www.alintra.de

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alintra is an owner-run company which was set up in 2005. We manage property portfolios for institutions, and the core of this work is creating immediate transparency for banks, investors, insolvency practitioners, CMBS special servicers, and other bodies in need of our services. alintra’s approach involves more than just gathering data: understanding and correctly interpreting information allows us/’our clients’ to take measures to secure liquidity and permanently strengthen cash-flow structures.

In order for real estate items to return a profit, the people running them need to understand figures and be able to make a range of data sets comparable with one another. The crucial factor for successful property portfolio management is a sound understanding of the sector, and we have a proven track record of optimising data quality and processes in the real estate sector so as to produce a tangible increase in revenue.

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www.alintra.de

  1. 1. Transparency in Real Estate
  2. 2. 2 This presentation was prepared exclusively for the benefit and internal use of the Alintra client to whom it is directly addressed and delivered. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Alintra. Neither this presentation nor any of its contents may be disclosed or used for any purpose without the prior consent of Alintra.
  3. 3. Contact Wolfgang Brötz Fon: +49 69 5095 17 960 Fax: +49 69 5095 17 990 alintra GmbH Börsenstrasse 2-4 60313 Frankfurt/Main wolfgang.broetz@alintra.de www.alintra.de 3
  4. 4. Overview 4 1. Alintra‘s offering 2. Real estate in transition 3. Transparency as a shared service 4. Functional elements 5. Technical aspects Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  5. 5. Alintra’s offering • arsago is a platform for Alternative Investments for institutional investors; Alintra coordinates the Controlling / Accounting / Liquidity / Tax / Reporting framework • 2004, arsago Real Estate and Morgan Stanley Real Estate Fund established a JV which acquired 15.000 residential units and required institutional calibre reporting 5 Initiating a real estate fund …. Alintra offers real estate transparency: a service defined as detailed, comprehensive, timely and customized reporting on the basis of advanced cash-flow controlling • Controlling gained new importance when the financial crisis hit real estate, banks, insolvent SPEs, CMBS • Alintra’s experience gained from transparency of own fund attracts various parties in demand of outsourcing partnership • Modular approach to demonstrate return, risk & liquidity … as a foundation for providing shared services Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  6. 6. New dynamics in real estate 6 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Reporting was long regarded as a by-product • Institutional investors and lending parties consider transparency as a key concern when providing capital • Quality of investor communication plays a key role in establishing investor confidence Prop Mgmt Equity/ debt Asset Mgmt Water- fall Cash does not lie !
  7. 7. Change of the real estate industry • Re(finance) is key • Successful enterprises scrutinize structural set- up • Reporting as an external obligation • Built on advanced controlling Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects The real estate sector has faced considerable changes …. • Investor perception of asset class „real estate“: Leverage necessitates operative resources to stabilize the cash flow • Once bitten, twice shy: Lending parties raise reporting requirements substantially • Insolvent portfolios as investment opportunity pose the question how a potential purchaser can achieve the turn-around …. real estate companies have to adjust • Capital sourcing: bottle-neck or catalyst for organisational overhaul? • Cash flow statement as road map for strengths & weaknesses • Focus on core competence: reletting & collection activities, overhead • Outsourcing of controlling & reporting functions 7
  8. 8. Transparency: a bunch of charts? 8 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  9. 9. From historic data to actionable decisions 9 Predict! (What will happen?) Operativeobjectives data action Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Transformation of raw data into information • Predictive analysis provides valuable insights • Vacancy reduction • Collection of arrears • Overhead management • … Analyse! (what has happened?) Explain! (How? Why?)
  10. 10. Transparency requires a revolving process 10 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Agility • Connectivity • Flexibility Topics: • Liquidity • Controlling • Reporting Objectives: • Aggregate portfolio overview • Rapid alert system • Strategic controlling system Requirements: • Integration of vast data marts • Extensive experience in both finance and real estate asset management Integration Business Plan Liquidity (Act & Plan) Prop Mgmt/ Collection Acc Financial Accounting Reporting & Ad-hoc queries
  11. 11. Business Plan: compilation of expectations • Tight link between operations and funding; permanently monitored • Binding character (e.g. element of shareholder & finance documents) • Objectives on various levels are cross-checked in a timely manner • Information: a difference that makes a difference • Transparent accountability impacts performance Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Banks Business Plan Asset Manage- ment Investors Property Manage- ment 11
  12. 12. Elements of the annual Business Plan 12 • Narrative description of sales, rental profile, capex etc • Plans for Financing of owner • Projected income statement for the coming year • Projected Operating Cash flow for five years in advance • Projected balance sheet • Marketing plan • Leasing guidelines • Insurance • Projected construction • Business Plan as a Corporate Memory • Annual revision • Quarterly reconciliation (actual vs plan) Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Objectives are broken-down into sub-goals with clearly-defined responsibilities; constant comparison of budget/actual transparently reveals strengths and weaknesses on various levels
  13. 13. Business planning on a cash-flow basis 13 • All business plans are constantly monitored and annually revised • Bottom-up Planning of NOI on a location/property basis • Plans are useless, planning is priceless! Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Liquidity Management Business Plan: return & risk Property Management Asset Management
  14. 14. Lessons learned from controlling real estate 14 • Property managers struggle to meet institutional demands • Focus on cash flows is a paradigm change („Cash doesn‘t lie!“) • Increasing human and IT resources are allocated to reporting • Constant monitoring of every single property is a necessary, but resource- consuming prerequisite for transparency • Preparation of electronic filing cabinet needs collection, verification, reconciliation, analysis and archiving of data from heterogeneous sources • Both accurate electronic data and business intelligence software in order to operate a cost-efficient centralized data warehouse • (Dis)aggregate information over various areas of responsibility (e.g. prop mgmt, asset mgmt, letting/collection/janitorial ressources) to attach personal accountability for sub-goals of business plan • Focus on cash flows • Upgrading quality and quantity of underlying data Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Economies of scale and scope
  15. 15. Outsourcing as a strategic option 15 Business critical functions: • Reletting • Collection • Overhead Cost of ownership reduced by out- sourcing partner’s economies of scale/scope • Financing as a catalyst for a functional assessment • Substantial implicit ex- penses for debt compliance • Transform fixed costs into variable costs Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects The answer to all strategic worries or the ultimate evil?
  16. 16. Real estate transparency: make or buy? 16 • Institutional calibre reporting demands both an aggregate portfolio overview and the flexibility to drill-down to detail • Integration of financial accounting, liquidity, rent accounting, debt compliance & waterfall, planning & forecasting • Regulatory and debt compliance requires modelling and monitoring of complex conditions and individual covenants Challenges • Beyond past performance • Early warning system • Foundation for strategic re- assessment Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Continuous improvement of process quality by accelerated acquisition of consistent raw data lowers cost of ownership • Cross-portfolio analysis allows evidence-based decision-making • Flexibility for ad-hoc requests deepens investor confidence Benefits
  17. 17. Compliance with institutional reporting needs 17 • Quarterly reports no later than 20 day after end of cal.q. • (un)audited balance sheet & statement of income & expenses • Cash flow statement to reconcile business plan quarterly • Accounts receivable aging summary • Status of collection activities • Individual reports • Computer compatibility International investors set demanding reporting standards which reflect sound practices of asset/property management Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Business plan • Rent accoun- ting/contractual rent • Financial ac- counting/actual • Liquidity management
  18. 18. Cash doesn’t lie! – Liquidity vs accrual accounting 18 Responsible Per property PnL Liquidity Facility Mgmt/ Asset Mgmt  + Rental Income + Rental Income Facility Mgmt/ Asset Mgmt  - Maintenance expense - Maintenance expense Facility Mgmt/ Asset Mgmt  - „rental loss“ - „rental leakage“ = Income 1 = Liquidity 1 Asset Mgmt  - Capex, if expense - Capex Asset Mgmt  - promotional expenses - promotional expenses = Income 2 = Liquidity 2 (Dis)Investment Mgmt  + privatization gains + privatization proceed (Dis)Investment Mgmt  + blocksale gains + blocksale proceeds (Dis)Investment Mgmt  - commissions - commissions = Income 3 = Liquidity 3 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  19. 19. Cash doesn’t lie! – Liquidity vs accrual accounting 19 = Income 3 = Liquidity 3 Fin. Controlling/ Facility Mgmt  ± cost of operations Fin. Controlling () - Mgmtfee - Mgmtfee Fin. Controlling - accounting/audit/other - accounting/audit/other Fin. Controlling - interest - interest Fin. Controlling - depreciation - amortization Fin. Controlling - income tax - income tax = Income 4 = Liquidity 4 Investor relations - Distributions - Distributions = p/l per period = Cash per period + p/l previous periods + cash previous periods = p/l carried forward = Cash to date Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  20. 20. Seamless exchange as success factor 20 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects In order to efficiently tackle the requirements of private equity real estate investments we have established an organisational setup which exchanges data within the various providers and requestors: • Due diligence database • regional Asset-Management Teams • Various Property Management Agents • Liquidity- und Loan-Management • Business Planning Team • Accounting & Tax • Auditors • Investors • Complex data structures • Tight reporting schedules • Seamless ex- change without media con- version Property Mgt. Asset Mgt. Liquidity Management Complex data and tight reporting schedules
  21. 21. Continuous integration of data warehouse 21 Portfolio Management Asset Management Property Management BP cash ledger …. …. Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Information requestors heterogenueousdatasources
  22. 22. Layers of data management 22 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects Data Collection Data Cleansing Monitoring Analysis Rep. • Client focused reporting • Performance attribution, e.g. letting, collection, overhead reduction • Analysis on various levels according to business plan • Archiving in a data marts • Intelligent, rule-based plausibility checks • Automated translation between differing input formats, Standardized input requirements Collection, verification, analysis and reporting of heterogeneous data
  23. 23. Business intelligence for real estate data 23 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Continuous data requests from property managers, banks, other data providers (timely, accurate, consistent, electronic!) • Systematic follow-up for missing or modified data • Connectivity through various input formats Exchange, transfer & load • Filing of all relevant information electronically • Proven data models can easily be adjusted to specific requests • Data retrieval within portfolio context Data modelling and storage
  24. 24. Advanced analysis of real estate data 24 • Performance measurement • Flexible analysis levels • Scenario analysis to evaluate cash flow impacts • Standardized reporting format is assisted by flexible multi-criteria ad-hoc queries • Integration of real estate data and meta data, e.g. local responsibilities • Encouraging of pro-activity by transparent accountability • Transformation of disjoint property data into decision-making fundamentals Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects
  25. 25. Monitoring of real estate portfolios 25 Alintra‘s offering | Real estate in transition | Transparency as a shared service | Functional elements | Technical aspects • Key performance indicators are derived from business plan • Cash management & cash flow forecast • Predefined event-driven profiles for alerts • Representation of waterfall of bank accounts • Debt compliance checks & alerts • Capacity to efficiently oversee highly diversified portfolios

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