Portfolio Strategy Proactive vs. Reactive

1
Portfolio Strategy Proactive vs. Reactive
Panelists
Denis DeCamp
Director, Global Real Estate Rockwell Automation
Debra Moritz
COO Strategic Consulting Jones Lang LaSalle
Neil Uebelein
Director Real Estate Finance Sprint
Moderator
Tom Corfman Commercial Real Estate Editor Chicago
Tribune

• February 12, 2004
• Chicago Chapter Luncheon

2
Commercial Property News
Really Big, Inc.s Innovative CRE Strategy
Boosts Shareholder Value
3
RE Flexibility Protects Really Big, Inc. from
Labor Shortage Impacts
Really Big, Inc. Reports 0 of its RE Assets are
Underutilized
4
What Do Insiders at Really Big, Inc. Say?
5
What Does It Look Like?
6
Portfolio Management Framework
Best practices
Portfolio Strategy Team
7
Establishing Credibility
8
From the Current to Ideal Evaluating Financing
Decisions
Operational / Occupancy
Investor
Financial
Cash Flow
Strategic Alignment
Property Factors
Net cash flow (NCF) Discount rates (WACC, Debt,
ROE) Net present value after-tax
Length of minimum commitment Degree of
customization Flexibility Control Location
Facility size Age Design Quality /
specification Location and access Adaptability /
divisibility
PL Impact
Earnings before interest and taxes
(EBIT) Earnings per share (EPS)
Market Factors
Market size / maturity Supply and demand Value
and rent trends
Credit Risk
Fixed charge coverage NCF to total debt
Certainty of Income
Balance-Sheet Impact
Lessee credit quality Length of term Transaction
structure
Off-balance sheet treatment
Ratio Impact
ROE, ROA, EVA, etc.
9
Ideal Defining Real Estate Categories

• For all organizations, real estate can be
  categorized as either core or non-core
• Organizations should match each business
  functions occupancy need to the category of real
  estate, i.e., core vs. non-core
• This distinction is based upon the risks
  associated with the business function to be
  housed, for example
• Labor market risks
• Business risks (product development, new
  business, acquisitions, etc.)
• In this example, core real estate results in only
  one cell of the matrix
• Over time these risks tend to decrease as a
  proportion of the total business, core real
  estate will constitute a greater proportion of
  the entire portfolio

Non-Core
Core
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Current State Supply / Demand Misalignment
18000
Demand (uncertain)
16000
14000
12000
Supply
10000
Forecast (Seats)
8000
6000
4000
2000
0
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
11
Ideal State Duration Matching
18000
16000
Potential New Development
14000
Early Termination Option
12000
10000
Forecast (Seats)
8000
6000
4000
2000
0
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
12
Same Projection With 5 Annual Uncertainty
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Drivers of Agility
Concept

• RE Market
• Conformity
• Concentration

Agility

• Usability
• State of readiness
• Fungibility
• Internal configuration

• Asset Control
• Own vs. lease
• Lease laddering

• Use
• Workplace strategies
• Business unit RE strategies
• Business behavior

14
Ideal State Labor Based Portfolio Strategy

• Strategic scenarios were compared to baseline
  location costs
• Segment proposal significantly improves costs
  breakthrough maximizes sustainable competitive
  advantage

2010
2006
2003
Location Costs (millions)
Opportunity Cost 223M
1,389
1,237
Baseline () Risk Averse Business Proposal Forced
Aggressive Breakthrough
1,179
1,170
1,131
1,096
1,101
1,114
1,106
1,098
1,097
1,084
1,086
1,016
947
6.55
6.53
6.59
8.27
6.63
6.73
6.53
6.45
6.05
6.54
7.36
7.02
6.96
6.46
5.64
7.55
7.52
7.58
9.52
7.64
7.75
7.51
7.43
6.96
7.53
8.48
8.08
8.02
7.44
6.49
50
50
50
62
50
54
54
54
47
54
60
60
59
52
48
56
56
57
71
57
61
59
58
52
59
67
64
63
55
51
1.5
1.4
1.2
1.1
1.4
1.6
1.3
1.0
0.8
1.2
1.6
1.1
1.0
0.8
0.9
241
235
208
175
218
254
211
176
123
191
254
182
170
117
145
15
Using CRE Performance Dashboard
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Why is This Important?

• Cost basis as of revenue. Speak in meaningful
  metrics.
• REACTION to a transaction or business shift
  results in loss.
• Productivity flourishes with aggressive planning.

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How Do I Get There?
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The Building Blocks
Financial Strategy Integration
Business Strategy Integration
Performance Metrics Linked to Business Metrics
Corporate Infrastructure Resources Integration
Integrated Master Planning
Real Estate Area Plans
Best in Class Benchmarking
Client Satisfaction Feedback System
Portfolio Review
Performance Metrics
Tracking System
Market Trends Analysis
The Start-up
Real Estate Financial Systems
Portfolio Data and Support System
Real Estate Processes and Tools
Headcount Information
Knowledge Management System
19
The Building Blocks
Financial Strategy Integration
Business Strategy Integration
Performance Metrics Linked to Business Metrics
Corporate Infrastructure Resources Integration
Integrated Master Planning
The Crouching Tiger
Real Estate Area Plans
Best in Class Benchmarking
Client Satisfaction Feedback System
Portfolio Review
Performance Metrics
Tracking System
Market Trends Analysis
Real Estate Financial Systems
Portfolio Data and Support System
Real Estate Processes and Tools
Headcount Information
Knowledge Management System
20
The Building Blocks
The Enlightened One
Financial Strategy Integration
Business Strategy Integration
Performance Metrics Linked to Business Metrics
Corporate Infrastructure Resources Integration
Integrated Master Planning
Real Estate Area Plans
Best in Class Benchmarking
Client Satisfaction Feedback System
Portfolio Review
Performance Metrics
Tracking System
Market Trends Analysis
Real Estate Financial Systems
Portfolio Data and Support System
Real Estate Processes and Tools
Headcount Information
Knowledge Management System
21
Porfolio Strategy was moderated by Tom Corfman
with panelists Denis DeCamp, Debra Moritz and
Neil Uebelein, February 12, 2004, on behalf of
the Chicago Chapter of CoreNet Global.
For further information on upcoming events, how
to join, and how to sponsor, please click the
hyperlink below.
http//www.corenetglobal.org/chapters/chicago/
For information on the Program Committee or to
participate on the committee, please contact R.
J. Brennan, Program Chair, at [phone]