The Attraction of Investing in Real Estate A journey from the Palm to Park Avenue via London

Presented by:

Richard Johnson

Managing Director

Istithmar

22nd November 2006

“A journey of a thousand miles begins with a single step”- Traditional Chinese proverb

230 Park Avenue

What makes Real Estate investment attractive ?

For international investors - a mix of science and art ?

Source of diversification - a risk adjusted return generator

Real estate as an inflation or deflation hedge

Real estate as a component of the investment universe

Real estate can be a strong cash flow generator

Natural affinity for real estate ?

Ego and “snob” Values

Different perceptions of value – “Because we can”

Grand Buildings

What makes it attractive – practical aspects

Tool for risk dispersion

Management

Low covariance with gilts / bonds

Illiquidity

Land Based

Locally Specific

Lumpiness

Long term asset

Can be used for different purposes

DISADVANTAGES

High entry barrier

Monopoly value

Costs

High transaction costs

Cannot be moved

Needs Local Expertise

RE ATTRIBUTESADVANTAGES

I can influence asset performance

Market selection

World real estate at night

World Real Estate Value by Region

Total Stock US 7.1 Trillion

Invested Stock USD 2.4 Trillion

Investible Stock USD 4.7 Trillion

Invested Stock USD 4 Trillion

Investible stock USD 5.2 trillion Total stock USD

7.5 Trillion

Invested Stock USD 1.4 Trillion

Investible Stock 2.5

Trillion

Total Stock of USD 4.6 Trillion

Source: RREEF Research

Any time you take a chance you better be sure the rewards are worth the risk because they can put you away just as fast for a $10 heist as they can for a $1,000,000 job.

- Stanley Kubrick

280 Park Avenue

Our changing world…

What lies ahead?

Consolidation

Innovative Capital Markets

Further Globalisation

Emergence of newer markets

Continued growth of CMBS and Globalisation of REITs

Wider range of acceptable markets ?

Market Risks

Source: RREEF Research

Looking for growth

Picking deals and what you get from them

Potential Return

Source: RREEF Research Risk

CoreIRR 12%Leverage

50%

Value Add

IRR 12 - 18%Leverage 30 -

70%

Opportunistic

IRR 18 - 20%Leverage

70%+

- Equity investments in real estate related assets- seeks to capitalise on economic, financial and property market dislocation

- Properties requiring redevelopment- Moderate leverage- Intermediate hold

- Equity investments in stabilised, income producing properties- Low to moderate leverage- Long term hold

W Hotel

Managing investor expectations

Short term sentiment and expectation management…

Create a diversified portfolio

Structure deals using a spread of financial instruments.

Active asset management to unlock value enhancement opportunities.

Monitor portfolio performance through regular reporting and appraisals.

Explore exit strategies to maximise IRR returns.

Hotel Washington

Global trends spurring greater real estate investment

Globalisation of capital flows

More efficient markets

Tighter tax regimes

Emerging Markets

“Weight” of capital

Global Flow of Capital into real estate 2005

Source: PwC

Success is a consequence and must not be a goal.- Gustave Flaubert

Adelphi

“Follow the yellow brick road. We’re off to see the Wizard”- EH Harburg – The Wizard of Oz

Emirates Towers, Level 4, Sheikh Zayed Road, PO Box 17000. Dubai, United Arab Emirates

www.Istithmar.ae