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Barings is one of the world’s largest diversified real estate investment managers, with more than $45 billion AUM* and 180 real estate clients worldwide . The Barings Real Estate (BRE) team offers a broad range of investment opportunities globally across the private debt and equity markets. BRE Europe has a team of 72 professionals, 9 offices across Europe and manages in excess of €6.8 billion of real estate assets.* The team invests across all major property sectors, with a focus on global relative value and preferred strategies driven by our in-house proprietary research group. Barings’ distinctive investment style is executed by local teams and enables us to seek to deliver compelling returns to our investors.

*As at September 30, 2020.

Our competitive advantages:

Depth of Team — The BRE team consists of over 290 investment professionals across debt and equity spanning the entire investment process. In-house acquisitions and origination, investment management, asset management, portfolio management, research and analytics, risk management, capital markets—as well as specialty roles such as engineering, tax and legal—ensure continuous collaboration throughout each investment’s life.

Sourcing Capabilities — Locally embedded teams enhance market connectivity through their strong networks of property owners, institutional investors, developers and banks. This connectivity provides robust volume and access to attractive on-market and rare off-market deal flow.

Focus on Asset Management — BRE has a fully integrated asset management team and unlocks value through active management, regardless of investment style. Asset Managers are sector specialists and regionally dispersed to best understand the nuances of each individual asset’s demands.

Global Platform — BRE invests around the globe, in 11 countries, managed by 25 local offices. BRE’s equity, debt, private and public real estate capabilities are designed to promote constant market participation—uncovering the interconnectivity between markets, economies and cycles, with the objective of making better informed decisions on behalf of our clients.

Cycle-Tested Approach — BRE’s long track record of investing across multiple cycles, the risk spectrum and geographies creates the experience necessary to understand how real estate responds to changing conditions.

Diversified Solutions — BRE strives to be a strategic partner to our investors, and tailors solutions to each client’s goals and objectives. The platform offers investment solutions through funds, separate accounts and joint ventures. Solutions can include independent or multi-asset portfolios across BRE equity and debt, Barings Alternative Investments and Barings Fixed Income and Equity.

Parent Company Stability — As part of MassMutual, BRE has the financial stability and flexibility to take a long-term approach. This support is illustrated by its long-standing investment management mandate for MassMutual’s General Investment Account, and its ongoing support for existing and new products.

*As of June 30, 2020. Barings Real Estate is a part of Barings LLC, a Registered Investment Adviser.

Sector Forecasts

Industrial: In the near term, the broad weakness in the economy will translate into lower demand for industrial space, with some e-commerce companies likely being the exception. Discretionary spending is down, and global trade has fallen sharply. However, the manufacturing sector is showing encouraging signs of recovery from its deep plunge. China’s manufacturing PMI has been in expansion territory (above 50) for two consecutive months (May and June), and the ISM manufacturing PMI for the U.S. posted a bigger-than-expected bounce to 52.6 in June. The national availability rate for the industrial sector ticked up 10 basis points (bps) in the first quarter from its multi-year low, and demand pulled back sharply. Despite the weaker absorption, nearly half of the 63 markets covered by CBRE-EA reported either no change or a further decline in availability. Of the markets that reported an increase in the first quarter, most were secondary or tertiary industrial markets with a majority still reporting an availability rate below the last cycle’s trough. Over the medium term, we expect that tenants may shift to carrying higher levels of inventory and more companies will consider “near-shoring” some production capacity to gain control over their supply chains while the structural tailwinds of e-commerce will boost demand for the property type over the long run.

Office: Over the near term, much of the office sector should be fairly insulated from the impact of the COVID-19 pandemic due to long-term lease contracts already in place. However, we expect to see a demand pullback affecting new leasing over the next few quarters as companies reassess their space needs post-COVID-19. The coworking sub-sector is especially at risk over the near term due to short-term leases and non-credit tenants—but Class B/C buildings, whose tenants are more likely to include small and medium-sized businesses, also face increased risk in the near term. Office vacancy increased 20 bps in the first quarter, the largest quarterly increase since the recovery took hold in 2010. In a similar vein, demand reported the sharpest decline, falling to the lowest level in seven years. Class A office reported a slightly larger vacancy increase than Class B/C product, while downtown submarkets softened more than suburban nodes. Gateway and tech markets reported a modest increase in vacancy with the exception of New York, Chicago, Seattle, and San Jose—which during the first quarter saw either no change or a modest decline in vacancy year over year. Longer term, we expect technology will accelerate demand disruption in the office sector due to further increases in bandwidth, the rising adoption of online meetings, employer flexibility and changing workplace attitudes.

Apartments: The apartment sector has been fairly resilient since the pandemic shut down the economy and stay-at-home mandates kept workers home. While occupancies have held up well, the sector in the near term faces the prospect of rising vacancies and falling rents due to staggering job losses and double-digit unemployment that is likely to persist, as well as a supply pipeline that was already running ahead of demand before the pandemic. The impact on cash flows is expected to be more pronounced in the Class B/C segment of the market, where a larger share of tenants is employed in the services sector. The supply pipeline poses a potential risk to the Class A segment of the market in metros where significant deliveries are expected in 2020. The apartment sector reported a 40 bps year-over-year drop in vacancy in the first quarter. However, we expect COVID-19 related stress to challenge occupancy and rents in the second quarter. More than 80% of the 66 markets covered by CBRE-EA reported either no change or a year-over-year decline in availability in the first quarter. Of the handful of markets that reported an increase, most were second-tier cities. In the long run, structural tailwinds—including high homeownership costs and constrained access to credit—will continue to support the favorable demand outlook for apartments.

Retail: Retail sales data in May shows that consumers are still focused on basics, a trend that began in March with the lockdown restrictions and consequent job losses. Indeed, year-over-year clothing and accessories sales dropped by 63%, while grocery store sales recorded double-digit growth. In the near-term, we expect this growth in necessity-based spending will provide support to grocery-anchored centers; however, closures of smaller inline stores will impact cash flows. Neighborhood, community, and strip centers reported a modest 10 bps increase in availability in the first quarter, but the brunt of the impact may be revealed in the second quarter. As was the case with other property types, demand pulled back sharply in the first quarter, causing net absorption to slip into negative territory for the first time since 2017. Longer term, the current disruption will likely accelerate online grocery shopping penetration and may result in a reconfiguration of space within grocery stores rather than an elimination of the physical footprint. Necessity-based centers in strong trade areas will still benefit from household and business spending in the catchment area.

Hotel: While it is far too early to determine the duration of the COVID-19 impact on the lodging sector, the current damage being done to the sector is crippling. RevPAR dropped precipitously at the beginning of March when concerns about coronavirus spread throughout the U.S. Major gateway markets were hit hardest and have continued to lag more regional focused lodging markets as international travel remains incredibly muted and consumers avoid densely populated markets. We have begun to see a very gradual rebound in performance, as certain states have started to open up and the summer months have led to gradually increased travel, boosting hotel occupancies. In the near term, we expect major markets with international travel exposure to lag drive-to vacation markets, as rebounding international travel will be slow. Longer term, the pandemic will likely reduce the need for business-related travel, as tele-meeting technology has begun to be widely embraced. Convention and conference activity could be hurt by consumer preferences shifting away from attending large gatherings.

Investment principles & strategy

Barings maintains an absolute commitment to working with our clients to help them achieve their investment objectives, while remaining alert to the cyclical nature of real estate opportunities and the wisdom of balancing return potential with risk management.

Our Approach to Real Estate Investment

· We operate on a global platform. Our competencies cover a broad spectrum of real estate investment alternatives, comprising private real estate equity and debt across all major property sectors. Our breadth of capabilities allows us to respond accordingly to cyclical opportunities as they arise.

· Research is at the center of our investment decision-making, from formulating client-specific strategies across real estate, to tactical execution at the portfolio and asset levels. We apply fundamental research of global economics and the capital market forces that drive relative value.

· Real estate remains dominated by private market relationships and negotiated transactions. Our locally-based professionals bring years of cycle-tested experience, and our extensive history in real estate debt and equity markets provides a competitive advantage in accessing and negotiating transactions.

Strategic corporate development

BRE’s long-term strategic business plan represents a careful balance between the institutional appetite for real estate investment and the effective execution of prudent real estate investment and portfolio management strategies. Growth initiatives are undertaken as supported by our proprietary research and focused investment strategies, as well as the resources, capacities and competencies of the firm. We have consistently and strategically served our clients and are prepared to grow the business as opportunities develop. As a subsidiary of MassMutual, Barings has the resources to develop and execute new strategies and products. Future growth of the platform will occur as strategic opportunities arise, and we intend to expand our investment offering in response to compelling opportunities and investor requirements.

Performance verification

Performance of each portfolio is measured against the relevant benchmark(s) that are the accepted standard(s) for each of the funds under management. All of our real estate managed funds are audited externally each year. Additional performance information is available upon request.

COMPLIANCE STATEMENT

Commentaries on the economy and financial markets contained herein are based on information believed to be reliable, although there can be no guarantee as to its accuracy. They reflect the current opinion of the firm, which is subject to change based on changes in the economy and financial markets, and access to and reliability of relevant data. The forecasts should not be relied upon as investment advice. Data as of June 30, 2020.

Supporting documents

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