8 - Indirect Investments

Lease agreements are typically linked to inflation-adjustments.

BUT:

• Tenant in financial trouble

• Market value not connected

Real estate implies high country risk (systematic risk), that cannot be diversified

Fund is owned by an institutional investor (e.g., Allianz) but managed by a professional manager

• Long term: Real Estate

• Short term: Equities

• Set-up

• Management

• Reinvestment

• Fund termination

• Asset by asset disposal

• Portfolio disposal

• New fund & evergreen

• Duration of the fund

• Investment policy

• Expenses payable by…

  • Fund

  • Unit-holders

  • Management company

• Advisory committee

• Unit-holders meeting

• Substitution of the management company

• Subscription by means of contributions in kind

• Liquidation of the fund

• Open ended

• Closed ended

• Funds of funds

Core properties which have a regular inflow of money

A fund whose properties are already known

-> Opposite: “Blind Pool”

• Acquisition fee

  • On new investments

• Entry and redemption fee

  • Open ended funds only

• Annual asset managemment fee

  • On GAV (uncommon: NAV)

• Performance fee

  • When return > target return

• Developers

• Service providers (brokers, advisors, valuers who do not invest themselves)

• Investment companies

  • Property companies

  • REITs

• Structure

  • Ownership: held by 100 or more persons; <= 5 individuals may not own >= 50% of the shares

  • Listed or unlisted

• Asset composition

  • >= 75% real propert, cash, government securities

  • Securities of taxable REIT <= 20%

• Income

  • >= 75% from rents + disposition gains, other REIT shares

  • >= 95% from above plus dividends, interest, gains from securities and hedging income

• Dividend distribution

  • Distribute 90% of taxable income

• Asset test

  • > 80% Income producing properties

• Income test

  • > 80% rent

• Dividends

  • > 70%

• Listing

  • Listed on stock exchange

• Shareholders

  • <= 60% by main shareholder

  • 25% of shareholders have <2% stake

Tax free, but 50% have to be distributed within 2 years

NAV adjusted:

• Properties and other investment interests at fair value

• Exclusion of certain items that are not expected to crystallize

EPRA NAV adjusted:

• Fair values of financial instruments

• Fair values of debt

• Fair values of deferred taxes

ERV of vacant space divided by ERV of the whole portfolio

+ Annualised rental income (based on cash rents passing at balance sheet date)

- Non-recoverable property operating expenses

_____________________________

divided by the Property MV

+ Purchaser´s costs

EBITDA / Interest expense

EBITDA / (Interest expense + preferred dividends)

Lower, because REITs do not have a tax-shield