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Morgan Stanley Real Estate
Real Estate Capital Markets
16 June 2009
 
Capital Market Themes
2
Although credit markets have improved, they remain structurally impaired and selectiveBanking system’s capacity to provide capital appears to be decreasingTALF-related promise in the securitization markets yet to be fully realizedPreference for higher quality names and more defensive sectorsAs such, balance sheet focus and liquidity remain the biggest areas of investor focusFundamentals are assumed to be badTransaction activity around the balance sheet de-risking / repair themeTransformational and across all asset typesGlobal theme across sectors (real estate, auto parts, basic materials, utilities, etc)Select issuers raising opportunistic capitalInvestors are rewarding proactive capital raising in the face ofuncertain environmentStocks responding positively to issuances at historically low pricesWhat is dilution?Beyond the equity markets, both the convertible and public bond markets are showing positive signsConvertible market driven by fundamental interest at more normalized pricing (“best way to play therebound”)Straight debt market, both IG and HY, open at market clearing yields despite recent pullback 
 
Government Action Mending the Markets?
3Public equity markets tradingup significantly since Marchlows –S&P500 is up 36% from alow on March 9
th
Short interest has increasedsubstantially through thedownturnGovernment asset resolutionprograms are starting to havean impact–helping to re-openthe investment grade creditmarkets –Issuance volumes improvingsince December –Credit spreads have declinedmaterially since March
22.927.421.564.170.268.431.990.619.317.318.612.595.567.827.066.227.70255075100125150
Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09Monthly Corporate IssuanceMonthly Govt. Guaranteed Issuance
U.S. Investment Grade New Issue Volume
$Bn
Sources
Morgan Stanley, Bloomberg, through 11 June 2009
100250400550700Oct-08 Nov-08 Jan-09 Mar-09 May-09 Jun-09
U.S. Investment Credit and High Vol Indices
bps
Sources
FactSet, through 11 June 2009
HVOL 399 bps downfrom recent peak
(1)
IG 136 bps downfrom recent peak
(1)
Note
1.Most recent highs were 682 and 263 for the HVOL and IG, respectively
Public Equity and Credit Markets Show Signs of Life
26.016.93.318.655.319.70.06.11.22.13.71.72.63.60.80.00.10.30.30.8
01530456075Oct Nov Dec Jan Feb Mar Apr May June(40)(30)(20)(10)010FOCONV IPO S&P 500
0.5
U.S. Public Equity Markets
Issuance Since October 2008 Change from October 2008$Bn%
Sources
Morgan Stanley Research, FactSet, through 11 June 2009
3.253.754.254.755.255.756.25Feb-07 Jul-07 Nov-07 Mar-08 Aug-08 Jan-09 May-09
Short Interest in S&P500
Since February 2007% of Float
Source
FactSet, Bloomberg
5.0%
(3.4)%
 
Monthly CorporateIssuanceMonthly Govt.Guaranteed Issuance

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