A London real estate fund targeting 10%+ pa absolute returns, managed directly by experts who advise institutional fund groups Key features — The Marshall Hutton Real Estate Equity Fund (MHREEF) seeks to generate returns irrespective of the condition and direction of the market, through opportunistic acquisition and shrewd asset management of prime commercial and residential real estate in strategic and proven London locations — Managers hugely experienced. Used by many large institutional fund groups because of their on-the-ground knowledge and skill — Fund offers investors chance to eliminate a tier of asset management to reduce costs and enhance returns — Targeted return of 10%+ per annum in each of the first three years, with a 20%+ IRR in years four and five — Managers looking for investments to be made for a minimum of three years to a maximum of seven, with an exit by way of flotation or realised via trade sales About the fund Property focus — Invests in diversified portfolio of London real estate — Commercial and residential property included as this opens up development opportunities — Properties in strategic and proven London locations to help ensure valuations hold up — Properties purchased at distressed prices or where income and capital values can be enhanced through skilful asset management to drive value and yield Property management team — London specialists whose clients include: Threadneedle Property Investment, Legal & General Investment Management, Scottish Widows Investment Partnership, The Crown Estate, Royal London Asset Management, La Salle Investment Management, AXA Real Estate Investment Management and Hermes Real Estate Investment Management — Exceptional hands-on knowledge and 20 years’ experience of landlord and tenant matters, leasing, acquisition, disposal, and project delivery — Long experience working with London planners, so know of projects that would benefit from change of use or developments that can win planning consent and how to shape proposals to earn approval — Has access to many off-market deals across London and the experience to negotiate best terms Return profile — Forecast return of 10%+ per annum over the first three years and 20%+ IRR in years four and five. — Can gear to 55% of asset (Fund) value to drive returns higher — Loans accrued on individual properties, rather than aggregated across whole portfolio to reduce risk. Managers will not cross-collateralise debt — Fund returns are asset backed Fund structure — Open-ended Luxembourg SICAV SIF — Offered by Luxembourg Fund Partners, leading fast-growing fund management business in the Duchy with $350m of assets — Sterling-denominated fund with euro share class if required by investors — No inherent legacy real estate issues Generating absolute returns Off-market opportunities — Prices fallen marginally in London since 2008 but increased international demand has underpinned values – particularly for super-prime. However, market fractured — Fund launch timed to exploit the funding gap — Property investors caught with too much debt in 2008 in sectors with declining asset values have struggled to renegotiate loans — Liquidity still not readily available for most private individuals — Result is a substantial decrease in completion prices paid by local, respected buyers with cash funds — This has also led to an expansion of the exclusive off-market sector — Targeted acquisitions available to the Fund show discounts ranging from 10-30% to fair value Fund timing exploits a funding gap As at mid-2011 LTVs for residential development finance still falling — Bank lending intentions to real estate decreased to mid-year 2011 — 34% of all real estate lenders currently not lending — Debt availability unlikely to improve while eurozone issues unresolved — LTVs fell from 56% to 55% mid-2010 to mid-2011 — Number of lenders prepared to offer mezzanine finance fell from 18% to 12% to mid-2011 Source: De Montfort University Shrewd asset management — Properties bought where asset values and yields can be enhanced through: — — — — — — — Change of use Refurbishment Development Equity injection Lease renegotiation Hands-on project delivery Underlying knowledge of asset values and project costs Case studies — Examples of how asset values and yields can be enhanced through: — Change of use: Tenancies bought back on property at King’s Cross with book value of £2.8m. New planning permission negotiated and leases signed with restaurant, café and hotel. Eighteen months later net asset value £4.85m — Refurbishment: Westminster property with a book value of £5.8m acquired and following a £2m refurbishment let to a bank as its London headquarters for £568,000 pa. Twenty months later building sold for £10.5m — Re-gearing: Central London office building of 28,500 sq ft where Marshall Hutton undertook the rent review. During negotiations changed tack and ultimately secured a lease extension of 10 years, increasing the NAV to £19m, for which the building was sold six months after closing. The book value increased by 46% Benefits of going direct to property managers The direct approach — Traditional real estate funds engage firms like Marshall Hutton for their specialist local knowledge and expertise in acquiring, developing and managing properties — By launching own fund Marshall Hutton offers investors chance to eliminate a tier of management — This enables a more agile response to opportunities, speedier completion of projects, tighter control and lower costs — This in turn will lead to better returns — So confident is the management team in the benefits this will have on returns that it has set its performance bonus hurdle rate at the high level of 10% cumulative Managing risk Managing risk — Prudent maximum investment and withdrawal restrictions to protect the integrity of the Fund and other shareholders’ capital and returns. A maximum of 5% of the FuM can be withdrawn at any time, subject to 60 days’ prior notice — Private client cornerstone money invested to ensure stability in accrual period — Absolute return philosophy – the Fund is not primarily dependent on the increase of real estate prices. Through its focus on opportunistic acquisition and shrewd asset management the Fund seeks to generate returns irrespective of the condition and direction of the market Managing risk — Prudent gearing – 55% max — Loans accrued on individual properties, rather than aggregated across whole portfolio – we will not cross collateralise debt — Local knowledge of underlying values — Expect to sell developed properties to demonstrate ability to sweat the assets and release capital for further development acquisitions — Access to consented residential schemes on discounted terms — Focus on quality property that has sustained appeal — Mixed portfolio diversified by type, location, operational status or delivery time — The Fund will always maintain a minimum liquidity of 10% of the NAV. (It may exceed this level to enable the funding of targeted assets or when the Board of Directors reasonably believes no investment available meets MHREEF investment criteria.) Forecasts Funds under management and gross returns Source: Marshall Hutton/Principia Economica Ltd Fund Growth Source: Marshall Hutton/Principia Economica Ltd The Marshall Hutton directors: Richard Marshall-Greaves has over 27 years’ experience advising clients on the acquisition and disposal of property in the south east of England, principally in central London. Expertise includes: leasing disposal of office, retail and industrial assets; development appraisal of office, residential and retail schemes; and development delivery Daniel Hutton has more than 24 years’ experience advising clients on residential and commercial assets in central London. He has an extensive knowledge of property financing, the London occupational market and capital markets in the UK. Daniel is a native of Berlin and has also accrued extensive experience of the German capital and residential markets since 2005. He established Marshall Hutton with Richard in 1993 Anthony Harston has over 30 years’ experience in the commercial property market. A Fellow of the Royal Institution of Chartered Surveyors, he became a Partner at Strutt and Parker in 1991 and headed the firm’s Landlord and Tenant Division. He joined Marshall Hutton in 2002. He has specialist expertise in rent review, lease renewal and lease re-gearing for office, retail and industrial property Investor information — MHREEF is a Luxembourg-based specialised investment fund (LFP 1 SICAV SIF SA) reserved for “well-informed” investors — Investment minimum is EUR 10,000 for those assessed by a credit institution, investment firm or a management company which certifies the investor’s ability to understand the risks associated with investing in the SIF — The managers are looking for investments to be made for a minimum of three years to a maximum of seven, with an exit by way of flotation or realised via trade sales Contact information Julien Renaux Luxembourg Fund Partners S.A. Richard Marshall-Greaves Marshall Hutton 2, Boulevard de la Foire L-1528 Luxembourg 14a Eccleston Street Westminster SW1W 9LT Email: [email protected] Email: [email protected] Telephone: (+44) 020 7730 5082 Web: www.marshallhutton.co.uk Important notice This document has been issued and approved by Luxembourg Fund Partners SA, which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Luxembourg Fund Partners SA. Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on the final documentation relating to the transaction and not the summary contained herein. The transactions and product mentioned herein may not be appropriate for all investors and before entering into any transaction you should take steps to ensure that you fully understand the transaction and have made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. We recommend that you seek advice from your own tax and legal advisers in making this assessment. The information contained in this document is based on material we believe to be reliable. However, we do not represent that it is accurate, current, complete or error-free. Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. The underlying investments in the fund consist wholly or substantially of real property. The value of the real property concerned will generally be a matter of valuer’s opinion rather than fact. Under certain market conditions investors seeking to redeem their holdings may experience significant restrictions or delays. Any projections are based on a number of assumptions as to market conditions, and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. The distribution of this document and availability of this product in certain jurisdictions may be restricted by law. You may not distribute this document, in whole or in part, without our express written permission.
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