IN THE SECOND QUARTER, MEPT (the “Fund”) continued to post strong, consistent performance with a total gross return of 1.78% (1.58%, net of fees).The Fund’s 1-year total return stands at 7.00% (6.08%, net of fees), the 3-year return is 8.59% (7.65%, net of fees), and the 5-year return is 10.55% (9.58%, net of fees). MEPT’s performance in the 5-year timeframe is competitive with the ODCE peer group, demonstrating the success of the Fund’s strategy over longer timeframes. The Fund’s recent performance, which is competitive with the peer group, is consistent with a strong, core strategy late in an economic cycle. We have conviction in our approach and will maintain a core investment discipline with the following key features:
Over-allocation to Primary Markets
- Over-allocation to industrial, multifamily and CBD office assets
- Limited or no exposure to non-traditional asset classes such as senior housing, student housing, self-storage, hotels and data centers
During the second quarter, MEPT’s performance was driven by its high-quality industrial portfolio, which provided the majority of Fund appreciation. Other key drivers of appreciation were debt mark-to-market and positive leasing activity in select CBD office assets in Primary Markets. In particular, MEPT’s Seaport District office portfolio in Boston continues to be a relative strength.
To optimize performance for the current stage of the market cycle, we are working to implement the following tactical adjustments while prudently managing risk:
Maintain overweight to multifamily while diversifying beyond primary market urban high-rise
- Reduce office overweight while increasing allocation to medical office
- Increase industrial overweight while maintaining pricing discipline
- Maintain significant underweight (half-weight) to retail
Increase exposure to structured debt and equity investments for development projects
MEPT’s target performance range for 2018 remains 6.0% to 8.0% (5.0% to 7.0%, net of fees). MEPT, and core private equity real estate in general, will continue to offer attractive relative returns as continued economic growth – driven by the 2017 tax plan, strong corporate balance sheets, and low unemployment – extends the current economic cycle. Potential headwinds exist though; they include the U.S. nearing full employment, political uncertainty regarding economic and foreign policy, and the expectation of rising rates leading to higher borrowing costs. We believe the core construction of our portfolio will provide relative outperformance during periods of market correction. We appreciate your continued confidence in our stewardship of your capital.