The future of real estate

investment

Welcome

7 February 2019

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

Chair

◼ Richard Hopkinson-Woolley, Partner, Real Estate, Simmons & Simmons LLP

Panellists

◼ Malcolm Frodsham, Founder Director, Real Estate Strategies

◼ Anthony Gahan, Chairman, IPSX

◼ Huw Stephens, Head of London Transactions at PATRIZIA

◼ Charlie Foster, Managing Director, RBC Capital Markets

◼ Isabella Roberts, Partner, Simmons & Simmons LLP

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

Malcolm Frodsham, Director, Real Estate Strategies

Malcolm has 20 years of experience in real estate data, modelling and risk management techniques. He founded Real Estate Strategies in 2013, an

independent management owned business that provides high quality forecasts, research and strategic consulting on the European real estate market.

Prior to Real Estate Strategies, Malcolm was Director of Research at IPD and prior to that Head of Research and Strategy at Legal & General Property.

Anthony Gahan, Chairman, IPSX

Anthony is the Founder and Chairman of IPSX Group. Anthony has over 30 years of investment banking experience and is a Managing Partner of Wyvern,

a London based investment banking firm, which he co-founded in 2002. His banking career has included senior roles at Lehman Brothers and Flemings

(acquired by JP Morgan) together with early transaction experience at Charterhouse Bank and the NatWest Group. Throughout his career he has focused

on international M&A and Equity Capital Markets with a particular emphasis in recent years on disruptive technologies and services, fintech and data.

Huw Stephens, Head of London Transactions at PATRIZIA

During his tenure as Head of UK Transactions at AXA, where he worked for the past 24 years, Huw has been the strategic and tactical leader behind

AXA’s £5bn investment and development programme in London, particularly the £1.9bn, 1.25m sq ft, speculative development of 22 Bishopsgate. Huw

and his team were pioneers of the current trend for JV’s and club deals of which 22 Bishopsgate, Ropemaker Place and the Google building at Kings

Cross are examples where compatible capital is stitched together to acquire an asset and execute a specific business plan.

Charlie Foster, Managing Director, Head of Real Estate Investment Banking, RBC Capital Markets Europe

Charlie leads RBC Capital Markets Real Estate franchise within its Global Investment Banking activity in Europe. Foster joined RBC in September 2018,

bringing with him 20 years’ experience in the property sector, having worked across banking, research and consulting at some of the leading real estate

services and investment firms. Prior to RBC, Foster was Head of Real Estate at Canaccord Genuity, which he joined in 2014 and where he also worked in

their Research division. Previously, Foster was Head of Strategy & Research for the Real Estate Finance business at Royal Bank of Scotland and Partner

and Head of Real Estate Research at Oriel Securities, where the team was ranked top 3 team by Extel.

Isabella Roberts, Partner, Simmons & Simmons LLP

Isabella is a partner in Simmons & Simmons' corporate group. She has experience of both public and private fundraising and has advised a number of

clients in connection with the flotation of and fundraising for closed ended investment vehicles on the Official List, particularly those holding real assets.

Bios of speakers

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

Asset Manager Outlook to 2025

The Asset Management industry is changing and we need to stay ahead of those

changes to continue to collaborate to develop smarter solutions.

Simmons & Simmons and Bloomberg Intelligence have produced a report intended to

help clients stay ahead of the curve in an industry facing significant change – both

structural and cyclical.

The survey received responses from 1,950 asset

managers globally:

• over 80% in Institutional Funds, Alternative

Funds (including real estate fund managers) or

Private Wealth Management

• 55% in Portfolio Management/ Research

• 48% in or around the C-suite

Geographically the respondents came:

• 27% UK

• 27% Europe ex UK

• 20% USA

• 14% APAC

• 12% Other Americas (Canada, LatAm,

MENA and SSA)

The Future of Real Estate

Investment

Malcolm Frodsham

Director

Real Estate Strategies

7 February 2019

www.realestatestrategies.com © Real Estate Strategies 2019

THE FUTURE OF REAL ESTATE INVESTMENT

Malcolm Frodsham, Director

IPSX, February 7th, 2019

WHAT IS COMMERCIAL REAL ESTATE (CRE)?

Value, £bn

Commercial real estate (CRE) 935

Other non-residential buildings 165

Private rented residential 1,190

Other residential 6,498

Total built environment 8,788

£bn % of

TotalRetail 175 34

Standard Retail – South East 51 10

Standard Retail – Rest of UK 21 4

Shopping Centre 57 11

Retail Warehouse 46 9

Office 215 45

City 63 12

West End, Mid Town 79 15

Rest of South East 53 10

Rest UK 20 4

Industrial 69 14

South East 44 9

Rest UK 25 5

Other Commercial 50 10

Total 509 100

A large investment market with risk / return characteristics between equities and bonds

Commercial real estate (CRE) includes office buildings, shops, hotels and industrial warehouses The long-term return from CRE has been 9.7% y/y

Investors hold real estate not just for return but also because of the diversification benefits against

equities and bonds

All Property Equities Gilts

All Property 100%

Equities 28% 100%

Gilts 12% 47% 100%

The predominant owners of this property are overseas investors,

investment funds, property companies,

pension funds and insurance companies

£509bn £426bn

Invested market Owner

occupied

The risk-return characteristics of CRE fit between those of equities

and bonds.

Source: The Size & Structure of the UK Property Market, end 2017, IPF

CRE & PRIVATE INVESTORS

Wealthy individuals often allocate a higher proportion of wealth to real estate

Attracted by sense of ownership… …that the key metrics are easily observed… …and that CRE properties can cater for all tastes

PROPERTY TYPES LOCATIONS

Shops Central London

Offices South east

Logistics Scotland

BUILDING

CONDITION

APPROACH

TO ASSET

MANAGEMENT

Grade A Redevelopment

Secondary Spec development

Maintain income

OCCUPANCY LEVERAGE

Vacant High

Fully-let Low

TANGIBLE

ASSET

CHANCE TO

ANTICIPATE

WHAT IS GOING

TO DO WELL

OWNERSHIP

✓

✓

✓

✓

✓ ✓

No 1 Poultry: Standard Office, City

Latest valuation: Latest research:

Net capital

value

Headline

rental

value

Net

Effective

rental

value

Equivalent

yield

Net Initial

Yield CV/sq ft

2018 Q3 £12,150,000 £607,500 £486,000 4.25% 4.12% £1,015 2018 The Knight Frank London Office Report

Key assumptions: Manager estimates:Irrecoverable costs: 2.50% Irrecoverable costs: 3.10%

New lease term: 8 years Lease renewal rate 45%

Period to break: 5 years Propensity to break 32%

Incentive period: 15 months Vacancy period 8 months

Letting period 6 months Tenant default pa 2.10%

Refurbishment costs: £240 per sq ft

Recent City office sales Recent lettingsPrice Area Yield Invt Qlty CV/sq ft

1 Plumtree Court £1.160 bn 826,008 4.10% 984 £1,404

50-54 Clerkenwell Road £11.400 m 8,954 4.64% 568 £1,273

2018 Q3 Savills City office investment watch

LOW QUALITYHIGH QUALITY

£14.00SQ. FT.

rising risk of vacancies, rising costs, increased active management opportunities

INVESTMENT QUALITY

SCORE

621

0

5

10

15

20

25

30

35

40

45

Vacant <2 2-4 4-6 6-8 8-10 10-12 12-14 14-16 16-18 18-20 >20

% o

f re

nta

l val

ue

years

Click to access full tenancy schedule

0

2

4

6

8

10

12

14

16

18

20

wei

ghte

d a

vera

ge u

nex

pir

ed l

ease

ter

m,

year

s

segment average

property

Click to access full property details

Click to download full valuation details

Click for historic trends for high quality

City offices

SEARCH COSTS

Large complex assets increases the information, skills and access to deal flow overhead

INVESTORSRequire ability to monitor performance and the sense of engagement which they would get by direct investment.

SEEK BUILDINGS, to meet specific investment goals.

SEEK ASSET MANAGER – for basic tasks like building management and rent collection, and also the “business plan” for the property - the selection of tenants, changing configuration, capital spending etc needed to maintain the value.

SEEKING INVESTORS to acquire and manage buildings.

CORE SKILLS in asset selection, building management, asset management.

SEEKING BUILDINGS AND ASSET MANAGERSConstructing vehicles to hold the assets and securing finance is time consuming and costly in fees.

PROBLEMS WITH INDIRECT FUNDS

Indirect funds dilute some of the attractions for individual investors…

Entry / exit queuing

Lack of information on

key metrics

Layers of fees

Cash drag

Two levels of due

diligence

… and creates principal-agent problems

RISK

EXPECTED

RETURN

STATED FUND OBJECTIVES

ACTUALPORTFOLIO

INVESTMENT CHARACTERISTICS

CRE shares the physical characteristics of residential property, but differs in that the value is dependent on the cash flow

RETURN PRESOMINANTLY

INCOME

RENTAL GROWTH RATE TENDS TO BE BELOW THE

RATE OF INFLATION

IRRECOVERABLE COSTS LOW BUT

RISING AS LEASES SHORTEN

CAPITAL COSTS

SIGNIFICANT

VACANCIES SIGNIFICANT IN A

DOWNSWING

ACTIVE MANAGEMENT

BOND CHARACTERISTICS

EQUITY CHARACTERISTICS

RETURN

LONG-TERM AVERAGE

Reduce irrecoverable costs

Maintain occupancy

Efficient maintenance / refurbishment

Spot opportunities through

active management

ASSET MANAGEMENT ESSENTIAL

RENT less IRRECOVERABL

E COSTS

GROWTH lessCAPITAL COSTS

5.9% y/y 3.7%y/y

DIVERSIFICATION ESSENTIAL

SOLUTION: THE APPLICATION OF FINTECH TO CRE INVESTMENT

NO TIME FRICTION

S

For investors who wish to choose, monitor and change their portfolios,

securitisation at the asset level:

The asset level marketplace

Timely and accurate transmission of

information from the asset level to investors

INFORMATION

FLOWS

A TRADING

PLATFORM

Asset managers are freed to

exercise, and be rewarded for, their

core skills in choosing and

running buildings

✓cuts out frictions;✓reduces costs, and;✓avoids conflicts

Quarter Rents received

Rents outstanding

Properties Q3 2018 £120,500 £10,500

Tenancies Q2 2018 £131,000 Nil

Financial Q1 2018 £131,000 Nil

Reports Q4 2017 £131,000 Nil

Documents Q3 2017 £127,500 Nil

ASSET LEVEL

SECURITISATION

The future of real estate investment

IPSX - Headlines

▪ The world’s first regulated securities exchange dedicated to real estate

▪ Recognised Investment Exchange and Recognised Stock Exchange

▪ Public market proxy for direct real estate investment

▪ IPO of operating companies owning “single” CRE assets

▪ Majority owned by institutions

▪ Management from major financial/market infrastructure groups

▪ IPSX Prime (IPO market)

▪ IPSX Wholesale (proposed professional JV REIT market)

▪ Initial market counterparties progressing early issuer discussions and wider IPSX members being

onboarded

IPSX – Segmentation and options

“INSTITUTIONAL GRADE” REAL ESTATE(with £50m+ lot size)

Public Securities - Direct▪ IPSX

Private Market - Direct▪ Specialist Investors (Institutions, SWFs, Closed and Open

Ended Funds)

Public Securities - Indirect▪ Funds on generalist Regulated Markets (i.e. traditional

REIT markets)

WIDER COMMERCIAL REAL ESTATE MARKET(typically up to £30m lot size)

Private Market - Direct▪ Specialist Investors (Institutions, SWFs, Closed and Open

Ended Funds)▪ Family Offices, UHNWIs▪ Digital Marketplaces/Syndication Platforms/

Crowdfunding/ICOs and application of DLT for “accredited” investors (e.g. Cadre, Property Partner) [note that some offers to investors may be for larger assets majority financed by specialist direct investors as above]

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

Panel debate

Chair

◼ Richard Hopkinson-Woolley, Partner, Real Estate, Simmons & Simmons LLP

Panellists

◼ Malcolm Frodsham, Founder Director, Real Estate Strategies

◼ Anthony Gahan, Chairman, IPSX

◼ Huw Stephens, Head of London Transactions at PATRIZIA

◼ Charlie Foster, Managing Director, RBC Capital Markets

◼ Isabella Roberts, Partner, Simmons & Simmons LLP

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

Asset Manager Outlook to 2025 - highlights

Real Estate/ Infrastructure highlights:

Real Estate: mixed picture – Neutral with Traditional; Funds, bias to the downside with Alternatives

• As seen by Traditional Funds (i.e. non-Alternative): pretty balanced two-way traffic

o Ranks 7th out of 12 asset classes where managers expect to Increase exposure by 2020

o Ranks 6th out of 12 asset classes where managers expect to Decrease exposure

• As seen by Alternative Fund Managers: bias to the downside

o Ranks 7th out of 13 asset classes where managers expect to Increase exposure by 2020

o Ranks 1st out of 13 asset classes where managers expect to Decrease exposure by 2020

Infrastructure: bias to the upside for both Traditional and Alternative Fund Managers

• As seen by Traditional Funds (i.e. non-Alternative): bias to the upside

o Ranks 6th out of 12 asset classes where managers expect to Increase exposure by 2020

o Ranks 12th out of 12 for asset classes where managers expect to Decrease exposure

• As seen by Alternative Fund Managers: bias to the upside

o Ranks 5th out of 13 asset classes where managers expect to Increase exposure by 2020

o Ranks 11th out of 13 asset classes where managers expect to Decrease exposure by 2020

The future of real estate

investment

Q&A

7 February 2019

The future of real estate

investment

Thank you for attending

7 February 2019