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alfi survey

Luxembourg real estate investment fundsNovember 2013

3

Luxembourg Real Estate Fund Survey 2013

Table of contents

Executive summary .............................................................................................4Introduction ..........................................................................................................6 1. CSSF Data on Real Estate Investment Funds in Luxembourg ........................................................ 6 2. Survey Coverage ............................................................................................................................. 7 3. Luxembourg Real Estate Funds - the Framework ........................................................................... 7 3.1 Direct REIFs vs Funds of REIFs .......................................................................................... 7 3.2 Regulatory Framework: Regulated vs Unregulated Structures ............................................ 7 3.3 Legal Structures.................................................................................................................... 8 4. Scope and Methodology .................................................................................................................. 9 4.1 Scope.................................................................................................................................... 9 4.2 Methodology ......................................................................................................................... 9

Part I - Direct Real Estate Funds & Real Estate SICARs ..................................10 1. Introduction .................................................................................................................................... 10 2. Initiator Origins ................................................................................................................................11 3. Legal Structure and Regime ...........................................................................................................11 4. Fund Structure ............................................................................................................................... 13 5. Investment Style ............................................................................................................................ 14 6. Investor Liquidity ............................................................................................................................ 15 7. Term ............................................................................................................................................... 16 8. Geographical Investment Strategy................................................................................................. 17 9. Target Sectors ................................................................................................................................ 18 10. Net Asset Value (NAV) distribution ................................................................................................. 19 11. Gross Asset Value (GAV) distribution ............................................................................................ 20 12. Target Gearing of Funds ................................................................................................................ 21 13. Fees ............................................................................................................................................... 21 14. Number of Investors....................................................................................................................... 23 15. Type of Investors............................................................................................................................ 23 16. Investor Origins .............................................................................................................................. 24 17. Accounting Standards .................................................................................................................... 25 18. Frequency of NAV Calculation ....................................................................................................... 27 19. Valuation Standards ....................................................................................................................... 29 20. Stock Exchange Listing.................................................................................................................. 29 21. Currency ........................................................................................................................................ 29

Part II - Funds of Real Estate Investment Funds...............................................30 1. Introduction .................................................................................................................................... 30 2. Initiator Origins ............................................................................................................................... 31 3. Legal Structure and Regime .......................................................................................................... 31 4. Investment Style ............................................................................................................................ 32 5. Investor Liquidity ............................................................................................................................ 33 6. Term ............................................................................................................................................... 34 7. Geographical Investment Strategy................................................................................................. 35 8. Target Sectors ................................................................................................................................ 36 9. Net Asset Value (NAV) ................................................................................................................... 37 10. 2015 Target NAV distribution ......................................................................................................... 37 11. Fees ............................................................................................................................................... 38 12. Type of Investors............................................................................................................................ 39 13. Accounting Standards .................................................................................................................... 40 14. Frequency of NAV Calculation ....................................................................................................... 40 15. Stock Exchange Listing.................................................................................................................. 41 16. Currency ........................................................................................................................................ 41

Summary ...........................................................................................................42

Appendix................................................................................................................................................43 Service Providers.................................................................................................................................. 43 Glossary ................................................................................................................................................ 45 Acknowledgements............................................................................................................................... 47


4

EXECUTIVE SUMMARY

The Association of the Luxembourg Fund Industry (ALFI) has published the 2013 Real Estate Investment Funds (REIF) survey, its eighth edition. The survey illustrates the evolution of the REIF market for direct real estate funds (Direct REIFs) and Real Estate SICARs, but also for Funds of REIFs, as at June of 2013.

2012 was another strong year for Luxembourg domiciled REIFs as the population continued to expand by 22 Direct REIFs, (slightly down from 26 in 2011), bringing the total of Direct REIFs sur-veyed to 215 vehicles (including 16 Real Estate SICARs), an increase of 16% this year and 241% since 2006, a compound annual growth rate (CAGR) of 23%.

HIGHLIGHTS

Trends in direcT reiFs

More than half of the surveyed funds have been set up structured as a “Fonds Com-mun de Placement” (FCP) and this usually in combination with the SIF regime. This trend has been reinforced based on 2012 and 2013 figures with all new launches of Direct REIFs being specialised investment funds. In all, 80% of the total Direct REIFs fall within the SIF regime.

In 2012 all new REIF launches were triggered by initiators in Europe with German, Swiss and UK initiators being the most active and, in contrast to the results of the previous year, initiators from the Americas were not active.

invesTmenT sTraTegies

The most common target sector is still ‘mul-ti-sector’ (59%) with a preference for ‘indus-trial’ at 8% and for ‘retail’ at 12% this year. The 2013 survey shows a stabilisation in the “multi sector” category, with focus on single sector strategies shifting slightly.

A single country investment focus repre-sents only 35% of the geographic investment strategies (up from 27%), and reiterates the suitability of Luxembourg investment vehi-cles for multi-national investment. 82% of the surveyed Direct REIFs invest in Europe, whereas only 3 funds invest in the Americas only and 8 in the Asia/Pacific region only.

Fund sTrucTures

Though umbrella funds remain popular due to various practical and cost considerations, the trend over the last few years has been towards simplification of structures and strategies; hence 69% of the funds have a single compart-ment structure. This is true for 51% of the Core funds, which represent 45% of the 2012 fund launches. Core funds are mostly closed-ended (66%), with a third thereof offering some form of liquidity to investors. In total 68% of funds are closed-ended, reflecting the inherent illiquidity of real estate as an asset class and the difficul-ties of achieving investor liquidity on demand.

Fund sizes and gearing

Similar to the findings of the 2012 survey, ave-rage fund sizes continue to decrease, with the most common NAV range between EUR 100 - 200 million and with the most common GAV range between EUR 400 - 800 million. Funds are becoming smaller, which aligns with the more cautious capital raising forecasts of 2013 and preceding years. In line with the ALFI 2012 REIF survey, there has been a further decline both in the ability to borrow and in target gea-ring.

Fees

As in the previous surveys, the most commonly used basis for management fee calculation is

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GAV. 70% of these funds are charging between 0.51%-1.5%. Most of the funds launched in 2012 charge performance fees, while a 20% fee is standard across 61% of the total popula-tion that have such fees (103) funds.

invesTors

Investors are mainly European but a significant portion comes from the Americas, Asia and the Middle East, which confirms the global appeal of the SIF regime.

Luxembourg domiciled Direct REIFs and Funds of REIFs are used mainly for small groups of institutional investors, with 81% having less than 25 investors.

Only 3% reported having more than 100 inves-tors. The Direct REIFs are widely distributed (but with focus on specific geographical areas), with only 36% limited to a single country, and a mere 5% being sold in more than six countries.

Fund reporTing

Funds reporting under IFRS have seemingly stabilized at 43% of the total, but in 2012, 57% of fund launches reported under Lux GAAP. This differs depending on the in-vestment strategy: Core (61% Lux-GAAP), Opportunity funds (73% Lux-GAAP), Va-lue-Added funds (57% Lux GAAP). 62% of the funds reporting under IFRS make adjustments, whereas only 25% do so under Lux-GAAP. Funds of REIFs generally (68%) report under Lux-GAAP, a trend that has gai-ned momentum over the past three years.

53% of the Direct REIFs report a quarterly NAV, similar across all funds regardless of investment focus. Since 68% of Direct REIFS are closed-ended, the reporting of a monthly NAV (12%) is mainly due to inves-tors’ demand for performance measure-ment rather than unit redemption. 54% of the Direct REIFs have an annual valuation with only 4% requiring monthly valuations. Almost all of the funds use an independent appraiser (94%), with RICS being the prefer-red standard.

This latest edition of the ALFI REIF survey confirms that Luxembourg remains a favoured loca-tion to establish and maintain multi-national and multi-sectoral regulated real estate investment funds which continue to appeal to institutional investors and fund managers around the world.


6

INTRodUCTIoN

The ALFI REIF subcommittee has conducted the Luxembourg regulated Real Estate Investment Funds (REIFs) annual Survey for the eight consecutive year. The ALFI Survey took place during the third quarter of 2013, and represents the market composition as at 30 June 2013. The main objective in producing this Survey is to gain an understanding of market trends rather than claiming to provide complete and comprehensive data, though a significant proportion of the Luxembourg REIF market has been captured. The data sources are the depositaries that support the Direct REIFs and Funds of REIFs in Luxembourg, a population that has changed and grown year to year over the last 8 years.

1. CSSF data on Real Estate Investment Funds in Luxembourg

2006200720082009201020112012

Q1 2013Q2 2013Q3 2013

3 23

5

469

1 92

7

2 34

3

2 28

0

3 73

0

4 70

5

7 31

5

6 18

0

4 12

6

3 84

6

3 13

9

1 84

3

1 80

5

1 70

9

1 71

3280

146 36

9

522

850

1 55

7

3 30

7

8 13

1

14 7

46

14 8

39

17 5

80

20 9

25

24 0

82

24 8

39

28 0

26

28 4

05

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q12013

Q22013

Q32013

Part II (2010 Law) Institutional Funds / SIF (Law of 13 February 2007)

Net assets under management in Luxembourg real estate funds€ millions

2006200720082009201020112012

Q1 2013Q2 2013Q3 2013

11 7 7 7 8 12 19 21 16 15 13 27 26 26 26 265 3 5 6 14

2945

83121 135

166

183218 224 231 244

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q12013

Q22013

Q32013

Part II (2010 Law) Institutional Funds / SIF (Law of 13 February 2007)

Number of Luxembourg real estate fund units (*)units

Sour

ces:

ALF

I / C

SSF

Sour

ces:

ALF

I / C

SSF

(*) The number of single funds plus the sub-funds of umbrella structures

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3. Luxembourg REIFs - the Framework

3.1 direcT reiFs vs. Funds oF reiFs

For purposes of this Survey, Real Estate Funds are characterised as either “Direct REIFs” or “Funds of REIFs”:

Direct REIFs include both regulated fund vehicles and SICARs which invest in real estate assets either directly or via intermediary entities (special purpose vehicles, or SPVs).

Funds of REIFs typically invest in other Real Estate Funds or SICARs, although other assets may be held.

Indirect Real Estate Funds invest in listed real estate related securities as portfolio investments; such funds are outside the scope of this Survey.

3.2 regulaTory Framework: regulaTed vs. unregulaTed sTrucTures

Regulated structures, for the purposes of this Survey, are those vehicles that are authorised and supervised by the Commission de Surveillance du Secteur Financier (the CSSF). The laws and regulations applicable to Luxembourg regulated funds are comprised of laws, circulars issued by the CSSF, and also certain Grand-Ducal regulations.

The primary law applicable to regulated funds is the law of 17 December 2010 relating to undertakings for collective investment (UCIs), as amended (the 2010 law). Of special relevance to Real Estate Funds, the 2010 law is complemented by the law of 13 February 2007 on Specialised Investment Funds, as amended (the SIF law).

170215

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012→Jun 2013

SICARs(Direct & Funds of funds)

Fund of REIFs (excluding SICARs)

Direct REIFs (excluding SICARs) CSSF REIFs & Fund of REIFs (excluding SICARs)

Number of fund units surveyed compared with total fund units as per CSSF

units

2. Survey Coverage

As shown below, the ALFI REIF Survey provides good coverage of the market compared to the CSSF data. CSSF data shows that 254 Direct REIFs and Fund of REIFs were in existence as at June 2013, while this survey collects data as at June 2013 on 199 Direct REIFs (excluding 16 SICARs) and 38 Fund of REIFs (excluding 1 SICAR), for a total of 237 funds (92% coverage).

Sour

ces:

ALF

I / E

&Y

/ CSS

F


8

Interests in funds which are subject to the 2010 law can in principle be sold to any type of investor, i.e. institutional, high net worth and retail investors. 2010 law “Part I” funds (UCITS) may take advantage of the European passport, which means that they can be sold to any type of investor in any EU Member State after complying with certain formalities. They are, however, required to comply with detailed investment restrictions. 2010 law “Part II” funds must comply with each relevant member state’s local distribution rules, and are required to comply with certain investment restrictions (much less stringent than for “Part I” funds).

Interests in funds which are subject to the SIF law may only be sold to “well-informed investors”. In addition to the usual market of institutional and professional investors, this opens SIFs to high net worth individuals who meet the requirements of the SIF law. SIFs are not subject to general investment restrictions but must ensure adequate risk diversification and disclosure; exceptions are subject to review by the CSSF on a case-by-case basis.

Another useful Luxembourg vehicle is the SICAR, which is not classified as a fund. The “Société d’Investissement en Capital à Risque” is governed by the law of 15 June 2004, as amended. It is an investment vehicle tailored to qualified investors investing in venture capital and private equity. The SICAR can take various legal forms (such as the S.C.S., S.A., S.à r.l., S.C.A. or other legal structures) and, while regulated, is not subject to diversification requirements.

Unregulated vehicles are typically set up as companies under the law of 10 August 1915 on commercial companies, as amended. They often take the form of private limited companies (S.à r.l.) or partnerships limited by shares (S.C.A.). When companies have as their main purpose the holding and financing of participations in other companies (which in their turn may own real estate) such companies are often referred to as “SOPARFI’s”.

SOPARFIs do not enjoy a special legal or tax regime, but like any other fully taxable Luxembourg companies, they benefit from the participation exemption regime on qualifying participations. While unregulated vehicles operate in a manner similar to regulated funds, unregulated vehicles offer greater flexibility, for example in terms of choice of service providers, and lower set-up and operating costs (as opposed to investment vehicles subject to regulatory oversight and restrictions). Regulated vehicles benefit, among others, from favorable tax status and a high level of investor protection. Unregulated vehicles tend to have a small group of investors and a simple capital structure. Notwithstanding the foregoing, unregulated vehicles may have a higher total Net Asset Value than regulated funds with more investors.

This survey is limited to Direct REIFs and Funds of REIFs which are regulated by the “product” laws in Luxembourg. It does not take into account real estate investment structures which are not regulated by the “product” laws but which may, nevertheless, be “Alternative Investment Funds” as defined by the Directive 2011/61/EU on alternative investment fund managers (AIFMD).

3.3 legal sTrucTures

Real Estate Funds governed by the 2010 law or the SIF law may be set up either in corporate form (“SICAV” or “SICAF”), in contractual form (“FCP”) or as partnerships (“SCS” or “SCSp”). A key determining factor in the selection of one of these structures is the tax regime applicable to investors; FCPs and partnerships are tax transparent whereas SICAVs and SICAFs are taxable, with certain exceptions.

Regulated funds governed by the 2010 law or the SIF law as well as the SICAR law may adopt an umbrella structure with multiple sub-funds where, for instance, sub-funds have a different investment policy or are restricted to certain types of investors. The umbrella fund is legally treated as a single entity; however, in principle, each sub-fund is responsible for its own assets and liabilities.

For the purpose of this Survey, reference to the number of fund “units” means the number of single funds plus the number of active sub-funds in umbrella structures.

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4. Scope and Methodology

4.1 scope

The ALFI Survey covers Direct REIFs, Real Estate SICARs and Funds of REIFs to which ALFI members provide depositary services. It does not cover unregulated vehicles or AIFs which are not regulated under “product” laws in Luxembourg, nor does it cover the intermediary financing vehicles set up for the acquisition of property or similar collective investment vehicles.

4.2 meThodology

The ALFI Survey is based on a comprehensive questionnaire which was sent to all ALFI members. The depositaries and administrators responding are those which service the vast majority of Direct REIFs and Funds of REIFs in Luxembourg. The questionnaire, which focused on the status as at June 2013, included questions relating to each fund’s:

Geographical investment region Target segment of investment Net Asset Value (NAV), Gross Asset Value (GAV) and target gearing Investment style Legal regime and structure Investor types and origin Accounting standard (GAAP) Fees Distribution method Valuation methodology Initiator origin Service providers including depositary, central administration, audit, legal and tax

Direct REIFs tend to be concentrated with a limited number of depositaries which have the specialised competencies to serve this market.

Where possible, Survey results are at times compared with those published in Luxembourg Real Estate Funds: A comprehensive survey by Ernst & Young, published in January 2006 and the ALFI REIF Surveys 2007 - 2012.


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PART I - dIRECT REAL ESTATE FUNdS & REAL ESTATE SICARs

1. Introduction

The Direct REIFs population surveyed (excluding SICARs) continued to expand with 22 new Direct Funds launched in 2012 and 5 by the end of June 2013, bringing the total to 199 Direct REIFs as at 30 June 2013.

The total number of Direct REIFs covered by this survey increased by 17% in 2012 and by 216% since 2006, a compound annual growth rate (CAGR) of 21%. We also include data on 16 Real Estate SICARs.

Since 2004, Institutional / SIF funds became the majority and since 2008 have accounted for almost all new fund launches. This was reinforced in 2012 and 2013, with all the new launches of Direct REIFs being SIFs, bringing the total of SIFs to 80% of the Direct REIFs population.

(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.

0

5

10

15

20

25

30

35

40

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun2013

Part II (2010 Law) Institutional Funds / SIF (Law of 13 February 2007) SICAR

Number of fund units by launch year (*)units


33%

7% 3% 3%12.5%

50%

11%

19%

10%12%

3%

12.5%

3%100% 100% 100%89%

48%

83% 85%94%

75%

100%

47%

100% 100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SIF SICAR 2010 Part II

Proportion of fund types by launch year (*)So

urce

: ALF

I Sur

vey

2013

Sour

ce: A

LFI S

urve

y 20

13

11


2. Initiator origins

In 2012, initiators in Europe were responsible for all the new REIF launches, with German, Swiss, UK and other Emerging Europe initiators being the most active. This compares to 47% in 2011, 64% in 2010 and 88% in 2009. No new funds were launched by Asian groups or US Groups (compared to 36% in 2010 and 3% in 2011).

2007200820092010201120122013

Grand Total

Count of Initiator OriginCountryLaunch YEAR

< 20002002200320042005

7% 10%

50%

29%

3%

16%

13%18%

3%10%

25%

11%

9%

6%

7%

6%

9%

3%

33%

14%

21%

13%

9%

17%18%

50%3%

3%

5%

5%

14%

10%3%

6%

9%

50%

5%

3% 9%

13%

38%

18%

4%

23%

5%

3%

6%

5%9%

3%

6%

18%

25%

33%

45%

5%

34%24%

10%25%

9%

14%

9%

50%

67%

100%

11%

24% 21% 21%16%

13%

37%

3%3%6% 3%

3% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Proportion of REIFs launched by initiator origins (*)

Australia/NZ Benelux France Germany Italy Middle EastNordic/Baltic Other Americas Other Asia Other Europe Russia SpainSwitzerland UK US Portugal canada sweden

3. Legal Structure and Regime

The majority of Real Estate funds fall under the SIF law. This reflects the popularity of this regime for Real Estate Fund initiators seeking an onshore regulated investment fund vehicle for all types of alternative investment fund products (including Direct REIFs and Funds of REIFs).

2007200820092010201120122013Grand Total2013data/table prepared

Launch YEAR< 2000200220032004200520062007200820092010

14%

4% 3%

57%19%

4%3%

13%

14%

3%11%4% 6%

3%

6%

3%5%

7% 3%

6%

25%

100% 100%

56%

38%

41%55%

48%

31%73%

13%

27%

80%

3%

13%

5%

5%

3%

9%

23%25%

10%

55%

20%

75%

33%

5%

34%

10% 23% 19%27%

10% 14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chart Title

SIF (SICAV - SCA)

SIF (SICAV - SA)

SIF (SICAF)

SIF (FCP)

SICAR (SCA)

SICAR (Sàrl)

SICAR (SA)

Part II (SICAF)

Part II (FCP)

Legal regime and vehicle type combined by launch year (*)



Sour

ce: A

LFI S

urve

y 20

13So

urce

: ALF

I Sur

vey

2013


12

Just over half of the 199 Direct REIFs (excluding SICARs) use the FCP as the vehicle, usually in combination with the SIF regime - this is by far the most popular combination of regulatory regime and fund vehicle utilised over several years.

The fact that each of the SCA-SICAV and SA-SICAV combinations has increased representation in respect of both new launches and the total reflects the versatility of the Luxembourg environment in offering both transparent and opaque vehicles, and in supporting regulatory regimes suitable to initiators’ requirements.

Legal regime and structure combined

Source: ALFI Survey 2013Data as of 30 June 2013

Part II (2010 law) SICAF

4%

Part II (2010 law) FCP9%

SIF (2007 law) FCP42%

SIF (2007 law) SICAV -SCA

15%

SIF(2007 law) SICAV -SA

20%SIF(2007 law)

SICAF3%

SICAR - SA2%

SICAR - SCA2%

SICAR - S. à r.l.3%

Legal regime

Source: ALFI survey 2010Data as of 31 December 2009

Source: ALFI Survey 2013Data as of 30 June 2013

Basic structure

Part II (2010 law)13%

SIF (2007 law)80%

SICAR7%

FCP51%

SICAV35%

SICAR7%

SICAF7%

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4. Fund Structure

69% of the surveyed funds reported being single compartment vehicles. The remaining funds have a multi compartment umbrella structure (i.e. sub-funds) which confirmed the increased popularity of umbrella structures over recent years; 23% use this structure solely for separate investment strategies, 10% use an umbrella solely for co-investment and 6% combine both types of usage. 4% of funds use feeder vehicles and 19% have complex share classes so that, for example, different management and performance fee structures can be managed for different investors. There are only 3 funds which use a pooling structure; possibly because in practice this is difficult to implement for direct Real Estate Funds (as opposed, for example, to equity funds). The trend over the last several years has been toward simplification of structures and strategies.

Legal regime

Legal regime and fund vehicle combined

CSSF Data as at 30 September 2013

Basic structure

Part II (2010 Law)

9%

SIF (2007 Law)91%

Part II (2010 Law) /

SICAF1%Part II

(2010 Law) / FCP8%

SIF (2007 Law) / FCP41%

SIF (2007 Law) / SICAV

46%

SIF (2007 Law) / SICAF

4%

SICAF5%

FCP49%

SICAV46%

10%

23%

6%

69%

19%

4%

1%

90%

77%

94%

31%

81%

96%

99%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sub funds used for co-investment only

Sub funds used for separateinvestment strategies only

Sub funds used for co-investment& separate investment strategies

Single compartment funds

Complex share classes

Feeder Vehicles

Pooling

Yes No

Sources: ALFI / CSSFData as of 30 September 2013excludes SICARs

Sour

ce: A

LFI S

urve

y 20

13


14

5. Investment Style

49% of the 215 funds surveyed, (excluding SICARs), are “core” funds with the remainder split between “value added” (38%) and “opportunity” (13%) fund styles. While these proportions have remained relatively stable from 2009 to 2011, recent launches have focused on core strategies.

In terms of regulatory regimes, all SICARs must be opportunity funds, Part II (2010 law) funds predominantly pursue a core strategy, while the SIF regime is flexible (encompassing core, value-added and opportunity strategies).

All new Direct REIFs launched in 2013 pursue a core strategy, continuing the dramatic drop in launches of value-added and opportunistic funds over recent years. It will be interesting to monitor developments especially of opportunistic funds, as more capital returns to the market.


2007200820092010201120122013

Grand Total

< 200020022003200420052006200720082009201020112012

75%

33%

100%

44%33% 38%

30% 32%

62%

46%

67%

46%

100%

25%

34%48%

45%

40%

55%

19%

36%

20%

27%

67%

22% 19% 17%

30%

13%19% 18%

13%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Opportunity Value-Added Core

Fund unit launches by strategy type (*)

Core45%

Opportunity20%

Value-Added35%

Sour

ce: A

LFI S

urve

y 20

13

Source: ALFI Survey 2013

15


Investment StyleCoreOpportunityValue-Added

AssetClass

66%

83%

62%

9%

3%

5%

11%2%

21%

14% 12% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Core Opportunity Value-Added

Closed Semi-Open (Not continuous) Open - Restrictions Open - No Restrictions

Fund investment style by investor liquidity

6. Investor Liquidity

68% of the surveyed funds are closed-ended. 7% of the funds are semi open-ended with 13% being fully open-ended with no restrictions on redemptions. 12% of the funds are open with restrictions, a decrease compared to previous results. This reflects the inherent illiquidity of Real Estate as an asset class and thus the difficulties of achieving investor liquidity upon demand but also illustrates that investors are allocating capital to funds that offer some sort of liquidity.

Of the 42 opportunistic funds surveyed, 34 (83%) are closed-ended. Value-added funds also tend to be predominantly closed-ended in type (62%), with 20% open-ended with restrictions. Core funds are mostly closed-ended (66%) but a third of core funds offer some form of regular liquidity to investors: a result substantially similar to the findings of the 2011 and 2012 ALFI Surveys.

Open - RestrictionsOpen - No Restrictions

2006ClosedSemi-Open (Not continuous)Open - RestrictionsOpen - No Restrictions

2007

Closed68%

Semi-Open (Not continuous)

7%

Open - Restrictions12%

Open - No Restrictions

13%

Sour

ce: A

LFI S

urve

y 20

13



16

Row LabelsCoreOpportunityValue-Added

30%

3%14%

27%

33%25%

36%

38%42%

7%

26%19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


11-15 years 8 - 10 years Infinite Up to 7 years

Fund duration by investment styleFund duration by investment style

7. Term

Almost a third of Direct Funds have a term of 8-10 years, while a further 39% have an infinite life.

33% of opportunity funds have a life of 8-10 years, down from 42% in the 2012 ALFI Survey. This shows a trend toward longer terms for opportunistic funds, 38% of which have an infinite term (compared with 26% for value-added funds and 27% for core funds). Meanwhile, more than a third of core funds and value-added funds (35% and 42% respectively) have an infinite term.

11-15 years19%

8 - 10 years27%

Infinite39%

Up to 7 years15%

Term of direct real estate funds

Sour

ce: A

LFI S

urve

y 20

13


17


2007200820092010201120122013

< 200020022003200420052006200720082009201020112012

50%

37.5%

50%

35%

40%

42%

37%

35%

35%

17%

40%

35%

36%

25%

4%

16%

3%

5%

14%

9%

15%

2%

2%

9%

2%

2%

6%

4%

2%

7%

15%

9%

50%

37.5%

50%

57%

42%

50%

42%

42%

40%

37%

58%

41%

46%

4%

3%

5%

4%

13%

5%

3%

1%

9%

11%

2%

2%

5%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

< 2000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 EU - 27

Other Europe

EFTA (non EU)

Asia / Pacific

America -North

America -Central / South

Middle East &Others

Geographical investment region by fund unit launch year

Geographical diversification remains the common theme.

Non-exclusive data: Each fund may invest in multiple regions shown here.

8. Geographical Investment Strategy

In the 2013 ALFI Survey, 35% of Direct REIFs have a single-country investment focus which shows an increase compared to the 2011 & 2012 ALFI Surveys (25% and 27% respectively). 82% of the funds invest only in Europe. Among the 77 single-country funds, 66 funds (86%) invest in EU-27 only.

Over two-thirds of the funds are focused only on the EU-27 countries (153), with a further 18% (or 39) of the surveyed funds also investing in other European countries and EFTA.

Three funds invest in the Americas only, 1 fund in the Middle East and 8 funds in Asia / Pacific only. Finally, 46 funds invest in 2 or more world regions, reflecting the suitability of the SIF for investment strategies focusing on a range of different countries.

NB: one fund invests in all world regions except for the Middle-East.

EU 27 Only71%

EU-27 + EFTA Only5%

EU-27 + other Europe Only

6%

Asia/Pacific Only4% Americas Only

1%Other13%

Exclusive data: Each fund falls into one categoryPercentages based on the received responses.

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2007200820092010201120122013

SUM

200520062007200820092010201120122013

17%

22%

100%

26%

38%

31%

25%

28%

21%

29%

30%

23%

33%

50%

22%

37%

26%

27%

29%

29%

36%

29%

19%

27%

17%

33%

34%

21%

18%

18%

21%

18%

14%

20%

43%

10%

17%

22%

11%

13%

15%

16%

14%

25%

16%

4%

18%

25%

5%

3%

6%

7%

3%

2%

6%

5%

6%

3%

4%

4%

3%

2%

16%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

< 2000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013Office

Retail

Industrial

Residential

Infrastructure

Hospitality

Target sector by fund unit launch year

9. Target Sectors

As was the case in the 2012 ALFI Survey, 59% of the surveyed funds (126 out of 215) have a diversified investment strategy in terms of property types.

Office only4%

Retail only12%

Industrial only8%

Multi sector59%

Residential only5%

Hospitality only1%

Other Single Specialist

6%

All sector5%

Sectoral Investment Strategy

Exclusive data: Each fund falls into one categoryPercentages based on the received responses.


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The 2013 ALFI Survey shows an increase of “multi-sector” from 55% to 59% which recovers the decrease identified in the ALFI Survey 2012 (from 59% to 55% compared to the 2011 Alfi Survey).

The preferred target sectors for 2013 fund launches are office (33%) and residential (25%).

Non exclusive data, i.e. funds can cover one or several sectors shown. The purpose of the graph is to highlight changes in strategy over time.

19


10. Net Asset Value (NAV) distribution

The charts below show a comparison of average NAV reported in the 7 years of the ALFI REIF Survey to date.

2006 NAV2007 NAV

2008 NAV2009 NAV

2010 NAV2011 NAV

2012 NAVJun 2013 NAV

0%

10%

20%

30%

40%

50%

60%

€ mio

% o

f p

op

ula

tio

n i

n th

is b

an

d

0%

10%

20%

30%

40%

50%

60%

€ mio

% o

f pop

ulat

ion

in th

is b

and

NAV distribution

Target NAV

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More significant is the forecasted Target NAV averages of the survey populations which illustrate the continued decrease in the average fund size, with the median moving from the 200-400 million euros band (2009 ALFI Survey) to the 100-200 million euros band (2012 ALFI Survey), reflecting continued cautious forecasts for capital raising in 2013 and possibly the creation of numerous smaller funds.


20

11. Gross Asset Value (GAV) distribution

GAV distribution

2012 shows a similar pattern target GAV distribution since 2008, but signal some optimism in relation to the return of leverage.

2006GAV

2007GAV

2008GAV

2009GAV

2010GAV

2011GAV

2012GAV

0%

10%

20%

30%

40%

50%

60%

% o

f p

op

ula

tio

n i

n th

is b

an

d

€ mio

0%

10%

20%

30%

40%

% o

f p

op

ula

tio

n i

n th

is b

an

d

€ mio

Note: In this section, graphs exclude the funds that did not provide NAV / GAV figures.

The majority of funds’ forecast Target GAV drop from between 400 million euros and 800 million euros to lower amounts confirming recent trends toward smaller funds.

Target GAV

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Commitments13%

GAV28%

NAV22%

None1%

Other29%

No data available7%

20092010

20112012

20132014

2015

0%

10%

20%

30%

40%

50%

% of

pop

ulat

ion

in th

is ba

nd

Target gearing of funds

12. Target Gearing of Funds

Continuing on the results of the 2011 ALFI Survey, there has been a further decline in the 30-40% gearing range (falling to 3% of the population), while 29% report a target in the 50-60% range. The range of 60-70% has fallen to 13% of the population. It is notable that the range over 70% has declined and fallen to 16% of the funds.

13. Fees

28% of the surveyed funds use GAV as the basis for their management fee calculation, which is slightly lower than the corresponding results of the 2010 and 2011 ALFI Surveys. The majority of the funds calculating their fees on the basis of GAV charge fees of 0.51-1.0%..

Management fee calculation basis for direct real estate funds

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>1.5%24%

0.51%-1.0%30%

0-0.5%22%

1.01%-1.5%20%

Fixed fees1%

no data available3%

Management fee range for Direct REIFs

Almost half of the surveyed Direct Funds do not levy a performance fee, but most of the funds launched since 2011 charge performance fees. For the funds charging performance fees, 61% charge 20%.

11 core funds indicated a payout rate above 20%, while 23 core funds have performance fees with a payout rate of 20%. 69% of the value-added funds (29) reported a payout rate of exactly 20%, indicating that this is the market standard.

>20%Grand Total

Count of FundName (Optional) OR ReferencePerformance Fee (%) charged20%<20%>20%

Pivot 2013

AssetClass

Count of AssetClassPerformance Fee (%) charged220%<20%>20%n/anoneGrand Total

%

55%

69%58%

19%

10%26%

26% 21%16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Core Value-Added Opportunity

Performance fee charged

20% <20% >20%

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14. Number of Investors

The ALFI Survey results show that Luxembourg Direct REIFs typically do not have a large number of investors.

Approximately 81% of the population have fewer than 25 investors and 31% have 5 investors or fewer while less than 3% have more than 100 investors. This reflects the fact that the majority of investors in such funds are institutional and thus, inherently, there tends to be a smaller number of investors per fund. Similar to the 2011 results, 17% of funds have more than 25 investors.

15. Type of Investors

Virtually all of the funds surveyed have institutional investors, with “high net worth individuals” (HNWI) investing in 54 of the funds. Retail investors have invested in 24 of the funds.

96%

26%19%

9% 13%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Institutional HNW Individuals Private Bank Family Office Retail

% of fund units which allow specific investor groups

1 - 5 investors31%

6 - 25 investors50%

26 - 100 investors15%

101 + investors3% no investors yet

1%

Non-exclusive data: Several investor groups may be identified per fund. Percentages based on the received responses.


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16. Investor origins

The majority of investors are from Europe. However, there are also significant numbers from the Americas (49 funds), the Asia / Pacific region (19 funds) and the Middle East (18 funds), reflecting the global appeal of the SIF regime. 94 (46%) of the surveyed funds have investors from two to five countries and 47 (23%) have investors from between 6-10 countries, which again highlights the success of the SIF regime as a global investment offering.

AssetClass

Count of AssetClass215

1 country27%

2 - 5 countries46%

6 - 10 countries23%

11 + countries4%

Number of investors’ countries

Institutional and HNW individuals continue to represent the majority of investors in REIFs of all sizes.

74%

52%

56%

43%

5%

15%

14%

21.5%

4%

7%

6%

7%

11%

18%

18%

21.5%

6%

8%

6%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 - 5

6 - 25

25 - 100

101 +

Institutional Private Bank Family Office HNW Individuals Retail

Number of investors by type of investorinvestor

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IFRS43%

Lux GAAP57%

The 2013 ALFI Survey confirms the notable increase in funds targeted for distribution in 2-5 countries compared to the results from 2009-2011, which now represent the largest category (94 funds).


17. Accounting Standards

Just over half of all of the surveyed funds apply Luxembourg GAAP (Lux GAAP), with the remainder applying IFRS. In this year’s Survey, the reporting framework selected does differ significantly depending on the strategy of the fund, i.e. core (61%) and especially opportunity funds (73%) opt for Lux GAAP whereas value-added funds tend to choose IFRS (57%). Virtually all of the surveyed funds prepare consolidated accounts.

200820092010201120122013

Grand Total

Pivot 2013AssetClass

Count of AssetClassRow Labels

50%

33%

5%

24%

10%

38%

12.5%

30%

54%

36%

25%

100%

3%

10%

3%

12.5%

25%

33%

11%62%

35% 55%

38% 75%

40%

32%59%

100%

67%56%

33% 38%25% 21%

30%

14%5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 11 + 2 - 5 6 - 10 countries

Number of investor countries by launch year (*)

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48%43%

52%

29%

12%23%

18% 18% 16%

8%

0%

10%

20%

30%

40%

50%

Formationexpenses

Transaction costs Deferred taxation Fair valueof financialinstruments

Other adjustments

IFRS Lux GAAP

Number of IFRS fund units (90 in total) andnumber of LUX GAAP (118 in total) adjusting for various items

2007200820092010201120122013Grand Total

Source: ALFI survey 09

25%

56%

29%

52%62%

45% 44%

64%

31% 32%

75%

100% 100%

44%

71%

48%38%

55% 56%

36%

69% 68%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GAAP adopted by new fund unit launches

IFRS Lux GAAP

33 funds already report financial statements that are compliant with the INREV reporting standards, an increase over previous years. In addition, 62% of the funds preparing their financial statements under IFRS make adjustments to the amounts reported therein to arrive at their fund NAV, compared with only 25% under Lux GAAP (30% in 2010 and 26% in 2012 survey). 19 funds using LUX GAAP make adjustments for fair value.

Prior to 2006, Luxembourg GAAP (Lux GAAP) was the preferred standard, from 2006 to 2009, IFRS and Lux-GAAP were more balanced, whereas in 2011 and 2012 Lux GAAP is again the preferred standard.

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18. Frequency of NAV Calculation

The majority of funds report a quarterly NAV, similar across all fund types (i.e. core, value-added and opportunistic), while 12% produce a monthly NAV. Among opportunity funds only 4 funds have a monthly NAV.

Since 68% of funds are closed-ended, the reporting of quarterly NAV is more likely due to investor demand for performance measurement rather than for the purposes of pricing the issue and redemption of units.

Similar to the 2012 ALFI Survey, 54% of surveyed funds rely on annual independent valuations of their properties, while only 4% employ a monthly valuation cycle. Almost all of the surveyed funds use an independent appraiser in respect of their valuations.

Annual23%

Monthly12%

Quarterly53%

Semi-Annual12%

Frequency of reporting of fund NAV

Count of AssetClassInvestment StyleCore

32%23%

12%

12%

15%

11%

42% 52%

65%

14% 10% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Monthly Quarterly Semi-Annual Annual

Frequency of reporting by investment strategy

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Inversely to the 2011 ALFI Survey and as was the case for the 2012 ALFI Survey, the frequency of property valuations correlates with the frequency of reporting of NAVs. It is more balanced for quarterly and monthly NAVs.

None4%

Monthly4%

Quarterly19%

Other1%

Semi-Annual18%

Annual54%

QuarterlyMonthlyFortnightly(blank)

98%

20%

48%56%

80%13%

12%

2%

38%

1%

32%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Annual Semi-Annual Quarterly Monthly

Prop

erty

Val

uatio

n Fr

eque

ncy

Frequency of NAV Calculation

Frequency of property valuation by frequency of NAV calculation

Monthly

Quarterly

Semi-Annual

Annual

units

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RICS73%

ISVC2%

TEGOVA1%

Other18%

None6%

listed fundsAssetClass

Row LabelsLSELux Main BourseLux MTFOtherGrand Total

EUR88%

USD5%

GBP5%

Other2%

19. Valuation Standards

Almost three quarters of the Direct REIFs’ valuations are carried out under RICS Valuation and Appraisal Standards. This is by far the leading standard for property valuations used, and is the standard for new funds.

20. Stock Exchange listing

Out of the 215 Direct REIFs covered in this Survey, 18 are listed.

21. Currency

The great majority of funds report in EUR, while 5% report in USD and 5% in GBP.

Valuation standards adopted




30

PART II - FUNdS oF REAL ESTATE INVESTMENT FUNdS

1. Introduction

The first Fund of REIFs was launched in Luxembourg in 2005, more than five years after the launch of the first Direct REIF. Given the small number of Funds of REIFs operational in Luxembourg at the end of 2006, these funds were not covered until the 2008 ALFI Survey, but have been covered each year since.

66% of Funds of REIFs were launched before 2009. 2 funds were launched in 2009, 4 funds in 2010, 4 in 2011 and only one fund was launched in 2012. This brings the total number of Funds of REIFs covered by this Survey to 39.

(*) The chart shows the details for Funds of REIFs only. This chart is not cumulative, but shows the total number of funds per year of launch.

201120122013Grand Total

2013Launch YEAR20052006200720082009201020112012

25%

100%

9%

100% 100%91%

75%

100% 100% 100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Part II (2010 Law) SICARs SIFs

FoREIF units by launch year (*)

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20112012

50%

9%

36%

25%

50% 50%

25%

36%50%

46%

36%

25%

25%

25%

50%9%

9%19%

25%

50%

100%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

OtherAmericas

UK

Switzerland

Other Europe

Nordic/Baltic

Germany

Benelux

Initiator origins by fund unit launch year (*)

2. Initiator origins

Out of a broad range of initiators across Europe, German and UK initiators have dominated the marketfor new launches since 2006 (26% and 19% respectively).

(*) The chart shows the details for Funds of REIFs only. This chart is not cumulative, but shows the total number of funds by the year of launch.

Origins of initiators of funds of funds

3. Legal Structure and Regime

Grand Total

Asia / Australia& New Zealand

3%

Benelux10%

Germany14%

France5%

Other Europe 15%

Middle East1%

Nordic/Baltic5%

Switzerland4%

UK20%

US & Other Americas

23%

Origins of initiators of direct real estate funds

Benelux5%

Germany26%

Nordic/Baltic10%

other Americas3%

Other Europe33%

Switzerland5%

UK18%

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2010 Part 2 (FCP)5%

SICAR - SCA3%

SIF(FCP)61%

SIF (SICAV - SA)28%

SIF (SICAV - SCA)3%

% link / formule20052006200720082009201020112012

2013 data linkRow Labels200520062007

100%

55%

73%

50%

100%

50%

25%

100%

18%

9% 50%

25%

50%

27%18%

25% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Core Opportunity Value-Added Mixed

Investment style by launch year

As reflected in last year’s survey only 2 out of 39 Funds of REIFs are Part II (2010 law) funds. As all of the funds launched from 2009 to 2011 have been SIFs, 36 of the Funds of REIFs (92%) fall under the SIF law.

With regard to the legal structure of the funds, over years, the FCP remains the preferred option over the SICAV (26 vs 11). The FCP structure was chosen for 67% of funds.

Since 2008, the FCP is the legal form favoured by initiators launching funds under Luxembourg law. SICAV & FCPs were equally represented in 2007 with 5 funds in each category, in 2008, 3 of the 4 new fund launches were FCPs. In 2010, 3 of the 4 new fund launches were SICAVs, and in 2011 and 2012, all of the funds launched were FCPs.

4. Investment Style

82% of Funds of REIFs covered by this Survey are classified as core funds (23) or opportunity funds (8). There are 5 value-added Funds of REIFs.

Legal structure and regime combined

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Open - No RestrictionsOpen - RestrictionsGrand Total

AssetClass

Row LabelsClosedOpen - No RestrictionsOpen - Restrictions(blank)Grand Total

Closed79%

Open - No Restrictions

10%

Open -Restrictions

11%


%

60%75%

50%

20%50%

13% 25%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Closed Open - No Restrictions Open - Restrictions

Core

Opportunity

Value-Added

Mixed


Most of the opportunity funds are closed-ended (75%), with 2 funds “Open-ended with restrictions”. The 2 mixed funds are also closed-ended.


5. Investor Liquidity

Overall, the majority of Funds of REIFs (79%) are closed-ended. “Open-ended with restrictions” and “Open-ended with no restrictions” are equally represented in 8 fund launches, (4 funds each) since 2005, but the trend over the last several years has been towards primarily closed-ended Funds of REIFs.

Open vs. closed-ended funds

200520062007200820092010201120122013

AssetClass

Count of AssetClassRow Labels200520062007

Open vs. closed-ended fund units by launch year (*)

50%

82%

100%

25%

100%

75% 75%

100%

50%

9% 25% 25%

9%

75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Closed Open - No Restrictions Open - Restrictions

Open vs. closed-ended fund units by launch year (*)


%

78% 75% 80%

100%

13%20%

9%25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Closed

Open - NoRestrictions

Open -Restrictions

Investor liquidity by fund investment style


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6. Term

In 2006 & 2007 there was even representation of funds with terms in the 10-15 year and infinite life categories. Most of the opportunity and value-added funds still have a fund term of either 10-15 years or an infinite term. 52% of the core funds have a 10-15 year term (down on the 69% of the preceding survey). Only 4 funds are represented in the 8-10 year category.

11-15 years47%

8 - 10 years11%

Infinite39%

Up to 7 years3%

Fund duration

Up to 7 years

2013Duration of Fund11-15 years8 - 10 yearsInfiniteUp to 7 years

2013AssetClass

Count of AssetClassRow Labels10-15 years

66%

25%

60%

100%

17%

50%

20%

11% 25% 13%

6% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

11-15 years 8 - 10 years Infinite Up to 7 years


Fund unit duration by investment style (*)


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EU 27 Only42%

Asia/Pacific only13%

Americas Only3%

Global42%

7. Geographical Investment Strategy

While the Funds of REIFs launched in 2005, 2009 & 2012 focused primarily on investments in Europe, other years showed a larger diversity of investment region. Save for the consistency in European focused Funds of Real Estate Funds, some survey years have showed specific focus on other regions, for example: the Asia/Pacific region was predominant in 2006 and 2011, while 2010 revealed an increase in focus on South & Central America.

Exclusive data: Each fund falls into one category.

Non exclusive data, i.e. funds can cover one or several regions shown. The purpose of the graph is to highlight changes in strategy over time.


Geographical investment region

200720082009201020112012

2013AssetClass

Count of AssetClassRow Labels2007Grand Total

18%

30%

14%

9%

100%

37%

8%

50%

27%

10%

5%

4%

50%

55%

20%

9%

4%

67%

41%

54%

37%

80%

3%

3%

14%

13%

4%

12%

9%

13%

0% 20% 40% 60% 80% 100%

2005

2006

2007

2008

2009

2010

2011

2012 EU - 27

EFTA (non EU)

Other Europe

Asia / Pacific

America - North

America - Central/ South

Geographical investment region by fund unit launch year (*)


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YYNYYYYNYYYYYYYYY

office retail residential5%

office/retail/industrial/residential/hopitality

22%

office/retail/industrial/residential/

Infrastructure6%

office/retail/industrial/residential

56%

office/retail/industrial/Infrastructure

11%

Multisector100%

8. Target Sectors

As was the case for the 2012 ALFI Survey, almost all of the Funds of REIFs follow a multi-sector investment strategy. Office and retail sectors remain the most popular. The “Office/ Retail/ Industrial/ Residential” category has increased to 56% this year (from 23% in the 2011 survey and 40% in the 2012 survey) and has become the most prevalent investment sector.

Exclusive data: Each fund falls into one category.

(*) The chart shows the details for Funds of REIFs only by target sector. This chart is not cumulative, but shows the total number of funds by the year of launch.

Non exclusive data, i.e. funds can cover one or several regions shown. The purpose of the graph is to highlight changes in strategy over time.

2013

20052006200720082009201020112012

7%

25%

26%

27%

25%

29%

23%

17%

7%

28%

26%

27%

25%

21%

23%

16%

73%

25%

11%

6%

50%

21%

6%

18%

18%

20%

29%

18%

17%

2%

8%

6%

16%

5%

20%

12%

17%

13%

2%

6%

12%

17%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2005

2006

2007

2008

2009

2010

2011

2012 Office

Retail

Industrial

Residential

Infrastructure

Hospitality

Other

Target sector by fund unit launch year (*)

Sectoral investment strategy

Sour

ce: A

LFI S

urve

y 20

13


37


9. Net Asset Value (NAV)

The 39 Luxembourg domiciled Funds of REIFs represented a total NAV of 4.6 billion euros at the end of 2012, compared to 3.1 billion euros in the previous year. The average NAV at 31 December 2012 was 120 million euros, ranging from 9 million euros to 350 million euros. As most Funds of REIFs do not use gearing, the NAV and GAV are similar.

End 2012 NAV distribution

10. 2015 Target NAV distribution

Although there is currently very little gearing in Funds of REIFs (NAV=GAV), we note the mixed funds plan to include limited gearing by 2015, and many expect to raise new capital or draw-down existing commitments. This accounts for the divergence between 2012 NAV and 2015 target NAV shown.

0

5

10

15

20

25

<100 100-200 200-400 400-800 800-1200 1200-1800 over 1800 € mio

units

0

5

10

15

20

25

<100 100-200 200-400 400-800 800-1200 1200-1800 over 1800

2015 target NAVGav 2012

units

€ mio

Sour

ce: A

LFI S

urve

y 20

13So

urce

: ALF

I Sur

vey

2013


38

11. Fees

47% of the Funds of REIFs covered in this Survey base their management fee on NAV, similar to the results of the 2012 ALFI Survey. In the 2013 ALFI Survey, commitments as the basis for the management fee decreased from 35% to 29%. A further 21% use “other” measures.

26% of Funds of REIFs charge a management fee in the mid-range of 0.51%-1%. For 59% of Funds of REIFs the management fee is between 0% and 0.5%. The two funds which charge a fee of more than 1.5% are opportunity and core funds respectively.

FoREF Management fee basis

64% of Funds of REIFs charge performance fees below 20%. Among these funds, 67% are core funds. 57% of Funds of REIFs have a performance fee hurdle rate that falls in the mid-range of 9-12%. Among these funds, 75% are also core funds.

FoREF Management fee range

Commitments29%

NAV47%

Other21% GAV

3%

total data on

>1.5%6%

0.51%-1.0%26%

0-0.5%59%

1.01%-1.5%9%

Grand Total

67%75%

22%

100%

25%11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Performance fee charged

<20%

20%

>20%

40%

100%

60%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Performance fee hurdle rate

5%-8%

9%-12%

Sour

ce: A

LFI S

urve

y 20

13So

urce

: ALF

I Sur

vey

2013


39


12. Type of Investors

Almost all Funds of REIFs (36) covered in this Survey are limited to institutional investors. 2 funds are only open to family offices, private banks and/or HNW individuals. All other funds are open to institutional investors and other types of investors.

42% of funds have between 6 and 25 investors followed by 26% with 1 to 5 investors per fund. With regard to the number of investors for the different investment styles, the majority of both core funds and opportunity funds are represented in the “6 to 25 investors” category whereas the value-added funds fall into the “1 to 5 investors” category.

Institutional Only74%

Institutional & Retail3%

Institutional & HNWI4%

Institutional & Private Bank7%

Private Bank & Family office & HNWI

4%

Institutional & Private Bank & HNWI

4%

Family office only4%

2013

50%

9%

36%

75%

33%

55%

55%

13%

100%

67%

50%

36%

9%

25%

25%

100%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

1 - 5 6 - 25 26 - 100 101 +

Number of investors by fund launch date

Exclusive data: Each fund falls into one category.Source: ALFI Survey 2013

Sour

ce: A

LFI S

urve

y 20

13The historically high proportion of 2012 launch aimed at a larger number of investors reflect the Part II funds identified in the 2013 Survey and is, in our view, a one-off occurrence. Most of the Funds of REIFs have 6 to 25 investors.


40

IFRS21%

LUX GAAP79%

14. Frequency of NAV Calculation

More than three quarters of the Funds of REIFs have adopted quarterly NAV calculations, with 5 funds calculating NAV on a monthly basis, 5 funds on an annual basis and another 2 funds on a semi annual basis.

20122013

Accounting standard by launch year

27%36%

25%

100%

73%64%

100% 100% 100%

75%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

IFRS LUX GAAP

Accounting standard by launch year

13. Accounting Standards

79% of the Funds of REIFs (and all those launched in 2012) report under Luxembourg-GAAP, whereas for Direct REIFs, this split is more evenly balanced.

Annual5%

Monthly13%

Quarterly77%

Semi-Annual5%

Sour

ce: A

LFI S

urve

y 20

13



41


20062007200820092010201120122013

total

2013AssetClass

Count of AssetClass

Row Labels

Frenquency of NAV calculation by launch year (*)

Source: ALFI survey 2011

Frenquency of NAV calculation by launch year (*)

50%

9%

75%

25%

100%91%

91%

25%

100%

25% 75%

100%

9%

25%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012

Annual Monthly Quarterly Semi-Annual

Frequency of NAV calculation by launch year (*)

15. Stock Exchange Listing

Out of the 39 Funds of REIFs covered in this Survey, only 1 fund is listed on the Luxembourg Stock Exchange (Lux MTF).

16. Currency

As is the case for Direct REIFs, the euro is the most common currency (30 funds).


Row LabelsEURGBPOtherUSD(blank)Grand Total

EUR79%

GBP5%

Other3%

USD13%

Sour

ce: A

LFI S

urve

y 20

13



42

SUMMARY

The 2013 edition of the ALFI Real Estate Investment Funds survey covers 215 Direct REIFs and 39 Fund of Real Estate Funds, with 23 new funds launched since the last survey was conducted. This year’s survey also covers 5 Direct REIFs formed between 1 January and 30 June 2013.

German & Swiss initiators launched the majority of Direct REIFs in 2012 and the sole Fund of Real Estate Fund formed in 2012 was launched by a German initiator.

All of the new funds launched fall under the SIF regime. While core funds and value added funds are equally represented for Direct REIFs, 82% of Fund of Real estate Funds focus on investment in core funds.

The majority of investors in Luxembourg real estate funds are institutional investors based in Europe. Most Luxembourg real estate funds (81% of Direct REIFs and 68% of Fund of Real Estate Funds) have between 1 and 26 investors. Independently of their asset class, the majority of the Real Estate Funds are closed ended (79% for Fund of REIFs and 68% for Direct REIFs). Luxembourg real estate funds invest in real estate all over the globe and most of these funds have a multi sector investment strategy.

43


APPENdIX

Service Providers

The following service providers (listed alphabetically) were identified in responses to the Survey:

Central administration (including Transfer Agents)

Abax Investment Services S.A. Alcyon S.A. Alter Domus Alternative Asset Fund Administration S.A R.L. Banque de Patrimoines Privés Banque Privée Edmond de Rothschild Europe BNP Paribas Securities Services, succursale de Luxembourg Brown Brothers Harriman (Luxembourg) S.C.A. CACEIS Bank Luxembourg CF Fund Services S.A. CITCO REIF Services (Luxembourg) S.A. Citibank International Plc (Luxembourg Branch) Credit Suisse Fund Services (Luxembourg) S.A. DEKA International S.A. DZ Privatbank S.A. European Fund Administration S.A. FIL Investments Management (Luxembourg) S.A. Heitman International S.A R.L. Hines Luxembourg S.A R.L. Intertrust (Luxembourg) S.A. Invesco Real Estate Management S.A R.L. J.P. Morgan Bank Luxembourg S.A. Kredietrust Luxembourg S.A. LRI Invest S.A. Luxglobal Trust Services S.A. Pandomus ProLogis Management Services S.à r.l. RBC Investor Services Bank S.A. SEB Asset Management S.A. SEB Fund Services S.A. Schroder Investment Management (Luxembourg) S.A. SGG S.A. United International Management S.A. Vistra Fund Services S.A R.L. VPB Finance S.A.

Depositaries

Banque de Luxembourg S.A. Banque de Patrimoines Privés Banque et Caisse d’Epargne de l’Etat, Luxembourg Banque Privée Edmond de Rothschild Europe BNP Paribas Securities Services, succursale de Luxembourg Brown Brothers Harriman (Luxembourg) S.C.A. CACEIS Bank Luxembourg Citco Bank Nederland N.V., Luxembourg Branch Citibank International Plc (Luxembourg Branch) Crédit Suisse (Luxembourg) S.A. DekaBank Deutsche Girozentrale Luxembourg S.A. DZ PRIVATBANK S.A. ING LUXEMBOURG S.A. KBL European Private Bankers S.A. M.M. Warburg & CO Luxembourg S.A. RBC Investor Services Bank S.A. RBS Global Banking (Luxembourg) S.A. Skandinaviska Enskilda Banken S.A. VP Bank (Luxembourg) S.A.

Auditors

BDO Deloitte EY Grant Thornton Lux Audit KPMG Mazars PricewaterhouseCoopers


44

Legal Advisors

Allen & Overy Arendt & Medernach Bonn & Schmitt Avocats Bonn Steichen & Partners Chevalier & Sciales Clifford Chance Duvieusart Ebel, avocats associés Elvinger Hoss & Prussen Linklaters LLP Loyens & Loeff Luther OPF Partners Peuvrel & Cayphas Wildgen & Partners

Tax Advisors

Allen & Overy Arendt & Medernach ATOZ Clifford Chance Deloitte Elvinger Hoss & Prussen EY KPMG Linklaters LLP Loyens & Loeff OPF Partners PricewaterhouseCoopers RSM

Accounting - Lux Holdco’s

Brown Brothers Harriman (Luxembourg) S.C.A. CITCO REIF Services (Luxembourg) S.A. Deloitte EY KPMG TMF Luxembourg S.A.

Accounting - Non Lux SPVs

A3T S.A. Alter Domus Alternative Asset Fund Administration S.A R.L. Banque de Patrimoines Privés Banque Privée Edmond de Rothschild Europe Brown Brothers Harriman (Luxembourg) S.C.A. CITCO REIF Services (Luxembourg) S.A. Citibank International Plc (Luxembourg Branch) European Fund Administration KPMG Pandomus RBC Investor Services Bank S.A. S&P TMF Luxembourg S.A. Vistra Fund Services S.A R.L.

Domiciliation and Corporate

Alcyon S.A. Alter Domus Alternative Asset Fund Administration S.A R.L. Banque de Luxembourg S.A. Banque de Patrimoines Privés Banque Privée Edmond de Rothschild Europe Brown Brothers Harriman (Luxembourg) S.C.A. CF Fund Services S.A. CITCO REIF Services (Luxembourg) S.A. Citibank International Plc (Luxembourg Branch) European Fund Administration S.A. RBC Investor Services Bank SA SGG S.A. Structured Invest S.A. Vistra Fund Services S.A R.L. United International Management S.A.

45


Glossary

2010 law The law of December 17, 2010 on Undertakings for Collective Investment as may be amended from time to time (“UCIs”)

2007 Law The law of February 13, 2007 on Specialized Invesment Funds as amended (“SIFs”)

AIFMD Alternative Investment Fund Managers Directive, Directive 2011/61/EU of the EP and of the Council of 8 June 2011

CSSF Commission de Surveillance du Secteur Financier (Luxembourg supervisory authority for the financial sector)

Direct Fund Fund investing in property assets or structures holding property assets

EFTA European Free Trade Association

EU 28 Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom

EU Accession Iceland, Montenegro, Former Yugoslav Republic of Macedonia, Serbia, Macedonia, Turkey

EFTA (non EU) Norway, Lichtenstein, Switzerland, Iceland

Emerging Europe Albania, Belarus, Bosnia & Herzegovina, Moldova, Russia, Turkey

FCP Fonds Commun de Placement: Common fund, entity without legal personality based on contractual agreement

FoREIF Fund of Real Estate Investment Fund

GAAP Generally Accepted Accounting Principles

GAV Gross Asset Value

HNW High Net Worth

HNWI High Net Worth Individual

Indirect Fund Fund investing in real estate securities or other Real Estate Funds

IFRS International Financial Reporting Standards

Initiator Initiator origin region : Europe, Asia/Pacific/ME, Americas

Initiator origin country : The country of the ultimate parent should be used

INREV European Association for Investors in Non-listed Real Estate Vehicles

Investment Style Core : Stable income returns, stabilised properties located in strong and low risk markets; geared at less than 50%

Value Added : combination of Income and capital return; stabilised properties located

in low to medium risk markets, as well as an element in development or opportunistic investments; geared from 40% to 70%

Opportunistic : primarily through capital return; higher risk properties (e.g development projects, property repositioning, assets in higher risk countries or distressed assets); geared is in excess of 60%


46

Investor liquidity Closed-ended : Fund may not, at the request of investors, repurchase directly or indirectly their units or shares

Open-ended : Fund may, at the request of investors, repurchase directly or indirectly their units or shares

Open-ended with restriction : in addition subject to further conditions such as maximum number of units to be redeemed in a period; extended notice period; early redemption penalties etc.

Semi-open ended : series of distinct equity offerings after the initial launch, but not on a continuous basis; ability of investors to redeem capital at certain times during the fund life; infinite life.

ISVC International Standards Valuation Committee

MTF Luxembourg Stock Exchange

NAV Net Asset Value

REIF Real Estate Investment Fund

RICS The Royal Institution of Chartered Surveyors

SA Sociéte anonyme (public limited company)

SCA Société en commandite par actions (partnership limited by shares)

SCS Société en commandite simple (limited partnership)

SICAF Société d’investissement à capital fixe (investment company with fixed capital)

SICAR Société d’Investissement en Capital à Risque (investment company in risk capital)

SICAV Société d’investissement à capital variable (investment company with variable capital)

SIF Fonds d’investissement spécialisé (specialized investment fund)

SOPARFI Société de participations financières (financial holding company)

SPV Special Purpose Vehicle

TEGOVA The European Group of Valuers’ Associations

UCI Undertaking for Collective Investment

47


Acknowledgements

The ALFI Real Estate Funds Sub-Committee would like to thank the following people for their efforts in compiling the data and commentary for the ALFI REIF Survey 2013.

Members of the REIF Publications Working Group

Benjamin Lam Deloitte LuxembourgCatherine Gauthier Brown Brothers Harriman (Luxembourg) S.C.A.Davide Tassi Citibank International plc (Luxembourg Branch)Francesco Piantoni Aviva Investors Luxembourg S.A.Gilles Suzanne RBC Investor Services Bank S.A.Jamal Afakir Atoz S.A.Johan Terblanche Loyens & Loeff (WG Co-Chair)Keith Burman State Street Global ServicesMichael Hornsby EY (Sub-Committee Chair)Paul Van den Abeele Clifford ChanceRobert Hessing Arendt & Medernach (WG Co-Chair)Saïd Qaceme KPMGTony Buche Société Générale Securities Services LuxembourgValerio Bove EYVincent Léonard UBS (Luxembourg) S.A.Xavier Le Sourne Elvinger, Hoss & Prussen

and

David Zackenfels Association of the Luxembourg Fund Industry - ALFI Régine Rugani Association of the Luxembourg Fund Industry - ALFI

The ALFI Real Estate Funds Sub-Committee repeats this Survey on an annual basis in the most comprehensive form possible. ALFI encourages any relevant fund initiators or depositaries who were not included in the 2013 ALFI Survey to contact ALFI before May 2014 to ensure inclusion.

Editor: ALFI a.s.b.l Photo credits & layout: © ALFI - Régine Rugani

alfi l association of the B.P. 206 Tel: +352 22 3026 -1 [email protected] fund industry L-2012 Luxembourg Fax: +352 22 30 93 www.alfi.lu

November 2013

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