Valad Capital Services (VCS) Seminar 19 th November 2007
Presenters � Paul Notaras – Group Head Valad Capital Services � VCS Overview � Alastair Wright – Head of Valad Capital Services – Asia Pacific � VCS Asia Pacific Overview � Peter McAvoy – CEO, Petrac � Valad and Petrac Relationship 2
VCS Overview Paul Notaras 69 Boulevard du General Leclerc, Clichy, France 3
VCS Overview Objective: Sector: ♦ ♦ � � Provide property investment banking Commercial, industrial, retail services and structured finance solutions to third party sponsors/customers � Retirement/lifestyle � Long term sustainable growth within � Opportunistic residential disciplined risk management framework � Mixed use – residential/commercial Products ♦ Markets: � Project Equity Investment (Preferred, Parri Passu) � Major cities and regional centres � Structured Finance – Senior � Supported by established or emerging demand drivers Debt/Underwrite/Guarantees and supply dynamics � Mezzanine Debt � Sponsor proven experience and expertise in selected market � Private Equity Investment (ordinary equity, convertible note, equity warrants) � Sponsor sourced from internal contacts, market knowledge, introducers including agents, banks etc 4
VCS Strategic Rationale � Growth platform to further diversify Valad income stream and markets � Facilitate Valad entry into new geographic markets � Could lead to more strategic initiatives with developer groups � Opportunities may be presented to take a more strategic position in a sector or build a principle business such as retirement or residential land subdivision � Opportunity to set up a product specific fund or sell down to other funds (e.g. VOF) � Opportunity for Valad Property Group (VPG) to access investment grade product by providing a takeout for appropriate projects or ROFOS Specialised skills to provide a growth platform 5
VCS Competition Mature and competitive market – point of difference required Asia Pacific UK/Europe Banks: MBL, BBL, Investec, GE, RBS, HBOS, Anglo Irish, Lehmans, HBOS, RBS Lehmans, GE Opportunity Funds: AMP, LL REP, APN, Eureka, Capmak, Morgan Stanley, Challenger, Fortress Revcap Mezzanine Funds: Gresham, AMW, JF Aqua, Numerous City Pacific Private Investors: Numerous Numerous � The above are generally “financiers”; Valad as a property company can take a real property / project position. � Differentiating aspects of the Valad offer are: � Flexible/creative approach to deal structure � Recourse to project only � Consistent and responsive approval process � Genuine relationship to be long term joint venture partner – assist growth � Ability to value-add with skills and experience in project execution and takeout Valad offers a differentiated product 6
Product Range Summary Project Equity Investment Product Senior Debt Mezzanine Debt Private Equity Preferred Equity Parri Passu Equity Investment Funding � Sponsor 35/40% Sponsor Equity 15/25% Sponsor Equity Valad Equity 50-80% Valad Equity 50% Convertible Note/Ord equity b/w 20-50% � Valad 65/60% Valad Debt 15/25% Valad Debt Sponsor Equity 50-20% Sponsor Equity 50% Purpose Investment, Repositioning and Repositioning and Repositioning and Business Investment Repositioning, Development Development Development for value and strategic Development reasons (pipeline, corporate acq, new markets) � First Ranking � Second Ranking � Second ranking security. � No priority ranking � Can be secured Structure Secured Position. Security (behind senior Strong protective or security. Less (convertible note) or Strong protective debt). Strong protective mechanisms. prescriptive protective straight equity mechanisms mechanisms mechanisms � Valad equity and coupon � High operational � Generally commit or � All parties rank ranks ahead of sponsor involvement and Board underwrite then sell- � Sponsor promote for equally on upside and seat etc down downside Valad priority Risk based return metrics Lower Higher Est. Fees Coupon Profit Share 1-5% 9-15% 25-60% Portfolio Differentiation and Segmentation ensures appropriate risk based pricing 7
VCS Risk Return Risk and return profiles higher 25%+ Land � Underlying assets/projects Private Equity typically development, Planning 15 – 20% enhanced/value add Zoning Preferred Equity RISK - assets Development � Construction Strict risk based structure Mezzanine Debt 8+% and pricing Target Repositioning Leasing Senior Debt IRR Income Generating Return Return lower 8
Risk/Return Assessment � Track Record � Sector Experience Sponsor � Financial Position and equity contribution � Key People � Asset Strategy Property � Location Features � Project Margins (Profit/Cost, IRR) � Assessment of key financial assumptions Financial � Sensitivities to identify key risk items � Project Gearing Structure � Difficulty of execution plan and Strategy � Planning/leasing/exit/construction Pricing � Supply/Demand dynamics/Drivers � Rent/Sale comparables Market � Trends/Research � Tax/Accounting � Legal and regulatory New Markets � Political and economic � Cost estimation and build-ability issues � Environmental Technical � Engineering (incl. civil/Geotech 9
Core Product - Preferred Equity Rank 3 Sponsor c10%* (Developer) 2 VCS � Senior debt ranks first c30%* Equity � Valad’s VCS investment ranks Risk ahead of developer equity � VCS equity secured with “step-in” rights Senior 1 Debt c60%* *Splits indicative, will vary 10
Preferred Equity Structural Features Cash Receipts $$$ Profit share $ Income Accumm Coupon Return Up front Coupon Coupon Coupon Coupon of fee Capital $ $ $ $ $ 1 2 4 5 0 3 Year Time Investment Invest Capital � Investment – term structure � Upfront fee for Advisory Services � Yields periodic coupons, revenue recognised � Profit share at maturity � Return of investment capital and accumm coupon at maturity 11
VCS Results to Date � Strong growth FY06 FY07 as at 30/09/2007 VPG equity committed $160m $570m $713m End value $1.2bn $4.1bn $5.4bn 41 1 Number of properties 7 44 Number of positions 8 25 28 17 Number of customers 6 15 Team members 5 9 14 2 � Track record Equity IRR Claremont 20% Chifley 31% Noosa North Shore 26% � Pipeline � Estimate of active Asia Pacific pipeline is approximately A$1.5 billion in end value � Estimate of active UK/Europe pipeline is approximately A$465 million in end value 1 Includes Crownstone properties 12 2 Includes 3 people in UK
VCS - Diversification � Sector � Portfolio well diversified by sector with six asset classes represented � High relative weighting to income producing commercial/office asset class – gives exposure to improving market segment � Geography � International markets now represented with investments in New Zealand and across Europe � 39% European weighting represents investment in Crownstone portfolio where coupon to VPG is underpinned by rental income Equity Committed by Property Sector Equity Committed by Location Mixed Industrial 7% 12% Retail NSW 16% Residential 34% 10% Europe 39% Retirement 11% NZ QLD VIC Commercial 6% 20% 1% 44% 13
VCS – Risk Management � Risk management : � Approx 60% of the portfolio is underpinned by rental income (investment and active repositioning) � Cash accounted approx 70% of total VCS returns in FY07 � Rigorous approach to sponsor and project selection � Portfolio profit participation is well spread over coming years Equity Committed by Risk Profile Expected Timing of Valad Profit Share Active re-positioning 14% % of portfolio by equity committed 25% 21% 19% 20% 16% 15% 15% 14% Investment 15% 44% 10% 5% Development 0% 40% 2008 2009 2010 2011 2012 2013+ Private Equity 2% 14
VCS Management Team Group Head VCS Paul Notaras Asia Pacific UK and Europe Alastair Wright Stephen McBride 10 staff 3 staff Shared Support Resources Legal Accounting Tax HR Marketing/Corp Team and Platform Established – Structured for Growth 15
VCS Europe - Opportunity � Scarborough/Teesland have undertaken JVs previously � Established platform from which to leverage (19 offices, 11 countries) � Current credit market conditions: � Provide pricing advantages/ margin expansion � Competitors who have been mis-pricing risk eliminated � Underlying property fundamentals attractive – Some markets improving – Other markets have been re-priced � Team established in UK, currently team of three lead by Stephen McBride � Expect to add resources to European regional offices � Already assessing deal opportunities in UK, Denmark, Romania and Hungary 16
Questions d n a l a e Z w e N , n o t g n i l l e W , y a u Q e s u o h m o t s u C 0 1 - 2 – r e w o T e m i t i r a M 17
Transaction Case Studies Alastair Wright Noosa North Shore, Noosa, New South Wales, Australia 18
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