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REITS – A Global Survey
Jan Dührkoop - IVG Real Estate
Islamic Real Estate Finance Middle East Workshop17 December 2005, Dubai
Seite 2
Agenda
Global comparison – what countries are creating REITs & how are these markets likely to develop.
What factors have influenced the strong performance of REITS globally?
What opportunities does the proliferation of the REITS market create – can fund flows be sustained?
How to improve diversification & benefit from structural change
IVG Real Estate Management
IVG Islamic Real Estate Funds
Seite 3
IVG-share: outperformerDevelopment due to REIT-discussion in Germany
Start of in-depth REIT-discussion IVG shareholder structure
Sal. Oppenheim 20 %
HSH Nordbank 5 %
Free float 75 %
2005 PerformanceIVG share 39%German MidCap index 29%EPRA total return 22%
Seite 4
Real Estate Investment Trust:Stock-listed real estate company with special tax-status
Characteristics for successful REITs: flexible and unregulated
Tax-optimal structure: Competitive taxation / attractive exit tax
Orientated to stock-markets with real estate underlyings
Differentiated from alternative indirect real estate products
Monitored by capital markets, not by investment act/banking authorities
High dividend yield: Payout-ratio > 80 %
High liquidity / high free float
No restrictions in shareholding
Sufficient funding possibilities / adequate depreciation
High transparency / efficient corporate governance
Convincing equity story
Seite 5
REITs: worldwide standard for indirect real estate investments
CountryREIT-introduction
market capitalization
CountryREIT-introduction
market capitalization
South Korea2001n/a
South Korea2001n/a
Japan2000
11 bn. €
Japan2000
11 bn. €
Hong Kong2003n/a
Hong Kong2003n/a
Australia1985
50 bn. $
Australia1985
50 bn. $
Singapore2002
3 bn. $
Singapore2002
3 bn. $
Netherlands1969
9 bn. €
Netherlands1969
9 bn. €
Belgium1985
3 bn. €
Belgium1985
3 bn. €
France2003
19 bn. €
France2003
19 bn. €
Canada1994
13 bn. $
Canada1994
13 bn. $
USA1960
324 bn. $
USA1960
324 bn. $
Source: Ernst & Young AGErnst & Young Real Estate GmbH
Seite 6
Real Estate markets: on-going professionalization
ShareholderValue
at-marketappraisals(IFRS)
scarceresourcesof publicbudgets
Propertiesbecome„performingassets“
Re-structuringof private and publicreal estate-portfolios
Increase of indirectreal estatevehicles
Marketsbecomemoreinternationalandprofessional
e.g.: TelCo, Railway, Fortune 500, PPPs(prison, infrastructure) R
EIT
Seite 7
Development US-REITs: Kick-off 1992
Source: NAREIT, Prudential
100
125
150
175
200
225
250 $250
$200
$150
$100
$50
$0
# REITsMarket capitalization
introductionUPREIT
1992
Market cap.in bn. US-$# REITs
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
UPREIT = Umbrella Partnership REIT
First tax-favourable
real estate-transfer
possibility with
UPREITs brought
tremendous capital-
influx to US-REITs
10/2
005
$300
Seite 8
Development of REITs globally
USA: US-REIT since 1960
Australia: "Listed Property Trust“(LPT) since 1985 (Ancestors from „Tax Assessment Act“ since 1936)
Japan: J-REIT since 2000
European REITs, e.g.:
Netherlands: “Fiscale Beleggingsinstelling“(FBI) since 1969
Belgium: „Société d‘ Investissement à Capital Fixe en Immobilière“ (SICAFI) since 1990
France: „Société d‘ Investissement Immobilière Cotès“(SIIC) since 2003
Seite 9
On the way to a German REIT
January 2005: positive statement by Ministry of Finance
until April 2005: first draft of legislation
April-June 2005: Hearings with experts and lobbyistStop due to announcement of federal elections
September 18 2005: Federal elections
Currently:All groups want a competitve G-REITHarmonization of German/UK-roadmap?Publication of first draftPublic hearings: December 21: lobbying with Min. SteinbrueckParliamentary processStart expected for January 1 2007
Seite 10
European Outlook: Beyond national REITs
New legal form SE (European stock corporation, Societas Europaea) with REIT-status
+ Pan-EU equal-treatment of tax-neutrality?
+ Eu-wide cross-border uses of tax-losses(CURIA-case Marks & Spencer)
Pressure through European harmonization: EU-REIT?
Seite 11
IVG-share undervalued compared to peersDue to REIT introduction discounts changed to premiums on NAV
Source: Merrill Lynch, IVG, November 2005
Discount / Premiums to Net Asset Value
Seite 12
Agenda
Global comparison – what countries are creating REITs & how are these markets likely to develop.
What factors have influenced the strong performance of REITS globally?
What opportunities does the proliferation of the REITS market create – can fund flows be sustained?
How to improve diversification & benefit from structural change
IVG Real Estate Management
IVG Islamic Real Estate Funds
Seite 13
IVG - more than € 16 bn Assets under Management
Portfolio management Project development Funds
Transaction volume € 2.7 bn: Acquisitions € 1.6 bn; Disposals € 1.1 bn
Total operating performance € 613 mEBITD (cash flow) € 265 mEBIT € 203 m
Market Value € 3.3 bn
Gross RentalIncome € 227 m
IVG stake € 1.3 bn
Invested Capital € 0,4 bn
Assets under Management € 12.0 bn
thereof:Institutionalinvestors € 9.0 bnPrivate investors € 3.2 bn
per 31 12 2004
Expected Transaction volume 2005: > € 3.0 bnAcquisitions € 2.1 bn; Disposals € 0.9 bn
Seite 14
On the spot in Europe with office propertiesIn-deepth knowledge of the markets by local branches
DusseldorfBerlin
Munich
Hamburg
Budapest
Stockholm
Madrid
Paris
Milan
London
BrusselsFrankfurt
Helsinki
Germany 44 %
Benelux 19 %
France 16 %
Total assets under management € 16.6 bn
UK 6 %
Spain/Portugal 6 %
Italy 3 %Finland 2 %
Others 4 %
Portfolio management: € 3.3 bn
Project development: € 1.3 bn
Funds: € 12.0 bn
Amsterdam
Seite 15
From a national conglomerate among the leadingEuropean Real Estate Asset Managers in offices
1997
1998
1999
2002
Focus on Real EstateProject Development (Tercon)Internationalisation (Paris)
Brussels: „Bravo“ - Portfolio acquired
Take-over of ASTICUSBranches in London, Brussels and Paris
Branches in Budapest and Milan,Funds-Busines promoted (Participation Wert-Konzept)
2000New organisation structure
1996
Holding-structure1993Full privatisation at stock exchange
Real EstateServicesLogistics
2003Take-over Polar Real Estate Helsinki100 % - Take-over Wert-KonzeptFoundation KAG
2004
Sale of Petroleum Haulage Group Talis
Sale of IVG Facility Management-
Sale of Railway Waggons-
Sale of Cleaning Services-
Sale of SWS Purchase of 50.1 % in OIKAcquisition of Ilmarinen portfolio in Helsinki
Acquisition of caverns2005
Seite 16
IVG: Link between real estate and capital markets
Banks Private investorsInstitutional investors
Share Funds for privateinvestors
Funds for institutionalinvestors
Corporate functions
DevelopmentUpgrading
Letting
Asset Management in branches
Acquisition Disposal
Service providers Tenants
BuyerSeller
Seite 17
Track record: Growing by complex transactions -Acquiring whole portfolios and companies
Acquisition of international portfolios / companies:
1998: “Bravo”-Portfolio (Brussels)
Portfolio volume: € 275 m
1999: Asticus AB (London, Paris, Brussels) Portfolio volume: € 1 bn
2003: Polar Real Estate (Helsinki)Portfolio volume: € 350 m
2004: Ilmarinen Portfolio (Helsinki)Portfolio volume: € 63 m
2005: Oil/Gas Caverns (Hamburg)Investment volume: € 147,1 m
2005: Asset Swap RodamcoTransaction volume: € 215 m
Discount to NAV
Less competition
Value creation by letting,
upgrading, redevelopment
and selling
Allocation in different
sub-portfolios
Seite 18
Munich
Arnulfstrasse
Paris
Avenue Pierre de Serbie
Paris
Avenue Marceau
Realised real estate transaction with Rodamco Europe with a total volume of € 215 m
Disposal of Shopping Center „Jumbo“ in HelsinkiAcquisition of three office properties in Paris und Munich from RodamcoCash settlement of approx. € 55 m First refusal to an office project development in Paris
Complex transaction in 2005:
Helsinki
Jumbo Shopping Center
Disposal
Seite 19
Track record: Letting / refurbishment / upgrading
Conversion of 120,000 m² productionspace in offices / lofts for media companies.
Increase of rents from 4.00 €/m²in 1996 to 11.00 €/m² in 2005.
Decrease of vacancy from38% in 1996 to below 2% in 2005
Value increases by € 80 m becauseof investments of € 23 m
Seite 20
Track record sell:2005: Using strength of investment markets with disposals
Nuremberg, Lucent
Lettable space: 47,200 m²
Disposal price: € 81 m
Milan, Piazzale Lodi
Lettable space: 22,000 m²
Disposal price: € 42 m
Helsinki, three properties
Lettable space: 12,100 m²
Disposal price: € 35 m
Geneva, Rue de Lausanne
Lettable space: 13,400 m²
Disposal price: € 61 m
Capital gains Sales volume2000: € 78 m € 223 m 2001: € 50 m € 181 m2002: € 43 m € 266 m2003: € 60 m € 367 m2004: € 79 m € 428 m
Capital gains Sales volume2000: € 78 m € 223 m 2001: € 50 m € 181 m2002: € 43 m € 266 m2003: € 60 m € 367 m2004: € 79 m € 428 m
Helsinki, Jumbo II
Lettable space: 28,400 m²
Completion: 2005
Volume: € 115 m
First-nine months 2005 4th Quarter
Seite 21
Disposal prices higher than market values
398428
Disposal prices
Market value
Book value
Capital gains
367
243
362398
223
307
349
4360
79
428
266
€ m
2002 2003 2004
Seite 22
Project Branch Buyer Sold in
Dorotheenstrasse Berlin CGI and Werhahn Jan 00
Leipziger Platz 9 Berlin CGI Oct 01
Glockengießer Wall Hamburg Private investor Dec 01
Gresham Street London Lloyds Bank Mar 02
Perisud Paris CGI May 03
Bois Colombes Colgate Paris KanAm Dec 03
Airbizz Frankfurt Private investors Dec 03
Global Gate Dusseldorf Allianz Nov 04
Progetto Marelli Milan iii-Funds Nov 04
Bois Colombes Aviva Paris KanAm Feb 05
Track record: Project development
Paris,
Perisud
Paris,
Bois Columbes
Frankfurt,
Airbizz
London,
Gresham Street
Berlin,
Dorotheenstraße
Berlin,
Leipziger Platz
Since 2000, projects with total volumeof more than € 700 m have been soldTotal lettable space: 150 tm²
Dusseldorf,
Global Gate
Milan,
Progetto Marelli
Seite 23
EuroSelect 07
Properties in London
and Germany
Total volume: € 98.5 m
50% equitiy
EuroSelect 08
Class-A-Office-property in London Westend
Total volume: € 118.4 m
50% equity
EuroSelect 09
Class-A-Office-property in London South Bank
Total volume: € 170.2 m
45 % equity
100 % placed
100 % placed
Track Record: EuroSelect funds launched successfully
100 % placed
Currently in distribution
EuroSelect 10Class-A-Office-property in Randstad region / NetehrlandsTotal volume: € 22.4 m
46% equity
Attractive pipeline, currently in preparation: Closed-end fundswith properties in UK, France and Suisse.
Currently in distributionEuroSelect 11Moorgate, City of LondonTotal volume: € 186 m45 % equity
Seite 24
Markets: „Time to invest“
1999
1997
2002
3Q / 2005
Rome, Frankfurt
Brussels
MunichMilan
BerlinAmsterdam, Dusseldorf
Lisbon, Copenhagen, Helsinki
Prague, WarsawStockholm, Luxembourg, Athens, Edinburgh, Hamburg
BarcelonaParis, Lyon, Dublin, London City
Madrid
Oslo, London West End, Budapest
Moscow
Rentalgrowthslowing
Rentsfalling
Rentalgrowth
accelerating
Rentsbottoming
out
Source: JonesLangLaSalle= IVG locations
Seite 25
Germany recovers: Economic rebound expected
On the brink of a turnaroundAdditional politicalreforms necessary
Seite 26
Munich, Arnulfstrasse Munich, Sonnenstrasse
Germany: Time to investRecent acquisitions in Munich
IVG purchased four commercial properties in Munich for over € 100 m.
With this purchase IVG is strengthening the real estate portfolio in one of the most stable and promising property markets in Germany.
Munich Munich
Seite 27
IVG already owned 7 long-term rented oil-caverns
Acquisition of 33 natural gas- and crude oil-caverns from federal government for € 132 m
Because of salt rights, IVG can build additional 40 caverns
Recurrent and increasing Cash-flow and earnings
Favourable financing because of long-term contracts with tenants of high credit-worthiness
Cavern facility fully let to prime tenants
Biggest cavern facility of this type in Europe
Salzstock
0 m
1000 m
2000 m
3000 m
4000 m
5000 m
Caverns
Salt deposit
Crude oil storage: stock holding on a legal basis,temporary storage for trader using spotmarkets
Natural gas storage:security for delays in deliverance („Spitzenabdeckung“),balance of seasonal fluctuation
Diameter: 70 mHeight: 600 mVolume: 500,000 m³Capacitiy: 20 m m³
Portfolio management:IVG acquires 33 German federal government´s caverns in March
Seite 28
Norden Dornumersiel
WilhelmshavenAurich
Langeoog
EUROPIPE I & II
NorderneySpiekeroog
WangeroogeJuist
Borkum
Baltrum
Etzel
Oldenburg
Wardenburg
NORPIPE
Oil
Gas
Berlin
NETRA
Caverns ideally connected to the importantinternational gas- and oilpipelines
WerneWerne
Ruhr-Region
Hamburg
Emden
Gas-Terminal Cavern depot
Pipeline connections:
44“ IVG Pipeline to tank farm Wilhelmshaven
42“ Pipeline to Emden gas terminal
(Norpipe and Europipe)
48“ Connection to NETRA
Seite 29
Project development:Attractive pipeline - London
London, Caxton Hall
Lettable space: 5,240 m²
Completion: 2006
IVG stake: 100%
Volume: € 60 m
London, Fourteen Cornhill,
Lombard Street
Lettable space: 15,860 m²
Completion: 2007
IVG stake: 100 %
Volume: € 160 m
Seite 30
Project development:Attractive pipeline - Brussels
Brussels, Madou Plaza
Lettable space: 42,700 m²
Completion: 2005
IVG stake: 100 %
Volume: € 143 m
Seite 31
Frankfurt; AIRRAILSuperstructure of ICE terminalMixed use concept: offices, hotel, retail trade
Total lettable space: 117,000 m²Completion: 2008
Project development:Attractive pipeline - Frankfurt Airrail - Joint Ventures with Fraport
Seite 32
Current projects:Successful Joint Venture with AXA REIM in Paris
Venture FDV I (€ 1 bn) successful
Venture FDV II7-10 project developments within Paris areaMaturity: 2004 - 2011, potential 2 years-prolongationInstitutional InvestorsInvestment volume: € 450 m equity, € 1.2 bn total investments
Paris, M1H, Avenue de France
Lettable space: 12,610 m²
Completion: 2006
Volume: € 81 m Paris, Neuily sur Seine
Lettable space: 12,850 m²
Completion: 2006
Volume: € 115 m
Seite 33
Growth market indirect real estate investment:IVG offers broad range of investment opportunities
Asset Management for third parties
Private pnvestors
Closed-end fundsIVG Immobilienfonds GmbH
€ 3.2 bn
KAG specialized fundsOIK
€ 9.5 bn
Structured vehiclese.g. IVG/AXA
(Log I, FDV I + II)
Institutional investors
Direct management of third party
real estate portfolios
Placement of real estate assets to private and institutional investorsUsing existing structures of IVG at acquisitions, management and disposal of propertiesDistribution to private investors mainly through banks, to institutional investors through existing networks
Seite 34
EuroSelect 09
Class-A-Office-property in London South Bank
Total volume: € 170.2 m
45 % equity
EuroSelect funds for private investors
100 % placed
EuroSelect 11
CITY OF LONDON, 20 MOORGATE
Lettable space: 14,513 m² (156,221 sq ft)
Main tenant: JPMorgan Cazenove Ltd
Maturity: until 2027 (break-option 2019)
Total volume: ca. € 186 m
Equity: ca. € 85 m
Initial dividend: 6.0 % p.a.
From January 2004 until September 2005IVG distributed ca. € 190 m equity with EuroSelect
The aim for 2005 is the distribution of € ~150 m € (2004: € 88 m; 2003: € 21 m)
In the medium term, more than € 200 mequity p.a. are strived for
Herewith IVG achievesmore than € 10 m annual profit
Seite 35
OIK is number 1 in the growing marketof special funds
Total assets under management: € 9.5 bn in 28 special funds
520 properties in 11 countries, 3.2 m m² lettable space, 240 employees
Investors: leading European insurancecompanies, pension funds et al.
The core of the real estate strategy of institutional investors:Special funds
IVG acquired 50.1% of the Oppenheim Immobilien KAG (OIK) in 2004
OIK 43 %
iii 18 %
Hansainvest 8 %
Deka Immobilien 6 %
Aachener Grund 6 %
AXA Investment 5 %
MEAG 5 %
APO Immobilien 4 %Others 5 %
Market share special funds
Seite 36
Asset management completes the range of products
Management of real estate property directly owned by institutional investors
Pension fund in Berlin
Since 01 01 2005 is IVG Asset Manager10 propertiesMarket value: approx. € 170 m Vacancy: approx. 30 %
Fee structure: approx. € 400,000 p.a. flat plus attractive performance fee:10% of clear profit increase p.a. compared to benchmark 200420% of profit by sale at IRR >7%
IVG uses synergies by letting expertise and management First letting successes achieved
Seite 37
Agenda
Global comparison – what countries are creating REITs & how are these markets likely to develop.
What factors have influenced the strong performance of REITS globally?
What opportunities does the proliferation of the REITS market create – can fund flows be sustained?
How to improve diversification & benefit from structural change
IVG Real Estate Management
IVG Islamic Real Estate Funds
Seite 38
The services of IVG Immobilien AG decisively enhance the yield and the security of the investment
> Active buy-and-sell strategy• generates increases in value• reduces the market risk
> Customer-oriented upgrading of properties• improves the yield potential of a property • secures independence from life cycle of a property
> Research• leads to early assessment of developments in the markets• allows the adjustment to the investment strategy
> Reporting• creates transparency • allows the conclusion to be drawn about future developments
> Customer relationship management and active letting business• lead to customer retention and reduce the risk of default • allow well-directed revaluation strategies
Seite 39
Implementation of Sharia´a Board for the Fund
Sharia´aBoard
IVG Immobilien
REAL ESTATE FUND
real estate expertise shariah expertise
MUSLIM INVESTORS
Specific for created funds
Investment Consultant
Seite 40
Due Diligence Process
PropertyAnalysis
Sharia´aCompliance
Tax & LegalAnalysis
AcquisitionDecision
IVG Fund Mangement
Sharia´aBoard
International Tax / Legal Advisor
IVG Fund Mangement
and
Investment Committee
Seite 41
Sharia´a compliance and tax management
Final structuring together with Sharia´a Board and international Tax Advisor
Investment Vehicle
Special Purpose Vehicle
PropertyIsclamicallyleveraged
Tenant
Returns Investment
JV Partner for tax reasons
Seite 42
IVG‘s range of Sharia´a-compliant fund strategies
income
growthchances
– cash yield 5-6%– IRR >12%
– cash yield 6.5%– IRR 7-12%
– cash yield 7%– IRR 5-7%
risk
Internal rate of return (IRR)
safety-oriented risk-oriented
risk-free return
• Fund products from primarily safety-oriented investments to yield-oriented “buy-and-sell strategies“
• Lower cash yield allows the exploitation of long-term yield potentials and a higher Internal Rate of Return (IRR)
• According to requirements funds are diversified or issued as themed funds focusing on specific countries or property types
Seite 43
Products are tailored up to the investor´s preferences
> Equity Minimum € 50
> Leverage 0-75%
> Fund Strategies Core, Core Plus, Growth, Opportunity
> Yield Dividends vs. Capital accumulation
> Status Active Portfolio Management vs. Buy-and-Hold-Strategy
> Location Diversified vs. Single location
> Asset types Office, Retail, Logistics
> # of Assets Single or Diversified
Seite 44
Key facts for proposed real estate fund
> Equity between € 50 to € 200 mn> 50 % - 75 % leverage > Growth strategy> 6.0 % Cash return targeted> IRR above 7.5 % without leverage> IRR above 10.0 % with leverage> Reporting due to investor´s demand> Creating value through active buy-and-sell-strategy > Asset Allocation in context with Real Estate-market cycle:
> 70 % core-countries, 30 % growth-countries> current strategy: investments in Germany, France, UK, Spain
and Scandinavia> Asset types: office, retail, logistics
> Investments to be approved by Sharia´a Board
Seite 45
Fee structure
> Vision:
Mutual benefit of sustainable growth
> Fee Structure:
> Asset Management fee according to local market
> Portfolio Management fee
> Performance fee (after two successive years of out-
performance)
Seite 46
SummaryLocal experts all over Europe through IVG-network
> Safety with proved competence in Real EstateManagement
> Return and enhanced value through Asset Management in twelve European countries with IVG staff
> Opportunities to access Pan-European buy-and-sell-market
> Transparency with own research and stock-marketapproved internal and external reporting
> Islamic Needs fulfilled by Sharia´a-compliant structuring
Seite 47
„„Half the worldHalf the world´́s wealth is in Real Estates wealth is in Real Estate““Warren Buffett
IVG Asset Management GmbH
Zanderstrasse 5/7
D-53177 Bonn
Jan Duehrkoop
Head of Institutional Relations
phone: + 49 228 844 356
fax: + 49 228 844 6356
mail: Jan.Duehrkoop@ivg.de
Internet: www.ivg.de
PASSION FOR REAL ESTATE.
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