Market Trends – Deal or no Deal: Prospects for Property Under Brexit

1. Market Trends – Deal orno Deal: Prospectsfor Property UnderBrexit 22nd November 2018 Chris Bennett Head of London Branch DekaBank Deutsche Girozentrale

2. DekaBank Deutsche Girozentrale • Balance sheet: €99.54 billion • Assets under management: €287.897 billion • Equity: €5.782 billion • Capital Ratio: 23.1% (18.0% Core Tier One) • Credit Rating: A+ / Aa2 (S&P / Moody’s) • DekaBank is the central asset manager of the SparkassenFinanzgruppe – the world’s biggest financial network (350,000+ employees and €3tn annual business volume Aa2 rated by Moody’s, A+ by Fitch) • DekaBank is owned 100% by the German Savings Bank and Giro Association, is headquartered in Frankfurt and regulated by BaFin.

3. Brexit – Possible Implications for UK Real Estate Lending

4. Availability of Capital in the Real Estate Lending MarketsChange in the make up of the Credit Markets: 2008 to 2018 Source – CASS CRE Lending Survey 2018 • Post-crisis: stabilisation of amount of UK CRE debt (£160bn to £170bn – 65% ‘off’ 2008 peak) • Diverse lending market – UK 43%, German 12%, International – 20%, Insurance – 14% & Others – 11%

5. Availability of Capital in the Real Estate Lending MarketsFactors impacting availability of Capital for REL • Different entities have different methods of calculating amount of capital for Real Estate Lending: • Slotting – banks regulated by the PRA (i.e. UK clearing banks). ‘Standardised’ approach. • Basel III / Basel IV – relevant to European Union banks: • Internal ‘risk based’ model developed by banks, approved by regulators • RWA’s more closely aligned to specific risk of the transaction – less penal use of capital than with Slotting • Basel IV current drafting suggests limitations / constraints on use of internal risk based models • Solvency II – adopted by the European Commission, relevant to Insurers: • Directing insurers towards lower risk / away from equity investments • CMBS subject to a penal regulatory capital regime (even AAA rated debt) • Non-Regulated lenders – ‘real money’ investors. Outflows to Fixed Income / Equity? • Trend for reduced capital for Real Estate Lending. Not specifically Brexit related. • Credit impairments / failed distributions / sentiment may enhance this trend.

6. Cost of Capital in the Real Estate Lending MarketsAnalysis of 5 year GBP swap rates: 2008 to 2018 • Interest rate cycle to date not markedly influenced by Brexit. • Future rate movement influenced by (i) GDP / growth, (ii) inflation, (iii) relative value of sterlingand (iv) trade. • Movement could be up or down (small capacity for a rate cut) – future movement likely to be Brexit related.

7. Cost of Capital in the Real Estate Lending MarketsLikely future movement in Margins • Margin is a function of i) lender funding costs & ii) amount of capital used. • We have discussed the availability of capital – considering future funding costs: • Pfandbriefe (German covered bonds) – currently pricing at –ve spreads (i.e. <0.0% p.a.) • Impact of Brexit as UK assets could no longer be in the EEA - reduced GBP pfandbriefe exposure • Reduced amount of ‘cheap’ funding from pfandbriefe eligible loans • Increased spread on cross currency swaps as a result of currency volatility – i.e. increased funding costs • Historical positive correlation between interest rates and bank funding costs • Likely funding cost increases - likely to be Brexit related. • Limited capacity for lenders to absorb increased funding costs without breaching RoE hurdles… • Margins likely to increase?

8. DekaBank London BranchChris Bennett – Head of London BranchM: +44 7702 778 953E: chris.bennett@deka.deJames White – Head ofOrigination, UKM: +44 7798 641 767E: james.white@deka.deSusan Coules-Miller– AssociateDirector, OriginationM: +44 7786 366 605E: susan.coules-miller@deka.deAren Wegner– Head of European Real Estate LendingT: +49 69 7147 2916E: aren.wegner@deka.deThe information contained in this document is highly confidential and intended only for the use of authorised recipients. All recipients of this document are hereby notified that any photocopying, scanning, reproduction, or distribution - in whole or in part - to others at any time is strictly prohibited without the prior written consent of DekaBank Deutsche Girozentrale (“Deka”) and any of its affiliates or subsidiaries. The information contained in this document is proprietary to Deka. No representation or warranty, express or implied, is or will be made in relation to, and no responsibility or liability is or will be accepted by Deka or any of its respective officers, agents, employees or advisors as to or in relation to the accuracy or completeness of this document or any further written or oral information made available to the recipient or its advisers. Deka expressly disclaim any and all liability that may be based on such information, errors therein, or omissions there from. Each recipient of this document should rely exclusively on its own analysis of all aspects described herein, including any risks of whatsoever nature in connection therewith and should not rely on Deka in any respect. The information contained in this document is not intended to provide and should not be relied upon for tax, accounting, legal, financial, or regulatory advice or investment recommendations. Each recipient of this document should consult its own competent professional tax, accounting, legal, financial, regulatory or other competent professional advisors to discuss how the information in this document affect it, particularly in the light of its financial capacity and its objectives. This document does not disclose all of the risks