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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
Luxembourg Real Estate Fund Survey 2013
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
5
Luxembourg Real Estate Fund Survey 2013
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.
Luxembourg Real Estate Fund Survey 2013
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
7
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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.
9
Luxembourg Real Estate Fund Survey 2013
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.
Luxembourg Real Estate Fund Survey 2013
10
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
(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.
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
Luxembourg Real Estate Fund Survey 2013
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 (*)
(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.
(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.
Sour
ce: A
LFI S
urve
y 20
13So
urce
: ALF
I Sur
vey
2013
Luxembourg Real Estate Fund Survey 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%
13
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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.
(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.
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
Luxembourg Real Estate Fund Survey 2013
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
Source: ALFI Survey 2013
Luxembourg Real Estate Fund Survey 2013
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%
Core Opportunity Value-Added
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
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Luxembourg Real Estate Fund Survey 2013
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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Luxembourg Real Estate Fund Survey 2013
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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.
Source: ALFI Survey 2013
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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
Luxembourg Real Estate Fund Survey 2013
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.
Luxembourg Real Estate Fund Survey 2013
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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Luxembourg Real Estate Fund Survey 2013
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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Source: ALFI Survey 2013
Luxembourg Real Estate Fund Survey 2013
22
>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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Source: ALFI Survey 2013
23
Luxembourg Real Estate Fund Survey 2013
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.
Source: ALFI Survey 2013
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Luxembourg Real Estate Fund Survey 2013
24
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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Source: ALFI Survey 2013
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Luxembourg Real Estate Fund Survey 2013
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).
(*) This graph shows the launch year of fund units that are included in the REIF Survey 2013. It is NOT a cumulative sequence.
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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Source: ALFI Survey 2013
Luxembourg Real Estate Fund Survey 2013
26
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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Luxembourg Real Estate Fund Survey 2013
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%
Core Opportunity Value-Added
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
Direct real estate funds valuation
Source: ALFI Survey 2013
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Luxembourg Real Estate Fund Survey 2013
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
Source: ALFI Survey 2013
Source: ALFI Survey 2013
Luxembourg Real Estate Fund Survey 2013
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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Luxembourg Real Estate Fund Survey 2013
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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Luxembourg Real Estate Fund Survey 2013
Open - No RestrictionsOpen - RestrictionsGrand Total
AssetClass
Row LabelsClosedOpen - No RestrictionsOpen - Restrictions(blank)Grand Total
Closed79%
Open - No Restrictions
10%
Open -Restrictions
11%
Fund investment style by investor liquidity
%
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
Fund investment style by investor liquidity
Most of the opportunity funds are closed-ended (75%), with 2 funds “Open-ended with restrictions”. The 2 mixed funds are also closed-ended.
(*) 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.
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 (*)
Fund investment style by investor liquidity
%
78% 75% 80%
100%
13%20%
9%25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Core Opportunity Value-Added Mixed
Closed
Open - NoRestrictions
Open -Restrictions
Investor liquidity by fund investment style
Source: ALFI Survey 2013
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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
Core Opportunity Value-Added Mixed
Fund unit duration by investment style (*)
Source: ALFI Survey 2013
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Luxembourg Real Estate Fund Survey 2013
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.
(*) 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.
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 (*)
Source: ALFI Survey 2013
Sour
ce: A
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urve
y 20
13
Luxembourg Real Estate Fund Survey 2013
36
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
Source: ALFI Survey 2013
37
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 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%
Core Value-Added Opportunity
Performance fee charged
<20%
20%
>20%
40%
100%
60%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Core Value-Added Opportunity
Performance fee hurdle rate
5%-8%
9%-12%
Sour
ce: A
LFI S
urve
y 20
13So
urce
: ALF
I Sur
vey
2013
Source: ALFI Survey 2013
39
Luxembourg Real Estate Fund Survey 2013
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.
Luxembourg Real Estate Fund Survey 2013
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
Source: ALFI Survey 2013
Source: ALFI Survey 2013
41
Luxembourg Real Estate Fund Survey 2013
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).
(*) 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.
Row LabelsEURGBPOtherUSD(blank)Grand Total
EUR79%
GBP5%
Other3%
USD13%
Sour
ce: A
LFI S
urve
y 20
13
Source: ALFI Survey 2013
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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%
Luxembourg Real Estate Fund Survey 2013
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
Luxembourg Real Estate Fund Survey 2013
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