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1 sponsors: media partners:

2 REAL ESTATE Roundtable Moderator: Michael Hornsby, Partner, EMEIA Real Estate Funds Leader, EY, Luxembourg Panelists: Andreia Camara, Senior Risk Manager - Property, Aberdeen Property Investors, Luxembourg Peter Baxter, Managing Director, M&G Real Estate, Luxembourg Pierre Kreemer, Tax Partner, Head of Real Estate & Infrastructure, KPMG, Luxembourg Xavier Le Sourne, Counsel, Elvinger, Hoss & Prussen, Luxembourg Dirk Holz, Associate Director, RBC Investor & Treasury Services, Luxembourg

3 ALFI London Roadshow Real estate roundtable 14 May 2014

4 Introduction: Luxembourg - Significant hub for real estate funds Michael Hornsby, EMEIA Real Estate Funds Leader, EY Luxembourg

5 Growth in number of Luxembourg real estate funds (*) The number of single funds plus the sub-funds of umbrella funds Source: ALFI / CSSF

6 Net assets under management in Luxembourg real estate funds Source: ALFI / CSSF

7 Initiator origins by launch year 100% 90% 80% 25% 11% 24% 21% 21% 6% 16% 1 37% 14% 9% 18% 70% 60% 25% 67% 45% 5% 9% 5% 34% 24% 10% 1 25% 6% 9% 4% 5% 5% 50% 50% 40% 30% 20% 10% 0% 6% 2 100% 14% 6% 50% 18% 5% 9% 1 38% 9% 9% 9% 10% 3 7% 5% 50% 9% 50% 3 21% 16% 18% 29% 6% 14% 17% 18% 11% 6% 7% 10% 1 10% < Australia/NZ Benelux France Germany Italy Middle East Nordic/Baltic Other Americas Other Asia Other Europe Russia Spain Switzerland UK US Portugal canada sweden (*) This graph shows the launch year of fund units that are included in the REIF Survey It is NOT a cumulative sequence. Source: ALFI REIF Survey 2013

8 Fund launches by strategy type (*) This graph shows the launch year of fund units that are included in the REIF Survey It is NOT a cumulative sequence. Source: ALFI REIF Survey 2013

9 Target investor groups Source: ALFI REIF Survey 2013

10 Investor location Source: ALFI REIF Survey 2013

11 Useful resources ALFI 2013 Real Estate survey ALFI Real estate investment funds: Financial reporting ALFI Luxembourg Successful REIF Center: Lessons learnt and opportunities from the real estate downturn ALFI Luxembourg Real Estate Investment Vehicles ILA / EY guide on AIF and AIFM A practical guide for directors IFBL training: M1 REIF Fundamentals

12 Fund platforms in Europe Fund Management House Investment adviser AIFM Accounting Asset management Committees Board of Directors Administration Middle office Service provider appoints Property management Research/deal sourcing Due diligence Structuring Risk Management Portfolio Management Other activities Valuer Treasury and financing Risk mgt coordination Compliance Officer Internal audit Appoint AIFM Depositary Tax adviser Local accounting Local service provider service contracts Out-ofscope AIF Joint Venture Managed account Local asset mgt Local property mgt service contracts AIF 1 AIF 2 AIF 3 Legal adviser Administrator AM/PM Investments

13 Establishing an AIFM Practical Aspects Of An Application Peter Baxter, Managing Director, M&G Real Estate Luxembourg

14 Risk Management In Real Estate Practical Guidance Andreia Camara, Senior Risk Manager Property, Aberdeen Property Investors

15 The Valuation Function Under The AIFMD New Challenges for AIF and AIFM Directors Xavier Le Sourne, Counsel, Elvinger, Hoss & Prussen, Luxembourg

16 Developments In The Structure Of Operating Platforms And The Enhanced Role Of Service Providers And Depositaries Dirk Holz, Associate Director, RBC Investor & Treasury Services, Luxembourg

17 Alternative Investment Fund Manager Directive Alternative Investment Fund model Alternative Investment Fund (AIF) Alternative Investment Fund Manager (AIFM) Marketing / Sales Asset valuation Portfolio management Risk management Fund valuation Transfer agent Depositary Regulator Oversight (Depositary)

18 Alternative Investment Fund Manager Directive Depositary function DEPOSITARY Safe-keeping (delegation possible) Oversight (delegation not permitted) Cash flow monitoring (delegation not permitted) Custodian: Financial instruments Listed assets Separated accounts / segregation duty Monitoring of non-financial assets Ownership verification Internal and external proof of ownership verifications Subscription and redemptions Fund valuation and NAV calculation Sale proceeds distributed to the AIF timely Cash flow monitoring Reconciliation AIFM acting within the AIFMD, national law and prospectus Strict Liability/ Reversed burden of proof Monitoring and oversight function with responsibility for negligence/intentional failure

19 Challenges on traditional tax structures used in Luxembourg and the proposed development of Luxembourg REIT Pierre Kreemer, Tax Partner, Head of RE & Infrastructure, KPMG Luxembourg

20 Real Estate Funds (classic) structuring : Always less a one-way street Carry INVESTORS Tax Reporting (FATCA etc) MAN CO FCP AIFM Cross border management SUBSTANCE! Shareholder Debt interest deductibility HOLD CO shift in taxing rights on exit for share deals PROP CO (SPV) Bank debt Deductibility of Interest, TP Increased tax & VAT audits -> more complexity, uncertainty, and risks RETT

21 BEPS - Actions that may affect real estate structures Potential impacts on real estate structures Intra-group debt funding Hybrid mismatch arrangements Anti-avoidance rules Harmful preferential tax regimes Treaty abuse Documentation requirements for transfer pricing purposes Increasing transparency Property company clauses in tax treaties

22 EU tax policy Recommendations by the EU Commission Avoidance of double non-taxation Subject-to-tax clauses in DTT Multilateral conventions Unilateral national rules General anti avoidance rules Combating artificial arrangements Economic substance of transactions Good governance in tax matters in 3 rd countries Proposed amendements to the EU Parent-Subsidiary Directive

23 EU tax policy EU Action plan Fight against tax fraud and tax evasion Tackling of hybrid instruments Anti-hybrid directive covering hybrid instruments as well as hybrid entities New anti-abuse rules in the Interest and Royalties Directive and in the Parent-Subsidiary Directive EU code of conduct for business taxation: profit participating loans Other initiatives that could threaten the existence of hybrids: coordinated approach between Member States unilateral measures against loopholes (Germany, Denmark, the UK, Italy and Austria have adopted such measures). Exchange of information

24 Best practice recommendations International real estate investors Aspects to be considered Establishment of sufficient substance (critical!) Choice of optimal location for investment vehicles Transfer pricing and related documentation Monitoring changes in tax law (domestic and tax treaties) Stress tests on tax assumptions for financial modelling Internal tax risk management A trend to more REITs

25 Structure alignment in view of tax law changes Review of existing investment structures Review of current business substance Review of intra-group transactions (financing & service agreements), thin capitalization rules Preparation of transfer pricing documentation Consider structuring alternatives : for implemented hybrid instruments when new property company clauses in tax treaties Monitoring changes in tax law (domestic and tax treaties) Allocation of resources to internal tax risk management functions A trend to more REITs -> Lux REIT?