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COVERNEWS
ISSUE 37NOVEMBER/DECEMBER 2010
FEATURES MARKET FOCUS REFERENCE- Listed sector squeeze - Germany- European real estate: The revival of the Golden Age
- Capturing the true scope of listed real estate- The funding gap
- Member Offers- Events- FTSE EPRA/NAREIT Global Real Estate Indices
GUEST EDITORBert Erik ten Cate
Raising the stakes
The revival of the Golden Age
2. _ EPRA NEWS / 29 / 20082. EPRA NEWS / 34 / 2010
AustrAliA• Univ. of Western Sydney, Property Research Centre
• Valad Property Group• Vanguard Investments
AustriA• CA Immobilien Anlagen• Conwert Immobilien Invest• Sparkassen Immobilien
Belgium• Banque De Groof• Befimmo• Cofinimmo• Leasinvest Real Estate• Solvay Business School (Brussels Univ.)
BrAzil• Iguatemi Empresa De Shopping Center
British Virgin islAnds• Dolphin Capital Investors• Eastern Property Holdings
CAnAdA• OPTrust• Presima
FinlAnd • Citycon• CREF Center for Real Estate Investment & Finance
• KTI Finland• Sponda
FrAnCe• Acanthe Developpement• Affine• AffiParis• Altarea • ANF Immobilier• Baker & McKenzie• BNP Paribas• Cegereal• Credit Agricole Immobillier• EUROSIC• Foncière des Regions• Foncière Paris France• Gecina• ICADE• IEIF• Klépierre• Mercialys• Unibail-Rodamco• Silic• Société de la Tour Eiffel• Société Foncière Lyonnaise• Société Générale• Université de Paris-Dauphine
germAny• AIG International Real Estate• Alstria Office REIT• Beiten Burkhardt Rechtsanwaltsgesellschaft
• Deutsche EuroShop• Deutsche Wohnen• DIC Asset• GAGFAH
• Hamborner• Heitman• IREBS International RE Business School
• IVG Immobilien• MEAG Real Estate Management• PATRIZIA Immobilien• POLIS Immobilien• PricewaterhouseCoopers• Real Estate Management Institute
• RREEF Investment• SEB Asset Management
greeCe• Babis Vovos• Eurobank Properties REIC• Lamda Development• National Bank of Greece Property Services
• Pasal Development• Trastor REIC
hong Kong• Univ. of Hong Kong, Dept. of RE & Construction
irelAnd• Nation Pensions Reserve Fund
isreAl• Gazit Globe
itAly• Beni Stabili• Immobiliare Grande Distribuzione
• Pirelli RE
luxemBourg• Orco Property Group
netherlAnds• Amsterdam School of RE• APG Asset Management• Atrium European Real Estate• BPF Bouwinvest• CB Richard Ellis• Citco Nederland• Clifford Chance• Corio• Deloitte Real Estate• Ernst & Young European Real Estate Group
• Eurocommercial Properties• Fortis Investment Management• Houthoff Buruma• ING REIM Europe• Kempen & Co• KPMG Accountants• LaSalle Investment Management• Loyens & Loeff• MN Services• Nieuwe Steen Investments• PGGM• Prologis• Royal Bank of Scotland Group• Redevco Europe Services• Spazio Investments• SPF Beheer• Univ. of Maastricht• VastNed
• Wereldhave
norwAy• EdgeCapital• Norwegian Property
russiA• Renaissance Capital
singApore• Keppel Land Limited• National Univ. of Singapore
south-AFriCA• Growthpoint Properties
spAin• Fundación ESADE• Inmobiliaria Colonial• Metrovacesa• Neinver• Parquesol Inmobiliaria y Proectos
• TESTA Inmuebles & Renta
sweden• Aberdeen Property Investors Holding
• Castellum
switzerlAnd• Center for Urban & RE Management
• Euro Institute of RE Management• PSP Swiss Property• Sal. Oppenheim RE• Swiss Capital Alternative Investments
• Swiss Prime Site• Strategic Capital Management• University of Geneva• Züblin Immobilien Holding
turKey• Emlak/Toki
uAe• Abu Dhabi Investment Authority
united Kingdom• AMP Capital Brookfield• Asset Value Investors• Aviva Investors• Bank of America• BDO Stoy Hayward• Berwin Leighton Paisner• Big Yellow Group• British Land• Cass Business School• Capital & Counties Properties• Citigroup• Clearance Capital• CLS Holdings• Credit Suisse Securities• Derwent London plc• Deutsche Bank• Eurocastle Investment• Evolution Group• GIC Real Estate• Clearance Capital• Goldman Sachs International• Grainger
• Green Street Advisors• Grosvenor Group• Great Portland Estates• Hammerson• Henderson Global Investors• Ignis Asset Management• Invista Real Estate Investment Management
• JPMorgan• JPMorgan Cazenove• Land Securities• Liberty International• Linklaters• Macquarie Real Estate• M&G Investment Management• M3 Capital Partners• Morgan Stanley• Nabarro• Principal Global Investors• Prologis European Properties• Quintain Estates & Development• Scottish Widows Investment Partnership
• Safestore• SEGRO• Shaftesbury• SJ Berwin• Standard Life Investments• Thames River Capital• UBS• Univ. of Cambridge, Dept. of Land Economy
• Univ. of Reading, Centre for RE Research
• Workspace Group
usA• AEW Capital Management• Alvarez & Marsal• Cohen & Steers Capital Management
• Columbia Business School• Cornerstone Real Estate Advisers• Duff & Phelps• European Investors Incorporated• Fidelity Management & Research.
• Forum Partners Investment Management
• FPL Advisory Group• Host Hotels & Resorts• ING Clarion Real Estate Securities
• MIT Center for Real Estate• Real Capital Analytics• Real Foundations• Rockefeller Group Investment Management Corp.
• Russell Investment Group• SNL Financial• The Tuckerman Group• Univ. of Cincinnati• Westfield Group• WP Carey• Zell-Lurie RE Center at Wharton
EPRA mEmbERsAs oF noVemBer 2010
EPRA NEWS / 37 / 2010 3.
CONtENts
Credits
editor & production managerDominic Turnbull
guest editorBert Erik ten Cate
Article Credits
Please send your comments and suggestions to:
design & layoutFuse Consulting Limited
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GUEST EDITORRaising the stakes 4
NEWS 6
FEATURESListed Sector Squeeze - Germany 8
European real estate: The revival of the Golden Age 11
Listed and direct real estate – a compatible mix 14
The untapped potential of European REITs 20
Real estate securities: the attractive alternative 24
Nanakorobi Yaoki - The resilience of listed real estate 28
The outperformance and underallocation puzzles 32
MARKET FOCUSCapturing the true scope of listed real estate 38
Vehicle shifting gear 42
Take another look 46
REFERENCE PAGES
Member Offers 50
Events 52
FTSE EPRA/NAREIT Global Real Estate Indices 56
NEWSISSUE 37 | NOVEMBER/DECEMBER 2010
Joseph Harvey
Scott Crowe
Matthew Hodgkins
Rémi Antonini
Fraser Hughes
Ali Zaidi
Alex Moss
Gareth Lewis
Andrew Angeli
Alban Lhonneur
Jim Clayton
Contents Page
4. EPRA NEWS / 37 / 2010
guEst EditOR
GUEST EDITORBert Erik ten Cate
Editor, EuroProperty
Through the downturn,
listed property companies
have had it easy raising
fresh equity compared
with fund managers. As
we emerge from that
downturn, assuming there
is not going to be a double
dip, investors should ask
themselves whether their
money has been spent
wisely.
By May last year, UK REITs
had raised GBP 4 billion of equity.
It was a staggering amount in such
a short space of time. Compare this
with private equity. In 2006, it took
private equity firms on average 9.8
months to raise a fund, accord-
ing to Preqin. Now, it takes more
than twice as long, 19.7 months.
Fund managers have a hard time
persuading investors to part with
their cash. It helps when fund
managers have a good story that is
consistent.
That seemed to have been mostly
missing with the UK REITs. When it
came to listed property companies
investors seemed easily persuaded.
In May last year, Nomura analysts
raised their target prices for UK
REITs by 11% on average, saying
the capital injection fed through to
stabilise prime real estate prices.
The money, the bosses said, was go-
ing to be used to repair the balance
sheets and build a war-chest to take
advantage of distressed opportuni-
ties in the market. They never spelt
out how the money was split or
how they might take advantage
of the downturn. Many believed
that REITs were in a better position
than private equity fund managers
because of the fresh capital raised,
experienced management, low gear-
ing and access to debt.
Looking back, REITs have mostly
used the extra money to pay down
debt. Distressed real estate has been
more talked about than transacted.
True, the banks are partly to blame
for this as they have been slow in re-
leasing stock to the market. Now the
talk of town is development. There
is a perceived looming shortage of
prime office space in London. Brit-
ish Land recently teamed up with
Oxford Properties to restart work
on the Leadenhall Building, known
as the Cheesegrater, in the City of
London. The cost is estimated at
GBP 340 million. A year ago, British
Land told the Sunday Times it was
sticking to investment purchases.
Why the change of plan? Critics
have noted that the development
is not without risks since City rents
have fallen dramatically since 2007.
In the same week in October, Land
Securities teamed up with Canary
Wharf to build rival skyscraper, the
Walkie Talkie.
REITs should not be in the risky
business of developing. They should
provide stable dividends derived
from rental payments. They should
be super landlords, optimising
rental income. Like distressed op-
portunities, developments are not
their game.
UK REITs should follow the
examples set by continental listed
property companies such as Corio
and Unibail-Rodamco. Unibail-
Rodamco has consistently pursued a
strategy of focusing on larger shop-
ping centres. It recently embarked
on the sale of a EUR 2.5 billion port-
folio of smaller retail assets across
Europe. The sale, which was flagged
for next year, came on the heels of
a EUR 1 billion sale of smaller Dutch
retail assets that was kick-started
at the beginning of the year. The
Dutch-Franco company has added
prime, income-producing, shopping
centres to its portfolio.
Dutch Corio has also followed
through its strategy. For years,
it wanted to enter the German
market for years but never saw an
opportunity that gave it enough
critical mass. Earlier this year, Corio
struck a EUR 1.3 billion deal with
Multi to buy a portfolio of operating
shopping centres and developments
in Germany, Spain and Portugal.
“We always had found Ger-
many too expensive and we wanted
deals to be earnings-enhancing
immediately,” Groener told
EuroProperty in an interview in
May. Corio had no trouble raising
money to fund the acquisition
through the issuance of bonds.
A good story, focus and patience
paid off for Unibail-Rodamco
and Corio.
Please note that the Guest Editor page
is a space for outside comment on listed
real estate, and does not necessarily
reflect the opinion of EPRA.
rAising the stAKes
EPRA NEWS / 37 / 2010 5.
I had the pleasure of moderating the tenth
Annual Conference of the Real Estate
Share Initiative in Frankfurt, hosted by the
German property association ZIA. There-
fore I made a serious attempt to approach
the issue of German Open Ended Funds
(GOEFs) with a clear and fresh mind. I
tried to blank out the opinions - in many
cases criticisms - I had heard about the ve-
hicle. Perhaps there were new angles with
which to address the seemingly magnetic
hold GOEFs have over German investors?
Afterall, we’re talking sums of around EUR
90 billion of which 30% is institutional
and 70% is held by retail investors. Vast
when compared to the EUR 10 billion
listed sector.
Perhaps we could find ways in which to
introduce the German market to vehicles
of a different nature. But the panel session
I ran only reiterated the stories I had heard
previously – the risk-averse nature of the
German investor, and the iron distribution
grip which the banks have developed over
the retail market. Looking forward, these
are going to be hard nuts to crack, and
maybe only in the long-run.
However, perhaps the stories coming
from the German market in recent months
gives us hope that things may change in
the shorter run? Two GOEFs have fallen
into administration as they approached
their maximum legally permitted two-
year suspension period on redemptions.
In addition, it is estimated that currently
almost one third of GOEFs’ assets under
management are closed for redemptions –
this figure represents an estimated EUR 25
billion of that total EUR 90 billion.
This has been exacerbated by the
German government suggesting new
regulation for GOEFs in May, which
included a blanket 10% de-valuation
of all properties. Subsequently the
GOEFs experienced outflows which
led to the renewed suspension of
redemptions. Post Lehman, GOEFs
were subject to significant outflows
in 2008, with 12 funds suspending
investor redemptions.
The listed property company/
REIT offering liquidity and lower fees
must be an attractive compliment or
a complete alternative to GOEFs. Un-
fortunately, German legislation does
not permit conversion at this point
in time. We believe that this discussion
must take place to help address the issues
faced by GOEFs in future years, and offer
institutional and retail investors a market-
driven exit. Conversion of GOEFs in listed
companies/REITs would allow funds to dis-
cover market pricing levels without having
to enter administration and perhaps forced
sales. Those people with short memories
should remind themselves of Rodamco in
the 1990s. Investors in Germany deserve an
alternative proxy for real estate investment.
There is huge opportunity for growth in
REIT introductions in Germany, Italy and
Spain given the size of the underlying real
estate markets in these countries. Yet while
REITs make up on average 70% of the
European funds, these countries fall well
under this sector share (REITs represent
only 9% in Germany, for example). Clearly
Europe is still not fulfilling it natural poten-
tial – rather than 17% it should be closer to
30-35% of the FTSE EPRA/NAREIT Global
Index. REIT legislation in the UK, France,
Belgium, and the Netherlands ensures in-
vestors have liquid access to quality assets
in these markets – Germany only needs to
take a look at its more distant neighbours!
REITs offer good levels of transparency,
good management, diversification pos-
sibilities, liquidity and excellent cash re-
turns – particularly in this low interest rate
environment. Is this Germany’s chance to
change?
Conversion of GOEFs
in listed companies/REITs
would allow funds to
discover market pricing
levels without having to
enter administration and
perhaps forced sales.
updATe from philip ChArls
Philip Charls, EPRA CEO
Contents Page
6. EPRA NEWS / 37 / 20106. EPRA NEWS / XX / 2010
in the news
iNsight 2011 EvENts
e PRA will kick-off 2011 with a series of discussion-networking events
across Europe. These will be free, after work and as in previous years,
an informal chance to gear up to the year ahead. The initial panel debate
will centre around the opportunities and pitfalls ahead
for listed property – some insight into what you
could be facing. The networking over refresh-
ments at the Insight events should prove a
useful foundation for the year.
Locations: London, Amsterdam, Paris.
EPRA member invites will be sent soon.
J-REit bOOst fROm Y5 tRilliON fuNd The Bank of Japan (BoJ) announced it would estab-
lish a Y5 trillion fund to purchase assets including
real estate investment trusts and exchange-traded
funds, as part of steps to combat deflation. J-REITs
are believed to potentially represent up to 10% of the
fund’s assets. Access the BoJ announcement here.
Aifm POsitivE NEws COmEs with uNCERtAiNtY
e U Finance Ministers and European Parliament finally reached informal
agreement on the final form of the long-awaited AIFM Directive in Oc-
tober. The deal should now be rubber-stamped at the European Parliament
in November. Entry into force is foreseen by the end of the year or early
2011 and Member states will have two years to transpose its provisions into
national law. Transition periods have been agreed which will make the most
controversial third country requirements fully effective only from 2018.
The outcome for the listed property sector is mixed. A technical interpre-
tation of the language of the Directive would seem to exclude listed property
companies and REITs. This is consistent with most people’s understanding
of the Directive’s underlying purpose as being aimed at the funds manage-
ment industry rather than corporate groups. On the less positive side, the
European Commission have informally opined that REITs should be in scope
and it is likely to take some time before the position is clear.
Please register your
attendance on [email protected]
325 billiON REAsONs tO listEN
the IASB have always maintained the position that
their efforts to develop and inmprove international
accounting standards are aimed at responding to the needs
of “users” of financial statements. With this in mind, EPRA
and NAREIT recently mobilised a powerful ‘petition’ of
signatories with a collective AUM of over EUR 325 billion
of investment. Submitted late in November to the Boards
of the IASB and FASB on behalf of these property investors
and the vast majority of major sell-side property invest-
ment analysts, this collective statement on behalf of users
supports the exclusion for lessors at fair value from the
scope of the new lease accounting rules. It also supports a
move by the US standard setters to introduce an equivalent
standard to IAS 40 in the US.
The current IFRS for investment property account-
ing, IAS 40, is well supported across the listed sector. It
requires a property company to disclose the fair value
of its property and facilitates the reporting of full rental
income in the profit and loss account. Rental income is
fundamental to investors in assessing the performance
and investment quality of investment property companies.
“We believe this strong statement from the ‘users’
of financial statements put us in with a good chance of
ensuring that the exclusion makes its way into the final
leasing standard,” said Gareth Lewis, EPRA Director of
Finance. In due course EPRA will be submitting its own
response to the Leases Exposure Draft, as part of the Real
Estate Equity Securitization Alliance (REESA). If you have
any questions relating to the proposed changes or would
like to participate in our response (due by December 15),
please get in contact.
EPRA NEWS / 37 / 2010 7. EPRA NEWS / XX / 2010 7.
i n the first global effort to date, APG Asset
Management, PGGM Investments, and the
Universities Superannuation Scheme teamed
up with Maastricht University, the Netherlands,
to assess the environmental performance of
public property companies and private prop-
erty funds around the world. The result, which
is supported by EPRA, is the Global Real Estate
Sustainability Benchmark - based on current
best practices in real estate environmental
management.
To coincide with the survey, the group has
also launched what it considers will be the
portal for investors and their listed company
and private property fund investments: www.
gresb.com.
The Global Sustainability Real Estate
Benchmark is a response to the need for data
to measure the environmental performance
of our real estate investments,” explains CIO
Angelien Kemna. APG therefore developed its
own environmental survey of the sector to use
the results as the baseline for their engage-
ments. This environmental scorecard provides
detailed insight into the policies, implementa-
tion, and measurement of environmental
practices of property companies and property
fund managers.
EPRA suPPORts sustAiNAbilitY bENChmARk
the challenges over the wider effect of the
AIFM Directive continue. In November,
EPRA’s Director of Finance Gareth Lewis met
with Welsh MEP Kay Swinburne (shadow
Rapporteur for the ECR group in ECON) to lay
out the risks and inconsistencies AIFM intro-
duces into new derivatives legislation under
discussion.
Within the proposed EC legislation on
Derivatives (EMIR), any entity classified as
“financial” under the AIFM will be subject
to mandatory clearing of derivative transac-
tions. Although non-financial companies are
exempted from such requirements, property
companies risk being classified as financial,
even though these companies are essential
participants in the physical economy. The
potential impact of these new rules on the
property sector as a whole, if implemented
today would amount to the withdrawal of
approximately EUR 64.9 billion of working
capital from the property sector (initial & vari-
ation margin) across EU member states - with
half coming from Germany, France, Italy, and
Spain alone. EPRA’s position is that property
companies and REITs should be recognised as
“non-financial” counterparties and excluded
from the rules for using central counterparty/
posting cash collateral for their interest rate
swaps. Thresholds will be put in place (as
yet undetermined) above which even non-
financial counterparties will be required to
apply central clearing.
Assuming property companies are treated
as non-financial counterparties, we also
believe that property companies should be
able to use property as collateral to secure
these transactions (rather than just cash as is
currently drafted). We welcome your feedback
on the impact the draft Regulation might have
on your business. We are particularly keen
to understand the prevalence of floating rate
debt vs. fixed rate debt across Europe, and the
extent to which debt is secured on property vs.
corporate level debt (as both may be treated
differently under EMIR).
EPRA Push AgAiNst POssiblE CAsh COllAtERAl buRdEN
AN ACtiv REAde PRA’s member-only news
mailout service has been pump-
ing out stories, background and
announcements since September.
Billed as a “glancing round-up” of
current EPRA activity, it’s intended
to be a short and fresh read amid the
vast fog of information flowing your
way. Email [email protected] to
ensure you’re on the mailing list.
NEw hiRE At EPRAe PRA is adding new weight to its
accounting activities with the
appointment of Mohamed Abdelra-
him as Financial Reporting Manager.
Abdelrahim has a background at
Deloitte and property company Orco.
His primary responsibilities will be
on EPRA’s financial reporting lob-
bying work towards IASB and FASB,
the ongoing development of EPRA
BPR and the work of the Reporting &
Accounting Committee.
“We welcome Mohamed to our
team. He is a great addition, strength-
ening our efforts to highlight the far-
reaching implications of proposed
EU regulations and furthering the
adoption of EPRA recommended
reporting standards in Europe,” said
Philip Charls, EPRA CEO.
Contents Page
8. EPRA NEWS / 37 / 2010
Fraser Hughes and Philip
Charls participated in the
Real Estate Share Initiative
in Frankfurt, and raised
the veil covering
German open-
ended funds.
In a recent report by Bank of America
/Merrill Lynch, they rank Germany
as one of the stronger economies
in Europe going into 2011 - and in
their view explains much of the
recent interest in its listed property
companies. The FTSE EPRA/NAREIT
German Index performed +18% in
Q3, reversing loses in the H1 to stand
at +15% year-to-date.
Fraser Hughes gave an update
on the Global and European market,
taking a helicopter view of events
and performance, focusing on the
potential for the German market for
future growth. The German listed
market only represents approximate-
ly 1% in market capitalisation terms
of the underlying institutional qual-
ity commercial real estate market.
Factoring in debt, the German listed
sector owns approximately 2% of
the underlying real estate market –
the UK and French ownership figure
is closer to 10%. But are there really
growth opportunities ahead?
Philip Charls addressed this
question with his panel of Steffen
Sebastian of Regensburg University,
Hans Op’t Veld of PGGM and Fred
Bunker of Kempen & Co, on the
history of the German, in particular
the stranglehold of the German
Open Ended Funds (GOEF) on local
market, and the potential opportuni-
ties ahead.
To set the scene, the audience was
reminded that the GOEFs have
existed since the 1950s – a 60-year
track-record. He added that invest-
ment via the German stock market
did not become popular until
the 1980’s, resulting in a 30-year
head-start for the GOEFs. From an
goeFs ViCe stiFling germAn reits
EPRA NEWS / 37 / 2010 9.
investment perspective, investors
liked the idea that the GOEFs offered
a low risk - smoothed return with
an inflation hedge. This story has
become ground into the mentality
of investors over this long period of
time. In addition, the stranglehold of
German banks distribution network
continues to see inflows despite the
fact that up-front fees can reach up
to 6% for retail investors, who are
estimated to make up around 70%
of the market. Institutions pay less
in terms of fees.
The keys issues related to GOEF
were:
• German investment regulation
means that investment consultants
are not independent as in the UK
for example – subsequently many
are driven by profit from offering
GOEFs;
• Distribution network is too strong
and the GOEF investment ‘pitch’
is ‘hardwired’ into mentality of
investors;
• Valuations of the GOEFs are sub-
ject to much criticism;
• Shareholders in GOEFs are not
critical enough of governance.
• Limited opportunities to convert
GOEF’s into G-REITs – perhaps
break large GOEF’s into smaller,
more focused, REITs?;
• REIT legislation must be adapted
to be simpler and more pragmatic
– borrow the best parts from other
regimes and don’t set limitations
in terms of sector investment;
• Growth in size of current REITs
and new REIT creation;
• Perhaps there is no better time
than now to attack the market
share of GOEFs;
• Growth could be slow through
historical dominance of GOEFs;
• Only 3.5% of Germans own
equities – requires a change in
mindset.
The GOEF story has been
ground into the mentality
of German investors over
a long period of time,
despite the fact that up-front
fees can reach up to 6%
for retail investors.
Contents Page
10. EPRA NEWS / 37 / 2010
Member offerAsiaProperty is a monthly real estate magazine covering
the whole Asia Pacific region and focusing on the cross-
border investment market.
Each issue offers unrivalled depth of market coverage
via news, comment, analysis, company profiles and data.
AsiaProperty is pleased to offer a 10% discount on
subscriptions to EPRA members, with further discounts
available for multiple copy subscriptions.
For more details, contact:
or go to:
www.asiapropertypublishing.com
05.2010
NEWS
Government measures to cool
Chinese housing market are
set to shave 20% off prices
aNalySiS
Domestic investors regain the
upper hand as opportunity
funds sell out of hotels market
profilE
An outline of the leading
players in the growing Asian
property fund of funds sector
SurvEy: fiNaNcE
Domestic banks held their
ground as the debt crisis hit
foreign property lenders
rESEarch
Key data on Asia’s
occupational, non-listed
and listed property markets
19
25
Swire blames “deterioration of market conditions”as
it abandons $3bn flotation plan for property spin-off
Question mark over
wave of f lotations
as Swire aborts IPO
The abandonment of Swire
Properties’ initial public offering
has cast doubts over whether the
flurry of flotations predicted for
this year will happen.
Hong Kong’s Swire Group had
planned to raise up to $3.09bn
from the demerger of its property
arm and the listing of a 14%
stake. The move would have
allowed Swire Properties, less
international than its peers, to
re-focus on mainland Chinese
developments.
The developer originally
sought to sell 910m new shares,
or 13.79% of its enlarged share
capital, in a HK$20.75-HK$22.90
range, to raise up to $2.80bn. It
also had the option to raise the
deal size by 15% to raise a
maximum of $3.09bn.
In a statement, Swire said:
“In the light of the deterioration
in market conditions since
publication of the prospectus on
3rd May 2010, Swire Properties
has formed the view that it
would be inadvisable to proceed.”
Chairman Christopher Pratt
said: “The company is naturally
disappointed at this outcome
but feels that it would be wrong
to proceed with the proposed
spin-off. Consideration was
given to amending the terms of
the offering, but it was felt that
this would undervalue the
world-class assets of Swire
Properties and be against the
interests of shareholders.”
Market opinion was divided on
why the flotation failed. Some
argued that investors were not
attracted to the pricing, which
reflected a 5-14% discount to net
asset value, compared with up to
30% discounts for its peers.
However, worries over
property bubbles in mainland
China and Hong Kong have sent
listed property stocks down
nearly 10% in the past two weeks.
Additionally, global investor
uncertainty over Europe’s
sovereign debt problems
and delays over UK insurer
Prudential’s rights issue, to fund
a bid for AIA, have been blamed
for the recent cancellation of a
number of IPOs.
But others reckon 2010 will
still be a vintage year for Asia
Pacific real estate flotations.
HSBC, joint bookrunner on
the Swire Properties flotation,
is understood to be working on
six property IPOs, mainly in
Singapore, where DLF is set to
float DLF Assets Limited for
$1.2bn later this year.
ARA asset management and
CWT raised $417.3m for their
Cache Logistics Trust last month
and the S-REIT was trading
above the offer price last week.
Investment bankers say IPOs
for a number of large Japanese
real estate portfolios are being
considered, while Australia’s
REITs are ready to expand
again after 18 months of
retrenchment, consolidation
and balance-sheet clearing.
Despite a number of high-
profile disasters from overseas
expansion, a number of A-REITs
and managers are looking to
boost their overseas presence,
with Asia a target.
14
8
2
eprA memBers10% oFF
EPRA NEWS / 37 / 2010 11.
fEAtuREs
The European economy is still
fragile: the risk of sovereign default
has not yet been entirely ruled out
by the financial markets with public
debts at record levels. The return of
fear of sovereign default would have
dramatic consequences for banks
and for a sector such as real estate
which remains highly dependent on
external financing. Beyond these
short-term concerns, Europe could
be faced with several decades of
weak economic growth as a result
of the on-going deleveraging of
the economy combined with poor
demographic trends.
Forecasts from the United
Nations suggest that, over the next
40 years, the population of Europe
will shrink by 6%.
However, while the author of this
article shares some concerns on the
valuation of European real estate,
he also believes that a number of
factors remain extremely supportive
to the sector for the next few quar-
ters. The revival of the Golden Age
experienced since the beginning of
2009 could therefore continue for
longer than expected.
On July 21, 2010, Unibail-Rodamco
announced that it would carry out
a capital reimbursement of EUR 1.8
billion to its shareholders increasing
its gearing from a 31% loan-to-value
ratio to 40%. The decision of one of
the sector leaders, whose manage-
ment team has been relatively
successful at timing past real estate
cycles, to gear up its balance sheet
could be seen as a sign of cautious
optimism for the future.
The revival of the Golden Age
is not a sign that real estate is back
to the environment that prevailed
prior to the financial crisis. On the
contrary, the years of always-rising
property values magnified by high
leverage are likely to be over for
some time. But current times present
a unique opportunity for real estate
companies to make adjustments
to their strategies under relatively
favourable conditions. This is a per-
fect time for real estate companies
to refocus on their core skills and
rethink their strategic positioning.
Real estate strategy will be the key
driver of performance for the next
decade, rather than the reliance on
gearing and financial engineering.
The silver lining in this environment: very low real bond yieldsA slow economy has some negative
effects on the property sector such
as falling tenant demand for new
space. However, a slow economy is
also usually associated with lower
real bond yields, which will often
more than offset the negative effect
of slower tenant demand on prop-
erty valuation. Indeed, cash-flows
from real estate assets offer bond-
like characteristics (being largely
secured by long leases) and falling
bond yields provide therefore a
major boost on property values.
Since November 2008, real UK
bond yields have fallen from 2.8%
to a historical low of only 0.5%, the
lowest in at least 20 years, which
largely explains the substantial
rebound in property valuations
we have seen since the beginning
of 2009. As seen on figure 1, lower
real bond yields tend historically to
lead to lower property yields and
therefore higher property values.
europeAn reAl estAte: the reViVAl oF the golden AgeThe EPRA Europe Real Estate Index has almost doubled
since the end of the first quarter of 2009. There are
reasons to believe that European real estate could
soon be due for another correction, but for now the
environment of exceptionally low real interest rates has
created the conditions for a rebound in property prices.
>
Contents Page
12. EPRA NEWS / 37 / 2010
We believe that there is a signifi-
cant risk that real bond yields will
eventually increase, putting nega-
tive pressure on property values.
However, at this stage, we would
highlight that property yields remain
low compared to real bond yields.
On figure 2, we have measured the
spread between property equivalent
yields and real bond yields since
1987. The spread amounts currently
to 7%, which remains high relative
to historical levels. The spread
has often remained between 5%
and 6% since 1987, although it fell
significantly below 5% during the
property bubble of the late 1980’s
and of 2005-2007.
This implies that the property
market is already pricing in a sig-
nificant increase in bond yields.
Property yields may still even be too
high if bond yields were to remain at
their current levels for the medium
term.
Note on figure 1 and 2: in our
view, property yields are more com-
parable to real (or inflation-linked)
bond yields rather than nominal
bond yields. Real estate provides a
long-term inflation hedge and prop-
erty yields are therefore, to some
extent, inflation-linked. Indeed, a
comparison between property yields
and nominal bond yields would only
show a limited correlation.
Access to financing is starting a slow recoveryDespite a higher reliance on equity,
debt remains an important compo-
nent of property financing. Beyond
the level of bond yields, the avail-
ability of financing (or the lack of)
remains therefore an important
component of the strength of prop-
erty markets. While the availability
of credit is likely to remain low over
the next few years, we note that the
situation is not as bad as it used
to be.
According to the credit conditions
survey of the Bank of England, since
Q4 2009 a slight majority of lenders
responded that the availability pro-
vided to the commercial real estate
sector has improved. Anecdotal
evidence also suggests areas of
improvement in Continental Europe.
For example, on September 10, 2010,
Gecina completed a EUR 500 million
four-year bond issue suggesting that
the bond market is opening up again
to real estate companies.
Pockets of scarcity have emerged in some markets Even when looking at the funda-
mentals of the rental market, there
is a silver lining. A positive side
effect of the low availability of credit
since the middle of 2007 is that
new development starts have been
scarcer, at least since 2008 and until
now. Logically, development comple-
tions are likely to be significantly
lower over 2011 and 2012, taking
into account the time of develop-
ment. Certain submarkets, such as
offices in Central London or in the
Central Business District of Paris,
are experiencing a shortage of space
putting upwards pressure on rents
even though new demand remains
relatively subdued.
Over the first half of 2010, prime
headline office rents rebounded by
13% in London West End (to GBP
915/sqm or GBP 85/sqft according to
Jones Lang LaSalle) and by 10% in
Certain submarkets,
such as offices in Central
London or in the Central
Business District of Paris,
are experiencing a shortage
of space putting upwards
pressure on rents even
though new demand remains
relatively subdued.
12%
10%
8%
6%
4%
2%
0%
■ Real UK 10-year bond yield ■ UK IPD all property equivalent yield
Jan-
1987
Dec
-1987
Nov
-1988
Oct
-1989
Sep-
1990
Aug
-1991
Jul-1
992
Jun-
1993
May
-1994
Apr
-1995
Mar
-1996
Feb-
1997
Jan-
1998
Dec
-1998
Nov
-1999
Oct
-2000
Sep-
2001
Aug
-2001
Jul-2
003
Jun-
2004
May
-200
5A
pr-2
006
Mar
-2007
Feb-
2008
Jan-
2009
Dec
-2009
■ Spread between all property equivalent yield and real 10-year bond yield
Jan-
1987
Nov
-1987
Sep-
1988
Jul-1
989
May
-1990
Mar
-1991
Jan-
1992
Nov
-1992
Sep-
1993
Jul-1
994
May
-1995
Mar
-1996
Jan-
1997
Nov
-1997
Sep-
1998
Jul-1
999
May
-2000
Mar
-2001
Jan-
2002
Nov
-2002
Sep-
2003
Jul-2
004
May
-200
5M
ar-2
006
Jan-
2007
Nov
-2007
Sep-
2008
Jul-2
009
May
-2010
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jun
07
Spe
07
Dec
07
Mar
08
Jun
08
Sep
08
Dec
08
Mar
09
Jun
09
Sep
09
Dec
09
Mar
10
Jun
10
Sep
10
100
80
60
40
20
0
(20)
(40)
(60)
(80)
(100)
(net
% b
alan
ces)
Availability Improving
Availability Deteriorating
Figure 1: UK equivalent yield compared with real ten-year bond yield
Source: Menkaura, Bank of England, IPD
12%
10%
8%
6%
4%
2%
0%
■ Real UK 10-year bond yield ■ UK IPD all property equivalent yield
Jan-
1987
Dec
-1987
Nov
-1988
Oct
-1989
Sep-
1990
Aug
-1991
Jul-1
992
Jun-
1993
May
-1994
Apr
-1995
Mar
-1996
Feb-
1997
Jan-
1998
Dec
-1998
Nov
-1999
Oct
-2000
Sep-
2001
Aug
-2001
Jul-2
003
Jun-
2004
May
-200
5A
pr-2
006
Mar
-2007
Feb-
2008
Jan-
2009
Dec
-2009
■ Spread between all property equivalent yield and real 10-year bond yield
Jan-
1987
Nov
-1987
Sep-
1988
Jul-1
989
May
-1990
Mar
-1991
Jan-
1992
Nov
-1992
Sep-
1993
Jul-1
994
May
-1995
Mar
-1996
Jan-
1997
Nov
-1997
Sep-
1998
Jul-1
999
May
-2000
Mar
-2001
Jan-
2002
Nov
-2002
Sep-
2003
Jul-2
004
May
-200
5M
ar-2
006
Jan-
2007
Nov
-2007
Sep-
2008
Jul-2
009
May
-2010
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jun
07
Spe
07
Dec
07
Mar
08
Jun
08
Sep
08
Dec
08
Mar
09
Jun
09
Sep
09
Dec
09
Mar
10
Jun
10
Sep
10
100
80
60
40
20
0
(20)
(40)
(60)
(80)
(100)
(net
% b
alan
ces)
Availability Improving
Availability Deteriorating
Figure 2: UK spread between equivalent yield and real ten-year bond yield
Source: Menkaura, Bank of England, IPD
EPRA NEWS / 37 / 2010 13.
Paris (to EUR 733/sqm according to
CBRE). In 2011, we estimate that new
office completions will reach only
1.4% of existing stock in Paris and
0.7% in London, one of the lowest
levels of annual completions since
the 1980’s.
Conclusions: having the right strategy is easier than having the right forecast The current economic environment
of exceptionally low interest rates
has created the conditions for a sub-
stantial rebound in property prices.
Some factors remain supportive to
the rebound for some more time, but
the long-term outlook remains par-
ticularly unclear. In these uncertain
times, real estate managers should
remember the Serenity Prayer (by
the theologian Reinhold Niebuhr):
“God, grant me the serenity / To
accept the things I cannot change /
Courage to change the things I can
/ And wisdom to know the differ-
ence.”
Whether interest rates stay low or
start to increase substantially is
beyond our individual control. Real
estate managers should therefore
focus on their strategy, on finding
the right projects and the right niche
that will generate attractive returns
even if property prices come under
downwards pressure again. For ex-
ample, there are still opportunities in
Europe to focus on supply-restricted
markets, to invest in green buildings
developments or in restructuring
projects.
European REITs also benefit from
one of the most modern fiscal status
in the world. This continues to offer
opportunities to acquire properties
from corporates, which cannot
operate their real estate portfolio in
the same tax-efficient way. While
financial engineering remains an im-
portant element of managing a real
estate company, the management of
property needs to be put back to the
centre.
It is worth noting that the Seren-
ity Prayer was subsequently adopted
by Alcoholics Anonymous. In a way,
like recovering alcoholics, we need
regular reminders of the importance
of rethinking real estate strat-
egy, focus on our areas of expertise,
without the addiction of leverage to
magnify returns.
Rémi Antonini Managing Partner
of Menkaura
Menkaura is an independent merg-ers & acquisitions advisory firm focusing on the European real estate sector. Previously, Antonini worked as an investment research
analyst heading the Pan-European real estate research team at Goldman Sachs and most recently at Exane BNP Paribas where he was a Partner. He was named best sell-side analyst for European real estate in the 2008 Thomson Extel survey and won the 2007 Trophée des SIIC for best analyst on French real estate. Antonini started his career working for Zurich Financial Services and Ernst & Young France. He is a CFA [email protected]
European REITs benefit from a most
modern fiscal status, which continues
to offer opportunities to acquire
properties from corporates that
cannot operate their real estate
portfolio in the same tax-efficient way.
12%
10%
8%
6%
4%
2%
0%
■ Real UK 10-year bond yield ■ UK IPD all property equivalent yield
Jan-
1987
Dec
-1987
Nov
-1988
Oct
-1989
Sep-
1990
Aug
-1991
Jul-1
992
Jun-
1993
May
-1994
Apr
-1995
Mar
-1996
Feb-
1997
Jan-
1998
Dec
-1998
Nov
-1999
Oct
-2000
Sep-
2001
Aug
-2001
Jul-2
003
Jun-
2004
May
-200
5A
pr-2
006
Mar
-2007
Feb-
2008
Jan-
2009
Dec
-2009
■ Spread between all property equivalent yield and real 10-year bond yield
Jan-
1987
Nov
-1987
Sep-
1988
Jul-1
989
May
-1990
Mar
-1991
Jan-
1992
Nov
-1992
Sep-
1993
Jul-1
994
May
-1995
Mar
-1996
Jan-
1997
Nov
-1997
Sep-
1998
Jul-1
999
May
-2000
Mar
-2001
Jan-
2002
Nov
-2002
Sep-
2003
Jul-2
004
May
-200
5M
ar-2
006
Jan-
2007
Nov
-2007
Sep-
2008
Jul-2
009
May
-2010
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jun
07
Spe
07
Dec
07
Mar
08
Jun
08
Sep
08
Dec
08
Mar
09
Jun
09
Sep
09
Dec
09
Mar
10
Jun
10
Sep
10
100
80
60
40
20
0
(20)
(40)
(60)
(80)
(100)
(net
% b
alan
ces)
Availability Improving
Availability Deteriorating
Figure 3: Bank of England credit conditions survey: availability of credit provided to the commercial real estate sector
Source: Menkaura, Bank of England. Note: net percentage balances are calculated by weighting together the responses of those lenders who answered the question by their market shares.
Contents Page
14. EPRA NEWS / 37 / 2010
We believe that the
events of the past two-
and-a-half years have
resulted in institutional
investors re-evaluating the
composition of their real
estate allocation.
Increasingly over recent months we
hear the debate among investors
regarding the opportunities of com-
bining and managing the various
capital structures and investment
products which have real estate as
their underlying component. In this
introductory article, which is the
first of a series, we focus on:
1) The reasons and background for
the interest.
2) New real estate product launches.
3) The relative investment universes.
4) Valuation approaches and
strategies.
1) The reasons for the interestWe believe this is a direct result of
the following factors:
Convergence of returns has led to a reassessment of risk factors across investment productsThe convergence of (negative)
returns across asset classes which
characterised the two year period
from 2007 to 2009 has ended, and
we are now seeing a sharper
divergence of risk-adjusted returns
between asset classes as global
economic recovery continues. This
can be illustrated quantitatively
(Chart 1 over the page) by looking
at the number of factors driving
global equity markets over time, i.e.
market dimensionality. From 1992 to
2007 this was between 60 and 100,
which accounted for divergence of
performance between sectors. In
2008-2009 this shrunk to only 20,
but has since doubled.
Put simply, when all asset classes
are driven by a small number of
factors, then correlations increase,
and assumptions regarding historic
correlations and diversification ben-
efits are re-assessed. One of the
assumptions most severely tested
is the perceived lack of volatility
in direct and unlisted real estate
vehicles. As highlighted elsewhere
in this magazine, valuation meth-
odologies used by these forms of
real estate investment significantly
underestimate volatility1.
Increased importance of liquidity in investment strategies/productsSecondly, one of the key lessons of
the last three years has been the
importance of liquidity within all
investment products. As a result, we
are aware that a number of manag-
ers of unlisted funds have been
examining the listed sector to inves-
tigate if these vehicles could provide
a level of liquidity which unlisted
listed And direCt reAl estAte – A CompAtiBle mix
fEAtuREs
EPRA NEWS / 37 / 2010 15.
vehicles do not offer, particularly
during periods of increased redemp-
tion requirements in their vehicles.
The debacle in the German Open
Ended Fund market highlighted this
issue and frustrated, and continues
to frustrate, both retail and institu-
tional investors. New legislation
by the German government further
exacerbates the issue.
Timing advantages of the listed sector has become apparentThirdly, on one hand, the speed
of the recovery caught all market
participants by surprise. The ex-
pected gap between redemptions
slowing, cash becoming available
for investment and forced sellers
providing attractive opportunities
for re-investment did not material-
ise. On the other hand, the listed
sector, however, provided investors
with a liquid and effective way to
participate in the anticipated re-
covery ahead of the eventual yield
compression, which was not avail-
able in unlisted vehicles.
Investor demandFourthly, while inflows to direct
property funds have increased
dramatically in 2010, the inflows to
the listed securities funds have been
nowhere near as marked this year2.
Marketing and product development
departments are therefore examin-
ing, with urgency, how to capture
the retail market’s enthusiasm
for the underlying asset class in a
product which can provide accept-
able levels of liquidity and risk-
adjusted returns.
With a general assumption that
both inflation and long-term interest
rates are likely to remain low for
the foreseeable future, demand for
assets with secure income streams
has increased dramatically. The
yields offered by both listed and
unlisted vehicles are very attractive
compared against treasury stock.
A significant factor in investor
demand is the growth of DC pen-
sion schemes; these schemes are
the future of pension provision and
given the choices investors have
(and the speed with which they
can move) there is a necessity to
have daily liquidity in DC pension
options – meaning the real estate
pension option on platforms needs
to be liquid.
The emergence of debt as an investment optionThe fifth point is there has been
increased attention on the ‘other’
way of participating in real estate
– debt. There is both a listed and
unlisted market in debt secured
against identifiable high quality as-
sets, and a number of participants
have enhanced returns by trading
in debt products. For example, there
is a healthy market for bonds of
the listed companies in the FTSE
EPRA/NAREIT Europe Index. We
calculate a USD 35 billion market
comprising approximately 150
separate issues, the largest being
Unibail-Rodamco’s EUR 1.8 billion
50-year convertible bond3.
Eliminating stocks and asset-specific riskPen-ultimately, the growth of the
ETF4 and property derivatives
market over the past five years has
increased the investment opportuni-
ties available, allowing investors
to gain exposure to the listed and
direct market while excluding stock
specific and timing issues. We be-
lieve that in particular a number of
smaller and medium size investors
are looking for these instruments to
form the ‘core’ element of a core and
satellite approach. Many mandates
already include the option to invest
in listed but it is not widely used.
Finally, as an example, we show
below the investment objectives of
a leading UK direct property fund.
“To maximise long-term
total return through investment
mainly in commercial property. To
invest primarily in a diversified
portfolio of commercial property,
seeking to add value through stra-
tegic asset selection, stock selec-
tion and asset management. The
fund may also invest in other
property-related assets, including
collective investment schemes,
securities, derivatives and debt
instruments, as well as government
debt, money market instruments
and cash.”
Unlisted funds have been
examining the listed sector
to investigate if these
vehicles could provide a
level of liquidity which
unlisted vehicles do not offer,
particularly during periods
of increased redemption
requirements in their vehicles.
■ Non-REIT ■ REIT No of Companies
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
120
100
80
60
40
20
0
Market Dimensionality - Number of thematics driving global equity markets
Equity markets driven by fewer thematics/factors OR
400
350
300
250
200
150
100
50
0
Mkt
Cap
£bn
500
400
300
200
100
0
No.
of C
ompa
nies
EuropeEmerging
AmericasEmerging
OceaniaDeveloped
Middle East& AfricaEmerging
AsiaEmerging
EuropeDeveloped
AmericasDeveloped
AsiaDeveloped
Asia NorthAmerica
Europe Australia Africa UK LatinAmerica
MiddleEast
Global
600
500
400
300
200
100
0
Mkt
Cap
£bn
1000
900
800
700
600
500
400
300
200
100
0
No.
of C
ompa
nies
■ Unlisted Market (£bn) Unlisted Market - No of Companies■ Listed Market (£bn) Listed Market - No of Companies
Chart 1: Market Dimensionality - Number of thematics driving global equity markets
Source: Macquarie European Quantative Research
>
Contents Page
16. EPRA NEWS / 37 / 2010
We believe that relatively few
institutions who have the option to
invest in listed real estate in these
structures, or Fund of Property Fund
structures do so actively.
On the other hand, the Thames
River Property Growth & Income
Trust5, managed by Chris Turner and
Marcus Phayre-Mudge is a prime
example of good use of this strategy.
The fund’s benchmark is 50% IPD
UK and 50% FTSE EPRA Europe
Ex-UK (a direct/listed mix). Currently
the fund is skewed towards Europe
Ex-UK (listed) given the managers
view on the market. Thames River
utilise direct property skills in its
local market - the UK, while opting
to tap into the management skills
and underlying real estate of the
listed companies outside of their
home market.
In addition, the TR Property
Investment Trust has successfully
managed a direct and listed Euro-
pean real estate portfolio since 1995
with a long-term allocation to direct
real estate has ranged between
10-35%.
Going forward, the issue the
industry faces is to draw together
the investment departments of the
direct and listed markets. In many
cases around the globe, these are
separate units and in some cases
completely disconnected! We accept
that there is the need for far more
investor education on the subject,
but believe that investor demand
will accelerate this process.
2) New Product launchesWe show below examples of new
product launches which have sought
to capture some of the themes out-
lined above.
Debt fundsThere are broadly two different
ways that funds seek to participate
in this area: origination and trad-
ing in the secondary market. On
the latter strategy, either by trading
in the existing bonds issued by
listed real estate companies or trad-
ing the private debt secured against
real estate, it is argued that inves-
tors can, at current pricing, gain
equity-style returns taking debt-type
low risks.
On the origination side, by either
offering to bridge the current gap
caused by the decline in LTVs for
senior debt provision with new
debt finance or by the origination of
new senior debt itself, investors
can gain an attractive risk return
trade-off. This complements existing
real estate holdings and is driven
by the values of the underlying
real estate.
This form of, effectively,
mezzanine has been targeted
by M&G, Duet and Pramerica. As
an example, Pramerica secured
GBP 150 million from a
number of investors includ-
ing APG, to invest in directly
originated real estate mezzanine
finance and debt-like preferred
equity opportunities.
Derivatives FundsFollowing the success of their Ice-
berg funds where Reech AIM have
combined property derivatives with
REITs, and the product range is being
expanded, there comes the launch
of a new property derivatives fund.
The InProp Fund will offer returns
linked to the IPD Index through the
use of swaps and futures contracts.
Seeding investors are reported to
be Scottish Widows, PRUPIM who
are pioneering users of the property
derivatives market, and the Skandia
Property Fund, advised by ING
Real estate.
Four Quadrants strategyThis model effectively divides real
estate investment into the classic
four quadrants:
• Public Equity (REITs, Property
Companies)
• Public Debt (CMBS, RMBS)
• Private Equity (JVs, Private equity
funds, and direct investment) and,
• Private Debt (Commercial loans
originated by banks).
Hermes Real Estate are the latest
fund manager to announce that they
will be implementing this strategy
and have been investors in debt and
public equity as well as the more
traditional private equity on behalf
of their client funds. In addition to
the four quadrants, derivatives can
be overlaid onto this strategy
Liquid Property ReplicationPacific Real Estate Capital are the lat-
est firm to develop a vehicle which
will invest across capital structures
■ Non-REIT ■ REIT No of Companies
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
120
100
80
60
40
20
0
Market Dimensionality - Number of thematics driving global equity markets
Equity markets driven by fewer thematics/factors OR
400
350
300
250
200
150
100
50
0
Mkt
Cap
£bn
500
400
300
200
100
0
No.
of C
ompa
nies
EuropeEmerging
AmericasEmerging
OceaniaDeveloped
Middle East& AfricaEmerging
AsiaEmerging
EuropeDeveloped
AmericasDeveloped
AsiaDeveloped
Asia NorthAmerica
Europe Australia Africa UK LatinAmerica
MiddleEast
Global
600
500
400
300
200
100
0
Mkt
Cap
£bn
1000
900
800
700
600
500
400
300
200
100
0
No.
of C
ompa
nies
■ Unlisted Market (£bn) Unlisted Market - No of Companies■ Listed Market (£bn) Listed Market - No of Companies
Chart 2: Analysis of the global property securities market by regions
Source : Bloomberg, Macquarie Research, October 2010
The issue the industry faces
is to draw together the
investment departments of
the direct and listed markets.
Global income-oriented property
Distribution Yield
2% 3% 4% 5% 6% 7% 8%
30%
20%
10%
0
-10%
-20%
-30%
Prem
ium
(di
scou
nt)
to N
AV
Storage
Apartments
Diversified
Shopping CentreCBD Office
Regional MallSurburban Office
Industrial
Bubble Size = Relative Market CapitalizationSmall Black Circle = Market Cap Weighted Average
Direct Property Markets
1 2 3 4 5 6 7 8 9 10
Global Property Barometer - Listed vs Direct20
16
12
8
4
0
-4
-8
-12
-16
-20
Prop
erty
Equ
ities
- U
psid
e to
TP
UN
DE
RV
ALU
ED
OV
ER
VA
LUE
D
IMPROVINGDECLINING
DecreasedExposure
IncreasedExposure
EPRA NEWS / 37 / 2010 17.
within real estate. The fund is called
the Liquid Property Fund and will
invest in REITs, CMBS and RMBS,
and direct property derivatives, on
a global basis. They aim to invest
tactically, allocating capital into liq-
uid real estate instruments without
attracting the same levels of fees,
charges and taxation leakages as
holding a direct property or a fund
of funds portfolio.
The manager states, “Having
worked closely with chief invest-
ment officers and trustees of many
pension plans, it has become
increasingly evident that there is
significant frustration with the poor
performance of many direct property
investment vehicles, the high cost of
buying and selling direct real estate,
the lack of liquidity in most funds
and the lack of real diversification.
Indeed the complaint from property
investors was they had to pay active
management fees for strategies that
were little more than buy / hold.
Issues were compounded when
some of the open-ended balanced
funds were closed to redemptions or
suspended trading in units, forcing
investors to endure illiquidity traps.”
3) Relative investment universesOne of the fundamental issues to
understand is the relative size and
structure of the listed and unlisted
markets. In terms of the listed mar-
ket, we have used the Macquarie
Global Property securities Analytics
database, which encompasses all
listed real estate companies globally.
As at the end of September 2010 this
comprises 1987 companies in 66
countries with a combined gross
market capitalisation of GBP 1,098
billion. The regional breakdown is
shown on Chart 2.
Having identified the invest-
ment universe the next stage
is to establish the relative size
and importance of the listed
real estate sector compared to
the domestic direct property
market and equity market.
Using EPRA statistics, we can
see that globally the listed sector
equates to 5% of the global direct
market, and 2.7% of the global
equity market.
Finally we need to examine the
investment opportunity set of the
listed sector vs. the unlisted sector.
For the unlisted universe we have
taken data from Property Funds
Research. As can be seen in Chart
4 the major differences are the
relative importance of listed in Asia,
unlisted in Europe, and the number
of dedicated global unlisted funds. It
should be noted that in this simplis-
tic representation, the scale of the
listed universe is under-represented
as we have taken market capitalisa-
tion rather than gross asset value of
the unlisted sector.
4) Relative valuations As can be seen in Figure 1, the US
(Ex-Industrial) remains the region
with the lowest dividend yield and
currently trade at the most signifi-
cant premium to analyst estimates
of NAV. Conversely, J-REITs and
Australian LPTs currently offer much
higher yields plus discount to NAV
in the range 0-10%. South Africa is
the highest yielding market, trading
at approximately 15% premium to
analyst estimates of NAV.
One of the key areas to address
in combining listed and unlisted
is to correctly assess where the
listed sector is trading relative to
the trend of the underlying direct
property market. We have therefore
attempted to produce another
global snapshot, this time reflect-
ing the momentum (Figure 2.), of
property values, and compar-
■ Non-REIT ■ REIT No of Companies
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
120
100
80
60
40
20
0
Market Dimensionality - Number of thematics driving global equity markets
Equity markets driven by fewer thematics/factors OR
400
350
300
250
200
150
100
50
0
Mkt
Cap
£bn
500
400
300
200
100
0
No.
of C
ompa
nies
EuropeEmerging
AmericasEmerging
OceaniaDeveloped
Middle East& AfricaEmerging
AsiaEmerging
EuropeDeveloped
AmericasDeveloped
AsiaDeveloped
Asia NorthAmerica
Europe Australia Africa UK LatinAmerica
MiddleEast
Global
600
500
400
300
200
100
0
Mkt
Cap
£bn
1000
900
800
700
600
500
400
300
200
100
0
No.
of C
ompa
nies
■ Unlisted Market (£bn) Unlisted Market - No of Companies■ Listed Market (£bn) Listed Market - No of Companies
Chart 4: Listed vs. Unlisted companies in leading locations
Source : Property Funds Research, Bloomberg, Macquarie Research, October 2010
Global income-oriented property
Distribution Yield
2% 3% 4% 5% 6% 7% 8%
30%
20%
10%
0
-10%
-20%
-30%
Prem
ium
(di
scou
nt)
to N
AV
Storage
Apartments
Diversified
Shopping CentreCBD Office
Regional MallSurburban Office
Industrial
Bubble Size = Relative Market CapitalizationSmall Black Circle = Market Cap Weighted Average
Direct Property Markets
1 2 3 4 5 6 7 8 9 10
Global Property Barometer - Listed vs Direct20
16
12
8
4
0
-4
-8
-12
-16
-20
Prop
erty
Equ
ities
- U
psid
e to
TP
UN
DE
RV
ALU
ED
OV
ER
VA
LUE
D
IMPROVINGDECLINING
DecreasedExposure
IncreasedExposure
Fig 1 - Global discount to NAV (%) dividend yields (%) – leading countries
Source: Bloomberg, Macquarie Research, October 2010. As of September 30, 2010.
>
Contents Page
18. EPRA NEWS / 37 / 2010
Global income-oriented property
Distribution Yield
2% 3% 4% 5% 6% 7% 8%
30%
20%
10%
0
-10%
-20%
-30%
Prem
ium
(di
scou
nt)
to N
AV
Storage
Apartments
Diversified
Shopping CentreCBD Office
Regional MallSurburban Office
Industrial
Bubble Size = Relative Market CapitalizationSmall Black Circle = Market Cap Weighted Average
Direct Property Markets
1 2 3 4 5 6 7 8 9 10
Global Property Barometer - Listed vs Direct20
16
12
8
4
0
-4
-8
-12
-16
-20
Prop
erty
Equ
ities
- U
psid
e to
TP
UN
DE
RV
ALU
ED
OV
ER
VA
LUE
D
IMPROVINGDECLINING
DecreasedExposure
IncreasedExposure
Fig 2 - Global property Barometer - Listed vs Direct
Source: Macquarie Research, October 2010
ing this with the upside/downside
to our target prices for the stocks
covered in that region. The top-right
quadrant shows regions where the
property market is improving and
there is most upside to a target
price and the bottom-left quadrant
showing where the fundamentals
are declining and there is believed
to be downside from current prices.
5) CorrelationsResearch carried out by EPRA/
Cohen & Steers highlights the lead-
lag, relationship between the direct
and the listed market. While listed
remains a proxy for direct real estate
investment over the medium to
long term, the listed market offers a
directional indication of underlying
real estate values6. The conclusion
of that report was:
• Listed property companies tend to
lead the returns of direct real es-
tate by approximately six months.
Interestingly, the lag has decreased
to around three months for the US
and UK market since 2007;
• While the listed performance
is directionally accurate, the
returns tend to overstate the even-
tual reported direct market moves;
• The propensity of listed markets
to lead the direct markets may be
related to the inefficient transfer of
information in direct markets;
• The stronger the factors that delay
information transfer in direct mar-
kets, the longer the gap between
the markets’ return series.
ConclusionsIn summary, we believe that the
trend towards combining different
financial instruments which have
exposure to real estate is likely to
continue, and could well enlarge
the universe of potential buyers of
both listed and unlisted vehicles.
We believe that understanding
the relationship between the two
markets has useful and important
implications for investors – even if
an investor is only investing in, for
example, solely public or private
equity real estate they need to be
aware of the pricing of other parts
of the market. For example, by using
listed property returns as a leading
indicator of direct real estate per-
formance, investors can meaning-
fully improve their asset allocation
decision-making process.
Specifically we believe that there
are the following uses of listed real
exposure within an existing unlisted
fund structure:
• Exposure should be more tactical
than strategic, given the differenc-
es in valuation and methodologies
in calculating risk and lack of pure
sector exposure in most REITs;
• The ability to enhance income
returns of a portfolio immediately
via quarterly dividend payments
from listed REITs;
• The ability to access geared sector
exposure ahead of a recovery in
values;
• The ability to acquire assets at
various stages in the cycle at be-
low market value;
• Overall, we believe that if used
properly there will be an improve-
ment in risk adjusted returns and
liquidity by adding listed exposure
to direct or unlisted exposure.
1 See IPE Real Estate Magazine – Edition - July 2010. Article by Fraser Hughes 2 2009 saw considerable inflows into regional and global listed funds. In addition, the constituents of the FTSE EPRA/NAREIT Global Real Estate Index raised over USD 60 billion in 2009. 3 For a full list of FTSE EPRA/NAREIT Europe Index constituent bonds see the latest EPRA monthly statistical bulletin – page 61. 4 There are ten separate liquid ETF Funds on the regional breakdowns and Global. Full list and information available from www.epra.com 5 See http://www.trproperty.com for more information on strategy, investment and performance. 6 See EPRA/Cohen & Steers Report – July 2010. Available from www.epra.com.
Alex MossHead of Macquarie Global Property
Securities Analytics and Head of
European Property Research
Fraser HughesDirector at the European Public
Real Estate Association (EPRA)
based in Brussels, Belgium
EPRA NEWS / 37 / 2010 19.
sAVe the dAte EPRA Annual Conference
London, September 01-02, 2011
Contact Dominic Turnbull if you would like to hear about
sponsorship opportunities or to receive background
information on the [email protected]
The main event of the year for European listed real estate.
Headline Sponsors
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Contents Page
20. EPRA NEWS / 37 / 2010
It is now widely accepted
that for investors,
REITs represent a
liquid, transparent and
professionally managed
asset class which allows
for diversified exposure
to real estate returns over
the medium to long-term
and high cash dividends.
But perhaps less often
considered in Europe, are
the collective benefits that
the growth of REITs and
the listed property sector
can deliver as a whole.
One of the key features of REITs is to
prevent double taxation for investors
(at the corporate and shareholder
level). Of course, for governments
considering the introduction of a
REIT regime, the resulting reduction
in regular corporation tax receipts
can be a concern, especially at a
time when government finances
are under strain. So why would any
government decide to establish a
REIT regime? The pursuit of general
interest does not explain it all and
an often overlooked fact is that
REITs trigger significant and reliable
tax revenues for governments.
REITs generally include some
form of obligatory distribution
requirement. This justifies the tax
transparency of the entity: the tax
revenue that isn’t generated at
corporation level is paid by the
shareholders, collected by the REIT
in the form of withholding tax. The
distribution requirement therefore
provides a regular source of tax
revenue to governments, even dur-
ing economic downturns (when
corporation tax receipts are lower or
negligible). Furthermore, because of
the tax transparency benefits granted
to REITs, these regimes often have
additional legislation in place to re-
duce the possibilities for companies
and shareholders to access reduced
withholding tax rates, thus further en-
hancing the tax take for government.
The introduction of a tax-
transparent structure leads to the
creation of a more efficient and
transparent market, notably due to
the reduced influence of taxes on
decision-making by management
and higher market liquidity at both
the property and the shareholder
level. This generates a substantial
level of corporate and underlying
market activity at the outset, as the
various existing structures convert
into REITs, as well as a more liquid
market resulting from the growth
of the listed real estate sector.
As a result, the tax take from
transfer tax on corporate share
transactions, direct property
transactions and the transfer
of shares in REITs them-
selves is likely to increase
following the introduction of such a
vehicle and as the market evolves.
Member states that have
introduced REIT regimes in
Europe have also raised consider-
able amounts of taxation revenue
through a ‘conversion charge’ or
‘exit tax’ – a payment made as
consideration for benefiting from
the tax transparency provided by
REITs. For example, following the
introduction of the French REIT
regime in 2003, and over a five-year
period, the French Government
collected about EUR 2.5 billion in
exit taxes.
the untApped potentiAl oF europeAn reits
fEAtuREs
EPRA NEWS / 37 / 2010 21.
REITs of course generate other
tax receipts as well. REITs legislation
generally grants corporation tax
exemption only to qualifying rental
income and gains from investment
property. Non-qualifying income
(to the extent that this is permis-
sible within the REIT legislation) is
taxable. Transfer taxes, prop-
erty rates and VAT are also relevant
to REITs.
The introduction of a Euro-
pean REIT regime will also assist
European governments in drawing
offshore funds back onshore and
into the national tax net. Most of
these offshore funds exhibit many
of the characteristics of onshore
REITs but contribute very little to the
tax base of European member states
at the moment. The introduction
of REIT regimes can also prevent
funds from migrating offshore in
the first place. The positive effect
on tax revenues are obvious, not to
mention the other indirect economic
benefits of bringing these vehicles
back onshore.
Improving inflows of capital into European member statesWith the recent economic downturn
many companies have had difficul-
ties in raising capital. In contrast,
listed European REITs and REITs
in other countries have been very
successful in raising equity from
the public markets, even though
the share prices of REITs have also
suffered. This is largely attributable
to their ability to foster investors’
confidence in both the investment
vehicle and the information provid-
ed to the market by the listed real
estate sector - thanks to the quality
of information that is available for
investors into the public markets.
For instance, from January 2009 to
March 2010 the public REIT markets
successfully raised about USD 58
billion in equity1.
The European REIT market is in
its infancy and therefore it is difficult
to illustrate the long-term popularity
of the European REIT model with
the capital markets. However, the
more mature US REIT and Australian
REIT markets have shown signifi-
cant growth in their publicly listed
market capitalisations. Between
the years 1992 and 2003, these
two markets grew by 918% and
628% respectively2.
From a global perspective,
between this same time period,
countries that adopted REIT status
and other forms of tax-transparent,
unitised indirect investment vehicle,
witnessed an 830% aggregate in-
crease in their total property market
capitalisation. In contrast, those
countries that do not possess such
vehicles experienced a 28% decline
in total property market capitalisa-
tion over the same period3.
Another beneficial economic
impact of a more developed listed
REIT sector is a fall in the sectors cost
of capital and the consequent posi-
tive implications for overall produc-
tive capacity; and hence Europe’s
long-term GDP growth potential.
Both theory and academic evidence
suggest that the European sector’s
cost of capital would fall, leading
real estate, as both an investment
asset and a means of production,
either to see an increase in stock
or a reduction in the cost of that
component. Either event enables an
increase in domestic output through
the logic of the production function
leading to enhanced productivity
and wages. In a recently published
working document4, the European
Commission acknowledged that
retail services providers are highly
dependent on the efficiency of the
commercial property market for
the success of their business,
notably due to the cost of retail
property, whether owned or rented,
representing 16-48% of their total
operating costs.
Another beneficial economic
impact of a more developed listed
REIT sector is the potential fall in
the sectors cost of capital and the
consequent positive implications
for overall productive capacity;
and hence Europe’s long-term GDP
growth potential.
Providing liquidity in an illiquid market REITs are the public face of a very
capital-intensive industry that
requires substantial levels of
We conclude that private funds should consider
their listed counterparts as benchmarks for ‘best
practices’ in environmental performance.
>
Contents Page
22. EPRA NEWS / 37 / 2010
financing. The evaporation of credit
in the financial downturn high-
lighted the vulnerability of direct
real estate as an illiquid asset class.
As the financial crisis unfolded, pen-
sion funds, banks and other inves-
tors looked to reduce their exposure
to real estate, and the liquidity of the
public markets provided those inves-
tors with a convenient exit. While
this had a negative effect on REIT
share prices – which proved to be
relatively volatile during this time,
the liquidity and financial transpar-
ency provided by publicly traded
REITs prevented the property markets
and the economy in general sinking
to more dramatic lows. This is fur-
ther evidenced by the widespread
failure of the open-ended funds to
provide any form of liquidity during
the crisis.
Open-ended funds were closed
to redemptions and investors were
unable to get their money back.
Any pretence that these open-ended
funds provide liquid access to direct
real estate returns were dismissed
by the recent announcement by
the German tax authorities that a
mandatory holding period of up to
two years could be introduced for
German open-ended funds.
The higher standards of finan-
cial and non-financial reporting
exhibited by the publicly listed
markets, also allowed investors to
execute decisions regarding their
investments in REITs much quicker
than their investments in other forms
of real estate. While this again had
an unwelcome effect on the share
prices of REITs during the crisis,
the overall market situation would
undoubtedly have been worse if
investors didn’t have confidence in
the information produced by the
public REIT markets. Furthermore,
as the economic situation has
improved and investors are return-
ing to the real estate markets, the
attributes of liquidity and transpar-
ency provided by REITs have seen
REITs leading the recovery.
Improving the built environmentA more developed European listed
real estate sector is most likely to
realise the built environment’s great
potential for improved sustainability
performance, especially in terms of
energy efficiency and greenhouse
gases emission reductions. The
growth of REITs in Europe can be a
catalyst for this important and es-
sential change.
Buildings and their associ-
ated construction and operational
activities (the ‘built’ environment)
account for at least one third
of global greenhouse gas
emissions5. Analyses of mitiga-
tion policies show that the built
environment offers the largest
potential for greenhouse gas abate-
ment6. The real estate sector has a
major responsibility in reducing
global energy use and greenhouse
gas emissions.
Amounting to 30% of a typical
office building’s operating expense,
energy use represents the single
largest and most manageable item
in the provision of office space.
Rising energy costs magnify the
importance of this issue for final
users and property investors alike.
Increasingly aware of their financial
implications, investors start looking
more closely at property companies’
The publicly listed property
market represents
a huge yet largely untapped
potential of benefits to the
European economy.
EPRA NEWS / 37 / 2010 23.
environmental policies. But much
progress is needed both in envi-
ronmental performance and in its
reporting by property companies.
The European Centre for
Corporate Engagement at Maastricht
University School of Business and
Economics) recently conducted a
survey7 of 688 property companies
and funds (listed and unlisted) in
more than 20 countries. The survey
illustrates both the scale of the chal-
lenge for the property sector in im-
proving its environmental practice
and how it reports environmental
performance. It also clearly shows
that, while there is still a long way
to go in terms of improvement, the
listed sector in Europe performs
significantly better than the private
market, as evidenced by this extract:
“Listed property companies
show a much better environmental
performance than do their private
counterparts. The low scores may
be partly due to the limited dis-
closure, as a result of which there
is inadequate public scrutiny of
property funds that operate in the
private market. Moreover, the finite
life of some private funds may lead
to a more short-term focus and
may hinder investments in energy
efficiency. We conclude that private
funds should consider their listed
counterparts as benchmarks for
‘best practices’ in environmental
performance.”
REITs also positively contribute
to the regeneration of the built
environment and the development
of major land use initiatives and
infrastructure delivery. The introduc-
tion of REITs cannot lift all obstacles
member states face in financing ur-
ban regeneration and infrastructure,
but their availability across Europe,
offering the right risk/return profile
and access to capital markets, would
provide investors with confidence
and enable traditional non-fundable
sectors to be opened up to new
equity. In this respect, the experi-
ence in the US where healthcare,
hospitality and correctional REITs
have been successfully launched is
evidence of this benefit.
The broader introduction of REIT
regimes should also bring forward
alternative sources of finance for
the private rented sector including
low-cost housing. At the time of
writing, REITs owning residential
property for private rental con-
stituted 14% of the total US REIT
market – the largest sub-sector8. The
introduction of portfolios benefit-
ing from economics of scale, risks
diversification and risk management
diversification would surely help to
improve overall quality and address
the current imbalance that exists in
a market dominated by fragmented
private investors using ‘buy-to-let’
mortgages to acquire a limited
number of units.
In conclusion, the publicly listed
property market represents a huge
yet largely untapped potential of
benefits to the European economy. It
enables a level playing field in man-
agement and reporting standards,
improves the quality and sustain-
ability of the built environment,
generates a regular and reliable
source of tax revenue for national
governments, provides a liquid
form of investment in managed real
estate – accessible for all, and con-
tributes to a more stable and robust
economy. The development of REIT
regimes can act as a catalyst for the
growth of the sector and should
therefore be encouraged and sup-
ported by governments at national
and European level.
1 Source: EPRA, NAREIT, RealPac & Cohen & Steers2 Improving the Efficiency and Flexibility of the UK Real Estate Market. An Industry Briefing Document for HMT - the Investment Property Forum, British Property Federation and RICS, September 20033 Improving the Efficiency and Flexibility of the UK Real Estate Market. An Industry Briefing Document for HMT - the Investment Property Forum, British Property Federation and RICS, September 2003 4 Commission Staff Working Document On Retail Services in the Internal Market, European Commission, July 2010 5 Evidence suggests that the construction and operation of buildings accounts for about 40% of worldwide consumption of raw materials and energy (RICS, 2005). In the U.S., the buildings sector account for some 70% of total electricity consumption. 6 Per-Anders Enkvist, Thomas Naucler and Jerker Rosander, 2007, IPCC, 2007, Nicholas Stern, 2008. 7 Environmental Performance – A Global Perspective on Real Estate (2010) - The European Centre for Corporate Engagement at Maastricht University School of Business and Economics. Nils Kok, Piet Eichholtz, Rob Bauer, Paulo Peneda 8 Data as of March 31. 2010. Source: NAREIT
gareth lewis Director of Finance at
the European Public Real
Estate Association (EPRA),
Gareth is responsible for leading EPRA’s initiatives and policy positions with respect to REITs, taxation, financial reporting and accounting issues. Before taking up
this post in 2008, he was the Director of Finance and Investment at the British Property Federation where he was responsible for formulating BPF policy on a wide range of property finance and investment related issues. There, he was closely involved in lobbying the UK government as part of the pan-industry group that played a key role in both establishing the need for a UK REIT regime and shaping the legislation through the extensive consultation process. Gareth worked closely with the industry and govern-ment to improve the REITs legislation, regulations and guidance. Gareth is a Chartered Accountant who, prior to joining the BPF, was a tax adviser within the real estate group of Ernst & Young both within their London and New York offices.
Contents Page
24. EPRA NEWS / 37 / 2010
Market renewal has in some
instances led pension fund
managers to shift a larger portion
of their real estate allocations into
listed securities such as REITs.
Their investment case includes
recognition that REITs’ underlying
asset is commercial property, which
is why they behave similarly to
direct real estate. It also encompass-
es the fact that real estate securities
have a history of higher returns
and exchange-traded liquidity, and
as such, can be a superior invest-
ment choice.
In this article, we will inves-
tigate the similarities and differ-
ences between real estate securities
and direct real estate, and make the
case that:
• Real estate securities are highly
correlated to direct real estate.
• REIT funds have outperformed
direct real estate funds consistently
over the long term, while provid-
ing the benefit of liquidity.
• Direct funds have not adequately
compensated investors for the
risks of illiquidity. Nor do they
generate enough alpha to justify
their fee structures.
• The REIT business model explains
most of REITs’ performance advan-
tage over direct real estate funds.
• A rational, merit-based realloca-
tion would drive significant capital
flows away from direct allocations
and into REITs.
REITs’ correlation with direct real estateREITs’ high correlation to direct
real estate is often overlooked
by investors who focus on short
time periods. However, as shown
in the chart below, the two asset
classes are highly correlated over
longer periods.
Because REIT liquidity allows
for greater pricing transparency
and quicker information transfer
than less liquid direct markets,
REIT markets tend to lead direct
markets. Cohen & Steers has con-
ducted research on the relationship
between listed and direct property
investments and concluded that the
listed market tends to lead the
direct market by about six months.
When that difference is accounted
for by incorporating a six-month
lag into the listed returns, as in the
chart (Figure 1), the correlation is
remarkably strong.
Given the high correlation, we
believe that REITs are an attractive
way to make a real estate allocation.
reAl estAte seCurities: the AttrACtiVe AlternAtiVe
fEAtuREs
Corr
elat
ion
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
0.24 0.26
0.61
0.73 0.750.72
3 Months 6 Months 1 Year 2 Years 3 Years 10 Years
Holding Period
■ MIT/NCREIF U.S Private Market – Capital Return (left-hand side)
■ FTSE NAREIT Equity REIT – Price-Only Index (six-month lag), (right-hand side)
Correlation = 0.70
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
60%
40%
20%
0%
-20%
-40%
-60%
-80%Q2 1987 Q2 1989 Q2 1991 Q2 1993 Q2 1995 Q2 1997 Q2 1999 Q2 2001 Q2 2003 Q2 2005 Q2 2007 Q2 2009
FTSE NAREIT Equity REIT Index vs. MIT/NCREIF Index
As global commercial real estate markets recover, many
pension fund managers are reviewing their real estate
allocations with a new appreciation for the risks and
costs inherent in direct, or private, real estate funds.
Figure 1: Listed real estate vs. direct real estate Correlations across holding periods January 1994–December 2009
EPRA NEWS / 37 / 2010 25.
>
Corr
elat
ion
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
0.24 0.26
0.61
0.73 0.750.72
3 Months 6 Months 1 Year 2 Years 3 Years 10 Years
Holding Period
■ MIT/NCREIF U.S Private Market – Capital Return (left-hand side)
■ FTSE NAREIT Equity REIT – Price-Only Index (six-month lag), (right-hand side)
Correlation = 0.70
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
60%
40%
20%
0%
-20%
-40%
-60%
-80%Q2 1987 Q2 1989 Q2 1991 Q2 1993 Q2 1995 Q2 1997 Q2 1999 Q2 2001 Q2 2003 Q2 2005 Q2 2007 Q2 2009
Figure 2: US direct and listed property market performance with six-month lag. One-year rolling returns, June 1987–December 2009
FTSE NAREIT Equity REIT Index vs. MIT/NCREIF Index
Because REIT liquidity
allows for greater pricing
transparency and quicker
information transfer than
less liquid direct markets,
REIT markets tend to lead
direct markets.
Historical performance of listed vs. direct real estateOver the past 30 years, which
encompasses two commercial real
estate crashes, REITs have outper-
formed direct core funds by 480
basis points annually. Over the past
ten years, they outperformed by 500
basis points annually. So, in addi-
tion to moving with the property
markets, REITs provided more at-
tractive returns than direct property
investments.
We measured listed REIT per-
formance using the FTSE NAREIT
Equity REIT Index (NAREIT Index).
We used the NCREIF Fund Index–
Open-End Diversified Core Equity
(NFI-ODCE) series to chart the per-
formance of direct core real estate
funds. At June 30, 2010, the REITs in
the NAREIT Index had an aggregate
market capitalisation of USD 268
billion and owned an estimated
USD 487 billion of real estate. As
of March 31, 2010 (the last date for
which data are available), the funds
in the NFI-ODCE had appraised
net equity of USD 49.3 billion and
owned gross real estate assets of
USD 71.4 billion.
Table 1 below compares their
performance. Both indexes show
results on a leveraged basis, with di-
rect funds operating with less lever-
age (32%) than the listed companies
(45%, per Cohen & Steers estimates).
Leverage, which adds to the volatil-
ity of returns, is a drag on returns in
bear markets but enhances returns
in up markets. Greater leverage has
benefited REIT performance versus
core funds over the long term, but
has detracted from performance
since the peak in real estate values
in 2007.
In practice, the advantage for
REIT investors shown in Table 1 is
understated, as most institutional
investors hire active managers
for their REIT allocation, many of
whom outperform the NAREIT In-
dex benchmark. In our view, active
REIT management for a diversified
strategy should add 200 basis points
of alpha annually, as REITs’ stock-
exchange liquidity enables portfolio
managers to capitalise on valua-
tion anomalies and performance
variances across property types and
markets through changing economic
and real estate cycles.
Liquidity comparisonOf the USD 300 billion in property
held in direct fund indexes, just 34%
is controlled by open-end vehicles;
the remaining 66% is controlled by
closed-end vehicles, which have
no investor liquidity. The broader
2,700 private fund universe controls
significantly more property than the
funds in this study, and comprises
predominantly closed-end vehicles.
Open-end fund liquidity ranges
from quarterly (in most cases)
when times are good, to zero when
private market transaction activity
shuts down - as it did from 2007 to
2009. When redemption requests
spiked in early 2009, most open-end
private funds were forced to rescind
liquidity and halt redemptions.
The liquidity in the REIT
Table 1: annualised total returns through June 30, 2010Listed REITs vs. diversified core equity funds Source: Cohen & Steers, NAREIT and NCREIF
Contents Page
26. EPRA NEWS / 37 / 2010
market has grown significantly (see
Figure 3), as the market developed
and more investors embraced the
investment case for REITs. Over the
past year ending September 2010,
the average weekly volume in the
Bloomberg REIT Index was 612.6
million shares per week. While
liquidity in the private market shut
down during the global financial
crisis, significant liquidity for REITs
was sustained, enabling REIT port-
folio managers and asset allocators
to rebalance.
Business models favour REITsWe believe structural factors explain
the majority of REITs’ outperform-
ance. First is the agency issue:
investment decision makers for
many direct funds are paid fees
based on assets under management.
Once fund capital is raised, there
are strong motivations to put the
money to work, regardless of
available returns.
By contrast, REIT managements
have significant ownership stakes,
and that acts as a governor on capi-
tal allocation decisions. In addition,
REITs are subject to performance-
based incentive compensation tied
to fundamental objectives. Further,
REIT managements are governed by
boards of directors, SEC and NYSE
regulations - and, perhaps most im-
portantly, by the invisible, efficient
hand of the public market.
These structural dynamics are
illustrated by the capital allocation
decisions made through the peak
of the last real estate cycle. Figure
4 shows that REITs sold USD 130 bil-
lion in assets from 2005-2008, while
private real estate investors were net
buyers.
REITs have a significant advan-
tage today through their access to
low-cost capital in the public mar-
ket. In the depths of the credit crisis,
they raised significant common
equity to address debt maturities
and deleverage. Since March 2009,
global REITs have raised well over
USD 100 billion through common
stock, corporate debt and convert-
ible offerings.
By contrast, many private real
estate owners have been unable to
recapitalise. Without equity injec-
tions, they will be hard-pressed to
refinance loans that exceed lenders’
current underwriting criteria. Over-
leveraged owners may be forced to
default, bring in high-cost equity
partners or sell outright.
Volatility Historically, proponents of direct real
estate investment have argued that
real estate is less volatile than other
asset classes. This is misleading, in
our view, because real estate cannot
be measured in a real-time transac-
tional framework in the same way
that stocks and bonds are measured
in the capital markets. Furthermore,
the appraisal-based valuations for
the NCREIF Index or the private
fund indexes smooth returns so that
volatility is understated. Green Street
Advisors has developed an index for
its valuation of REIT portfolios that
we believe gets closer to the reality
of commercial real estate volatility.
We believe the Green Street CPPI
is the superior real-time indicator
of commercial real estate prices. It
is an equal-weighted index of real
estate values calculated by Green
Street’s team of analysts for the key
property sectors. Since its inception
in March 1994, the Green Street CPPI
suggests that the volatility of com-
mercial property values (not total
returns) is 55% greater than volatil-
ity measured by NCREIF. Volatility
for REIT share prices - due to lever-
age, real-time discounting and the
transaction-based framework of the
public market - is still higher than
for direct property; but we believe
proper measurement would close
the perceived volatility gap mean-
ingfully between listed and direct.
Many institutional investors will seek to increase
their investments in listed real estate over time;
the data simply do not support the old way of
making real estate allocations.
EPRA NEWS / 37 / 2010 27.
Footnote Disclaimer
These materials are provided for informational purposes only and reflect the views of Cohen & Steers, Inc. and sources believed by us to be reliable as of the date hereof. No representation or warranty is made concerning the accuracy of any data compiled herein, and there can be no guarantee that any forecast or opinion in these materials will be realised. This is not investment advice and may not be construed as sales or marketing material for any financial product or service sponsored or provided by Cohen & Steers, Inc. or any of its affiliates or agents.
Institutional real estate allocations will be changingDespite this evidence, US corporate
and public pension plans have
allocated three-quarters of their
real estate portfolios to private
investments, according to research
by Casey Quirk. Listed REITs
represent just 5% of their real
estate alloction.
But this appears to be chang-
ing. REITs’ superior performance,
liquidity, access to capital and trans-
parency are attracting a growing
number of institutional investors.
Corporate and public pension
plans have an estimated USD 252
billion of the USD 325 billion of in-
stitutional capital that is invested in
real estate. Currently, about USD 12
billion of that is allocated to REITs.
If these US pension plans were to
increase their REIT investments to
the 32% allocation that endowments
and foundations have - which is
easily justified by performance -
another USD 68 billion would shift
into REITs.
Considering the new equity
that we expect to be issued in the
public market by existing REITs that
have begun to acquire properties
and by initial public offerings of
private companies, we believe the
public market could easily accom-
modate those flows over the next
several years.
ConclusionThe global financial crisis illuminat-
ed the benefits and shortcomings of
a number of investments. For many
institutions the costs of illiquidity
were devastating. Investors have be-
come more sensitised to illiquidity
risks, and will demand a premium
for locking up their capital. Some
institutions are starting over to cre-
ate a portfolio with the proper beta
and alpha components.
We believe that institutional
real estate investors know that with
private real estate, investing is more
a function of timing the cycle than
picking the right property sector,
strategy or manager. Accordingly, we
expect to see institutions and their
consultants design frameworks that
allocate effectively along the cycle
and opportunity set, and between
private and listed real estate.
Crisis is often the catalyst for
change. We believe the global
recession and financial crisis will be
the catalyst for institutional inves-
tors to re-evaluate their real estate
investment decisions. Considering
the case put forth in this article,
we believe that many institutional
investors will seek to increase their
investments in listed real estate over
time; the data simply do not support
the old way of making real estate
allocations.
1 The analysis on the US listed property is provided by the MIT Center for Real Estate (MIT/CRE). MIT/CRE has several real estate research functions including the Com-mercial Real Estate Data Laboratory (CREDL). The index measures market movements and returns based on transaction prices of properties sold from the NCREIF Index database. Correlations are based on price returns of each index. 2 “Listed Property Performance as a Predictor of Direct Real Estate Performance” by Scott Crowe and Deborah Krisbergh, March 2009. 3 Core funds focus on high-quality stabilised properties. 4 For a more detailed discussion of listed and direct real estate, see “The truth about real estate allocations” by Joseph Harvey at cohenandsteers.com. 5 IREI Tax-exempt real estate 2009 survey, Casey Quirk Analysis
Source: Cohen & Steers, Bloomberg at September 2010
Figure 3: Bloomberg REIT Index Liquidity (billions)
1900180017001600150014001300120011001000900800700600500400300200100
0
Wee
kly
Shar
e Vo
lum
e in
Mill
ions
1/5/
2001
5/5/
2001
9/5/
2001
1/5/
2002
5/5/
2002
9/5/
2002
1/5/
2003
5/5/
2003
9/5/
2003
1/5/
2004
5/5/
2004
9/5/
2004
1/5/
2005
5/5/
2005
9/5/
2005
1/5/
2006
5/5/
2006
9/5/
2006
1/5
/2007
5/5/
2007
9/5/
2007
1/5/
2008
5/5/
2008
9/5/
2008
1/5/
2009
5/5/
2009
9/5/
2009
1/5/
2010
5/5/
2010
9/5/
2010
Date
$60
$40
$20
$0
-$20
-$40
-$60
-$8000 01 02 03 04 05 06 07 08
■ Equity Fund ■ Institutional ■ Listed REITs
Joseph Harvey is president and chief investment officer of Cohen & Steers, Inc. Scott Crowe, also of Cohen & Steers, is senior vice president and global real estate portfolio manager.
1900180017001600150014001300120011001000900800700600500400300200100
0
Wee
kly
Shar
e Vo
lum
e in
Mill
ions
1/5/
2001
5/5/
2001
9/5/
2001
1/5/
2002
5/5/
2002
9/5/
2002
1/5/
2003
5/5/
2003
9/5/
2003
1/5/
2004
5/5/
2004
9/5/
2004
1/5/
2005
5/5/
2005
9/5/
2005
1/5/
2006
5/5/
2006
9/5/
2006
1/5
/2007
5/5/
2007
9/5/
2007
1/5/
2008
5/5/
2008
9/5/
2008
1/5/
2009
5/5/
2009
9/5/
2009
1/5/
2010
5/5/
2010
9/5/
2010
Date
$60
$40
$20
$0
-$20
-$40
-$60
-$8000 01 02 03 04 05 06 07 08
■ Equity Fund ■ Institutional ■ Listed REITs
Source: Real Capital Analytics and Green Street Advisors
Figure 4: Net aquisitions minus dispositions of commercial real estate (billions)
Contents Page
28. EPRA NEWS / 37 / 2010
fEAtuREs
The miracle of Japan’s
economic expansion after
the World War II and its
subsequent bust at the
end of the 1980s is well
documented. However,
few have acknowledged
the ability of the country’s
listed property sector
to continue growing
shareholder profits,
although the economy
effectively stopped
growing 20 years ago.
Japan has had to learn how to deal
with a lower level of aggregate de-
mand the hard way. There was no
textbook response 20 years ago. The
only option was to try, learn from
mistakes and try again. In Japanese,
nanakorobi yaoki.
Without the government’s re-
peated stimulus efforts and drastic
easing of monetary policy, Japan’s
recession, which began with a real
estate bust, would have been a
lot deeper. Against this backdrop,
listed property still managed to
significantly outperform the broader
market, posting the second-best
Japanese equity sector return since
1992.
The Japanese real estate crash Japan’s boom and subsequent
bust was not dissimilar to what
happened in many other industrial
economies after World War II. How-
ever, it is clear there were extremely
strong forces preventing growth.
There was a huge accumulation
of capital relative to expected future
output through to 1990 that proved
to be excessive once the economy
slowed. Households and corporate
balance sheets collapsed as equity
markets and housing prices dived.
The weaker stock markets discour-
aged firms from issuing new equity,
limiting the creation of new capital
and altering the nature of Japan’s
economic cycle.
The deterioration in balance
sheet quality undermined the
quality of banking loan books. Non-
performing loans exacerbated the
economic problems, partly because
the banking industry failed to recog-
nise that it should recapitalise, caus-
ing the economic recovery to remain
fragile because of the absence of a
decent credit multiplier.
The consequence was wealth
destruction equivalent to three
years’ worth of GDP. Furthermore,
with many Japanese ‘levering-up’
in the late-1980s to take part in the
bubble, financing understandably
shut down.
In our view, it was natural for the
salary man or corporate executive
to decide that earnings would not
to be used for consumer products
or new machinery, but to pay down
debt and rebuild savings that had
been decimated by the economic
turmoil.
Japan had to adjust down its
growth expectations and seek new
export markets. The fear of bank-
ruptcy led to an entire economy
adopting a ‘don’t ask, don’t tell’
mantra that was sustained largely
thanks to the ability of Japanese
companies to keep servicing
debts and a reluctance of Japanese
NaNakorobi Yaoki - the resilienCe oF listed reAl estAte
EPRA NEWS / 37 / 2010 29.
banks to admit that they were
effectively bankrupt.
The modern-day real estate crash All this sounds alarmingly familiar
when analysing the current devel-
oped market experience.
Political heavyweights, academic
commentators and market par-
ticipants indulged in an irrational
belief that ‘this time it’s different’
and globalisation would benefit
all. An explosion in debt issuance
fuelled by the proliferation of finan-
cial innovation gave stock markets
globally a sense of invincibility.
Importantly, in the US and Europe,
we also saw banking sectors that
are still effectively bankrupt.
Like Japan, we find ourselves
with highly supportive governments
wary of the fragility of their bank-
ing sectors and its broader impact
on the economy. This modern day
‘don’t ask, don’t tell’ has been exac-
erbated by accommodative changes
to accounting standards that
have allowed a culture of ‘extend
and pretend’ to become accepted
industry practice.
Ultimately, we believe the
global economic growth of the past
20 years was not real economic
growth: it was driven by a massive
debt binge in the West which should
now moderate, if not collapse.
How consumers, businesses & governments responded – then and now In Japan, the response by all three
was rational: consumers saved to
restore wealth, businesses serviced
debt to avoid bankruptcy and the
government made up the shortfall.
Chart 2 shows changes to real
GDP in the 1990s in Japan, high-
lighting the replacement of private
spending with public expenditures.
The actions of the government
were unprecedented, yet it was not
until 1995 that the world realised
the problems facing Japan were
far larger than assumed. As late
as January 1995, long bonds, for
example, continued to yield more
than 4.5%; 1995 was also the year
that the yen peaked and the first
year of deflation.
The government’s response
became increasingly experimental.
It cut the overnight interest rate from
8.2% in March 1991 to 2% four years
later, taking it to down further to
0.5% where it remained until the
end of the decade. It took fiscal
measures to stimulate demand,
which helped Japan maintain nomi-
nal GDP above its 1990 level through
to the present day.
However, with the financial
system broken, there was no tool to
transmit these policies, keeping Ja-
pan in a rut. Lenders were unwilling
to lend and borrowers unwilling to
borrow. The private sector was in no
rush to take advantage of low rates
and ‘lever up’ again to fuel growth.
Today, we find ourselves in a
similar situation. Consumers have
looked at their balance sheets,
including negative equity in their
home values and the impact of a
decade of lost stock market invest-
ing, and face a likely lower income
future with government bonds yield
below 3%. They have reacted by
spending less and starting to save.
Businesses are believed to be in
better shape financially today, yet
this was also the case for Japanese
businesses in the 1990s. They were
operationally sound, found new ex-
port markets for their products and
maintained market share through
technological innovation. Global
leaders such as Toyota helped
Japan to run large current account
surpluses, offsetting weakness in
the domestic economy.
Today, businesses have a lot of
cash and have kept profit margins
high as a consequence of reacting
to the Great Recession swiftly and
cutting employees. However, they
face an uncertain future given the
lower level of aggregate demand
in their domestic economies. This
will likely feed through to lower
operating margins and thereafter
lower returns.
We believe the global
economic growth of the
past 20 years was not real
economic growth: it was
driven by a massive debt
binge in the West which
should now moderate,
if not collapse.
Growth in % p.a.20%
15%
10%
5%
0%
-5%
■ Credit Growth ■ GDP Growth
1954 1959 1964 19 69 1974 1979 1984 1989 1994 1999 2004 2009
Change in % p.a.
Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-89 Mar-99
■ Private Consumption ■ Private Investment ■ Government Consumption■ Public Investment ■ Net Exports GDP Growth
8
6
4
2
0
-2
-4
Growth in % p.a.20%
15%
10%
5%
0%
-5%
■ Credit Growth ■ GDP Growth
1954 1959 1964 19 69 1974 1979 1984 1989 1994 1999 2004 2009
Change in % p.a.
Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-89 Mar-99
■ Private Consumption ■ Private Investment ■ Government Consumption■ Public Investment ■ Net Exports GDP Growth
8
6
4
2
0
-2
-4
Chart 1: US credit market debt growth versus GDP growth (YoY% change)
Chart 2: Contributions to Japanese real GDP growth: 1991 to 1999
Source: Thomson Reuters, September 2010 Source: Thomson Reuters, Cabinet Office of Japan, September 2010
>
Contents Page
30. EPRA NEWS / 37 / 2010
Finally, governments globally
have acted to try and safeguard their
economic futures. We have seen glo-
bally coordinated bank bailouts, the
socialisation of private debt, the ev-
olution of monetary policy, massive
fiscal expansion and the creation of
the world’s largest special-purpose
vehicles that are keeping developed
real estate markets on life-support.
Making money in a low-growth environmentWith the Japanese experience in
mind, we expect a similar fate for
the global economy.
The total effect of the government
measures is unclear, other than to
see them as an attempt to normalise
global liquidity. The intention is to
reduce the role of the derivatives
and securitised products that pro-
pelled economic growth higher.
Growth expectations globally
will need to be adjusted down, just
as in Japan, and possibly more ag-
gressively so, given that Japan was
an exporting powerhouse. The de-
veloped market does not have this
growth lever at its disposal, thanks
in large part to globalisation and
the existence of cheap labour and
low manufacturing costs in Asia.
It is mathematically impossible for
everyone to export more than they
import and for everyone to run cur-
rent account surpluses!
Against such a difficult invest-
ment and macroeconomic backdrop,
we expect investors to change their
preferences as it becomes clearer
that a ‘normal’ cyclical recovery
is highly unlikely. This is because
the key driver of economic growth
over the past 20 years, principally
debt, will not be available in such
abundant quantities.
Investors will likely follow the
Japanese experience and adopt
a more defensive bias to their
portfolios, putting greater emphasis
on ‘value’ investing as opposed
to ‘growth’ investing. This means
investors will pay attention to the
size of dividends that businesses
are willing to pay and will scrutinise
the actual value of businesses with
the intention of not overpaying for
speculative endeavours.
This was certainly the case
for Japanese equity investing,
with ‘value’ investments making
money since 1992 and massively
outperforming ‘growth’ invest-
ments, which lost more than 50% of
their value.
Listed property posts 2nd-highest equity sector returnThe simple answer is: superbly.
Since 1992, listed property in Japan
has posted the second highest eq-
uity sector return. Total returns have
been just below 2% a year. Over
the same period, the TOPIX has lost
some 20% of its value (-1.4% annual-
ly, dividends reinvested).
Total return index, 31.12.1992 = 100300
250
200
150
100
50
0
■ Value Stocks ■ Growth Stocks
Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08
Price returns in % p.a. since 31.12.923
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8Consumer
GoodsJapanese
Real EstateTechnology Industrials Utilities Telecom Media Con & Mat Financials
Chart 3: MSCI Japan total returns – value versus growth (rebased to 100)
Source: Thomson Reuters, September 2010
Total return index, 31.12.1992 = 100300
250
200
150
100
50
0
■ Value Stocks ■ Growth Stocks
Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08
Price returns in % p.a. since 31.12.923
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8Consumer
GoodsJapanese
Real EstateTechnology Industrials Utilities Telecom Media Con & Mat Financials
Chart 4: Price appreciation of equity sectors in Ja-pan; Nikkei equity sectors, FTSE EPRA Japan index; December 31, 92 to August 31,2010 (price index)
Source: FTSE EPRA NAREIT, Thomson Reuters, August 2010
Total return index, 9.3.2010 = 100260
240
220
200
180
160
140
120
100
■ Global Real Estate ■ Global Equities
Mar-09 May-09 Jul-09 Sep09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10
Chart 5: Total returns of global real estate versus global equities: FTSE EPRA Developed index versus MSCI World; in USD; since 9.3.2009
Source: Bloomberg, September 2010
EPRA NEWS / 37 / 2010 31.
We believe this outperform-
ance results from investors seeing
listed property as the classic ‘value’
investment. Real estate assets are
typically easier to value than other
equity sector assets, as their valua-
tions can be verified by independ-
ent appraisers and they have visible
cash flows.
Crucially, a greater proportion of
an investor’s total return is in the
form of dividends exceeding the
wider equity market dividends. This
is especially true when other sec-
tors are compared with the evolving
REIT industry.
Furthermore, listed property
companies are able to find alpha
“among the ashes”. It is marginal
players taking less than marginal
roles that usually cause speculative
bubbles in the sector. These are
generally the first to cut their losses
and run when the going gets tough.
This short-term volatility cre-
ates a survivorship bias (also a
value investing characteristic); also
generous investment opportunities
for high-quality listed property
businesses that are well capitalised,
which can buy from distressed sell-
ers and earn normal returns through
all economic cycles.
How has global listed property performed since the market bottom?Like Japan since 1992, the answer is
simple: tremendously.
Since the market bottom in
March 2009, global listed property
has outperformed global equity by
more than 50%. Equity and debt
capital markets globally opened
their arms to the sector, giving mar-
ket participants the ability to grow
portfolios and earnings yields at a
time when many competing sectors
faced an unprecedented decline in
end-market demand.
We expect this outperformance
to continue for the next decade
as investors begin to understand
that growth expectations will be
adjusted down due large-scale
deleveraging.
We believe consumers, busi-
nesses and governments will
behave in the same manner as
the Japanese did and likely
switch their portfolios to a higher-
quality bias. This is where the listed
property sector’s defensive
investment characteristics become
highly attractive.
ConclusionWe see many similarities between
the Japanese real estate crash
20 years ago and the economic
turmoil of today. The most impor-
tant lessons learned from Japan are
that in balance sheet recessions,
nominal GDP can remain in posi-
tive territory even when the private
sector is deleveraging, as long as
the authorities take supportive
monetary and fiscal measures.
Furthermore, listed property can
rise from the ashes and return alpha
to investors.
More broadly, listed property
offers an excellent value investing
opportunity given its resilience
to economic cycles, transparent
valuations and ability to deliver su-
perior dividend yields to long-term
investors.
And ultimately, with asset values
closer to the bottom of the asset pric-
ing cycle than to the top, with global
property dividend yields exceeding
4% and against the backdrop of
an uncertain global economy, we
expect the listed property sector’s
defensive characteristics to lead to
long-term outperformance.
Listed property offers an excellent value
investing opportunity given its resilience
to economic cycles, transparent valuations
and ability to deliver superior dividend
yields to long-term investors.
matthew hodgkinsInvestment Analyst
Matt Hodgkins joined the Global Property Securities team of BNP Paribas Investment Partners in 2008 as an invest-ment analyst, with principal responsibility for the coverage of Japanese REIT’s and Devel-opers. Hodgkins was previously an investment analyst working for ABN AMRO Global Equities in London, where he covered a variety of sectors including Industrials, Materials, Staples and Healthcare.
matthew.hodgkins@asia.
bnpparibas.com
Contents Page
32. EPRA NEWS / 37 / 2010
The REIT industry has
certainly grown up.
And yet, judging by the
investment strategies
of our nation’s large
institutional investors,
REITs are still orphan
children in the adult
world of commercial real
estate. For an industry
that not only has grown
dramatically (and become
much more liquid and
transparent) over the past
15 to 20 years but also has
performed extremely well,
that can be taken as a sign
of major disrespect*.
The “modern US REIT era” will
soon reach a 20-year milestone. The
early 1990s saw the US REIT market
begin a process of major growth
and transformation as property and
capital market conditions combined
with legislative changes to foster an
environment that enticed many well
regarded private real estate firms
to go public and also made REITs
a more attractive investment to a
wider range of investors including
larger institutions.
As the REIT market experienced
an incredible IPO boom in 1992-94,
at the same time the private market
was experiencing a major downturn
and capital crunch, many observers
were predicting that public (listed)
equity REITs would become the
vehicle of choice for pension fund
investors, a group that was growing
increasingly disenchanted with the
performance and illiquidity of their
private property investments. How-
ever, despite the continued growth,
evolution and maturation of the
public REIT sector over the past two
decades, a major shift in pension
fund investment preference did not
occur, at least on the scale originally
anticipated; real estate allocations
by US pension funds remain heavily
dominated by private investment
strategies and structures.
This is not to say that pension
funds do not invest in REITs. Public
market real estate investment by
institutions has certainly become
more of an accepted practice in
recent years. A growing number
of plan sponsors recognise that
REITs are a cost effective, easy, and
efficient way to gain access to the
real estate asset class, either as a
substitute for core real estate (small
investors) and/or as a liquid compli-
ment to private or direct real estate
holdings (larger investors).
Moreover, plan sponsors are
increasingly looking to the REIT
market to gain exposure to sectors
that are more challenging to invest
in directly, including global real
estate as well as newer domestic
niche property sectors, including
healthcare, self storage, student
housing and timber. However, not
withstanding improved visibility
and acceptance in the plan sponsor
community, on the whole, the real
estate allocations of pension funds
and like institutions remain heavily
weighted toward private real estate
(direct, separate accounts, open-end
and closed-end funds). Moreover,
various surveys of investor invest-
ment intentions indicate that this
situation will persist.
The continued preference for
(bias towards) private property
investment vehicles in pension fund
real estate holdings is something
of a puzzle to many in the REIT
business. To the REIT community, it
seems that major institutional inves-
tors are ignoring the liquidity benefit
of public REIT shares as well as the
transparency, strong corporate
governance and value creation
abilities of REIT management teams.
Further, there is mounting evidence
to suggest that these positive at-
tributes may be reflected in superior
the outperFormAnCe And underAlloCAtion puzzles: puBliC reits As pArt
oF institutionAl reAl estAte AlloCAtions
*From “How long can adults remain orphans?” by Ralph Block,
Around the Block blog, SNL Real Estate September 22, 2010
EPRA NEWS / 37 / 2010 33.
investment performance; plan spon-
sors that ignore REITs appear to be
leaving money on the table.
Two recent studies undertaken
by REIT industry participants docu-
ment that public equity REITs have,
at the aggregate market index level,
outperformed private real estate
(both core property and funds)
over full property cycles since the
beginning of the modern REIT era.
Moreover, REITs provided these
higher returns with a liquidity ben-
efit that is very absent from private
real estate vehicles.
Table 1 provides similar evidence
within a broader comparison of
equity REIT, real estate, stock and
bond returns. Average returns and
return volatilities are presented for
major indices dating back to 1978,
the start of the National Council of
Real Estate Investment Fiduciaries
(NCREIF) Property Index, and also
for the more recent, and relevant,
period extending from 1993 that
marks the beginning of the modern
REIT era.
Equity REITs outperformed
private property (unlevered or un-
geared) both over the full time pe-
riod and since 1993, as tracked by ei-
ther the appraisal-based benchmark
NCREIF Property Index (NPI) or the
MIT Transaction-Based Index (TBI)
derived from sales of properties
from the NPI, as well as core open-
end funds, measured by the NCREIF
Open-End Core Diversified Equity
Fund (ODCE) Index. Two additional
observations of note in Table 1 that
we will come back to later in the
article are, 1) while REIT returns
exceeded NPI and ODCE returns by
close to 100 basis points per quarter
or more since 1993, the excess over
TBI returns is considerably smaller,
and also the differential in standard
deviations much less pronounced;
and 2) equity REITs outperformed
the broader stock market and the
small cap value subset, although
equity REIT returns were also the
most volatile of the three over this
period.
While these findings have
garnered significant attention and
generated much needed, healthy,
lively debate and discussion in
the investment management, plan
sponsor and consultant communi-
ties, it appears that these market
participants remain cautious about
making a major change in the way
real estate allocations are made.
To stimulate systematic change
in the perception of public equity
REITs in real estate allocations at a
broad-based level I believe that, in
addition to being patient as change
does occur slowly, this line
1.95
4.67
2.55
4.93
Stocks Bonds Private Real Estate*
1978: 1-2010: 2**
Average (arithmetic)
Standard Deviation
1993: 1-2010: 2
Average (arithmetic)
Standard Deviation
2.95
8.18
2.09
8.44
3.47
9.74
2.66
9.40
3.40
9.14
3.01
10.77
2.06
3.44
1.58
2.29
2.15
2.27
2.02
2.46
1.94
2.85
1.79
3.42
Large
(S&P 500)
Small Value
(Russell 2000)
Equity REITs
(NAREIT)
Govt & Corp
(Barclays)
Property
(NPI)
Core Fund
(ODCE)
Property
(TBI)
*NPI is the appraisal-based NCREIF Property Index benchmark for direct, unlevered real estate; ODCE is the NCREIF Open-End Core Equity (ODCE)
Index for open-end comming led real estate funds; TBI is the Transaction Based Index derived from sales of properties from the NCREIF Property
Index produced by the MIT Center for Real Estate.
** NPI and ODCE returns begin in 1978:1 but TBI returns begin in 1984:2
Table 1. Public Equity REIT Returns versus Stock, Bond and Private Real Estate Return (Quarterly Index Holding Period Returns)
>
Contents Page
34. EPRA NEWS / 37 / 2010
of research could be extended to
include the following:
• Substantiate that outperformance
does indeed exist. Confirm that it
is not an artifact of the index data
or time periods chosen for the
analysis. Many private investors
are skeptical that REITs outperform
and provide liquidity. If liquidity is
valuable then shouldn’t investors
be willing to pay for it, in which
case private real estate would
outperform public, all else equal?
• Uncover and validate the cause(s)
of outperformance. If in fact there
is out-performance then the plan
sponsor community needs to
understand from where it derives.
Is it really the superiority of public
real estate or does at least some
part of it derive from public mar-
ket risk considerations that have
not been accounted for and/or per-
ceived private market benefits that
are not reflected in asset category
index returns?
• Incorporate a portfolio perspec-
tive. Plan sponsors care not only
about long-term returns but also
about risk, both of REITs as well
as the overall investment portfolio
level. How do public REIT returns
relate to returns from the stocks,
bonds and real estate held by
investors? How does this differ
on the short and long terms? How
do REITs and private real estate
fit with investor goals, portfolio
structure, liabilities, risk tolerance
and liquidity needs? Understand-
ing how institutional investors
view the role of real estate from
a portfolio perspective is critical
in thinking about how to make a
case for an added role for REITs.
The remainder of this article
provides additional perspective on
each of these three points, with
reference to existing industry and
academic work in the REIT, pricing/
liquidity and corporate governance
areas. The emphasis is on risk and
portfolio considerations that may be
part of the explanation for the ap-
parent outperformance and under-
allocation puzzles, and which might
provide fruitful avenues for future
investigation and research. The aim
is to provide additional insight into
the investment characteristics of
public REITs, as well as thoughts on
what might be required to attract a
greater share of the plan sponsor
real estate allocation.
Comparing public vs. private return indices: proceed with caution Comparing the relative performance
of public REIT and private property
with published return indices, as
in Table 1, could potentially lead to
spurious conclusions due to major
differences in the mix of properties
(types and locations) as well as debt
financing.
The NCREIF property and open-
end core fund (ODCE) indices are
more heavily weighted towards
office and industrial compared to
the NAREIT Equity REIT Index. As
of 9/30/10 offices comprise roughly
35% of the value of the NPI and
ODCE property portfolios but less
than 15% of the NAREIT equity
index. The market cap of industrial
REITs is less than 4% of the NAREIT
index while it is between 14% and
18% of the NCREIF indices. Health-
care, self-storage and specialty REITs
comprise 26% of the NAREIT equity
market cap, but have no presence in
the NCREIF indices.
Variation of performance by
property sectors will therefore
be reflected in differential index
returns that may not be related to
differences in public versus private
return dynamics. Accounting for
these differences, however, will
not likely change the conclusion.
Previous studies that carefully ad-
justed for property mix and leverage
differences across REIT and private
market indices report that the REIT
outperformance differential narrows
but remains positive.
Another issue relates to what
private property index to use.
Appraisal-based indices are
appropriate (and designed) for
benchmarking the performance of
portfolios for which properties are
valued in a similar fashion. Given
the somewhat backward looking
nature of appraisals, indices like
those produced by NCREIF and
IPD are less suitable for asset class
and market dynamic research than
are indices derived from actual
transactions. As such, the summary
statistics in Table 1 for the TBI are
more relevant for comparison with
The bias towards
private property investment
vehicles in pension funds
real estate holdings is
something of a puzzle.
EPRA NEWS / 37 / 2010 35.
NAREIT returns. As noted previously
the difference between NAREIT
and TBI returns is relatively small,
though the volatility of TBI returns
is much higher than with NPI and
ODCE returns, both factors suggest-
ing that over the long term REITs
and real estate may not be all that
different.
A third complicating factor
in comparing public and private
returns is that REIT share values
reflect more than the value of
the underlying real estate. REITs
are operating companies (‘going
concerns’) and thus the risk and
return characteristics reflect REIT’s
management, including the stock
market’s perception of their abilities
and future growth opportunities, as
well as the nature of their existing
portfolio of properties. This ‘going
concern’ component does not factor
highly into in the valuation of port-
folios of privately held properties
whose values reflect only expected
cashflows directly associated with
assets currently in the portfolio.
On average for most firms that
choose to be a public REIT we would
expect that the present value of
growth opportunities and manage-
ment franchise would be positive,
yet also add be more volatile than
the value of underlying existing
property assets. Therefore we might
expect that over long periods REITs
should outperform the performance
of their properties but also be riskier
from a volatility standpoint.
Liquidity and volatility The outperformance of REITs over
private real estate might suggest
that there is no ‘illiquidity premium’
in private property investment. That
is, private market investors are not
compensated for the high costs and
risks of illiquidity of property and
hence public REITs are superior
option because of the liquidity they
offer. However pension fund and
like investors know that direct (and
indirect) real estate is far less liquid
than public securities and this is
taken into account ex ante when
formulating policy weight targets.
Investors allocate on average about
10% of their assets to real estate and
certainly should not put private real
estate in the ‘liquidity bucket’. This
calls into question whether plan
sponsors “care” about real estate li-
quidity and an illiquidity premium.
In fact, it seems to be the case
that many private market investors
dislike the liquidity and resulting
volatility associated with public
REIT shares. While liquid public
markets are generally regarded as
more transparent and efficient than
private ones because information is
widely dispersed and quickly capi-
talized into asset prices, and there
is no doubt that price discovery
takes place in the public markets,
many private real estate investors
shy away from the liquidity offered
by public REITs because the ease
of moving in and out allows people
who know nothing about REITs or
real estate to trade and add volatility.
It is therefore possible that some
of the perceived outperformance
of REITs is actually a ‘noise trader’
risk premium to compensate long-
term investors that have to mark to
market quarterly for the volatility
created by short horizon investors
and also momentum/sector chasers
that at times park money in REITs.
In thinking about the implications
for the pubic REIT versus private
real estate investment choice, these
considerations suggest that the
value placed on the higher liquidity
of REITs could be less than the
Chart 1. Public Equity REIT versus Core Open End Fund and Direct Property Returns
Annual returns derived as year to year percent change in quarterly total return indices.
■ Equity REITs ■ Core Open End Funds ■ Property (Transaction-Based)
Annual
Tot
al R
eturn
(%
)
1978 1981 1984 19 87 1990 1993 1996 1999 2002 2005 2008
100
80
60
40
20
0
-20
-40
-60
-80
5 year (60 month) correlations through August 2010
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Rol
ling
5-ye
ar C
orre
lati
ons
■ S&P 500 ■ Russell 2000 ■ Russell 2000 Value
Source: Author based on data from NCREIF, MIT Center for Real Estate and NAREIT.
>
Contents Page
36. EPRA NEWS / 37 / 2010
costs associated with added volatil-
ity from short-horizon traders and
the loss of control and related cor-
porate governance issues relative to
private market investments (direct
and in commingled funds).
REITs vs. Stocks and Real Estate Most investors, large and small com-
bine their REIT investments with
significant holdings in other sectors
of the stock market. It is therefore
crucial that investors understand
how REITs tend to perform relative
to other stock ‘baskets’ and also how
this differs from the private ate real
estate – stock dynamic, especially
for investors that are market to mar-
ket over short frequencies. Chart 2
illustrates how monthly equity REIT
returns have moved on average with
large cap, small cap and small cap
value stocks. Starting with the birth
of the modern REIT era, REIT returns
showed declining correlations with
large cap stocks, though these began
to creep up soon after REIT began
being added to the S&P 500 in 2001
and especially during the financial
crisis. REITs have consistently had
fairly high correlations with small
cap value stocks.
This suggests therefore that REITs
may be of greater diversification
benefit to investors whose stock
holdings are dominated by large cap
stocks. Moving to quarterly returns
(Chart 3) reveals that the strong
connection with small cap value
stocks persists and that REITs at
times show relatively high correla-
tion with private real estate. Given
the high correlation between REITs
and small cap value stocks plan
sponsors need to understand the
implication diversification benefits
and risk quantification of REITs.
Early research delving into this
finds that despite equity REIT and
stock (particularly small cap value)
returns sharing common drivers
there is a unique component to
REIT returns unrelated to financial
asset returns; REITs offer significant
diversification benefits.
Taking a longer term perspective
and evaluating how the correlations
behave over extended time horizons
(Chart 4) indicates that REITs become
more tightly connected to real estate
returns as the correlation with large
cap stocks declines at a rapid rate.
Interestingly the strong connection
with small cap value stocks remains.
For investors with long-terms hori-
zons (i.e. those incorporating REITs
into the private real estate alloca-
tion) public equity REITs represent a
unique asset class with characteris-
tics of both small cap value stocks
and private real estate yet differs
from each. Of course REITs also
Chart 2. Time-Varying Correlations of Equity REIT Returns with Stock Index Returns
Annual returns derived as year to year percent change in quarterly total return indices.
■ Equity REITs ■ Core Open End Funds ■ Property (Transaction-Based)
Annual
Tot
al R
eturn
(%
)
1978 1981 1984 19 87 1990 1993 1996 1999 2002 2005 2008
100
80
60
40
20
0
-20
-40
-60
-80
5 year (60 month) correlations through August 2010
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Rol
ling
5-ye
ar C
orre
lati
ons
■ S&P 500 ■ Russell 2000 ■ Russell 2000 Value
Source: Author’s calculations based on data from Bloomberg
Investors are not
compensated for the high
costs and risks of
illiquidity of property.
Chart 3. Time-Varying Correlations of Equity REIT Returns with Stock, Bond and Direct Property Returns
Rol
ling
5-ye
ar C
orre
lati
ons
5 year (20 quarter) correlations through 2010
1989 1991 1993 1995 19 97 1999 2001 2003 2005 2007 2009
■ Small Cap Value Stocks ■ S&P 500 ■ Bonds ■ Property (Transaction-Based)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Cor
rela
tion
wit
h E
quit
y R
EITs
0.9
0.7
0.5
0.3
0.1
-0.1
-0.3
-0.5
0.25 1 2 3 4 5 6
Holding Period (Years)
Stocks (S&P 500)
Small Cap Value Stocks (Russell 2000 Value)
Direct Real Estate (TBI)
Direct Real Estate (TBI “Constant Liquidity”)
Source: Author’s calculations based on data from Bloomberg, NCREIF and the MIT Center for Real Estate
EPRA NEWS / 37 / 2010 37.
provide liquidity and flexibility to
the real estate allocation.
ConclusionOver the past 15 years publicly
traded REITs have developed into a
viable alternative for equity invest-
ment in real estate by a broader
range of investors including pension
funds. There appears to be a strong
case for the inclusion of both REITs
and private real estate in mixed as-
set portfolios. However, despite the
development of the public market,
US institutional real estate has
remained largely a private invest-
ment. The dominance of private is
beginning to change, however. Plan
sponsors are increasingly turning
to the developing global REIT mar-
ketplace to execute their expanding
international investment strategies.
Investors have a renewed sense of
the benefits in terms of access to
capital and flexibility of the public
REIT business model following the
remarkable REIT recovery after the
financial crisis.
It will take time for a lot of plan
sponsors to get comfortable with the
idea of mixing public and private
in their real estate allocation. Many
have struggled with the issue of
where to house the responsibility for
REITs within the portfolio manage-
ment team, with the stock team or
the private real estate group, and
with understanding exactly what
REITs represent in terms of invest-
ment attributes within the portfolio.
Larger institutions have historically
invested in private real estate both
for control reasons and to diversify
away from public market return dy-
namics (sometimes investing along-
side REIT management teams in
private market ‘wrappers’ including
joint ventures and funds). Further
research addressing the issues
raised in this article should help to
put public REITs in the comfort zone
of more investors.
Chart 4. Correlations of Equity REIT Returns with Stock and Direct Property Returns Over Different Holding Periods
Rol
ling
5-ye
ar C
orre
lati
ons
5 year (20 quarter) correlations through 2010
1989 1991 1993 1995 19 97 1999 2001 2003 2005 2007 2009
■ Small Cap Value Stocks ■ S&P 500 ■ Bonds ■ Property (Transaction-Based)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Cor
rela
tion
wit
h E
quit
y R
EITs
0.9
0.7
0.5
0.3
0.1
-0.1
-0.3
-0.5
0.25 1 2 3 4 5 6
Holding Period (Years)
Stocks (S&P 500)
Small Cap Value Stocks (Russell 2000 Value)
Direct Real Estate (TBI)
Direct Real Estate (TBI “Constant Liquidity”)
Source: Author’s calculations based on data from Bloomberg and the MIT Center for Real Estate.
1 “The Truth About Real Estate Allocations,” Cohen and Steers, July 2010 and “REITs: Real Estate with a Return Premium,” NAREIT Special Report, May 2010. 2 See “Public versus Private Real Estate Equities: A More Refined, Long Term Comparison,” by Pagliari, Scherer and Monopoli, Real Estate Economics, 2005, 33(1):147-187; “Privately versus Publicly Held Asset Investment Performance”, by Riddiough, Moriarty and Yeatman, Real Estate Economics, 2005, 33(1):121-146; “A Successive Effort on Performance Comparison Between Public and Private Real Estate Equity Invest-ment,” by Tsai, MIT Center for Real Estate Masters Thesis, 2007; “REITs and Real Estate: Is There Room for Both in a Portfolio?” Pension Real Estate Associa-tion (PREA) Research Report, October 20103 Assuming debt financing with an average loan to value of 50% on properties in the TBI index yields a volatility two times higher than the TBI standard deviation, or almost 10%, a figure very close to the standard deviation of REIT returns. 4 Related to this, though not focused specifically on REITs, recent academic research finds that across public companies high liquidity is associated with weaker corporate governance [“Corporate Governance and Financial Markets,” by Subrahmanyam, Corporate Ownership & Control, Volume 5, Issue 3, Spring 2008: 259-274.] because highly liquid shares are relatively inexpensive to trade they attract short-horizon traders, who almost by definition do not have a long-term interest in a firm’s corporate governance.5 See “REIT Returns and Pricing: The Small Cap Value Stock Factor,” by Anderson, Clayton, MacKinnon and Sharma, Journal of Property Research (2005), 22(4): 267-286; “The Substitutability of REITs and Value Stocks, Lee and Stevenson, Applied Financial Economics,(2007) 17: 541-557, Securitized Real Estate and its Link with Financial Assets and Real Estate: An International Analysis, Hoesli and Moreno, Journal of Real Estate Literature (2007) 15: 59-84.
Jim ClaytonVice-President of ResearchCornerstone Real Estate Advisers LLC, Hartford, [email protected]
Contents Page
38. EPRA NEWS / 37 / 201038. EPRA NEWS / 34 / 2010
We are all well versed
with the argument:
when expanding from a
purely domestic property
exposure to one that is
global in nature, investors
can expect to gain
significant diversification
benefits and achieve
higher risk-adjusted
returns. Yet developing
and ultimately executing
a truly global investment
strategy poses challenges.
Decisions on where to invest should
be made, in part, by knowing
how much investable real estate
exists across the globe and which
structures can access it. As such,
CBRE Investors annually compiles
the Global Investable Universe
(GIU) as a tool to estimate the size
of real estate markets around the
world. The results of this exercise
highlight not only the scale of the
investment market today, but even
more importantly, what the global
real estate landscape will look like
in the coming years.
Our approach to estimating
the total value of investable real
estate first looks at those countries
that may be suitable for real estate
investment by institutional inves-
tors, based on factors such as size
of economy, political stability and
the level of economic development.
Ultimately, these are the countries
that we, as well as our competition,
theoretically might target for either
direct or indirect real estate expo-
sure. In our current iteration of the
GIU, we identified 62 countries and
divided them into seven regions:
North America, Latin America,
Developed Asia, Emerging Asia,
Developed Europe, Emerging Europe
and the Rest of the World. They are
listed here in Figure 1.
Within this basket, the largest
countries by population are China,
with 1.3 billion people, and India,
with 1.2 billion. The least populous
countries are Malta (420,000) and
Luxembourg (440,000). At USD
108,910, Luxembourg also has the
highest GDP per capita in 2010. The
runner-up is Norway (USD 94,200).
At the opposite end of the list sits
Vietnam, with a 2010 per capita
GDP of USD 1,140. The US retained
the largest economy, with a GDP
of USD 14.8 trillion. China usurped
Japan in 2010, and now is in second
place (USD 5.6 trillion). Malta also
finds itself with the smallest GDP at
USD 8 billion.
Estimated or calculated?In order to estimate the value
of institutional-grade commercial
real estate for each country a
GDP-based top down approach is
utilised. Real estate is an important
component in generating economic
output and is closely correlated to
GDP. As such, this unifying metric
works well as a proxy for the size of
an individual country’s investment
grade real estate.
CApturing the true sCope oF
listed reAl estAte
mARkEt fOCus
EPRA NEWS / 37 / 2010 39. EPRA NEWS / 34 / 2010 39.
CBRE Investors concurs with es-
timates by EPRA and industry peers
(i.e. Prudential Real Estate Advisors
or UBS Global Asset Management),
that real estate typically represents
45% of a developed country’s GDP.
There are of course exceptions. In
developing countries investment
grade real estate may make up a
smaller share of GDP. Rather than
selecting countries based on a
common perception of development
level or role in the global economy,
countries were classified as being
‘developed’ or ‘emerging’ strictly on
the basis of a country’s per capita
GDP.
The 27 countries with a per
capita GDP greater than half of the
US (USD 23,940 in 2010) are con-
sidered developed. The following
formulas, based off work carried
out by Prudential, were then used
to determine the value of real estate
in these countries: REi = 45% x GDP
Using Canada as an example, the
2010 investable real estate value is
calculated as:
• 45% x USD 1.5 trillion = USD 665
billion of investable real estate
The 35 countries with a per
capita GDP of less than half of the
US were labeled as emerging. The
following formula was used to
determine these country values:
• REi = 45% x GDP x (per capita
GDP/(0.5 per capita US GDP))1/3
Using China as an example, the
2010 investable real estate value
was calculated as follows:
• 45% x USD 5.6 trillion x (USD
4,170/ USD 23,940) 1/3 = USD 1.4
trillion, or 25% of GDP
There are also those countries
that not only have exceptionally
high population densities, but also
could be considered real estate
dense. Hong Kong and Singapore fall
into this category and as such were
adjusted upwards using a scaling
factor of two. The UK, with the sheer
magnitude of London and its high
degree of investor activity, received
an upward adjustment of 1.25. The
United Arab Emirates (which is one
of the additions to our 2010 GIU)
was also increased by 1.25 due
to the precipitous rise of its invest-
ment grade real estate market in
recent years.
Figure 2. illustrates the estimated
real estate values for the seven re-
gions that comprise the GIU, which
will total ca. USD 24.1 trillion in 2010.
The results of GIU exercise illustrate
that there is ample investment grade
real estate in all corners of the world.
From New Zealand to Costa Rica to
Cyprus (another addition to our 2010
universe) there is ample real estate
to satisfy global investors’ appetites.
Although the cumulative value of
the GIU is a staggering number, its
distribution is not evenly spread
among all countries. So the three
countries mentioned above are
found towards the bottom of this
year’s cumulative list. Rather, most
of the value is currently concentrated
in just a few nations.
The cumulative share column in
Figure 3. highlights this point. The
top five countries by share – the
US, Japan, Germany, China and
France – represent more than half of
the 2010 GIU. The top ten comprise
nearly 72% and the top 15 more than
81% with the remaining 47 countries
holding only 19% of the global
commercial real estate. Developed
Europe continues to make up the
largest region, with USD 7.8 trillion
of investable real estate, or a third
of the GIU. North America, bolstered
by the US, accounts for USD 7.3
trillion, or roughly another third. De-
veloped Asia accounts for 16%, with
the remaining shares decreasingly
spread among Emerging Asia, Latin
America, Emerging Europe and the
Rest of the World.
Developed Europe Emerging Europe Emerging Asia Dev. Asia Pacific North America Latin America Rest of World
Austria Bulgaria China Australia United States Argentina IsraelBelgium Czech Republic India Hong Kong Canada Brazil MoroccoCyprus Estonia Indonesia Japan Chile Saudi ArabiaDenmark Hungary Malaysia New Zealand Colombia South AfricaFinland Latvia Philippines Singapore Costa Rica TurkeyFrance Lithuania Thailand South Korea Mexico U.A.EGermany Poland Vietnam Taiwan PanamaGreece Romania PeruIreland Russia VenezuelaItaly SlovakiaLuxembourg SloveniaMalta UkraineNetherlandsNorwayPortugalSpainSwedenSwitzerlandUK
Figure 1: CBRE’s 2010 Global Investable Universe
Figure 2: The 2010 Global Investable Universe
>
Contents Page
40. EPRA NEWS / 37 / 201040. EPRA NEWS / 34 / 2010
Last year’s losses have already
been more than offset and
are now slightly higher than
our 2008 estimate.
Figure 3: The 2010 Investable Universe Share by Major Country
Country Region Country Share Cumulative Share
1 United States North America 27.7% 27.7%2 Japan Developed Asia Pacific 9.9% 37.6%3 Germany Developed Europe 6.4% 44.0%4 China Emerging Asia 5.8% 49.8%5 France Developed Europe 5.2% 55.0%6 United Kingdom Developed Europe 5.2% 60.2%7 Italy Developed Europe 4.1% 64.3%8 Spain Developed Europe 2.8% 67.1%9 Canada North America 2.8% 69.9%10 Brazil Latin America 2.5% 72.4%11 Russia Emerging Europe 2.1% 74.5%12 Australia Developed Asia Pacific 2.1% 76.6%13 South Korea Developed Asia Pacific 1.7% 78.4%14 Netherlands Developed Europe 1.6% 79.9%15 Mexico Latin America 1.2% 81.1%
Falls by geographyBefore offering a glimpse of the real
estate universe in ten or even 20
years, arguably the most interesting
output of this exercise, let us take
a brief look at the evolution of the
GIU for some context. Back in 1985
when our universe only comprised
39 countries and had a value of
USD 4.5 trillion the institutional real
estate world was a much different
place. Few investors were even
looking to real estate for their asset
allocations, and far fewer still con-
sidered venturing outside of their
home markets.
Back then the US comprised
42% of the universe. China made up
just 1%. With the fall of the Berlin
Wall and the meteoric rise of Asia
as an economic superpower, global
output expanded and so too did the
GIU. Countries were incrementally
added to the universe and regional
shares shifted. Since the mid-1980
the GIU has grown on average of
7% per year. In the period from,
2002 to 2007, the universe
experienced some of its greatest
growth spurts.
With much of the world in
the throes of severe recession
in 2009, the GIU saw its biggest
drop in its tracked history, fall-
ing nearly 6%, or a staggering
USD 1.4 trillion, from the 2008
estimate. Developed Europe, with
the most constituent countries
of any region, saw values drop
by the greatest amount in total
terms, falling 10% from the 2008
value. Emerging Europe, weighed
down by Russia and the former
Soviet states, shed 23% from
its 2008 estimate. Conversely, the
dip seen in Developed Asia Pacific
was barely negligible.
This year as the global economy
returns to growth, so too does the
value of the GIU. Our current esti-
mate shows that last year’s losses
have already been more than offset
and are now slightly higher than
our 2008 estimate. Much of the
improvement is attributed to the
US and China. In percentage terms
at the regional level Emerging Asia,
Latin America, Emerging Europe and
the Rest of the World have grown by
double digits over last year.
Forward focussedA more beneficial use of the GIU is
its ability to offer a glimpse of the
real estate world in ten or even 20
years. The GIU is expected to grow
over time as the world economy
grows, with all regions increasing in
size. Figure 4. shows the transforma-
tion that the GIU is set to experience
over the next decade. We estimate
that by 2020, the GIU will be ca.
USD 47.2 trillion, a 96% increase
over the 2010 value. By 2030 the GIU
is estimated to be USD 69.7 trillion,
a 289% increase over the current
estimate and a faster rate of growth
than during the previous 20 years.
Although growing in absolute
terms over the coming decades the
largest regions in 2010 will account
for decreasingly smaller shares. De-
veloped Europe and North America
will shrink from their approximate
one third make up to a quarter by
2020. Developed Asia Pacific’s share
will contract by a smaller margin
and Latin America’s share will re-
main constant. At the country level
Venezuela, Japan and Italy will have
the slowest rates of investable value
growth over the coming decade,
with the change in the country level
real estate value expected to be half
of the global average. Political insta-
bility, weak demographic trends and
general structural weaknesses are
all contributing factors which inhibit
a country’s investable real estate
from growing quicker.
Emerging markets thus will see
the fastest increase, primarily from
higher levels of economic growth
but also increasing stocks of
mARkEt fOCusmARkEt fOCus
EPRA NEWS / 37 / 2010 41. EPRA NEWS / 34 / 2010 41.
Per
cent
of th
e G
lobal In
vest
able
Univ
erse
$ 4.5 Trillion in 1985 $ 47.2 Trillion in 2020
1985 1990 1995 2000 2005 2010 2015 2020
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Rest of WorldLatin AmericaEmerging Europe
Emerging AsiaDeveloped Asia Pacific
North America
Developed Europe
Figure 4: Regional Shifts Over Time
Andrew Angeli is a Senior Associate responsible for analysing the European office, industrial and retail markets, and evaluating economic and capital market trends. In addition to producing top-down regional economic analyses and bottom-up property market reviews for acquisitions, Angeli prepares specialised studies and bulletins on the economic and real estate market outlook. After joining CB Richard Ellis Investors in 2007, he worked in the firm’s Los Angeles and Paris [email protected]
T + 44 (0)20 7268 7438
institutional-quality real estate.
Emerging Asia will grow from ca.
USD 2 trillion in 2010 to ca. USD 9
trillion in 2020, more than doubling
its share of the GIU to 19%. This sea
change is principally attributed to
the growth prospects expected for
China and India. By 2020, China will
make up over 15% of the GIU, hav-
ing surpassed Japan to become the
second largest market behind the
US. Looking further afield, India will
account for 4% of the GIU in 2030,
a time when Emerging Asia dwarfs
Developed Asia Pacific.
Emerging Europe will similarly
stand to benefit. As the region up-
grades its functionally, obsolete
stock and multi-national firms target
the region for its attractive growth
prospects, the value of investment
grade real estate should stand to
grow rapidly. In tangible terms,
cities in Poland and Ukraine are
aggressively ramping up investment
in tourist infrastructure for the 2012
European Football Championship.
This of course will have a lasting
presence beyond the matches,
undoubtedly attracting investors
to the region. Furthermore, Rus-
sia, Romania and the Baltics
are all expected to see their indi-
vidual real estate market values
increase by over 150% during the
next decade.
While CBRE Investors make
no assertion that our estimations
are more robust than those of our
industry peers, we do believe that
our current GIU is a reasonable
approximation that allows for an un-
derstanding of the current, but even
more importantly, future size of the
real estate universe. The growing
nature of which will provide an
array of investment opportunities
and strategies. Whether through
direct property, funds, publically
listed real estate vehicles, debt
or even derivatives, decisions
on where and how to invest
should be made by knowing how
much investable real estate exists
across the globe. The GIU can help
today’s investors anticipate what
global real estate markets will one
day become.
We estimate that by 2020, the GIU
will be ca. USD 47.2 trillion, a 96%
increase over the 2010 value.
Contents Page
42. EPRA NEWS / 37 / 2010
Commercial property
values have recovered
from the lows of the
credit crunch - lenders
are trickling back and
development pipelines
have come off hold.
Indeed the listed European
property sector came out
of survival mode last year
on the back of successful
rights issues and macro
level QE measures. So is
there clear road ahead?
Generally speaking, the listed sector
can hold its head high, but investor
scrutiny and monitoring of debt
ratios triggered by the collapse of
the financial market has not eased
- this despite the markets having
made up some of the lost ground.
Although negotiations have kept de-
faults based on covenant breaches
to a minimum, it is expected that
upon loan maturity the borrowers
will run out of options. As a high
proportion of commercial debt
reaches maturity in the coming 12-18
months, both threats and opportuni-
ties will surround the commercial
property sector.
The commercial property sector
will face a shortage of EUR 115 bil-
lion in the next two years according
to DTZ. The shortage is expected to
be most severe in the UK and Spain.
This compares to EUR 54.9 billion
that will be required for the entire
VehiCle shiFting
geArs
-10
0
10
20
30
40
50
60
Adjustments toDebt Schedule
Debt Due ThereafterDebt Due in 1-5 YearsDebt Due in NextTwelve Months
Based on the most recently reported debt maturity data. If values were not reported for the most recent period, most recent year values were used.
140
120
100
80
60
40
20
0
€ bn LTV %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
84% 87% 86% 84%
72%
60% 65%70%
75%
6
30
77
12
108
18 21
110
60
23
16
24
1515
15
28 36 44
2004 2005 2006 2007 2008 2009 2010 2011 2012
■ Loan Origination ■ Implied Equity Max % LTVs (RHS)
10.8%
56.2%
23.3%
-0.06%
mARkEt fOCus
Figure 1: EPRA European Constituents Debt Maturity Schedule (in €)
EPRA NEWS / 37 / 2010 43.
As a high proportion of
commercial debt reaches
maturity in the coming 12-18
months, both threats and the
opportunities they present
will surround the commercial
property sector.
listed sector across Europe within
1-5 years. The high proportion of
debt maturity for the entire sector
is mainly due to the steep levels of
lending in 2006-2007 and an aver-
age duration of five years.
According to EPRA estimates,
total debt of European listed com-
panies amounts to EUR 184 billion
(2004: EUR 78 billion), compared
to the total for all commercial real
estate debt of EUR 1,848 billion
(2004: EUR 1.12 billion). Approxi-
mately 10.8% is set to mature in 12
months while the bulk of total debt
matures in 1-5 years for EPRA Europe
companies. This coincides with the
estimates put out by DTZ, where the
highest amount maturities occur in
years 2011-2012. (See Figure 1)
Funding gap A number of factors will lead to a
funding gap; and several research
reports point to 2011-2012 as the
most testing period for commercial
property owners to access the debt
market. First, lending to the com-
mercial property sector peaked in
2006-2007. This according to DTZ
numbers amounts to EUR 257 bil-
lion across sectors in Europe. The
appetite for commercial real estate
lending declined dramatically in
2009, forcing distressed sales and
rights issues. Secondly, the combi-
nation of banks’ reluctance to sell
at distressed prices, even after the
property value rebound of 37%* in
Europe since 2008, accompanied by
unwillingness of equity investors to
buy loans at non-distressed prices
will add to the funding gap in the
property sector, according to DTZ
research. (See Figure 2)
Banks are the main beneficiaries
of a variety of regulatory measures
including asset protection schemes,
liquidity injections and complete
bail-out programs. As a result, banks
could afford to adjust lending agree-
ments on LTV breaches as long as
ICR requirements were met during
the term of the loan. Several bank
agreements were cash-flow based
e.g. ICR, therefore lenders were
not directly affected by asset price
declines during the term. Upon
maturity however, the situation will
be different as governments become
less generous towards the banks
and start focusing on their respec-
tive budget deficits. In addition, with
the limited asset value appreciations
in the last 12 months, banks will be
more willing to bring the property to
the market than last year.
-10
0
10
20
30
40
50
60
Adjustments toDebt Schedule
Debt Due ThereafterDebt Due in 1-5 YearsDebt Due in NextTwelve Months
Based on the most recently reported debt maturity data. If values were not reported for the most recent period, most recent year values were used.
140
120
100
80
60
40
20
0
€ bn LTV %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
84% 87% 86% 84%
72%
60% 65%70%
75%
6
30
77
12
108
18 21
110
60
23
16
24
1515
15
28 36 44
2004 2005 2006 2007 2008 2009 2010 2011 2012
■ Loan Origination ■ Implied Equity Max % LTVs (RHS)
10.8%
56.2%
23.3%
-0.06%
Source: DTZ Research
>
*FTSE EPRA/NAREIT Europe Index
Figure 2: Original property values by origination vintage
0
5
10
15
20
25
30
2005 2006 2007 2008 2009 YTD
EUR 6,000
EUR 5,000
EUR 4,000
EUR 3,000
EUR 2,000
EUR 1,000
EUR 0
■ Amount Raised Number of Issues
€200
€180
€160
€140
€120
€100
€80
€60
€40
€20
€0
■ Total Debt ■ Net Debt ■ Cash & Equivalent ■ Europe LTV
0
0.1
0.2
0.3
0.4
0.5
0.6
2001 2002 2003 2004 2005 2006 2007 2008 2009 Most Recent
Bill
ions
Figure 3: EPRA Europe
Contents Page
44. EPRA NEWS / 37 / 2010
On the equity side, investor
support may be somewhat different
than in 2009. Highly leveraged com-
panies trade at a higher discount to
NAV, which would make additional
equity issues highly dilutive for
the owners. Focused institutional
investors often have the restrictions
which limits buying loans or partial
equity positions. In addition, pro-
posed regulatory measures such as
the Solvency II and the AIFM direc-
tive will create further obstacles for
equity investors.
Loan-to-Value (LTV)Perhaps the most significant fall-out
of the credit crisis on the debt market
is the tolerance to leverage. 2006-
2007, when debt lending reached
its peak, LTV’s of 84-86% were be-
ing accepted as commercial assets
were perceived as good collateral.
European commercial property sec-
tor slumped 48% at the end of 2008
and recovered 36% during 2009.
With a moderate economic growth
forecast for the coming 12 months, it
is not certain that the whole sector
will recover to pre-2008 levels. Re-
financing therefore remains a huge
challenge for highly leveraged vehi-
cles that have not been able to inject
sufficient equity to lower gearing.
EPRA European stocks have
cut down debt levels remarkably
in the last 18 months, even though
the REIT-denominated sector has
traditionally had relatively low
leverage due to regulations. Average
LTV of EPRA Europe constituents has
declined from 55% in 2008 to 43%,
as of end of October. Within the
EPRA Europe Index, Sweden has the
lowest LTV of 29.9% while Austria
is on the other end with an average
of 60.8%. (See Figure 3 on previous
page).
Listed companies of Europe
have been active on acquisitions,
however, the sustained efforts to
keep LTVs low suggest that even the
well positioned companies remain
cautious. With an average LTV of
43%, the listed companies have
sufficient room to gear-up when
conditions are favourable and
opportunities arise.
With an average LTV of
43%, the listed companies
have sufficient room to
gear-up when conditions
are favourable and
opportunities arise.
0
5
10
15
20
25
30
2005 2006 2007 2008 2009 YTD
EUR 6,000
EUR 5,000
EUR 4,000
EUR 3,000
EUR 2,000
EUR 1,000
EUR 0
■ Amount Raised Number of Issues
€200
€180
€160
€140
€120
€100
€80
€60
€40
€20
€0
■ Total Debt ■ Net Debt ■ Cash & Equivalent ■ Europe LTV
0
0.1
0.2
0.3
0.4
0.5
0.6
2001 2002 2003 2004 2005 2006 2007 2008 2009 Most Recent
Bill
ions
Figure 4: Bond Market pick-up
EPRA NEWS / 37 / 2010 45.
Debt marketThe low LTV levels have also
enabled property EPRA companies
to make a comeback into the debt
market, which became inaccessible
for most companies during 2009.
After having raised more than EUR
8 billion last year through rights
and equity issues, listed companies
are tapping the debt market at an
accelerated pace. Year-to-date, EPRA
Europe companies have successfully
placed bonds equalling EUR 4.84
billion in the market. Bonds issued
by European REITs currently offer an
average of 4.1% coupon, at a time
when central banks have slashed
interest rates to historic lows.
Issuing corporate bonds may
provide the property sector with
another option than the traditional
lenders or banks. But due to the
increase in LTV following a bond is-
sue, the amount raised will be more
for strategic purposes than building
cautionary reserves. (See Figure 4)
Positive leverageThe commercial property sector in
general has had an affinity to high
leverage, which is likely to change
due to a funding gap and decreased
risk tolerance of lenders. The lend-
ers themselves will have fewer
options as QE measures and support
from regulatory authorities are with-
drawn. As a result, situations where
defaults were avoided by ignoring
covenant breaches during the term
of the loan will, instead, need to be
confronted head-on upon maturity.
The European listed sector is per-
haps well positioned for the capital
market dynamics, due to a history
of operating with low leverage and
the aggressive measures taken to
drive down LTV to 43%. Low LTV
levels would not only make listed
companies safer candidates in the
market for the scarce finance, but
it makes them good contenders of
snapping up assets. Taking on lever-
age, nonetheless, boosts returns for
the equity holders during market
recovery. Having this option presents
a favourable outlook for the listed
property companies.
EPRA launched the Monthly LTV
Monitor in October 2010 for the
constituents of the FTSE EPRA/NA-
REIT Developed Europe Index. This
report summarises monthly changes
on company LTV ratios, the debt
maturity schedule of each company
and an update on all corporate bond
issues. This report is published in
collaboration with SNL and is avail-
able for all EPRA members.
Low LTV levels would not only make listed
companies safer candidates in the market for
scarce finance, but it makes them good contenders
of snapping up assets.
Ali Zaidi joined the research team on October 2007. His initial projects were working on the emerging market indices for the FTSE EPRA/ NAREIT Global Real Estate Index and the European Corporate Governance report. Zaidi holds a BA in Economics and Business and completed his MSc in International Finance at the University of [email protected]
Contents Page
46. EPRA NEWS / 37 / 201046. EPRA NEWS / 34 / 2010
The often quoted
“superior volatility” of
listed bricks and mortar
is deceiving. There’s a far
more engaging, liquid and
rewarding story.
Over the first nine months to Sep-
tember 2010, European real estate
equities markets produced an 11.4%
total return (FTSE EPRA Europe
Index), outperforming the wider
equity market which has posted
a 5.5% total return over the same
period (DJ STOXX Europe).
However this low single-digit
performance masks what has been
an eventful period. We witnessed
the return of hyper-volatility in eq-
uity markets at levels reminiscent of
2008 after the collapse of Lehmans.
Indeed the ten-day volatility of Eu-
ropean property shares was around
8.5% on March 24 and reached a
high of 56% a month later to finally
descend to the current level of 15%.
Such excessive surges in volatil-
ity caused by tail risk events (such
as the one witnessed at the end
of May 2010 following the euro
sovereign debt crisis) are generally
coupled with an increased correla-
tion between different asset classes
and also equity sub-sectors. This
tends to undermine efforts to gener-
ate alpha through stock selection
as beta (portfolio risk positioning)
dictates performance. However, an
interesting feature which we have
observed following this highly vola-
tile period, has been the resumption
of dispersion in stock returns.
At the beginning of the year, we
expressed our clear preference at
a macro level for core Europe and
Scandinavia over the ‘UPIGS’ (UK,
Portugal, Ireland, Greece and Spain).
This positioning was opportune as
the UK listed property sector (35% of
EPRA) has underperformed EPRA (in
euros) by 11.4% while France (30%
of EPRA), Sweden and Switzerland
outperformed by 2.9%, 42.8% and
28.1% respectively.
Against this challenging back-
ground, we launched the Thames
River Real Estate Securities Fund
(TRRES) on April 08, 2010. The Fund
has a long bias, but compared to tra-
ditional long-only products also has
the flexibility to use short positions
in individual stocks and indices to
actively manage risk, volatility and
overall net exposure between 60%
and 140%.
The Fund began life overweight
the market, albeit with a number of
short positions as hedges. However,
this beta long positioning at incep-
tion proved detrimental to perform-
ance as the euro crisis enveloped
all asset classes during April and
May. Real estate shares proved no
exception and fell 13% in ten days.
Since the market bottomed out on
May 25, the dispersion of individual
stock returns increased dramatically
and TRRES has since outperformed
its benchmark by 510bps through
stock selection using an average net
exposure of 97%.
tAKe Another
looK
mARkEt fOCus
EPRA NEWS / 37 / 2010 47. EPRA NEWS / 34 / 2010 47.
We expect such volatility shocks
to resurface sporadically as the exit
from unconventional measures (or
resumption of their use, i.e. QE2),
the effects of deleveraging-induced
austerity on both sovereign and
consumer balance sheets and re-
regulation gather pace. This prompts
us to remain extremely vigilant on
long exposure and risk management
across our five property funds.
The persistent above-average
volatility of property shares over-
shadows the self-evident attractions
of stable cash flow and the diver-
sification benefits of investing in
physical real estate.
In that context why do we re-
main advocates of listed real estate
securities?
Volatility gap between listed property and direct property is deceiving On the face of it, actual buildings
look to have significantly lower
volatility than property equities.
However, we think this is illusion-
ary which we aim to prove in the
following section. The Investment
Property Database (IPD) valuation-
based index provides a robust
proxy for the UK physical market
comprising 10,986 office, retail
and industrial properties with a
combined market value of GBP
117 billion as of December 2009.
Since it is an unlevered index
we have created a leveraged version
using the long term Loan-to-Value
(LTV) of UK property companies
(navigating between 33% and
51.3% since 1999 the period and
averaging 41%).
The volatility of UK-listed real
estate (19.6%) is still significantly
higher than that of the leveraged IPD
(4.1%). However we argue that the
volatility of the IPD physical prop-
erty index is seriously understated.
Firstly the IPD index pricing is based
on appraisals rather than actual
transactions, leading to an artificial
lagging and smoothing of returns.
Our opinion is that a transaction-
based index would exhibit a much
higher volatility.
Of note the UK index constitutes
only 35% of the European bench-
mark universe. While no IPD index
in Europe is available on a monthly
basis, we can track the volatility of
ex-UK property shares and Europe
as a whole. The gap between
EPRA Europe and IPD UK is far
lower (EPRA Europe: 13.5% vs. EPRA
UK: 19.6%).
Secondly, the frequency of obser-
vations is low for physical property
(at best monthly) whereas quoted
real estate markets benefit from real-
time continuous trading facilitating
the price discovery process.
Unlike physical property portfo-
lios, listed real estate companies are
not just a collection of assets. Their
share price movements also reflect
management quality, the liability
side of their balance sheet - not just
LTV, but also their financing strat-
egy and diversification, refinancing
maturity and debt-related covenants
as well as their P&L exposure (op-
erational leverage, cost of debt and
hedging strategy). They are therefore
reactive to changes in financing
conditions and yield curve shifts.
Finally, we believe that transac-
tion costs strongly contribute to the
volatility gap as physical property
suffers high transaction costs (5.75%
in, 1.5% out) compared to low-level
dealing costs (less than 0.5% in to-
tal) for property shares.
110%
106%
102%
98%
94%
90%
4.0%
3.0%
2.0%
1.0%
0.0%
-0.1%
-0.2%
■ Net Exposure (LHS) ■ TRRES relative performance since inception (RHS)
■ IPD Index ■ Leveraged IPD Index ■ EPRA UK Index ■ ERPA Europe
■ CBRE Pan-European Investment Volume ■ IPD Derivative (UK, France, Germany Notional traded) ■ FTSE EPRA Europe ■ FTSE ERPA Europe restated incl. OTC
€ 200bn
€ 150bn
€ 100bn
€ 50bn
€ 0bn
Figure 1: TRRES relative performance since inception
Source: Thames River Capital, Northern Trust
110%
106%
102%
98%
94%
90%
4.0%
3.0%
2.0%
1.0%
0.0%
-0.1%
-0.2%
■ Net Exposure (LHS) ■ TRRES relative performance since inception (RHS)
■ IPD Index ■ Leveraged IPD Index ■ EPRA UK Index ■ ERPA Europe
■ CBRE Pan-European Investment Volume ■ IPD Derivative (UK, France, Germany Notional traded) ■ FTSE EPRA Europe ■ FTSE ERPA Europe restated incl. OTC
€ 200bn
€ 150bn
€ 100bn
€ 50bn
€ 0bn
110%
106%
102%
98%
94%
90%
4.0%
3.0%
2.0%
1.0%
0.0%
-0.1%
-0.2%
■ Net Exposure (LHS) ■ TRRES relative performance since inception (RHS)
■ IPD Index ■ Leveraged IPD Index ■ EPRA UK Index ■ ERPA Europe
■ CBRE Pan-European Investment Volume ■ IPD Derivative (UK, France, Germany Notional traded) ■ FTSE EPRA Europe ■ FTSE ERPA Europe restated incl. OTC
€ 200bn
€ 150bn
€ 100bn
€ 50bn
€ 0bn
110%
106%
102%
98%
94%
90%
4.0%
3.0%
2.0%
1.0%
0.0%
-0.1%
-0.2%
■ Net Exposure (LHS) ■ TRRES relative performance since inception (RHS)
■ IPD Index ■ Leveraged IPD Index ■ EPRA UK Index ■ ERPA Europe
■ CBRE Pan-European Investment Volume ■ IPD Derivative (UK, France, Germany Notional traded) ■ FTSE EPRA Europe ■ FTSE ERPA Europe restated incl. OTC
€ 200bn
€ 150bn
€ 100bn
€ 50bn
€ 0bn
Figure 2: Transaction volumes on CBRE (Physical Property) vs. EPRA (Property shares) vs. IPD Derivatives (Property derivatives)
Source: Thames River Capital, CBRE, Bloomberg, Federation of European Securities Exchanges (FESE)
>
Contents Page
48. EPRA NEWS / 37 / 2010
Liquidity is kingThere is obviously an analogy
between physical real estate and
illiquid stocks that “trade by ap-
pointment”. Consequently, you
would expect these to exhibit lower
volatility. Most direct open-ended
property funds have notice periods
longer than a month in respect of
redemptions. Ten German open-
ended funds (representing EUR 27
billion AUM out of a EUR 90 billion
industry) locked redemption gates
in November 2008 at a time when
listed property companies still had
access to the capital markets, raising
GBP 10.3 billion through secondary
offerings. A number of these funds
remain closed to this day. The same
story applies to a number of unlisted
UK open-ended funds.
Since the end of 2004, the aver-
age deal size on the Pan-European
physical real estate market has been
EUR 39 million whereas we estimate
that a volume of EUR 492 million
is traded daily on the listed EPRA
Europe index constituents. Note that
this figure captures only the trading
volume on regulated exchanges and
would increase by approx. 35% to
EUR 752 million if one was to in-
clude the OTC trading and so-called
liquidity ‘dark pools’.
IPD derivatives: great innovation but lacking liquidityThe IPD Index derivatives market is
a significant innovation. It provides
an attractive synthetic exposure to
the physical property market thanks
to small trade sizes, swift execution
of investment decisions and low
transaction costs.
Nevertheless, the polarising
issue remains limited liquidity.
With a cumulative GBP 18 billion
notional investment since 2005 the
derivatives market represented less
than 2% of both the total investment
volume on the physical market
(CBRE data) and the listed property
trading volume. Current quarterly
trading is only 25% of the 2007 or
2008 volumes. Notional investment
volumes plunged 60% yoy in 2009,
and while this is smaller than the
physical market, the average trade
size is still around GBP 7 million (vs.
GBP 14 million during the peak year
of 2007). Whilst we contemplated
entering a pair trade ‘Long’ SEGRO
(UK Industrial specialist) and ‘Short’
the IPD Rest of UK Industrial Index,
the absence of liquidity in this IPD
sub-sector prevented us from doing so.
We conclude that the benefits of
the listed property market, namely
higher liquidity, diversification by
sub-sector and geography, superior
transparency and corporate govern-
ance practices, fractional lot size
and low transaction cost, vastly out-
weigh its inherently higher volatility.
We believe there is a lack of
diversity of opinion in the real estate
We conclude that the
benefits of the listed
property market,
namely higher liquidity,
diversification by sub-sector
and geography, superior
transparency and corporate
governance practices,
fractional lot size and low
transaction cost, vastly
outweigh its inherently
higher volatility.
Source: Thames River Capital, Bloomberg, IPD
110%
106%
102%
98%
94%
90%
4.0%
3.0%
2.0%
1.0%
0.0%
-0.1%
-0.2%
■ Net Exposure (LHS) ■ TRRES relative performance since inception (RHS)
■ IPD Index ■ Leveraged IPD Index ■ EPRA UK Index ■ ERPA Europe
■ CBRE Pan-European Investment Volume ■ IPD Derivative (UK, France, Germany Notional traded) ■ FTSE EPRA Europe ■ FTSE ERPA Europe restated incl. OTC
€ 200bn
€ 150bn
€ 100bn
€ 50bn
€ 0bn
Figure 3: Volatility of IPD (Physical Property) vs. FTSE EPRA (Property shares)
EPRA NEWS / 37 / 2010 49.
market which tends to magnify
investment volumes up and down
(clustering). Investing in property
shares enable us to swiftly imple-
ment new investment ideas and
actively manage risk exposure
across our funds.
Sector valuation and outlookOver the next few months, we
expect the IPD UK Index to print
its first negative monthly capital
return since July 2009. Indeed we
think yield compression (fuelled by
investors’ demand) has temporarily
run its course and the relay baton
has been passed on to subdued
rental growth (fuelled by occupiers’
demand). Consensus expectations
have moved away from “price
ripples and corrugations” to more
pronounced headwinds with IPD
property derivative pricing now sug-
gesting a fall of 1% in UK commer-
cial real estate values over the next
three months followed by another
5% fall in calendar 2011. This central
case scenario is already discounted
by the equity market with UK ma-
jors implying a capital fall of 3%
(translating into a 5% discount to
Net Asset Value).
While we continue to position
our funds defensively, we antici-
pate that the dispersion of returns
will gather pace and expect the
following sub-sectors to fare
better: Central London office due
to a stable occupier demand in a
supply-constrained market fuelling
rental growth, German residential,
prime shopping centres in Conti-
nental Europe including Scandi-
navia, prime Paris and Swedish
Offices and Industrial. We expect the
yield gap between prime and
secondary assets to widen further
from the current 240bps (it has been
as wide as 400bps and as narrow
as 50bps at the peak of the market
in 2007).
With respect to financing condi-
tions, bond markets remain fragile
since the euro sovereign debt crisis
impacted markets in May. We expect
bank margins and bond spreads to
stabilise as they have significantly
contracted since last year. For exam-
ple, SEGRO issued a GBP 300 mil-
lion 12-year bond priced at 300bps
over in November last year which is
now trading at 210bps.
The differential between prop-
erty yields (6.5% in the UK and most
of Continental Europe around 6.0%)
and prevailing five-year swaps has
continued to widen. As we go to
print, five-year swaps in the UK
and Eurozone reached their all-time
lows of 2% and 1.9% (were 3.4% and
2.8% respectively at the beginning
of the year).
In our opinion, pan-European
real estate equities are fairly valued
on 5.7% forward earnings yield
and 4.8% dividend yield. We still
view the dividend yield of the sec-
tor as supportive, standing 150bps
higher than the wider equity market
(DJ Euro 600) and at a premium
to the long-term average spread of
110bps.
1 According to the FESE, over 2009, an average of up to 38% of all equity trading took place on an OTC basis, i.e. outside all three of the MiFID trading venues (Regulated Markets, Multilateral Trading Facilities and Systematic Internalisers).
Alban lhonneur joined Thames River in July 2008 as an assistant fund manager. He was previously at Citigroup Global Markets as an Equity Research analyst focusing on Continental European Real Estate. Prior to that he was at Societe Generale Securi-ties in equity research.
He completed a Bsc Business and Management program at ESC Toulouse including one year at the Brunel University, School of Business Management in London. In 2005 he graduated from ESCP-EAP (Paris Business School) with a Post-graduate Specialised Master in [email protected]
Contents Page
50. EPRA NEWS / 37 / 201050. EPRA NEWS / 34 / 2010
REfERENCEs
MEMBERS OFFERSEPRA association membership not only offers anyone in the member organisation full access to the EPRA
website/archive, regular research, economic, regulatory and index statistics updates; but much more.
The following pages list several events and publication offers which are open to members.
IPE MagazineDiscount of 20% on subscription. The full an-
nual rate is EUR 355. For more details, contact:
IPE Real Estate is positioned at the inter-
face of institutional investment and the real
estate industry. Drawing on its international
network of correspondents and supply-side
research, the magazine and website’s mission
is to bring to light the views and activities of
European pension funds and other capital
owners (insurance companies and other plan
sponsors) investing in real estate and keep
them up-to-date with the rapid evolution
of real estate as a sophisticated, global
asset class.
IPE Real Estate’s association with the main
industry representative bodies located across
Europe, North America and Asia provides a
vital contribution to the debate as well as
additional relevance and objectivity. AFIRE,
APREA, AREF, BPF, EPRA, INREV, IPF, NAREIT,
PCA, PREA and NAREIM. We can also draw
on the unique experience of our sister title,
Investment and Pensions Europe (IPE) which
has been talking to European pension
funds and other capital owners for the last
decade. IPE Real Estate is a regular bi-monthly
publication.
Tel: + 44 20 7261 0666
Fax: +44 20 7928 3332
Email: [email protected]
Property Investor Europe Property Finance Europe The mission of Property Investor Europe maga-
zine and its weekly Property Finance Europe
newsletter/daily news-intelligence is to bring
transparency to Mainland Europe real estate so
that global investment professionals understand
risks, rewards, opportunities across its diverse
jurisdictions.
PIE/PFE hard news-driven analysis-
commentary is designed as the ‘sharp end’ of
investment capital flows into and around the
continent. A subscription-based service, PIE
is published from Frankfurt, Germany. Its PFE
Online Weekly reaches over 51,000 investors,
and the PIE monthly print magazine is delivered
to 4,000-5,000 targeted property investment pro-
fessionals, and up to 9,000 at trade conferences.
PIE/PFE is also a content partner of leading US
commercial real estate site GlobeSt.com. EPRA
members receive a 10% discount.
Go to: www.pfeurope.eu to register,
or email: [email protected].
PropertyEUA full subscription package of PropertyEU
costs EUR 495 per year, and includes Property
EU Daily Newsletter, PropertyEU Newsflashes,
PropertyEU Magazine as well as access to the
subscriber-only content on PropertyEU website.
EPRA members get a 20% discount and pay only
EUR 395 per year. Mail your contact details to:
[email protected], indicating your
EPRA membership number.
Free subscription to this monthly title. This
magazine offers news, analysis and information
on global real estate
issues - focusing
on investment and
development right
across the globe.
Background can be
found at: www.propertyweekglobal.com. EPRA
members can register for their
subscription at:
propertyweek@
subscription.co.uk
or call:
+44 1858 438892
Can CannesCan-Can? Not this year. With the darkest storm
clouds over European real estate since WW2, few attendees at MIPIM on the French Riviera are in dancing mood
propertyinvestor europewww.pfeurope.eu
INSIDE ❱❱〉
THE MONTHLY REAL ESTATE MAGAZINE OF PROPERTY FINANCE EUROPE Edition 111, March 2009 Single issue €45/£40/$55
Allreal’s Bruno Bettoni says Swiss real estate is likely to remain an island of stability in the global crisis
Demanio’s Carlo Petagna says public property body PuRE-net will spread know-how around Europe
Aspim Secretary-General Arnaud Dewachter says OPCI funds are gaining investment share in France
Kevin Oppenheim says Principle Capital Sirius, ex-Dawnay Day, is modernising German industrial parks
INSIDE THE CROSS-BORDER WORLD/NOVEMBER 2009
PLUSJEREMY NEWSUM ON PLACE MAKING
ASIA’S CASH-RICH INSTITUTIONS HEAD WEST
KEVIN MCCABE GOES FOR GOAL IN CHINAPROPERTYWEEKGLOBAL.COM
ASIA’SCENTURYSpecial issue:how the region isredrawing the global property map
NOV p01 cover.qxp 18/01/2010 09:29 Page 1
Please register your interest on
Listen and interact with a panel of leading listed property, finance and analyst professionals in three European cities. Mix with peers and prospective clients with refreshments – after hours. It’s a great opportunity to follow the hot topics affecting the sector - and for steering your business within it.
the evenings will appeal to a broad range of investment, analyst and real estate professionals.
make a concrete start to 2011.
insight 2011Come to one of three EPRA Insight events focusing on the direction, development and opportunities for European listed real estate in 2011.
EPRA London, January 18, 2011
EPRA Amsterdam, January 20, 2011
EPRA Paris, January 27, 2011
52. EPRA NEWS / 34 / 2010
REfERENCEs
EVENTS
eprA insight 2011Three EPRA events focusing on the investment potential
and development of the European listed property sec-
tor will kick off 2011. Participants can expect a relaxed
after-work panel discussion, with refreshments, among
peers and possible clients. Start the year with insight;
register yourself for one of these free-of-charge forward-
looking discussions, stating your city of choice.
EPra Nabarro: January 18, 2011
Lloyds building, London
EPra amsterdam: January 20, 2011
Loyens & Loeff building, amsterdam
EPra Paris: January 27, 2011
Please register your attendance on: [email protected]
mipimDate: March 08-11, 2011
Cannes, France
www.mipim.com
As the world’s premier real estate summit, MIPIM draws
upon its unique international coverage and reputation
to bring together the most influential decision-makers
in the market, offering them access to the largest
available showcase of development projects. MIPIM
has established itself as the must-attend event for top
investors worldwide. Mixing an exhibiting zone, confer-
ences and networking events, MIPIM provides you with
opportunities to secure direct or indirect investments
in real estate.
2011 highlights & services include:
• UK, 2011 Country of Honour: discover an exclusive
programme of conferences and events which will
shed light on opportunities in the UK market.
• Investment Lab: attend this new networking format
which will offer concrete information and opportuni-
ties on dedicated countries or region.
• Tailored networking events: meet with major develop-
ers, local authorities, investors and financial institu-
tions at our speed matching sessions.
• Comprehensive programme of conferences: under-
stand where, when and how to expand your business
EPRA members attending MIPIM for the first time will
benefit from:
-Free entrance* to exhibition area, official conferences
sessions, matchmaking meetings and networking
events
- Three free nights’ accommodation (limited to
first ten EPRA members to register)
- Full access to MIPIM Online Community, a
complete directory of participating companies,
individuals, retail real estate projects
*This invitation is strictly limited to investors and financial institutions, and restricted to one person per company per country.
Check eligibility by contacting alexandra benmoussa
on: +33 (0)1 41 90 44 36, or at: alexandra.benmoussa@
reedmidem.com
Cityscape Abu dhabiDate: april 17-20, 2011
UaE
A ‘power networking’ exhibition and conference,
complemented by a line-up of niche networking events
providing investors and developers with the opportu-
nity to interact and generate business. Opening the door
to business for real estate professionals from across
the globe.
www.cityscapeabudhabi.com
• Free entry• 3 nights free
accommodationConditions apply.
EPRA NEWS / 34 / 2010 53.
reAl ViennaDate: May 24-26, 2011
Exhibitors and visitors gather around this platform
designated for commercial property and investment
in Central and Eastern Europe. Companies, cities, and
regions present investment opportunities, projects, and
services.
www.realvienna.at/en/index.html
Cityscape AsiaDate: May 31- June 01, 2011
Shanghai
Exhibition with a line-up of niche networking events
providing investors and developers with the oppor-
tunity to interact face-to-face. For more information,
please visit: www.cityscapeasia.com
the British griDate: June 09, 2011
London
GRI will bring together the leading lights of the property
industry to discuss the global and local issues facing
real estate decision-makers today. GRI events unite the
senior management of leading industry players for
intimate and collegial conversations designed to get
them to connect and find partners with whom to do
business. These feature neither panels, nor speakers,
only discussions in small informal groups where all
participate equally, several going on concurrently.
www.globalrealestate.org
eire Date: June 07-09, 2011
Milan
The seventh edition of this international event dedi-
cated to the Italian real estate and the Mediterranean
area takes place in Milan. For delegates and exhibitors,
attendance represents an investment in knowledge
and opportunity creation to beat the economic crisis.
Knowledge about protagonists, opportunities and mar-
ket trends, is the deciding factor for the development
of one’s business. EIRE offers three days of business,
exchanges and new relationships.
www.globalrealestate.org
iCsC european Conference and sieCDate: June 15-17, 2011
Paris
The International Council of Shopping Centers (ICSC) is
to hold its 2011 European Conference in Paris on June 15
-17. The event will run in tandem with SIEC, the French
National Council of Shopping Centers (CNCC) annual
commercial real estate exhibition.
www.icsc.org/2011eu
Contents Page
54. EPRA NEWS / 34 / 2010
REfERENCEs
eres 2011Date: June 15-18, 2011
Eindhoven, Holland
ERES aims to raise the quality, status and reach of real
estate research and education in Europe, to promote
best practice in research and education and to provide
suitable platforms for constructive engagement. It does
so by encouraging the participation of young research-
ers, fostering a well-networked European real estate
research and education community. Incorporates a tour
of newly developed inner-city areas and gala dinner
to facilitate meeting and the sharing of ideas, visions
and business cards among real estate experts from all
over Europe.
www.eres2011.com
uli europe trends Date: June 28, 2011
London
The property industry’s half yearly review: bringing Eu-
ropean leaders together. The programme will focus on
a wide variety of key topics ranging from development
financing and re-capitalising funds to more general
trends such as the Olympics legacy, energy efficiency
and the latest award winning urban development
projects
www.uli.org/europe
eprA Annual ConferenceDate: September 01-02, 2011
London
The year’s main gathering of the European listed
real estate sector and investors focusing on it. EPRA
members only. Save the Date.
For enquiries, contact: [email protected]
EVENTS
mipim AsiA Date: November 10-12, 2010
Hong kong
MIPIM Asia focuses exclusively on facilitating real
estate transactions and investment in the Asia Pacific
markets. Join the key players for three days of network-
ing, prospecting and promoting at the world’s leading
Asian property market.
2010 key highlights:
• Keynote address from Joseph Stiglitz, International
Economist, Nobel Prize Winner of Economy.
• MIPIM Asia Awards Ceremony, rewarding the best
projects in Asia-Pacific.
• Power Meetings, three-minutes pitch to ten potential
partners eager to do business.
• Topic-based Lunch Tables, allowing attendees to share
their experience and insights.
And also an exciting exhibition zone, a
comprehensive conference programme and
exclusive networking events… more infor-
mation on www.mipimasia.com
EPRA members attending MIPIM Asia for
the first time will benefit from:
- Free entrance* to the exhibition area and
conferences sessions
- Full access to MIPIM ASIA online community
*This invitation is strictly limited to investors and financial institutions, and restricted to one person per company per country.
• Free entryConditions apply.
EPRA NEWS / 34 / 2010 55.
Other EPRA members benefit from MIPIM Asia’s Partners offer and pay EUR 750 (a EUR 240 savings)
Check eligibility by contacting Claire Chaussidière on:
+33 (0)1 41 90 45 26, or at:
claire.chaussidiè[email protected]
www.mipimasia.com
mApiC Date: November 17-19, 2011
Cannes, France
www.mapic.com
Only MAPIC provides you with the best retail real estate
worldwide investment opportunities! MAPIC helps inves-
tors to capitalise on the economic recovery by showcasing
profitable opportunities. The 670 leading retail investors
already registered for MAPIC will be able to select high-
performance projects, co-invest in promising retail
funds, and acquire accurate information on city
centre investments.
EPRA members attending MAPIC for the first time
will benefit from:
- Free entrance* to exhibition area, official
conferences sessions, matchmaking meetings and
networking events
- Three free nights’ accommodation (limited to first ten
EPRA members to register)
- Full access to MAPIC Online Community, a complete
directory of participating companies, individuals, retail
real estate projects
Check eligibility by contacting Juliette balaine on:
+33 (0)1 41 90 47 75 or at: [email protected]
*This invitation is strictly limited to investors and financial institutions, and restricted to one person per company per country.
• Free entry• 3 nights free
accommodationConditions apply.
sAVe the dAte & see you in
london!
EPRA Annual Conference 2011
September 01-02, 2011
Contents Page
56. EPRA NEWS / 37 / 201056. EPRA NEWS / 34 / 2010
REfERENCEs
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
GLOBAL
50
100
150
200
250
300
350
400
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07Jul 07Apr 07Jan 07Oct 06Jul 06Apr 06 Jan 06Oct 05Jul 05Apr 05Jan 05Oct 04Jul 04Apr 04Jan 04Oct 03Jul 03
EPRA/NAREIT Global TR (USD) 95.6%
Inde
x Va
lue
(reb
ased
to 1
00)
EPRA/NAREIT North America TR (USD) 84.2%
EPRA/NAREIT Asia TR (USD) 138.7%
EPRA/NAREIT Europe TR (EUR) 45.4%
Investment Focus Market Cap Breakdown
Asia 43.9%
Europe 16.2%
North America 39.8%
Middle East 0.1%
Regional Breakdown by Market Cap Investment Focus Market Cap Breakdown
Global Non-Rental 26.2%
Global Rental 73.8%
Global Industrial 4.2%
Global Residential 9.8%
Global Speciality 1.6%
Self Storage 2.2%
Global Retail 21.4%
Global Office 14.4%
Global Lodging/Resorts 3.0%
Global Industrial/Office 1.1%
Global Healthcare 5.8%
Global Diversified 36.7%
Sector Breakdown
Q First Industrial Realty * USA Rental Industrial 44.57 44.57 40.15 68.50 -36.44 0
Q Felcor Lodging Trust * USA Rental Lodging/Resorts 33.69 33.69 70.83 95.23 -29.45 0
Q Glimcher Realty Trust * USA Rental Retail 22.11 22.11 185.55 185.55 -25.03 0.05
Q Pennsylvania Real Estate * USA Rental Retail 20.32 20.32 72.22 100.81 -21.91 0.04
Q CBL & Associates Props * USA Rental Retail 20.06 20.06 69.18 101.83 -13.71 0.05
q Capitamall Trust * Singapore Rental Retail -7.90 -6.80 13.82 28.05 5.80 0.04
q Aeon Mall Co Ltd Japan Rental Retail -6.94 -6.94 6.35 -1.64 -3.97 0.01
q Kungsleden Sweden Rental Diversified -7.42 -7.42 15.34 12.93 -5.45 0.07
q Boardwalk REIT * Canada Rental Residential -8.82 -8.51 21.05 22.07 3.78 0.04
q Quintain Estates UK Non-Rental Diversified -8.67 -8.67 -34.16 -56.80 -43.18 0
1 Sun Hung Kai Props Hong Kong Non-Rental Diversified -0.89 -0.89 14.91 13.07 14.56 0.01
2 Westfield Group * Australia Rental Retail 0.97 0.97 5.02 7.33 1.55 0.07
3 Simon Property Group * USA Rental Retail 3.53 3.53 21.22 43.61 0.85 0.02
4 Unibail-Rodamco * France Rental Diversified 4.86 4.86 16.90 19.03 3.80 0.05
5 Mitsubishi Estate Japan Non-Rental Diversified 3.82 3.82 -3.78 1.28 -3.01 0.01
6 Mitsui Fudosan Japan Non-Rental Diversified 8.02 8.02 -0.96 2.45 -3.35 0.01
7 Vornado Realty Trust * USA Rental Diversified 2.17 2.17 26.42 49.73 -4.56 0.02
8 Equity Residential Props * USA Rental Residential 2.22 2.22 47.81 74.56 9.11 0.02
9 Public Storage * USA Rental Self Storage 2.24 2.24 24.14 38.13 9.69 0.03
10 Boston Properties * USA Rental Office 3.69 3.69 31.01 45.41 -2.80 0.02
Top 5 and Bottom 5 Performers
Company Country investment Focus Sector
Price Return Total Return (%) (Oct)
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Indices
Index DescriptionMarket Cap
(EUR m) Close Value
29 OctTotal Rtn (%)
YTD Total Rtn (%)
-1Y Total Rtn (%)
-3Y Div Yld (%)
29 Oct
EPRA/NAREIT Europe TR (EUR) 89,413.33 2,120.06 15.45 17.70 -11.24 4.18
EPRA/NAREIT Asia TR (USD) 306,179.91 2,352.2 13.95 14.66 -11.67 3.41
EPRA/NAREIT North America TR (USD) 337,107.80 3,476.5 25.49 43.36 -5.34 3.69
EPRA/NAREIT Global TR (USD) 768,453.88 2,851.93 18.18 24.74 -9.25 3.65
Top 10 on Market Cap
Company Country investment Focus Sector
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Market Cap (EUR m) (%) Weight
EPRA NEWS / 37 / 2010 57. EPRA NEWS / 34 / 2010 57.
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
ASIA
0
100
200
300
400
500
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07Jul 07Apr 07Jan 07Oct 06Jul 06Apr 06 Jan 06Oct 05Jul 05Apr 05Jan 05Oct 04Jul 04Apr 04Jan 04Oct 03Jul 03
EPRA/NAREIT Hong Kong TR (HKD) 252.2%
Inde
x Va
lue
(reb
ased
to 1
00)
EPRA/NAREIT Japan TR (JPY) 100.2%
EPRA/NAREIT Singapore TR (SGD) 165.2%
EPRA/NAREIT Australia TR (AUD) -6.3%
Investment Focus Market Cap Breakdown
New Zealand 0.3%
Australia 21.7%
Japan 24.8%
Hong Kong 39.7%
Singapore 13.5%
Country Breakdown by Market Cap Investment Focus Market Cap Breakdown
Asia Non-Rental 61.6%
Asia Rental 38.4%
Retail 16.7%
Residential 5.1%
Office 12.7%
Industrial 4.1%
Diversified 61%
Sector Breakdown
Q Soho China Hong Kong Non-Rental Diversified 19.60 19.60 56.90 55.42 -NA- 5.64%
Q Agile Property Holdings Hong Kong Non-Rental Diversified 15.91 15.91 -8.92 1.59 -NA- 1.79%
Q Hongkong Land Hldgs Hong Kong Rental Office 11.11 11.11 42.63 47.70 21.40 2.32%
Q FKP Property Group Australia Non-Rental Diversified 10.59 10.59 20.25 37.41 -9.55 1.60%
Q Nomura Real Estate Office Fund Japan Rental Office 6.69 9.82 4.19 -7.06 -4.89 6.87%
q United Urban Investment * Japan Rental Diversified -3.83 -3.83 16.29 10.91 0.39 6.28%
q Capitaland Singapore Non-Rental Diversified -4.19 -4.19 -6.07 -4.71 10.38 2.70%
q Ascendas REIT * Singapore Rental Industrial -5.94 -4.43 -1.50 17.56 6.37 6.15%
q Capitamall Trust * Singapore Rental Retail -7.91 -6.81 13.82 28.05 5.81 4.69%
q Aeon Mall Co Ltd Japan Rental Retail -6.95 -6.95 6.35 -1.65 -3.98 1.06%
1 Sun Hung Kai Props Hong Kong Non-Rental Diversified -0.90 -0.90 14.92 13.07 14.56 1.92%
2 Westfield Group * Australia Rental Retail 0.98 0.98 5.02 7.33 1.55 7.59%
3 Mitsubishi Estate Japan Non-Rental Diversified 3.83 3.83 -3.79 1.28 -3.01 0.85%
4 Mitsui Fudosan Japan Non-Rental Diversified 8.03 8.03 -0.96 2.46 -3.35 1.45%
5 Hongkong Land Hldgs Hong Kong Rental Office 11.11 11.11 42.63 47.70 21.40 2.32%
6 Sumitomo Realty & Dev Japan Non-Rental Diversified 1.68 1.68 2.01 0.23 -0.46 1.14%
7 Hang Lung Properties Hong Kong Non-Rental Diversified 0.13 1.56 26.34 29.30 29.80 1.87%
8 Capitaland Singapore Non-Rental Diversified -4.19 -4.19 -6.07 -4.71 10.38 2.70%
9 Wharf Holdings Hong Kong Non-Rental Diversified 2.00 2.00 13.74 19.06 -NA- 1.96%
10 Stockland Trust Group * Australia Non-Rental Diversified -1.82 -1.82 -1.82 5.73 -1.88 7.37%
Top 5 and Bottom 5 Performers
Company Country investment Focus Sector
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Indices
Index DescriptionMarket Cap
(EUR m) Close Value
29 Oct Total Rtn (%)
YTD Total Rtn (%)
-1Y Total Rtn (%)
-3Y Div Yld (%)
29 Oct
EPRA/NAREIT Australia TR (AUD) 67,806.07 1288.86 1.26 5.83 -25.68 6.72
EPRA/NAREIT Hong Kong TR (HKD) 943,437.31 2746.14 12.60 11.97 -3.74 2.21
EPRA/NAREIT Japan TR (JPY) 6,115,274.03 1905.58 3.10 2.85 -22.17 2.73
EPRA/NAREIT Singapore TR (SGD) 53,476.68 1679.31 5.87 14.50 -10.15 2.77
Top 10 on Market Cap
Company Country investment Focus Sector
Market Cap (EUR m) (%) Weight
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Price Return Total Return (%) (Oct)
Contents Page
58. EPRA NEWS / 37 / 201058. EPRA NEWS / 34 / 2010
REfERENCEs
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
EUROPE
Investment Focus Market Cap Breakdown
United Kingdom 33.5%
Nederlands 11.4%
France 28.5%
Austria 2.1%
Sweden 6.7%
Other countries 17.7%
Country Breakdown by Market Cap Investment Focus Market Cap Breakdown
Europe Non-Rental 3.9%
Europe Rental 96.1%
Speciality 0.4%
Self Storage 0.8%
Retail 23.1%
Residential 3.2%
Office 18.1%
Lodgings/Resorts 0%
Industrial 3.9%
Healthcare 0.3%
Diversified 50.3%
Sector Breakdown
0
100
200
300
400
500
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07Jul 07Apr 07Jan 07Oct 06Jul 06Apr 06 Jan 06Oct 05Jul 05Apr 05Jan 05Oct 04Jul 04Apr 04Jan 04Oct 03Jul 03
EPRA/NAREIT Sweden TR (SEK) 182.2%
Inde
x Va
lue
(reb
ased
to 1
00)
EPRA/NAREIT France TR (EUR) 187.4
EPRA/NAREIT Netherlands TR (EUR) 96.7%
EPRA/NAREIT UK TR (GBP) 16.4%
Q IGD * Italy Rental Retail 19.70 19.70 -4.43 1.43 -16.31 3.47%
Q Capital & Counties Properties UK Rental Retail 13.80 14.22 -NA- -NA- -NA- 0.00%
Q Patrizia Immobilien Germany Rental Residential 13.06 13.06 19.71 -3.61 -26.46 0.00%
Q Colonia Real Estate Germany Rental Residential 12.29 12.29 8.41 10.96 -37.82 0.00%
Q British Land * UK Rental Diversified 9.57 11.12 12.16 14.02 -12.27 5.10%
q Unite Group UK Rental Specialty -5.45 -5.45 -30.55 -21.80 -20.41 0.00%
q Inmobiliaria Colonial S.A. Sweden Rental Diversified -6.32 -6.32 -42.58 -36.88 -69.60 0.00%
q Klovern AB Sweden Rental Diversified -6.48 -6.48 37.77 39.60 9.41 4.13%
q Kungsleden Sweden Rental Diversified -7.42 -7.42 15.35 12.94 -5.46 7.08%
q Quintain Estates UK Non-Rental Diversified -8.67 -8.67 -34.17 -56.81 -43.19 0.00%
1 Unibail-Rodamco * France Rental Diversified 4.87 4.87 16.90 19.03 3.81 5.34%
2 Land Securities * UK Rental Diversified 5.70 5.70 1.90 6.50 -18.04 4.14%
3 British Land * UK Rental Diversified 9.57 11.12 12.16 14.02 -12.27 5.10%
4 Corio * Netherlands Rental Retail 5.24 5.24 16.23 19.91 1.50 5.02%
5 Hammerson * UK Rental Retail 6.29 6.29 2.72 7.22 -13.66 3.73%
6 Fonciere Des Regions * France Rental Diversified 4.90 4.90 25.86 19.70 0.09 4.02%
7 Capital Shopping Centres Group * UK Rental Retail 4.54 4.54 -0.48 13.62 -16.59 4.29%
8 Klepierre * France Rental Retail -1.20 -1.20 2.85 3.45 -4.50 4.47%
9 PSP Swiss Property Switzerland Rental Office 4.06 4.06 33.85 35.94 9.89 3.57%
10 SEGRO * UK Rental Industrial 8.57 8.57 -9.74 -11.89 -26.23 4.76%
EPRA/NAREIT UK TR (GBP) 26,062.47 1,615.23 3.20 6.73 -17.24 3.81
EPRA/NAREIT Netherlands TR (EUR) 10,178.74 3,398.81 16.00 19.24 -0.24 5.53
EPRA/NAREIT France TR (EUR) 25,510.18 4,762.9 18.17 17.94 2.07 4.87
EPRA/NAREIT Sweden TR (SEK) 56,142.25 5,846.58 37.23 41.14 5.96 3.88
Top 5 and Bottom 5 Performers
Company Country investment Focus Sector
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Index DescriptionMarket Cap
(EUR m) Close Value
29 OctTotal Rtn (%)
YTD Total Rtn (%)
-1Y Total Rtn (%)
-3Y Div Yld (%)
29 Oct
Company Country investment Focus Sector
Market Cap (EUR m) (%) Weight
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Indices
Top 10 on Market Cap
Price Return Total Return (%) (Oct)
EPRA NEWS / 37 / 2010 59. EPRA NEWS / 34 / 2010 59.
GLOBAL GLOBAL
50
100
150
200
250
300
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07Jul 07Apr 07Jan 07Oct 06Jul 06Apr 06 Jan 06Oct 05Jul 05Apr 05Jan 05Oct 04Jul 04Apr 04Jan 04Oct 03Jul 03
Inde
x Va
lue
(reb
ased
to 1
00)
EPRA/NAREIT United States TR (USD) 78.4%
EPRA/NAREIT Canada TR (CAD) 98.3%
Investment Focus Market Cap Breakdown
United States 90.0%
Canada 10.0%
Country Breakdown by Market Cap Investment Focus Market Cap Breakdown
North America Non-Rental 97.7%
North America Rental 2.3%
Speciality 3.5%
Self Storage 4.7%
Retail 25.2%
Residential 16.5%
Office 14.3%
Lodgings/Resorts 6.6%
Industrial 4.3%
Industrial/Office 2.5%
Healthcare 13.1%
Diversified 9.4%
Sector Breakdown
Q First Industrial Realty * USA Rental Industrial 44.58 44.58 40.15 68.51 -36.45 0.00%
Q Felcor Lodging Trust * USA Rental Lodging/Resorts 33.70 33.70 70.83 95.24 -29.46 0.00%
Q Glimcher Realty Trust * USA Rental Retail 22.11 22.11 185.56 185.56 -25.04 5.33%
Q Pennsylvania Real Estate * USA Rental Retail 20.32 20.32 72.22 100.82 -21.92 4.20%
Q CBL & Associates Props * USA Rental Retail 20.06 20.06 69.18 101.84 -13.71 5.10%
q Digital Realty Trust * USA Rental Specialty -3.19 -3.19 21.16 35.72 13.20 3.55%
q Innvest REIT * Canada Rental Lodging/Resorts -4.73 -4.15 36.60 63.71 -8.46 7.31%
q Artis Real Estate Investment Canada Rental Diversified -4.92 -4.27 21.88 44.48 -6.17 8.21%
q Corporate Office Props * USA Rental Office -4.88 -4.88 0.05 11.54 -1.16 4.65%
q Boardwalk REIT * Canada Rental Residential -8.83 -8.51 21.06 22.07 3.78 4.20%
1 Simon Property Group * USA Rental Retail 3.54 3.54 21.23 43.61 0.85 2.50%
2 Vornado Realty Trust * USA Rental Diversified 2.17 2.17 26.42 49.74 -4.57 2.98%
3 Equity Residential Props * USA Rental Residential 2.23 2.23 47.82 74.57 9.11 2.78%
4 Public Storage * USA Rental Self Storage 2.25 2.25 24.15 38.14 9.69 3.23%
5 Boston Properties * USA Rental Office 3.69 3.69 31.01 45.42 -2.81 2.32%
6 Host Hotels & Resorts * USA Rental Lodging/Resorts 9.74 9.74 36.25 60.72 -7.90 0.25%
7 HCP * USA Rental Health Care 0.08 0.08 20.94 26.38 4.44 5.17%
8 Avalonbay Communities * USA Rental Residential 2.29 2.29 32.73 59.76 -0.82 3.36%
9 Ventas * USA Rental Health Care 3.86 3.86 26.02 38.63 11.65 4.00%
10 Kimco Realty * USA Rental Retail 9.40 10.41 32.67 42.01 -20.36 3.71%
Company Country investment Focus Sector
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Company Country investment Focus Sector
Market Cap (EUR m) (%) Weight
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Top 5 and Bottom 5 Performers
Top 10 on Market Cap
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
NORTH AMERICA
EPRA/NAREIT Canada TR (CAD) 34,240.95 4080.4 29.16 43.18 3.48 5.34
EPRA/NAREIT United States TR (USD) 303,459.07 3343.48 24.70 42.48 -5.94 3.51
EPRA/NAREIT France TR (EUR) 25,510.18 4762.9 18.16 17.94 2.07 4.87
EPRA/NAREIT Sweden TR (SEK) 56,142.25 5846.58 37.22 41.13 5.96 3.88
Index DescriptionMarket Cap
(EUR m) Close Value
29 OctTotal Rtn (%)
YTD Total Rtn (%)
-1Y Total Rtn (%)
-3Y Div Yld (%)
29 Oct
Indices
Price Return Total Return (%) (Oct)
Contents Page
60. EPRA NEWS / 37 / 201060. EPRA NEWS / 34 / 2010
REfERENCEs
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
EMERGING MARKETS
0
50
100
150
200
250
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07Jul 07Apr 07Jan 07Oct 06Jul 06Apr 06Jan 06Oct 05Jul 05
Inde
x Va
lue
(reb
ased
to 1
00)
EPRA/NAREIT AIM TR (USD) -58.5%
EPRA/NAREIT Emerging Market TR (USD) 73.5%
Asia Pacific 41.9%
Europe 6.0%
Middle East/Africa 19.5%
Americas 37.0%
Country Breakdown by Market Cap Global Breakdown by CountryBrazil 31.0%
China 10.2%
Egypt 0.7%
India 10.9%
Indonesia 3.6%
Malaysia 5.9%
Mexico 5.4%
Philippines 5.7%
Poland 1.2%
South Aftrica 14.3%
South Korea 0%
Thailand 5.8%
Turkey 0.3%
Taiwan 0.4%
UAE 4.7%
Q Camargo Correa Desenvolvimento Brazil Non-rental Residential 30.16 30.16 52.84 47.43 -9.82 1.46% Imobiliario S/A Ord
Q Alam Sutera Realty Indonesia Non-rental Diversified 29.27 29.27 153.38 144.08 -NA- 0.40%
Q General Shopping Brasil Brazil Non-rental Residential 25.80 25.80 47.13 76.69 -5.68 0.00%
Q LBS Bina Group BHD Malaysia Non-rental Diversified 19.80 19.80 1.68 34.44 -3.10 0.00%
Q SP Setia Malaysia Non-rental Diversified 15.59 15.59 33.93 35.66 2.62 2.17%
q Central Pattana Thailand Rental Diversified -8.26 -8.26 39.56 30.55 4.03 2.09%
q Preuksa Real Estate Thailand Non-rental Industrial/office -11.11 -11.11 21.35 -NA- -NA- 2.55%
q Quality Houses Thailand Non-rental Residential -12.12 -12.12 -8.27 -2.40 13.11 5.17%
q Asian Property Development Thailand Non-rental Residential -12.58 -12.58 20.35 23.57 0.32 4.85%
q IVRCL Assets & Holdings India Non-rental Diversified -12.70 -12.70 -3.45 36.86 -26.15 0.00%
Top 5 and Bottom 5 Performers
Company Country investment Focus Sector
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
1 PDG Realty S/A Empreendimentos Brazil Non-rental Diversified 5.56 5.56 22.59 42.75 17.09 0.97% e Participacoes Ord
2 Cyrela Brazil Realty S/A Empreendi- Brazil Non-rental Diversified -1.88 -1.88 -2.16 6.53 -7.02 2.0 mentose e Participacoes Or
3 DLF India Non-rental Diversified -7.51 -7.51 -2.78 -4.61 -27.75 0.57%
4 Growthpoint Prop Ltd South Africa Rental Diversified 1.17 1.17 28.46 29.19 7.17 6.99%
5 Unitech India Non-rental Diversified -1.25 -1.25 5.82 7.25 -38.89 0.23%
6 Gafisa Brazil Non-rental Residential 8.05 8.05 0.71 8.80 -1.83 0.85%
7 Emaar Properties UAE Non-rental Diversified -NA- -NA- -NA- -NA- -NA- 5.12%
8 Redefine Income Find South Africa Rental Diversified 0.86 0.86 21.19 20.35 5.49 7.50%
9 BR Malls Participacoes S/A Ord Brazil Rental Retail 14.92 14.92 53.43 69.17 8.98 0.75%
10 MRV Engenharia e Participacoes SA Brazil Non-rental Residential 3.36 3.36 18.95 53.49 12.80 1.03%
Company Country investment Focus Sector
Market Cap (EUR m) (%) Weight
Total Rtn (%) YTD
Total Rtn (%) -1Y
Total Rtn (%) -3Y
Div Yld (%) 29 Oct
Index DescriptionMarket Cap
(EUR m) Close Value
29 OctTotal Rtn (%)
YTD Total Rtn (%)
-1Y Total Rtn (%)
-3Y Div Yld (%)
29 Oct
EPRA/NAREIT Emerging Market TR (USD) 60,557.38 2259.49 21.61 30.77 -6.87 2.23
EPRA/NAREIT AIM TR (USD) 25,387.54 2144.89 18.43 21.54 -14.68 1.51
Indices
Top 10 on Market Cap
Price Return Total Return (%) (Oct)
EPRA NEWS / 37 / 2010 61. EPRA NEWS / 34 / 2010 61.
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
TOTAL MARKET
Countries2009 GDP
($ Bn) 2009 GDP
per capita ($) 2009 Real Estate
($ Bn) 29 Oct 10
Total Listed ($ Bn)29 Oct 10
Total RE v Listed RE (%)29 Oct 10
Stock Market ($ Bn) 29 Oct 10
Stk Mkt v Listed RE (%)
Japan 4,805 37,692 2,162 165.0 7.63% 3,589 4.60%
Hong Kong/China 4,538 3,496 1,060 170.0 16.04% 5,730 2.97%
South Korea 962 20,106 403 1.0 0.25% 972 0.10%
India 1,230 1,145 198 8.0 4.04% 1,583 0.51%
Australia 928 46,414 418 74.0 17.72% 1,319 5.61%
Taiwan 340 15,050 129 4.0 3.09% 775 0.52%
Indonesia 492 2,178 98 0.1 0.14% 323 0.04%
Thailand 257 4,007 63 4.0 6.36% 259 1.55%Malaysia 196 7,687 59 0.7 1.18% 362 0.19%
Singapore 181 41,514 163 38.0 23.36% 528 7.20%
New Zealand 123 30,567 59 3.2 5.34% 32 9.78%
Pakistan 158 979 24 - 0.00% 45 0.00%
Philippines 155 1,749 29 4.0 13.92% 126 3.18%
Vietnam 84 1,011 13 - 0.00% - 0.00%
Total Asia-Pacific 14,449 19,458 4,878 472.0 9.68% 15,642 3.02%
Germany 3,392 41,150 1,526 25.0 1.64% 1,381 1.81%
United Kingdom 2,472 41,119 1,391 60.0 4.31% 3,140 1.91%
France 2,661 42,560 1,198 71.0 5.93% 1,727 4.11%
Italy 2,144 36,924 965 6.0 0.62% 601 1.00%
Spain 1,474 34,281 663 25.0 3.77% 664 3.77%
Russia 1,352 9,258 437 5.0 1.14% 564 0.89%
Netherlands 802 49,157 361 13.0 3.60% 311 4.18%
Switzerland 476 63,901 214 8.0 3.73% 1,099 0.73%
Belgium 470 45,467 212 6.0 2.83% 274 2.19%
Sweden 441 49,089 199 13.0 6.55% 552 2.35%
Turkey 648 9,055 208 - 0.00% 315 0.00%
Austria 384 46,983 173 11.0 6.36% 119 9.23%
Poland 450 11,658 157 6.0 3.82% 183 3.28%
Norway 399 87,249 180 4.0 2.23% 242 1.65%
Denmark 316 58,315 142 2.0 1.41% 221 0.90%
Greece 325 30,564 146 2.2 1.50% 73 3.02%
Ireland 245 59,861 110 2.1 1.91% 56 3.75%
Finland 246 47,146 111 3.0 2.71% 201 1.49%
Portugal 228 21,699 98 - 0.00% 89 0.00%
Czech Republic 190 18,519 77 - 0.00% 46 0.00%
Hungary 137 13,604 50 0.3 0.52% 31 0.85%
Romania 171 7,667 52 0.5 0.97% 16 3.08%
Ukraine 139 2,860 30 - 0.00% 29 0.00%
Slovakia 88 16,346 35 - 0.00% 5 0.00%
Slovenia 49 24,400 22 - 0.00% 10 0.00%
Luxembourg 53 114,063 24 - 0.00% 22 0.00%
Bulgaria 45 5,971 13 - 0.00% 5 0.00%
Total Europe 19,798 37,841 8,792 263.1 2.99% 11,976 2.20%
Egypt 112 1,374 19 11.0 57.40% 115 9.56%
Israel 149 21,132 63 4.1 6.53% 168 2.47%
Morocco 85 2,677 18 3.0 16.59% 87 3.45%
South Africa 261 5,258 70 8.6 12.35% 406 2.12%Total Africa/Middle East 607 30,441 170 26.8 15.70% 776 3.45%
Mexico 977 9,311 316 0.1 0.03% 426 0.02%
Brazil 1,502 8,057 464 0.7 0.15% 1,430 0.05%
Argentina 296 7,638 90 0.6 0.67% 45 1.32%
Venezuela 288 11,555 100 - 0.00% 5 0.00%
Colombia 223 5,452 60 - 0.00% 200 0.00%
Chile 164 10,373 55 0.3 0.54% 317 0.09%
Peru 120 4,343 30 - 0.00% 91 0.00% Total Latin America 3,571 8,466 1,116 1.7 0.15% 2,514 0.07%
United States 14,149 48,283 6,367 374.0 5.87% 13,879 2.69%
Canada 1,397 43,468 629 53.0 8.43% 1,791 2.96%
Total Nth America 15,546 47,850 6,996 427.0 6.10% 15,669 2.73%
World 53,970 - 21,952 1,190.5 5.42% 46,578 2.56%
Contents Page
62. EPRA NEWS / 37 / 201062. EPRA NEWS / 34 / 2010
REfERENCEs
FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES
TOTAL MARKET
global real estate vs equities & Bonds
0
25
50
75
100
125
150
Oct 10Jul 10Apr 10Jan 10Oct 09Jul 09Apr 09Jan 09Oct 08Jul 08Apr 08Jan 08Oct 07
JP Morgan Global Bonds 18%
FTSE World -11%%
FTSE EPRA/NAREIT Global RE -31%
Underlying Real Estate
Asia Pacific 22%
Europe 40%
Middle East/Africa 1%
Latin America 5%
North America 32%
Listed Real Estate
Asia Pacific 40%
Europe 22%
Middle East/Africa 2%
Latin America 0%
North America 36%
5% 10% 15% 20% 25% 30% 35% 40%
-15%
-10%
-5%
0%
5%
10%
15%
Global Bonds
Belgium
Canada
US Netherlands
Sweden
Finland France
Nth Am RE
UK
Europe RE Global RE Switzerland
Italy Asia RE
Australia
Risk (St Deviation)
Global Equities
Japan
Germany
Hong Kong
Singapore
rolling 10 years risk/return local Currencies - Countries
EPRA NEWS / 37 / 2010 63. EPRA NEWS / 34 / 2010 63.
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