update to the private placement memorandum June 2008
Asset Manager
Fund Manager
PRIVATE AND CONFIDENTIAL A Shari’ah Compliant Real Estate Investment Fund targeting the GCC (excluding Saudi Arabia) with a focus on the Emirate of Abu Dhabi FOR AGGREGATE COMMITMENTS IN THE REGION OF US$ 500 MILLION THROUGH AN OFFERING OF LIMITED PARTNERSHIP INTERESTS
IndustRE Development Fund, L.P. update to the private placement memorandum
Table of contents EXECUTIVE SUMMARY
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TERMS AND CONDITIONS
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Investments To Date
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Pipeline of Future Projects
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EXECUTIVE SUMMARY The following Executive Summary is not intended to be complete and is qualified in its entirety by the more detailed information contained in the Private Placement Memorandum dated July 2007. For a full description of risk factors that should be considered in connection with an investment in the Fund, see section titled ‘Risk Factors and Conflicts of Interest’ in the Private Placement Memorandum.
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IndustRE Development Fund, L.P.
The Offering
The Fund is seeking aggregate commitments of US$ 500 million, and will principally target investments in the commercial office and industrial real estate sectors within the Fund Region with a focus on the Emirate of Abu Dhabi. The Fund may invest, on an opportunistic basis, in other real estate types. The National Commercial Bank of Saudi Arabia (‘NCB’) has underwritten US$ 250 million of the aggregate commitments. The Objective
The Fund will invest in real estate opportunities with the following objectives in mind: (a) Targeting real estate development projects as opposed to existing income generating real estate assets; (b) Seeking investments in real estate development projects that comply with Shari’ah investment principles and are suitable to attract Shari’ah compliant debt finance; (c) Seeking opportunities that enable exit within the term of the Fund; (d) Allowing for co-investments with large real estate investors and developers; and (e) Investing in projects where the Fund has a controlling interest. In cases where the Fund considers acquiring minority interests in a real estate development project, the Fund will only do so where: (i) the Asset Manager acts as the primary development manager for the project, and (ii) the Fund secures material minority rights to protect its interests in the project.
To date the fund has committed to investing US$ 163 million of equity in the following assets: 1. Two adjacent plots in the Capital Centre development are commercial and residential administered by Abu Dhabi National Exhibitions Company (ADNEC). The two properties combined have a total development cost of US$ 317 million with a corresponding equity requirement of approximately US$ 114 million. 2. A commercial plot in Motor City, Dubai being master-developed by Union Properties. The total development cost is US$ 129 million with a leasable area of 36,000m2. In addition to the commitments already made the Asset Manager has identified a substantial pipeline of future projects with an estimated equity value exceeding US$ 250 million. Details of committed investments and descriptions of the assets currently in the pipeline are presented later in this PPM update.
The Investment Opportunity
The real estate markets of the GCC have witnessed an unprecedented level of investment in real estate development over the last five (5) to ten (10) years. Ignited by the level and pace of development in Dubai that began nearly ten (10) years ago, the rest of the GCC markets have followed suit, embarking on their own country-specific real estate development programs. The General Partner believes that the following four (4) factors form the major drivers affecting the real estate markets in these countries: (a) Increased liquidity, resulting from high energy prices, recent capital repatriation and increased fiscal prudence; (b) Population growth, generated organically and by way of movement of the expatriate workforce, both of which are expected to continue in the Fund Region at levels above global averages over the term of the Fund; (c) Growth in non-oil sectors of the economy, driven by investment in tourism, manufacturing and industrial-related services and the positive knock-on effect on the service sector of the economy; and (d) Regulatory changes and liberalisation in the foreign ownership regime that have increased investment opportunities to GC locals and international investors.
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EXECUTIVE SUMMARY continued
Each of the drivers is interconnected, with some being market driven and others driven by government and public policy. Regulatory changes and high levels of liquidity have allowed governments to diversify their investment programs to include investment in the industrial, manufacturing and tourism sectors. Historical and forecasted GDP growth in the various countries of the GCC is illustrated below.
Over the period 2001 to 2006, GCC GDP in the countries comprising the Fund Region has grown from US$ 333 billion to US$ 673 billion and is forecast to reach US$ 800 billion in 2010. The UAE and Qatar are expected to witness the highest percentage growth between 2007 and 2010 with average nominal growth rates exceeding 6%. Non-oil GDP in the GCC, excluding Saudi Arabia, has outpaced overall GDP, having grown in real terms at 6.8% versus 5.5% over the period from 2001 to 2006.
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IndustRE Development Fund, L.P.
The Fund Strategy
The Fund seeks to focus its investments in the development of commercial office, industrial real estate and other real estate types, opportunistically, in the Fund Region. The rationale for the focus on office and industrial property is based on the following: Industrial
Commercial OFFICE
• Manufacturing, trade and distribution segments of GDP showing robust real growth • Large capital flows into infrastructure, including ports, air hubs and highway systems that support investment, or generate demand, in industrial property types • Increased volume of bi-lateral non-energy trade supported by free trade agreements • Global manufacturers relocating to the Fund Region • Relatively fewer private sector industrial property developers and operators
• Robust service sector GDP growth • Robust growth in the professional services, employee populations, in particular within the FIRE sector • Demographics and investments in industrial and manufacturing have significant positive knock-on effect into service industries such as legal and business consulting, healthcare, education, media and communications • Lease costs have accelerated faster than construction costs and, in certain locations, land costs •V acancies have trended down into the mid single digits in certain markets in the Fund Region
Risk
• Limited oversupply risks and reduced time to market due to: quick construction time • Low construction costs, and low construction complexity • Limited design and construction variability providing enhanced efficiency and scalability • Built to suit opportunities • Larger developments more easily phased
• Core and shell development with tenant fit-out is less complex than residential • Location driven opportunities • T ight market provides pre-construction leasing opportunities
Exit
• Long-term leases • T riple net structures • Low operating, maintenance and capital expenditures • Limited reconfiguration and cost during tenant changeovers, particularly warehouses • Stable cashflows • Potential for single tenants with strong credit can support yield compression on exit
• Medium-term leases with potential for structured increases in lease rates • Relatively predictable cash flows • Potential for institutional grade tenants • High rents have encouraged ownership, improving exit opportunities
Return
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TERMS AND CONDITIONS Listed below is a summary of the IndustRE Terms and Conditions. Full and comprehensive details of investment conditions, closings, drawdowns, distributions, indemnifications and other fund related terms and conditions can be found in the Private Placement Memorandum. The summary presented here is an extract only and should not be read in isolation from the Private Placement Memorandum, dated July 2007.
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IndustRE Development Fund, L.P.
The Fund
IndustRE Development Fund L.P. is structured as an exempted limited partnership registered under the Cayman Islands Limited Partnerships Law (2003 Revision) (the “Partnership” or the “Fund”). Structure
General Partner IndustRE Development Fund GP
GP
Fund Manager Eastgate Capital Group
Contractual Relationship
Fund
LP
NCB (US$ 250 million)
IndustRE Development Fund LP
LP
other investors (US$ 150 million)
Contractual Relationship Assets / Investments Asset Manager SinoGulf Investments
General Partner
The general partner of the Fund is IndustRE Development Fund GP L.P. structured as a limited partnership registered under the Cayman Islands laws (the “General Partner”). The general partner of the General Partner is Eastgate IndustRE Fund GP Co. a limited company wholly owned by Eastgate Capital Holdings Inc. (the parent company of the entities within the ECG Group). The General Partner (acting by its general partner) will be responsible for evaluating and monitoring investments and for providing day-to-day managerial and administrative services to the Fund.
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TERMS AND CONDITIONS continued
Fund Manager
The General Partner has appointed Eastgate Capital Group (ECG), a Cayman Islands limited company, to act as manager of the Partnership (the “Fund Manager”). It is anticipated that a new DIFC limited company owned by the ECG Group will replace ECG as the Fund Manager on receipt by such company of the requisite authorisations from the Dubai Financial Services Authority. The Fund Manager will search out, evaluate, identify and cause the Fund to make suitable investments consistent with the investment policies of the Fund. Asset Manager
The General Partner and the Fund Manager have appointed SinoGulf (DIFC) Limited, a wholly-owned subsidiary of SinoGulf Real Estate Investments LLC, to act as asset manager in respect of the Fund (the “Asset Manager”). The Asset Manager will provide management and consultancy services and advice to the General Partner and the Fund Manager in respect of existing and proposed investments. Investment Committee
The investment committee consists of senior professionals employed by or affiliated with ECG, the Asset Manager and/or NCB or NCB Capital. Details of the investment committee are listed in the Private Placement Memorandum. NCB Commitment
NCB’s commitment as of the First Closing is US$ 250 million and NCB or its Associates will retain a Commitment of at least US$ 50 million throughout the life of the Fund. SinoGulf Real Estate Investments LLC has committed to contribute 5% of equity requirements on all assets invested into by the Fund. Maximum Fund Size
The General Partner will not accept Commitments in excess of US$ 500 million without the consent of Limited Partners representing 75% of Commitments. Minimum Commitment
The minimum Commitment to the Fund by a limited partner (each, a “Limited Partner”, collectively the “Limited Partners” and, together with the General Partner, the “Partners”) will be US$ 2 million, or such lower amount as may be approved at the discretion of the General Partner.
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IndustRE Development Fund, L.P.
Term
The Fund will dissolve five (5) years from the Final Closing, subject to a maximum of two (2) consecutive one year extensions as determined by the General Partner so as to permit the orderly winding-up of the affairs of the Fund. Management Fee
As against each Limited Partner during the Investment Period, the Fund will pay a management fee (the “Management Fee”) to the General Partner in an amount equal to 2% per annum on the Commitments of that Limited Partner. After the Investment Period, the Management Fee will equal 2% per annum of the Partner’s Share (as defined in the PPM) of that Limited Partner of the sum of: (i) the aggregate acquisition cost of all Investments but excluding therefrom Investments which have been disposed of or fully and permanently written off as at the Investment Period Expiry Date and each subsequent accounting date; and (ii) the amount of Commitments that have been allocated to, but not yet invested in, Investments in respect of which the Partnership is contractually committed to (the “Contractual Commitments”). For the purpose of calculating such fee the acquisition cost of non-US$ Investments will be calculated in US$ at the applicable Investment Exchange Rate. The Management Fee will accrue on a daily basis from the date of the First Closing by reference to the Commitments following the Final Closing and shall be paid quarterly in advance. Acquisition and Disposal Fees
The General Partner will, on acquisition of an Investment, charge a one-off fee equal to 1% on the gross asset value of such Investment and, on disposal on an Investment, a one‑off fee equal to 1% on the gross asset value of such Investment (or in the case of a partial disposition, the proportionate part thereof). Such fees shall not be off-set against the Management Fee. Development Management Fees
SinoGulf Real Estate Investments LLC (“Development Manager”) shall be entitled to charge the Partnership such fees as shall be agreed between the Asset Manager and the General Partner in respect of development management services provided by the Development Manager in connection with Investments and any fees payable by the Partnership to the Development Manager for so acting shall be in accordance with market standard remuneration for such services. Placement Agent Fee
Each Limited Partner (other than NCB), becoming a Limited Partner, shall pay to the placement agent nominated in respect of the Partnership, as a direct payment outside the Partnership, an amount equal to 3% of its Commitment.
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TERMS AND CONDITIONS continued
Organisational Expenses
The Fund will bear all reasonable legal and other organisational and offering expenses incurred in the formation of the Fund and related entities and the offering of limited partnership interests (“Organisational Expenses”). The General Partner shall be responsible for Organisational Expenses in excess of 1% of Commitments plus any applicable VAT thereon. Operating Expenses
The General Partner, the Fund Manager and the Asset Manager will pay all of their respective ordinary administrative and overhead expenses in managing Investments, including salaries, benefits and rent. The Fund will pay all other expenses attributable to the activities of the Fund, including without limitation unreimbursed fees, costs and expenses related to the purchase and sale of Investments and other securities, abort costs, expenses of custodians, outside counsel and accountants, any insurance or litigation expenses and taxes, fees or other governmental charges levied against the Fund and fees and expenses of the Shari’ah board and the Shari’ah consultant. Investment Limitations
Without the consent of the Advisory Committee, (i) no more than 20% of aggregate Commitments will be invested in a single Investment (the “Investment Size Restriction”) and (ii) no more than 75% of the acquisition cost of an Investment will be leveraged. Returns
The hurdle internal rate of return for the Fund’s investments is 8% per annum, net of all fees. The anticipated internal rate of return is 15% per annum, net of all fees. However, the three current investments already placed with the Fund show net expected returns in the range of 20 – 25% per annum. Distributions
Priority: Partnership Receipts (as defined in the PPM) after deducting or providing as the General Partner may determine for Partnership Liabilities (as defined in the PPM) will be distributed as between and pro rata to each Partner’s Share (as defined in the PPM) of those Partnership Receipts. Distributions will be made in US$, save where otherwise agreed with a Limited Partner. Notwithstanding the foregoing, distributions that would otherwise be made to a Limited Partner will be distributed in the following order of priority, subject to the paragraph below in the case of Non US Dollar Receipts (as defined in the PPM): (a) First, 100% to such Limited Partner as a return of its Contributions; (b) Second, to such Limited Partner until it has received cumulative distributions in an amount which shall provide it with an internal rate of return of 8% per annum on its Contributions (the amount distributed pursuant to this paragraph (b) being the “Hurdle”); (c) Third, to the General Partner until it has received 20% of an amount equal to the aggregate of the Hurdle plus distributions made under this paragraph (c); and (d) Finally, 80% to such Limited Partner and 20% to the General Partner. In calculating the Hurdle: (i) No account shall be taken of Contributions drawn down from an existing Partner and then returned to it out of Commitments drawn down from Limited Partners admitted at a Subsequent Closing or would have been returned but for the fact of being retained within the Partnership or of distributions deemed to have been received by such Limited Partner admitted at that Subsequent Closing; and (ii) In respect of any Limited Partner admitted at a Subsequent Closing, that Limited Partner shall be deemed to have made such Contributions and received such distributions as it would have if it and all other Limited Partners had been admitted at the First Closing other than in respect of Distributed Investments.
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Investments To Date Three projects have currently been secured by the Fund Capital Centre Commercial, Abu Dhabi US$ 65 million of equity Capital Centre Residential, Abu Dhabi US$ 49 million of equity Motor City, Dubai US$ 49 million of equity
These investments account for a total equity allocation of US$ 163 million, which represents 33% of the Fund’s aggregate commitment of US$ 500 million.
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Investments To Date continued
Capital Centre - Commercial
Capital Centre - Residential
Note: Images presented above are concept level and may change significantly as the design evolves over time.
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CAPITAL CENTRE
Capital Centre consists of two adjacent plots and the intention is to construct a commercial and a residential tower on these plots. Building design for these plots is shown opposite. Initially the Asset Manager secured the first plot (known as Capital Centre Commercial) and following the successful placement of this first asset the second plot (Capital Centre Residential) was acquired. The two buildings will be designed and constructed by the same team and will therefore benefit from design synergies and cost savings. Description of Master Development Capital Centre is located on the main island of Abu Dhabi next to ADNEC (Abu Dhabi National Exhibitions Company) on a major highway to Abu Dhabi International Airport. The project is being developed by ADNEC (under the guidance of the Chairman Sheikh Sultan Bin Tahnoon Al Nahyan) and is receiving full government support. The development includes 24 freehold plots with the majority being zoned for residential, hotels and serviced apartments. There are currently only 4 plots zoned for commercial use. The project has limited infrastructure risk due to its limited size, existing road infrastructure and government support. Capital Centre - commercial
Description of Plot The Asset Manager has secured the largest commercial plot at Capital Centre. The plot will be a 27-storey development with a land area of 5,057m2 and a total gross floor area (GFA) of 58,662m2. The plot is located at Capital Centre’s northern entrance and is adjacent to the Exhibition Centre’s shared parking. Team The project is being developed by a world-class consultant team including: Architect:
Woods Bagot
Project Manager:
Coffey Projects
Quantity Surveyor:
Blair Anderson
Development Manager:
SinoGulf Real Estate Investments LLC
The building has been designed to provide Grade A commercial office space and includes features such as raised floors and fitted ceilings. The ground floor will house up-market retail and there will be four levels of underground parking. Financial Overview Total project cost is estimated at US$ 170 million, where the land cost represents about 23% of that figure. Construction is expected to start in mid-2008 and the building is expected to be completed by mid-2010. CAPITAL CENTRE - residential
Description of Plot A second commercial plot has been secured at Capital Centre (adjacent to Capital Centre - Commercial) in order to create a twin tower concept. Capital Centre - Residential will be a 24-storey development with land area of 4,799m2 and total GFA of 39,352m2. Units will be sold off-plan on a free-hold basis. Team Capital Centre - Residential will be developed by the same team as stated above, and be designed to meet high-end residential development specifications. Financial Overview Total project total cost is estimated at US$ 147 million, where land cost represents about 19% of the total cost. Construction activities are expected to start in late 2008 and last until the end of 2010.
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Investments To Date continued
Motor City, AC-5
Note: Images presented above are concept level and may change significantly as the design evolves over time.
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MOTOR CITY
Description of Master Development Motor City is a Union Properties’ development located in Dubailand in Dubai. The total master plan covers 2.7 million m2 of which approximately 1.1 million m2 is allocated for residential, 270,000m2 for commercial, 145,000m2 for retail and 135,000m2 for hospitality use. Motor City is located in an area surrounded by major new residential developments. It lies 10km from the Mall of The Emirates, 24km from the existing Dubai International Airport and 10km from the new Dubai World Central Airport. The site has good transportation links; it is located on Emirates Road and the proposed Blue Metro Line. Description of Plot The Asset Manager has secured the central commercial high-rise plot at Motor City. This plot is the largest of the eight plots allocated for commercial towers and measures approximately 18,900m2. The site is zoned for 45,000m2 of GFA, up to a maximum of 28 storeys and will afford views over the motor race track and the adjacent Olympic Stadium at Dubai Sports City. Team The design team has developed a building concept and is currently working this up in to a detailed scheme design. The team comprises companies that are each the best in their field, including: Architect:
Batley Partners
Project Manager:
Coffey Projects
Quantity Surveyor:
Ibtikari
Development Manager:
SinoGulf Real Estate Investments LLC
The building design incorporates features from contemporary commercial high-rise office buildings worldwide. These include ample free undercover parking, high-speed elevators, modern security, large open-plan office areas and extensive hard & soft landscaping. Financial Overview The total project cost is US$ 129 million with a targeted 60/40 debt to equity split. The project is particularly attractive since the Asset Manager secured the land for US$ 17 million, which represents only 13% of the total project cost. Construction on site is expected to start on site in June 2008 and be completed by Q2-2010.
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Pipeline of Future Projects The Asset Manager has identified a pipeline of future projects that will be presented to the Fund in the coming months. Six of these future projects are presented here; they are located in Dubai and Abu Dhabi and are diversified across commercial, industrial and mixed-use sectors.
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Dubai
Abu Dhabi
projects already placed with the fund future projects in the pipeline
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Pipeline of Future Projects continued
Between Maqta & Mussafah Bridges, Abu Dhabi Mainland
The Asset Manager has identified several key plots at the strategic location between the approach to the two bridges on to Abu Dhabi island. Negotiations are currently underway to acquire one or more of these plots. The intention would be to construct high-rise towers for commercial use on these plots. These plots are particularly attractive since they lie adjacent to Abu Dhabi’s primary highways leading to the International Airport, Al Ain, Dubai and the new port at Khalifa. Also, this area is strategically located between the existing CBD and the proposed Capital District (as detailed in the recent Abu Dhabi Plan 2030). Sheikh Maktoum Road, Abu Dhabi
Sheikh Maktoum Road is the main highway between Abu Dhabi and Dubai. Major new highways are currently under construction linking this road to Abu Dhabi International Airport, Yas Island, Saadiyat Island and the Mina Port area. The junction of these highways has been identified as a strategic location in the development of Abu Dhabi and the Asset Manager has identified a key plot in this area. Negotiations are underway to acquire this plot (possibly as a joint-venture with the landowner) with the intention of constructing a low-rise business park development on the land. This location is attractive for a commercial business park since it lies on the main highway between Abu Dhabi and Dubai, providing convenient access to both cities..
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Saadiyat Island
Saadiyat Island is located 500 metres off the coast of Abu Dhabi. The master development on this island will be world class (including Guggenheim and Louvre Museums) and will benefit from full government support and infrastructure provision. The Island will reflect the vision of the new Abu Dhabi, with a focus on the hospitality and cultural sectors. Investment opportunities in the residential, commercial and leisure sectors will also be available. The Asset Manager has three preferred development areas based on land availability and phasing of the development. The Fund’s main focus will be on commercial plots in prime locations with easy access off the island to the mainland. The total cost for a single development is expected to range between US$ 100 – 150 million. Abu Dhabi Airport Free Zone
The Abu Dhabi Airport Free Zone is being established by the Abu Dhabi Airports Company (ADAC). The Free Zone will take advantage of both the rapid economic development within the U.A.E. itself and also the airport’s strategic geographical location at the international crossroads between east and west. The Fund has had early negotiations with ADAC with a view to securing a plot of 100,000 – 200,000 m2 for industrial use. This will either be secured on a freehold or long-term (99 years) lease basis. The intention would be to construct high quality warehouses (to international specifications) at a total project cost of between US$ 100 – 150 million.
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www.sinogulf.com
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