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COVERNEWS
ISSUE 48AUGUST 2014
FEATURES REFERENCE- The changing face of Investor Relations
- Is the future virtual or real?- Europe’s RE access to capital- Views on: Spain, Germany, Finland, The Netherlands
- Member offers- EPRA Annual Conference- FTSE EPRA/NAREIT Global Real Estate Indices
Getting the structure right Hans Op ‘t Veld
Record inflows to German listed real estate sector
Peter Barkow, Jesse Freitag-Akselrod
2. _ EPRA NEWS / 29 / 20082. EPRA NEWS / 48 / 2014
AUSTRALIA• Univ. of Western Sydney, Property Research Centre
• Resolution Capital
AUSTRIA• BUWOG AG• CA Immobilien Anlagen• Conwert Immobilien Invest• Immofinanz AG• Sparkassen Immobilien
BELGIUM• Aedifica• AG Real Estate• Antwerp Management School• Banque DeGroof• Befimmo• Cofinimmo• Leasinvest Real Estate• Retail Estates• Solvay Business School (Brussels Univ.)
• WDP
BRITISH VIRGIN ISLANDS• Eastern Property Holdings
CANADA• Presima
CHINA• HAIC• Ping An
FINLAND • Aalto Univ.• Citycon• KTI Finland• RAKLI ry• Sponda
FRANCE• Affine• ANF Immobilier• BNP Paribas• Cegereal• Eurasia Groupe• Foncière des Regions• Gecina• ICADE• IEIF• Ivanhoe Cambridge Europe• Klépierre• Mazars• Mercialys• Predica• Société de la Tour Eiffel• Société Foncière Lyonnaise• Société Générale• Unibail-Rodamco• Université de Paris-Dauphine
GERMANY• Allianz Real Estate• Alstria Office REIT• Deutsche Annington• Deutsche EuroShop• Deutsche Wohnen• DIC Asset• DO Deutsche Office AG
• Fair Value REIT• Hamborner• Heitman• IREBS International RE Business School
• LEG• MEAG Real Estate Management• PATRIZIA Immobilien• POLIS Immobilien• PricewaterhouseCoopers• Puhl Gmbh & Co• Real Estate Management Institute
• RREEF Investment• SEB Asset Management• TAG Immobilien• VIB• VICTORIA PARTNERS GmbH
GREECE• Eurobank Properties REIC• Lamda Development• National Bank of Greece Property Services
• Trastor REIC
HONG KONG• Univ. of Hong Kong
IRELAND• Green REIT Plc• Hibernia REIT plc• Irish Residential Properties REIT Plc
ISREAL• Azrieli Group• Gazit Globe
ITALY• Beni Stabili• Immobiliare Grande Distribuzione
LUXEMBOURG• Dream Global REIT• GAGFAH• Orco Property Group
NETHERLANDS• ABN Amro • Amsterdam School of RE• APG Asset Management• ASR• Atrium European Real Estate• BPF Bouwinvest• CB Richard Ellis• CBRE Global Investors• Clifford Chance• Corio• Cornerstone Real Estate Advisors• Deloitte Real Estate• Eurocommercial Properties• Kempen & Co• LaSalle Investment Management• Loyens & Loeff• MN Services• NSI• PGGM• Redevco Europe Services• Tilburg Univ.
• Univ. of Maastricht• VastNed• Wereldhave• Yardi
NORWAY• Norwegian Property
SINGAPORE• Keppel Land Limited• National Univ. of Singapore
SOUTH-AFRICA• Growthpoint Properties
SPAIN• Fundación ESADE• Hispania Activos Inmobiliarios, S.A
• Inmobiliaria Colonial• Merlin Properties Socimi, S.A. • TESTA Inmuebles & Renta
SWEDEN• Aberdeen Property Investors Holding
• Castellum• Dios Fastigheter AB• Fastighets AB Balder
SWITZERLAND• Center for Urban & RE Management
• Euro Institute of RE Management• HIAG Immobilien AG• Mobimo Holdings• PSP Swiss Property• Swiss Prime Site• Univ. of Geneva• Zueblin
TURKEY• Emlak Konut• Torunlar REIT
UAE• Abu Dhabi Investment Authority
UNITED KINGDOM• AEW• AMP Capital• Assura• Aviva Investors• Bank of America• Barclays Bank• Barclays Capital• BDO• Big Yellow Group• Blackrock Asset Management• British Land• Cass Business School• Capital & Counties Properties• CBRE Clarion Securities• Credit Suisse Securities• Derwent London plc• Deutsche Bank• Digital Realty (UK) Limited • EY• GIC Real Estate• Goldman Sachs International• Grainger
• Great Portland Estates• Green Street Advisors• Grosvenor Group• Hammerson• Hansteen Holding• Henderson Global Investors• Ignis Asset Management• intu• Invesco• JPMorgan• JLL• KPMG• Land Securities• Linklaters• LondonMetric• Macquarie Real Estate• M&G Investment Management• Morgan Stanley• Nabarro• Nottingham Trent Univ.• Palatium Investment Management
• Principal Global Investors• Primary Health Properties• Quintain Estates & Development• Redefine International• Safestore• Schroders• SEGRO• Shaftesbury• Thames River Capital• Tristan Capital Partners• UBS• Unite Group• Univ. of Aberdeen• Univ. of Cambridge• Univ. of Reading, Centre for RE Research
• Workspace Group
USA• Cohen & Steers Capital Management
• Center Square• Duff & Phelps• EII Capital Management• Fidelity Management & Research• Forum Partners Investment Management
• Host Hotels & Resorts• Real Capital Analytics• Real Foundations• Russell Investment Group• Simon Property• SNL Financial• Univ. of Cincinnati• Ventas• Virginia Tech Univ.• Westfield Group• Zell-Lurie RE Center at Wharton
EPRA MEMBERSAS OF AUGUST 2014
EPRA NEWS / 48 / 2014 3.
CONTENTS
CREDITS
Editor & Production ManagerDominic Turnbull
Guest EditorAllan Saunderson
Article CreditsPeter Barkow
Simon Courtenay
Christophe Cuvillier
Jesse Freitag-Akselrod
Graeme Gibbs
Leo Johnson
Hanna Kaleva
Please send your comments and suggestions to:
info@epra.com
Design & LayOutFuse Consulting Limited
London
hello@fuseconsulting.co.uk
PrintersWyndeham Grange
EPRASquare de Meeus 23,
B-1000 Brussels
+32 (0) 2739 1010
GUEST EDITORAllan Saunderson 4
CEO UPDATE 8
FEATURESGerman listed Real estate commands record inflows 10
Never let a good crisis go to waste 15
The changing face of Investor Relations 19
Recent EPRA Investor Outreach in the US 22
Asian investors explore investing directly in listed property companies 24
Is the future virtual or real? 26
EPRA Reporting & Accounting — an inside view 29
EPRA Annual Report Awards 2013/14 32
Why is there no ‘Siemens’ of the German real estate market? 34
Funding future funding — Global Pension Assets Study 2013 and 2014 36
CEO Conference 39
Spain — all the REIT signs 41
Europe’s access to capital 44
Dutch REIT ancillaries blossom 47
Topping the list 50
Prospects brightening in the Finnish property market 52
Behind the scenes: Unibail-Rodamco 56
REFERENCE PAGES Annual Conference 2014 60
Members offers 68
FTSE EPRA/NAREIT global Real Estate indices 70
NEWSISSUE 48 | AUGUST 2014
Tim Kesseler
Hans Op ‘t Veld
Andrew Saunders
Stephen Tross
Ronald J.B. Wijs
Ruben van der Wilt
GUEST EDITOR
EUROPEAN RE CATCHES THE
CRAZY CHICKEN TASTE FOR
PUBLIC MARKETS
4. EPRA NEWS / 48 / 2014
The stock market exists to give
access capital to build a business,
and not just for principals to get a
daily read-out of personal net asset
value. Operating or portfolio; they
both work well in the public mar-
kets. Should we in European real
estate use public listings more? I
think so.
Spanish property execs think
so too. The flood of Spanish REIT/
SOCOMIs in the last six months
has signalled that a belief in public
markets is alive and kicking — and
is a welcome wake-up call. Since
the global financial crisis, the sector,
outside Britain at least, has been
dull to moribund for reasons I for
one have found very hard to fathom.
Institutions remained generally
unconvinced that the quoted sector
offered value, even as their need for
real asset investment soared. Prop-
erty share prices at deep discounts
to net asset values were for a long
time seen as appropriate, and still
are to a certain extent. It was as if
quoted portfolios had been excluded
from the revaluation wave from
across-the-board yield compression
over the last two years.
This perception shift began
slowly. One of the first signs came
last year in German residential with
the takeover of GSW by Berlin-based
peer Deutsche Wohnen. After this, in
the same sector, LEG and Deutsche
Annington came to market, while
Fortress Investments began its pull-
out of Gagfah, finally completed this
spring — a strategy the New York op-
portunity fund group clearly wanted
to complete around or even before
the global financial crisis.
Now, other huge investing
institutions like BlackRock, PIMCO,
Norges and Japanese financial con-
glomerates are stocking up on, well,
European real estate stocks. Reflect-
ing this, EPRA’s monthly calculation
of quoted property discounts to
NAV rose in June to an aggregate
continent-wide 4% premium from a
10% discount one year earlier.
Of course there is huge variance.
Leaving out the nations where listed
real estate is tiny such as Norway,
Finland and Greece, Austria remains
the stand-out laggard, still 30%
under water. Austria provides the
best negative example in Europe
for neglect of a sector that could
and should be supplying more
pass-through capital to its real
In late July, the restaurant
chain El Pollo Loco floated
on the NASDAQ, adding to
the US ‘fast casual’ dining
segment with a Mexican
flavour. Shares in ‘The
Crazy Chicken’ rose 35%
on the first day, boosting
the capital-raising abilities
of the principals and
cutting its potential cost of
future funding.
Crazy it may be, but a
great lesson for Europe.
EPRA NEWS / 48 / 2014 5.
GUEST EDITORAllan Saunderson
>
estate stock. Institutions at home
and abroad are willing and eager
to allocate, but only in corporate
governance environments that
foster externally-focused value crea-
tion and discourage opaque insider
strategies. Does anyone know what
is happening with Vienna-listed
conwert please? The handful of
those who do are, at time of writing,
not saying.
But Spain, of all markets, is
suddenly doing a lot right. PIE has a
list of 17 REIT/SOCIMIs (Sociedades
Cotizadas de Inversión en el Mer-
cado Inmobiliario) already launched
and listed, or in various stages of
planning. More are being conceived
and added every day. They include
blind-pools such as Lar Espana
and Hispania that launched just a
few days away from each other in
February with illustrious backers
such as PIMCO, Franklin Templeton,
Cohen & Steers, George Soros, John
Paulson, Credit Suisse and Goldman
Sachs. Axia Real Estate is a new
addition to this subgroup, floated in
July at EUR 360 million.
Two of the earliest SOCIMIs,
Promorent and Entrecampos, are
vehicles to capitalise family office
portfolios, sometimes relatively
small. Others, in part still on the
drawing board, are single-asset ve-
hicles being used in private-public
strategies to exploit the huge surge
of interest in the Spanish recovery
story. Blackstone has a vehicle
called Fidere on starting blocks to
monetise a social housing portfolio
in Madrid. Orion Capital Partners
has two SOCIMI vehicles set up but
not yet listed, tentatively named
Orion Columba and Puerto Venecia
and slated to capitalise two separate
shopping centres on the public
markets.
The largest Spanish REIT/SOCIMI
to date is Merlin Properties, launched
in early summer. Raising EUR 1.25
billion, the IPO was also the largest
overall in Spain since July 2011. Its
backers intend to build on a 40%
seeded portfolio of nationwide bank
branches on long-lease to BBVA to
grow a large publicly quoted real es-
tate vehicle. Management is led by
former investment bankers Ismael
Clemente and Miguel Ollero, while
David Brush, previously European
real estate head for Brookfield and
RREEF, is CIO. Serous firepower
indeed. Using Merlin as an exit from
long-time Spanish commitments are
no less than Credit Suisse, Deutsche
Bank, UBS and domestic private
bank Banca March.
Merlin now aims to wave its
magic wand over offices, shopping
centres, logistics and urban hotels
in the core and core-plus segments
throughout the Iberian peninsular.
The only vehicle that could trump it
in size is a SOCIMI being eyed by
Unibail-Rodamco at capitalisation of
EUR 2.4 billion for a 16-unit Spanish
mall portfolio. Watch that particular
space — another new wrinkle in a
fast-growing quoted property seg-
ment that, on paper, looks set to
rival France and UK in size.
It would be neat to think that
the explosion of REIT/SOCIMI
enthusiasm in Madrid is sparking
thoughts across Europe of using
public markets to capitalise real
estate portfolios, and there is some
slight evidence that this is so. Yet
the more obvious trend is the
general resurgence of M&A activity
now that investing institutions have
finally realised the value lying on
stock exchange tables. Much of
the M&A so far has concentrated
on France and Germany, and one
of the most dramatic and recent
is the late July merger of French
shopping centre REIT/SIIC Klepierre
and Netherlands-based Corio. Major
investing institutions — in this case
Simon Property Group, BNP Paribas,
and Dutch pension fund manager
APG — are seeing value in support-
ing the restructuring, which will
create the largest pure-play retail
REIT in Europe at EUR 21 billion
AUM and capitalisation close to EUR
10 billion.
Another notable example, also in
France, is Gecina. Spain’s Metrova-
cesa sold its 27% stake for EUR 1.8
billion to Blackstone and Canada’s
Ivanhoé Cambridge recently. Be-
cause the buyers already owned
31%, they cut in Norway’s Pension
Fund Global and Crédit Agricole
insurance in order to avoid taking
control and breaching French REIT/
SIIQ regulations stipulating a
6. EPRA NEWS / 48 / 20146. EPRA NEWS / 48 / 2014
GUEST EDITOR
maximum 60% by any one share-
holder or concert party. A loss of
Gecina’s vital SIIQ status was not
a desired result (even if I thought
Blackstone had public-private
designs!). The North American
investors had previously accessed
stakes of two Spanish disgraced
executives by the back door. At
significant discounts, they bought
debt owed by the two men’s
Spanish holding companies for the
equity, and forceclosed when pay-
ments went into arrears.
Now, Gecina is back on track
with extremely capable new
management, and PIE wishes it
well. The story has been one of the
most interesting corporate sagas of
the last decade, now with a happy
end. Forget the latest Disney epic
‘Penguins in Madagascar’, Gecina
is soon to be a much more interest-
ing major motion picture ... when,
that is, I get time to write the script!
Another complex public markets
script features Spanish, French and
Mid-East players and stars Colonial
Allan Saunderson is Founder and Managing Editor of Property Investor Europe, the leading news-
intelligence magazine-portal on European real estate
investment and widely-read thought leader. Based
now in Frankfurt, Saunderson was a Reuters financial
journalist in London, Frankfurt and Paris, named
Chief Financial Correspondent-France in 1988. Moving
to Bank Julius Bär AG as Head of European Research
in 1990, he was named the next year as adviser to
the French Finance Ministry by Prime Minister Pierre
Bérégovoy. Prior to founding PIE in 2005 to track
Europe for US and global real estate investors, he
was an investment consultant and Bundesbank/ECB
watcher. PIE Dailies are now read by 8,000 to 10,000
global investors every weekday.
and French REIT Société Foncière
Lyonnaise. Qatar’s sovereign wealth
fund QIA in spring raised its stake in
Barcelona’s Colonial to 13.1% to be-
come its second largest shareholder.
Colonial surprised itself by locating,
at the year’s start, a large lump of
new equity from domestic industrial
group Villar Mir after execs had ex-
pected to have to hive off a chunk
of its 53% holding in SFL to raise
cash and pay down debt. Suddenly,
the equity was there — and the new
shareholders certainly did not want
any of SFL to be sold.
Why, I hear you ask? Because
SFL, like Gecina but smaller, is
a very nice pure-play package of
Paris office. And what’s not to like
in Paris? Qatar certainly likes Paris,
that much is sure. So much so that it
is building its stake in both Colonial
and SFL just to be on the safe side.
I hope you are following, because
here the plot thickens: Spanish listed
Colonial and Predica, the insurance
arm of Crédit Agricole, are to end
their shareholder alliance in SFL.
Now, as you have read above,
Qatar has built a sizable SFL stake,
and in concert with a Dubai-based
DIC — controlled by Qatar’s emir —
owns 22.19%, making it/them SFL’s
second largest shareholder after Co-
lonial. And they are ready to increase
further ‘as opportunities arise’ but
are not seeking a takeover. Crédit
Agricole Assurances and Predica are,
after all, still in there. They boosted
their SFL stake to 12.64% from 5.39%
as CIB investment bank and Britain’s
Royal Bank of Scotland withdrew.
Not a never-ending story perhaps,
but certainly not yet finished
short term.
Neither is the vision and enter-
prise of Charles Ruggieri and his
allies — a shareholder group that
bailed out of Foncière des Régions
a few years ago, over-powered
by Luxottica billionaire Leonardo
del Vecchio. Ruggieri quickly took
control of Paris REIT/SIIC Eurosic,
optimised the portfolio over the last
couple of years, and is now expand-
ing — acquiring French peer SIIC de
Paris through stakes bought mainly
from SFL and Spanish Realia to
double Eurosic’s portfolio to around
EUR 2.9 billion, mainly modern of-
fices in Ile-de-France.
Another item that won a lot of
press was the takeover battle for So-
ciété de la Tour Eiffel. Mutual insurer
SMABTP looks to have won this,
beating out dissident shareholder
Chuc Hoang. In Germany, the listed
Adler Real Estate grew suddenly
larger in the housing space this year
by taking over Berlin peer Estavis
taking it to nearly 25,000 units of
total holdings.
In short, it’s all suddenly hap-
pening in the public real estate
markets! And not only on the equity
side. In a move echoing strategies
in Gecina, Germany’s IVG has been
taken over in the last year by
opportunity funds that bought its
debt at deep discounts. The same
strategy was used by Blackstone to
acquire Dutch retail group Multi
which — a reasonable bet — is likely
to enter the public markets in the
next 24 months or so. A quotation
may also be on the cards for another
Blackstone entity Logicor in logis-
tics. Perhaps we all have the Crazy
Chicken taste for public markets
now. Not at all a bad thing!
It would be neat to think that the explosion of REIT/SOCIMI
enthusiasm in Madrid is sparking thoughts across Europe of
using public markets to capitalise real estate portfolios,
Annual Conference delegates can participate in activities during
the days before and after. It is the event of the year for the listed
real estate sector in Europe.
EPRA members only.
Registration fee: EUR 700.
+ Property tours.
+ Investment presentations.
+ Networking among CEOs, CFOs and other
leading industry professionals.
www.epra.com/conference
SEPTEMBER 23-24-25
REGISTER
NOW!
Headline Sponsor
Lanyard Sponsor
Standard Sponsor Financial Communication
http://www.epra.com
8. EPRA NEWS / 48 / 20148. EPRA NEWS / 48 / 2014
CEO UPDATE
UPDATE FROM PHILIP CHARLS
Philip Charls, EPRA CEO
Welcome to the
pre-conference newsletter –
this year has flown by!
The conference this year will take
on an all-new format. We took the
delegates’ feedback from last year’s
conference seriously and have
dramatically changed the structure,
condensing the main event into
one day, and with property tours
and investor relations meetings on
either side. A real focus for our core
members. I would like to also thank
this year’s sponsors, without whose
commitment and support the EPRA
conference would not be what it is
today.
Two years ago, at the annual con-
ference in Berlin, EPRA went out on
a limb and said that we expected a
REIT Renaissance in Europe. Let’s not
forget that those gloomier days were
not so long ago, with speakers on the
platform questioning the relevance of
a European listed real estate industry
as our share of the global index close
to 10%. Some said EPRA’s call was at
best brave, and probably naive.
Scroll forward to 2014 and the
European industry’s share of global
listed market cap has increased by
a third to 16%. We have also seen
close to EUR 10 billion in IPOs over
this period and new REIT regimes
gain strong traction in Ireland and
Spain – not coincidentally the two
Eurozone economies laid low in the
crisis by inflated real estate markets.
Governments in Dublin and Madrid,
following strong lobbying by EPRA
and the local industries, saw that
listed real estate companies are a
tried and tested way to bring fresh
capital into the sector, which is a
major driver of growth, in a trans-
parent and regulated investment
vehicle.
In Paris last year, I announced the
largest expansion in EPRA’s history,
which included the opening of an
Asian representative office in Hong
Kong and investment in our investor
outreach resources in Europe. Over
the past 12 months, institutional
investors visited by EPRA in markets
as diverse as China, Taiwan, Korea,
Scandinavia, the UK, Germany and
the Netherlands have announced
additional investments allocations
to listed real estate – and that’s only
what has publicly been announced.
EPRA’s investor outreach spans
three regions.
• Europe
• Asia-Pacific
• North America
Core is Europe and the UK of
course. Matt Fletcher is firmly
established in the London market
regularly meeting members locally
and the other major UK cities. In
addition, Matt focuses on Nordic
investors and will target France,
Benelux and Switzerland in the
coming weeks as part of our-joint
outreach initiative with our good
friends at NAREIT.
In June we successfully organised
our second outreach tour in China
and Korea, taking four of the major
European companies to see over 20
investors worth over a collective EUR
1,000 billion. We have a similar tour
lined up for the week of December
08 – five companies from continental
Europe will accompany us. Tangible
evidence that our investment is pay-
ing off – you will all have picked up
stories along these lines. In addition,
we have a strong working relationship
with Singapore-based APREA, and we
look forward to working closely with
new CEO and long-standing friend,
Peter Verwer, in the future.
EPRA’s Director of Finance –
Andrew Saunders – has pushed
EPRA NEWS / 48 / 2014 9. EPRA NEWS / 48 / 2014 9.
CEO UPDATE
tirelessly over the past 12 months
for corporate’s to further adopt the
EPRA BPR into their reporting. We
now have over 90% coverage in
2014. We are pushing to encourage
the final 10% on board through our
reporting committee and through
investor groups. We are also
advising companies that their own
interpretation of the BPRs should
be correct and fall in line. We have
highlighted this to a number of
committees and we will push these
companies in the right direction.
So what about the future? Well
we expect the expansion of the Eu-
ropean industry to continue driven
by market and economic factors,
as well as continued international
capital flows targeting European
investments. It is probably not un-
reasonable to expect that Europe’s
share of the global index could be
closer to 18% by the end of this year
or a possible total market capitalisa-
tion of around EUR 150 billion.
There may be further con-
solidation, following the emergence
of a large new pan-European
retail champion resulting from the
Klepierre/Corio merger. Once again
the French have teamed up with
the Dutch following in the footsteps
of Unibail/Rodamco, and even
AirFrance/KLM and Euronext!
Membership currently stands at
205, close to our peak in 2007. The
team has worked hard to expand
the association and encourage
more companies and investors
into the fold – an even more cohe-
sive industry with a louder voice.
I look forward to seeing you all
in London.
http://www.ey.com
10. EPRA NEWS / 48 / 201410. EPRA NEWS / 48 / 2014
FEATURES
GERMAN LISTED REAL ESTATE COMMANDS
RECORD INFLOWSLast year, German indirect
property vehicles recorded
their highest capital
inflows since 2003. So
is there a fundamental
shift underway?
Listed real estate and institutional
open-end funds have dramatically
increased their shares of capital
flows, both posting new historical
records in 2013. Analysing long-term
trends from 2001/03 to 2011/13 indi-
cates a significant transformation
of the overall landscape. On the
flipside, retail open-end funds have
substantially lost in importance
over the same period, halving their
share of capital flows. These diverg-
ing trends have also continued in
the first quarter of 2014.
FY 2013: Indirect capital flows +40% yoyIn 2013, German indirect property
investment vehicles (listed RE, in-
stitutional open-end funds, retail
open-end funds and closed-end
funds) recorded the highest com-
bined net capital inflows since 2003.
Combined net capital inflows were
EUR 17.3 billion in 2013, up 40% yoy.
Combined net capital inflows have
recorded positive annual growth for
the third year in a row.
Listed real estate and institutional open-end funds with record inflowsInstitutional open-end funds were
the strongest contributors for the
fifth consecutive year, generating
37% of combined net capital inflows
in 2013. The EUR 6.4 billion of net
capital represents a new record
inflow for institutional open-end
funds. Closed-end funds were the
second largest contributors with
net capital inflows of EUR 3.9
billion (up 25% yoy) benefiting from
strong institutional business. Listed
real estate was the third largest
contributor with EUR 3.5 billion of
17.3
Chart 1: Indirect RE capital flow by vehicle (all
regions)
Source: BVI, bsi, Deutsche Bundesbank, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’
EPRA NEWS / 48 / 2014 11. EPRA NEWS / 48 / 2014 11.
FEATURES
capital placed, reaching a new all-
time high — up 74% on the previous
record in 2011.
Net inflows from retail open-end
funds marginally declined by 2%
yoy, having had a weak 2nd half of
2013. The launch of the KAGB (retail
investor protection act) as well as
repayments from frozen funds are
oft-cited reasons for the relative
under-performance of the retail
GOEFs in 2013.
80% of inflows from institutional investorsWe estimate that EUR 13 billion —
almost 80% of combined 2013 net
capital inflows of EUR 17.2 billion —
was raised from institutional inves-
tors. Roughly 50% of combined net
capital inflows are earmarked for
investment in German properties on
our estimates (with the remainder
expected to be deployed internation-
ally). For German property markets,
this represents a total potential
investment volume (including debt)
of EUR 15.6 billion — up 59% yoy and
a new historical record.
We estimate that 21%, or EUR
3.6 billion of combined net capital
inflows, are targeted for investment
into the German residential sector —
the highest share and volume ever.
The main reason: strength in listed
RE markets and the listed sector’s
near total (94%) capital allocation
into residential investments.
Listed real estate & institutional open-end funds as long-term winnersLong-term trends in net capital flows
point to a substantial change in the
landscape for indirect property ve-
hicles. While retail open-end funds
attracted 68% of combined net
capital flows over the period from
2001/03, their share has fallen to 21%
during 2011/13 — a very significant
loss of market share. We would like
to highlight, however, that the years
2001/03 were a period of record
inflows for retail open-end funds.
Rolling two years forward to the
2003/05 period, the market share of
retail open-end funds was substan-
tially lower at 45%. Nevertheless,
even compared to this reduced level,
current market share of retail open-
end funds has halved.
On the other hand, institutional
open-end funds have expanded
their share of combined net capital
flows from 11% to 37%, being the
star performer among indirect >
Long-term trends in net
capital flows point to a
substantial change in the
landscape for indirect
property vehicles.
3.9, 23%3.5, 20%
6.4, 37%
3.4, 20%
Inst. GEOFs CEFs
Listed RE Retail GEOFs
Chart 2: Indirect RE capital flow by vehicle (all regions)
Source: bsi, Deutsche Bundesbank, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’
20.5%
2001-03 2011-13
0.2%
10.8%
68.4%
24.5%
36.6%
21.1%
17.8%
+4.0%p
+25.8%p
-47.3%p
+17.6%p
Inst. GEOFs CEFsListed RE Retail GEOFs
Chart 3: 3y Roll Product Split
Source: BVI, bsi, vgf, Loipfinger, Scope, Deutsche Bundesbank, Feri, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’
12. EPRA NEWS / 48 / 201412. EPRA NEWS / 48 / 2014
FEATURES
property vehicles. Listed RE is the
second long-term winner: virtually
non-existent in 2001/03 and attracting
almost 18% of total capital a decade
later. CEFs share of combined net
capital inflows was up from 21% to
25% during the two periods.
Q1 2014: Trends continueIn Q1 2014 indirect real estate vehicles
accounted for net capital inflows of
EUR 4.2 billion, declining by 11% yoy.
The number comprises listed real
estate (RE), institutional open-end
funds and public open-end funds.
A Q1 inflow or placement figure
for closed-end funds (CEFs) is not
yet available. Assuming a constant
2013 ratio of CEF-placements to total
indirect real estate flows would add
another EUR 1 billion of indirect
capital inflows in Q1 2014. This ap-
proach should, however, be taken
as a rough estimate only, as various
factors expected to affect CEF place-
ment volumes — e.g. the launch of
Germany’s new KAGB retail investor
protection Act as well as investment
COMMENT:The growth of Germany’s listed property sector is a solid indication that investors in Europe’s strongest economy understand the fundamental benefits of tradable, high-yield, listed property portfolios. And we believe that our efforts are paying off in the country; with greater awareness among investors and policy-makers of the central role listed real estate plays in the wider economy. We realise that Germany is primarily a fund-dominated country, yet we sense an advancement of logic over habit. Increasingly people are realising there are phenomenal alternatives out there, with a listed real estate component enhancing portfolio results.Philip Charls, EPRA CEO
4.743
4.215
2012 Q1
2012 Q2
2013 Q4
2013 Q3
2013 Q2
2013 Q1
2012 Q4
2012 Q3
2014Q1
Chart 4: Indirect RE capital flow by vehicle (All regions, by quarter)
Source: BVI, bsi, vgf, Loipfinger, Scope, Deutsche Bundesbank, Feri, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’
flow seasonality — have not been
considered. The two open-end fund
categories continued along their
very different growth paths. Net
inflows into institutional open-end
funds have increased by another 9%
to EUR 1.9 billion vs. 2013, making
it the second record Q1 in a row.
By contrast, net inflows into public
open-end funds are at less than half
of the year ago level.
Retail open-end funds continue to struggle in Q1 2014Looking at public open-end funds,
the low Q1 2014 inflow of EUR 0.8
billion might be interpreted in sev-
eral ways. On one hand this is the
second quarterly increase in a row,
after a near total halt in investment
inflows, following introduction of
the new KAGB act in Q3 2013.
On the other hand, Q1 is often the
strongest quarter of the year due to
reinvestments of annual pay-outs.
Indeed January alone accounted for
EUR 479 million or 60% of Q1 net
inflows. Finally, repayments from
frozen funds are probably quite er-
ratic, distorting the underlying trend.
We will probably have to wait
a few more quarters in order to
see a reliable trend post open-end
fund crisis and KAGB launch. Other
research seems to indicate that non-
frozen public open-end funds are
experiencing healthy inflows at pre-
sent and some are even proactively
stopping inflows.
Listed real estate with spectacular start to the yearListed RE equity placement posted
a record start to the year, growing
9% yoy and accounting for EUR 1.5
billion in Q1 2014. April to June 2014
has seen another flurry of transac-
tions — e.g. the BUWOG spin-off,
GAGFAH placements and Deutsche
Annington placements — propelling
2014 ytd placements to EUR 3.3
billion, roughly 3x the long-term
annual average of EUR 1.1 billion. It
is also just a hair below the previous
record year 2013, which saw total
full-year equity issuance of EUR
3.5 billion.
2014 is dominated by equity
placements so far (LEG/Deutsche
Annington/GAGFAH with a total of
EUR 2.6 billion) and the BUWOG
spin-off (EUR 0.7 billion, not counted
in our placement statistics as a cash
neutral transaction). The remaining
EUR 0.7 billion of equity transactions
is largely driven by capital increases
(e.g. Deutsche Annington), rights
issues (e.g. Prime Office) and a
few smaller placements (e.g. Orco,
DIC Asset).
We note that equity placements
during the current cycle have been
substantially driven by private
equity owners, as capital markets
EPRA NEWS / 48 / 2014 13. EPRA NEWS / 48 / 2014 13.
Peter BarkowBorn in 1969, Peter Barkow brings more than two decades of global financial institutions and real estate experience to the table. During his career, he has amassed project
experience with leading global strategy consulting firms and financial institutions. In his most recent roles in equity research, Barkow headed the Conti-nental European real estate team at Lehman Brothers and the German Financial Institutions & Real Estate team at HSBC. He has won numerous awards during his research career. In 2009, Barkow founded Barkow Consulting, an independent advisory firm with core focus on capital markets strategy and communication services for the listed real estate sector.pb@barkowconsulting.com
Jesse Freitag-AkselrodBorn in 1976, Jesse Freitag-Akselrod has over ten years of diverse financial and investment experience, having worked in mergers & acquisi-tions, equity research, and asset
management. Since 2005, Freitag-Akselrod has been active in the European listed real estate space, most recently working as a buy-side investor for Cohen & Steers Europe. In 2010, Freitag-Akselrod founded Akselrod Consulting, a stand-alone consultancy firm specialized in IPO-advisory and corporate strategy.jfreitag-akselrod@akselrodconsulting.com
FEATURES
provided EUR 6.2 billion for their di-
rect and indirect exit strategies since
2009. Combined German residential
stock overhang still waiting to be
placed is currently at EUR 4.0 bil-
lion, including new entrant BUWOG.
FY 2014: The year of the German real estate convertibleFour of the six largest-ever German
RE convertibles were placed during
the last eight months by GAGFAH
(EUR 375 million), LEG (EUR 300 mil-
lion), Deutsche Wohnen (EUR 250
million) and Grand City Properties
(EUR 150 million). In other words,
more than EUR 1.1 billion of German
RE convertibles have been placed in
period of just six months. GAGFAH’s
recent convertible issue was the
second largest ever for a German
real estate company and the largest
following the financial crisis. The
largest-ever German RE convertible
had been issued by IVG (EUR 400
million) in 2007, shortly before the
onset of the financial crisis. GSW
(EUR 183 million) completes the top
six with its December 2012 convert-
ible issue.
German RE convertible issuance
totals EUR 860 million based on five
transactions year-to-date. 2014 there-
fore already marks the highest-ever
placement volume by a wide margin
(+74%). The previous record year
was 2012 with six deals raising EUR
494 million. All larger listed Ger-
man real estate companies except
Deutsche Annington currently have
convertibles outstanding.
ytd
Eur 1.1bn Eur 3.3bn
Chart 5: Total German RE equity placements (in EURbn pa)
Source: Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database
Other dealsLast 7 months
Chart 6: German RE convertilbe placement by size
Source: Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database
ytd
EUR 0.2bn EUR 0.9bn
Chart 7: German RE convertilbe placements (in EURbn pa)
Source: Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database
http://www.cegereal.comhttp://www.segro.com
EPRA NEWS / 48 / 2014 15. EPRA NEWS / 48 / 2014 15.
FEATURES
>
FEATURES
NEVER LET A GOOD CRISIS GO TO WASTE
If the capital is to stick
around for the longer term,
attention ought to be spent
on launching sustainable
business models.
Let’s grab the unique
opportunity to grow the
European market by
getting the structures right.
Over the last decade, the relative
size of the European listed real
estate securities sector has been one
of the seminal topics of debate both
among investors as well as at EPRA
conferences. The European real
estate industry has been hit hard by
the financial crisis and the sovereign
debt crisis that ensued.
The silver lining is in the fact
that listed real estate markets his-
torically have thrived on the back of
these crises. In many cases, new or
radically improved fiscal structures
(REITs) have been introduced to
resolve some of the issues. This has
resulted in strong growth in many
markets, the US REIT boom being
the lead example.
From an investor perspective,
market depth is of obvious impor-
tance in allocating resources to fol-
low that market, so the expectation
of an enlarged sector is most wel-
come. I suspect that in Europe, we
could be on the brink of a perhaps
unprecedented growth phase in
market size. However, the introduc-
tion of ‘sub-optimal’ structures is an
impediment to sustained growth.
This has the potential of smothering
the opportunity. Investors should
use their capital to push the indus-
try to deliver product that can stand
the test of time.
Harder times, fitter regimesThe current situation in the Euro-
pean real estate market should be
seen as an opportunity to push
through changes in legislation, im-
proving the depth, quality, flexibility
and accessibility of the listed real
estate markets and solidify growth.
Currently, I do see a wave of real
estate IPO’s in Europe, among which
Irish, British and Spanish have al-
ready been announced and at least
another ten initiatives in these and
other countries are forthcoming.
In most of these cases, this
unique opportunity is tainted by
the introduction of opportunistic,
ill-structured initiatives, frequently
dubbed “cash-boxes”. While they
might seem to offer interesting in-
vestment opportunities in the short
term, their long-term attractiveness
is poised to be disappointing. The
majority of the (planned) IPO’s
share characteristics that normally
are reserved for private equity real
estate vehicles. Among these char-
acteristics are blind pools, external
management, a finite life-span and
— consequently — poor liquidity.
History has shown that none
of these elements is conducive to
strong performance in the long
run, and all of these introduce >
http://www.cegereal.com
16. EPRA NEWS / 48 / 201416. EPRA NEWS / 48 / 2014
FEATURES
potential agency issues between the
company and its investors. From
an institutional perspective, these
vehicles therefore do not offer the
much desired answer to the lack of
quality product in the market.
Nevertheless, some of the com-
panies introduced of late have had a
good start. Because of the dearth in
product and high projected returns
of these recovery plays, some
institutional investors have been
lured into these investments, despite
these grave issues. In turn, banks
and entrepreneurs are tempted
by this behavior to mimic these
structures to quickly attract capital.
It conflicts with the broadly shared
call for better governance in the
European listed real estate industry
by institutional investors.
Get it right from the outsetA positive scenario would be that
eventually, the newly launched
funds will convert into permanent,
internally managed vehicles. But if
that is the way forward, it would
be best to structure companies ac-
cordingly from the start. The rush to
obtain capital while the tidal wave
of money is still heading towards
Europe is understandable. However,
if the capital is to stick around for
the longer term, attention ought to
be spent on launching sustainable
business models.
What I would advocate is to take
the opportunity of the market condi-
tions to structure appropriately-gov-
erned companies with permanent
capital that can grow over time
and stand the test of capital flow-
ing in and out of the industry. The
current wave of capital can dry up
pretty fast.
Only companies that have strong
management alignment and a solid
shareholder base are likely to thrive
in the long run. This is to the benefit
not only of shareholders, but to the
stability of the market as a whole.
If we get this wrong, we run the
risk that investors will abandon
European real estate securities.
If we play it right, however, it
might resolve the feeling of the
European market not living up to its
potential.
It is important for us as investors to keep
pushing for properly structured companies
and to demand appropriate structures.
Instead of acting like passive
‘product takers’, it is important for
us as investors to keep pushing for
properly structured companies and
to demand appropriate structures.
By directing capital to those proposi-
tions that have the ability to grow
going forward, we can signal the
importance of good governance both
to newly-launched companies as
well as to the companies we are al-
ready invested with. Ultimately, this
will raise the attractiveness of the
European marketplace and hence
the valuations of European property
companies.
If we do this, one of the topics of
the EPRA conference agenda in ten
years’ time will be the story of the
European REIT boom this decade.
Hans Op ‘t Veld, PGGM, Head of Listed Real EstateMarch 2014
Management Consulting
Managed Services
Energy Solutions
At RealFoundations, real estate is our passion and the primary focus of our people and our business. No group understands the entire real estate ecosystem as well as we do, from the building itself to the way it’s developed, operated and capitalized. We apply that knowledge and insight to help real estate companies make better, more profitable decisions. We make real estate run better.
Please visit us today at www.realfoundations.net or call us at +1 877 365 1804
Australia | Hong Kong | India | Singapore | UK | US
http://www.icade.frhttp://www.realfoundations.net
http://www.epra.com
EPRA NEWS / 48 / 2014 19. EPRA NEWS / 48 / 2014 19.
FEATURES
With pressure on banking
practices and unfettered
access to information
across a vast market
of choice, how is the
IR sector changing and
with what impact on
companies?
“Just get me in front of more inves-
tors”, this is a demand often made
by ambitious company Chief Execu-
tives, keen to spread the word about
their strategy. But is it as simple as
that? Does the numbers game really
work? Increasingly many compa-
nies are now taking a much more
scientific approach to their Investor
Relations programme and they are
measuring the value it delivers.
Assessing their return on time
invested in meetings is now at the
heart of a number of quoted compa-
nies’ IR strategy. Management teams
are conscious that with more inves-
tors out there and more competition
from other real estate companies
trying to attract attention, that more
accurate targeting of potential inves-
tors can make their whole approach
to IR much more efficient.
Executive time is precious, so
making sure it is used effectively
is an important consideration for
many IR teams. The worst thing an
IR officer can hear when the CEO
is sitting in front of a new investor
is “Can you just run me through
what you do”. Their heart will sink
when their CEO asks them after the
meeting “Why did I just spend my
time doing that — isn’t that what you
should be doing?”. For companies
lucky enough to have an in-house
IR capability, a lot of time is spent
on missionary work, explaining the
basics about the business so that the
investors know the company well
before meeting the Executive team.
For those companies that don’t
have the luxury of an IR team,
some executives tell us that 40%
of their time is spent on IR. This is
a lot of time that could potentially
be utilised better elsewhere. Also
for IROs, their own time is limited
so they need to make sure they are
using it wisely and adding value.
Competition for capitalIn a global market, there are more
companies competing for capital.
With more IPOs increasing the num-
ber and diversity of listed companies
to consider, investors are spoilt for
choice when assessing their asset
allocation choices. Also companies
have made giant strides in making it
much easier for investors to engage
with them. Electronic communica-
tions have made a big difference.
Investors across the globe are log-
ging into webcasts of presentations
and they use company websites >
THE CHANGING FACE OF INVESTOR RELATIONS
20. EPRA NEWS / 48 / 201420. EPRA NEWS / 48 / 2014
FEATURES
that are stacked with detail for their
own research. Video conference
calls have enabled people to speak
directly with companies without
the hassle of travelling. EPRA is
facilitating this using a coordinated
scheduling calendar to space out the
vast array of investor interactions.
EPRA has also been working
with its members to help them to
improve their approach to IR. It has
been championing the adoption of
recognised EPRA reporting stand-
ards and improvements in the level
of disclosure. These initiatives have
been hugely welcomed by investors.
Also the EPRA Investor Outreach
programme is helping companies
to approach potential new pools
of capital. One example of this is
the work that we have been doing
together targeting private client fund
managers and UK regional funds.
EPRA has also being spearheading
its approach in China, where there is
massive potential, as more capital is
being invested overseas in the real
estate sector.
But nothing replaces the old
fashioned one-to-one meeting that
investors still crave and the chance
to quiz the company about the qual-
ity of their assets and the merits of
the management’s strategy. After all,
despite the focus on the underly-
ing quality of the properties, real
estate is still a people business and
investors like to meet management
teams directly. Larger listed real
estate companies are increasingly
travelling overseas to meet investors
at conferences and on road-shows.
However with the changes being
forced upon investment banks, who
have been the driving force behind
these corporate access events, this is
increasingly under pressure.
The changing face of corporate accessThe traditional methods of reaching
investors are changing. Increas-
ingly, listed companies are looking
beyond the old model of relying on
their corporate stockbroker to man-
age their IR programme. In the UK,
the Financial Conduct Authority has
threatened to turn the market on its
head by preventing investment man-
agers paying commissions in return
for corporate access or research.
Investment banks will be hardest
hit. It is already having an impact on
how they structure their own inter-
nal IR teams, which, in turn, has a
knock-on effect on listed companies.
The numbers of sell-side analysts is
being scaled back and the impetus
to arrange non-deal road-shows
and conferences is waning. Many
corporates are realising that the
onus will be increasingly on them to
coordinate their own approach to IR.
Targeting investors in the futureSo how are companies choosing
how they invest their time and
deciding who they should be see-
ing? For listed real estate companies
some are looking at the whole
approach of investor targeting in a
much more scientific way. They are
asking themselves the question,
“Who are the right shareholders for
us?” and “How do we reach them?”
Many IR officers can draw on
their own experience of working
on the sell-side and have moved
across into IR. But with more new
investors emerging and the flows
of funds ever shifting, staying on
top of this changing world is dif-
ficult. So to help fill the gaps there
are specialist IR consultancies that
have developed sophisticated data
analytics tools that help companies
assess and target the right investors
for them.
We are working with companies
looking across the board at what
type of investors they should be
potentially targeting. Data about the
direction of fund flows is now much
more important when assessing
who to try and attract. This can re-
veal the impact on buying patterns.
The outcome is that with this data
it can demonstrate emphatically
which investors companies should
spend time trying to attract.
EFFICIENT USE OF TIMEUK listed REIT Big Yellow Group, is one example of a company that has adapted its approach to IR. James Gibson, the CEO explained: “We asked ourselves the question, how can we improve our IR? We are keen to understand what is motivating our investors. I think that is interesting. My view is that it is better to work smarter at IR rather than just throw bread on the water and see everyone you can and then wonder why so few actually commit to investing. Now we are more focused on targeting investors who we know will take the time to understand us.”
He added, “As part of this, we now consider carefully the shareholders we want to attract. We are not going to appeal to everyone, so as a small team, I want to make sure our time is used wisely. We use what the data analytics tells us to target much more precisely the right type of investor that will take a long-term view about our business. Analysing changes in our investors’ behavior helps our engagement and understanding of our main shareholders.”
www.epra.com/calendar
EPRA NEWS / 48 / 2014 21. EPRA NEWS / 48 / 2014 21.
FEATURES
To put this in context, one aspect
that the data shows is that there are
plenty of long-only equity funds that
are very low frequency traders. They
buy and hold for the long term, and
the percentage of their portfolios
that change annually is extremely
low. Yet, they can get overlooked by
the investment banks because they
simply don’t trade enough.
These investors can be very
loyal, they take a long-term view
and are attracted to a diverse range
of investments where they assess the
total returns over years rather than
months. Some of these investors are
ideal for listed real estate compa-
nies. Their fund remit matches the
objectives and the time horizons
of many listed real estate com-
panies. Also they are not volatile
shareholders that are hopping
in and out of the shares at a mo-
ment’s notice.
The impact of Investor RelationsSo how do companies benefit from
better IR and how is this reflected
in their valuation? For many com-
panies the key to a successful IR
programme is to create a balanced
shareholder register, with a healthy
daily liquidity that ensures they are
more attractive to investors. Rather
than thinking “wouldn’t it be nice to
have fund x on the register”, com-
panies are increasingly considering
which funds they should be target-
ing from a wider pool.
Rather than just focusing on
a narrow group of investors, a
data-driven IR programme can point
to a wider pool of investors that
would be relevant for individual
companies. In conclusion, company
valuations are a balance of supply
and demand for their shares. Yet
making sure that you have a precise,
targeted IR programme can lead to
For many companies the key to a successful IR programme
is to create a balanced shareholder register, with a
healthy daily liquidity that ensures they are more
attractive to investors.
Simon Courtenay is the Managing Director of specialist London-based IR consultancy Broker Profile. Broker Profile has been working with EPRA to target private client investment manag-
ers and UK regional investors.simon.courtenay@broker-profile.com
an improved valuation as companies
leave it less to chance and they at-
tract more investors who want what
they are.
So instead of a Chief Executive
demanding to “See more people”,
companies that are adapting to the
changing world of IR can use this to
their advantage. Then the Chief Ex-
ecutive will be saying “Let’s go and
see the right people.” After all, there
is an oft-used phrase in the world of
IR: “Companies get the shareholders
they deserve.”
22. EPRA NEWS / 48 / 201422. EPRA NEWS / 48 / 2014
FEATURESOUTREACH
RECENT EPRA INVESTOR OUTREACH IN THE US
EPRA representatives
attended the NAREIT
Annual conference
REITweek in New York.
Philip Charls and Ali Zaidi
used this opportunity
to meet with a range of
investors based in
New York.
One-to-one meetings were held with
15 investors representing AUM above
USD 3 trillion.
The outperformance of the
European listed sector in the last
12 months vs. North America and
Asia, along with the healthy IPO
climate has attracted investor focus.
The conversations revealed a higher
level of optimism than a year ago,
however, concerns remain on the
complexity of regulations and under
representation of Germany and
Spain in the EPRA index.
Philip provided an overview
of EPRA’s efforts on the regula-
tory front and macro-economic
forecast of the region. The cultural
differences and investor perception
across countries were discussed
in detail. Questions related to the
FTSE EPRA/NAREIT Index series
were dealt by Ali. One investor
informed on their decision to move
to global listed from a US-only
strategy. Investors were interested
in the positive news emanating
from Europe and particularly the
wide range of recent IPOs.
Illustrating the close ties between
the US and European listed sectors,
Philip was invited to participate in
the closing bell ceremony at the
New York Stock Exchange. The NYSE
was recognising 20 years of REIT
listing on the Exchange.
http://www.psp.infohttp://www.unibail-rodamco.com
24. EPRA NEWS / 48 / 201424. EPRA NEWS / 48 / 2014
FEATURES
ASIAN INVESTORS EXPLORE INVESTING DIRECTLY IN
LISTED PROPERTY COMPANIESEUROZONE REIT CEOs REPORT AFTER EPRA OUTREACH TRIP
The chief executives
of three continental
European REITs returned
from last month’s EPRA
Asia Investor Outreach
visit hopeful that Chinese
and Korean institutions
will start investing directly
in shares of European
listed property companies.
EPRA arranged in-person meetings
for the chief executives of Belgium’s
Cofinimmo, and France’s Foncière
des Régions and Icade with 15
institutions managing a total of
USD 1.64 trillion of assets during a
tour in mid-June of Beijing, Seoul
and Shanghai.
The CEOs said that the contact
with the pension funds, insurers,
investment managers, property
companies and sovereign wealth
funds was invaluable. They found
that the Asian investors prefer to
deploy their capital into Europe’s
listed property sector through third
parties because they lack familiarity
with the businesses, strategies and
management teams.
Foncière des Régions Chief Ex-
ecutive Christophe Kullmann said:
“These investors have significant
sums of capital to deploy and there
was a real interest and desire from
them, expressed during the EPRA
meetings, to go into the Eurozone.
Some clearly said that they will
invest directly in listed European
property companies.’’
Chinese insurers are poised
to become a new force in global
real estate investment, since their
ability to invest in international
property is still a relative novelty. In
May 2013, the country’s regulatory
authorities ended the ‘China-only’
real estate investment restrictions
and loosened the rules on asset
allocation for infrastructure and real
estate, which are now permitted to
represent 20% of their investment
portfolios compared with 10% previ-
ously. The executives heard that this
will probably increase the flow of
capital from China into European
property, since insurance companies
have a total of RMB 7.4 trillion (EUR
900 billion) of investments spread
across all investment asset classes.
What emerged during the CEOs’
meetings was that the Chinese
and South Korean institutions are
allocating capital to real estate to
diversify the range of assets in their
investment portfolios. They treat
listed real estate companies as an
integral part of this property invest-
ment allocation strategy because it
offers a liquid, cost-effective and
efficient route to deploy capital,
the executives said. This blended
portfolio approach balanced out the
shortcomings of direct purchases of
buildings by the investors, which
to date have deployed significant
amounts of capital in some head-
line-grabbing transactions, the
executives said.
The Eurozone’s property markets
are currently the primary targets for
Asian investors because the region is
beginning to emerge from recession
and it allows them to broaden their
property investments geographically
and in currency terms after an initial
focus on the UK and US markets,
they found.
Icade Chief Executive Serge
Grzybowski said: “The EPRA
roadshow was a real eye-opener,
as Asian investors told us that the
Eurozone is their No. 1 destination
for investment. They consider that
they already have an overweight
allocation to the US and London,
so the shift to the Eurozone is also
part of a rebalancing of their prop-
erty portfolios. They are interested
in the listed property sector, which
they see as offering attractive divi-
dend yields.”
EPRA has launched a new
bi-monthly Asia Focus update
for members, which collects the
latest Europe-bound investment
and real estate activities.
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DIVERSIFICATIONThe ability to diversify your investment means you can spread your real estate
exposure across many buildings, sectors and locations. Real estate listed on
Europe’s stock exchanges – the smart way to invest.
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26. EPRA NEWS / 48 / 201426. EPRA NEWS / 48 / 2014
FEATURES
IS THE FUTURE VIRTUAL OR REAL?
FEATURES
The future is upon us but
we don’t yet realise it.
Energy innovation and
technology are sparking
lifestyle change — these
will transform our
working processes and
the very space in which
we live. Leo Johnson flicks
forward a few chapters to
consider the role of real
estate in the new urban
world to come.
Tell us a bit more about your latest book ‘Turnaround Challenge: Business and the City
of the Future’?It’s about the city of the future. The
towering moment of glory – we got
to Number 2 on Amazon (in the most
uncompetitive category, which is of
course, Business Ethics). To show
the depth of this category, Number
3 was a book just called “Liar”.
Number 1 was by Lance Armstrong.
What is its focus?The main focus is on megatrends.
What are the unexploded volcanos,
the revolutions for example, in
energy and manufacturing that are
starting to disrupt business? The
book then explores three scenarios
for the city of the future, each of
which has radically different impli-
cations for the real estate sector. The
first is Petropolis, where we head to-
wards Detroit, New York after Sandy,
New Orleans after Katrina. The
second is Cyburbia, the sensored
and censored smart city. The third
is the Distributed City, where we
move from the PITO city (Product In,
Trash Out) to the city that is energy
independent and self-sufficient.
Where are we headed? Are you optimistic?There is a Polish proverb: “Don’t put
too much hope in the end of the
world.” Could all the pessimists and
eco-apocalyptics be wrong? I believe
capitalism could be about to deliver
a new wave of growth, and that the
construction and real estate sector
could be crucial to accelerating this.
So how do you see this playing out in the short term? What are the main drivers of this disruption?
First the big picture. Economists
such as Carlota Perez argue that, in
the last 200 years, there have been
four major surges of development.
First water power and Arkwright’s
mills, then coal and the steam en-
gine, then Tesla’s AC electricity and
the transmission lines, finally oil,
the combustion engine and mass
production. There is one pattern. In
each of these surges a technological
breakthrough has unlocked a new
source of power and distributed it
across the economy, bringing new
people the power to do new things.
We have had a century of
capitalism based on Heny Ford’s
breakthoughs, using mass produc-
tion to harness the embedded
energy of fossil fuels. But there
are now revolutions underway,
sets of colliding megatrends that
could disrupt both. The first is in
manufacturing, with advances in
nano-tech and 3D printing that are
challenging mass production. The
seat buckle on the Airbus A380,
for example, shows the potential
for this “micro-manufacturing”. A
standard steel airplane buckle can
weigh as much as 155g. With new
fleet planes having up to 850 of
them, this starts to add up. Making
the part with 3D printing reduces
the weight to 68g, saving a possible
3,300,000 litres of fuel over the life
of the plane. The buy-to-fly ratio for
a plane (how much material gets
used in the process but doesn’t end
up on the plane) drops from more
than 60-to-1 to about 5-to-1.
What does this mean for real es-
tate? The first upside is a shift in the
economics of offshoring. As Chinese
labour costs and the costs of off-
EPRA NEWS / 48 / 2014 27. EPRA NEWS / 48 / 2014 27.
FEATURES
shore mass production goes up, the
costs of domestic micro-production
is going down. General Electric
claims it will make about 50% of jet
engine parts with 3D printers by 2016
and is recruiting several hundred IT
specialists at a centre in Michigan.
GE chief executive Jeff Immelt calls
outsourcing “yesterday’s model”.
The second upside, in the longer
term, is a revolution in logistics,
with on-site production reducing
the need for plant, warehousing and
transport, and the growth instead
of small-scale “factories in a box”.
We’re talking about the return of the
‘local’. Then there’s direct impact
on the sector. A Chinese company
is now 3D printing two-bedroom
houses for USD 5,000 each. They
can print ten a day.
What about energy?There’s another set of colliding meg-
atrends. The energy return on fossil
fuels continues to fall, from 100-to-1
in Ford’s day to around 4-15 to 1
today. 96% of US Monterrey Shale
has been pronounced unrecoverable
because it’s just too expensive to
get it out of the ground. Meanwhile
the the energy return on renewables
continues to rise.
By 2020 we know 80% of the
world’s population is going to be liv-
ing in countries where renewables
are below cost parity with fossil
fuels. This is also going to transform
the economics of local living.
Where do you see this happening first?The low-hanging fruit is clearly
developing countries where there
are low switching costs. Here, new
energy can have a transformative
impact on urbanisation. Let’s take
the example of the M-KOPA business
model in Southern Africa. M-KOPA
are putting SIM cards into solar
lights allowing people to lease the
lights for a 50 cents a day, instead of
buying them. This slashes kerosene
costs and health impacts, raises
exam pass rates and gives access to
finance and insurance. It also allows
users to make micro-payments for
things like the Kickstart agricultural
hand-pump which brings access to
the underground water table and
lets them plant triple the number
of crops.
This type of impact on productiv-
ity took incomes up in one study
from USD 160 to USD 1,600 per
head a year. Bottom of the pyramid
spending for kerosene is USD 38
billion a year.
It’s a small example but what it
shows are the early signs of a new
GPT being deployed in ways that are
raising productivity again, in some
cases transformationally. 200,000
people flee the broken countryside
a day for the city. This approach
can start to make the countryside
work again.
What about OECD nations?The energy internet represents a
longer-term, but potentially signifi-
cant, breakthrough. It’s not yet plug
& play, but there are now over 400
smart microgrid projects around the
world, many of them in advanced
economies, trying to get on the right
side of this curve. One example
is the Pecan Street community in
Austin, Texas, confronted with rising
energy bills, which has used the en-
ergy internet to create its own smart
...if one in ten switches,
this cripples the business model
of the conventional grid.
Leo Johnson is a Partner in PwC’s Sustainability & Climate Change team, and the co-Founder of the sustainability advisory firm Sustainable Finance, now part of the PwC group. He is the co-author
of “Turnaround Challenge: Business and the City of the Future” (Oxford University Press, 2013) and the lead author of PwC’s “Low Carbon Economy Index”. Leo is a Visiting Business Fellow at the Smith School of Enterprise & Environment at Oxford University, and the Presenter of the BBC World News programme “One Square Mile”. Alongside speeches ranging from Campus Party to TEDx, he has commented and written guest columns for the Wall Street Journal, Evening Standard, FT and Huffington Post.
microgrid. They are connecting an
entire 1,000-plus neighbourhood
with solar panels, electric vehicles,
utility smart metres and household
batteries. Rooftop solar panels cal-
culate the day’s energy production,
and then set up a schedule for using
the energy or selling it back to the
grid. We are not yet there, but there
is a lot of action. Elon Musk’s new
Giga-factory looks interesting, with
new batteries promising 30 days off-
grid storage capacity for US house-
holds. And if one in ten switches, it
cripples the business model of the
conventional grid.
But what are the implications for the real estate sector? The real estate sector has the oppor-
tunity to be at the epicentre of a new
model of business success, turning
buildings from a critical source
of carbon emissions into micro-
power plants: smart, connected
and productive.
I believe we are going to see a
rebirth of the ‘local’. We are moving
from the city, to the village in the city.
Look at the recent Walkability Index
showing increasing real estate values
with walkability to local stores. It is
going to places with local identity
and liveability, combined with the
competitive advantage of a lower
cost smart microgrid infrastructure
that will attract the best talent and
thrive.
http://www.linkedin.com/company/epra
EPRA NEWS / 48 / 2014 29. EPRA NEWS / 48 / 2014 29.
FEATURES
EPRA carries out its
work through a series
of committees made up
of key individuals from
member organisations.
The committees usually
meet twice a year in
person supplemented by
conference calls as and
when needed.
The Reporting & Accounting
(R&A) committee is one of the
organisation’s flagship working
groups and is the primary vehicle
for the discussion and approval of
financial affairs. It is supported by
smaller, subsidiary committees that
are delegated specific tasks — the
Best Practice Recommendations
(BPR) committee and the Taxation
committee that are comprised of
specialists in accounting and tax.
How is it made up?The R&A committee is currently
comprised of 26 members and has
been chaired by Lucinda Bell, CFO
of British Land, since September
2013. It is represented by both the
users and preparers of financial
statements with property company
CFO’s, accountancy practionners,
investors and analysts all sitting on
the committee.
What does it do?EPRA strives to increase investment
in the European listed real estate
sector and works to help this by
ensuring there is transparency,
credibility and comparability of its
members’ financial statements for
investors. The cornerstone of the
committees work is the Best Practice
Recommendations guide. This live
document acts as a definitive guide
for the preparers and users of finan-
cial statements and gives detailed
information on how to reconcile and
present the EPRA key performance
indicators — a series of five reporting
measures comprising EPRA Earn-
ings, EPRA NAV, EPRA NNNAV, EPRA
Net Initial Yield, EPRA Topped Up
Net initial Yield and EPRA Vacancy.
The R&A committee will debate
topical issues, such as those raised
in the accountancy world, including
new financial standards brought
in by the International Accounting
Standards Board (IASB). Further-
more, it will also consider sugges-
tions from the EPRA Executive Board
and those raised by the users of the
financial statements. These projects
may be delegated to the BPR com-
mittee for more in-depth, techni-
cal discussion before proposed
solutions are presented back to the
R&A committee for approval. Once
approved, the new recommenda-
tions are incorporated into the BPR
document with a recommendation
that companies adopt them.
Recent workDuring 2013, the R&A committee
considered and implemented the
disclosure recommendation for
cost ratios to be provided in
EPRA REPORTING & ACCOUNTING — AN INSIDE VIEW
>
30. EPRA NEWS / 48 / 201430. EPRA NEWS / 48 / 2014
FEATURES
Real estate provides
attractive opportunities and
a natural meeting of minds,
given long-term assets
match long-term liabilities.
members’ financial statements. The
cost ratio takes two forms to be dis-
closed both including and excluding
the costs of direct vacancy and real
estate companies are now reporting
these measures in their financial
statements. While not being directly
comparable between different com-
panies, the ratio is already providing
investors with a useful means to
assess like-for-like cost efficiency
within individual companies
During 2014, the committee has
delegated to a working group the
task of exploring a cash earnings
measure. The rationale here is to
help investors get a better handle of
the cash operating characteristics of
a company, both at an entity level
(from the perspective of dividend-
paying capacity) and also at an
asset level (from the perspective
of valuation). The finalised recom-
mendations are expected to be
incorporated into an updated BPR
document in the Autumn. Future
projects for the committee include
defining a standarised loan-to-value
(LTV) measure and possibly an inter-
est cover measure.
Brussels SummitThe R&A committee met in Brussels
during March 2014 for its annual
summit. Leo Johnson, sustainability
specialist from PWC and author was
a guest speaker and presented his
thoughts on how real estate can
evolve to meet the needs of future
society.
Andrew Saunders of EPRA gave
an overview of current projects
being undertaken by REESA that
include lease accounting, IFRS 3
(business combinations) and a
global earnings baseline. Saunders
also covered the latest regulatory
issues and developments detailing
AIFMD, Solvency II and ESMA’s
Alternative Performance Measures.
The latter item relates to a consulta-
tion on reporting disclosures that are
not directly reconcilable to IFRS to
which EPRA recently made a formal
response. Jaap Tonckens of Unibail-
Rodamco gave an overview to the
committee of progress achieved to
date on the cash earnings project,
which has initially focused on
improving capex disclosure.
Stuart Hitchcock of New York
Life gave a useful overview of
the private placement market as
an alternative funding source. US
investors make up the majority of
private placement which has been
operating for over 60 years in US
and 20 years in Europe. Typically,
private placement investments are
heavily weighted in fixed income
and are highly relationship-driven.
EPRA NEWS / 48 / 2014 31. EPRA NEWS / 48 / 2014 31.
FEATURES
Andrew Saunders is EPRA Finance Director. He is an experienced finance professional having been a top-rated equities analyst in a career of almost 20 years at leading UK investment banks and stock-broking firms. He has a proven track-record in the financial analysis and investment appraisal of businesses and
possesses strong relationships with institutional investors. Saunders has most recently been working with Broker Profile Research, who have been helping EPRA with an investor outreach programme to build awareness and understanding among the private wealth management community of the listed real estate industry. Saunders has a B.Sc (Hons) in Mathematics from Manchester University
Unlike debt and equity markets, the
private placement market does not
have a window and is always open.
Real estate provides attractive op-
portunities and a natural meeting of
minds, given long-term assets match
long-term liabilities.
Fraser Hughes of EPRA gave an
overview of EPRA, its structure and
recent developments. Also discussed
was the EPRA index, its composi-
tion and its performance. Hughes
also highlighted several companies
that are misusing the BPR and are
neither EPRA members nor Index
constituents with a recommendation
that this should be tackled. Hughes
went on to talk about how the other
EPRA committees are structured,
review listed real estate performance
over the long-term and introduced a
new reporting calendar available via
the website for corporate members
to post results dates.
Simon Carlyon, chair of the BPR
committee gave his report of the
work in progress his group has been
doing on behalf of the R&A commit-
tee. Additional guidance to the BPR
was published in January covering
the treatment of convertible bonds
while Carlyon also reminded the
group of the current tasks the com-
mittee is working on, including cash
earnings and LTV.
The futureThe R&A committee continues to
adapt, evolve and respond to the
needs of users of financial state-
ments. Indeed, it has already seen
recent changes to its composition,
welcoming more investors. The com-
mittee is likely to move forward as
the primary vehicle for “big picture”
thinking and discussion of macro
issues affecting real estate finance
and investment, with perhaps more
of the micro level technical discus-
sion being undertaken by the BPR
committee. In any case, whatever
exciting future developments the
changing world of listed real estate
may bring, the EPRA R&A committee
is well placed to address them.
32. EPRA NEWS / 48 / 201432. EPRA NEWS / 48 / 2014
FEATURES
The EPRA Annual Report survey performed by Deloitte is underway. The survey includes a review of the annual reports of about 85 listed real estate companies across Eu-rope, all of which are members of the FTSE EPRA/NAREIT Europe Developed Index.
The purpose of this survey is to
promote awareness of the EPRA Best
Practices Recommendations (BPR).
EPRA ANNUAL REPORT AWARDS 2013/14 — FOCUS ON REPORTING TRANSPARENCY
Recognition will be available through the following Award categories:
Gold Award • For stand-out annual reports including exceptional compliance with the BPR.
Silver Award • For annual reports scoring highly, based on compliance with the BPR.
Bronze Award • For annual reports scoring well, based on compliance with the BPR.
Above: Markus Meier,
Deputy CFO, Swiss
Prime Site - Winner
of Most Improved
Annual Report
2012/2013
We have seen over the last years an
increasing adoption of the financial BPR as
promoted by the EPRA. Implementation of
the BPR guidance on reporting costs will
be one of the focus area of the 2013/2014
survey. This may result in some changes in
the leader board.
Emmanuel Proudhon, Deloitte
The BPR aim to raise the standard
and consistency of financial
reporting through
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