AIF Club Luxembourg - Presentation Real Estate Niche Workshop 16 October 2014

Real estate niche workshop
Building momentum
16 October 2014

Agenda
9:00 a.m. Panel 1: Competitive positioning of Luxembourg for offshore funds
Moderated by:
►Michael Hornsby, EMEIA Real Estate Funds Leader, EY Luxembourg
►Bruno Di Bartoloméo, Partner, Real Estate, EY Luxembourg
Guest speakers:
►Christopher Bennett, Director, Head of Real Estate, Crestbridge S.A.
►Patrick Steinhauser, Legal Counsel, Lone Star Capital Investments S.à r.l.
►Kenneth Macrae, Managing Director, Hines Luxembourg S.à r.l.
►Johan Terblanche, Partner, Dechert LLP
9:45 a.m. Keynote speech on 2014 Global Market Outlook - Trends in Real Estate Private Equity
Presented by Mark Grinis, Global Real Estate Fund Leader, EY New York
10:15 a.m. Coffee break

Agenda (cont’d)
10:30 a.m. Panel 2: Does Luxembourg need a REIT regime?
Moderated by:
►Dietmar Klos, Partner, Head of Financial Services Tax, EY Luxembourg
►Mathieu Volckrick, Executive Director, Regulatory Services Leader, EY Luxembourg
Guest speakers:
►Keith Burman, Partner, ManagementPlus (Luxembourg) S.A.
►Patrick Reuter, Partner, Elvinger, Hoss & Prussen
11:15 a.m Panel 3: Fund distribution and capital raising
Moderated by:
►Kai Braun, Executive Director, Alternatives Advisory Leader, EY Luxembourg
►Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg
Guest speakers:
►Marnix Arickx, CEO, BNP Paribas Investment Partners Belgium
►Rudolf Kömen, Head of Luxembourg based global fund product platform, Credit Suisse
12:00 p.m. Wrap-up by Michael Hornsby
12:15 p.m. Networking lunch

Panel 1 - Competitive positioning of Luxembourg for offshore funds

Authorized AIFMs
►Luxembourg (CSSF as at July 2014)
►151 authorized AIFMs
►Multi-managers (group): 15
►Real estate managers only: 19
►Independent (3rd party) managers: 87
►Undetermined: 30
►France (as at 1 September 2014)
►Ireland (as at July 2014)
►UK (as at August 2014)
CSSF, INREV and ESMA updates for July - September 2014

Options for non-European managers wishing to access capital from European investors going forward
1.No longer market funds to European investors
2.Stay offshore with no active marketing in Europe (reverse solicitation)
3.Establish a European Feeder fund
4.Raise money from European investors through segregated accounts
5.Stay offshore in the mid-term, comply with transparency provisions and access selected investors through remaining private placement regimes
6.Stay offshore and seek AIFM equivalence for the non-EU manager
7.Set up on-shore entry point for EU investors for a global co- investment platform

Integrating AIFM into a global platform Global Model
Manager Level
US GP
Fund level
Asset level
Investment Advisor
EU AIFM
US/Cayman GP
Investor Level
SPV
SPV
SPV
SPV
SPV
SPV
SPV
SPV
SPV
SPV
SPV
Board members
A
B
C
A
D
E
A
F
G
GP/Decision taker/Substance
Local series of funds for 3 different investor groups (ring- fencing)
Asset management
Investor Level
…
Local Governance
Administration
Transfer Agency
Depository control
Valuation
Marketing / Placement agent
Global continuity with local expertise
SPV
Delaware Fund 3
Lux SIF 4
Cayman Fund 3
EU investors
US investors
Asian / other investors

1.Create an attractive REIT regime
2.Promoter use of non-regulated AIF regime solely regulated through AIFMD compliant Manager
3.Punctual improvements in SIF and SICAR regulatory practice
4.Create industry leading technical dialogue platform
5.Achieve positive reputation/market perception in terms of offering the most efficient and quickest process for authorizing/ registering AIF/ AIFM
6.Enhance the attractiveness towards non-EU AIFMs choosing Luxembourg as Member State of Reference
7.Resolve remaining taxation issues related to SCS/SCSp
8.Expand / update tax treaty network
9.Address BEPS concerns
Ideas for enhancing Luxembourg’s attractiveness

10.Change the industry’s perception in terms of considering Luxembourg as cost efficient location
11.Creation of Management company/ Conducting Officer forum
12.Improve Carried Interest Regime
13.Expand “risk management” expertise in Luxembourg
14.Enhance Luxembourg’s reputation as an effective but efficient center for corporate governance functions
Ideas for enhancing Luxembourg’s attractiveness (cont’d)

Panel 1 - guest speakers
Guest speakers:
►Christopher Bennett, Director, Head of Real Estate, Crestbridge S.A.
►Patrick Steinhauser, Legal Counsel, Lone Star Capital Investments S.à r.l.
►Kenneth Macrae, Managing Director, Hines Luxembourg S.à r.l.
►Johan Terblanche, Partner, Dechert LLP Moderators:
►Michael Hornsby, EMEIA Real Estate Funds Leader, EY Luxembourg
►Bruno Di Bartoloméo, Partner, Real Estate, EY Luxembourg

Real Estate Renaissance
Real Estate Private Equity Funds
Global Market Outlook
Luxembourg
16 October 2014

Location, Location, Location London Underground ca. 1860
Real Estate Renaissance
16 October 2014

Innovation as Demand Driver
►Typewriter ‘67
►Telephone ’76
►Automobile ‘85
►Coke ‘86
►Surgical Robots
►Healing Power grid
►Cardboard Bike
►Virus Detection

Innovation creates Job Growth
High Growth
CITY
Patent Growth
Job Growth
Boise City-Nampa, ID
11.9%
2.9%
Provo-Orem, UT
8.9%
2.9%
Raleigh-Cary, NC
8.8%
2.6%
Austin-Round Rock-San Marcos, TX
8.1%
3.4%
Las Vegas-Paradise, NV
7.2%
3.8%
Tuscon, AZ
6.5%
1.7%
Low - Growth
Pittsburg, PA
-1.1%
0.3%
Buffalo-Niagara Falls, NY
-1.2%
-0.1%
Toledo, OH
-1.3%
-0.2%
Dayton, OH
-1.6%
-0.6%

Amazon Fulfilment Centre
►Walmart Sales - $473B
►E-Commerce Sales - $300B
►Amazon sales – $60B
►Walmart E-commerce - $10B
►“Second Inning”
►$14 Billion invested since 2010
►3.5 Million packages/day
►37 million on Cyber Monday (400/sec)
►Order packing Robots, RFT Tags

Digital Battleground
Store Experience
Customization
Price Promotion
Speed – Selection

Digital Battleground Is there slowdown in Europe?
Number of UK Retail Stores
Source: Green Street Advisors

The Challenge for Bricks & Mortar
Source: Green Street Advisors

E-commerce
The Online Challenge
Consumers will not select an online retailer when:
►Delivery costs are High
►Cannot offer Next Day Delivery
90% of companies offer Next Day shipping at generally 4x of ground
NOT SUSTAINABLE

Solving for Affordable 1 Day Shipping
Amazon Fulfillment Network (23) 2012-2015 Planned (5)
Source: Europedia, MWPVL International

Amazon Model Vs Omni Channel Distribution
► Amazon Fulfillment Network
► 2012-2015 Planned
►Amazon Plans – Million Sq. Ft.

Key metrics and Area comparisons
27 sq. ft.
Since FY09, a sq. ft./person decreased
$15M
►A very wide range of sq. ft. person exists to rationalize
►Top 100 good practice sq. ft./person examples:
►< 10 8 sq. ft.: Baltimore, Mexico City, Milano, San Francisco, Santiago
►< 9 7 sq. ft.: Almaty, Bangkok, Johannesburg, Kuala Lumpur, Roma
►< 8 6 sq. ft.: Atlanta, Kiev, London, Moscow, Sao Paulo, Singapore
►Narrowing the sq. ft. per person range will:
►accommodate our projected growth
►provide a lower cost base to ensure competitive advantage
Global (including Japan)
Top 100 sq. ft. person range 44 – 415 sq. ft. (Rio–Copenhagen)
Spend ~$1.1 B
Total sq. ft.
22 Million
sq. ft.
122 sq ft
EMEIA
Top 100 sq.. person range 44 sq. ft. – 415 sq. ft. (Mumbai–Copenhagen)
Spend ~$ 558 M
Total sq. ft.
12 Million
sq. ft. person 135 sq. ft.
Americas
Top 100 m2 person range
44 sq. ft. – 285 sq. ft.
(Rio– G. Cayman)
Spend
~$ 335 M
Total sq. ft.
6 Million
sq. ft. person 110 sq. ft.
Asia-Pac
Top 100 sq. ft. person range
57 – 241 sq. ft.
(Makati–Auckland)
Spend ~$158 M
Total m2 3.3 Million
sq. ft. person
111 sq. ft.
US$1.1B
Current Real Estate spend
►By implementing Workplace of the Future in the top 27 countries, we have estimated an opportunity to potentially cut our occupancy costs in half.
For every square foot reduction equates to

Workplace of the Future 12 Key Indicators
We have defined key requirements for locations implementing Workplace of the Future
Technology
Increased collaborative technology (e.g. Video conferencing, Smart Boards, M&C tools)
1
Technology to support in office mobility and transition between work settings (e.g. Wifi, touch screen reservation)
2
Talent
3
Existing flexible working culture/ flexible working behaviors or apparent leadership desire to develop new ways of working is considered critical to success
4
The office becomes “an” environment and not “the only” environment in which employees are expected to work.
5
Real Estate / Facilities Management
Offices and work spaces are not assigned, breaking down hierarchy and using space as a tool vs. an entitlement
6
7
Open look and feel with clear EY branding in support of Vision 2020
8
Protocols exist to govern use of office space and support increased respect for each other’s use of time and space
9
Range of formal and informal work settings to suit both individual and group work, including a range of collaborative spaces
Storage solutions and reduced dependence on paper
Business

2014 Global market outlook
Trends in real estate private equity Executive summary

Top items to consider when acquiring a Real Estate Investment Platform
Ability to access existing and new sources of capital
Management team credendialized with investors
Management team that is complimentary to the culture of the platform
Expanded growth prospects in new regions
Global investment solutions
New, broader access to deal flow
Expanded distribution capabilities
New product development
New relationships and expertise
Integration of back and middle office
►Pricing Considerations: Public Multiple impact: Carry Valuation: Product Overlap: AUM

Top five points for capital raising
1.
Defined and differentiated investment strategy
3.
Demonstrable track record
2. Experienced team
4.
Strong alignment of interest with investors
5. Clear capital raising strategy
Although change in the industry is constant, some things stay consistent over time

Cross-border capital flow accelerating

Potential Consequences of AQR
A
Pre-emptive capital raisings/action
B
Pre-emptive loan sales/workouts
C
Emergency capital raising action
D
Distressed M&A for those that can't raise capital
E
Structured sale of loan books following deeper provisioning
F
Continued implementation of internal bad bank/non-core units and then programmes of sale from these
Integration of distressed M&A and systematic exits of non-core positions
G
Although the impact of AQR results on the supply of loans to transaction markets is unclear, there are a number of potential consequences

Investor communications
Investor reporting
Dashboard
Other integrated services
Document management
Workflow management
LP performance and analysis
Other LP and portfolio reports
Portfolio performance and analysis
RE regulatory compliance
Financial statements
Fees and expense reports
Fund performance and analysis
Other financial reports
General reporting
Multi-currency support
Reconciliations
Controls and audit logging
Mgmt. company accounting
Complex structures (SPV)
Calls and distributions
JV level data and reporting
Capital account allocations
Investor events
Fee calculations
Fund inception
Portfolio management
Asset management
Reporting
Accounting
Fund set-up
Portfolio monitoring
Fund raising
Investment activity
Asset Management
Financial reporting
Financial accounting
LP and portfolio reporting
Tax
Treasury
Property management
Investor portal
Investor servicing
Investor interface
Marketing support
Prospecting
LP due diligence support
Contact management
Fund structuring
Investor setup
Benchmarking and forecasting
Deal flow monitoring
Tax and REIT Compliance
Data and document management
Cash planning and forecasting
Banking relationships
AML/KYC
Subscription processing
Portfolio company data collection
Portfolio company analysis
Property level data
Lease management
Valuation
Portfolio reporting
Budgeting/ forecasting
Property accounting
Cash and liquidity management
Financial risk management
Facilities management
Capital improvements
Distribution events
Capital events
Asset surveillance
Valuations
Investment exit
Investment funding
Cash planning and forecasting
Value creation
Data analysis
Risk management
Regulatory
Tax books and records
Tax forms, reports and estimates
Key
High demand
Little demand
Medium demand
Average demand
Core real estate fund administration
Capabilities provided by asset manager and lifted-out operations

Key issues and concerns in the market
Management fee errors
Improper lease management
►Rent roll inaccuracies
►Noncompliance with the lease agreement
►Missing documentation in lease files
Lack of controls around cash management
►Bank reconciliation approval
►Invoice approval
Duplication and/or inactive vendors in the vendor list
Inadequate property and tenant insurance as required by the management and lease agreements
Property manager
Lack of confidence in the quality of the data included in reporting from the property manager
Lack of visibility and transparency into operational and financial processes at the property level
Increasing concerns that the property manager’s controls are not functioning property
Executive management concerned with managing reputational risk
Cost leakage — costs being passed through to asset managers incorrectly
Investment manager

Panel 2 - Does Luxembourg need a REIT regime?

Guest speakers:
►Keith Burman, Partner, ManagementPlus (Luxembourg) S.A.
►Patrick Reuter, Partner, Elvinger, Hoss & Prussen Moderators:
►Dietmar Klos, Partner, Head of Financial Services Tax, EY Luxembourg
►Mathieu Volckrick, Executive Director, Regulatory Services Leader, EY Luxembourg

What is a REIT?
REIT is
►a generic concept commonly used in order to refer to an investment vehicle (usually widely held)
►that derives its income primarily from long-term investment in immovable property
►and that benefits from a flow-through tax regime on its (direct and indirect) real estate income and gains
►These vehicles usually provide for a single-level of taxation in the hands of the investors in the REIT

What is a REIT?
Tax considerations
►General: Taxation of REITs should ideally enable the investor to obtain a similar after tax result to what would occur had they invested directly in property (single-level taxation)
►Flow-through entity (partnership or contractual)
►No taxation at REIT level
►Taxation at property level as well as investor level to be considered
►Corporate REIT
►Tax exemption recommendable (exemption as such, exemption of RE income, or eligible to claim a deduction for distributions to investors)
►WHT considerations
►Access to double tax treaties and EU Directives
►Taxation at property level as well as investor level to be considered

The global REIT Market – A selection
Belgium: SICAFI (17)
Luxembourg: RE-SIF (270)
Germany: G-REIT (4)
Lithuania: REIT (7)
France: SIIC (37)
US: REIT (163)
Bulgaria:
SPIE (22)
Singapore: REIT (32)
UK: UK-REIT (23)
Hongkong: REIT (11)
Greece: REMF (3)
Australia: ALPT (52)
Turkey: REIT (25)

Panel 3 - Fund distribution and capital raising

Guest speakers:
►Marnix Arickx, CEO, BNP Paribas Investment Partners Belgium
►Rudolf Kömen, Head of Luxembourg based global fund product platform, Credit Suisse Moderators:
►Kai Braun, Executive Director, Alternatives Advisory Leader, EY Luxembourg
►Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg

Wrap-up

Contacts
Michael Hornsby
Partner
EMEIA Real Estate Funds Leader
+352 42 124 8310
michael.hornsby@lu.ey.com
Bruno Di Bartoloméo
Partner
Real Estate
+352 42 124 8493
bruno.dibartolomeo@lu.ey.com
Dietmar Klos
Partner
Head of Financial Services Tax
+352 42 124 7282
dietmar.klos@lu.ey.com
Rafael Aguilera
Executive Director
Advisory Services
+352 42 124 8365
rafael.aguilera@lu.ey.com
Kai Braun
Executive Director
Alternatives Advisory Leader
+352 42 124 8800
kai.braun@lu.ey.com
Mark Grinis
Partner
Global Real Estate Fund Leader
+1 212 7735 148
mark.grinis@lu.ey.com
Mathieu Volckrick
Executive Director
Regulatory Services Leader
+352 42 124 7014
mathieu.volckrick@lu.ey.com

AIF Club Luxembourg - Presentation Real Estate Niche Workshop 16 October 2014

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AIF Club Luxembourg - Presentation Real Estate Niche Workshop 16 October 2014