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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

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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%

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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

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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

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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

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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

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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

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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?

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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

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Agenda







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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

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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

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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

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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

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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

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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



Helsinki, three properties



Geneva, Rue de Lausanne



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


Completion: 2005

Volume: € 115 m

First-nine months 2005 4th Quarter

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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

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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

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EuroSelect 07

Properties in London

and Germany

Total volume: € 98.5 m

50% equitiy

EuroSelect 08

Class-A-Office-property in London Westend


50% equity

EuroSelect 09

Class-A-Office-property in London South Bank


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

http://www.euroselect07.de/07/html/start.php

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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

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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


Completion: 2006

IVG stake: 100%

Volume: € 60 m

London, Fourteen Cornhill,

Lombard Street


Completion: 2007

IVG stake: 100 %

Volume: € 160 m

Seite 30

Project development:Attractive pipeline - Brussels

Brussels, Madou Plaza


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


Completion: 2006

Volume: € 81 m Paris, Neuily sur Seine


Completion: 2006

Volume: € 115 m

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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


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







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: [email protected]

Internet: www.ivg.de

PASSION FOR REAL ESTATE.

jan dührkoop - ivg real estate islamic real estate finance ... · jan dührkoop - ivg real estate...

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