US$ 50 million Offering toParticipate in the Investment in
2004
Markaz – BBKUS Retail Realty Investment Unit III
2
The Fund
US $ 50 Million Offering in
Markaz – BBK US Retail Realty Investment Unit IIIInvestment period of Seven years, extendable by Two additional years
Minimum Subscription
100 units @ US$10,200 per unit
Any lower subscriptions to be accepted at the discretion of the fund manager
Projected Annual Cash Yield of 8.5% Projected Internal Rate of Return of 9%
Fund Manager
Kuwait Financial Centre, S.A.K. (Markaz)
Mar-Gulf Management Company, Inc. ( a fully owned subsidiary of Markaz)
Property and Asset Manager
Developers Diversified Realty, Inc. (DDR)
Fund Co-Manager
Bank of Bahrain and Kuwait B.S.C.
3
Offering Snapshots
• The OfferingMarkaz-BBK US Retail Realty Investment Unit III (“Fund”) seeks to raise $ 50 mn to invest in predominantly grocer anchored retail properties in the US. The fund will benefit from the cash flow stability of retail properties and the attractive spread of over 250 basis points between the yield on properties (7.75%) and fixed financing cost (5.15%).
• Portfolio
Markaz & BBK have identified and secured the acquisition of a portfolio of thirteen retail centers with a Gross Leasable Area (GLA) of approximately 1.634 million SF and located in five states. The portfolio is 94% leased and anchor tenants occupy approximately 72% of GLA. The Portfolio, acquired at USD 208 mn, is financed by approximately USD 150 mn debt (72% of total value) at a fixed rate of 5.15% for seven years (Interest only). The 6% vacant space has been leased to DDR for a period of 2 years at market rent, resulting in an initial economic vacancy of 0%.
• Return Objective
To generate current income that would enable the Investment Unit to distribute and average of 8.5% per annum on the aggregate capital investment in the Investment Unit. The internal rate of return on an investment made in the Fund is expected to be 9% after taking into effect taxes and other annual fees but before taking into effect any placement fees to be paid to the sponsors.
• Management fee and Carried Interest
Management fee of 1.5% of the total investment and a carried interest of 10% after the investors have earned a return of 10% on their investments.
• Subordination of Asset management fee
The entire asset management fee payable to DDR (6.25% of NOI) has been subordinated to the venture achieving a IRR of 11.5%. If at liquidation, the venture achieves an IRR of less than 11.5%, DDR shall reimburse the venture an amount - up to the aggregate Asset Management Fee received – to make the IRR equal to 11.5%.
Investment Highlights
4
Performance of Other US real estate funds by Markaz & BBK
• Markaz and BBK raised approximately $ 43.3 million in equity and an additional $ 114 mn in debt in October 2002 to acquire a portfolio of distribution warehouses in the USA.
• The portfolio comprised of 12 distribution warehouses, located in 7 states, with a GLA of 4.3 mn SF and an occupancy of over 98%
• The portfolio was acquired at a capitalization rate of 9.55% and was expected to generate a cash yield of 9% and an IRR of over 12% during the life of the fund, which is 7 years starting October 2002.
• The investment performance has been at or above expectations, featuring monthly distributions to the investors
Markaz-BBK Industrial Realty Investment Unit I
Annualized yield on Principal investments
Actual Yields
Targetted yields
8.5%8.7%8.9%9.1%9.3%9.5%9.7%9.9%
10.1%10.3%10.5%
N-02
D-02
J-03
F-03
M-03
A-03
M-03
J-03
J-03
A-03
S-03
O-03
N-03
D-03
J-04
F-04
M-04
A-04
M-04
J-04
J-04
A-04
S-04
O-04
5
Performance of Other US real estate funds by Markaz & BBK
• Markaz and BBK raised approximately $ 50.25 million in equity and an additional $ 111 mn in debt in June 2003 to acquire a portfolio of Retail Properties in the USA.
• The portfolio comprised of 7 community/power centers, located in 5 states, with a GLA of 1.5 mn SF and an occupancy of over 99%
• The portfolio was acquired at a capitalization rate of 9.05% and was expected to generate a cash yield of 12% and an IRR of over 12% during the life of the fund, which is 5 years starting June 2003.
• The investment performance has been at or above expectations, featuring monthly distributions to the investors
Markaz-BBK Retail Realty Investment Unit II
Annualized yield on Principal investments
Annualized yields
Target Yield
11.0%
11.5%
12.0%
12.5%
13.0%
S-03 O-03 N-03 D-03 J-04 F-04 M-04 A-04 M-04 J-04 J-04 A-04 S-04 O-04
6
Investment OverviewInvestment Overview
7
Investment Overview
Fixed Mortgage Rates
Real EstateAttractive Cap Rates
Investors lock in an
attractive spread.
9% Return9% Return
Attractive return on Leveraged Real Estate
RetailRetail IndustryIndustry OfficeOfficeMultifamilyMultifamily
Grocery anchored
center
Grocery anchored
center
Other retail property
types
Other retail property
types
Stable cash flows,Longer leases
Stable cash flows,Longer leases
ExperiencedManager
ExperiencedManager
Largest beneficiary of the shift in consumer preferences
8
Investment Overview
The Structure
DDRDDR InvestorsInvestors
DebtUS$ 150 mn
PropertyUS$ 208 mn
PropertyUS$ 208 mn
20% Equity 80% Equity
Developers Diversified Realty, Inc. (DDR) will retain a 20% equity interest in the Portfolio and will manage it on behalf of the Fund.
Markaz and its subsidiary Mar-Gulf Management will manage the Fund and be responsible for the acquisition, disposition, and supervision of the real estate assets .
Equity 58 mn.
9
Investment Overview
The Opportunity
Spreads remain attractive, despite rising interest rates
Although interest rates have been on the rise, the spread between the capitalization rates and financing rates
remain extremely attractive for leveraged acquisitions.
Despite the narrowing of spreads from their peaks in early 2003, the current levels are at well above the
average spreads in the past.
3%
4%
5%
6%
7%
8%
9%
10%
Mar
-90
Dec
-90
Sep-
91Ju
n-92
Mar
-93
Dec
-93
Sep-
94Ju
n-95
Mar
-96
Dec
-96
Sep-
97Ju
n-98
Mar
-99
Dec
-99
Sep-
00Ju
n-01
Mar
-02
Dec
-02
Sep-
03Ju
n-04
Cap Rate 10-year Treasury (%)
-3%
-2%
-1%
0%1%
2%
3%
4%
5%
Mar
-90
Dec
-90
Sep-
91
Jun-
92
Mar
-93
Dec
-93
Sep-
94
Jun-
95M
ar-9
6
Dec
-96
Sep-
97
Jun-
98
Mar
-99
Dec
-99
Sep-
00
Jun-
01
Mar
-02
Dec
-02
Sep-
03
Jun-
04
Spread Average
Source : Markaz Estimates
10
Investment Overview
Real Estate
Superior risk adjusted returns
Real Estate offers a higher component of current income than other investments. On a risk adjusted basis, the real estate sectorhas outperformed other major equity indices .
For 9 months ending September 2004, NAREIT index gained 13.7% as compared to 0.2% returns on the S&P, and -1% returns on Russell 2000 index.
The Low level of correlation between real estate investment returns and other major asset classes makes it an ideal tool for diversification.
10 years 5 years 3 years 1 yearReturn Volatility Yield Return Volatility Yield Return Volatility Yield Return Volatility Yield
NAREIT 12.2% 12.9% 7.6% 15.3% 13.7% 8.0% 16.3% 14.5% 7.5% 21.0% 18.6% 6.8%NCREIF 10.4% 2.9% 8.6% 9.4% 2.4% 8.4% 8.0% 2.2% 8.2% 10.9% 1.7% 7.7%S&P 500 11.1% 15.7% 1.7% -2.2% 16.6% 1.5% -1.5% 16.4% 1.7% 13.2% 8.9% 1.6%ML Bond Index* 7.3% 4.4% N/A 7.4% 4.6% N/A 6.2% 5.5% N/A 4.6% 6.5% N/A
* Includes government and private bonds
Source : NAREIT
11
Investment Overview
Retail Real EstateAttractive Investment Attributes
• Historically, total returns on Retail Real Estate investments have been relatively stable compared to other property types.
• The Demand-Supply gap for retail Real Estate is under check due to minimal speculative developments; Anchor leases have to be in place for feasible development.
• Over the long term, “Same-store NOI” growth remained flat to positive for retail properties, whereas all other real estate sectors have recorded negative same-store NOI growth. For the quarter ending Sep 2004, Retail recorded the strongest NOI growth among all property types.
SS NoI Growth
-10%-8%-6%-4%-2%0%2%4%6%8%
10%
1Q98
3Q98
1Q99
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
Multifamily Industrial Office Retail
3Q 2004 Results Multifamily (0.7%)Industrial 1.8% Office (1.9%)Retail1 3.0%
Multi-family Industrial Office Retail
Over 25 YearsIncome Volatility 0.8% 0.8% 1.0% 0.9%Capital Appreciation Volatility 5.7% 5.6% 8.3% 4.7%Total Return Volatility 6.2% 6.2% 9.0% 5.2%Last 10 YearsIncome Volatility 0.9% 0.5% 0.5% 0.3%Capital Appreciation Volatility 1.2% 3.0% 5.6% 3.9%Total Return Volatility 1.8% 3.3% 5.9% 4.4%
Source : MCP/Green Street Advisors Source : MCP/NCREIF
12
Investment Overview
Grocery anchored retail propertiesCycle resistant, generating significant consumer traffic
Average Sales PSFNecessity nature of the products sold in the community centers such as food, medicines, clothing etc minimizes impact of economic volatilities on store profitability; Food sales account for almost 9.6% of the GDP, more than any other retail sector.
Absolute occupancy cost is lower due to overhead costs and CAM costs being substantially lower due to minimal enclosed common area, lower construction and smaller areas and due to lower Real estate taxes.
Shopping Center fundamentals continue to be positive given consumer spending.
Effective rent growth up from 1.1% in 2002 to 2.3% in 2003.
Vacancy rates remained constant at 7% in 2003 from 2002 and have held at 7% through 2Q 2004.
Recession resilient; sector has experienced positive net absorption every quarter over the past 4 years.
Institutional investors rate grocery-anchored retail the most favorable investment opportunity among 10 sectors.
$277
$215
$160
$238
$0
$50
$100
$150
$200
$250
$300
SuperRegional
Malls
RegionalMalls
CommunityCenters
Grocery-AnchoredCenters
Source : Dollar & Cents, 2004
13
Investment Overview
Retail Real Estate Property Definition
Types Concept Sq Ft, Including anchors Acreage Anchor Primary
Number Type Ratio * Trade Area **Neighborhood
centersConvenience 30,000-150,000 3 to 15 1 or more Supermarket 30-50% 3 Miles
Community Center
General merchandise, Convenience
100,000-500,000 10 to 40 2 or more
Discount dept store, Supermarket, drug, home
improvement, large specialty/discount apparel
40-60% 3-6 miles
Regional center
General merchandise,
fashion (mall, typicall enclosed)
400,000-800,000 40 to 100 2 or moreFull-line dept store, Jr.
dept store, mass merchant, fashion apparel
50-70% 5-15 miles
Super Regional center
Similar to regional center, but has
more variety and asortment
800,000 plus 60 to 120 3 or more
Full-line dept store, Jr. dept store, mass
merchant, fashion apparel
50-70% 5-25 miles
Fashion / Specialty Center
higher-end, fashion oriented 80,000 - 250,000 5 to 25 N/A Fashion N/A 5-15 miles
Lifestyle Center
Upscale specialty stores; dining and etntertainment in outdoor setting
Typically 150,000-500,000, but can
vary10 to 40 0 to 2
Not usually anchored, but may include large format
book store, multiplex cinema, small
department(s) and other big boxes
0-50% 5-8 miles
Power CenterCategory dominant anchors, few small
tenants250,000 - 600,000 25 to 80 3 or more
Category killer, home improvement, discount dept. store, warehouse
club, off-price
75-90% 5-10 miles
Typical Anchor
* The share of a center's total square footage that is attributed to its anchors**The area from which 60-80% of the center's sales originate
Source : www.ICSC.org
14
The PortfolioThe Portfolio
15
Portfolio Overview
Quality PortfolioAttractive Asset Class
Comprises of 12 grocery anchored and a power center.
Properties are generally located in suburban areas with moderate to strong buying
power.
Average age of properties is 20 years.
High Qualityportfolio
Cash FlowStability
Properties leased to high-quality anchors, reducing risk of default, greatly enhancing ability of re- tenanting/releasing non-anchor space .
Properties leased to 180 tenants with no single lease accounting for more than 5% of portfolio GLA .
Average remaining lease term for key anchor space is approximately 11 years. Less than 45% of the tenant space lease (predominantly non-anchor space) is due for renewal within 7 years (life of the investment).
16
Portfolio Overview
Unique structuringEnhancing the investment value
The venture shall pay 6.25% of the NOI as annual asset management to DDR.
However, such fees shall be subordinated to the venture achieving a minimum
IRR of 11.5% over the 7 year period.
Any shortfall in the IRR shall be recovered from the asset management fee
payable to DDR.
Subordination of fees
Master lease structure
The entire physical vacancy of approximately 6% of GLA is “master-Leased”to DDR for a period of 2 to 5 years at Market rents, boosting the cash flows and enabling a stable distribution policy.
17
Qualified Asset Manager
• Based in Cleveland, Ohio, DDR is a Real Estate Investment Trust ("REIT") based in Cleveland, Ohio. DDR is a
fully integrated real estate firm, actively developing, acquiring, operating, managing and investing in income-
producing retail shopping centers nationwide with a market capitalization of over $ 8 bn.
• Subsequent to recent acquisitions of the JDN and Benderson portfolio’s, DDR currently owns and manages over
460 retail properties in 44 states totaling over 102 million square feet of real estate under management.
• DDR has strong relationship with most of the national retailers such as Wal-Mart, Kroger's, Jewel, Kohl’s and
have an impressive record in re-tenanting properties.
Portfolio Overview
18
Portfolio Overview
Geographical Locations
19
Portfolio Overview
Properties of the Fund
Center Name City State Year OpenedTotal GLA
(Sq Ft)Number of
Tenants Cap RateOccupancy Total Value
($'000)
Acquisition Price ($ per
SF) Key AnchorsMidway Plaza Loganville GA 1995 91,196 16 9.11% 99% $10,281 $113 KrogerOxford Place Oxford MS 2001 71,866 7 6.85% 97% $3,558 $50 KrogerNorthcreek Commons Goodlettsville TN 1987 84,441 12 8.15% 95% $7,279 $86 KrogerChillicothe Place Chillicothe OH 1974 105,512 6 10.75% 100% $8,330 $79 KrogerTops Robinson Amhers NY 1986 145,192 17 6.75% 100% $16,379 $113 TopsTops Jamestown Jamestown NY 1997 98,001 4 7.60% 90% $15,128 $154 TopsTops Leroy Leroy NY 1997 62,747 7 7.74% 100% $7,000 $112 TopsTops Ontario Ontario NY 1998 77,040 11 7.30% 100% $9,394 $122 TopsTops Warsaw Warsaw NY 1995 74,105 8 7.50% 94% $8,611 $116 TopsCulver Ridge Irondequoit NY 1981 226,382 29 8.10% 96% $28,330 $125 Regal CinemasCrossroads Centre Orchard Park NY 2001 167,805 15 7.35% 88% $24,555 $146 TopsPanorama Plaza Rochester NY 1959 278,241 40 7.20% 96% $45,711 $164 TopsTops Union Road Cheektowoga NY 1983 151,357 9 8.35% 78% $19,216 $127 TopsTotal / Weighted Average 1984 1,633,885 181 7.75% 94% $203,773 $125
Source : Markaz
20
Portfolio Overview
2004 Demographic profile for 3 mile radius
Population Household IncomeMidway Plaza 27,861 9,304 $81,736Northcreek Commons 21,828 8,857 $58,985Oxford Place 17,644 6,271 $43,770Tops - Jamestown 39,028 16,517 $39,242Tops Plaza - Leroy 6,875 2,735 $52,729Tops Plaza - Ontario 8,176 3,061 $64,251Tops - Robinson Rd. Plaza 65,328 25,359 $54,476Tops - Warsaw 4,795 1,868 $46,490Tops - Union Road 96,848 41,445 $45,918Chillicothe Place 28,066 10,285 $44,942Panorama Plaza 55,006 22,180 $84,564Culver Ridge 75,788 31,462 $54,179Crossroads 42,854 17,391 $65,792
21
Portfolio Overview
Lease Renewal Cycle
Annual Lease Expiration Schedule
1.8% 1.4%
4.1%
0.7%
5.1%5.8%2.5%
8.6% 5.7%
4.7%
4.8%
1.1%
1.6%1.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2005 2006 2007 2008 2009 2010 2011 2012
Anchor Non-Anchor
Approximately 66% of the GLA is leased to anchor tenants. The average remaining lease term for the key anchors is approximately 11 years and lease contracts equivalent to approximately 42% of the portfolio GLA is due to expire before the anticipated seven-year term of the investment unit.
Almost 67% of such expiring leases (approximately 28% of the Portfolio GLA) are occupied by non-anchor tenants, while the remaining 33% of the expiring leases (approximately 14% of the Portfolio GLA) are occupied by anchor tenants (i.e. tenants leasing space of over 10,000 SF).
22
Portfolio Overview
Tenant Profile
Lease expiration RentTenant Property Area Date Per Sq Ft
Tops Market Tops - Robinson 82,897 Dec-10 6.31Tops - Union 78,000 Dec-13 11.60Tops - Jamestown 77,000 Sep-18 11.74Panorama Plaza 74,000 May-14 12.84Crossroads Centre 57,000 Mar-22 10.75Tops - LeRoy 47,000 May-17 8.81Tops - Ontario 47,000 Aug-19 9.04Tops - Warsaw 45,533 Jun-15 8.58
508,430Kroger Midway Plaza 63,296 Jan-16 8.59
Chillicothe Plaza 60,425 Nov-25 9.22Northcreek Commons 59,134 Oct-12 7.12Oxford Place 58,666 Aug-20 2.59
241,521Regal Cinema Culver Ridge Plaza 58,012 Jun-22 6.95Dollar Tree Tops - Union 14,098 Nov-17 8.30
Panorama Plaza 9,000 Jun-11 10.50Culver Ridge Plaza 8,383 Sep-16 8.00Tops - Robinson 4,860 Apr-08 10.00Tops - LeRoy 4,000 Sep-07 8.50Tops - Ontario 4,000 Sep-07 9.10Tops - Warsaw 4,000 Jun-06 9.00
48,341Blockbuster Culver Ridge Plaza 6,650 Dec-08 13.50
Tops - Robinson 6,500 Oct-05 14.38Panorama Plaza 6,361 Feb-05 12.00Crossroads Centre 6,310 Oct-09 17.00Tops - Union 5,000 Mar-14 18.58Tops - LeRoy 4,692 Oct-10 14.18Tops - Ontario 3,000 Jun-05 12.00
38,513
23
Portfolio Overview
Top Five Tenants
Tops Market LLC is a fully owned subsidiary of Royal Ahold group, which is one of the largest
retailers in the world. Tops owns supermarkets under the name Tops Friendly Markets and
neighborhood food stores under the name Wilson Farms as well as supermarket franchisees
operating under the Tops Friendly Markets and Wilson Farms names. As of December 2003, Tops
Market had 365 stores in operation generating sales of over $ 3 bn in Fiscal 2003. Tops primary
markets are Buffalo and Rochester, both in New York State, as well as markets in Cleveland, Ohio,
and northern Pennsylvania. Tops is the largest grocer in Buffalo with a market share of over 50%,
while it is the second largest grocer in Rochester with a market share of around 19%.
Tops Markets
Tops Markets
KrogersKrogers The Kroger Co. is one of the nation’s largest grocery retailers and is ranked #19 on the Fortune 500
list. The company’s principal operating format is combination food and drug stores (combo stores).
In addition to combo stores, Kroger also operates multi-department stores, price-impact warehouses,
convenience stores, fuel centers, jewelry stores, and food processing plants. At the end of the second
quarter of fiscal 2004, the Company operated (either directly or through its subsidiaries) 2,530
supermarkets and multi-department stores in 32 states under two dozen banners including Kroger,
Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith’s, Fry’s, Fry’s Marketplace, Dillons, QFC and
City Market. Kroger also operated (directly or through subsidiaries, franchise agreements, or
operating agreements) 792 convenience stores, 439 fine jewelry stores, 502 supermarket fuel centers
and 42 food processing plants. Total sales for the second quarter of 2004 increased 5.1% to $13.0
billion. Identical food-store sales, including fuel, increased 2.1% and, excluding fuel, increased 0.6%.
24
Portfolio Overview
Top Five Tenants
Regal Cinemas (RCM) operates the largest and most geographically diverse theatre circuit in the
United States, consisting of 5,110 screens in 430 theatres in 37 states as of January 1, 2004, with
over 225 million annual attendees. In addition, Regal Cinemas operates 935 screens in 120 theatres
for United Artists Theatre Circuit, Inc., a subsidiary of REG. The Company's geographically diverse
circuit includes theatres in 9 of the top 10 and 43 of the top 50 U.S. designated market areas, which
includes locations in suburban growth areas. The Company primarily operates multi-screen theatres
and has an average of 11.9 screens per location, which is well above the 2003 average of 5.9
screens per location for the North American motion picture exhibition industry. The Company
develops, acquires and operates multi-screen theatres primarily in mid-sized metropolitan markets
Regal Cinema
Regal Cinema
and suburban growth areas of larger metropolitan markets throughout the U.S.
Dollar TreeDollar Tree Dollar Tree operates a chain of more than 2,500 discount variety stores in 47 states, offering a wide
assortment of everyday general merchandise at $1.00 or less. Its stores, designed to be the modern
day equivalent of traditional variety stores, offer a wide assortment of everyday general merchandise
in many traditional variety store categories, including consumables (candy and food, health and
beauty care, and households), seasonal goods, and variety merchandise (toys, durable house wares,
gifts, hardware and other items). At May 1, 2004, the company operated 2,579 stores, in 47 states,
under the names Dollar Tree, Dollar Express, Dollar Bills, Only One Dollar, Only $One, and
Greenbacks. In FY 04 (Jan.), DLTR opened 183 stores, acquired 100, closed 42, and expanded or
relocated 124. Retail selling square footage increased 28%, to 16.9 million sq. ft. The company aims
to continue to expand its store base by concentrating on strip center locations anchored by mass
merchandisers and selected mall-based locations. DLTR planned to boost square footage by about
20% in FY 05, supported by a capital spending budget of about $199 million.
25
Portfolio Overview
Top Five Tenants
Blockbuster Inc. is a leading global provider of in-home rental and retail movie and game
entertainment, with over 9,000 stores in the United States, its territories and 25 other countries as of
September 30, 2004. During the first nine months of 2004, the company added 278 company-
operated stores including the net addition of approximately 100 locations offering retail game sales
only, which are primarily Game Station and Rhino stores. They closed 180 company-operated stores
during this period. The continued weakness in the in-store rental industry was the primary driver in a
6.6% decline in worldwide same-store rental revenues in the first nine months of 2004. This decline
was partially offset by a 4.4% increase in worldwide same-store retail revenues, which were driven
primarily by strong growth in domestic retail game sales and international retail movie and game
sales. In October 2004, Viacom Inc. announced the successful completion of its divestiture of its
ownership interest in Blockbuster. To accomplish the divestiture of Blockbuster, on September 8,
2004, Viacom launched an offer to its stockholders to exchange, on a tax-free basis, some or all of
their shares of Viacom stock for shares of Blockbuster held by Viacom.
BlockbusterBlockbuster
26
WalMart’s food retailing business is growing at almost 15-17% per annum. On a National basis, market share of Wal Mart in food retailing is expected to increase from 14% to 28% by 2012, predominantly at the cost of the smaller local grocers.
WalMart risk is predominantly restricted to 10 of the 12 centers in the portfolio which are anchored by grocers, Tops and Kroger
We feel that there is a low probability of WalMart opening supercenters in Tops- Ontario and Tops-Leroy, which currently do not have a Wal-Mart in their vicinity.
Wal Mart risk assessment
WALMART RISK ASSESSMENT
1 mile 5 miles 10 miles
Kroger, Midway Plaza, Loganville, GA
0/1 0/1 0/1 Very strong sales PSF, strong demographics, Wal mart opened 6 months ago, marginal decline in market share of Kroger, likely to be recovered
Kroger, Oxford Place, Memphis
0/1 0 0Sparesly populated, but positive growth till 2008, Opening of Walmart impacted Kroger marginally; however market share
retainedKroger, Northcreek, Goodletsville, TN 0 1/0 1/0 No Super center, robust Kroger store sales, potential supercenter risk
Tops, Jamestown 0 1/0 0 Demographics may not support a new WalmartTops, Crossroads centre, Orchard Park, Buffalo
0 1/0 1/0 Strong Tops Sales, no visible impact of Wal Mart
Tops, Union Road, Cheektowoga, NY 1/0 0/1 1/0
Moderately high sales, strong demographics, Walmart within 1 mile radius, risk minimized
Tops, Panorama Place, NY 0 0/1 2/1
Seasoned centre, competitive markets, strong Wal Mart presence, further risk minimized
Tops, Warsaw, NY 1/0 0 0 Wal mart exists within a mile, no additional openings expectedTops, Ontario 0 0 0 Demographics may not support a new WalmartTops, Leroy 0 0 0 Demographics may not support a new WalmartTops, Robinson 1/0 0/1 1/0 Strong Tops Sales, no visible impact of Wal Mart
Krogers, Chillicothe 1/0 0 0 Strong same store sales for Kroger, Absorbed impact of Wal Mart
CommentsWalMart Store/ Wal mart
Supercenter
27
Other Key Risk Factors
• Increase in cap ratesIncrease in interest rates
Cap rates have declined from approximately 9% to around 7%-7.25% over the last 18 months. Despite the recent rise in interest rates, the cap rates have remained stable or in most instances declined further. This is largely on account of strong inflows from un-levered investors. Going forward, our IRR calculations are based on a 50 bps expansion of cap rates at the time of exit
Decline in fundamentals
Cap rates would increase if the market perceive that the fundamentals would weaken
• Retail : Historically retail sales have remained stable even during recessions; Volatility in revenue growth has been in the range of 0%-2% during the last 23 years over the various economic cycles
• Specific product class : Grocer anchored centre cater to the basic needs of value driven people, less sensitive to downward trends;
• Decrease in net incomeRents
Overall, potential market decline in rents will marginally impact the portfolio because of a
Longer average lease period
Mature properties, with settled tenants generating attractive sales in their occupied spaces ; thus unlikely to demand lower rents upon renewals
Vacancy
Emerges from the credit risk; credit worthy tenants
In case of any potential vacancies, properties can be re-leased in a timely and efficient due to management expertise of DDR
28
ManagementManagement
29
The Management
Kuwait Financial Centre (Markaz)
• One of the largest and most respected investment company in Kuwait, managing assets more than $2.3 bnin domestic and international markets
• Active in the US real estate market since 1978, and has actively managed real estate investments through various cycles.
• Domestic equities funds currently managed by Markaz are the best performing funds in Kuwait, consistently outperforming the index and other funds.
• Corporate team with a cumulative active experience of over 80 years in the US and Kuwait real estate markets.
• Markaz would offer liquidity on a limited basis to the investors by being a market maker
30
The Management
Diversification Providing Markaz Global Asset Allocation capability across five continents and
several asset classes.
23 funds under management
Multi funds – Multi managers
Sophistication Markaz’s multi manager concept is founded on the principle of picking the best
manager for each class, ensuring superior returns to its investors. Our concept is
applied across all of our equity and hedge funds.
Size Domestic Equities KD 435 million
International Equities UD$ 175 million
Private Equities US$ 203 million
Real Estate US$ 467 million
Over US 2.3 Billion
The Best Performing Domestic Funds
Mumtaz Fund: 442% return since inception in 1999.
Midaf Fund: 184% return since inception in 2001.
Performance
31
Superior Execution Capabilities: Through a team of Corporate Finance and Investment
professionals enabling Markaz to provide its clients with unique investment products and the means
to help them reach their business objectives. Some of our structuring achievements include.
Structuring the first Money Market Fund in Kuwait.
Issuing the largest bond issue [NIG].
Structuring the first tradable Islamic Fixed Income Paper (non sukouk) [A’ayan].
Structuring the first Bond Issue to be secured by BOT Projects in Kuwait [KCMCC].
Structuring and implementing the first Stock Options Market in MENA.
Structuring the 1st Hedge Fund ever in a market the size of Kuwait [Forsa].
Structured and successfully placed three US real estate focused sector specific funds.
Markaz’s Structured Product
32
The Management
Kuwait Financial Centre (Markaz)
Manaf A. Al-Hajeri- General Manager
Prior to joining Markaz, Mr. Al Hajeri was the Deputy Director of the Investment Department of the Kuwait Fund for Arab Economic Development (KFAED) where he was actively involved in the investment banking activities. He represented KFAED on project financing activities in Asia, Africa, Europe, Latin America and the Middle East. Mr. Alhajeri joined Markaz in March 2004 as General Manager.
Certified Financial Manager (CFM), Institute of Management Accountants, New Jersey, USA
Masters Degree in Civil Engineering, Kuwait University
Ali H. Khalil - Executive Vice President
Upon graduation from Texas University, Mr. Khalil worked as chief engineer for a steel structure firm in Kuwait and later worked as a Research Associate at INSEAD. Mr. Khalil, joined Markaz group in 1988 to hold positions until today in its affiliated companies in the US. In 1997, he moved to Kuwait to join Kuwait Financial Centre (Markaz) as its Executive VP – Finance and also heads the Corporate Finance Department. He is the president of an affiliate of Markaz, Gulf Pacific America, an investmentfund focused on US real estate, and President of Mar-Gulf Management.
Texas A&M – B.S. Industrial Engineering, M.S. Industrial Engineering
INSEAD - MBA
Gopal Menon - Executive Vice President – International Investments
Mr. Menon started his investment career with Kuwait International Finance Co., and later joined Kuwait Foreign Trading and Contracting Co. as Chief Securities Dealer and Portfolio Advisor, a position he maintained until 1985. In late 1985, he moved toLondon to work for Union Bank of Switzerland as Assistant Director and Head of Middle East Sales and in 1988, he became a Partner and Director of Newcrest Investment and Securities Ltd, London. In 1995, he joined Merrill Lynch International Bank as a private banker and in 1997, was appointed Executive Director and Head of London Operations of Taib Bank – Bahrain. Mr. Menon joined Kuwait Financial Centre (Markaz) in 2000 as Executive Vice President – Investments.
Kerala University, India – Masters of Economic
33
The Management
Kuwait Financial Centre (Markaz)
Maha Al-Kadi, Vice President – Fund Structuring & Private Equities
After obtaining her BA in Business Management in 1990, Ms. Al-Kadi joined Banque de la Méditerranée, Sal – Beirut, where she worked for
seven years, and became Junior Credit Officer in charge of Letters of Credit and Guarantee at the bank's branch in Sidon. In October 1997,
she joined Markaz as back office support for the private equity group. She later moved to perform review and due diligence on private
equity fund investments and was promoted to Assistant Vice President in 2000, and in December 2003 was promoted to Vice President.
Lebanese American University, Beirut - BA Business Management
Kumar Srinivasan, Vice President – Corporate Finance
After obtaining his MBA in 1994, Mr. Srinivasan worked as an Analyst (Equity Research) for J.M. Share and Stockbrokers Ltd. India and
subsequently as Analyst, Corporate Finance with J.M. Morgan Stanley Ltd., India. In November 1999, he joined as a Senior Analyst with
Gulf Investment Services in Muscat, Sultanate of Oman. In October 2001, he joined Kuwait Financial Centre S.A.K. (Markaz) as Assistant
Vice President in the Corporate Finance Department and in November 2002 was promoted as Vice President.
Poona University, India – B.S. Computer Science and MBA with specialization in Finance
Hadi Salame, Financial Analyst – Product Structuring
Mr. Salame received his Bachelors Degree in Business Administration from the American University of Beirut in 2001. Mr. Salame joined
Kuwait Financial Centre in September 2001 as Assistant Analyst and now is a Financial Analyst in the Product structuring department.
American University of Beirut – BBA Business Administration
34
The Management
Mar-Gulf Management Company, Inc
Mar-Gulf, a fully owned subsidiary of Markaz, was established in 1988 for the sole purpose of acting as the asset management arm of Markaz in the United States. MGM’s office is located in Los Angeles, California, each of its professional staff has over 12 years' experience in the acquisition, disposition, development and management of real estate properties in the US.
Advisory Services• Review of evaluation of real estate portfolio. • Rebalancing real estate portfolios• Valuation of properties. • Auditing existing operations, recommending
changes• to optimize returns. • Initiating, coordinating and managing
litigations.
Asset Management
• Acquisition and Disposition of Properties
• Coordination of property management, leasing and repositioning of properties to maximize value
• Renovation of properties
Corporate & Ownership matters
• Financial Management and Accounting
• Ownership structuring
• Tax planning and restructuring
• Financing and refinancing of debt
Property Development
• Entitlement and Zoning of properties
• Coordination of construction
• Pre-leasing and leasing of properties
35
The Management
Mar-Gulf Management Company, Inc
Ali Khalil - President
Sami Shabshab - Vice President
Mr. Sami Shabshab has been active in the real estate and construction field for 17 years. His experience ranges from structural engineering to general contracting and construction management. He has been involved in numerous renovation and rehabilitation projects as well as new construction. His real estate consulting firm, Shabcon, established in 1987, also provided services such as market analysis and research for real estate appraisers and investors. Mr. Shabshab joined Mar-Gulf Management in 1993 and now acts as Vice-President. He is responsible for operations, with special focus on turnaround situations and under-performing assets.Mr. Shabshab graduated from the American University of Beirut in 1984, where he majored in civil and structural engineering. In addition to his general contracting license and designation as a professional engineer (PE), Mr. Shabshab also holds a California real estate broker license.
Ani Soghomonian - Treasurer
Ms. Ani Soghomonian is the Treasurer of Mar-Gulf Management and responsible for all financial reporting. She is in charge of corporate affairs, preparing financial statements, tax planning and compliance, investor relations and reporting, financial reporting of projects, review and analysis of all financial reports and projections of properties and cash management of portfolio assets. Ms. Soghomonian has been working with Mar-Gulf since 1984. She has a bachelor’s degree in business administration and is a Certified Public Accountant licensed by the California Board of Accountancy.
36
The Management
Bank of Bahrain and Kuwait
• Founded in 1971, BBK is one of the largest commercial banks in Bahrain.
• BBK offers a wide range of banking services including retail, corporate, international and investment
services to an institutional and high net worth client base.
• With a large branch network in Bahrain, BBK also has a presence in Kuwait, Dubai, Mumbai and Hyderabad.
• The Investment Services Department has been active in providing investment opportunities and advice
ranging from conservative guaranteed funds to a high risk private equity funds.
• BBK aligns its interests with those of its clients by investing in the funds it provides.
37
The Management
Bank of Bahrain and Kuwait
Dr. Fareed Ahmed Al Mulla, General Manager & Chief Executive OfficerDr. Al Mulla joined BBK in 1990 as an Assistant General Manager of International Banking Division. In 1997, he was promoted to Deputy General Manager - Banking Group. In 2001, he assumed the responsibility of General Manager of BBK. Prior to joining BBK, Dr. Al Mulla was Vice President and Head of Specialized Financing Division at Gulf International Bank (GIB). Dr. Al Mulla has 21 years of banking experience.B.A. in European Studies, Master of Science in social science and PhD in Economic and International Relations, University of Sussex (UK).
Mr. Ahmed Ali Ahmed Al Banna, Deputy General Manager – Banking GroupMr. Al Banna joined BBK in 1987 to assume the position of Assistant General Manager – Human Resources. Between 1996 and 2001, he headed the Retail Banking Division and International Banking Division. In August 2001, he was promoted to Deputy General Manager – Banking Group. Prior to joining BBK, Mr. Al Banna was Director of Human Resources with Citibank –Bahrain. Mr. Al Banna has 20 years of banking experience.BSc from the University of Houston (USA).
Mr. Abdulrasool Mohamed Abdulmajeed Turki, Assistant General Manager –Treasury and Investment DivisionMr. Turki joined BBK in July 2004 as Assistant General Manager – Treasury and Investment Division. Mr. Turki has 26 years of banking experience around the region and in a number of business areas, including Treasury products, financial institutions and wealth management. His work experience includes the following organizations: Forsyth Partners, Merrill Lynch, Standard Chartered Bank, Bahrain International Bank, Gulf International Bank, Arab Asian Bank. Diploma in science from People’s College (Major in math, biology, physics and chemistry) Nottingham, England.
38
The Management
Bank of Bahrain and Kuwait
Mr. Suhail Mohamed Hajee, Senior Manager, Head of Representative Office – Dubai
Mr. Hajee joined BBK in 1996 as Manager of the Investment Services Department. In 1998, he was promoted to Senior Manager. Prior to joining BBK, Mr. Hajee was an Investment Advisor with Integrated Financial Concepts Inc., a specialized financial planning firm based in Vancouver, Canada from 1991 to 1996. He has also worked as a general equity analyst covering the U.S. market and as a portfolio manager for Gulf equities at Arab Insurance Group (ARIG) in 1990-1991. Mr. Hajee has 16 years of investment and banking experience.
B.Eng. from Concordia University – Montreal (Canada) and an MBA from McGill University, Montreal (Canada) and Executive Development Program from Darden Graduate School of Business Administration, University of Virginia.
Khulood Al Qattan, Head of Investment Services Department
Ms. Al Qattan has 17 years of banking experience, mainly in the investment field. She started her career as a trader in U.S. and European equities and has gained experience in Capital and Money Market Instruments in the local, regional and international markets. Currently, Ms. Al Qattan manages BBK’s proprietary investment portfolio and is also responsible for client's advisory services, structuring products for BBK’s clients, as well as being involved in various corporate finance deals.
B.Sc. in Accounting from the University of Ayn Shams – Egypt.
39
The Management
Developers Diversified Realty, Inc (DDR)
• Based in Cleveland, Ohio, DDR is a Real Estate Investment Trust ("REIT") based in Cleveland, Ohio. DDR is a fully integrated real estate firm, actively developing, acquiring, operating, managing and investing in income-producing retail shopping centers nationwide.
• DDR currently owns and manages over 460 retail properties in 44 states totaling over 102 million square feet of real estate under management.
• DDR’s business plan is to
– Focus on the ownership and management of high-quality market-dominant community shopping centers
– Cultivate premier relationships with the nation’s leading retailers
– Proactively replace underperforming tenants at significantly higher rents
– Maximize revenue generation from existing centers
• Expansion and redevelopment
• Ancillary income sources
– Recycle capital at positive spreads
• Opportunistic acquisitions
• Development of infill sites in major markets
– Engineer innovative JV structures with institutional capital partners
• Additional equity source
• Maximize returns on invested equity
40
The Management
Developers Diversified Realty, Inc
Scott A. WolsteinChief Executive Officer and Chairman of the BoardMr. Wolstein has been the Chief Executive Officer and a Director of Developers Diversified Realty since its organization in 1993. Mr. Wolstein has been Chairman of the Board of Directors of the Company since May 1997. Prior to the organization of the Company, Mr. Wolstein was a principal and executive officer of Developers Diversified Group ("DDG"), the Company's predecessor. He is currently a member of the Board of NAREIT, the International Council of Shopping Centers, The Real Estate Roundtable, the Zell-Lurie Wharton Real Estate Center, and Cleveland. Mr. Wolstein is also a member of the Urban Land Institute and PREA. He has also served as president of the Board of Trustees of the United Cerebral Palsy Association of Greater Cleveland and is a member of the Board of the Great Lakes Theater Festival, The Park Synagogue, and the Convention and Visitors Bureau of Greater Cleveland. Graduate of the Wharton School at the University of Pennsylvania and the University of Michigan Law School.
Joan U. AllgoodSenior Vice President and General CounselJoan Allgood has been Vice President and General Counsel of Developers Diversified Realty (DDR) since its organization as a public company and General Counsel of its predecessor entities since 1987. Mrs. Allgood practiced law with Thompson, Hine and Flory from 1983 to 1987.Graduate of Denison University and Case Western Reserve University School of Law.
William H. SchaferSenior Vice President and Chief Financial OfficerMr. Schafer has been Senior Vice President and Chief Financial Officer of Developers Diversified Realty (DDR) since May 1999 andVice President and Chief Financial Officer of DDR since the Company's IPO in 1993. Mr. Schafer joined the Company's predecessor entities as Chief Financial Officer in April 1992. Prior to his joining DDR, Mr. Schafer held various positions with the Cleveland, Ohio office of Price Waterhouse LLP beginning in 1983, serving as a Senior Manager from July 1990 until he joined DDR. Graduate from the University of Michigan in Ann Arbor with bachelor of arts degree in business administration.
41
The Management
Developers Diversified Realty, Inc
Richard E. BrownSenior Vice President of Real Estate OperationsMr. Brown, a twenty-year shopping center industry veteran, joined Developers Diversified Realty (DDR) in January 2000. Prior to joining DDR Mr. Brown served as Vice President of Asset Management for Philadelphia, Pennsylvania-based PREIT-RUBIN and had direct responsibility for a portfolio of 8.1 million square feet of retail space including regional malls, power centers and neighborhood strip centers. Prior to his tenure with PREIT-RUBIN, Mr. Brown served as Vice President of Retail Asset Management for The Balcor Company, a Chicago-based owner of a national portfolio of commercial and residential properties. Graduate of Carleton University in Ottawa, Canada and a chartered accountant (Canada), and member of ICSC.
Joseph G. PadanilamVice President of TransactionsMr. Padanilam, formerly Vice President of Investment and Planning at DDR, was promoted to Vice President of Transactions in 2001. Mr. Padanilam is actively involved in the analysis, negotiation and structuring of current and new transactions. Mr. Padanilam joined DDR from Price-Waterhouse, Coopers where he was Senior Tax Manager. Mr. Padanilam is a member of the National Association of Real Estate Investment Trusts (NAREIT), Tax Executives Institute, American Institute of Certified PublicAccountants (AICPA), Ohio Society of Certified Public Accountants (OSCPA), and the Notre Dame Monogram Club. 1988 bachelor of business administration, University of Notre Dame,1988 and Master's of business administration, at Washington University in St. Louis,1990
42
The PropertiesThe Properties
43
Portfolio Overview
Properties of the Fund
Center Name City State Year OpenedTotal GLA
(Sq Ft)Number of
Tenants Cap RateOccupancy Total Value
($'000)
Acquisition Price ($ per
SF) Key AnchorsMidway Plaza Loganville GA 1995 91,196 16 9.11% 99% $10,281 $113 KrogerOxford Place Oxford MS 2001 71,866 7 6.85% 97% $3,558 $50 KrogerNorthcreek Commons Goodlettsville TN 1987 84,441 12 8.15% 95% $7,279 $86 KrogerChillicothe Place Chillicothe OH 1974 105,512 6 10.75% 100% $8,330 $79 KrogerTops Robinson Amhers NY 1986 145,192 17 6.75% 100% $16,379 $113 TopsTops Jamestown Jamestown NY 1997 98,001 4 7.60% 90% $15,128 $154 TopsTops Leroy Leroy NY 1997 62,747 7 7.74% 100% $7,000 $112 TopsTops Ontario Ontario NY 1998 77,040 11 7.30% 100% $9,394 $122 TopsTops Warsaw Warsaw NY 1995 74,105 8 7.50% 94% $8,611 $116 TopsCulver Ridge Irondequoit NY 1981 226,382 29 8.10% 96% $28,330 $125 Regal CinemasCrossroads Centre Orchard Park NY 2001 167,805 15 7.35% 88% $24,555 $146 TopsPanorama Plaza Rochester NY 1959 278,241 40 7.20% 96% $45,711 $164 TopsTops Union Road Cheektowoga NY 1983 151,357 9 8.35% 78% $19,216 $127 TopsTotal / Weighted Average 1984 1,633,885 181 7.75% 94% $203,773 $125
44
The Properties
Midway PlazaLoganville, Georgia
63,296
63,29691,196
% of Total Owned GLA 69%
Major Tenants' GLATotal GLA
Store Type
Kroger National Grocer
Major Tenants GLA
45
The Properties
Oxford PlaceOxford, Mississippi
58,666
58,66671,866
% of Total Owned GLA 82%
Major Tenants' GLATotal GLA
Store Type
Kroger National Grocer
Major Tenants GLA
46
The Properties
Northcreek CommonsGoodlettsville, Tennessee
59,134
59,13484,441
% of Total Owned GLA 70%
Major Tenants' GLATotal GLA
Major Tenants GLA Store Type
Kroger National Grocer
47
The Properties
Chillicothe PlaceChillicothe, Ohio
60,42523,40410,069
5,500
99,398105,512
% of Total Owned GLA 94%
Major Tenants' GLATotal GLA
Book World BookstorePetland Petstore
Store Type
Kroger National GrocerCVS Pharmacy Drugstore
Major Tenants GLA
48
The Properties
Tops RobinsonAmherst, New York
82,89719,232
6,5006,288
114,917145,192
% of Total Owned GLA 79%
Major Tenants' GLATotal GLA
Blockbuster Video StoreBuffalo Wild Wings Restaurant
Store Type
Tops Market Regional GrocerShanor Lighting Center Home Imporvement
Major Tenants GLA
49
The Properties
Tops JamestownJamestown, New York
77,0008,000
85,00098,001
% of Total Owned GLA 87%
Major Tenants' GLATotal GLA
Store Type
Tops Market Regional GrocerHollywood Video Video Store
Major Tenants GLA
50
The Properties
Tops LeroyLeroy, New York
47,000
47,00062,747
% of Total Owned GLA 75%
Major Tenants' GLATotal GLA
Store Type
Tops Market Regional Grocer
Major Tenants GLA
51
The Properties
Tops OntarioOntario, New York
47,0008,0005,000
60,00077,040
% of Total Owned GLA 78%
Major Tenants' GLATotal GLA
Secor Lumber Lumber StoreNew York Sports Sports Shop
Major Tenants GLA Store Type
Tops Market Regional Grocer
52
The Properties
Tops WarsawWarsaw, New York
45,5337,488
53,02174,105
% of Total Owned GLA 72%
Major Tenants' GLATotal GLA
Hollywood Video Video Store
Major Tenants GLA Store Type
Tops Market Regional Grocer
53
The Properties
Culver RidgeIrondequoit, New York
58,01226,95915,27712,23711,100
123,585226,382
% of Total Owned GLA 55%
Major Tenants' GLATotal GLA
Factory Card Outlet Greeting Card StoreOld Country Buffet Restaurant
AJ Wright Brand MerchandisePetco Animal Supplies Petstore
Major Tenants GLA Store Type
Regal Cinema Movie Theatre
54
The Properties
Crossroads CentreOrchard Park, New York
57,00036,000
6,3105,4385,100
109,848167,805
% of Total Owned GLA 65%
Major Tenants' GLATotal GLA
Tim Horton's RestaurantTotal Tan Beauty Shop
Stein Mart General MerchandiseBlockbuster Video Store
Major Tenants GLA Store Type
Tops Market Regional Grocer
55
The Properties
Panorama CentreRochester, New York
74,00023,11417,10013,20213,000
140,416278,241
% of Total Owned GLA 50%
Major Tenants' GLATotal GLA
Factory Card Outlet Greeting card storeFashion Bug Fashion Apparel
Linens 'N Things Home ImprovementEckerd Drugs Drugstore
Major Tenants GLA Store Type
Tops Market Regional Grocer
56
The Properties
Tops UnionCheektowoga, New York
78,00014,09810,949
5,000
108,047151,357
% of Total Owned GLA 71%
Major Tenants' GLATotal GLA
Blockbuster Video Store
Dollar Tree Discount StoreAdvanced Auto Parts Auto Parts
Major Tenants GLA Store Type
Tops Market Regional Grocer