. br UBS For further information please contact ClO's asset class specialist Thomas Veraguth, thomas.veraguth@ubs.com 38
Please see important disclaimer and disclosures at the end of the document.
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