BoyarMiller Breakfast Forum: Current State of The Capital Markets Sept 2013
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BoyarMiller Breakfast Forum: Current State of The Capital Markets Sept 2013 BoyarMiller Breakfast Forum: Current State of The Capital Markets Sept 2013 Presentation Transcript

  • The Current State of the Capital Markets Breakfast Forum September 12, 2013
  • September 12, 2013 The Great Rotation Andrew D. Kanaly Chairman
  • Key Investment Issues • Slow global growth, but improved prospects in second half – U.S. key strengths: housing/autos/energy/deficit reduction – Europe remains in recession – Emerging economies transitioning to domestic growth • Federal Reserve preparing to normalize monetary policy – Fed appears poised to scale back bond buying late 2013 – Fed unlikely to raise short rates prior to 2015 • 30 year bull market in bonds is likely over – Will rising interest rates derail the economy? – Asset allocation implications of rising interest rates • Bull market in equities remains intact – Earnings acceleration into 2014 bullish for stocks – U.S. stocks fairly valued; emerging market stocks are cheap – Potential “great rotation” from bonds to stocks – Expect near term volatility due to interest rates and earnings Copyright 2010 Kanaly Trust. All rights reserved. View slide
  • The Wheel Source: Bill Boyar (He was there) Copyright 2010 Kanaly Trust. All rights reserved. View slide
  • The Heliocentric Universe Brought to you by heretics: Copernicus, Galileo, Kepler 1543-1621 5 Copyright 2010 Kanaly Trust. All rights reserved.
  • The Tri-Cone Drill Bit Thank You: Hughes Tool Company Copyright 2010 Kanaly Trust. All rights reserved.
  • Elvis Copyright 2010 Kanaly Trust. All rights reserved.
  • Rotation From Bonds to Stocks? Source: Strategas Research Copyright 2010 Kanaly Trust. All rights reserved.
  • Wage Inflation to Determine Speed of Interest Rate Rise * Highlighted asset classes denote significant position change since 12/31/12 Copyright 2010 Kanaly Trust. All rights reserved.
  • 10 Year Treasury Note Yields (since 1979) Daily Data 1/02/1979 - 9/05/2013 10-Year Constant Maturity Treasury Note Yields 15.84 15 14 15 % 13.99 14 13.65 9/05/2013 = 2.98% 13 13 12 12 11 11 10.23 10 10 10.12 9.47 9.09 9 9 8.76 8.05 8 8 7.74 7.06 7 7 6.79 6.95 6 6 5.44 5.53 5.25 5.26 5.19 5 5 4.89 4.61 4.27 4 4.16 4.01 4.22 3.70 3.34 3 4 3.75 3.89 3.21 3.13 3 2.41 2 2008 2003 1998 1993 1988 1983 2013 1.43 Source: Federal Reserve Board (B151) 2 2.08  Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ . Copyright 2010 Kanaly Trust. All rights reserved.
  • Ownership of Marketable Treasury Debt as of 03/31/2013 Numbers in parentheses in $ Billions (Total = 11905.5) Other Foreign (3316.8) Household Sector (1229.4) 10.3% Monetary Authority (1796.0) 27.9% 15.1% 4.9% 9.4% Nonfinancial Business and State & Local Governments (580.2) Japan (1114.3) 10.7% China (1270.3) 21.8% Financial Institutions (2598.4) S ource: Federal Reserve Board B920A Copyright 2010 Kanaly Trust. All rights reserved. © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Ownership Trends of Marketable Treasury Debt 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Quarterly Data 1998-03-31 to 2013-03-31 Household Sector (10.3%) Nonfinancial Business and State & Local Governments (4.9%) Monetary Authority (15.1%) Financial Institutions (21.8%) China (10.7%) Japan (9.4%) Other Foreign (27.9%) 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 S ource: Federal Reserve Board 1999 2000 2001 2002 B920B Copyright 2010 Kanaly Trust. All rights reserved. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Ownership of Corporate and Foreign Bonds as of 03/31/2013 Local, State & Federal Governments (129.0) Numbers in parentheses in $ Billions (Total = 12791.7) Household Sector (2454.6) Insurance Companies (2566.3) 1.0% 19.2% 20.1% 16.9% 16.4% Other (2097.3) Mutual Funds and ETFs (2156.0) 6.0% 20.5% Banks and Credit Unions (769.8) Rest of the World (2618.5) S ource: Federal Reserve Board B922 Copyright 2010 Kanaly Trust. All rights reserved. © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Ownership Trends of Corporate and Foreign Bonds 55.0% Quarterly Data 1975-12-31 to 2013-03-31 55.0% Household Sector (19.2%) Local, State & Federal Governments (1.0%) Rest of the World (20.5%) Banks and Credit Unions (6.0%) Insurance Companies (20.1%) Mutual Funds and ETFs (16.9%) Other (16.4%) 52.5% 50.0% 47.5% 52.5% 50.0% 47.5% 45.0% 45.0% 42.5% 42.5% 40.0% 40.0% 37.5% 37.5% 35.0% 35.0% 32.5% 32.5% 30.0% 30.0% 27.5% 27.5% 25.0% 25.0% 22.5% 22.5% 20.0% 20.0% 17.5% 17.5% 15.0% 15.0% 12.5% 12.5% 10.0% 10.0% 7.5% 7.5% 5.0% 5.0% 2.5% 2.5% 0.0% 0.0% S ource: Federal Reserve Board 1976 1978 1980 1982 1984 B922A Copyright 2010 Kanaly Trust. All rights reserved. 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Ownership of Municipal Securities and Loans as of 03/31/2013 Numbers in parentheses in $ Billions (Total = 3728.6) Insurance Companies (458.8) Other (109.4) 12.3% Rest of the World (63.7) 2.9% 1.7% Banks and Credit Unions (382.2) 10.3% 44.5% Household Sector (1657.7) 28.3% Mutual Funds and ETFs (1056.8) S ource: Federal Reserve Board B923 Copyright 2010 Kanaly Trust. All rights reserved. © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Ownership Trends of Municipal Securities and Loans Quarterly Data 1977-06-30 to 2013-06-30 Household Sector (44.5%) Mutual Funds and ETFs (28.3%) Insurance Companies (12.3%) Banks and Credit Unions (10.3%) Rest of the World (1.7%) Other (2.9%) 72.5 70.0 67.5 65.0 62.5 72.5 70.0 67.5 65.0 62.5 60.0 60.0 57.5 57.5 55.0 55.0 52.5 52.5 50.0 50.0 47.5 47.5 45.0 45.0 42.5 42.5 40.0 40.0 37.5 37.5 35.0 35.0 32.5 32.5 30.0 30.0 27.5 27.5 25.0 25.0 22.5 22.5 20.0 20.0 17.5 17.5 15.0 15.0 12.5 12.5 10.0 10.0 7.5 7.5 5.0 5.0 2.5 2.5 0.0 0.0 S ource: Federal Reserve Board -2.5 1978 1980 1982 1984 -2.5 1986 B923A Copyright 2010 Kanaly Trust. All rights reserved. 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 © Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
  • Monthly Bid-to-Cover Ratios for 2-,3-, and 5-Year Nominal Treasury Securities Data 1/31/2009 - 8/31/2013 (Log Scale) 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 6-Month Smoothings 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 BTCRatio 2-Year 3-Year 5-Year M J S D M 2010 J S D M 2011 J S D M J 2012 ( ( ( ) ) ) S D 3.21 3.27 2.61 M 2013 J 3.2 3.2 3.1 3.1 3.0 3.0 2.9 2.9 2.8 2.8 2.7 2.7 2.6 2.6 2.5 BTCRatio 2.4 7-Year 10-Year 30-Year 2.3 (B0021) 2.5 ( ( ( ) ) ) 2.59 2.71 2.38 2.4 2.3 Bid-to-Cover Ratios for 7-,10-, and 30-Year Nominal Treasury Securities  Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ . Copyright 2010 Kanaly Trust. All rights reserved.
  • Will Rising Rates Derail the Stock Market? S&P 500 Performance Around Year/Year Declines In Long-Term Bonds of at Least 15% Start Dates % Change 126 Days Later 1/21/1980 1/05/1982 4/25/1984 8/28/1987 8/25/1994 10/01/1999 6/14/2004 12/04/2009 9.29 -10.63 5.32 -18.11 4.28 16.82 5.57 -3.98 17.44 15.24 14.88 -20.6 19.1 11.98 6.71 10.59 1.07 9.42 Average % Change 252 Days Later Long-term bonds reflect Barclay's Capital Long-Term Treasury Bond Price Index Source: Ned Davis Research Copyright 2010 Kanaly Trust. All rights reserved.
  • Rising Interest Rates – Asset Allocation Implications • Avoid long duration fixed income strategies – Kanaly muni bond portfolios have duration less than 5 years – DoubleLine Total Return Fund – duration less than 2 years • Swap interest rate risk for credit risk – Strengthening economy favors credit-sensitive fixed income securities – High quality, long duration fixed income likely to provide little return as interest rates normalize • Invest in actively-managed, unconstrained strategies – Floating rate debt – High yield corporates, non-Agency mortgages – Non-USD debt – Convertible bonds – Ability to short • Consider reducing fixed income allocations in favor of alternatives – Long-short equity – Absolute return/non-correlated strategies Copyright 2010 Kanaly Trust. All rights reserved.
  • State of the Capital Markets Middle Market M&A and Private Equity Update Cliff Atherton Managing Director September 2013
  • Middle market deals normally represent more than 25% of total deal value and 80% to 90% of deal volume (no. of transactions) Percentage of Total Deals % of Total Deals 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006 2007 2008 % ($) Deals Under $250M 2009 2010 % ($) Deals $250M+ Source: PitchBook 2011 2012 2013* %Deals (#) Under $250M * As of 2Q 2013 22
  • M&A activity in oilfield services Billions # of Deals 140 $60.0 123 120 $50.0 101 101 100 $40.0 85 80 $30.0 60 $20.0 42 39 40 $10.0 20 $52.5 $30.1 $12.8 $29.5 $38.7 $24.5 $11.1 2007 $0.0 2008 2009 2010 2011 2012 2013* Value 0 Deal Count Source: Deloitte Oil & Gas Mergers and Acquisitions Report * As of 2Q 2013 23
  • M&A activity in midstream Billions # of Deals $90.0 $80.0 70 65 61 60 54 $70.0 50 $60.0 40 39 40 36 $50.0 $40.0 30 $30.0 20 $20.0 10 $10.0 $30.2 $11.2 $12.3 $9.4 $83.5 $39.5 $26.5 2007 $0.0 2008 2009 2010 2011 2012 2013* Value 0 Deal Count Source: Deloitte Oil & Gas Mergers and Acquisitions Report * As of 2Q 2013 24
  • M&A activity in downstream Billions # of Deals 60 $35.0 54 $30.0 50 $25.0 40 33 $20.0 28 30 24 $15.0 20 15 $10.0 14 10 $5.0 $30.1 $11.3 $10.3 $8.7 $9.1 $12.4 $0.3 2007 $0.0 2008 2009 2010 2011 2012 2013* Value 0 Deal Count Source: Deloitte Oil & Gas Mergers and Acquisitions Report * As of 2Q 2013 25
  • Average multiples in middle market deals reached 6.3 times in 2012 and since 2010 the number of deals has exceeded the number completed in 2008 Average Multiples and Deal Volume Multiple 183 6.2 202 Deal Count 250 222 33 165 91 200 180 5.8 150 6.0x 5.4 6.2x 6.0x 6.0x 6.3x 6.1x 5.9x 100 50 0 5 2007 2008 TEV/EBITDA 2009 2010 2011 2012 Deals/Year Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA 26 2013 1H
  • Within the middle market, size affects the multiple paid Buyout Multiples within the Middle Market by Deal Size Multiple 8.0x 7.5x 7.4x 7.7x 7.2x 7.5x 7.2x 7.0x 6.5x 6.5x 6.0x 5.5x 5.0x 5.4x 5.5x 2008 5.7x 5.5x 2009 5.3x 5.4x 4.5x 4.0x 2007 2010 $100M-$250M 2011 $10M-$25M Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA 27 2012 *As of2Q 2013
  • Lenders are once again actively supporting M&A transactions Total Debt Multiples Multiples 3.7X 4.0x 3.5x 3.0x 3.3X 0.6x 1.0x 2.5x 0.8x 1.1x 1.0x 0.9x 0.9x 1.0x 2.0x 3.1x 1.5x 1.0x 2.3x 1.8x 2.2x 2.3x 2.4x 2.5x 2010 2011 2012 2012 4Q 2.2x 0.5x 0.0x 2008 2009 Senior Debt / EBITDA 2013 1Q Sub Debt / EBITDA Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA 28 2013 2Q
  • Buyout capital structures use less sub debt as a result Equity and Debt as a % of Total Enterprise Value (TEV) % of TEV 100.0% 90.0% 80.0% 36.6% 29.7% 35.7% 36.7% 36.5% 15.9% 16.0% 47.4% 47.5% 47.1% 2011 2012 2013 1H 42.1% 70.0% 60.0% 50.0% 16.2% 12.4% 16.5% 10.8% 40.0% 30.0% 20.0% 46.9% 54.0% 51.8% 2009 2010 10.0% 0.0% 2008 Equity Sub Debt Senior Debt Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA 29
  • While the buyout market was stable from 2010 – 2012, the trend in the first half of 2013 is to fewer but larger deals Billions $160 Billions 1,023 $140 $900 $120 3,175 2,669 $147 $140 Capital Invested ($B) $500 2,134 1000 500 1H 2013 2,358 $600 738 1H 2012 $100 $800 $700 # of Deals 1500 2,071 0 # of Deals 3500 3000 # Deals Closed 2,232 2,171 2500 2000 1,754 1,490 $400 1500 $300 1000 $200 500 $100 $220 $304 $507 $844 $352 $158 $362 $373 $358 2004 $0 2005 2006 2007 2008 2009 2010 2011 2012 Capital Invested ($B) Source: PitchBook 30 # Deals Closed 0
  • After a crowded closing calendar at the end of 2012 middle market deal-making in 1H 2013 fell to levels not seen since 2009 Billions # of Deals $500 1,631 $450 $400 1,544 1,052 $300 849 1,600 1,320 1,339 $350 $250 1,800 1,330 1,082 1,400 1,107 1,105 1,127 1,038 1,148 1,200 1,023 964 1,000 905 726 764 800 $200 738 $150 400 $100 200 $50 $0 600 $103 $117 $132 $172 $198 $309 $371 $473 $192 $160 $77 1H 2H 2004 1H 2H 2005 1H 2H 2006 1H 2H 2007 1H 2H 2008 Capital Invested ($B) Source: PitchBook 1H $81 $160 $202 $173 $200 $147 $211 $140 2H 2009 1H 2H 2010 1H 2H 2011 1H 2H 2012 0 1H 2013 # of Deals Closed * As of 2Q 2013 31
  • PE capital invested and deal count have grown substantially since 1995 # of Deals Billions $900 3,175 $800 3,000 2,669 $700 2,358 $600 2,171 1,754 1,458 1,118 $300 925 $352 $304 1,028 849 $2 66 $4 107 $2 127 $3 143 208 $12 $10 $76 $25 $373 $358 1,500 1,000 $119 305 $19 $362 $158 466 59 1,490 2,000 $220 657 $200 $30 2,500 2,071 $507 $400 $0 2,232 2,134 $500 $100 3,500 $844 $78 $59 500 $72 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Capital Invested ($ billions) Source: PitchBook 32 Deal Count
  • PE firm growth since 1980 – The inflection in PE industry growth occurred in 1996 and 1997 No. of Firms 5,000 4,500 4,000 3,500 3,000 New 2,500 2,000 Existing 1,500 1,000 500 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 Source: Preqin 33
  • PE firms hold just under 4,000 portfolio companies purchased in 2008 or earlier Companies 8,000 U.S. PE Company Inventory 7,000 6,154 6,000 5,430 6,508 6,802 6,851 5,742 4,771 5,000 3,872 4,000 2009-2013* 2005-2008 3,054 3,000 2,339 3,913 2,000 3,866 2012 2000-2004 2013* 1,000 0 2004 2005 2006 2007 2008 2009 2010 2011 As of Year Source: PitchBook * As of 1Q 2013 34
  • While the capital the capital overhang is declining there is still significant dry powder in 2009 and older funds Billions * Source: PitchBook as of 12/31/12 – U.S. PE Capital Overhang * As of 6/30/2013 35
  • Current Overhang by vintage year and fund size Fund Size ($ Billions) Under $100M $100M-$250M $250M-$500M $500M-$1B $ $ $ $ 2007 0.4 2.0 2.9 3.2 Subtotal $ 8.5 $ 12.6 $ 8.2 $ 11.3 $ $1B-$5B $ 9.3 $ 15.0 $ Subtotal $ 9.3 $ 19.1 $ 15.0 $ $5B+ $ 12.2 $ 24.9 $ 7.4 $ - Subtotal $ 12.2 $ 24.9 $ 7.4 $ - Total $ 30.0 $ 56.6 $ 30.6 $ 18.0 $ $ $ $ $ 2008 0.2 1.6 3.6 7.2 $ $ $ $ 19.1 $ 2009 0.2 1.4 3.6 3.0 $ $ $ $ Source: PitchBook as of 12/31/12 36 2010 1.0 1.8 3.5 5.0 $ $ $ $ 2011 0.4 3.6 4.3 10.5 $ $ $ $ 2012 0.0 2.6 7.2 11.5 $ $ $ $ 2013 0.2 1.3 5.2 $ $ $ $ Total 2.3 13.1 26.4 45.6 18.8 $ 21.3 $ 6.7 $ 87.4 6.7 $ 34.0 $ 41.1 $ 2.4 $ 127.6 6.7 $ 34.0 $ 41.1 $ $ 13.1 $ 47.0 $ $ 13.1 $ 47.0 $ 2.4 $ 127.6 8.7 $ 113.4 8.7 $ 113.4 65.9 $ 109.4 $ 17.9 $ 328.4
  • Current Overhang of $328 Billion by fund size and vintage year Current Overhang ($B) Cumulative Overhang ($B) $117.2 Billion $120 $500 $109.37 $450 $100 $400 Overhang by Vintage and Fund Size $350 $80 $300 $65.88 $56.63 $60 $250 $200 $40 $150 $30.59 $29.99 $18.04 $20 $17.87 $100 $50 $ $2007 2008 Under $100M 2009 $100M-$250M 2010 2011 $250M-$500M Source: PitchBook as of 12/31/12 37 $500M-$1B 2012 $1B-$5B 2013 $5B+ Cumulative Overhang ($B) Current Overhang ($B) by Vintage Cumulative Overhang
  • In 2012 PE Funds provided 10x more Equity capital ($358 B) than IPOs Billions # of IPO Offerings $50.0 300 276 $45.0 250 $40.0 $35.0 198 193 200 175 $30.0 $25.0 150 136 $20.0 97 102 100 $15.0 54 $10.0 50 27 $5.0 $37.8 $29.8 $36.2 $43.3 $23.1 $19.2 $34.7 $28.7 $35.1 $16.9 2004 $0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013* Dollar Volume ($billions) Source: WilmerHale 2013 Mid-Year IPO Market Review 0 # IPOs * As of 6/30/2013 38
  • The majority of IPOs were made by VC and PE-backed companies Billions # of Offerings $35.0 140 121 $30.0 120 $25.0 100 83 78 88 $20.0 80 54 $15.0 60 33 19 $10.0 40 $5.0 20 $23.5 $4.7 $8.9 $13.3 $21.7 $30.5 $11.7 2007 $0.0 2008 2009 2010 2011 2012 2013* Capital Exited ($B) 0 PE & VC Backed IPOs Source: PitchBook * As of 2Q 2013 39
  • Total IPOs vs. PE & VC backed companies IPOs vs. energy PE & VC backed IPOs Billions $50.0 $45.0 $40.0 $43.3 $35.0 $35.1 $34.7 $30.0 $25.0 $20.0 $30.5 $28.7 $23.5 $23.1 $21.7 $19.2 $15.0 $16.9 $13.3 $10.0 $11.7 $8.9 $5.0 $4.5 $4.7 $0.0 2007 2008 $0.3 $1.9 $1.0 2009 Total 2010 PE & VC Source: PitchBook; WilmerHale 2013 Mid-Year IPO Market Review $4.2 2011 $3.5 2012 $0.6 2013* Energy PE & VC * As of 6/30/2013 40
  • State of the Capital Markets Real Estate Finance Presented by Tom Fish
  • National Perspective
  • Although relatively low from a historical perspective, the 10-year Treasury yield has been on the rise since mid-May As of 9/5/13, the 10-year treasury hit 2.99, the highest level since July 2011. We attribute the recent move to the Fed’s plan to taper off the pace of its $85 billion monthly bond purchase program; which some investors are overly concerned that it could begin as early as mid-September. 8% 7% 6% Yield (%) 5% 4% 3% 2% 1% Aug-93 Feb-94 Aug-94 Feb-95 Aug-95 Feb-96 Aug-96 Feb-97 Aug-97 Feb-98 Aug-98 Feb-99 Aug-99 Feb-00 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 0% T en yr treasury Source: Moody’s Analytics, Bloomberg, Jones Lang LaSalle Research One mo libor
  • CMBS Spreads 3Q2006 – 3Q2013* Highly-rated CMBS spreads remain at post-crisis lows, but have widened as much as 50+ bps since mid-May, before tightening by 15-25 bps since beginning of July AAA CMBS Spread to Swaps 1,200 1,000 800 600 400 * As of September 6, 2013 As spreads tightened, Banks are more likely to lend as originating loans are in favor of positive leverage. Source: Bloomberg, Commercial Mortgage Alert, Jones Lang LaSalle Research Aug-13 May-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Aug-09 May-09 Feb-09 Nov-08 Aug-08 May-08 Jan-08 Oct-07 Jul-07 Apr-07 Jan-07 0 Oct-06 200 Jul-06 Spread over swap rates (basis points) 1,400
  • CMBS delinquency breakdown for July 2013 versus the year ago period CMBS delinquent unpaid balance* declines in July for four of the five categories compared to a year ago; higher for REO Category 30-Day 60-Day 90+-Day Foreclosure REO Current Total CMBS * Total CMBS Del. Delinquent % Jul-13 UPB ($Bil) $3.44 $2.04 $11.15 $10.62 $19.49 $698.28 $745.02 $46.74 Jul-12 UPB ($Bil) $8.74 $3.34 $18.58 $12.22 $17.17 $650.76 $710.82 $60.06 6.27% 8.45% * Includes the "All Deals", "Agency" and "Canadian" portfolios as identified by Morningstar - representative of all CMBS data collected by Morningstar Credit Ratings, LLC ("Morningstar") on a monthly basis. * Source: Morningstar, Jones Lang LaSalle Research
  • Current commercial and multifamily real estate debt outstanding: $3.07 trillion as of Q1 2013 Holders of commercial and multifamily mortgages outstanding REITs, $33 bil. (1%) Finance Companies, $45 bil. (1%) Agency & GSE-Backed, $121 bil. (4%) Other, $221 bil. (7%) GSEs, $262 bil. (9%) Lender Type Amount (Millions) % Bank & Thrift $1,496,000 49% CMBS, CDO & Other ABS $562,000 18% Agency / GSE Portfolios & MBS $121,000 4% Life Insurance Companies $328,000 11% GSE $262,000 9% Finance Companies $45,000 1% REITs $33,000 1% All Other $221,000 7% Total $3,068,000 100% Source: Federal Reserve, Jones Lang LaSalle Research Life Companies, $328 bil. (11%) CMBS,CDO & Other ABS $562 bil. (18%) Commercial Banks, $1.50 tril. (49%)
  • Houston and Dallas strong when compared to major Gateway markets $25,000 Total transaction volume by market (ranked by order of volume) – apartment, industrial, office and retail 2011 2012 Properties of at Least $5 Million, entity-level transactions are included in these data. Source: Jones Lang LaSalle Research, Real Capital Analytics YTD 2013* *YTD 2013 estimates based on preliminary data as of early August 2013 Austin Northern NJ Denver San Francisco Phoenix San Jose Boston Chicago Dallas DC $0 Los Angeles $5,000 Atlanta $10,000 Seattle $15,000 Houston Ranked # 6 Ranked # 8 Ranked # 6 $20,000 Manhattan Transaction volume ($ in millions) $30,000
  • Cross-Border capital into the U.S. remains strong Canadian asset managers and REITs; Singaporean sovereign wealth funds; German investment managers; and Chinese private HNW individuals have been highly active year-to-date* Source of Capital Volume in $US Billions # of Properties Canada $7.09 287 Singapore $1.88 8 Germany $1.71 43 China $1.70 12 South Korea $1.45 18 Israel $1.29 38 Australia $1.14 15 Switzerland $0.80 11 Norway $0.63 5 Other $3.59 77 Total $21.28 514 * Properties and portfolios of $2.5 million and greater, September 5, 2013 Source: Real Capital Analytics, Jones Lang LaSalle Research
  • Market destination of cross-border capital Gateway markets remain top destination of choice for cross-border capital Market Destination Volume in $US Billions # of Properties Manhattan $3.55 21 Los Angeles $2.82 27 Washington, DC $1.00 12 Houston $0.90 16 Seattle $0.87 18 Chicago $0.85 12 Inland Empire $0.81 7 Hawaii $0.78 2 Atlanta $0.63 17 Other $9.07 382 Total $21.28 514 * Properties and portfolios of $2.5 million and greater, September 5, 2013 Source: Real Capital Analytics, Jones Lang LaSalle Research
  • U.S. and select market GDP growth & 10-year Treasury comparison (2001 – 2012) The strong GDP growth of Houston and Texas overall makes borrowing rates here highly favorable US Texas Florida California New York Houston 10yr Treas 10.00% 8.00% Percentage 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% Source: Jones Lang LaSalle Research, BEA, Bloomberg YE 2012 YE 2011 YE 2010 YE 2009 YE 2008 YE 2007 YE 2006 YE 2005 YE 2004 YE 2003 YE 2002 YE 2001 -6.00%
  • U.S. and select market GDP growth & 10-year Treasury comparison Growth for Texas and Houston ahead of 10-year Treasury in most years; past three years since recovery, Houston has shown steady growth GDP Growth Vs. 10-Year Treasury YE 2001 YE 2002 YE 2003 YE 2004 YE 2005 YE 2006 YE 2007 YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 US 0.40% 1.94% 3.87% 2.90% 2.81% 2.38% 2.21% -3.32% -0.08% 2.39% 1.97% 1.67% Texas 4.40% 2.60% 5.30% 9.60% 7.20% 8.90% 8.80% 5.40% -5.70% 7.60% 7.70% 5.80% Florida California New York Houston 5.30% 0.10% 3.80% 1.80% 5.80% 1.90% -0.40% 1.30% 7.10% 3.10% 0.30% -1.69% 8.20% 4.60% 2.80% 7.02% 9.60% 4.20% 4.40% -2.80% 7.40% 3.30% 4.10% 5.63% 4.00% 1.00% 0.10% 7.86% -1.70% -0.40% -2.20% -1.36% -3.68% -5.10% -1.40% -0.79% 0.90% 0.30% 4.00% 4.84% 2.50% 1.20% 1.20% 3.70% 4.10% 3.50% 1.30% 4.80% Source: Jones Lang LaSalle Research, BEA, Bloomberg Spread Between GDP Growth & 10-Year Treasury 10-Year 5.05% 3.82% 4.25% 4.22% 4.39% 4.70% 4.23% 2.21% 3.84% 3.29% 1.88% 1.75% US California -4.65% -4.95% -1.88% -1.92% -0.38% -1.15% -1.32% 0.38% -1.58% -0.19% -2.32% -1.40% -2.02% -3.23% -5.53% -2.61% -3.92% -8.94% -0.90% -2.99% 0.09% -0.68% -0.08% 1.75% Texas -0.65% -1.22% 1.05% 5.38% 2.81% 4.20% 4.57% 3.19% -9.54% 4.31% 5.82% 4.05% Houston -3.25% -2.52% -5.94% 2.80% -7.19% 0.93% 3.63% -3.57% -4.63% 1.55% 1.82% 3.05%
  • Texas markets top metro-level employment growth as Silicon Valley drops to sixth place Silicon Valley 2.9% Denver 3.1% Dallas 3.6% Austin 3.3% Source: Jones Lang LaSalle, Bureau of Labor Statistics Charlotte 3.1% Houston 3.6%
  • Office sector
  • Tech and energy still leading recovery, but more markets participating in the recovery as we head into the second half of 2013 Net absorption as a percent of inventory 2010 Source: Jones Lang LaSalle 2011 2012 2013
  • Sunbelt markets starting to add to the recovery, but tech and energy still dominating growth 2013 net absorption as percent of inventory 2.5% 2.0% U.S. average Energy markets Technology markets Sunbelt markets 1.5% 1.0% 0.5% 0.0% Houston Dallas Source: Jones Lang LaSalle Silicon Valley Austin Portland San Francisco Seattle Atlanta Miami Phoenix San Diego
  • 11 markets have seen over 500,000 s.f. of starts since Q1 2012; Houston responsible for 28.6 percent of starts 8,000,000 7,119,392 Construction starts (s.f.) 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Source: Jones Lang LaSalle 2,489,651 2,107,872 1,531,449 1,496,757 1,448,672 1,100,000 1,022,000 854,684 732,595 637,000