AEW Global Focused Real Estate Fund Class C · NASDAQ:NRCFX
AEW Global Focused Real Estate Fund Class C — AEW — Investor Presentation (December 2017)
59 slides from AEW Global Focused Real Estate Fund Class C's investor presentation, December 2017
Slide 1: Holiday Retail Outlook
HOLIDAY RETAIL OUTLOOK DECEMBER 2017
Slide 2: AEW Holiday Retail Outlook
DECEMBER 2017 AEW HOLIDAY RETAIL OUTLOOK This material is intended for information purposes only and does not constitute investment advice or a recommendation. The information and opinions contained in the material have been compiled or arrived at based upon information obtained from sources believe
Slide 3: Looking Back and Looking Forward
LOOKING BACK AND LOOKING FORWARD Consumer confidence now back to pre-crisis levels now above U.S. GDP growth U.S. has added 15 million jobs since 2010 now >17 million has been slightly stronger in 2017 Unemployment rate now well below 5% now 4.1% compared with 2016 New claims for unemployment
Slide 4: Consumer Confidence Surging
CONSUMER CONFIDENCE SURGING CONSUMER CONFIDENCE INDEX (1985=100) 200.0 Consumer and business confidence rising in 180.0 response to very low unemployment, 160.0 booming stock market and anticipation of tax 140.0 cuts 120.0 100.0 80.0 60.0 40.0 20.0 0.0 1978 1979 1980 1981 1982 1983 1984 1985 1986 19
Slide 5: Which Companies Will Benefit the Most From Tax Cuts?
WHICH COMPANIES WILL BENEFIT THE MOST FROM TAX CUTS? CURRENT EFFECTIVE TAX RATE TICKER COMPANY TAX RATE TICKER COMPANY TAX RATE Corporate tax rate to be cut to 20% PHM Pulte 40% EBAY eBay 19% CVS CVS 40 PCLN Priceline 18 Cut will benefit companies directly WFM Whole Foods 39 ABT Abbott Laborator
Slide 6: Americans Now Spend More on Food Away From Home
AMERICANS NOW SPEND MORE ON FOOD AWAY FROM HOME RETAIL SALES (MILLIONS) Americans eat out more often than $60,000 they cook for the first time in history $50,000 Casual restaurant business at or near saturation point in many markets given skittish demand $40,000 Most major chains pausing new u
Slide 7: How Much Lower Can We Go?
HOW MUCH LOWER CAN WE GO? AVERAGE CARRYING VALUE RETAIL CAP RATES 5.80% Wide yield spread across retail categories 5.60% Super-regional mall yields near 4% 5.40% 5.20% Disconnect between retail REIT values and private market values 5.00% since mid ’15 4.80% Spread between A/B+ properties and
Slide 8: How Much Lower Can We Go? Mall Cap Rates
HOW MUCH LOWER CAN WE GO? MALL CAP RATES 8.00% Public market cap rates began to rise following store closure announcements by Macy’s and 7.00% J.C. Penney 6.00% Super-regional mall yields near 4% 5.00% 4.00% Recent GGP/Brookfield and Westfield/Rodamco news first significant M&A activity on “A”
Slide 9: Estimated U.S. Retail Sales by Kind of Business
ESTIMATED U.S. RETAIL SALES BY KIND OF BUSINESS - YTD NOVEMBER 2016 SALES % TOTAL % TOTAL SALES % CHANGE $MM SALES EX. - AUTO VS. 2016 RETAIL & FOOD TOTAL 5,191,445 100.0% 4.2% America’s Shopping List – solid gains vs. 2016 Autos 1,086,633 20.9% 4.5% Retail ex. Auto 4,104,812 79.1% 100.0% 4.4% $
Slide 10: E-Commerce Sales
E-COMMERCE SALES SHARE OF TOTAL SALES AND YEAR-OVER-YEAR GROWTH Growth in e-commerce sales has 40.0% stabilized at roughly 15% per year over the past six years 35.0% Total e-commerce sales now account 30.0% for nearly 10% of total retail sales 25.0% Dominated by Amazon and E-Bay – low margin c
Slide 11: Retail 2017: Apocalypse, Armageddon or Evolution?
RETAIL 2017 Apocalypse, Armageddon or Evolution? Spike in store closures – over 6,000 and counting – almost universally blamed on e-commerce Common fallacy – with record low unemployment, solid job growth, recent income gains and the stock market setting records daily, poor sales and store closure
Slide 12: Retail 2017: Apocalypse, Armageddon or Evolution?
RETAIL 2017 Apocalypse, Armageddon or Evolution? Regardless, e-commerce is not irrelevant – two key factors overlooked: Mobile has become the primary link between customers and retailers Pure play e-commerce destroys margins, both by design (Amazon strategy) and in practice - expensive shipping,
Slide 13: Retail 2017: Apocalypse, Armageddon or Evolution?
RETAIL 2017 Apocalypse, Armageddon or Evolution? Future outlook depends on two critical demand factors – resumption of meaningful income growth for the majority of Americans AND the household formation, spending and geographic impacts of the pending great Millennial migration: Millennials – many i
Slide 14: Retail 2017: Apocalypse, Armageddon or Evolution?
RETAIL 2017 Apocalypse, Armageddon or Evolution? “Whereas the demographic pipeline pumped “…we might expect that previously stalled young adults into cities at full volume, the progress through the life cycle will at least partly normal turnover and outflow was clogged by resume…The Millennials are
Slide 15: U.S. Shopping Center Industry
U.S. SHOPPING CENTER INDUSTRY Growth by Center Type 1980-2016 1980 1985 1990 1995 2000 2005 2010 2016* Total Shopping Center GLA 3,087 3,717 4,650 5,224 5,939 6,740 7,412 7,582 (SF, MM) Supply side response to consumer driven demand – Trailing 5-Year CAGR 4.8% 3.8% 4.6% 2.4% 2.6% 2.6% 1.9% 0.4% un
Slide 16: U.S. Income Distribution 1917-2014
U.S. INCOME DISTRIBUTION 1917-2014 Shopping Center Development Trends 1946-2014 70.0 Since 1980, 15% of national income shifted from bottom 90% of earners to top 10% 65.0 From 1945-1980, 2/3rds of • Suburbanization national income went to the • Golden Age of Middle Class lower 90%, as their inco
Slide 17: U.S. Income Distribution - The Top 10%
U.S. INCOME DISTRIBUTION - THE TOP 10% % Total Income: Top 10-5% Top 5-1% Top 1% 20 2014 12.6% 16.8% 17.9% While vast majority 1980 11.7% 13.0% 8.2% of consumers Average '45 - '80 10.8% 12.5% 8.9% experienced BP Gain/Loss '80 - '14 86 379 967 18 Previous Peak: stagnant wage % 13.7% 17.1% 18.7% gro
Slide 18: The Family Budget
THE FAMILY BUDGET* What Does a "Decent Yet Modest" Standard of Living Cost? NEW YORK MILWAUKEE HOUSTON GRAND RAPIDS $/MONTH % INCOME $/MONTH % INCOME $/MONTH % INCOME $/MONTH % INCOME Housing $1,440 17.5% $812 12.8% $926 18.3% $740 14.2% Food $782 9.5% $782 12.3% $782 15.5% $782 15.0% Child Care $2,
Slide 19: U.S. Income Distribution – The Lost Multiplier Effect
U.S. INCOME DISTRIBUTION – THE LOST MULTIPLIER EFFECT Quotes from the Front “So it is true that rich people can spend more money than middle class people, but there’s this upper limit on what they can spend…My family can afford to go out to eat more than most American families, but not more than thr
Slide 20: Population Cohort Pyramid 1980-2005
POPULATION COHORT PYRAMID 1980-2005 – Boomers Power Through Their Prime Spending Years 1980 POPULATION DISTRIBUTION 2005 POPULATION DISTRIBUTION Age 85 & Older Age 85 & Older Age 80-84 Age 80-84 Age 75-79 Age 75-79 Male Male Age 70-74 Age 70-74 Age 65-69 Female Female Age 65-69 Age 60-64 Age 60-64 A
Slide 21: Population Cohort Pyramid 2015-2025
POPULATION COHORT PYRAMID 2015-2025 – Millennials Take the Spending Baton…Gradually 2015 POPULATION DISTRIBUTION 2025 POPULATION DISTRIBUTION Age 85 & Older Age 85 & Older Age 80-84 Age 80-84 Male Male Age 75-79 Age 75-79 Female Female Age 70-74 Age 70-74 Age 65-69 Age 65-69 Age 60-64 Age 60-64 Age
Slide 22: Crystal Ball for Retailers
CRYSTAL BALL FOR RETAILERS Knowledge economy = greater concentration of growth in fewer, larger cities, while the Millennial migration promises to redirect housing and consumption towards their immediate suburbs We know how many Millennials are powering through the economy - if their incomes, lifest
Slide 23: Crystal Ball for Retailers
CRYSTAL BALL FOR RETAILERS Will continue to selectively shed unproductive stores in declining or stagnant legacy DEPARTMENT STORES markets; reduce footprint where oversized in strong markets and redevelop/repurpose surplus space to higher and better uses – residential oriented mixed-use certainly on
Slide 24: Sears - Last Centuries' Amazon??
SEARS - LAST CENTURIES’ AMAZON?? Early 1890s Railroad stationmaster Richard Sears sells shipment of rejected watches to fellow stationmasters, enlists them as agents, and makes $5,000 along the way 1895 Sears hires watchmaker Alvah Roebuck and Julius Rosenwald (Steve Jobs) and establishes a mail-ord
Slide 25: Quotes From Retailers Past…and Retailers Present
QUOTES FROM RETAILERS PAST…AND RETAILERS PRESENT “It is the policy of our house to supply the consumer everything on which we can save him money, goods that can be delivered to your door anywhere in the United States for less than they can be procured from your local dealer; and although our line co
Slide 26: If Not the Grim Reaper, What Are the Key Effects of E-Commerce?
IF NOT THE GRIM REAPER, WHAT ARE THE KEY EFFECTS OF E-COMMERCE? Shoppers do not see same bright line between online shopping and brick-and-mortar retail – it’s all shopping and the cheaper and more convenient it is the better. Retailers face three major evolutionary challenges – and opportunities -
Slide 27: If Not the Grim Reaper, What Are the Key Effects of E-Commerce?
IF NOT THE GRIM REAPER, WHAT ARE THE KEY EFFECTS OF E-COMMERCE? New Economy Model focuses on disruptive vision, sales growth and market share, not profitability. – Eerie echo of the previous “grow at all costs” dot.com boom, which did not end well – Significant price-cutting to gain share, along w
Slide 28: Amazon vs. Walmart
AMAZON VS. WALMART Changing View of What the Future Holds Amazon buys Whole Foods, Walmart buys Bonobos; Amazon promotes AWS as online platform for retailers and brands, Walmart creates Lord & Taylor flagship online store – what’s going on here? Recent skirmishes in the ongoing battle for retail
Slide 29: Why Do Stores Close?
WHY DO STORES CLOSE? Lost in the hysteria is any remotely thoughtful analysis of why stores close – easier to blame it on e-commerce? Against a backdrop of strained household budgets that limit spend regardless of retail channel, four key factors to consider: GEOGRAPHY Location matters – where are t
Slide 30: K-Mart and Sears
K-MART AND SEARS 2017 Store Closure Announcements Source: 2017 Caliper Focused on the Future of Real Estate AEW RETAIL MARKET UPDATE 30
Slide 31: What's on Your Millennial's Holiday List?
WHAT’S ON YOUR MILLENNIAL’S HOLIDAY LIST? 2017 Holiday Preferred iPhone X 256GB $1,149 One Year Data Plan ($50/mth) $600 Total (One Gift!) $1,749 2017 Holiday - Guys' Wardrobe from A&F 2017 Holiday - Gals' Wardrobe from H&M Down Filled Parka $160 2 Short Wool-Blend Coats ($129/coat) $258 4 Heathered
Slide 32: Appendix
APPENDIX Retailers Respond Holiday Retail Tour Quotes from the Front – Current Retail Environment – Omnichannel Retail – Stores – Performance and Strategy Focused on the Future of Real Estate AEW RETAIL MARKET UPDATE 32
Slide 33: Retailers Respond – The Key Challenges and Responses
RETAILERS RESPOND – THE KEY CHALLENGES AND RESPONSES Frugal, budget constrained consumer, the vast majority, has less discretionary spend, buys closer to need, hunts for deals on their smartphones, closes wallet in a flash, and has other needs – home, auto, medical bills and debt – that come first
Slide 34: Retailers Respond – The Key Challenges and Responses
RETAILERS RESPOND – THE KEY CHALLENGES AND RESPONSES – Mantra – reduce friction between channels – shopping trip now incorporates both online and physical channels as customer flips back and forth between online and in-store and expects retailer to track the journey and transaction trail seamlessly
Slide 35: Retailers Respond – The Key Challenges and Responses
RETAILERS RESPOND – THE KEY CHALLENGES AND RESPONSES – Income constrained consumers on a tight budget limit anything other than required shopping, stay out of malls to avoid temptation – Big cohort – millennials – cooped up in cities or home with mom & dad, not where the malls are – when log jam bre
Slide 36: Holiday 2017 Retail Tour
HOLIDAY 2017 RETAIL TOUR After disappointing 2016 results and hysterical headlines thus far in 2017, third quarter 2017 earnings and sales results were positive for most retailers despite 3 major hurricanes, and unsettling political turmoil – cooler weather, better inventory control and glimmering
Slide 37: Holiday 2017 Retail Tour
HOLIDAY 2017 RETAIL TOUR – Continue to edit and update store fleet, right size box to please customers while handling more fulfillment, and, for those in transition – keep lease terms flexible – Avoid debt at all costs – cash flow for investing in systems, refurbishing stores and, increasingly, buyi
Slide 38: Holiday 2017 Retail Tour: Specialty Retailers – Teens
HOLIDAY 2017 RETAIL TOUR: Specialty Retailers – Teens American Eagle Outfitters FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 On schedule, teen retailers Net Sales ($MM) $3.055 $2,989 $2,967 $2,968 $3,120 $3,476 $3,306 $3,283 $3,522 $3,610 feel the pinch as their prime demo
Slide 39: Holiday 2017 Retail Tour: Specialty Retailers – Family Apparel
HOLIDAY 2017 RETAIL TOUR: Specialty Retailers – Family Apparel Specialty retailers crafting The Gap FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 balance between low-profit online and higher profit Net Sales ($MM) $15,772 $14,526 $14,197 $14,664 $14,549 $15,651 $16,148 $16,
Slide 40: Holiday 2017 Retail Tour: Specialty Retailers – Women's Apparel
HOLIDAY 2017 RETAIL TOUR: Specialty Retailers – Women’s Apparel Women’s labor force participation rates have Chico’s* FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 declined – between ’78 and ’99 over 1 million women Net Sales ($MM) $1,714 $1,582 $1,713 $1,905 $2,196 $2,581
Slide 41: Holiday 2017 Retail Tour: Department Stores
HOLIDAY 2017 RETAIL TOUR: Department Stores Department store expansion J.C. Penney FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 rode the mid-century suburbanization wave; many Net Sales ($MM) $19,860 $18,486 $17,556 $17,759 $17,260 $12,985 $11,859 $12,257 $12,625 $12,547 o
Slide 42: Holiday 2017 Retail Tour: Big Box Stores
HOLIDAY 2017 RETAIL TOUR: Big Box Stores Target (US Segment) FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Value/off-price retail flourishing – Ross, TJX, Net Sales ($MM) $63,368 $64,948 $65,357 $65,787 $68,466 $71,960 $71,279 $72,618 $73,785 $69,495 Costco and Dollar Store
Slide 43: Holiday 2017 Retail Tour: Big Box Stores
HOLIDAY 2017 RETAIL TOUR: Big Box Stores Home Depot FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Big boxes – mature business dominated by 2-3 highly Net Sales ($MM) $77,349 $71,288 $66,176 $67,997 $70,395 $74,754 $78,812 $83,176 $88,519 $94,595 efficient operators in each
Slide 44: Holiday 2017 Retail Tour: Warehouse/Dollar Stores
HOLIDAY 2017 RETAIL TOUR: Warehouse/Dollar Stores Category is home to some of the fastest growing, least Costco FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 noticed, sectors in retail Net Sales ($MM) $70,977 $69,892 $76,255 $87,048 $97,062 $102,870 $110,212 $113,666 $116,0
Slide 45: Quotes From the Front: Current Retail Environment
QUOTES FROM THE FRONT Retailers on the Current Retail Environment “The big improvement we have seen has been in our U.S. business. We have seen a strong start to the…holiday season with improvements in both traffic and sales trends. Comps for Calvin Klein…are trending up mid-single digits and Tommy
Slide 46: Quotes From the Front: Current Retail Environment
QUOTES FROM THE FRONT Retailers on the Current Retail Environment “I think the fears are people feel that one or multiple people are going to bring prices down pretty significantly in the industry, and I think from what we’re seeing is, people have been fairly responsible in managing the business, a
Slide 47: Quotes From the Front: Current Retail Environment
QUOTES FROM THE FRONT Retailers on the Current Retail Environment “…The second emerging trend across all brands was a revival in customer interest in fashion apparel. Quite simply, fashion is back and it is selling…the customer demands more newness and fashion trends have quicker adoption rates and
Slide 48: Quotes From the Front: Current Retail Environment
QUOTES FROM THE FRONT Retailers on the Current Retail Environment “…there is a major negative sentiment that we all know about retail, about our sector and about our company…what creates this negative sentiment? Well, to a great extent it is social media. Social media that is driven by folks that ha
Slide 49: Quotes From the Front: Omnichannel Retail
QUOTES FROM THE FRONT Retailers on Omnichannel Retail “…60% of our dot-com sales are currently picked up in store, with 40% of those customers buying incremental product when they arrive to pick up their item. Another 10% to 15% is delivered from store, with the remaining 25% to 30% being parcel. So
Slide 50: Quotes From the Front: Omnichannel Retail
QUOTES FROM THE FRONT Retailers on Omnichannel Retail “I’m not even sure I like the word omni-channel any more. I actually prefer, I think, channelless or integrated retail as a way of thinking about what we’re doing as a model…I don’t think the customers views this as I’m shopping on the web or I’m
Slide 51: Quotes From the Front: Omnichannel Retail
QUOTES FROM THE FRONT Retailers on Omnichannel Retail “We’ve also been investing quite heavily in reducing customer friction, simplifying our check-out, looking at ways to improve our payment options, so all those things take investments. On the supply chain side, we’ve really been focused on reduci
Slide 52: Quotes From the Front: Stores
QUOTES FROM THE FRONT Retailers on Stores “New stores typically account for over 80% of our annual growth and growing the store base remains our highest priority…our new stores continue delivering strong performance across both new and existing markets in urban, suburban and semi-rural settings…The
Slide 53: Quotes From the Front: Stores
QUOTES FROM THE FRONT Retailers on Stores “Our fleet optimization program continues to generate significant financial benefits. We have closed 156 stores… [and]…we are expanding our expected store closures to 300 doors by 2020. Key elements of the strategy have been; one a sales transfer in excess o
Slide 54: Quotes From the Front: Stores
QUOTES FROM THE FRONT Retailers on Stores “But I think over time we are going to want to get some space back from the department stores and we may get some space back, but it’s all going to be on the margin. They don’t pay any rent even at places where they pay rent. So the opportunity to re-tenant
Slide 55: Quotes From the Front: Performance and Strategy
QUOTES FROM THE FRONT Retailers on Performance and Strategy “We believe we operate in one the most attractive sectors in retail. Our unique strengths include more than 14,000 convenient small box stores with strong economics that allow us to serve an underserved customer who shops our stores differe
Slide 56: Quotes From the Front: Performance and Strategy
QUOTES FROM THE FRONT Retailers on Performance and Strategy “So, in summary, despite three major hurricanes, Gymboree’s bankruptcy and clearance liquidations in several hundred of their stores, [and] record-breaking October heat across most of the country, we still delivered an outstanding quarter o
Slide 57: Quotes From the Front: Performance and Strategy
QUOTES FROM THE FRONT Retailers on Performance and Strategy “…if you look at the first half of 2017, we had carry over from a very tough four quarter in sales last year. And we were out of parity. We had too much inventory for the demand generated online and in our stores. So there was a lot of liqu
Slide 58: Questions?
QUESTIONS? Please feel free to contact Mike or Ron regarding any of the information contained herein [email protected] or 617.261.9577 | [email protected] or 617-261-9336 Michael J. Acton, CFA, is Director of Research for AEW Capital Management, L.P. with responsibility for directing the MANAGING DIRECT
Slide 59: AEW office locations
BOSTON LOS ANGELES LONDON PARIS DÜSSELDORF HONG KONG SINGAPORE SYDNEY | AEW.COM