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REIS Handbook Exposure Draft Webinar

April 28, 2011

2
-
3 PM Eastern


This webinar is sponsored by:


REISus.org

Real Estate Information Standards

REISus.org

Real Estate Information Standards

Agenda


Introductions


Objectives


Portfolio Management


Performance


Asset Management


Financial


Valuation


Compliance


Questions and Answers


Wrap
-
up


CPE

2

Introductions

Presented by: Tim Schlitzer

REISus.org

Real Estate Information Standards

Tim Schlitzer (Host)

Massachusetts Pension Reserves Investment Management Board

Tim Schlitzer is a Senior Investment Officer at the Massachusetts Pension Reserves Investment
Management (PRIM) Board. The PRIM Board currently manages over $40 billion in assets on behalf of
the Massachusetts Teachers and Employees. Tim directs the investment activities for PRIM’s 10%
allocation to real estate and 4% allocation to timberland. His responsibilities include portfolio oversight
and manager selection for PRIM’s direct real estate, REIT and timberland investments. Tim is a member
of PREA and NCREIF and currently serves on the REIS Council.


Ken Greguski (Moderator)

RREEF

Ken Greguski currently serves as the Global Head of Performance and Client Reporting for RREEF, a
global real estate investment manager. Ken has over 25 years of experience in the institutional real
estate industry and has held various roles in finance, operations and reporting. Professional
membership includes NCREIF, a past Chair of the Performance Measurement Committee. Currently, Ken
serves as the Chair of the REIS Council, is an active member of the CFA Institute's Real Estate Working
Group responsible for the GIPS Real Estate provisions, is a member of the IPD US Index Consultative
Group, is a member of INREV, having served on the steering committee for the INREV Guidelines
Convergence Project and is an active member of OSCRE currently serving as a member of the
Investment Performance Reporting Work Group.








Presenters (in speaking order)

4

REISus.org

Real Estate Information Standards

Jean
-
Marie Murphy (Presenter: Portfolio and Asset Management)

Stockbridge Real Estate Funds

Jean
-
Marie Murphy
, Managing Director, serves
as a Senior Portfolio Manager at Stockbridge Real Estate
Funds, currently overseeing a 12.8 million square foot portfolio of commercial assets, including office,
industrial, retail and multi
-
family properties
. Jeannie has
35 years of real estate industry experience and
has been responsible for the management of more than $4 billion of real estate assets throughout her
career. She is a member of New York Women Executives in Real Estate and
currently serves on the
REIS
Council.


Maritza Matlosz (Presenter: Performance)

BlackRock

Maritza Matlosz , Director, is a member of the BlackRock Real Estate team where she manages the
Performance Reporting/Analytics group and the YARDI Operations Group. In that capacity her
responsibilities include performance reporting (GIPS and NCREIF), attribution analysis, GIPS compliance,
YARDI accounting operations and special projects. She is a member of NCREIF, a former chair of the
NCREIF Performance committee and currently serves on the REIS Council.


Neal Armstrong (Presenter: Financial
, Valuation
and Compliance)

RREEF

Neal Armstrong, a Director at RREEF, is co
-
head of its North American Fund Finance division which is
responsible for overseeing the accounting and financial reporting for a number of funds and separate
accounts with real estate investments in excess of $17 billion. Prior to joining RREEF, Neal was a senior
manager in KPMG’s LLP’s real estate practice. He is co
-
chair of the Accounting Committee of NCREIF and
currently serves on the REIS Council.





Presenters (in speaking order)

5

Objectives

Presented by: Ken Greguski

REISus.org

Real Estate Information Standards

Objectives of REIS Handbook Exposure Draft
Webinar


Describe proposed changes made to the REIS standards and the thought
process underlying the changes


Substantive


Conforming


Checklists by Account Type


Presentation and Format


Assess, on a preliminary basis, industry sentiment on substantive issues


Additional portfolio and asset management metrics


Additional performance metrics and enhanced disclosures


Increased reliance on Fair Value GAAP based financial information and audits


Compliance


Encourage formal response to exposure draft


Comments due no later than June 1, 2011

7

REIS Standards

8

Portfolio Management


Name or Identifier


Contact


Who determines application of REIS policies (advisor or
investor)


Inception Date


Structure


Style and Strategy


Portfolio Diversification by

:


Investment/Property Type


Region/Location


Nature of Investment (life cycle)


Investment Structure


Final Closing Date


Scheduled Termination Date


Management discussion of performance relative to
objective

Performance


Fund Level Total and Component Time
-
Weighted Return
(TWR)


Gross and Net of Fees


Disclosures accompanying TWR


Benchmark Comparisons


Net Asset Value


Since Inception Internal Rate of Return (IRR)


Gross and
Net of fees


Since Inception Internal Rate of Return (IRR)


Gross and
Net of fees


Disclosures accompanying IRR

Performance (cont’d)


Paid in Capital Multiple


Investment Multiple


Realization Multiple


Residual Multiple


Distributions Since Inception


Aggregate Capital Commitments


Since Inception Paid in Capital


Leverage Percentage


Unfunded Commitments


Redemptions for quarter


Total Subscribed Commitments


Total Redemption Requests

Asset Management


Property Occupancy level


Portfolio lease expiration statistics


Top 10 Tenants

Financial


Condensed U.S. Fair Value (FV) GAAP based financial
reporting


U.S. Fair Value (FV) GAAP based financial statements


Financial statement Audits


Schedule of Investments


Supplemental Schedule of Investor Capital Accounts

Valuation


Valuation Policy Statement


Portfolio Management

Presented by: Jean
-
Marie Murphy

REISus.org

Real Estate Information Standards

REIS STANDARDS

Element Description

Frequency

Required or
Recommended
Element

Applicable
Account Type

Handbook
Reference

Name or Identifier

Quarterly

Required

All

PM.01

Contact

Quarterly

Required

All

PM.02

Who determines application of REIS policies (advisor or investor)

Quarterly

Required

All

PM.03

Inception Date

Quarterly

Required

All

PM.04

Structure

Annually

Required

All

PM.05

Style and Strategy

Annually

Required

All

PM.06

Portfolio Diversification by

:

Quarterly

Required

All

PM. 07


Investment/Property Type


Region/Location


Nature of Investment (life cycle)


Investment Structure

Final Closing Date

Annually

Required

Closed
-
end

PM.08

Scheduled Termination Date

Annually

Required

Closed
-
end

PM.09

Management discussion of performance relative to objective

Quarterly

Recommended

All

PM.10

Portfolio Management Standards

10

Performance

Presented by: Maritza Matlosz

REISus.org

Real Estate Information Standards

REIS STANDARDS

Element Description

Frequency

Required or
Recommended
Element

Applicable
Account Type

Handbook
Reference

Fund Level
Total and
Component Time
-
Weighted Return (TWR)
-

Gross and
Net of Fees

Quarterly

Required

All

PF.01

Disclosures accompanying TWR

Quarterly

Required

All

PF.01.1
-
01.7

Benchmark Comparisons

Annually

Required

All

PF.02

Net Asset Value

Quarterly

Required

All

PF.03

Since Inception Internal Rate of Return (IRR)
-

Gross and Net of fees

Quarterly

Required

Closed
-
end

PF.04

Since Inception Internal Rate of Return (IRR)
-

Gross and Net of fees

Quarterly

Recommended

Open
-
end, Single
Client

PF.04

Disclosures accompanying IRR

Quarterly

Required

All

PF04.1
-
04.3

Paid in Capital Multiple

Quarterly

Required

Closed
-
end

PF.05

Investment Multiple

Quarterly

Required

Closed
-
end

PF.06

Realization Multiple

Quarterly

Required

Closed
-
end

PF.07

Residual Multiple

Quarterly

Required

Closed
-
end

PF.08

Distributions Since Inception

Quarterly

Required

Closed
-
end

PF.09

Aggregate Capital Commitments

Quarterly

Required

Closed
-
end

PF.10

Since Inception Paid in Capital

Quarterly

Required

Closed
-
end

PF.11

Leverage Percentage

Quarterly

Recommended

All

PF.12

Unfunded Commitments

Quarterly

Recommended

Closed
-
end

PF.13

Redemptions for quarter

Quarterly

Recommended

Open
-
end

PF.14

Total Subscribed Commitments

Quarterly

Recommended

Open
-
end

PF.15

Total Redemption Requests

Quarterly

Recommended

Open
-
end

PF.16

Performance Standards

12

REISus.org

Real Estate Information Standards

Measuring Performance Compliance: From
Firm Level to Account Level


Enables compliance of REIS standards


Previous versions


compliance measured at different
levels


Accounting: Account


Valuation: Property


Performance: Firm


Move to Account compliance
-
changes standards


Compliance with REIS no longer predicated on compliance
with GIPS


GIPS remains foundational
-
ethical principles consistently applied


Firm performance and composites eliminated

13

XYZ Closed
-
end Fund, L.P.

Historical Performance, 20XX
-
20XX

Year


Year
End

Net
Assets

Before
Fee

Total
Return

NFI
-
ODCE
Benchmark

After Fee

Total

Return

20XX

$125,213

9.15%

13.06%

8.15%

20XX

449,809

13.07%

21.39%

12.07$

20XX

562,550

14.45%

16.32%

13.45%

20XX

532,547

14.19%

15.97%

13.19%

20XX

265,460

-
3.55%

-
10.01%

4.55%

Annualized Time
-
weighted Return Since Inception (January 1, 20XX
)

9.24%



8.24%

Annualized Internal Rate of Return Since Inception (January 1, 20XX
)

9.45%



8.45%

Notes

1.

Performance
results are denominated in U.S. dollars.

2.

Returns
presented are net of leverage. The amount of leverage is immaterial to the fund.

3.

Performance
results include cash and cash equivalents and related interest income.

4.

Net
returns are after investment management fees and performance incentive fees.
Annual investment management fees are 1% of
invested capital. No incentive fees have been earned.

5.

Performance
results are calculated on an asset
-
weighted average basis using beginning of period values,
adjusted for time
-
weighted external cash flows.

6.


Annual returns are time
-
weighted rates of return calculated by linking quarterly returns.

7.

The
annualized internal rate of return ("IRR") is calculated using monthly cash flows. The terminal
value utilized in this calculation is equal to the NAV as
of December 31, 20XX.

8.

Assets
are valued quarterly by the General Partner and appraised annually by an independent MAI

9.

Additional
information, including the Fund's valuation policy, capitalization policy regarding
capital expenditures, tenant improvement, lease
commissions and information related to investment management and incentive is presented in the notes accompanying the financi
al
statements.

10.

NFI
-
ODCE
has been taken from published sources. The NFI
-
ODCE is a before
-
fee index of
open
-
ended funds with lower risk investment strategies,
utilizing low leverage and equity ownership of stable U.S. operating properties. The Index is capitalization
-
weighted based on e
ach fund's net invested
capital.

11.

The NFI
-
ODCE
data, once aggregated, may not be comparable to the performance of
the XYZ
Fund
due to current and historical differences in portfolio
composition by asset size, geographic location property type and degree of leverage.

14

REISus.org

Real Estate Information Standards

Added mechanism to present REIS compliant
information in other reports


A REIS compliant Performance Report must contain
the following disclosures:


Definition of period and calculation methodology


Use of leverage and if material, the leverage ratio


For each period presented, the valuation policy and basis
of accounting


Fee type and methodology for recordation


If benchmarks are included
-
name, source, description,
calculation methodology

15

REISus.org

Real Estate Information Standards

Polling Question #1: Addressing REIS
Performance


At what level should the REIS Performance standards
be applied?


Firm Level



17%


Account Level



67%


Other





0


Do not know/no opinion

15%




16

Asset Management

Presented by: Jean
-
Marie Murphy

REISus.org

Real Estate Information Standards

REIS STANDARDS

Element Description

Frequency

Required or
Recommended
Element

Applicable
Account Type

Handbook
Reference

Property Occupancy level

Quarterly

Required

All

AM.01

Portfolio
lease expiration statistics

Quarterly

Required

All

AM.02

Top 10 Tenants

Quarterly

Recommended

All

AM.03

Asset Management Standards

18

REISus.org

Real Estate Information Standards

Asset Management: Leasing Risk Measures
added


The addition of leasing statistics to assist investors
and other users understand and assess risks in the
portfolio:


Occupancy and rollover information is a required element.


Top ten tenants list is a recommended element.


19

REISus.org

Real Estate Information Standards

Polling Question #2: Lease Expiration Risk
Requirement


Do you agree that Portfolio level lease expiration risk
should be a required disclosure in an account report?


Yes






57%


No, make it a recommendation only


30%


No, do not either require or recommend


4%


Don’t know/no opinion





9%




20

REISus.org

Real Estate Information Standards

Polling Question #3: Top 10 Tenant Information


Do you think the addition of Top 10 tenant statistics
will provide meaningful tenant risk information to
investors/report users?


Yes




68%


No




21%


Don’t know/no opinion


11%







21

REISus.org

Real Estate Information Standards

Polling Question #4: Occupancy Risk
Requirement


Do you agree that Property level occupancy risk
should be a required disclosure in an account report?


Yes






60%


No, make it a recommendation only


33%


No, do not either require or recommend


0%


Don’t know/no opinion





6%



22

Financial

Presented by: Neal Armstrong

REISus.org

Real Estate Information Standards

REIS STANDARDS

Element Description

Frequency

Required or
Recommended
Element

Applicable
Account Type

Reference

Condensed U.S. Fair Value (FV) GAAP based financial reporting

Quarterly

Required

All

FR.01

U.S. Fair Value (FV)
GAAP based
financial statements

Annually

Required

All

FR.02

Financial statement
Audits

Annually

Required

All

FR.03

Schedule of Investments

Annually

Required

All

FR.04

Supplemental Schedule of Investor Capital Accounts

Annually

Recommended

All

FR.05

Financial Standards

24

REISus.org

Real Estate Information Standards

Annual Audit Requirement Affirms Reliance on
U.S. GAAP


Audited numbers used for performance


Aligns with investor expectations


Preclusion allowed by client agreement


Single client accounts may not be audited

25

REISus.org

Real Estate Information Standards

Polling Question #5: Annual Audit Requirement


Do you agree that an annual audit of the US GAAP
fair
-
value financial statements should be required
unless client precluded?


Yes




84%


No





6%


Don’t know/no opinion


10%




26

REISus.org

Real Estate Information Standards

Debt Valuation: The proposed end to a long
journey?

27

2006

2007

2008

2009

2010

2011

Debt valuation
required in REIS
unless precluded by
GAAP

FASB Issues Fair
Value Option


Preclusion
removed


REIS moves to
requiring election
of Fair Value
Option


Industry survey on
debt valuation


Industry not
receptive to
change in REIS


Industry supports
structure based
decision


Additional “how
to” guidance
required before
changing REIS


REIS issues
Implementation
Guidance


Different
approaches used;
wide variation in
results based on
approach


No consensus on
approach to value
debt


2010 REIS Debt
Exposure Draft


Proposed revision
to debt valuation
standard


Account
structure
emphasis


Introduced REIS
NAV and
additional
disclosures to
reconcile
valuation
differences


Proposed solution
rejected


REIS Handbook
Exposure Draft


All applicable
GAAP considered
in audit


Specific “call out”
of FV Option
unnecessary


REISus.org

Real Estate Information Standards

Polling Question #6: Elimination of Fair Value
Option


Do you agree with the removal of the specific REIS
requirement to elect the Fair Value Option for all
debt?


Yes




78%


No




20%


Don’t know/no opinion



2%



28

REISus.org

Real Estate Information Standards

Recommendation for Supplemental Schedule
of Investor Capital Accounts has met resistance


Introduced as a recommended standard in 2008


Not industry practice


Consideration being given to eliminating the
standard

29

REISus.org

Real Estate Information Standards

Polling Question #7: Elimination of
Recommendation for Investor Capital Accounts


Should the supplemental schedule of investor capital
accounts be eliminated as a recommended REIS
standard?


Yes








48%


No, the standard should remain as a recommendation29%


No, the standard should be moved to a requirement 8%


Don’t know/no opinion






15%



30

Valuation

Presented by: Neal Armstrong

REISus.org

Real Estate Information Standards

REIS STANDARDS

Element Description

Frequency

Required or
Recommended
Element

Applicable
Account Type

Reference

Valuation Policy Statement

Annually

Required

All

VA.01

Valuation Standards

32

REISus.org

Real Estate Information Standards

Conforming to GIPS changes Valuation
Requirement

New REIS Handbook


Beginning 1/1/2012, annual
external valuations unless
client contracts for less
frequent, but no less
frequent than every 36
months allowed

Old REIS


External valuations at least
once every 36 months


33

Compliance

Presented by: Neal Armstrong

REISus.org

Real Estate Information Standards

Proposed Handbook Facilitates Voluntary
Compliance with REIS

New REIS Handbook


Single chapter



Compliance measured on an
Account/Fund Report basis


Specific checklists: open
-
end
funds, closed
-
end funds, & single
client accounts


Compliance statements


Compliance is clarified and
facilitated


Allow partial compliance for
phase
-
in period (until 1/1/2014)


Old REIS


Multiple chapters: reporting and
discipline standards


Compliance measurement at
different levels


Single checklist



No compliance statements


Compliance is challenging



Full or partial compliance not
addressed

35

REISus.org

Real Estate Information Standards

Compliance


REIS compliance improves transparency, financial and
performance reporting, and comparability


Compliance is voluntary measured on an Account by Account
basis


Handbook introduces Compliance Statements


The ABC Account Report has been prepared and presented in
compliance with the REIS standards. Refer to the accompanying
completed REIS Checklist


The ABC Account Report has been prepared and presented in partial
compliance with the REIS standards. Refer to the accompanying
completed REIS Checklist for included elements


Elements of REIS compliant report presented in other reports


36

REISus.org

Real Estate Information Standards

Polling Question #8: Allowing partial
compliance


Do you agree partial compliance with REIS should be
permitted during a phase in period?


Yes, a phase in period to 1/1/14 as proposed is appropriate

63%


Yes, however the phase in period should be longer


16%


No, partial compliance should be allowed indefinitely

10%


No, partial compliance should not be allowed


12%




37

Wrap up and Q&A

Moderated by: Ken Greguski

REISus.org

Real Estate Information Standards

CFA Continuing Education Credit (CE)


CFA Institute has approved this program offered by the Real
Estate Information Standards for 1 CE credit hour. If you are a
CFA Institute member, CE credit for your participation in this
program will be automatically recorded in your CE Diary.



If you are a CFA Institute or CIPM member and would like to
receive continuing education credit for your attendance at the
REIS Handbook Exposure Draft Webinar, please provide
Marybeth Kronenwetter
, Director, REIS Operations, with your
member number, name and member type.


39

REISus.org

Real Estate Information Standards

Survey


Did this webinar…


Cover pertinent topics for REIS?


Yes


Somewhat


No


Aid your understanding of the exposure draft?


Yes


Somewhat


No


Encourage you to submit comments to the exposure draft due June 1, 2011?


Yes


Somewhat


No


Please select the term that best describes your organization:


Consultant


Pension Plan Sponsor


Investment Management Firm


Professional Services Firm


Other


40