NCREIF Real Estate Private Equity Prospectus

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NCREIF Real Estate Private Equity Prospectus

• Planning Subcommittee Meeting
• March 15, 2004

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With you today

• Representatives of the National Council of Real
  Estate Investment Fiduciaries (NCREIF)
• Blake Eagle, Chief Executive Officer of NCREIF
• Mike Astarita, Chief Financial Officer Real
  Estate, Citigroup Alternative Investments Chair
  of the Accounting Committee of NCREIF
• Jeff Kiley, Partner, PricewaterhouseCoopers LLP
  Chair of the Real Estate Information Standards
  Council
• Sandy Jackson, Partner, KPMG Co-Vice Chair of
  the Accounting Committee of NCREIF

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Objectives of Todays Meeting

• Provide Information Regarding the Real Estate
  Private Equity Industry
• Establish an Understanding of NCREIFs Role in
  the Industry
• Describe Certain Key Reporting Matters Faced by
  the Industry
• Explore a Project to Resolve Key Reporting Matters

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Institutional Investment Portfolio

• Plans Able to Provide Asset Class Distribution (
  in Billions)
• Stocks 2,761 55.9
• Bonds 1,432 29.0
• RE Private Equity 167 3.4
• VC Private Equity 119 2.4
• All Other 459 9.3
• Totals 4,939 100.0

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Plan Investment in Real Estate Private Equity

• Plans Able to Provide Asset Class Distribution (
  in Billions)
• Governmental 97 58.3
• Corporate 37 22.0
• Endowment 12 6.9
• Foundation 3 1.6
• Union 15 8.9
• Other 4 2.2
• Totals 167 100.0

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Overview of NCREIF

• NCREIF 23 Years
• NCREIF Property Index 26 Years
• Active Database Market Value 176.5 Billion
• Total Database Market Value 348.7 Billion
• Number and types of Members
• Data Contributors
• Investment Managers 56
• Plan Sponsors 26
• Professionals 72
• Academics 26
• Detail list of members provided in Appendix B.

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NCREIFs Role

• Serves Institutional Real Estate Investment
  Industry
• Non-Partisan Databank
• Calculates and Publishes
• Real Estate Performance Indices
• Other Statistical Risk Return Measures
• Actively Promotes
• Independent Research using NCREIF Data
• Provides Leadership, Expertise, Experience
• Real Estate Information Standards

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Real Estate Information Standards

• Purpose To establish and promote a single set
  of standards for consistent reporting of Real
  Estate information in the Institutional
  Investment community
• REIS is dependent on AIMR Performance Standards,
  USPAP Valuation Standards, GAAP Accounting
  Standards
• Consistent with Standards Initiative Undertaken
  by AIMR
• AIMR Standards published in 1993, largely
  accepted today
• Non-AIMR compliant investment managers
  disadvantaged
• REIS published 1995, accepted by industry today
• Non-REIS compliant investment managers
  disadvantaged

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Accounting Committee

• Maintain and update Accounting section of the
  Real Estate Information Standards (REIS)
• Evaluate the impact of new and proposed
  accounting standards on the private institutional
  real estate industry, communicate with accounting
  regulatory bodies, and educate constituents
• Share best practices relating to accounting,
  reporting, and internal controls

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Summary of Reporting Issues

• Background provided in the Prospectus included
  in Appendix A
• Definition of investment income
• Presentation of direct and indirect investments
  in real estate
• Accounting and reporting relating to notes
  payable and other debt

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Definition of investment income

• IC Guide
• Section 2.45-2.55 Accounting for Investment
  Income refers specifically to dividend and
  interest
• Section 7.32-7.34 Dividend, interest, and other
  income
• Neither provides a clear definition of investment
  income from real estate

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Presentation of Direct and Indirect Investments
in Real Estate

• IC Guide
• Section 7.16 Investments in Securities there
  is no reference to real estate and it is unclear
  whether it should be included in any of the items
  listed, such as stocks
• Section 7.13 Investments in other investment
  companies, such as investment partnerships, LLCs,
  and funds of funds, are considered investments

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Accounting and Reporting for Notes Payable and
Other Debt

• IC Guide
• Section 7.25 Notes payable and other debt
  should be stated at amounts payable, net of
  unamortized premium or discount
• We understand that Institutional Capital Markets
  attribute value to favorable unfavorable
  Financing
• Project raises the question of whether section
  7.25 meets the Needs of Institutional Investors

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Definition of investment income

• EBP Guide
• Section 2.24 Refers back to 2.14 in which real
  estate is listed as one of the many types of plan
  investments, but without definition of the
  related income
• Exhibit D-2 of SFAS 35 Includes a category for
  Rents within Investment Income, however, notes to
  example financial statement do not indicate how
  or when the rents are recognized.
• Exhibit D-2 of EBP Guide does not have a category
  for Rents within Investment Income, even though
  Real Estate is among the Investments on the
  Statement of Net Assets

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Presentation of Direct and Indirect Investments
in Real Estate

• EBP Guide
• There are more specific references to real estate
  investments
• Section 2.11 (valuation considerations)
• Section 2.14 (presentation of plan investments
  should include details by type, including real
  estate)
• Illustrative financial statements (including
  policy relating to the determination of fair
  value of real estate investments, separate and
  distinct from the valuation of securities)
• Section 7.57 suggests auditing procedures for
  real estate investments and for limited
  partnerships

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Presentation of Direct and Indirect Investments
in Real Estate

• SFAS 35
• Para. 11 Plan investments, whether equity or
  debt securities, real estate, or other shall be
  presented at their fair value.

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Accounting and Reporting for Notes Payable and
Other Debt

• EBP Guide
• Other than brief description of Securities
  Lending activities, this Guide is silent with
  respect to notes payable and debt

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Current Reporting Practices

• Three Primary Practices Employed Today
• Fair Value Consolidation Method Fund Reflects
  Assets, Liabilities, Revenue, Expense for
  Controlled Investments
• Fair Value Equity Method Fund Reflects its
  share of Accrual Earnings and Appreciation from
  Investments
• Fair Value Cost Method Funds Records
  Investments at Fair Value with Income Recognized
  when Received

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A Look at Current Practices
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Examples of Financial Statements

• See attached comparative examples of financial
  statements that institutional real estate
  investors are currently receiving under existing
  reporting practices
• An objective of this project would be to develop
  illustrative financial statements for Real Estate
  Private Equity Funds, as described in
  Illustration 10 of the Proposed SOP

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In Summary

• Currently Watching the Progression of Scope
  Project
• Recognize the Potential for 2005 Implementation
• Desire for Consistent Implementation by Asset
  Class
• Our Goal An Accounting Project to Establish
  Authoritative Guidance for the Asset Class
• Absent this Project Inconsistent Implementation
• NCREIF is Prepared to Commit Necessary Resources

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Appendix A Prospectus
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Appendix B NCREIF Membership
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Data Contributing Members

• ABP Investments US, Inc.AEW Capital Management
  L.P.AFL CIO Building Investment TrustAlaska
  State Pension Investment BoardAMB Investment
  ManagementAmerican Ventures Realty
  InvestorsATT Investment Management
  Corp.Blackrock, Inc.CalPERSCalSTRSCampbell
  GroupCB Richard Ellis Investors
• CIGNA Realty InvestorsCitigroup
• Commonfund Realty, Inc.CommonWealth Partners,
  LLCCornerstone AdvisorsCornerstone Real Estate
  Advisors, Inc.Cozad/Westchester Agricultural
  Asset ManagementDRA Advisors, Inc.Draper
  Kramer Realty AdvisorsEquity Office Properties
  TrustFidelity Management and Research Co.
• First Washington Realty, Inc

• Florida State Board of AdministrationForest
  Investment AssociatesForest Systems, LLCFremont
  Realty CapitalGE Asset ManagementGeneral
  Investment Development Co.General Motors
  Investment Management
• Global Forest Partners LPGranite Properties,
  Inc.Great Point Investors, LLCHampshire
  CompaniesHancock Agricultural Investment
  GroupHancock Timber Resource GroupHart
  Advisers, Inc.Heitman Capital ManagementHenderso
  n Global InvestorsHines National Office Partners
• ING Clarion PartnersINVESCO Realty Advisors,
  Inc.J.P. Morgan Investment Management, Inc.John
  Buck CompanyKansas Public Employees Retirement
  SystemKennedy Associates R.E. Counsel,
  Inc.Kensington Realty AdvisorsLB Real Estate
  CounselLACERA

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Data Contributing Members

• Landmark PartnersLaSalle Investment Management,
  Inc.Legacy PartnersLegg Mason Real Estate
  ServicesLend Lease Real Estate Investment
  ManagementLincoln Advisory Group, Ltd.Lowe
  Enterprises Investment ManagementLucent Asset
  ManagementMacFarlane PartnersMassachusetts
  PRIMMetLifeMIG Realty Advisors, Inc.Miller
  Capital AdvisoryMissouri State Employees
  Retirement SystemMorgan Stanley Real Estate
  FundNational Electric Benefit Fund
  InvestmentsNew York State Local Retirement
  SystemsNew York State Teachers Retirement
  SystemPrincipal Global InvestorsProLogis
• Prudential Agricultural InvestmentsPrudential
  Real Estate InvestorsPrudential Timber
  Investments, Inc.Public Employees Retirement
  Association of COPublic Employees Retirement
  System of OH
• Real Estate Capital Partners

• Regency Centers AdvisorsRockwood Capital
  CorporationRREEFSarofim Realty AdvisorsSchool
  Employees Retirement System of OHSentinel Real
  Estate CorporationSHP Asset ManagementSoros
  Real Estate InvestorsSSR Realty AdvisorsState
  of Michigan Retirement SystemsState Teachers
  Retirement System of OHTA Associates RealtyTGM
  Associates, L.P.Thomas Properties
  GroupTIAA-CREFTishman Speyer PropertiesTranswes
  tern Investment CompanyUBS AgriVest LLCUBS
  Realty Investors LLCUMWA Health Retirement
  FundsVirginia Retirement SystemWachovia
  Timberland Investment Mgmt.Washington Capital
  Management, Inc.

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Professional Members

• Amerian Appraisal Associates, Inc.Atlantic
  Hospitality AdvisorsBailard, Biehl Kaiser,
  Inc.Berkshire Capital CorporationCallan
  Associates, Inc.Centre Street Enterprises
• Chadwick Saylor Co.Courtland Partners,
  Ltd.Credit Suisse First BostonCrosson Dannis,
  Inc.Cushman Wakefield, Inc.Deloitte.Delta
  AssociatesEagle Realty GroupEnnis, Knupp
  AssociatesEquity Office Properties TrustErnst
  YoungFarmers Insurance Group Holding Co.First
  American Title Insurance Co.GMAC Institutional
  AdvisorsGuggenheim GroupHein Associates, LLP

• Institutional Property ConsultantsIntegra
  Realty ResourcesJD EdwardsJohn Hancock Real
  Estate Investment GroupJohn McCracken
  Associates, Inc.Kirkland CompanyKPMG LLPKTR
  Newmark Real Estate ServicesMaginnis, Knechtel
  McIntyreManagement Reports, Inc.Manufacturers
  Life Insurance CompanyMarshMarshall Stevens,
  Inc.McColgan Company, Inc.Moodys Investors
  ServiceNAREITNational Multi Housing
  CouncilNOMURA Securities InternationalPension
  Consulting Alliance, Inc.PNC Bank Corp.Prebon
  Yamane (USA) Inc.PriceWaterhouseCoopers LLP

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Professional Members

• Property Portfolio Research, Inc.Ratcliffe,
  Call, Duffy, Hughes CompanyReal Estate
  InsightsReal Estate Investment Advisors
• Real Estate Research CorporationRealm Business
  SolutionsRiggs CompanyRussell Real Estate
  AdvisorsSnedeker Consulting, Inc.Sockler
  Mignogna DiLello Realty Group, Inc.St. Paul Fire
  and Marine Insurance CompanyStandard
  Poor'sState Street Global AdvisorsStrategic
  Investment GroupTerzo Bologna, Inc.The
  Nicholson Group Ltd.The Townsend GroupThoreen
  HaleTulsa Commercial Property Services LLCUS
  Realty Consultants, Inc.USAA Real Estate
  CompanyW.P. Carey Co, LLCWalden-Marling,
  Inc.Weiser Realty AdvisorsWitten Advisors
  LLCYardi Systems

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Academic Members

• William B. Brueggeman - Southern Methodist
  UNMike Clutter - University of GA, Warnell
  School of Forest ResourcesJim DeLisle -
  Universit of Washington - Runstad Center for Real
  EstateJan deRoos - Cornell UniversityDavid
  Downs - Virginia Commonwealth UniversityRobert
  H. Edelstein - University of California,
  BerkeleyJeff Fisher - Indiana UniversityGeorge
  W. Gau - University of Texas at AustinDavid
  Geltner - MIT Center for Real EstateJoseph
  Gyourko - Univ. of Penn., The Wharton
  SchoolWilliam G. Hardin III - Mississippi State
  UniversityDavid Hartzell - UN of NC, Chapel
  HillRobert Jarrow - Cornell UniversityHerve
  Kevenides - New York UniversityDavid C. Ling -
  University of FloridaPeter Linneman - Univ. of
  Penn., The Wharton SchoolCrocker Liu - New York
  UniversityGilad Livne - London Business
  SchoolSteven Ott - University of North
  CarolinaJoseph Pagliari - Northwestern
  UniversityTimothy Riddiough - University of
  WisconsinKenneth T. Rosen - University of
  California, BerkeleyC.F. Sirmans - University of
  ConnecticutLinda Stoller - Babson CollegeRon
  Throupe - University of WashingtonJames R. Webb
  - Cleveland State UniversityLawrence White - New
  York University

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Appendix C NCREIF Mission and Committee Overviews
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Mission

• Standing Committees
• Accounting
• Database Indices
• Information Management
• Performance Measurement
• Portfolio Management
• Research
• Valuation
• Special Committees
• Index Oversight
• Fund Database
• Real Estate Information Standards (REIS)

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Mission Statement Accounting Committee

• Formal The mission of the committee is to
  enhance the reliability and comparability of
  accounting, reporting and performance measurement
  for institutional real estate assets held in a
  fiduciary setting. In order to accomplish this,
  the committee develops, documents and promotes
  standards for accounting, reporting and
  performance measurement of these real estate
  assets. Member compliance with these standards
  is encouraged through the use of discussions,
  surveys, research, analysis and publication. The
  Accounting Committee also monitors the actions
  of, and effectively communicates NCREIFs
  position to, applicable standard-setting and
  supervisory agencies. In addition, the committee
  is focused on identifying best practices in order
  to promote further consistency amongst its
  members and within the industry.

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Mission Statement Performance Measurement
Committee

• The Goals of the PMC are consistent with NCREIFs
  overall mission but specific to real estate
  performance measurement
• Continuous advance of fair and consistent real
  estate investment performance measurement
  reporting
• Continuous examination of technical and
  methodological advancements in accounting,
  valuation, automation that may affect inputs,
  processes, our outputs and reporting
• Continuous education of industry participants on
  methodologies, processes, authoritative guidance

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Mission Statement Valuation Committee

• To represent the various member constituencies in
  the promotion of credible valuation standards and
  techniques for the appraisal of institutional
  real estate, both foreign and domestic, by
  working with industry associations and industry
  professionals who respectively set such standards
  and follow generally-accepted techniques, and by
  publishing and disseminating information useful
  to the industry in the valuation of such
  investments.

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Appendix D Example Financial Statements