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Presentation by Harvey Kasin, Hypo Real Estate Bank International AG

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1 Presentation by Harvey Kasin, Hypo Real Estate Bank International AG
Bank Funding of Retail property November 2008

2 Introduction What is Property Lending? Retail Property Lending
An Example Property Stats

3 What is property lending?
Lending a proportion of the cost of construction or value of a property Senior lending 0 – 75% Mezzanine lending 75 – 85% Stretched mezzanine 85%+ How we earn money Margin Fees Profit share Key Terms LTV LTC ISC DSC Exit Yield Amortisation / Bullet What happens when things go wrong? Why? LTV breach – market changes, income fall ISC breach – centre / tenant failure, vacancy More serious than other types of Real Estate Receivership or administration

4 Retail Property London
Investment Typical 75% LTV Quality of Asset Manager / track record Anchor tenants Occupancy levels Quality of scheme / mix of tenants Retail hierarchy / competition Rental income / value Asset Management Opportunities Development Development experience and design team Design / layout location position of key tenants Procurement route Cost management Cost overrun guarantees Period of loan / stabilisation % pre let Key Factors Property on a ladder Day 1 LTC/LTV Cash flow assumptions made Exit Yield

5 Retail Property London
Stand alone shop or parade Quality of covenant Rent & term of lease Pitch & quality of town In town shopping centre Lot size Competition Condition, capex Quality of Asset Manager etc Asset Management opportunities Out of Town Planning Environment Car Parking FOC Factory Outlet Centres Demographic Profile Quality of management Partnerships of landlord & tenant

6 European Investment Market Prime Yields

7 European Investment Market Prime Rental Growth

8 An example A well experienced client approaches us to fund his purchase of the main shopping centre in well established strong town. The centre is considered by the market as a prime shopping centre. March 2007 Rent £10m ERV £12.5m Cap Yield 5% Reversionary Yield 6.25% Value £188.5m LTV 75% Loan £141.38m 5 yr cost of finance 5.5% Margin 0.75% Interest Bill £8.85m ISC 1.13 Bullet or Amort? November 2008 6.25% 7.81% £150.80m 94% £141.38m 0.75% £8.85m 1.13 Bullet or Amort? November 2008 £10m £12.5m 6.25% 7.81% £150.8m 75% £113.10m 3.7% 3.0% £7.6m 1.31 Bullet or Amort? June 2009 £10m £7.5m 7.0% 5.25% £134.65m 85% £114.45m 3.0% 1.5% £5.15m 1.95 Bullet or Amort?

9 Development is proceeding faster in maturing/emerging markets

10 Retail investment volumes have remained low into 2008

11 2008 Shopping Centre openings
City / Town Opening date Total size of scheme sq ft Total size of scheme sq m Victoria Square Belfast March 2008 800,000 75,000 Houndshill Blackpool September 2008 398,000 37,000 Market Place Bolton 276,000 25,000 Cabots Circus Bristol 1,000,000 92,900 Grand Arcade Cambridge 450,000 42,000 Eden High Wycombe 51,000 High Cross Leicester 560,000 52,000 Liverpool One Liverpool May 2008 1,700,000 160,000 The Elements Livingstone October 2008 375,000 35,000 Westfield London 1,600,000 150,000 Trinity Square Nottingham November 2008 190,000 17,500 Eagles Meadow Wrexham 400,000 Union Square Aberdeen Autumn 2009 700,000 65,000 Arc (formerly known as the cattle market) Bury St Edmonds Spring 2009 430,000 40,000 St David’s 2 Cardiff 970,000 90,000

12 Investment Market Summary
Change in buyer profile – low geared Opportunity Funds or Vulture buyers Due Diligence and decision making significantly slower Continued Outward shift in vendors price expectations Distressed vendors and ‘Off market Discussions’ Return to the market of some familiar names More attractive returns for property from lower Capital Value Base Re-pricing of risk-increased discount for Secondary Property

13 Retail Investment – The next Few Months
Few buyers with access to significant equity Valuations generally continuing to fall Retailers Christmas trade will affect confidence in the sector Debt buyers unlikely to return in the very short term Opportunities exist for genuine buyers

14 Growth in shopping centre stock

15 Major retail investment deals Q1-3 2008

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