Global REIT Sector Overview-Final

Understanding the trends

26 July 2012

Strictly private and confidential

Global REIT Activity

Copyright © 2012 Deloitte & Touche, Ghana. All rights reserved. 1

Agenda

1. Overview of Global REIT activity

2. How can Deloitte further serve SEC?


The industry is comprised of legal entities that are categorized as real estate investment

trusts (REITs). To qualify as an REIT, a company or trust must distribute at least 90.0% of

taxable income to shareholders annually in the form of dividends.

REITs use the pooled capital of many investors to directly invest in income-producing

property. Income is mainly generated from rent, interest and capital gains. There are three

types of REIT funds: equity, mortgage and hybrid.

The REIT sector largely comprises of following: Percentage

1. Equity REITs – other commercial properties 54.2%

2. Equity REITs – retail properties 23.1%

3. Equity REITs – residential properties 15.2%

4. Mortgage REITs 6.1%

5. Hybrid REITs 1.4%

Global REIT Sector: Snapshot

$608 Billion

(2006)

Definition

Market Cap. $661 Billion

(2008)

92.5% of sector

is composed of

Equity REITs


Advantages of Investment in REITS

Global Listed Real Estate

Regional Listed Real Estate

Unlisted Open-End Fund

Unlisted Close-End Fund

Direct Real Estate

Most Liquid

Least Liquid

Most Diversified

Least

Diversified


U.S. Continues to Lead Global REIT Market

Americas 47%

Asia Pacific 35%

Europe 16%

Middle East & Africa 2%

Regional Breakdown by Market

Capitalization

Number of REITs


Global REIT Sector: Subsector Breakdown

There are three main types of products within the Real Estate Investment Trusts industry, including equity

REITs, mortgage REITs and hybrid REITs. All three segments are either publicly traded or privately held, with

the largest REITs traded on major public exchanges, similar to stocks and other investment securities.

Retail Property 21.4%

Industrial & office

Property 18.3%

Residential Property

14.1%

Healthcare Property

13.3%

Lodging, resort &

diversified Property

10.5%

Self-storage Property

8.2%

Home & commercial Financing

7.5%

Specialty Property

6.7%

Market Segmentation


Global REIT Sector: Geographical Breakdown

Countries with existing

REIT-type structures

Countries considering

REIT-type structures


Major REITs By Region U.S.

Europe

Asia

Pacific

0

5

10

15

20

25

30

35

Mark

et

Cap

. in

$U

S B

illio

ns


Major REIT Markets Have Similar Regulations

US Australia Japan

Introduction 1960 1985 2000

Legal Form Any legal US Entity Unit Trust Corporation

Minimum Share Capital No US$ 0.99 (A$ 1) US$ 1.2 million (JPY 100.0

million)

Shareholder Requirements At least 100 shareholders

•Five or fewer individuals or

foundations not to hold over 50.0

percent of the shares.

No •At least 50 shareholders or

exclusively by qualified

institutional investors.

•No shareholder owns more than

50.0 percent equity, directly or

indirectly.

Listing Mandatory No No No

Asset Level Requirements At least 75.0 percent of the

assets must be real estate,

government securities or cash.

•Cannot own over 10.0 percent of

another corporation’s stock.

•No more than 5.0 percent of its

assets can be represented by

securities of any one issuer.

•Taxable REIT subsidiaries

cannot hold over 25.0 percent of

its assets.

•Investments in land must be for

purpose of deriving rent.

•A property trust may invest in a

single real property.

• J-REITs are merely an asset-

holding vehicle.

•Investments primarily in

„Qualified Assets‟

•The J-REIT must not hold 50.0

percent or more equity of another

corporation.

Leverage Restrictions No No No

Profit Distribution At least 90.0 per cent of its

taxable ordinary income

100.0 percent of trust’s income Greater than 90.0 percent of

profits

Tax treatment Tax-exempt to the extent

distributed

Not taxable for trustee Tax-exempt to the extent

distributed

Transition to REIT • Built-in gains are taxable

• Exempt if the asset is held for

ten years

N.A. N.A.


UK Has More Stringent Rules Than US

US UK

Introduction 1960 2007

Legal Form Any legal US Entity Listed closed-ended company

Minimum Share Capital No No

Shareholder Requirements At least 100 shareholders

Five or fewer individuals or foundations not to

hold over 50.0 percent of the shares.

More than five shareholders cannot control

but there are exceptions

Listing Mandatory No Yes

Asset Level Requirements At least 75.0 percent of the assets must be

real estate, government securities or cash.

Cannot own over 10.0 percent of another

corporation’s stock.

No more than 5.0 percent of its assets can be

represented by securities of any one issuer.

Taxable REIT subsidiaries cannot hold over

25.0 percent of its assets.

• At least 75.0 percent of a REIT‟s net profits

must be derived from the property rental

business.

• At least 75.0 percent of a REIT‟s assets

must be used in the property rental

business.

Leverage Restrictions No Yes

Profit Distribution At least 90.0 per cent of its taxable ordinary

income

At least 90.0 percent of property income

Tax treatment Tax-exempt to the extent distributed Property income and capital gains are exempt

Transition to REIT Built-in gains are taxable

Exempt if the asset is held for ten years

Conversion charge of 2.0 percent of the gross

market value of the property rental business

assets.


Changes in REIT Rules: Developed Markets

US

France Japan

Australia

Removed mandatory

requirement to be listed

on the French Stock

Exchange.

(Jan 2010)

Changed dividend

distribution requirement

from a taxable income

basis to an accounting

profit basis.

(Apr 2009) In response to the

global financial

crisis, developed

markets introduced

REIT-friendly

amendments to

increase liquidity.

Allowed distribution of

REIT dividends either in

cash or in stock, provided

at least 10.0 percent of

the dividend is made in

cash. (Dec 2009)

Extended the definition of

managed investment trust

(MIT) for withholding tax

purposes. (May 2010)


Global REIT Sector – Trading Volume Trends

- Average daily US dollar trading volume, April 2006

-Average daily US dollar trading volume, April 2011

-Average daily US dollar trading volume, April 2001

$2.0 billion

$4.0 billion

$449 million

Capital Offering (2011):

- REITs have raised over $24.6 billion in initial debt

and equity capital offerings

- $16.8 billion was raised in secondary equity

common and preferred share offerings

- $6.7 billion was raised in unsecured debt offerings

- $1.1 billion was raised in IPOs

- American Assets Trust, Inc. (NYSE: AAT)

- Summit Hotel Properties, Inc. (NYSE: INN)

- STAG Industrial, Inc. (NYSE: STIR)

Completed IPOs in 2011:


REIT Adoption Status: Emerging Markets

Thailand

Indonesia Philippines

China

India

Real Estate Investment

Funds (REIF) were

introduced in

December2007.

•While REITs have been

formed in Indonesia, most

are listed in Singapore, to

take advantage of more

favorable tax benefits.

•The Philippine REIT Act

(REIT Act) became law in

December 2009.

•The market is waiting for

clarity on the regulatory

framework, and no REITs

have been launched yet.

•In December 2008,

China formally supported

the launch of Chinese

REITs.

•Chinese pilot REIT

schemes are expected be

launched in 2011, with

only domestic investors

likely allowed to

participate.

•The Thailand Securities

and Exchange

Commission (SEC)

issued draft regulations in

2010, and is close to

approving the regulatory

framework.

••Draft regulations introduced in

2007; however no consensus

has been reached yet.

•Tax and other implications are

yet to be settled by the

Securities and Exchange Board

of India (SEBI).


REIT Regulations More Restrictive in Emerging Markets

Foreign Investment Tax Regulations Transparency

De

ve

lop

ed

Ma

rkets

Em

erg

ing

Ma

rkets

Well Established Very Few

Restrictions High

High Unclear High Restrictions

Example – China

restricts foreign direct

ownership of property

Example – Tax implications

for REITs have yet to be

finalized in China and India

Example – China has yet

to fully adopt international

accounting standards

Example – U.S. has no

restrictions on foreign

ownership in REITs

Example – Tax

regulations in the U.S.

are comparatively clear

Example – U.S. REITs

have high standards of

financial reporting and

information disclosure

Example: Once a REIT regime is established in China, cross-border investors will likely take a cautious approach to investing in Chinese REITs

due to strict controls on foreign investments in real estate, a less favorable tax environment, and lack of transparency in property markets


Major REITs Have Multi-National Presence

Name of REIT Headquarters Market Cap.

($ billions)

Geographic Presence

Simon Property Group Indianapolis, Indiana 29.2 North America, Europe, Asia

Westfield Group Australia 22.5 Australia, U.S., U.K., New Zealand

Public Storage Glendale, California 18.0 U.S. and Europe

Vornado Realty Trust New York City 15.8 U.S. and India

Equity Residential Chicago, Illinois 14.6 U.S. and Canada

General Growth Properties Chicago, Illinois 13.5 U.S. and Brazil

HCP, Inc. Long Beach, California 13.3 U.S. and Canada

Unibail-Rodamco SE Paris, France 12.9 Europe

Boston Properties Inc. Boston, Massachusetts 12.7 U.S. and Canada

Annaly Capital Management New York City 12.5 U.S. and Canada

Host Hostels & Resorts Inc. Bethesda, Maryland 12.1 Canada, Mexico, Chile, U.K., Europe

Avalonbay Communities Inc. Alexandria, Virginia 9.6 U.S. and Canada

Ventas Inc. Louisville, Kentucky 7.6 U.S. and Canada

Land Securities Group Plc. London, U.K. 8.4 U.K.

Stockland Corp. Ltd. Sydney, Australia 8.2 Australia, U.K., New Zealand

ProLogis Denver, Colorado 8.1 North America, Europe and Japan

British Land Co. Plc. London, U.K. 7.3 U.K. and Europe

Kinco Realty Corp. New York 7.2 U.S. and Canada

Macerich Santa Monica, California 6.2 U.S. and Canada

RioCan REIT Toronto 5.9 U.S. and Canada


Best Practices for Global Expansion

Determine desired strategy for expansion – local JV partners, acquisitions of existing assets

or companies, or development

1) Determine desired strategy for expansion – local JV partners, acquisitions of existing

assets or companies, or development

2) Gain an understanding of the types of entities available for use, including tax

treatment and general tax rates

3) Determine appropriate financing and capital structures, including applicable

withholding rates and compliance with thin cap rules

4) Plan for operating constraints, including “trapped cash”, employee arrangements,

VAT and other local country requirements

5) Consider exit strategies and related tax implications

6) Create a “top 10” list of items not to do without contacting the U.S. tax department and

socialize it with global finance, treasury, legal and accounting departments


Selected Recent Cross-Border REIT Deals

RioCan,

Canada

Tanger Outlet

Centers, U.S.

50:50 JV

Date: Jan 2011 Deal Size: $1,010.0M

Details

• RioCan entered into a 50:50 JV with U.S.-based Tanger

Outlet Centers to develop 10-15 outlets in Canada

Brookfield Asset

Management,

Canada

General Growth

Properties, U.S.

Acquired

Date: Jan 2011

Date: Feb 2010

Deal Size: $1,711.2M

Deal Size: $2,625.0M

Details

• Brookfield acquired a 27.0 percent stake in GGP

Details

• Brookfield recently agreed to purchase an additional 11.8

percent stake in GGP from Fairholme Funds

Date: Feb 2011 Deal Size: $8.7B

Details

• By joining forces, this merger created a company

positioned to be the leading global provider of logistics

real estate -- a Blue Chip REIT

Date: May 2012 Deal Size: $930.0M

Details

• Chartwell teams up with U.S.-based Health Care REIT to

buy more than 8,000 Canadian seniors housing suites

Date: May 2012 Deal Size: $411.0M

Details

• Following the completion of the acquisitions, Starhill REIT

will have the largest portfolio of overseas property

investments of any Malaysian REIT,

AMB Property

Corp., U.S.

ProLogis,

U.S.

Acquired

Chartwell Senior

Housing, Canada

Health Care

REIT, U.S.

Acquired

Starhill REIT,

Malaysia

Three Marriott

Hotels, Australia

Acquired


Potential Challenges in Developing & Implementing REIT Regulations

• Problems with high real estate transaction cost

• Government’s reluctance on tax exemption/reductions for corporations

• Issues with title security and registration

• Lack of transparency and corporate governance

• Lack of valuation standards

• Lack of an asset rating system

• Limited liquidity to support REIT transactions on local exchanges


Agenda

1. Overview of Global REIT activity

2. How can Deloitte further serve SEC?


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Global REIT Sector Overview-Final

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