Book 1 Page 385 10-25-2023 9:00 a.m. MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 25, 2023 Present: Vice Chair Charles Joseph, Secretary/Treasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Pedro Herrera (telephonic), Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Chair Michael Hartley 1. CALL MEETING TO ORDER: Presenter(s): Vice Chair. Joseph. Vice Chair Joseph called the Sarasota Firefighters' Pension Plan (Plan) Board of Trustees Regular meeting to order at 9.00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Vice Chair Joseph led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Vice Chair Joseph. Trustee Snow stated for the record, "We may disagree, but we will be respectful to one another. We will direct all comments to issues. We will not engage in personal attacks." 4. ROLL CALL: Pension Plans Administrator Martin called roll. Chair Hartley was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of September 27, 2023. Presenter(s): Vice Chair Joseph. Trustee Snow made a motion to approve the minutes of the September 27, 2023, regular meeting; Trustee Mushrush seconded the motion. The motion passed unanimously (4-0). 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: Cohen and Steers; Performance Review as of September 30, 2023. Presenter(s): Evan Serton, Senior Portfolio Specialist; Brian Casey, Senior Vice President; Cohen and Steers. Evan Serton and Brian Casey of Cohen and Steers appeared before the Board and introduced themselves. Mr. Casey advised there have been no changes to the investment team or strategy. The Global Infrastructure strategy is defensive and aims to provide downside protection with equity-like returns. The portfolio was down in 2022, but relatively outperformed global equities by 14%; 2023 has been more challenging as the portfolio is heavily weighted in utilities, which have underperformed. Cohen and Steers believes the sell-off in utilities is over and it has begun to add to that position. This strategy has, historically, performed well when interest rates are stable; Cohen and Steers expects the portfolio to outperform when the Federal Reserve ("Fed") ends its interest rate hikes. He noted that many of the companies in the portfolio have inflation protection built into their business models. Mr. Serton explained that the portfolio is comprised of publicly traded companies which own and collect fees on infrastructure assets. This allows for diversity and equity-like liquidity as owning infrastructure assets directly would take more time to buy and sell. Cohen and Steers invests in utilities, transportation companies, which are companies which operate in airports, communication companies which own cell towers, and midstream-energy companies which store and transport energy. Turning to the page of the materials titled Significant subsector dispersion in 2023, Mr. Serton explained why global infrastructure outperformed global equities and global fixed income in 2022. In 2023, both in the 3rd quarter and year-to-date, global infrastructure trailed global equities due to the outperformance of select tech funds and trailed global fixed income funds due to rising interest rates. The infrastructure subsectors which are most sensitive to interest rates performed the worst in 2023. Mr. Casey reviewed the Cashflow Summary and Portfolio pages. Mr. Serton discussed the page titled Global Listed Infrastructure Performance, noting the portfolio closely matched or outpaced the benchmark. Although utilities, which is the portfolio's largest allocation, were negatively impacted by rising interest rates, Cohen and Steers has confidence in the class because utility regulators will eventually allow utility companies to pass on to consumers the higher costs caused by higher interest rates. Cohen and Steers believes that domestic inflation will remain near 3% for an extended time which could create, inflation surprises," where the actual rate of inflation exceeds the forecasted rate. During inflation surprise periods, utilities will outperform traditional equities and bonds, as evidenced by the information on the page titled, Greater inflation sensitivity given pricing mechanisms. In this context, holding utilities during a period of prolonged inflation is a strategic positioning which is expected to benefit the portfolio. Regarding the page titled Infrastructure has historically shown resilience after interest rate increases, Mr. Serton explained that interest rate-sensitive infrastructure stocks will first lag then outperform, and the portfolio is positioned accordingly. Turning to the page titled Global listed infrastructure portfolio weights, Mr. Serton reviewed the portfolio geographic and sub-sector allocations. The largest allocation, in both the portfolio and index, is Electric utilities which has contributed to the fund's underperformance this year, but also created investment opportunities. The portfolio does not have any stocks which were exposed to the recent fires in Hawaii; Cohen and Steers incorporates exposure to natural disasters in its stock-picking decision. Cohen and Steers has also added to its allocation to cell tower companies as demand will only increase at this point; it is more cautious in the freight rails subsector as growth has lagged. To Trustee Snow's question, Mr. Serton and Mr. Casey explained that the portfolio's annual dividend yield is approximately 3.5%; it is slightly lower than the benchmark because the portfolio is more biased towards growth companies which pay less dividends. To Vice Chair Joseph's question, Mr. Serton advised there have been no changes to Cohen and Steers' strategy or processes. To' Vice Chair Joseph's question, Mr. Serton explained that domestic utility usage does not materially fluctuate as rates change, although there may be some mitigation of usage on the industrial side. Electricity consumption is not analogous to how gas prices affect discretionary travel. Mr. Casey and Mr. Serton explained that, although not expressly stated in the materials, the single greatest contributing subsector to the portfolio's performance in 2022 and 2023 has been its overweight in midstream energy, particularly those Book 1 Page 386 10-25-2023 9:00 a.m. Book 1 Page 387 10-25-2023 9:00 a.m. which distribute natural gas from the United States to other countries. The Board thanked Mr. Serton and Mr. Casey for their presentation. 7.2. Presentation and Discussion Re: UBS; Performance Review as of June 30, 2023. Presenter(s): Julie Pierro, Portfolio & Client Services RE-US, UBS. Julie Pierro of UBS appeared before the Board and introduced herself. Ms. Pierro provided a market summary. UBS believes a recession in Q4 2023 or Q1 2024 remains probable, and investors are cautious. The Fed Funds Rate remains at a 22-year high with a target range of 5.25% to 5.5%, and UBS expects the Consumer Price Index and rate of inflation to remain near 3%1 for the next several years, which could result in interest rates remaining elevated for a prolonged period as well. Consumer spending is supported by a tight labor market, and home equity and the stock market have risen, which are all positive indicators for the real estate market; negative indicators include slowing wage growth, decreased personal savings compared to pre-COVID-19 periods, and rising credit card balances. Commercial real estate transactions have been down significantly, and UBS does not anticipate any change through the end of the calendar year, which will affect valuations. Debt markets have slowed, which has caused liquidity constraints and challenges in refinancing properties. Excluding the office space sector, real estate fundamentals are positive; apartment and industrial occupancy rates are above 90%, and rents continue to increase when tenants change, albeit at a slower pace than previously. Office space occupancy, in the low 80% range, is the lowest in the last 30 years; Ms. Pierro noted that, anecdotally, UBS currently occupies 3 floors of its office building in Hartford, Connecticut, and will reduce that amount in 2024 to a single floor to accommodate the post-COVID working structure. UBS forecasts a recession by early 2024; the real estate market in general is experiencing a liquidity shortage as mortgage companies have become more reluctant to lend due to interest rate volatility, and incongruous expectations between buyers and sellers. Turning to the presentation materials, Ms. Pierro reviewed the page titled Trumbull Property Fund ("TPF") highlights; most of the data in the materials is as of June 30, 2023. Referring to the page titled TPF Diversified Core & Non-Strategic, Ms. Pierro provided a brief history of UBS's restructuring which began in 2020. As of the September 30, 2023, UBS has sold all but 2 properties from the Non-Strategic portfolio; 1 of the remaining properties is expected to sell in Q4 2023, and the remaining property, a small office in the Washington D.C. area, is approximately 0.333% of the total portfolio. UBS is in the process of performing its annual buy/sell analysis which will shape its plans for 2024. Ms. Pierro reviewed the Portfolio positioning. UBS prefers to overweight multi-family apartments due to their predictable capital flows. The total allocation to Industrials will remain relatively unchanged, although they are shifting their geographic presence towards coastal markets. UBS will bring its Office allocation down slightly; it aims to have approximately half of the Office allocation to be in Life Sciences and the remaining half to be in traditional office space. UBS and industry analysts assert the traditional Office sector will eventually rebound, and therefore it remains part of the long-term portfolio. UBS has sold off the regional malls from its Retail portfolio, and currently holds one mixed-use property; it is currently looking toi invest in grocery- and pharmacy- anchored spaces which survived the COVID-19 pandemic. The Other allocation is self-storage and is statistically insignificant. UBS will increase the allocation. To Trustee Mushrush's question, Ms. Pierro explained that life science properties are laboratories; the portfolio's premier life science holding is in Cambridge, Massachusetts, which is advantageous as it is near top tier academia. Ms. Pierro discussed the TPF's performance. In Q3 2023, the portfolio's return was -1.4% and the benchmark was estimated at -1.9%; the benchmark's final performance figures are expected within a few weeks. Market rents have grown except in the Office sector, which saw a near 10% decline due to properties in New York City, Seattle, and Portland. Retail and Storage were both down marginally. The TPF apartment portfolio has seen lease trade outs at approximately 6%, however 95% of the portfolio is leased and not a concern. The Property type allocation (%) graph on the page titled TPF sector strategies shows how the strategy has changed over the past 5 years when Paul Canning joined as the lead portfolio manager. She discussed the page titled Niche Strategies: CambridgeSide Life Sciences. She reviewed the Leverage page of the materials and explained that most of the portfolio's debt is fixed rate, and there are no walls of debt coming due in the near future. On the TPF sales program and Capital flows pages, Ms. Pierro discussed the redemption pool and how redemption payments have been made. She reviewed the TPF fee programs page, noting the Plan has participated since February 2020. The Plan's discount to date is $98,068.39; it made a top-up deposit in April 2022, with a top-up discount of $25,209.93. The Plan's current redemption will come from the top-up first and will continue to receive the base fee discount. This program will expire in 2024; the Plan may renew its participation; however, Ms. Pierro did not know how long the option to renew will be available. Trustee Snow asked Pension Plans Administrator Martin to ask Scott Owens of Graystone Consulting to discuss the fee program at his next appearance before the Board. Ms. Pierro discussed the Trumbull Property Income Fund ("TPI") page; as a participating mortgage fund the TPI may be unique to the market. The Participating mortgage structure page shows how UBS is the lender, and over the loan lifetime, it receives a monthly coupon rate and a portion of the monthly cashflow generated by the property. At loan maturity, UBS receives the loan balance back, a minimum yield requirement, and, if the property is sold, it shares the property value, typically equally, with the seller. The page titled Investment returns from participating mortgages, is an example of how income is derived in the TPI. To Trustee Snow's questions, Ms. Pierro discussed a borrower's options at loan maturity. UBS has many repeat borrowers under the TPI, and many seek to establish legacy businesses to be passed on to future generations or roll equity created by one transaction into a subsequent property. UBS retains first right of refusal on its properties; Ms. Pierro related an anecdote in which UBS bought a property from a borrower and generated more income than the seller thought possible. Although the coupon rate represents thei interest rate the borrower pays, the "All-In Rate," shown on the Investment pipeline opportunities page and includes appreciation and operating cash-flow sharing, represents the total potential income from each property. The graphs on the Advantages of participating mortgages page show the TPI can capture both the "first mortgage" and "mezzanine" layers of financing without significantly more risk. To' Vice Chair Joseph's question, Ms. Pierro explained that, if the TPI was the mezzanine financier in a property which was foreclosed upon, the first lienholder would receive payment first, although very few of these projects have gone into foreclosure, and UBS has confidence in its underwriting standards. To the TPI performance and TPI VS Hybrid Debt Index pages, Ms. Pierro noted the portfolio in Q3 2023 was approximately -2.6% while the benchmark was only -1.9%; underperformance was mainly due to a write-down on 3 apartment buildings and a retail investment. UBS believes the worst write-downs have occurred already. The portfolio objective is a 5% real rate of return over a 5-year cycle. Because there is no peer-group of participating mortgage funds, UBS created the Hybrid Debt Index ("HDI"), which is the Barclays US Aggregate Bond Index Yield plus 75% of the appreciation ofp properties in the Open-End Diversified Core Equity ("ODCE"). She discussed the TPI portfolio diversification, noting it holds no office properties as that sector does not work well with the strategy. UBS may add to its assets in the South and East regions. On the Risk-return profile versus NFI-ODCE funds page, she explained that the Competitor risk-return since Q1 2008 market peak graph shows the TPI generates more income with less risk than the benchmark or pure-equity portfolios. Book 1 Page 388 10-25-2023 9:00 a.m. Book 1 Page 389 10-25-2023 9:00 a.m. To Trustee Snow's questions, Ms. Pierro explained she has taken on the Plan's account on a permanent basis, and that many of her clients are also closed plans. The Board thanked Ms. Pierro for her presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. ATTORNEY MATTERS: Attorney Herrera appeared before the Board telephonically and reminded the Board that the recently passed Florida House Bill 3 will require biennial reporting beginning December 15, 2023. Pension attorneys across Florida collaborated to develop a report template, which he will forward, for Pension Administration to file through the State of Florida' s portal. He will also send a memorandum to distribute to the Plan's fund managers which have separately managed accounts and explains that proxy voting must be made on pecuniary factors; the memorandum does not need to be sent to comingled accounts. Attorney Herrera advised that Sugarman & Susskind recently hired Shauna Morris who was an attorney for the City of St. Petersburg. She was unable to attend today's meeting. 11. OTHER MATTERS: 11.1. Presentation and Discussion Re: Asset Allocation as of October 13, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of October 13, 2023. The Board had no questions. To Vice Chair Joseph' S question, Pension Plans Administrator Martin clarified that the withdrawal from Cohen and Steers was to rebalance the portfolio. To Trustee Snow's question, Pension Plans Administrator Martin explained that she would present an administrative budget analysis for fiscal year 2023 at the November 27, 2023, Board meeting. 12. ADJOURN. Vice Chair Joseph adjourned the meeting at 10:08 a.m. - A a Chair Michael Hartley SecréleryTregsyrer Shayla Griggy