alfi survey Luxembourg Real Estate Investment Funds 2015

Transcription

1 alfi survey Luxembourg Real Estate Investment Funds 2015

2 Executive summary 1 Introduction 3 1) CSSF data on Real Estate Investment Funds in Luxembourg 3 2) Survey Coverage 4 3) Luxembourg Real Estate Funds The framework 4 3.1) Direct REIFs vs. Funds of REIFs 4 3.2) Regulatory Framework: Regulated vs. Unregulated structures 4 3.3) Legal structures 5 4) Scope and Methodology 6 4.1) Scope 6 4.2) Methodology 6 Part I - Direct real estate funds & real estate SICARs 7 1) Introduction 7 2) Initiator origins 8 3) Legal structure and regime 8 4) Fund structure 10 5) Investment style 11 6) Liquidity 12 7) Term 13 8) Geographical focus of fund investments 14 9) Target sectors 15 10) Net Asset Value (NAV) distribution 16 11) Gross Asset Value (GAV) distribution 17 12) Target Gearing of Funds 18 13) Fees 18 14) Number of investors 19 15) Type of investors 20 16) Investor origins 21 17) Accounting standards 21 18) Frequency of NAV calculation 23 19) Valuation standards 24 20) Stock Exchange listing 24 21) Currency 24 Part II - Funds of Real Estate Investment Funds 25 1) Introduction 25 2) Initiator origins 25 3) Legal structure and regime 26 4) Investment style 27 5) Liquidity 27 6) Term 29 7) Geographical focus of fund investment 29 8) Target sectors 30 9) Net Asset Value (NAV) 31 10) 2016 target NAV distribution 31 11) Fees 31 12) Type of investors 33 13) Accounting standards 34 14) Currency 34 15) Frequency of NAV calculation 35 16) Stock Exchange listing 35 Appendix 36 Service providers 36 Glossary 39 Acknowledgements 41

3 Executive summary The Association of the Luxembourg Fund Industry (ALFI) in partnership with EY Luxembourg has published the 2015 Real Estate Investment Funds (REIF) survey, its ninth edition. This year the survey not only illustrates the evolution of the REIF market for direct real estate funds (Direct Funds), Real Estate SICARs and Funds of REIFs at the end of June 2015, but a new category of investment vehicle the Manager-Regulated AIF 1 has been included for the first time was another good year for Luxembourg domiciled REIFs as the population continued to expand by 27 Direct Funds of which 3 were Manager-Regulated AIFs, compared to 18 Direct Funds, including 2 Manager- Regulated AIFs, launched in In 2015, during Q1 and Q2, launches included 8 new SIFs, 3 Manager-Regulated AIFs and a single Part II (2010 Law) Fund. No SICAR Direct Funds have been launched in 2014 and This brought the total number of REIFs surveyed to 260 vehicles, including 19 SICARs and 12 Manager-Regulated AIFs, an increase of in total survey coverage compared to the last ALFI REIF survey. This is an increase of 29 of direct REIFs (excluding Manager-Regulated AIFs) surveyed since 2006 and amount to a compound annual growth rate (CAGR) of Funds of REIFs present a less vigorous growth even though the growth in the new Fund of REIF launches seen during the years preceding 2011 seems to be re-emerging with 5 launches in 2014 compared to only 2 during 2013 and 1 in This brings the total number of funds analysed in this survey to 44, an increase of compared to the sample size of last year s survey. Highlights 1 A Manager-Regulated AIF refers to an investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The manager of such a vehicle is typically themselves regulated or registered directly under the AIFMD. Trends in direct REIFs Approximately 4 of the surveyed funds have been set up as a Fonds Commun de Placement (FCP) and this usually in combination with the SIF regime. The trend toward the FCP form has continued to reverse in line with the 2014 ALFI survey compared to findings from earlier surveys, since SICAVs now account for almost the same proportion (), and all new launches of Direct Funds (excluding Manager- Regulated AIFs) continue to be Specialised Investment Funds. All in all, 7 of the total Direct Funds fall within the SIF regime. In 2015 new Direct Fund launches were triggered overwhelmingly by initiators in Europe, with Benelux, French and German initiators being the most active. Investment strategies The most common target sector remains multi-sector with 61% (compared to 5 in the 2014 survey). Among the sectors themselves, the category of retail reached the strongest preference this year with 4 of respondents indicating this as their sector of choice, compared to only 2 last year. Geographical investment strategies focus on a single country in of the funds (stable from 2014 but up from 3 and 2 in the preceding two years), which supports the trend toward simplification but also underlines the suitability of Luxembourg investment vehicles for multi-national investments. of the surveyed Direct Funds invest only in Europe, whereas 8% of funds invest only in the Asia Pacific region and invest only in the Americas. 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, a trend which was again in evidence in the 2015 survey. 68% of the Direct Funds have a single compartment structure, compared to 6 in the previous year. Opportunity (78%), Value-Added (6) and Core funds (6) are all mostly closed-ended, with approximately a third of Core and Value- Added funds offering some form of liquidity to investors. This reflects the inherent illiquidity of real estate as an asset class and the difficulties of achieving investor liquidity on demand. SIFs account for all of the REIFs launched in the last 30 months (excluding Manager- Regulated AIFs) and the SIF regime is now firmly established as the favored regime for regulated REIFs and Fund of REIFs in Luxembourg. SCS/SCSp partnership legal forms are an increasing trend since the updating of the Luxembourg Partnership laws in

4 Fund sizes and gearing Similar to findings in previous surveys, smaller funds continue to make up the majority of direct REIFs, with 61% falling in the category of below 100 million NAV. Overall, funds remain smaller when compared over a future horizon of several years, which aligns with the more cautious capital raising forecasts of 2015 and preceding years. The number of funds with significant gearing has increased, with a greater proportion reporting a target gearing in the - range and the over range. This could indicate optimism in relation to the ability to borrow. Fees In a departure to the results from recent surveys, the most commonly used basis for management fee calculations in 2015 has been the NAV, with a share of 2, compared to GAV which stood at 28%. Half of direct REIFs charge a management fee between 0.51%-1.. Investors Investors mainly come from Europe, however a significant portion comes from the Americas, Asia and the Middle East, which confirms the global appeal of the Luxembourg fund regimes. Luxembourg domiciled Direct Funds and Funds of REIFs are mainly used for small groups of institutional investors, with 8 having less than 25 investors an increase of compared to the last ALFI REIF survey. Only of the surveyed REIFs reported having more than 100 investors. The Direct Funds are widely distributed (but with focus on specific geographical areas), with only 2 limited to a single country, and being sold in more than six countries. The largest proportion can be observed in the category of 2-5 countries, into which 5 of funds fall. These figures confirm the attractiveness of Luxembourg REIFs to a global investor base. Fund reporting The proportion of funds reporting under IFRS has decreased slightly from the previous year to in 2015 compared to 4 in Funds launched in the first half of 2015 mostly report under IFRS (7), whereas funds launched in 2014 were mostly reporting under Lux GAAP (68%). The reporting framework selected differs depending on the strategy of the fund, with 62. of Core and 71% of Opportunity funds opting for Lux GAAP whereas Value- Added funds are equally represented between IFRS and Lux GAAP. 5 of the funds reporting under IFRS make adjustments, whereas only 3 do so under Lux-GAAP. Funds of REIFs generally (8) report under Lux-GAAP, a trend that has gained significant momentum over the past five years. 5 of the Direct Funds report a quarterly NAV, similar across all funds regardless of investment focus. Since 7 of Direct Funds are closed-ended, the reporting of a monthly NAV (1) is mainly due to investors demand for performance measurement rather than unit redemption. 51% of the Direct Funds have an annual valuation with 8% requiring monthly valuations, a similar finding to the results of the previous year. Almost all of the funds use an independent appraiser, with RICS (6) being the preferred standard. This latest edition of the ALFI REIF survey confirms that Luxembourg remains the favored location to establish and maintain multi-national and multi-sectoral regulated REIFs, which continue to appeal to institutional investors and fund managers from around the world. 2

5 Introduction This year ALFI and its REIF subcommittee has entered into collaboration with EY Luxembourg in order to produce its ninth edition annual REIFs survey. The ALFI survey was conducted during the third quarters of 2015 and reflects the market composition as at the end of June The main objective of 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 Funds and Funds of REIFs in Luxembourg, a population that has changed and grown consistently year to year. 1) CSSF data on Real Estate Investment Funds in Luxembourg Number of Luxembourg real estate fund units(*) Institutional Funds/ SIF (Law of 13 February 2007) Part II (2010 Law) Q1 Q Q3 Net assets under management in Luxembourg real estate million Institutional Funds/ SIF (Law of 13 February 2007) Part II (2010 Law) Q1 Q Q3 (*) Number of single funds plus number of sub-funds of umbrella structures 3

6 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 304 Direct REIFs and Fund of REIFs were in existence as at June 2015 while this survey collects data on 229 Direct REIFs (excluding Manager-Regulated AIFs 2 ) and 44 Fund of REIFs, for a total of 273 funds ( coverage). In addition, data related to 19 SICARs and 12 Manager-Regulated AIFs are included in this survey. Number of fund units surveyed compared with total units as per CSSF Funds units / 2013/ 2014/ June 2013 June 2014 June 2015 CSSF REIFs & Fund of REIFs (excluding SICARs) Direct REIFs (excluding SICARs) Fund of REIFs (excluding SICARs) SICARs (Direct) 3) Luxembourg Real Estate Funds The framework 3.1) Direct REIFs vs. Funds of REIFs For purposes of this survey, Real Estate Funds are characterised as either Direct Funds or Funds of REIFs : Direct Funds include regulated fund vehicles, Manager-Regulated AIFs 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 also 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 fund 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). 2 A Manager-Regulated AIF refers to an investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The manager of such a vehicle is typically themselves regulated or registered directly under the AIFMD. 4

7 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 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 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 or partnerships 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.), partnerships limited by shares (S.C.A.) or limited partnerships with/without legal personality (SCS / SCSp). 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 and limited partnerships do not enjoy a special legal or tax regime, but like any other fully taxable Luxembourg companies, SOPARFIs 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 size than regulated funds with more investors. This survey takes into account Direct Funds and Funds of REIFs which are regulated by the product laws in Luxembourg (i.e. 2010/SIF/SICAR). Additionally, for the first time, this survey includes real estate investment structures reported by participating depositaries 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) and the law of 12 July 2013 on alternative investment fund managers, and which are referred to herein as Manager- Regulated AIFs. 3.3) Legal structures Real Estate Funds governed by the 2010 law or the SIF law may be set up either in corporate form (e.g. SICAV-SCA or SICAF-SA ), in contractual form ( FCP ) or as limited 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 limited partnerships are tax transparent whereas SOPARFIs, SICAVs and SICAFs are opaque for tax purposes. 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. 5

8 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 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 Funds and Funds of REIFs in Luxembourg. The questionnaire, which focused on the status as at June 2015, 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 Where possible, survey results are at times compared with those published in Luxembourg Real Estate Funds: the ALFI REIF surveys 2007 to

9 Part I - Direct real estate funds & real estate SICARs 1) Introduction The Direct Funds population surveyed continued to expand with 27 new Direct Funds launched in 2014 and a further 12 by the end of June 2015, bringing the total surveyed population to 260 Direct Funds as at 30 June No SICAR launches were reported in 2014 nor during the first half of 2015, however 6 Manager-Regulated AIFs were launched in this period. Number of fund units by launch year (*) < Institutional Funds/SIF (Law of 13 February 2007) Part II (2010 Law) Manager-Regulated AIF SICAR Institutional / SIF Funds constitute the majority of Real Estate Funds and since 2006 have accounted for almost all new fund launches. This was reinforced over the last 30 months, with almost all the new launches of Direct Funds during this period being SIFs, with the balance largely made up of Manager- Regulated AIFs, bringing the total of SIFs to 7 of the Direct Fund population covered in this survey. Proportion of fund types by launch year (*) % 88% 71% % % 8% 1 < % 1 8% SIF SICAR Part II (2010 Law) Manager-Regulated AIF (*) This graph shows the launch year of fund units that are included in the REIF survey It is not a cumulative sequence. 7

10 2) Initiator origins Over the years, initiators from Europe were responsible for the majority of the new REIF launches, most notably the Benelux countries, followed by Germany, the UK and France. Proportion of REIFs launched by initiator origins (*) % % < % 8% % Australia/NZ Benelux Canada France Germany Italy Middle East Nordic/Baltic Spain Switzerland Russia UK US Other Americas Other Asia Other Europe 3) Legal structure and regime The majority of Real Estate Funds fall under the SIF law (7) and most of the new Real Estate Funds launched over the last 30 months have adopted the SIF regime. This reflects the continued popularity of the SIF regime for Real Estate Fund initiators seeking an onshore regulated investment fund vehicle for all types of alternative investment fund products (including Direct Funds and Funds of REIFs). Legal regime and vehicle type combined by launch year (*) % < % 2 41% % % 8% 8% % SIF (FCP) SIF (SICAF) SIF (SICAV - SCA) SIF (SICAV - SA) SIF (SICAV SCSp) SIF (SICAV SCS) SIF (SICAV - Sàrl) SA SCA SCSp SCS SICAR (SA) SICAR (Sàrl) SICAR (SCA) Part II (2010 Law) (FCP) Part II (2010 Law) (SICAV SCS) Part II (2010 Law) (SICAF) (*) This graph shows the launch year of fund units that are included in the REIF survey It is not a cumulative sequence. 8

11 111 of the 229 Direct Funds (excluding SICARs and Manager-Regulated AIFs) use the FCP as the vehicle type, usually in combination with the SIF regime. The FCP-SIF and SICAV-SIF are by far the most popular combinations of regulatory regime and fund vehicle and are roughly equally represented in the surveyed population. The increased popularity of the SICAV-SCA and the SICAV-SA combinations over the past few years reflects the versatility of the Luxembourg environment in offering both transparent and opaque vehicles, and in supporting regulatory regimes suitable to initiators and investors requirements and may also be indicative of increased use of Manager-Regulated AIFs, specifically in limited partnership form (at the expense of the FCP). The most recent development in legal structuring has been the updating of the limited partnership laws in Luxembourg in 2013 (the SCS and SCSp). While these forms currently only represent 4. of the total population, it is expected that this proportion will grow strongly in future years. In fact, 21.0 of funds launched during the last 30 months took on an SCS/SCSp form reflecting an increase of this limited partnership form among launched funds ( in 2013, 1 in 2014 and in Q1 and Q2 2015). SIF (2007 law) FCP 36,5 SIF (2007 law) SICAF 3,4 SIF (2007 law) SICAV - SCA 16,5 SIF (2007 law) SICAV - SA 18,4 SIF (2007 law) SICAV - SCSp 0,38% SIF (2007 law) SICAV - SCS 1,9 SIF (2007 law) SICAV - Sàrl 1,5 SICAR - SA 0,7 SICAR - Sàrl 1,1 SICAR - SCA 5,38% SA 0, SCA 1,9 SCSp 0,7 SCS 1,1 Part II (2010 law) FCP 6,1 Part II (2010 law) SICAV - SCS 0,38% Part II (2010 law) SICAF 2,6 Cumulative data of all surveyed funds Legal regime Basic structure SIF (2007 law) 7 Part II (2010 law) SICAR Manager Regulated AIF FCP 42, SCA 23,8% SA SICAF 6, SCS/SCSp 4, Sàrl 2, (*) This graph shows the launch year of fund units that are included in the REIF survey It is not a cumulative sequence. 9

12 CSSF Data as at 30 September 2015 excludes SICARs Legal regime and basic structure combined SIF (2007 law) / SICAV 5 SIF (2007 law) / FCP 3 Part II (2010 law) / FCP SIF (2007 law) / SICAF Part II (2010 law) / SICAF 1% Source: ALFI/CSSF Legal regime Basic structure SIF (2007 law) 9 Part II (2010 law) SICAV 5 FCP 38% SICAF Source: ALFI/CSSF Source: ALFI/CSSF 4) Fund structure 68% of the surveyed Direct Funds are single compartment vehicles. The remaining funds have a multi-compartment umbrella structure (i.e. sub-funds) which confirms the continued use of umbrella structures, despite the recent increase in single funds. 2 use the umbrella structure solely for separate investment strategies, 8% use an umbrella solely for co-investment and 8% combine both types of usage. of the funds use feeder vehicles and 1 have complex share classes so that, for example, different management and performance fee structures can be managed for different investors. Only of surveyed funds use a pooling structure, possibly because in practice this is difficult to implement for Direct Funds investing in real estate assets (as opposed, for example, to equity funds). The overall trend over the last several years has been towards simplification of structures and strategies. 98% % 8% % Pooling Feeder Vehicles Complex share classes Single compartment funds Sub funds used for co-investment & separate investment strategies Sub funds used for separate investment strategies only Sub funds used for co-investment only No Yes 10

13 5) Investment style 5 of the Direct Funds surveyed (excluding SICARs) are Core funds with the remainder split between Value-Added (3) and Opportunity (1) fund styles. 91% of Manager-Regulated AIFs are Core funds. While these proportions have remained relatively stable from 2009 to 2011, recent launches have focused on Core strategies. Core 51% Value-Added 2 Opportunity Graph includes SICARs 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). Two thirds of new Direct Funds launched in 2014 (6) and more than half (5) of those launched in the first part of 2015 pursue a Core strategy. There is a visible trend in the growth of Value-Added and especially Opportunity funds in the last three years, which might be the result of more capital returning to the market. Fund units launched by strategy type (*) % % % % < Core Value-Added Opportunity (*) This graph shows the launch year of fund units that are included in the REIF survey It is not a cumulative sequence. 11

14 6) Liquidity 7 of the surveyed funds are closedended, a slight increase from the previous years findings and which supports a trend noticed over the last several years. of the funds are semi open-ended with 1 being fully open-ended with no restrictions on redemptions. of the funds are open with restrictions. This reflects the inherent illiquidity of Real Estate as an asset class and thus the difficulties of providing investors liquidity upon demand. It also illustrates that investors are allocating capital to funds that offer some sort of liquidity. Closed 7 Open - No restrictions 1 Open - Restrictions Semi-Open (Not continuous) Opportunity funds tend to be predominantly closed-ended (8), with 1 open-ended with restrictions. Similarly, Value-Added and Core funds are also mostly closed-ended at 6. These findings are substantially similar to those of the previous four ALFI surveys. Liquidity by fund investment style Core Opportunity Value-Added Closed Semi-Open (Not continuous) Open - Restrictions Open - No restrictions 12

15 7) Term Term of direct real estate funds Infinite years years 2 Up to 7 years Nearly half of all Direct Funds have a term of 8-10 years or years, while a further 4 have an infinite life. Only have a duration of up to 7 years, which reflects the longer timeframe usually required for Real Estate Funds to fully implement their strategies. of Opportunity funds have a life of 8-10 years, down from 3 and 2 respectively in the 2013 and 2014 ALFI surveys. This shows a trend towards longer terms across all strategies, with 3 of Opportunity funds, 3 of Value- Added funds and 4 of Core funds now having an infinite term. Fund duration by investment style Core Opportunity Value-Added Up to 7 years 8-10 years years Infinite 13

16 8) Geographical focus of fund investments In the 2015 ALFI survey, of Direct Funds have a single-country investment focus which points to a stabilizing trend following consistent increases identified in the 2011 to 2014 ALFI surveys (2, 2, 3 and 41% respectively). 5 of the funds invest only in the EU funds invest only in the Americas and 20 funds in the Asia / Pacific region. Finally, 51 funds invest in 2 or more world regions, reflecting the suitability of Luxembourg REIFs for investment strategies focusing on a range of different countries. Luxembourg REIFs are used for investment in all major regions of the world. REIFs investment regions EU-28 Only 5 Multiple regions 1 Asia/Pacific only 8% EU-28 + EFTA Only 8% EU-28 + other Europe Only Americas only Exclusive data: Each fund falls into one category. Percentages based on the responses received Geographical focus of funds investments by fund unit launch year (*) % 8% % < 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. EU - 28 Other Europe EFTA (non EU) Asia/Pacific America - North America - Central/South & Other Middle East, North Africa & other Africa (*) This chart is not cumulative, but shows the total number of funds by the year of launch. 14

17 9) Target sectors The 2015 survey revealed a slight increase in the proportion of funds investing in multiple sectors, which came to 61%.This indicated that a larger proportion of the surveyed funds have a diversified investment strategy in terms of property types. Multi sector 61% Retail only 1 Other Single Specialist Residential only Industrial only Office only All sector Hospitality only Exclusive data: Each fund falls into one category. Percentages based on the responses received. The preferred target sectors in 2014 fund launches were office (2), retail (2) and residential (2). The first half of 2015 indicates an increase of retail fund launches to 4. Target sector by fund unit launch year % % % < % 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. Office Retail Industrial Residential Infrastructure Hospitality 15

18 10) Net Asset Value (NAV) distribution NAV distribution % 8% 48% 1% 1% 8% 4 1% 1% % 0, 0, 1% 0, 0, 1% 8% 8% % 0, 0, 61% June 2015 million < over 1800 These charts show a comparison of average NAVs reported in the 10 years of the ALFI REIF survey to date. The forecasted Target NAV averages of the survey populations illustrate the continued decrease in the average fund size, with the median moving from the million euros band in 2009 target NAV results to the million euros band in the following surveys, reflecting a continued trend toward the creation of many smaller funds and further impacted by the fact that many larger funds have come to the end of their terms. Target NAV 28% % 1% 1 1 1% % 48% 1% % 2 4 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. million < over

19 11) Gross Asset Value (GAV) distribution The results show a decrease in the under 100 million GAV distribution band in 2014 with 4 of the funds (versus 4 in 2013) falling in this category. GAV distribution % % 1% % % million < over 1800 There has been, however, a rise for the GAV in the and million categories from to and 1% to respectively (from 2013 to 2014), showing optimism in relation to the availability of financing. The largest drop in the Target GAV can be seen in the million euros band to lower amounts, confirming recent trends towards smaller funds. Target GAV % In this section, graphs exclude the funds that did not provide NAV/GAV figures. million < over

20 12) Target Gearing of Funds The most notable rises in target gearing were in the categories of - and over, where a rise from to 2 and 1 to Target gearing of funds can be observed. of funds report target gearing of less than. 8% % 1 41% % 2 28% % 31% 1 31% % 1 8% Less than over 13) Fees 28% of the surveyed Direct Funds use GAV as the basis for their management fee calculation, almost the same as the findings in the 2014 ALFI survey and slightly lower than the corresponding results of the 2010 Management fee calculation basis for direct real estate funds to 2013 ALFI surveys. The majority of the funds which charge fees based on GAV charge in the 0.51%-1% range (3), followed by -0.51% (2). Management fee range for Direct REIFs NAV 2 GAV 28% Other 2 Commitments No data available None 1% 0.51% - 1% % >1. 1 No data available None 1% 18

21 Almost half of the surveyed Direct Funds do not levy a performance fee. For the funds charging performance fees, approximately charge a fee of. Out of these funds, 4 of Core funds and 3 of Opportunity funds charge while 7 of the Value-Added funds (up from 5 last year) reported a payout rate of, indicating that this remains the market standard. Performance fee charged 2 48% 2 8% Core Opportunity Value-Added < > None 14) Number of investors The ALFI survey results show that Direct Funds typically do not have a large number of investors. Approximately 8 of the Direct Funds have fewer than 25 investors and 3 have 5 investors or less, while only 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. Only 1 of funds (down from 1 in 2014 and 1 in 2013 surveys) have more than 25 investors. This continues the trend toward a larger number of smaller funds, with a smaller number of investors per fund investors 1-5 investors investors investors 19

22 15) Type of investors Virtually all of the funds surveyed have institutional investors (), with high net worth individuals (HNWI) investing in 31% of the funds (up from in 2014 and 2 in 2013). Retail investors have invested in of the funds (down from in 2014 and in 2013). Institutional and HNW individuals continue to represent the majority of investors in REIFs of all sizes, while the gradual decrease in the proportion of retail investors continues to be observed, this has been compensated by a similar increase of HNWI investors. % of fund units allowing specific investor groups Non-exclusive data: Investor groups may be identified by fund. Percentages based on the received responses. 31% Institutional HNW Individuals Private Bank Family Office Retail Number of investors by type of investor % % Institutional Private Bank Family Office HNW Individuals Retail 20

23 16) Investor origins The majority of investors continue to be from Europe. However, there are also significant numbers from the Americas (60 funds), the Asia/Pacific region (27 funds) and the Middle East (24 funds). 5 (compared to 4 last year) of the surveyed funds have investors from two to five countries and 1 have investors from 6 to 10 countries, which again highlights the success of the SIF regime as a global investment offering. The expectation is that cross-border marketing under the AIFMD will further expand the reach of Luxembourg Real Estate Funds and it will be interesting to note these results over the coming years. Number of investor countries 2-5 countries 5 1 country countries countries The 2015 ALFI survey again confirms the notable increase (identified in the 2012, 2013 and 2014 ALFI surveys) of funds targeted for distribution in 2-5 countries, compared to the results from Number of investor countries by launch year (*) % % (*) This graph shows the launch year of fund units that are included in the REIF survey It is not a cumulative sequence < countries ) Accounting standards In confirmation of the results of the 2014 Alfi survey, of all of the surveyed funds apply standard Luxembourg GAAP (Lux GAAP) as accounting standard, with the remainder applying IFRS. The reporting framework selected does differ depending on the strategy of the fund, with 6 of Core and 71% of Opportunity funds opt for Lux GAAP whereas Value-Added funds are equally represented between IFRS & Lux GAAP. Lux GAAP IFRS 21

24 From 2006 to 2008, IFRS was the preferred standard. However, from 2009 until 2014 Lux GAAP became the dominant accounting standard. GAAP adopted by new fund unit launches % 48% 71% 5 71% % % 3 < IFRS Lux GAAP 5 of the funds reporting under IFRS make adjustments, whereas only 3 do so under Lux-GAAP. 4 of the funds preparing their financial statements under IFRS make adjustments with regard to deferred taxation, compared with only 1 under Lux GAAP. Additionally, of funds reporting under IFRS make adjustments for transaction costs compared to 2 under Lux GAAP (2 in the 2013 and 3 in the 2014 ALFI survey). IFRS fund units and LUX GAAP fund units adjusting for various items Formation expenses Transactions costs Deferred taxation Fair value of financial instruments Other adjustments IFRS Lux GAAP 22

25 18) Frequency of NAV calculation The majority of Direct Funds report a quarterly NAV Calculation NAV (5), similar across all fund types (i.e. Core, Value-Added and Opportunity ), while 1 produce a monthly NAV. Among all the funds surveyed, only 3 funds have a daily NAV. Quarterly 5 Annual 2 Monthly 1 Semi-Annual Daily 1% Since 7 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. Almost all of the surveyed funds use an independent appraiser in respect of their valuations. Frequency of reporting by investment strategy % % 1 1 Core Opportunity Value-Added Annual Semi-Annual Quarterly Monthly Daily Similarly to the findings of the last several surveys, the frequency of property valuations correlates with the frequency of reporting of NAVs. It is more balanced for quarterly and monthly NAVs. Direct real estate funds valuations Annual 51% Quarterly 2 Semi-Annual 1 Monthly 8% Other 1% None 1% 23

26 Frequency of property valuation by frequency of NAV calculation 81% 1% 48% Annual Semi-Annual Quaterly Monthly Other Annual Semi-Annual Monthly Quarterly 19) Valuation standards Two-thirds of the Direct Funds valuations are carried out under RICS Valuation and Appraisal Standards. This is by far the leading standard for property valuations used, though the proportion has continued to shrink over recent years (68% in the 2014 survey and 7 in the 2013 survey). Valuation standards adopted RICS 6 Other 2 None TEGOVA ISVC 1% 20) Stock Exchange listing Out of the 260 Direct Funds covered in this survey, only 21 (8%) are listed, mainly on the London Stock Exchange or the Luxembourg Stock Exchange (Lux MTF). 21) Currency The great majority of funds report in EUR (8), while 8% report in USD and in GBP, both slightly up from recent results. EUR 8 USD 8% GBP Other 24

27 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 prior to the 2008 ALFI survey, but have been covered each year since. 5 of Funds of REIFs were launched before Since then, 19 funds have been launched, mainly in 2010, 2011 and 2014 (6, 5 and 5 respectively). This brings the total number of Funds of REIFs covered by this survey to 44, out of which 42 were launched as SIFs. FoREIF units by launch year (*) 8 (*) 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 SIFs Part II (2010 Law) 2) Initiator origins Out of a broad range of initiators across Europe, UK and German initiators have been the most prolific since 2006, accounting for 6 of the new REIF FoFs launches over the period Germany and the UK hold more important stakes as origins of initiators for Funds of REIFs than for direct REIFs whereas the opposite is the case for Benelux. Origins of initiators of direct real estate funds Benelux Germany 1 Other Europe 1 UK 1 USA France 8% Switzerland Other Americas Nordic/Baltic Asia, Australia&NZ Origins of initiators of funds of real estate funds UK 3 Germany Benelux 1 France Switzerland Nordic/Baltic Other Europe 25

28 Origin of initiators by fund unit launch year (*) 8 38% (*) 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 Germany Nordic/Baltic UK Benelux Switzerland Other Europe France 3) Legal structure and regime As reflected in last year s survey, only 2 out of 44 Funds of REIFs are Part II (2010 law) funds. As already mentioned before, all of the funds launched from 2009 to 2014 have been SIFs. With regard to the legal structure of the funds over the years, the FCP structure remains the preferred option over the SICAV structure (25 vs. 19). The FCP structure was chosen for 5 of the funds surveyed. While FCPs still constitute a small majority in overall REIF FoFs, SICAVs are equally represented since 2007 and the 5 new funds launched in 2014 were SICAVs. Legal structure and regime combined SIF (FCP) 5 SIF (SICAV - SA) SIF (SICAV - SCA) Part II (2010 Law) (FCP) SIF (SICAV - SCS) 26

29 4) Investment style 8 of Funds of REIFs covered by this survey are classified as either Core funds (23) or Value-Added funds (14). There are 6 Opportunity Funds of REIFs. Since 2010, Core funds are the predominant investment style of the launched funds. Investment style by launch year 78% Core Value-Added Opportunity 5) Liquidity Overall, the majority of Funds of REIFs (71%) are closed-ended. Open-ended Funds of REIFs with restrictions and Open- ended Funds of REIFs with no restrictions hold a smaller stake with and respectively. Open-ended with no restrictions funds are mainly chosen by Core funds, whereas the two other categories show a more balanced figure. Out of Core funds, 6 are closed-ended while for Value-Added funds, 8 are closed-ended. These findings are in line with previous years surveys. Open vs. Closed-ended funds by launch year (*) 2 78% 7 (*) 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 Closed Open - No Restrictions Open - Restrictions 27

30 Closed 71% Open - No Restrictions Open - Restrictions Fund investment style by liquidity % 2 Closed Open - No Restrictions Open - Restrictions Core Opportunity Value-Added Liquidity by fund investment style 3 8% 8% Core Opportunity Value-Added Closed Open - No Restrictions Open - Restrictions 28

31 6) Term A similar portion of Funds of REIFs are represented in the year term and the infinite life categories. Opportunity and Value-Added funds make up a major part of 8-10 years and infinite term categories. of the Core funds have an year term whereas 9 of Value-Added funds have an infinite term. Only 4 funds are represented in the 8-10 year category. Fund duration Infinite years 8-10 years Up to 7 years Fund unit duration by investment style (*) % 8 (*) 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 years 8-10 years Infinite Up to 7 years Core Opportunity Value-Added 7) Geographical focus of fund investment (*) Multiple regions represents fund units investing in more than one region. Among the surveyed funds of REIFs, 7 invest in one region only. While for many years, the regional focus of investments often varied from one fund to another, recent launches focused mainly on the 28 EU member states (3). No fund invested in all the regions proposed by the survey. Geographical focus of investments (*) EU 28 Only 3 Multiple regions 28% Asia/Pacific only 1 All Europe only 1 Americas only 29

32 Geographical investment region by fund unit by launch year (*) 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. 1 48% EU 28 EFTA (non EU) Other Europe Asia/Pacific America - North America - Central/South 8) Target sectors As was the case with the 2014 ALFI survey, almost all of the Funds of REIFs follow a multi-sector investment strategy. The office, retail, residential and industrial sectors remain the most popular ones. Only 2 funds invested in one sector only, namely in the retail sector. Multi sector 9 Retail only Exclusive data: Each fund falls into only one category Office/retail/residential/ industrial 3 Other 2 Office retail All sectors 8% Office/retail/residential/ industrial Office/retail/residential Office/retail/industrial/ infrastructure Office/retail/industrial Target sector by fund unit launch year (*) (*) 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 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. Office Retail Industrial Infrastructure Hospitality Other Residential 30

33 9) Net Asset Value (NAV) The 44 Luxembourg domiciled Funds of REIFs represented a total NAV of 4.8 billion euros at the end of June 2015, compared to 4.4 billion euros end of The average NAV at June 2015 was 113 million euros, ranging from 0.85 million euros to 525 million euros. 28 out of the 44 funds surveyed have a NAV below 100 million euros, in line with findings of End of June 2015 NAV distribution (*) (*) If the information on the NAV was not available for end of June 2015, the data of the 31/12/2014 has been used. 5 0 <100 millions millions millions millions 10) 2016 target NAV distribution The received information regarding the target NAV is, unfortunately, not reliable. 11) Fees 51% of the Funds of REIFs covered in this survey base their management fee on the NAV, similar to the findings of the preceding surveys. In 2015, commitments were only used in of cases to compute management fees whereas in 2014, the approach based on commitments accounted for 2. GAV is the basis for management fees for 2 of the funds, while a further 1 use other criteria. 1 of the Funds of REIFs surveyed charge a management fee in the mid-range of 0.51%-1%. For 5 of the Funds of REIFs the management fee is charged up to 0.. Compared to last year s survey, the share of the 0.51%-1. range decreased from 2 to 1, while the range of 0-0. increased from 4 to 5. FoREIF Management fee basis FoREIF Management fee range NAV 51% GAV 2 Other 1 Commitments > % %-1. 8% up to 1. 31

34 3 of funds charge performance fees. 1 of the Funds of REIFs employ a hurdle rate. Performance fee charged Core Opportunity Value-Added < > None Performance fee hurdle rate 8 Core Opportunity Value-Added -8% -1 None 32

35 12) Type of investors A major part of Funds of REIFs covered in this survey is limited to institutional investors (26). 1 fund is open to family offices only, as was the case for last year s survey. All other funds are open to institutional investors as well as other types of investors. 4 of the funds surveyed have between 6 and 25 investors, while have 1 to 5 investors per fund. With regard to the number of investors for the different investment styles, the majority of Value-Added funds is represented in the 6 to 25 investors category, whereas the Core funds have nearly all their funds split between the 1 to 5 and the 6 to 25 investors categories. The Opportunity funds fall mainly into the 25 to 100 investors category. Overall, 8 of the Funds of REIFs have between 1 and 25 investors. Types of Fund of REIFs investors Institutional Only Institutional & Private Bank & Family Office 1 Institutional & Private Bank & HNWI & Family Office Institutional & Retail Institutional & Private Bank Institutional & Private Bank & HNWI & Retail Institutional & Private Bank & HNWI & Family Office & Retail Family Office only Number of investors by fund launch year %