Development of the Public Real Estate Equity Investment

28.6.2008

REG - REAL ESTATE RESEARCH GROUP, TKK 1

Development of the Public Real Development of the Public Real Estate Equity Investment Sector Estate Equity Investment Sector

in Finlandin Finland

Heidi Falkenbach and Sami KiehelHeidi Falkenbach and Sami KiehelääREGREG -- RealReal EstateEstate Research GroupResearch Groupcontact: [email protected]: [email protected]

28.6.2008REG - Real Estate Research Group 2

IntroductionIntroduction

• Two main categories of real estate investments– Direct

– Indirect

-Direct investment-Shares in REC and MREC -Shares in unlistedinstruments

-real estate investment companies

-funds etc.

Private

Equ

ity

Public

Deb

t

-Shares in listed real estate investment companies

(-Shares in FinnREITs)

-Mortgages held by financial institutions

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1. Public real estate investment companies (PREICs)– Regulated according to the same laws as other public

companies (e.g. Finnish Companies Act, Securities Market Act, Accounting Act and Ordinance)

– Requirements of minimum capital for the company, dividend sharing, trade and marketing of shares, appreciation of assets (until 2005 book value, thereafter market values)

– Taxation: 26 % on profits generated by the company and shareholders are liable to pay tax on dividends.

Regulation of public real Regulation of public real estate equity investmentsestate equity investments



2. Finnish real estate trusts (FinnREITs)• Real Estate Investment Trusts Act enacted in 1997.

– public limited liability company and imposed to the same legislation as PREICs. In addition, REIT Act imposes some additional regulations for the operation of FinnREIT.

• Asset classes and regional division• Development restrictions• Requirements on market information and valuation• Minimum equity capital (5 million euros), leverage 1/3, or 2/3

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• Law was ammended in 2007 to enable FinnREITs to operate in form of limited partnership (no double taxation

• By this far, no FinnREITs in Plc-form have been established. – Stricter regulation then for PREICs, but still the same

double taxation -> no taxational or operative incentive to establish FinnREITs.

• Thus, shares in PREICs are the only form of public real estate equity that exists in the Finnish real estate markets.


Development of PREICs Development of PREICs 19881988--20062006

• number and scope of public real estate investment companies (PREICs)

• development of gross asset value, net asset value and market capitalisation

• public real estate investment companies today

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Number of companiesNumber of companies

Citycon

1988 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

JTK

Siltasaari-Invest

Suomen pörs-sikiinteistöt

YIT-kiinteistötSuomen

kiinteistö-investointiCastrum

Turun arvo-kiinteistöt

InteravantiFinanssi-

osakeyhtiö Sensor

11 13 10 9 9 8 7 7 7 7 8 9 9 8 8 8 7 6 6

Jämerä-kiinteistöt Ferenda

SSK

Sponda

Polar Kiinteistöt

Technopolis


Gross asset valuesGross asset values

Bruttoarvo, kaikki yhtiöt yhteensä

0

1 000

2 000

3 000

4 000

5 000

6 000

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

MEUR

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Net asset valuesNet asset values

Nettomarkkina-arvo, kaikki yhtiöt yhteensä

0

200

400

600

800

1 000

1 200

1 400

1 600

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

MEUR


Market capitalisation and Market capitalisation and P/NAVP/NAV

Pörssiarvo / P/N-luku

0

500

1 000

1 500

2 000

2 500

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

MEUR

0%

40%

80%

120%

160%

200%

P/N

-lu

ku

Pörssiarvo P/N-lukuMarket value P/NAV

P/N

AV

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PREICs todayPREICs today

OWH-Yhtiöt Oy (49,40 %)

4, 0 %2,86,3SSK

Oy Julius Tallberg Ab (66,64 %)

3,2 %129,766,5JTK

Management (94 %)0,3 %16,257,7Interavanti

Foreign investors (51,2%)

58 %392,2306, 7Technopolis

Gazit Globe Ltd.

(38,8 %)

31%1447,9

(FIN: 1010)844,3Citycon

Finnish state (34,3%)53 %2455,1952Sponda

Major ownersShare turnover

Properties (MEUR)

Market Cap (MEUR)

Company


ConclusionsConclusions

• The forms of real estate investment in Finnish real estate markets are still fairly limited.

• The development of the PREIC sector has been closely connected to the development of the general economy and property markets

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ConclusionsConclusions

• Portfolios held by PREICs have grown substantially during the part five years, but relative significance of the PREIC holdings in the Finnish commercial real estate markets is still fairly small, less than 20 % of the investible market (in U.S. 27 %).– Expansion possibilities– A possible explanation for the small size of the public

equity sector could be the lack of a public, tax-transparent investment vehicle (REIT), as the double-taxation imposed to PREICs decreases the attractiveness of the investment for investors, who have the possibility and means to invest in other forms of property.

REG REG -- RealReal EstateEstate ResearchResearch GroupGroupP.O. Box 1200, 02015 TKKP.O. Box 1200, 02015 TKK

FinlandFinland

Thank you!Thank you!

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Development of the Public Real Estate Equity Investment