SPR/IPF European Property Outlook Seminar

Dennis G. LopezGlobal Chief Investment Officer

AXA Real Estate

19th October 2010

2

Our outlook: low inflation, low interest rates, low growth

We are forecasting interest rates to stay low, which is supportive of property yields staying low

Most of the normal drivers of economic growth will be slow to recover. 2011-2014 will be a tough period, especially for consumers and retailers

Interest rate forecasts

0

1

2

3

4

5

6

7

Q4

2005

Q2

2006

Q4

2006

Q2

2007

Q4

2007

Q2

2008

Q4

2008

Q2

2009

Q4

2009

Q2

2010

Q4

2010

Q2

2011

Q4

2011

Q2

2012

Q4

2012

Q2

2013

Q4

2013

Source: Datastream, AXA Real Estate Research forecasts

%

BoE ECB

Eurozone and European GDP

-5-4-3-2-1012345

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Datastream, AXA Real Estate Research

%

Europe Eurozone

3

Offices: low growth in employment and low supply

Supply in Europe is expected to be low. London is forecast to experience negative net additions in 2011 and 2012, but then development will start to pick up European employment growth will be weaker than in previous recoveries but growth in the finance and business services sector will be relatively strongAfter absorption of current vacant space, the supply/demand ratio will be favourable for investors

London prime office rental growth

-40-30-20-10

0102030405060

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Source: PMA, AXA Real Estate Research forecasts

% y-o-y

London: West End and Midtown

London: City

London: West End & Midtown long term average = 5.3%London: City long term average = 3.3%

Source: PMA (history), AXA Real Estate (forecasts)

London prime office rental value growthEuropean net additions

-3

-2

-1

0

1

2

3

4

5

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: PMA

% of stock

London: City & West EndEurope - 11 key centres*

*Based on 11 key centres London, Paris, Frankfurt, Munich, Madrid, Barcelona, Amsterdam, Vienna, Brussels, Stockholm, Milan

4

European sovereign debt 2010 and austerity measures 2011-2015

020406080

100120140160

Cze

ch R

ep

Finl

and

Pol

and

Net

h.

Spa

in

Aus

tria

Ger

man

y

UK

Irela

nd

Fran

ce

Por

tuga

l

Bel

gium Ita

ly

Gre

ece

Source: HSBC; SNB; AXA Real Estate; Capital Economics

% of GDP

0

2

4

6

8

10

12% GDP

Sovereign debt LHS Austerity package RHS

Retail: cautious as household incomes decline

‘Austerity’ measures will impact consumers (and therefore retailers) more than office-based businessesThe combination of structural problems and austerity measures will be most negative in southern Europe (UK and France are also a concern)Consumer demand will be strong in the Nordics and Central Europe, the UK will continue to perform well as it is buoyed by London

European prime retail rental growth forecasts

-6

-4

-2

0

2

4

6

2010 2011 2012 2013

Source: AXA Real Estate Research

%

Western Europe Southern Europe*Nordics UK**Central Europe

*Nordics: Sweden & Norway**Central Europe: Poland & Czech Rep

5

Industrial: primary ports will benefit from increasing global trade

The benefits of global trade will be focused on the main entry and exit points in Europe – i.e. main seaports/airportsGlobal trade growth has been greater than nominal GDP, and will soon recover to its previous peak volumeOversupply (vacancy) is most evident in the logistics sector. It will be late-2011 before existing supply will be absorbed. Obsolescence is also a critical issue for investors

Source:, AXA Real Estate Research

3%+

2-3%

1-2%

Paris

Hamburg

FrankfurtDartford/TilburyHeathrow

Amsterdam

RotterdamAntwerp

World Trade growth

-20

-15

-10

-5

0

5

10

15

20

Q4

1992

Q4

1993

Q4

1994

Q4

1995

Q4

1996

Q4

1997

Q4

1998

Q4

1999

Q4

2000

Q4

2001

Q4

2002

Q4

2003

Q4

2004

Q4

2005

Q4

2006

Q4

2007

Q4

2008

Q4

2009

Q4

2010

Q4

2011

Q4

2012

Source: Datastream, Capital Economics

% YoY Logistics rental value growth forecasts 2011-2013 p.a.

6

Regional outlook: In this cycle, disparities will be meaningful

Oslo is positioned for strong bounce back in rental values Offices and retail in Stockholm will experience strong demand for spaceWarsaw offices will lead emerging central Europe, with low vacancies

The Paris CBD has meaningfully moved to La DefensePeripheral La Defense sub-markets will benefit, offering low rents combined with large floor platesPrime London offices are in short supply in the near term

Lisbon, Barcelona and Milan office markets are suffering from supply overhangs in new office locations

Shopping centre landlords are reducing contractual rents to ensure high occupancy

The Struggling

The Challenged

The Good

7

Investment outlook: increased risk aversion

Banking crisis

Great RecessionLeverage boom9/11

Dot-com collapse

Sub-prime crisis

Sovereigndebt crisis

State Street Investor Confidence Indicator

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Trendline

100

Con

fiden

ce

Increasing Risk Aversion

8

Investment strategy

Increase exposure to office– Very cyclical, and will respond sharply in ‘recovery’ phase– Main economic centres benefit from specialisation and critical mass– Developments defer leasing risk to a better time

Cautious exposure to retail– Growth in consumption will be lower over next few years– Consumers will become even more price sensitive – squeezing retailer profits– Exception: upmarket retailer locations (fashion, jewellers, etc)– Some markets will no longer be ‘institutional’ quality

Delayed investment in industrial– Until logistics surplus stock is absorbed by late 2011– Exception: light industrial near main population centres (quasi-office/retail)

Limit exposure to southern Europe– The current situation is accelerating the required economic restructuring– Currency risk is real

Exceptions– long, secure income (applies to all sectors)– major city developments and selective opportunistic deals in CEE

9

Paris: office development

Paris – La Defense submarket

• Office development: 36,000 sq m

• Total cost: circa EUR200m

• Peripheral Paris office location – taking advantage of relocation of occupiers from the CBD

10

City of London: office development

City of London prime office

• Office development: circa 200,000 sq ft

• Total cost: circa GBP150m

• Strong rental value growth in City market as demand exceeds supply between 2010-2013

11

Paris: office refurbishment

Paris prime office in CBD

• Office refurbishment: 23,000 sq m

• Total cost: circa EUR300m

• Excellent location, asset management and refurbishment opportunity

Triangle D’or

©2010 Google - Map data ©2010 Tele Atlas

12

UK: stable income

Distribution warehouse, Bristol, UK

• Distribution warehouse: 330,000 sq ft

• Total cost: GBP33m

• Fully leased to Sainsbury on a 13 year lease

13

Switzerland: stable income

Large residential portfolio

• 155 residential properties with a total of 2,550 apartments

• Total cost: EUR478m

• Stable income with some growth

• Current vacancy rate 5%

SPR/IPF European Property Outlook Seminar

Dennis G. LopezGlobal Chief Investment Officer

AXA Real Estate

19th October 2010

15

Important notice

Restrictions on useThis document has been prepared for discussion purposes with prospective investors and does not constitute an offer or solicitation, nor is it the basis for any contract, for the purchase or sale of any investment. It may not be copied or circulated, in whole or in part, without the prior written consent of AXA Real Estate Investment Managers. Analysis and conclusions express the views of AXA Real Estate Investment Managers and may be subject to change without notice. It shall not be deemed to constitute investment advice and should not be relied upon as the basis for a decision to enter into a transaction or as the basis for an investment decision. Subscriptions to funds are accepted only from eligible investors on the basis of the relevant current prospectus or Information Memorandum.

Risk warningsThe value of investments may fall as well as rise. Past performance is not necessarily indicative of future returns. Target returns are not guaranteed. Property investments can be illiquid and there is no guarantee that properties can be sold at valuation levels. Investments may be subject to gearing and should be considered higher risk than a similar ungeared investment. Investment returns may be subject to foreign currency exchange risks.

Responsibility and Regulatory approvalThis document has been prepared and issued by AXA Real Estate Investment Managers Limited, 7 Newgate Street, London EC1A 7NX. It has been approved for the purposes of Section 21 of the UK Financial Services and Markets Act 2000 by AXA Investment Managers GS Ltd, which is regulated by the Financial Services Authority.

SourcesThe information and data used in this presentation has been sourced from a number of recognised industry providers. We believe it to be accurate and have taken reasonable care to confirm this but cannot offer a guarantee that this is the case. Details of these source are available on request.

© 2010 AXA Real Estate Investment Managers and its Affiliated Companies. All rights reserved.