MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JUNE 20, 2023 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Treasurer Kelly Strickland, Trustee Robert Reardon, Trustee Barry Keeler, and Trustee Jan Thornburg. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Secretary Shayla Griggs 1. CALL MEETING TO ORDER: Chair Chapdelain called the General Employees' Pension Plan (Plan) Board of Trustees Regular meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Chair Chapdelain stated for the record, "We may disagree, but we will always be respectful to one another. We will direct all comments to issues, and we will avoid personal attacks." 4. ROLL CALL: Pension Plans Administrator Martin called roll. Secretary Griggs was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees Pension Plan Board Regular Meeting of May 8, 2023. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Regular Meeting of May 8, 2023; Trustee Reardon seconded the motion. The motion passed unanimously (6-0). 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Debra Martin, Pension Plans Administrator. Trustee Thornburg nominated Ryan Chapdelain to be re-appointed to his position as Board Chair; Treasurer Strickland seconded the nomination. The Board unanimously re-elected Ryan Chapdelain as Chair (6-0). Book 1 Page 384 06-20-2023 10:00 a.m. Book 1 Page 385 06-20-2023 10:00 a.m. 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Debra Martin, Pension Plans Administrator. Trustee Keeler nominated Mark Nicholas to be re-appointed to his position as Board Vice Chair; Trustee Reardon seconded the nomination. The Board unanimously re-elected Mark Nicholas as Vice Chair (6-0). 8. APPROVAL OF RETIREMENT REQUEST/S): 8.1. Presentation and Discussion: Vested, Deferred Retirement Request of Christopher Dolan. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised Mr. Dolan had separated from service on December 22, 2004, with 10.05 years of credited service; her requests to retire effective May 1, 2023, and selected the lifetime only option. Trustee Keeler made a motion to approve Christopher Dolan's request to retire effective May 1, 2023; Vice Chair Nicholas seconded the motion. The motion passed unanimously (6-0). 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: AEW, Investment Performance Review as of March 31, 2023. Presenter(s): Stephen Reissfelder, Director of Finance; Emily Margolis, Director, Investor Relations; AEW (telephonic). Emily Margolis and Stephen Reissfelder appeared before the Board telephonically and introduced themselves. Ms. Margolis discussed the Plan's investment history with AEW and noted the current Net Asset Value is $9.3 million, the net Internal Rate of Return since inception is 7.7%, has a 1.7 equity multiple, and the dividend yield since inception is 3.6%. There have been no changes to the investment team. Mr. Reissfelder reviewed the Portfolio Overview and explained that as a core portfolio, the held properties are high quality, in desirable locations, well-leased, and generate durable income. The portfolio's occupancy rate is 300 basis points above its benchmark, the NFI-ODCE, and the portfolio size allows for healthy diversification while allowing the investment team to make meaningful and timely allocation changes in response to market conditions. AEW expects the industrial and residential sectors to outperform and office space to underperform; it has positioned the portfolio accordingly. Mr. Reissfelder discussed the page titled 3-Year Outperformance Driven by Strong Allocation and Selection, noting Q4 2022 and Q1 2023 are the first consecutive quarters of negative returns resulting from valuation declines in the portfolio. He asserted AEW had predicted some of the structural trends and changes in the market which were accelerated by the COVID-19 pandemic, and it had positioned the portfolio appropriately as evidenced by the 3-year performance. On the page titled, Meaningful Valuation Changes from Peak, Mr. Reissfelder explained that, with the exception of the retail sector which had already been experiencing significant headwinds, the peaks in each respective sector occurred during 2022; downward pressure on values has continued in Q2 2023. He reviewed the Diversified Portfolio page and explained the portfolio is intentionally overweighted in the west and south as the highest growth is anticipated to be in those regions. Regarding its underweight in the residential sector, Mr. Reissfelder explained that AEW has been selling its multi-family properties due to the lack of Net Operating Income, (NOI)growth, but that its long-term goal is to be overweight in that sector. He reviewed the portfolio's regional positioning as stated on the page titled Portfolio Positioning Drive Performance and portfolio activity as outlined on the page titled Improved Portfolio Construction Through Transaction Activity in 2022; Mr. Reissfelder characterized AEW as a disciplined seller. He reviewed the Non- Core Investments page, and noted that, although the portfolio may have up to 15% non-core investments, which are typically new construction projects, the portfolio currently has approximately 6% due to high construction costs. Mr. Reissfelder reviewed the page titled Projected NOI Growth; AEW projects moderated but strong growth, being led by the industrial and residential sectors. He noted that the short-term projections are based on existing contracts and therefore secure. He discussed Fund Operations Leasing and Fund Operations. AEW sees very strong mark-to-market rent growth, especially in the industrial sector, which occurs as leases expire and are renewed at current market values. He pointed to the chart titled Rollover Exposure and noted that the majority of the exposure is within the industrial sector. He reiterated the portfolio's high occupancy rate and pointed out that its 93% occupancy and 6.2 year weighted-average lease term in the Office space is a comfort considering the anticipated challenges for that space. On the page titled Debt Profile, Mr. Reissfelder noted that, because this is a core strategy, it maintains a lower rate of leverage; although the Weighted Average Interest Rate is rising, it is still relatively low. He added that less than 20% of the debt has variable interest rates; the remainder of the portfolio has fixed interest rates, which provides insulation from rising interest rates. He added that there are no investors in AEW's entrance queue, as they appear to be waiting for valuations to stabilize. AEW has an approximate $1 billion redemption queue; while it is making quarterly payments and intends to continue, transaction markets have been quiet. He asserted that AEW will continue to make redemption payments as long as it can appropriately manage assets. To the page titled Resilience Commitment, Mr. Reissfelder asserted AEW is committed to sustainable and prudent investing where possible. To Trustee Reardon's question, Mr. Reissfelder explained the footnote which states, "Excludes one-time accounting adjustment." AEW owns a retail property which pays local sales taxes based on sales forecasts; because the actual sales were less than the forecasts due to the COVID-19, AEW has been receiving a reimbursement of a portion of the overpaid taxes based on the actual sales, which AEW had already written off. The reimbursement lowers the NOI, and as such, AEW: adjusted the accounting sO that the property's NOI could be compared to those of similar properties. When including it, the 14.8% NOI stated on that page of the materials is reduced to 9.7%. To Trustee Reardon's question, Mr. Reissfelder and Ms. Margolis stated that AEW has found some family- operated business which have bought office properties, however it has had many office sales. That notwithstanding, AEW will not sell strategic assets to satisfy redemption requests as would adversely impact the portfolio's performance. Each year, AEW targets non-strategic assets which are not positioned to have strong income growth or are older industrial properties which are less functional to liquidate. He noted that all of the redemption requests were due to rebalancing needs and were partial redemptions. Further, some investors have already rescinded their redemption requests. AEW expects an increase in redemption requests over the coming quarters. To Trustee Reardon's question, Mr. Reissfelder and Ms. Margolis clarified that the bottom section of the Loan Maturities chart only presents loans which mature over the next 3 years, while the top represents all financing on all properties in the portfolio. Mr. Reissfelder noted that a sizable portion of the portfolio is unleveraged. To Trustee Reardon's question, Mr. Reissfelder explained that the portfolio has no single-family rental properties, and that all of the residential properties are multi-family apartment buildings. Theodore Loew of Graystone Consulting appeared before the Board and introduced himself. Mr. Loew asked AEW to comment on how the real estate market may be affected by the anticipated rising interest rates and volume of commercial debt which will require refinancing over the next 12 months. Mr. Reissfelder asserted the most important factor going forward will be interest rate stability; when rates stabilize, companies will be better able to predict future costs, and in turn make better decisions. Although the Federal Reserve (Fed) has paused short-term interest rate hikes, the market generally expects rate hikes to resume in the near future. As interest rates stabilize, there will be more investor confidence in the transaction and debt markets. Mr. Reissfelder assured the Board that the portfolio's low leverage and high-quality properties gives AEW confidence they will be able to secure reasonable financing when necessary. He added that the ability to deliver income growth compared to the cost of capital will be critical going forward. Book 1 Page 386 06-20-2023 10:00 a.m. Book 1 Page 387 06-20-2023 10:00 a.m. Attorney Christiansen asked Mr. Loew and Mr. Reissfelder to discuss the recent Florida legislation prohibiting public sector institutional investors, and other organizations, from considering nonpecuniary factors when making investment decisions. Mr. Loew noted that investing in companies which seek responsible Environmental, Social, and/or Governance (ESG) practices has become popular, and fund managers have responded by obtaining ESG ratings of their portfolio; however, the legislation prohibits institutions from making investment decisions based on ESG factors, and that, as long as fund managers only consider risk and return when making make investment decisions, and then obtain ESG ratings after, they will not run afoul of the law. Mr. Reissfelder agreed; he asserted that AEW respects its responsibility as a fiduciary and that pertormance is the most important consideration when evaluating investments. While AEW will look at whether or how an investment may be affected by ESG factors, ESG itself is not a guiding principle. The Board thanked AEW for their presentation. 9.2. Presentation and Discussion Re: UBS, Investment Performance Review as of March 31, 2023. Presenter(s): Julie L. Pierro, Executive Director, Real Estate Investment Specialist, Portfolio & Client Services RE-US, Real Estate & Private Markets, US Real Estate, UBS. Julie Pierro of UBS appeared before the Board and introduced herself. Referencing UBS's acquisition of Credit Suisse, Ms. Pierro noted the closing date was June 12, 2023; she does not anticipate any significant impact to the strategy as Credit Suisse did not have a sizable US real estate portfolio. There have been no changes in the management team or strategy; UBS remains the legal entity with which the Plan has a contract. Turning to the page titled Trumbull Property Fund Investment Results, Ms. Pierro asserted that real estate fundamentals remain strong with high occupancy rates in the Industrial, Multi-family, and Retail spaces; occupancy in the Office sector is at it's lowest in the last 30 years which may indicate a market slowdown. UBS anticipates a mild recession due to the lack of liquidity and interest rate volatility. When interest rates stabilize, UBS expects more transactions to occur; there is approximately $1.5 trillion in commercial real estate debt which will mature in the next few years and will result in a more active transaction market. UBS seeks to increase its positions in industrial, multi-family, and life science sectors. Ms. Pierro briefly reviewed the Trumbull Property Fund highlights page and reminded the Board it is a core fund. She advised that UBS has increased its leverage policy to match the NFI-ODCE benchmark more closely, and it anticipates leveraging more assets when interest rates moderate or decline. She discussed the Stralegy/Charactensics and advised that while ESG guidelines can be a component of best practices, this is a performance fund and ESG guidelines do not drive the strategy. She discussed the TPF Diversified Core & Non-Strategic page and explained how UBS restructured the fund in 2020; she added that the number of Non- Strategic investments is 3 or 4 as of June 20, 2023. Ms. Pierro discussed the Portfolio positioning and explained this strategy has had a preference for multi-family apartments due to their predictable cash-fiows and costs, and flexibility due to shorter-term leases; the portfolio typically holds an overweighted position in this sector. UBS will likely reduce its exposure to central business district residential projects in favor of garden apartment style projects in suburban areas, as well as sell off its in-land Industrial properties in favor of coastal Industrial properties. UBS is also expanding its cold-storage property holdings used in the food industry which will likely become more in demand as services such as Instacart transport groceries directly from cold storage to customers' homes. In the Office/Life Science space, UBS anticipates getting to a 50%/50% balance; it currently has more traditional Office space than Life Science. UBS has sold off its underperforming Retail assets, and it looks to increase that allocation to approximately 10% over time by adding neighborhood grocery store-anchored, community centers. To Vice Chair Nicholas's question, Ms. Pierro pointed to the page titled Niche Strategies: CambridgeSide Life Sciences and explained that Life Science properties are those which support laboratory operations. Because that industry has specialized needs, Life Science companies experience higher costs to relocate. Returning to the Portfolio positioning page, Ms. Pierro explained that the Other category is self-storage, which currently comprises less than .5% of the portfolio, but UBS intends to increase that to 5% over time. Ms. Pierro reviewed the TPF performance VS. NFI-ODCE. Over the long term, core real estate should return between 6% and 8%, and in 2020, the portfolio saw up to +20% returns. UBS believes it is now experiencing the bottom of a market cycle as valuations begin to improve in 2Q2023; she noted that the -7.1% return in 1Q2023 was 83 basis points of income and offset by depreciation. Discount and exit cap rate metrics which appraisers use in valuations have had a significant impact on the market. On the page titled TPF sector strategies, Ms. Pierro reviewed the Property type allocation and noted it has significantly decreased its Retail and Office allocations which have underperformed in reçent years. On the page titled Leverage, Ms. Pierro explained that the portfolio had a significant amount of maturing debt in 2023. Some non-strategic Office properties have maturing debt over the next year; UBS can and wil extend that debt while the Office market normalizes SO that UBS may eventually sell the properties. Vice Chair Nicholas asked Ms. Pierro to clarify the difference between the Self Storage allocation shown on the Property type in 1Q2023 graph on page 22 and Other category in the Sector allocation targets on page 20; Ms. Pierro stated that .5% of the portfolio is Self Storage, which does not appear on the Sector allocation targets graph, and that the grey bar is the ODCE benchmark. Ms. Pierro discussed the TPF Sales program and explained that the drop in transactions from 3Q2020 - 3Q2022 to 4Q 2022 was a result of the Fed's increases in the short-term interest rate. UBS anticipates paying approximately $125 million in redemptions in July 2023, and more sales transactions to be completed as liquidity returns to the market. She reviewed Capital flows and advised that UBS will satisfy the redemption pool primarily through sales and supplemented with net operating income and new investments into the fund; she added that the strategy will not sell strategic assets to make redemption payments. To Trustee Reardon's questions, Ms. Pierro stated she would find out if UBS uses cell phone location data to understand real occupancy in the Office and Life Science spaces; similar technology had been used for tracking retail traffic. She will also find out who purchased the Office property in 1Q2023. She noted that current buyers tend to be either opportunistic or are attempting to renovate existing structures into other sectors, such as transforming an office property into a residential space. She added that the apartment building which was most recently sold was purchased by an ultra-high net worth family in search of a property for a 1031 tax exchange. Ms. Pierro concluded her presentation by discussing the TPF fee program. The Board thanked Ms. Pierro for her presentation. 10. UNFINISHED BUSINESS: None. 11. NEW BUSINESS: None. 12. ATTORNEY MATTERS: To Attorney Christiansen's request, Pension Plans Administrator Martin explained that Pension Administration requested nominations from active members for Trustee Thornburg's seat, the term for which ends June 30, 2023; Pension Administration received only 1 nomination which was from Trustee Thornburg. Attorney Christiansen advised that Trustee Thornburg retains her seat through acclamation. Attorney Christiansen reminded the Board that Trustees must file Form 1 for 2022 by July 1, 2023. In response to the passage of the Secure Act 2.0. and based on an Internal Revenue Service form, Attorney Christiansen updated form PF-15, which participants completes to elect how they wish to receive their distribution for the purposes of tax withholdings. 12.1. Presentation and Discussion Re: Ordinance Amending Pension Plan. Book 1 Page 388 06-20-2023 10:00 a.m. Book 1 Page 389 06-20-2023 10:00 a.m. Presenter(s): Scott Christiansen, Christiansen & Dehner, P.A. The Board had no questions regarding the content of the proposed ordinance. Chair Chapdelain requested the proposed ordinance be presented to the City Commission at the same time the proposed ordinance amending the Police Officers' Pension Plan will be presented, as these both address the same issues. Pension Plans Administrator Martin advised she would follow up with the City Auditor and Clerk regarding the matter. Trustee Keeler made a motion to approve the proposed ordinance amending the Plan; Trustee Thornburg seconded the motion. The motion passed unanimously (6-0). Attorney Christiansen noted the Board will need to update its Investment Policy Statement to reflect changes in Florida law regarding ESG. 13. OTHER MATTERS: 13.1. Presentation and Discussion Re: Administrative Budget Analysis for the Period January 1, 2023 through March 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Administrative Budget Analysis; items at 0% or 100% expended are due to the timing of the payments made. Pension Administration may request an adjustment for salaries due to the City of Sarasota's wage increase made after the Board approved the current budget. 13.2. Presentation and Discussion Re: Check Register for the Period January 1, 2023 through March 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Check Register. The payment to Charles Schwab is a DROP payment rollover. Payments made to the Police Officers' Pension Plan and Firefighters' Pension Plan are reimbursements of shared expenses for items such as software or her or City Auditor and Clerk Griggs' attendance at the FPPTA conference. Chair Chapdelain asked if payments to the City's other pension plans, or payments to trustees could include a brief description to clarify the payment was for Plan expenses and did not appear to be a payment for services. 13.3. Presentation and Discussion Re: Asset Allocation as of June 12, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation for the Board's information. 14. ADJOURN. Chair Chapdelain adjourned the meeting at 11:15 a.m. . <Z h Chair Ryan Chapdelain Sécretary, Shayla Griggs