Getting the structure right Record inflows to German€¦ · • Digital Realty (UK) Limited • EY • GIC Real Estate • Goldman Sachs International ... Ronald J.B. Wijs Ruben

COVERNEWS

ISSUE 48AUGUST 2014

FEATURES REFERENCE- The changing face of Investor Relations

- Is the future virtual or real?- Europe’s RE access to capital- Views on: Spain, Germany, Finland, The Netherlands

- Member offers- EPRA Annual Conference- FTSE EPRA/NAREIT Global Real Estate Indices

Getting the structure right Hans Op ‘t Veld

Record inflows to German listed real estate sector

Peter Barkow, Jesse Freitag-Akselrod

2. _ EPRA NEWS / 29 / 20082. EPRA NEWS / 48 / 2014

AUSTRALIA• Univ. of Western Sydney, Property Research Centre

• Resolution Capital

AUSTRIA• BUWOG AG• CA Immobilien Anlagen• Conwert Immobilien Invest• Immofinanz AG• Sparkassen Immobilien

BELGIUM• Aedifica• AG Real Estate• Antwerp Management School• Banque DeGroof• Befimmo• Cofinimmo• Leasinvest Real Estate• Retail Estates• Solvay Business School (Brussels Univ.)

• WDP

BRITISH VIRGIN ISLANDS• Eastern Property Holdings

CANADA• Presima

CHINA• HAIC• Ping An

FINLAND • Aalto Univ.• Citycon• KTI Finland• RAKLI ry• Sponda

FRANCE• Affine• ANF Immobilier• BNP Paribas• Cegereal• Eurasia Groupe• Foncière des Regions• Gecina• ICADE• IEIF• Ivanhoe Cambridge Europe• Klépierre• Mazars• Mercialys• Predica• Société de la Tour Eiffel• Société Foncière Lyonnaise• Société Générale• Unibail-Rodamco• Université de Paris-Dauphine

GERMANY• Allianz Real Estate• Alstria Office REIT• Deutsche Annington• Deutsche EuroShop• Deutsche Wohnen• DIC Asset• DO Deutsche Office AG

• Fair Value REIT• Hamborner• Heitman• IREBS International RE Business School

• LEG• MEAG Real Estate Management• PATRIZIA Immobilien• POLIS Immobilien• PricewaterhouseCoopers• Puhl Gmbh & Co• Real Estate Management Institute

• RREEF Investment• SEB Asset Management• TAG Immobilien• VIB• VICTORIA PARTNERS GmbH

GREECE• Eurobank Properties REIC• Lamda Development• National Bank of Greece Property Services

• Trastor REIC

HONG KONG• Univ. of Hong Kong

IRELAND• Green REIT Plc• Hibernia REIT plc• Irish Residential Properties REIT Plc

ISREAL• Azrieli Group• Gazit Globe

ITALY• Beni Stabili• Immobiliare Grande Distribuzione

LUXEMBOURG• Dream Global REIT• GAGFAH• Orco Property Group

NETHERLANDS• ABN Amro • Amsterdam School of RE• APG Asset Management• ASR• Atrium European Real Estate• BPF Bouwinvest• CB Richard Ellis• CBRE Global Investors• Clifford Chance• Corio• Cornerstone Real Estate Advisors• Deloitte Real Estate• Eurocommercial Properties• Kempen & Co• LaSalle Investment Management• Loyens & Loeff• MN Services• NSI• PGGM• Redevco Europe Services• Tilburg Univ.

• Univ. of Maastricht• VastNed• Wereldhave• Yardi

NORWAY• Norwegian Property

SINGAPORE• Keppel Land Limited• National Univ. of Singapore

SOUTH-AFRICA• Growthpoint Properties

SPAIN• Fundación ESADE• Hispania Activos Inmobiliarios, S.A

• Inmobiliaria Colonial• Merlin Properties Socimi, S.A. • TESTA Inmuebles & Renta

SWEDEN• Aberdeen Property Investors Holding

• Castellum• Dios Fastigheter AB• Fastighets AB Balder

SWITZERLAND• Center for Urban & RE Management

• Euro Institute of RE Management• HIAG Immobilien AG• Mobimo Holdings• PSP Swiss Property• Swiss Prime Site• Univ. of Geneva• Zueblin

TURKEY• Emlak Konut• Torunlar REIT

UAE• Abu Dhabi Investment Authority

UNITED KINGDOM• AEW• AMP Capital• Assura• Aviva Investors• Bank of America• Barclays Bank• Barclays Capital• BDO• Big Yellow Group• Blackrock Asset Management• British Land• Cass Business School• Capital & Counties Properties• CBRE Clarion Securities• Credit Suisse Securities• Derwent London plc• Deutsche Bank• Digital Realty (UK) Limited • EY• GIC Real Estate• Goldman Sachs International• Grainger

• Great Portland Estates• Green Street Advisors• Grosvenor Group• Hammerson• Hansteen Holding• Henderson Global Investors• Ignis Asset Management• intu• Invesco• JPMorgan• JLL• KPMG• Land Securities• Linklaters• LondonMetric• Macquarie Real Estate• M&G Investment Management• Morgan Stanley• Nabarro• Nottingham Trent Univ.• Palatium Investment Management

• Principal Global Investors• Primary Health Properties• Quintain Estates & Development• Redefine International• Safestore• Schroders• SEGRO• Shaftesbury• Thames River Capital• Tristan Capital Partners• UBS• Unite Group• Univ. of Aberdeen• Univ. of Cambridge• Univ. of Reading, Centre for RE Research

• Workspace Group

USA• Cohen & Steers Capital Management

• Center Square• Duff & Phelps• EII Capital Management• Fidelity Management & Research• Forum Partners Investment Management

• Host Hotels & Resorts• Real Capital Analytics• Real Foundations• Russell Investment Group• Simon Property• SNL Financial• Univ. of Cincinnati• Ventas• Virginia Tech Univ.• Westfield Group• Zell-Lurie RE Center at Wharton

EPRA MEMBERSAS OF AUGUST 2014

EPRA NEWS / 48 / 2014 3.

CONTENTS

CREDITS

Editor & Production ManagerDominic Turnbull

Guest EditorAllan Saunderson

Article CreditsPeter Barkow

Simon Courtenay

Christophe Cuvillier

Jesse Freitag-Akselrod

Graeme Gibbs

Leo Johnson

Hanna Kaleva

Please send your comments and suggestions to:

[email protected]

Design & LayOutFuse Consulting Limited

London

[email protected]

PrintersWyndeham Grange

EPRASquare de Meeus 23,

B-1000 Brussels

+32 (0) 2739 1010

GUEST EDITORAllan Saunderson 4

CEO UPDATE 8

FEATURESGerman listed Real estate commands record inflows 10

Never let a good crisis go to waste 15

The changing face of Investor Relations 19

Recent EPRA Investor Outreach in the US 22

Asian investors explore investing directly in listed property companies 24

Is the future virtual or real? 26

EPRA Reporting & Accounting — an inside view 29

EPRA Annual Report Awards 2013/14 32

Why is there no ‘Siemens’ of the German real estate market? 34

Funding future funding — Global Pension Assets Study 2013 and 2014 36

CEO Conference 39

Spain — all the REIT signs 41

Europe’s access to capital 44

Dutch REIT ancillaries blossom 47

Topping the list 50

Prospects brightening in the Finnish property market 52

Behind the scenes: Unibail-Rodamco 56

REFERENCE PAGES Annual Conference 2014 60

Members offers 68

FTSE EPRA/NAREIT global Real Estate indices 70

NEWSISSUE 48 | AUGUST 2014

Tim Kesseler

Hans Op ‘t Veld

Andrew Saunders

Stephen Tross

Ronald J.B. Wijs

Ruben van der Wilt

GUEST EDITOR

EUROPEAN RE CATCHES THE

CRAZY CHICKEN TASTE FOR

PUBLIC MARKETS

4. EPRA NEWS / 48 / 2014

The stock market exists to give

access capital to build a business,

and not just for principals to get a

daily read-out of personal net asset

value. Operating or portfolio; they

both work well in the public mar-

kets. Should we in European real

estate use public listings more? I

think so.

Spanish property execs think

so too. The flood of Spanish REIT/

SOCOMIs in the last six months

has signalled that a belief in public

markets is alive and kicking — and

is a welcome wake-up call. Since

the global financial crisis, the sector,

outside Britain at least, has been

dull to moribund for reasons I for

one have found very hard to fathom.

Institutions remained generally

unconvinced that the quoted sector

offered value, even as their need for

real asset investment soared. Prop-

erty share prices at deep discounts

to net asset values were for a long

time seen as appropriate, and still

are to a certain extent. It was as if

quoted portfolios had been excluded

from the revaluation wave from

across-the-board yield compression

over the last two years.

This perception shift began

slowly. One of the first signs came

last year in German residential with

the takeover of GSW by Berlin-based

peer Deutsche Wohnen. After this, in

the same sector, LEG and Deutsche

Annington came to market, while

Fortress Investments began its pull-

out of Gagfah, finally completed this

spring — a strategy the New York op-

portunity fund group clearly wanted

to complete around or even before

the global financial crisis.

Now, other huge investing

institutions like BlackRock, PIMCO,

Norges and Japanese financial con-

glomerates are stocking up on, well,

European real estate stocks. Reflect-

ing this, EPRA’s monthly calculation

of quoted property discounts to

NAV rose in June to an aggregate

continent-wide 4% premium from a

10% discount one year earlier.

Of course there is huge variance.

Leaving out the nations where listed

real estate is tiny such as Norway,

Finland and Greece, Austria remains

the stand-out laggard, still 30%

under water. Austria provides the

best negative example in Europe

for neglect of a sector that could

and should be supplying more

pass-through capital to its real

In late July, the restaurant

chain El Pollo Loco floated

on the NASDAQ, adding to

the US ‘fast casual’ dining

segment with a Mexican

flavour. Shares in ‘The

Crazy Chicken’ rose 35%

on the first day, boosting

the capital-raising abilities

of the principals and

cutting its potential cost of

future funding.

Crazy it may be, but a

great lesson for Europe.

EPRA NEWS / 48 / 2014 5.

GUEST EDITORAllan Saunderson

>

estate stock. Institutions at home

and abroad are willing and eager

to allocate, but only in corporate

governance environments that

foster externally-focused value crea-

tion and discourage opaque insider

strategies. Does anyone know what

is happening with Vienna-listed

conwert please? The handful of

those who do are, at time of writing,

not saying.

But Spain, of all markets, is

suddenly doing a lot right. PIE has a

list of 17 REIT/SOCIMIs (Sociedades

Cotizadas de Inversión en el Mer-

cado Inmobiliario) already launched

and listed, or in various stages of

planning. More are being conceived

and added every day. They include

blind-pools such as Lar Espana

and Hispania that launched just a

few days away from each other in

February with illustrious backers

such as PIMCO, Franklin Templeton,

Cohen & Steers, George Soros, John

Paulson, Credit Suisse and Goldman

Sachs. Axia Real Estate is a new

addition to this subgroup, floated in

July at EUR 360 million.

Two of the earliest SOCIMIs,

Promorent and Entrecampos, are

vehicles to capitalise family office

portfolios, sometimes relatively

small. Others, in part still on the

drawing board, are single-asset ve-

hicles being used in private-public

strategies to exploit the huge surge

of interest in the Spanish recovery

story. Blackstone has a vehicle

called Fidere on starting blocks to

monetise a social housing portfolio

in Madrid. Orion Capital Partners

has two SOCIMI vehicles set up but

not yet listed, tentatively named

Orion Columba and Puerto Venecia

and slated to capitalise two separate

shopping centres on the public

markets.

The largest Spanish REIT/SOCIMI

to date is Merlin Properties, launched

in early summer. Raising EUR 1.25

billion, the IPO was also the largest

overall in Spain since July 2011. Its

backers intend to build on a 40%

seeded portfolio of nationwide bank

branches on long-lease to BBVA to

grow a large publicly quoted real es-

tate vehicle. Management is led by

former investment bankers Ismael

Clemente and Miguel Ollero, while

David Brush, previously European

real estate head for Brookfield and

RREEF, is CIO. Serous firepower

indeed. Using Merlin as an exit from

long-time Spanish commitments are

no less than Credit Suisse, Deutsche

Bank, UBS and domestic private

bank Banca March.

Merlin now aims to wave its

magic wand over offices, shopping

centres, logistics and urban hotels

in the core and core-plus segments

throughout the Iberian peninsular.

The only vehicle that could trump it

in size is a SOCIMI being eyed by

Unibail-Rodamco at capitalisation of

EUR 2.4 billion for a 16-unit Spanish

mall portfolio. Watch that particular

space — another new wrinkle in a

fast-growing quoted property seg-

ment that, on paper, looks set to

rival France and UK in size.

It would be neat to think that

the explosion of REIT/SOCIMI

enthusiasm in Madrid is sparking

thoughts across Europe of using

public markets to capitalise real

estate portfolios, and there is some

slight evidence that this is so. Yet

the more obvious trend is the

general resurgence of M&A activity

now that investing institutions have

finally realised the value lying on

stock exchange tables. Much of

the M&A so far has concentrated

on France and Germany, and one

of the most dramatic and recent

is the late July merger of French

shopping centre REIT/SIIC Klepierre

and Netherlands-based Corio. Major

investing institutions — in this case

Simon Property Group, BNP Paribas,

and Dutch pension fund manager

APG — are seeing value in support-

ing the restructuring, which will

create the largest pure-play retail

REIT in Europe at EUR 21 billion

AUM and capitalisation close to EUR

10 billion.

Another notable example, also in

France, is Gecina. Spain’s Metrova-

cesa sold its 27% stake for EUR 1.8

billion to Blackstone and Canada’s

Ivanhoé Cambridge recently. Be-

cause the buyers already owned

31%, they cut in Norway’s Pension

Fund Global and Crédit Agricole

insurance in order to avoid taking

control and breaching French REIT/

SIIQ regulations stipulating a

6. EPRA NEWS / 48 / 20146. EPRA NEWS / 48 / 2014

GUEST EDITOR

maximum 60% by any one share-

holder or concert party. A loss of

Gecina’s vital SIIQ status was not

a desired result (even if I thought

Blackstone had public-private

designs!). The North American

investors had previously accessed

stakes of two Spanish disgraced

executives by the back door. At

significant discounts, they bought

debt owed by the two men’s

Spanish holding companies for the

equity, and forceclosed when pay-

ments went into arrears.

Now, Gecina is back on track

with extremely capable new

management, and PIE wishes it

well. The story has been one of the

most interesting corporate sagas of

the last decade, now with a happy

end. Forget the latest Disney epic

‘Penguins in Madagascar’, Gecina

is soon to be a much more interest-

ing major motion picture ... when,

that is, I get time to write the script!

Another complex public markets

script features Spanish, French and

Mid-East players and stars Colonial

Allan Saunderson is Founder and Managing Editor of Property Investor Europe, the leading news-

intelligence magazine-portal on European real estate

investment and widely-read thought leader. Based

now in Frankfurt, Saunderson was a Reuters financial

journalist in London, Frankfurt and Paris, named

Chief Financial Correspondent-France in 1988. Moving

to Bank Julius Bär AG as Head of European Research

in 1990, he was named the next year as adviser to

the French Finance Ministry by Prime Minister Pierre

Bérégovoy. Prior to founding PIE in 2005 to track

Europe for US and global real estate investors, he

was an investment consultant and Bundesbank/ECB

watcher. PIE Dailies are now read by 8,000 to 10,000

global investors every weekday.

and French REIT Société Foncière

Lyonnaise. Qatar’s sovereign wealth

fund QIA in spring raised its stake in

Barcelona’s Colonial to 13.1% to be-

come its second largest shareholder.

Colonial surprised itself by locating,

at the year’s start, a large lump of

new equity from domestic industrial

group Villar Mir after execs had ex-

pected to have to hive off a chunk

of its 53% holding in SFL to raise

cash and pay down debt. Suddenly,

the equity was there — and the new

shareholders certainly did not want

any of SFL to be sold.

Why, I hear you ask? Because

SFL, like Gecina but smaller, is

a very nice pure-play package of

Paris office. And what’s not to like

in Paris? Qatar certainly likes Paris,

that much is sure. So much so that it

is building its stake in both Colonial

and SFL just to be on the safe side.

I hope you are following, because

here the plot thickens: Spanish listed

Colonial and Predica, the insurance

arm of Crédit Agricole, are to end

their shareholder alliance in SFL.

Now, as you have read above,

Qatar has built a sizable SFL stake,

and in concert with a Dubai-based

DIC — controlled by Qatar’s emir —

owns 22.19%, making it/them SFL’s

second largest shareholder after Co-

lonial. And they are ready to increase

further ‘as opportunities arise’ but

are not seeking a takeover. Crédit

Agricole Assurances and Predica are,

after all, still in there. They boosted

their SFL stake to 12.64% from 5.39%

as CIB investment bank and Britain’s

Royal Bank of Scotland withdrew.

Not a never-ending story perhaps,

but certainly not yet finished

short term.

Neither is the vision and enter-

prise of Charles Ruggieri and his

allies — a shareholder group that

bailed out of Foncière des Régions

a few years ago, over-powered

by Luxottica billionaire Leonardo

del Vecchio. Ruggieri quickly took

control of Paris REIT/SIIC Eurosic,

optimised the portfolio over the last

couple of years, and is now expand-

ing — acquiring French peer SIIC de

Paris through stakes bought mainly

from SFL and Spanish Realia to

double Eurosic’s portfolio to around

EUR 2.9 billion, mainly modern of-

fices in Ile-de-France.

Another item that won a lot of

press was the takeover battle for So-

ciété de la Tour Eiffel. Mutual insurer

SMABTP looks to have won this,

beating out dissident shareholder

Chuc Hoang. In Germany, the listed

Adler Real Estate grew suddenly

larger in the housing space this year

by taking over Berlin peer Estavis

taking it to nearly 25,000 units of

total holdings.

In short, it’s all suddenly hap-

pening in the public real estate

markets! And not only on the equity

side. In a move echoing strategies

in Gecina, Germany’s IVG has been

taken over in the last year by

opportunity funds that bought its

debt at deep discounts. The same

strategy was used by Blackstone to

acquire Dutch retail group Multi

which — a reasonable bet — is likely

to enter the public markets in the

next 24 months or so. A quotation

may also be on the cards for another

Blackstone entity Logicor in logis-

tics. Perhaps we all have the Crazy

Chicken taste for public markets

now. Not at all a bad thing!

It would be neat to think that the explosion of REIT/SOCIMI

enthusiasm in Madrid is sparking thoughts across Europe of

using public markets to capitalise real estate portfolios,

Annual Conference delegates can participate in activities during

the days before and after. It is the event of the year for the listed

real estate sector in Europe.

EPRA members only.

Registration fee: EUR 700.

+ Property tours.

+ Investment presentations.

+ Networking among CEOs, CFOs and other

leading industry professionals.

www.epra.com/conference

SEPTEMBER 23-24-25

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http://www.epra.com


CEO UPDATE

UPDATE FROM PHILIP CHARLS

Philip Charls, EPRA CEO

Welcome to the

pre-conference newsletter –

this year has flown by!

The conference this year will take

on an all-new format. We took the

delegates’ feedback from last year’s

conference seriously and have

dramatically changed the structure,

condensing the main event into

one day, and with property tours

and investor relations meetings on

either side. A real focus for our core

members. I would like to also thank

this year’s sponsors, without whose

commitment and support the EPRA

conference would not be what it is

today.

Two years ago, at the annual con-

ference in Berlin, EPRA went out on

a limb and said that we expected a

REIT Renaissance in Europe. Let’s not

forget that those gloomier days were

not so long ago, with speakers on the

platform questioning the relevance of

a European listed real estate industry

as our share of the global index close

to 10%. Some said EPRA’s call was at

best brave, and probably naive.

Scroll forward to 2014 and the

European industry’s share of global

listed market cap has increased by

a third to 16%. We have also seen

close to EUR 10 billion in IPOs over

this period and new REIT regimes

gain strong traction in Ireland and

Spain – not coincidentally the two

Eurozone economies laid low in the

crisis by inflated real estate markets.

Governments in Dublin and Madrid,

following strong lobbying by EPRA

and the local industries, saw that

listed real estate companies are a

tried and tested way to bring fresh

capital into the sector, which is a

major driver of growth, in a trans-

parent and regulated investment

vehicle.

In Paris last year, I announced the

largest expansion in EPRA’s history,

which included the opening of an

Asian representative office in Hong

Kong and investment in our investor

outreach resources in Europe. Over

the past 12 months, institutional

investors visited by EPRA in markets

as diverse as China, Taiwan, Korea,

Scandinavia, the UK, Germany and

the Netherlands have announced

additional investments allocations

to listed real estate – and that’s only

what has publicly been announced.

EPRA’s investor outreach spans

three regions.

• Europe

• Asia-Pacific

• North America

Core is Europe and the UK of

course. Matt Fletcher is firmly

established in the London market

regularly meeting members locally

and the other major UK cities. In

addition, Matt focuses on Nordic

investors and will target France,

Benelux and Switzerland in the

coming weeks as part of our-joint

outreach initiative with our good

friends at NAREIT.

In June we successfully organised

our second outreach tour in China

and Korea, taking four of the major

European companies to see over 20

investors worth over a collective EUR

1,000 billion. We have a similar tour

lined up for the week of December

08 – five companies from continental

Europe will accompany us. Tangible

evidence that our investment is pay-

ing off – you will all have picked up

stories along these lines. In addition,

we have a strong working relationship

with Singapore-based APREA, and we

look forward to working closely with

new CEO and long-standing friend,

Peter Verwer, in the future.

EPRA’s Director of Finance –

Andrew Saunders – has pushed

EPRA NEWS / 48 / 2014 9. EPRA NEWS / 48 / 2014 9.

CEO UPDATE

tirelessly over the past 12 months

for corporate’s to further adopt the

EPRA BPR into their reporting. We

now have over 90% coverage in

2014. We are pushing to encourage

the final 10% on board through our

reporting committee and through

investor groups. We are also

advising companies that their own

interpretation of the BPRs should

be correct and fall in line. We have

highlighted this to a number of

committees and we will push these

companies in the right direction.

So what about the future? Well

we expect the expansion of the Eu-

ropean industry to continue driven

by market and economic factors,

as well as continued international

capital flows targeting European

investments. It is probably not un-

reasonable to expect that Europe’s

share of the global index could be

closer to 18% by the end of this year

or a possible total market capitalisa-

tion of around EUR 150 billion.

There may be further con-

solidation, following the emergence

of a large new pan-European

retail champion resulting from the

Klepierre/Corio merger. Once again

the French have teamed up with

the Dutch following in the footsteps

of Unibail/Rodamco, and even

AirFrance/KLM and Euronext!

Membership currently stands at

205, close to our peak in 2007. The

team has worked hard to expand

the association and encourage

more companies and investors

into the fold – an even more cohe-

sive industry with a louder voice.

I look forward to seeing you all

in London.

http://www.ey.com


FEATURES

GERMAN LISTED REAL ESTATE COMMANDS

RECORD INFLOWSLast year, German indirect

property vehicles recorded

their highest capital

inflows since 2003. So

is there a fundamental

shift underway?

Listed real estate and institutional

open-end funds have dramatically

increased their shares of capital

flows, both posting new historical

records in 2013. Analysing long-term

trends from 2001/03 to 2011/13 indi-

cates a significant transformation

of the overall landscape. On the

flipside, retail open-end funds have

substantially lost in importance

over the same period, halving their

share of capital flows. These diverg-

ing trends have also continued in

the first quarter of 2014.

FY 2013: Indirect capital flows +40% yoyIn 2013, German indirect property

investment vehicles (listed RE, in-

stitutional open-end funds, retail

open-end funds and closed-end

funds) recorded the highest com-

bined net capital inflows since 2003.

Combined net capital inflows were

EUR 17.3 billion in 2013, up 40% yoy.

Combined net capital inflows have

recorded positive annual growth for

the third year in a row.

Listed real estate and institutional open-end funds with record inflowsInstitutional open-end funds were

the strongest contributors for the

fifth consecutive year, generating

37% of combined net capital inflows

in 2013. The EUR 6.4 billion of net

capital represents a new record

inflow for institutional open-end

funds. Closed-end funds were the

second largest contributors with

net capital inflows of EUR 3.9

billion (up 25% yoy) benefiting from

strong institutional business. Listed

real estate was the third largest

contributor with EUR 3.5 billion of

17.3

Chart 1: Indirect RE capital flow by vehicle (all

regions)

Source: BVI, bsi, Deutsche Bundesbank, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’


FEATURES

capital placed, reaching a new all-

time high — up 74% on the previous

record in 2011.

Net inflows from retail open-end

funds marginally declined by 2%

yoy, having had a weak 2nd half of

2013. The launch of the KAGB (retail

investor protection act) as well as

repayments from frozen funds are

oft-cited reasons for the relative

under-performance of the retail

GOEFs in 2013.

80% of inflows from institutional investorsWe estimate that EUR 13 billion —

almost 80% of combined 2013 net

capital inflows of EUR 17.2 billion —

was raised from institutional inves-

tors. Roughly 50% of combined net

capital inflows are earmarked for

investment in German properties on

our estimates (with the remainder

expected to be deployed internation-

ally). For German property markets,

this represents a total potential

investment volume (including debt)

of EUR 15.6 billion — up 59% yoy and

a new historical record.

We estimate that 21%, or EUR

3.6 billion of combined net capital

inflows, are targeted for investment

into the German residential sector —

the highest share and volume ever.

The main reason: strength in listed

RE markets and the listed sector’s

near total (94%) capital allocation

into residential investments.

Listed real estate & institutional open-end funds as long-term winnersLong-term trends in net capital flows

point to a substantial change in the

landscape for indirect property ve-

hicles. While retail open-end funds

attracted 68% of combined net

capital flows over the period from

2001/03, their share has fallen to 21%

during 2011/13 — a very significant

loss of market share. We would like

to highlight, however, that the years

2001/03 were a period of record

inflows for retail open-end funds.

Rolling two years forward to the

2003/05 period, the market share of

retail open-end funds was substan-

tially lower at 45%. Nevertheless,

even compared to this reduced level,

current market share of retail open-

end funds has halved.

On the other hand, institutional

open-end funds have expanded

their share of combined net capital

flows from 11% to 37%, being the

star performer among indirect >

Long-term trends in net

capital flows point to a

substantial change in the

landscape for indirect

property vehicles.

3.9, 23%3.5, 20%

6.4, 37%

3.4, 20%

Inst. GEOFs CEFs

Listed RE Retail GEOFs

Chart 2: Indirect RE capital flow by vehicle (all regions)

Source: bsi, Deutsche Bundesbank, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’

20.5%

2001-03 2011-13

0.2%

10.8%

68.4%

24.5%

36.6%

21.1%

17.8%

+4.0%p

+25.8%p

-47.3%p

+17.6%p

Inst. GEOFs CEFsListed RE Retail GEOFs

Chart 3: 3y Roll Product Split

Source: BVI, bsi, vgf, Loipfinger, Scope, Deutsche Bundesbank, Feri, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’


FEATURES

property vehicles. Listed RE is the

second long-term winner: virtually

non-existent in 2001/03 and attracting

almost 18% of total capital a decade

later. CEFs share of combined net

capital inflows was up from 21% to

25% during the two periods.

Q1 2014: Trends continueIn Q1 2014 indirect real estate vehicles

accounted for net capital inflows of

EUR 4.2 billion, declining by 11% yoy.

The number comprises listed real

estate (RE), institutional open-end

funds and public open-end funds.

A Q1 inflow or placement figure

for closed-end funds (CEFs) is not

yet available. Assuming a constant

2013 ratio of CEF-placements to total

indirect real estate flows would add

another EUR 1 billion of indirect

capital inflows in Q1 2014. This ap-

proach should, however, be taken

as a rough estimate only, as various

factors expected to affect CEF place-

ment volumes — e.g. the launch of

Germany’s new KAGB retail investor

protection Act as well as investment

COMMENT:The growth of Germany’s listed property sector is a solid indication that investors in Europe’s strongest economy understand the fundamental benefits of tradable, high-yield, listed property portfolios. And we believe that our efforts are paying off in the country; with greater awareness among investors and policy-makers of the central role listed real estate plays in the wider economy. We realise that Germany is primarily a fund-dominated country, yet we sense an advancement of logic over habit. Increasingly people are realising there are phenomenal alternatives out there, with a listed real estate component enhancing portfolio results.Philip Charls, EPRA CEO

4.743

4.215

2012 Q1

2012 Q2

2013 Q4

2013 Q3

2013 Q2

2013 Q1

2012 Q4

2012 Q3

2014Q1

Chart 4: Indirect RE capital flow by vehicle (All regions, by quarter)

Source: BVI, bsi, vgf, Loipfinger, Scope, Deutsche Bundesbank, Feri, Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database’

flow seasonality — have not been

considered. The two open-end fund

categories continued along their

very different growth paths. Net

inflows into institutional open-end

funds have increased by another 9%

to EUR 1.9 billion vs. 2013, making

it the second record Q1 in a row.

By contrast, net inflows into public

open-end funds are at less than half

of the year ago level.

Retail open-end funds continue to struggle in Q1 2014Looking at public open-end funds,

the low Q1 2014 inflow of EUR 0.8

billion might be interpreted in sev-

eral ways. On one hand this is the

second quarterly increase in a row,

after a near total halt in investment

inflows, following introduction of

the new KAGB act in Q3 2013.

On the other hand, Q1 is often the

strongest quarter of the year due to

reinvestments of annual pay-outs.

Indeed January alone accounted for

EUR 479 million or 60% of Q1 net

inflows. Finally, repayments from

frozen funds are probably quite er-

ratic, distorting the underlying trend.

We will probably have to wait

a few more quarters in order to

see a reliable trend post open-end

fund crisis and KAGB launch. Other

research seems to indicate that non-

frozen public open-end funds are

experiencing healthy inflows at pre-

sent and some are even proactively

stopping inflows.

Listed real estate with spectacular start to the yearListed RE equity placement posted

a record start to the year, growing

9% yoy and accounting for EUR 1.5

billion in Q1 2014. April to June 2014

has seen another flurry of transac-

tions — e.g. the BUWOG spin-off,

GAGFAH placements and Deutsche

Annington placements — propelling

2014 ytd placements to EUR 3.3

billion, roughly 3x the long-term

annual average of EUR 1.1 billion. It

is also just a hair below the previous

record year 2013, which saw total

full-year equity issuance of EUR

3.5 billion.

2014 is dominated by equity

placements so far (LEG/Deutsche

Annington/GAGFAH with a total of

EUR 2.6 billion) and the BUWOG

spin-off (EUR 0.7 billion, not counted

in our placement statistics as a cash

neutral transaction). The remaining

EUR 0.7 billion of equity transactions

is largely driven by capital increases

(e.g. Deutsche Annington), rights

issues (e.g. Prime Office) and a

few smaller placements (e.g. Orco,

DIC Asset).

We note that equity placements

during the current cycle have been

substantially driven by private

equity owners, as capital markets


Peter BarkowBorn in 1969, Peter Barkow brings more than two decades of global financial institutions and real estate experience to the table. During his career, he has amassed project

experience with leading global strategy consulting firms and financial institutions. In his most recent roles in equity research, Barkow headed the Conti-nental European real estate team at Lehman Brothers and the German Financial Institutions & Real Estate team at HSBC. He has won numerous awards during his research career. In 2009, Barkow founded Barkow Consulting, an independent advisory firm with core focus on capital markets strategy and communication services for the listed real estate [email protected]

Jesse Freitag-AkselrodBorn in 1976, Jesse Freitag-Akselrod has over ten years of diverse financial and investment experience, having worked in mergers & acquisi-tions, equity research, and asset

management. Since 2005, Freitag-Akselrod has been active in the European listed real estate space, most recently working as a buy-side investor for Cohen & Steers Europe. In 2010, Freitag-Akselrod founded Akselrod Consulting, a stand-alone consultancy firm specialized in IPO-advisory and corporate [email protected]

FEATURES

provided EUR 6.2 billion for their di-

rect and indirect exit strategies since

2009. Combined German residential

stock overhang still waiting to be

placed is currently at EUR 4.0 bil-

lion, including new entrant BUWOG.

FY 2014: The year of the German real estate convertibleFour of the six largest-ever German

RE convertibles were placed during

the last eight months by GAGFAH

(EUR 375 million), LEG (EUR 300 mil-

lion), Deutsche Wohnen (EUR 250

million) and Grand City Properties

(EUR 150 million). In other words,

more than EUR 1.1 billion of German

RE convertibles have been placed in

period of just six months. GAGFAH’s

recent convertible issue was the

second largest ever for a German

real estate company and the largest

following the financial crisis. The

largest-ever German RE convertible

had been issued by IVG (EUR 400

million) in 2007, shortly before the

onset of the financial crisis. GSW

(EUR 183 million) completes the top

six with its December 2012 convert-

ible issue.

German RE convertible issuance

totals EUR 860 million based on five

transactions year-to-date. 2014 there-

fore already marks the highest-ever

placement volume by a wide margin

(+74%). The previous record year

was 2012 with six deals raising EUR

494 million. All larger listed Ger-

man real estate companies except

Deutsche Annington currently have

convertibles outstanding.

ytd

Eur 1.1bn Eur 3.3bn

Chart 5: Total German RE equity placements (in EURbn pa)

Source: Akselrod Consulting/Barkow Consulting ‘German RE Capital Markets Database

Other dealsLast 7 months

Chart 6: German RE convertilbe placement by size


ytd

EUR 0.2bn EUR 0.9bn

Chart 7: German RE convertilbe placements (in EURbn pa)


http://www.cegereal.comhttp://www.segro.com


FEATURES

>

FEATURES

NEVER LET A GOOD CRISIS GO TO WASTE

If the capital is to stick

around for the longer term,

attention ought to be spent

on launching sustainable

business models.

Let’s grab the unique

opportunity to grow the

European market by

getting the structures right.

Over the last decade, the relative

size of the European listed real

estate securities sector has been one

of the seminal topics of debate both

among investors as well as at EPRA

conferences. The European real

estate industry has been hit hard by

the financial crisis and the sovereign

debt crisis that ensued.

The silver lining is in the fact

that listed real estate markets his-

torically have thrived on the back of

these crises. In many cases, new or

radically improved fiscal structures

(REITs) have been introduced to

resolve some of the issues. This has

resulted in strong growth in many

markets, the US REIT boom being

the lead example.

From an investor perspective,

market depth is of obvious impor-

tance in allocating resources to fol-

low that market, so the expectation

of an enlarged sector is most wel-

come. I suspect that in Europe, we

could be on the brink of a perhaps

unprecedented growth phase in

market size. However, the introduc-

tion of ‘sub-optimal’ structures is an

impediment to sustained growth.

This has the potential of smothering

the opportunity. Investors should

use their capital to push the indus-

try to deliver product that can stand

the test of time.

Harder times, fitter regimesThe current situation in the Euro-

pean real estate market should be

seen as an opportunity to push

through changes in legislation, im-

proving the depth, quality, flexibility

and accessibility of the listed real

estate markets and solidify growth.

Currently, I do see a wave of real

estate IPO’s in Europe, among which

Irish, British and Spanish have al-

ready been announced and at least

another ten initiatives in these and

other countries are forthcoming.

In most of these cases, this

unique opportunity is tainted by

the introduction of opportunistic,

ill-structured initiatives, frequently

dubbed “cash-boxes”. While they

might seem to offer interesting in-

vestment opportunities in the short

term, their long-term attractiveness

is poised to be disappointing. The

majority of the (planned) IPO’s

share characteristics that normally

are reserved for private equity real

estate vehicles. Among these char-

acteristics are blind pools, external

management, a finite life-span and

— consequently — poor liquidity.

History has shown that none

of these elements is conducive to

strong performance in the long

run, and all of these introduce >

http://www.cegereal.com


FEATURES

potential agency issues between the

company and its investors. From

an institutional perspective, these

vehicles therefore do not offer the

much desired answer to the lack of

quality product in the market.

Nevertheless, some of the com-

panies introduced of late have had a

good start. Because of the dearth in

product and high projected returns

of these recovery plays, some

institutional investors have been

lured into these investments, despite

these grave issues. In turn, banks

and entrepreneurs are tempted

by this behavior to mimic these

structures to quickly attract capital.

It conflicts with the broadly shared

call for better governance in the

European listed real estate industry

by institutional investors.

Get it right from the outsetA positive scenario would be that

eventually, the newly launched

funds will convert into permanent,

internally managed vehicles. But if

that is the way forward, it would

be best to structure companies ac-

cordingly from the start. The rush to

obtain capital while the tidal wave

of money is still heading towards

Europe is understandable. However,

if the capital is to stick around for

the longer term, attention ought to

be spent on launching sustainable

business models.

What I would advocate is to take

the opportunity of the market condi-

tions to structure appropriately-gov-

erned companies with permanent

capital that can grow over time

and stand the test of capital flow-

ing in and out of the industry. The

current wave of capital can dry up

pretty fast.

Only companies that have strong

management alignment and a solid

shareholder base are likely to thrive

in the long run. This is to the benefit

not only of shareholders, but to the

stability of the market as a whole.

If we get this wrong, we run the

risk that investors will abandon

European real estate securities.

If we play it right, however, it

might resolve the feeling of the

European market not living up to its

potential.

It is important for us as investors to keep

pushing for properly structured companies

and to demand appropriate structures.

Instead of acting like passive

‘product takers’, it is important for

us as investors to keep pushing for

properly structured companies and

to demand appropriate structures.

By directing capital to those proposi-

tions that have the ability to grow

going forward, we can signal the

importance of good governance both

to newly-launched companies as

well as to the companies we are al-

ready invested with. Ultimately, this

will raise the attractiveness of the

European marketplace and hence

the valuations of European property

companies.

If we do this, one of the topics of

the EPRA conference agenda in ten

years’ time will be the story of the

European REIT boom this decade.

Hans Op ‘t Veld, PGGM, Head of Listed Real EstateMarch 2014

Management Consulting

Managed Services

Energy Solutions

At RealFoundations, real estate is our passion and the primary focus of our people and our business. No group understands the entire real estate ecosystem as well as we do, from the building itself to the way it’s developed, operated and capitalized. We apply that knowledge and insight to help real estate companies make better, more profitable decisions. We make real estate run better.

Please visit us today at www.realfoundations.net or call us at +1 877 365 1804

Australia | Hong Kong | India | Singapore | UK | US

http://www.icade.frhttp://www.realfoundations.net

http://www.epra.com


FEATURES

With pressure on banking

practices and unfettered

access to information

across a vast market

of choice, how is the

IR sector changing and

with what impact on

companies?

“Just get me in front of more inves-

tors”, this is a demand often made

by ambitious company Chief Execu-

tives, keen to spread the word about

their strategy. But is it as simple as

that? Does the numbers game really

work? Increasingly many compa-

nies are now taking a much more

scientific approach to their Investor

Relations programme and they are

measuring the value it delivers.

Assessing their return on time

invested in meetings is now at the

heart of a number of quoted compa-

nies’ IR strategy. Management teams

are conscious that with more inves-

tors out there and more competition

from other real estate companies

trying to attract attention, that more

accurate targeting of potential inves-

tors can make their whole approach

to IR much more efficient.

Executive time is precious, so

making sure it is used effectively

is an important consideration for

many IR teams. The worst thing an

IR officer can hear when the CEO

is sitting in front of a new investor

is “Can you just run me through

what you do”. Their heart will sink

when their CEO asks them after the

meeting “Why did I just spend my

time doing that — isn’t that what you

should be doing?”. For companies

lucky enough to have an in-house

IR capability, a lot of time is spent

on missionary work, explaining the

basics about the business so that the

investors know the company well

before meeting the Executive team.

For those companies that don’t

have the luxury of an IR team,

some executives tell us that 40%

of their time is spent on IR. This is

a lot of time that could potentially

be utilised better elsewhere. Also

for IROs, their own time is limited

so they need to make sure they are

using it wisely and adding value.

Competition for capitalIn a global market, there are more

companies competing for capital.

With more IPOs increasing the num-

ber and diversity of listed companies

to consider, investors are spoilt for

choice when assessing their asset

allocation choices. Also companies

have made giant strides in making it

much easier for investors to engage

with them. Electronic communica-

tions have made a big difference.

Investors across the globe are log-

ging into webcasts of presentations

and they use company websites >

THE CHANGING FACE OF INVESTOR RELATIONS


FEATURES

that are stacked with detail for their

own research. Video conference

calls have enabled people to speak

directly with companies without

the hassle of travelling. EPRA is

facilitating this using a coordinated

scheduling calendar to space out the

vast array of investor interactions.

EPRA has also been working

with its members to help them to

improve their approach to IR. It has

been championing the adoption of

recognised EPRA reporting stand-

ards and improvements in the level

of disclosure. These initiatives have

been hugely welcomed by investors.

Also the EPRA Investor Outreach

programme is helping companies

to approach potential new pools

of capital. One example of this is

the work that we have been doing

together targeting private client fund

managers and UK regional funds.

EPRA has also being spearheading

its approach in China, where there is

massive potential, as more capital is

being invested overseas in the real

estate sector.

But nothing replaces the old

fashioned one-to-one meeting that

investors still crave and the chance

to quiz the company about the qual-

ity of their assets and the merits of

the management’s strategy. After all,

despite the focus on the underly-

ing quality of the properties, real

estate is still a people business and

investors like to meet management

teams directly. Larger listed real

estate companies are increasingly

travelling overseas to meet investors

at conferences and on road-shows.

However with the changes being

forced upon investment banks, who

have been the driving force behind

these corporate access events, this is

increasingly under pressure.

The changing face of corporate accessThe traditional methods of reaching

investors are changing. Increas-

ingly, listed companies are looking

beyond the old model of relying on

their corporate stockbroker to man-

age their IR programme. In the UK,

the Financial Conduct Authority has

threatened to turn the market on its

head by preventing investment man-

agers paying commissions in return

for corporate access or research.

Investment banks will be hardest

hit. It is already having an impact on

how they structure their own inter-

nal IR teams, which, in turn, has a

knock-on effect on listed companies.

The numbers of sell-side analysts is

being scaled back and the impetus

to arrange non-deal road-shows

and conferences is waning. Many

corporates are realising that the

onus will be increasingly on them to

coordinate their own approach to IR.

Targeting investors in the futureSo how are companies choosing

how they invest their time and

deciding who they should be see-

ing? For listed real estate companies

some are looking at the whole

approach of investor targeting in a

much more scientific way. They are

asking themselves the question,

“Who are the right shareholders for

us?” and “How do we reach them?”

Many IR officers can draw on

their own experience of working

on the sell-side and have moved

across into IR. But with more new

investors emerging and the flows

of funds ever shifting, staying on

top of this changing world is dif-

ficult. So to help fill the gaps there

are specialist IR consultancies that

have developed sophisticated data

analytics tools that help companies

assess and target the right investors

for them.

We are working with companies

looking across the board at what

type of investors they should be

potentially targeting. Data about the

direction of fund flows is now much

more important when assessing

who to try and attract. This can re-

veal the impact on buying patterns.

The outcome is that with this data

it can demonstrate emphatically

which investors companies should

spend time trying to attract.

EFFICIENT USE OF TIMEUK listed REIT Big Yellow Group, is one example of a company that has adapted its approach to IR. James Gibson, the CEO explained: “We asked ourselves the question, how can we improve our IR? We are keen to understand what is motivating our investors. I think that is interesting. My view is that it is better to work smarter at IR rather than just throw bread on the water and see everyone you can and then wonder why so few actually commit to investing. Now we are more focused on targeting investors who we know will take the time to understand us.”

He added, “As part of this, we now consider carefully the shareholders we want to attract. We are not going to appeal to everyone, so as a small team, I want to make sure our time is used wisely. We use what the data analytics tells us to target much more precisely the right type of investor that will take a long-term view about our business. Analysing changes in our investors’ behavior helps our engagement and understanding of our main shareholders.”

www.epra.com/calendar


FEATURES

To put this in context, one aspect

that the data shows is that there are

plenty of long-only equity funds that

are very low frequency traders. They

buy and hold for the long term, and

the percentage of their portfolios

that change annually is extremely

low. Yet, they can get overlooked by

the investment banks because they

simply don’t trade enough.

These investors can be very

loyal, they take a long-term view

and are attracted to a diverse range

of investments where they assess the

total returns over years rather than

months. Some of these investors are

ideal for listed real estate compa-

nies. Their fund remit matches the

objectives and the time horizons

of many listed real estate com-

panies. Also they are not volatile

shareholders that are hopping

in and out of the shares at a mo-

ment’s notice.

The impact of Investor RelationsSo how do companies benefit from

better IR and how is this reflected

in their valuation? For many com-

panies the key to a successful IR

programme is to create a balanced

shareholder register, with a healthy

daily liquidity that ensures they are

more attractive to investors. Rather

than thinking “wouldn’t it be nice to

have fund x on the register”, com-

panies are increasingly considering

which funds they should be target-

ing from a wider pool.

Rather than just focusing on

a narrow group of investors, a

data-driven IR programme can point

to a wider pool of investors that

would be relevant for individual

companies. In conclusion, company

valuations are a balance of supply

and demand for their shares. Yet

making sure that you have a precise,

targeted IR programme can lead to

For many companies the key to a successful IR programme

is to create a balanced shareholder register, with a

healthy daily liquidity that ensures they are more

attractive to investors.

Simon Courtenay is the Managing Director of specialist London-based IR consultancy Broker Profile. Broker Profile has been working with EPRA to target private client investment manag-

ers and UK regional [email protected]

an improved valuation as companies

leave it less to chance and they at-

tract more investors who want what

they are.

So instead of a Chief Executive

demanding to “See more people”,

companies that are adapting to the

changing world of IR can use this to

their advantage. Then the Chief Ex-

ecutive will be saying “Let’s go and

see the right people.” After all, there

is an oft-used phrase in the world of

IR: “Companies get the shareholders

they deserve.”


FEATURESOUTREACH

RECENT EPRA INVESTOR OUTREACH IN THE US

EPRA representatives

attended the NAREIT

Annual conference

REITweek in New York.

Philip Charls and Ali Zaidi

used this opportunity

to meet with a range of

investors based in

New York.

One-to-one meetings were held with

15 investors representing AUM above

USD 3 trillion.

The outperformance of the

European listed sector in the last

12 months vs. North America and

Asia, along with the healthy IPO

climate has attracted investor focus.

The conversations revealed a higher

level of optimism than a year ago,

however, concerns remain on the

complexity of regulations and under

representation of Germany and

Spain in the EPRA index.

Philip provided an overview

of EPRA’s efforts on the regula-

tory front and macro-economic

forecast of the region. The cultural

differences and investor perception

across countries were discussed

in detail. Questions related to the

FTSE EPRA/NAREIT Index series

were dealt by Ali. One investor

informed on their decision to move

to global listed from a US-only

strategy. Investors were interested

in the positive news emanating

from Europe and particularly the

wide range of recent IPOs.

Illustrating the close ties between

the US and European listed sectors,

Philip was invited to participate in

the closing bell ceremony at the

New York Stock Exchange. The NYSE

was recognising 20 years of REIT

listing on the Exchange.

http://www.psp.infohttp://www.unibail-rodamco.com


FEATURES

ASIAN INVESTORS EXPLORE INVESTING DIRECTLY IN

LISTED PROPERTY COMPANIESEUROZONE REIT CEOs REPORT AFTER EPRA OUTREACH TRIP

The chief executives

of three continental

European REITs returned

from last month’s EPRA

Asia Investor Outreach

visit hopeful that Chinese

and Korean institutions

will start investing directly

in shares of European

listed property companies.

EPRA arranged in-person meetings

for the chief executives of Belgium’s

Cofinimmo, and France’s Foncière

des Régions and Icade with 15

institutions managing a total of

USD 1.64 trillion of assets during a

tour in mid-June of Beijing, Seoul

and Shanghai.

The CEOs said that the contact

with the pension funds, insurers,

investment managers, property

companies and sovereign wealth

funds was invaluable. They found

that the Asian investors prefer to

deploy their capital into Europe’s

listed property sector through third

parties because they lack familiarity

with the businesses, strategies and

management teams.

Foncière des Régions Chief Ex-

ecutive Christophe Kullmann said:

“These investors have significant

sums of capital to deploy and there

was a real interest and desire from

them, expressed during the EPRA

meetings, to go into the Eurozone.

Some clearly said that they will

invest directly in listed European

property companies.’’

Chinese insurers are poised

to become a new force in global

real estate investment, since their

ability to invest in international

property is still a relative novelty. In

May 2013, the country’s regulatory

authorities ended the ‘China-only’

real estate investment restrictions

and loosened the rules on asset

allocation for infrastructure and real

estate, which are now permitted to

represent 20% of their investment

portfolios compared with 10% previ-

ously. The executives heard that this

will probably increase the flow of

capital from China into European

property, since insurance companies

have a total of RMB 7.4 trillion (EUR

900 billion) of investments spread

across all investment asset classes.

What emerged during the CEOs’

meetings was that the Chinese

and South Korean institutions are

allocating capital to real estate to

diversify the range of assets in their

investment portfolios. They treat

listed real estate companies as an

integral part of this property invest-

ment allocation strategy because it

offers a liquid, cost-effective and

efficient route to deploy capital,

the executives said. This blended

portfolio approach balanced out the

shortcomings of direct purchases of

buildings by the investors, which

to date have deployed significant

amounts of capital in some head-

line-grabbing transactions, the

executives said.

The Eurozone’s property markets

are currently the primary targets for

Asian investors because the region is

beginning to emerge from recession

and it allows them to broaden their

property investments geographically

and in currency terms after an initial

focus on the UK and US markets,

they found.

Icade Chief Executive Serge

Grzybowski said: “The EPRA

roadshow was a real eye-opener,

as Asian investors told us that the

Eurozone is their No. 1 destination

for investment. They consider that

they already have an overweight

allocation to the US and London,

so the shift to the Eurozone is also

part of a rebalancing of their prop-

erty portfolios. They are interested

in the listed property sector, which

they see as offering attractive divi-

dend yields.”

EPRA has launched a new

bi-monthly Asia Focus update

for members, which collects the

latest Europe-bound investment

and real estate activities.

DIVERSIFICATIONThe ability to diversify your investment means you can spread your real estate

exposure across many buildings, sectors and locations. Real estate listed on

Europe’s stock exchanges – the smart way to invest.

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Diversification

Transparency

Liquidity

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Dividends

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A bigger splash for your cash

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EPRA jigsaw diversify ad.pdf 2 08/08/2014 09:48

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DIVERSIFICATIONThe ability to diversify your investment means you can spread your real estate

exposure across many buildings, sectors and locations. Real estate listed on

Europe’s stock exchanges – the smart way to invest.

www.epra.com/diversification

Diversification

Transparency

Liquidity

Transparency

Dividends

Diversification

A bigger splash for your cash

C

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CY

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K

EPRA jigsaw diversify ad.pdf 2 08/08/2014 09:48

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FEATURES

IS THE FUTURE VIRTUAL OR REAL?

FEATURES

The future is upon us but

we don’t yet realise it.

Energy innovation and

technology are sparking

lifestyle change — these

will transform our

working processes and

the very space in which

we live. Leo Johnson flicks

forward a few chapters to

consider the role of real

estate in the new urban

world to come.

Tell us a bit more about your latest book ‘Turnaround Challenge: Business and the City

of the Future’?It’s about the city of the future. The

towering moment of glory – we got

to Number 2 on Amazon (in the most

uncompetitive category, which is of

course, Business Ethics). To show

the depth of this category, Number

3 was a book just called “Liar”.

Number 1 was by Lance Armstrong.

What is its focus?The main focus is on megatrends.

What are the unexploded volcanos,

the revolutions for example, in

energy and manufacturing that are

starting to disrupt business? The

book then explores three scenarios

for the city of the future, each of

which has radically different impli-

cations for the real estate sector. The

first is Petropolis, where we head to-

wards Detroit, New York after Sandy,

New Orleans after Katrina. The

second is Cyburbia, the sensored

and censored smart city. The third

is the Distributed City, where we

move from the PITO city (Product In,

Trash Out) to the city that is energy

independent and self-sufficient.

Where are we headed? Are you optimistic?There is a Polish proverb: “Don’t put

too much hope in the end of the

world.” Could all the pessimists and

eco-apocalyptics be wrong? I believe

capitalism could be about to deliver

a new wave of growth, and that the

construction and real estate sector

could be crucial to accelerating this.

So how do you see this playing out in the short term? What are the main drivers of this disruption?

First the big picture. Economists

such as Carlota Perez argue that, in

the last 200 years, there have been

four major surges of development.

First water power and Arkwright’s

mills, then coal and the steam en-

gine, then Tesla’s AC electricity and

the transmission lines, finally oil,

the combustion engine and mass

production. There is one pattern. In

each of these surges a technological

breakthrough has unlocked a new

source of power and distributed it

across the economy, bringing new

people the power to do new things.

We have had a century of

capitalism based on Heny Ford’s

breakthoughs, using mass produc-

tion to harness the embedded

energy of fossil fuels. But there

are now revolutions underway,

sets of colliding megatrends that

could disrupt both. The first is in

manufacturing, with advances in

nano-tech and 3D printing that are

challenging mass production. The

seat buckle on the Airbus A380,

for example, shows the potential

for this “micro-manufacturing”. A

standard steel airplane buckle can

weigh as much as 155g. With new

fleet planes having up to 850 of

them, this starts to add up. Making

the part with 3D printing reduces

the weight to 68g, saving a possible

3,300,000 litres of fuel over the life

of the plane. The buy-to-fly ratio for

a plane (how much material gets

used in the process but doesn’t end

up on the plane) drops from more

than 60-to-1 to about 5-to-1.

What does this mean for real es-

tate? The first upside is a shift in the

economics of offshoring. As Chinese

labour costs and the costs of off-


FEATURES

shore mass production goes up, the

costs of domestic micro-production

is going down. General Electric

claims it will make about 50% of jet

engine parts with 3D printers by 2016

and is recruiting several hundred IT

specialists at a centre in Michigan.

GE chief executive Jeff Immelt calls

outsourcing “yesterday’s model”.

The second upside, in the longer

term, is a revolution in logistics,

with on-site production reducing

the need for plant, warehousing and

transport, and the growth instead

of small-scale “factories in a box”.

We’re talking about the return of the

‘local’. Then there’s direct impact

on the sector. A Chinese company

is now 3D printing two-bedroom

houses for USD 5,000 each. They

can print ten a day.

What about energy?There’s another set of colliding meg-

atrends. The energy return on fossil

fuels continues to fall, from 100-to-1

in Ford’s day to around 4-15 to 1

today. 96% of US Monterrey Shale

has been pronounced unrecoverable

because it’s just too expensive to

get it out of the ground. Meanwhile

the the energy return on renewables

continues to rise.

By 2020 we know 80% of the

world’s population is going to be liv-

ing in countries where renewables

are below cost parity with fossil

fuels. This is also going to transform

the economics of local living.

Where do you see this happening first?The low-hanging fruit is clearly

developing countries where there

are low switching costs. Here, new

energy can have a transformative

impact on urbanisation. Let’s take

the example of the M-KOPA business

model in Southern Africa. M-KOPA

are putting SIM cards into solar

lights allowing people to lease the

lights for a 50 cents a day, instead of

buying them. This slashes kerosene

costs and health impacts, raises

exam pass rates and gives access to

finance and insurance. It also allows

users to make micro-payments for

things like the Kickstart agricultural

hand-pump which brings access to

the underground water table and

lets them plant triple the number

of crops.

This type of impact on productiv-

ity took incomes up in one study

from USD 160 to USD 1,600 per

head a year. Bottom of the pyramid

spending for kerosene is USD 38

billion a year.

It’s a small example but what it

shows are the early signs of a new

GPT being deployed in ways that are

raising productivity again, in some

cases transformationally. 200,000

people flee the broken countryside

a day for the city. This approach

can start to make the countryside

work again.

What about OECD nations?The energy internet represents a

longer-term, but potentially signifi-

cant, breakthrough. It’s not yet plug

& play, but there are now over 400

smart microgrid projects around the

world, many of them in advanced

economies, trying to get on the right

side of this curve. One example

is the Pecan Street community in

Austin, Texas, confronted with rising

energy bills, which has used the en-

ergy internet to create its own smart

...if one in ten switches,

this cripples the business model

of the conventional grid.

Leo Johnson is a Partner in PwC’s Sustainability & Climate Change team, and the co-Founder of the sustainability advisory firm Sustainable Finance, now part of the PwC group. He is the co-author

of “Turnaround Challenge: Business and the City of the Future” (Oxford University Press, 2013) and the lead author of PwC’s “Low Carbon Economy Index”. Leo is a Visiting Business Fellow at the Smith School of Enterprise & Environment at Oxford University, and the Presenter of the BBC World News programme “One Square Mile”. Alongside speeches ranging from Campus Party to TEDx, he has commented and written guest columns for the Wall Street Journal, Evening Standard, FT and Huffington Post.

microgrid. They are connecting an

entire 1,000-plus neighbourhood

with solar panels, electric vehicles,

utility smart metres and household

batteries. Rooftop solar panels cal-

culate the day’s energy production,

and then set up a schedule for using

the energy or selling it back to the

grid. We are not yet there, but there

is a lot of action. Elon Musk’s new

Giga-factory looks interesting, with

new batteries promising 30 days off-

grid storage capacity for US house-

holds. And if one in ten switches, it

cripples the business model of the

conventional grid.

But what are the implications for the real estate sector? The real estate sector has the oppor-

tunity to be at the epicentre of a new

model of business success, turning

buildings from a critical source

of carbon emissions into micro-

power plants: smart, connected

and productive.

I believe we are going to see a

rebirth of the ‘local’. We are moving

from the city, to the village in the city.

Look at the recent Walkability Index

showing increasing real estate values

with walkability to local stores. It is

going to places with local identity

and liveability, combined with the

competitive advantage of a lower

cost smart microgrid infrastructure

that will attract the best talent and

thrive.

http://www.linkedin.com/company/epra


FEATURES

EPRA carries out its

work through a series

of committees made up

of key individuals from

member organisations.

The committees usually

meet twice a year in

person supplemented by

conference calls as and

when needed.

The Reporting & Accounting

(R&A) committee is one of the

organisation’s flagship working

groups and is the primary vehicle

for the discussion and approval of

financial affairs. It is supported by

smaller, subsidiary committees that

are delegated specific tasks — the

Best Practice Recommendations

(BPR) committee and the Taxation

committee that are comprised of

specialists in accounting and tax.

How is it made up?The R&A committee is currently

comprised of 26 members and has

been chaired by Lucinda Bell, CFO

of British Land, since September

2013. It is represented by both the

users and preparers of financial

statements with property company

CFO’s, accountancy practionners,

investors and analysts all sitting on

the committee.

What does it do?EPRA strives to increase investment

in the European listed real estate

sector and works to help this by

ensuring there is transparency,

credibility and comparability of its

members’ financial statements for

investors. The cornerstone of the

committees work is the Best Practice

Recommendations guide. This live

document acts as a definitive guide

for the preparers and users of finan-

cial statements and gives detailed

information on how to reconcile and

present the EPRA key performance

indicators — a series of five reporting

measures comprising EPRA Earn-

ings, EPRA NAV, EPRA NNNAV, EPRA

Net Initial Yield, EPRA Topped Up

Net initial Yield and EPRA Vacancy.

The R&A committee will debate

topical issues, such as those raised

in the accountancy world, including

new financial standards brought

in by the International Accounting

Standards Board (IASB). Further-

more, it will also consider sugges-

tions from the EPRA Executive Board

and those raised by the users of the

financial statements. These projects

may be delegated to the BPR com-

mittee for more in-depth, techni-

cal discussion before proposed

solutions are presented back to the

R&A committee for approval. Once

approved, the new recommenda-

tions are incorporated into the BPR

document with a recommendation

that companies adopt them.

Recent workDuring 2013, the R&A committee

considered and implemented the

disclosure recommendation for

cost ratios to be provided in

EPRA REPORTING & ACCOUNTING — AN INSIDE VIEW

>


FEATURES

Real estate provides

attractive opportunities and

a natural meeting of minds,

given long-term assets

match long-term liabilities.

members’ financial statements. The

cost ratio takes two forms to be dis-

closed both including and excluding

the costs of direct vacancy and real

estate companies are now reporting

these measures in their financial

statements. While not being directly

comparable between different com-

panies, the ratio is already providing

investors with a useful means to

assess like-for-like cost efficiency

within individual companies

During 2014, the committee has

delegated to a working group the

task of exploring a cash earnings

measure. The rationale here is to

help investors get a better handle of

the cash operating characteristics of

a company, both at an entity level

(from the perspective of dividend-

paying capacity) and also at an

asset level (from the perspective

of valuation). The finalised recom-

mendations are expected to be

incorporated into an updated BPR

document in the Autumn. Future

projects for the committee include

defining a standarised loan-to-value

(LTV) measure and possibly an inter-

est cover measure.

Brussels SummitThe R&A committee met in Brussels

during March 2014 for its annual

summit. Leo Johnson, sustainability

specialist from PWC and author was

a guest speaker and presented his

thoughts on how real estate can

evolve to meet the needs of future

society.

Andrew Saunders of EPRA gave

an overview of current projects

being undertaken by REESA that

include lease accounting, IFRS 3

(business combinations) and a

global earnings baseline. Saunders

also covered the latest regulatory

issues and developments detailing

AIFMD, Solvency II and ESMA’s

Alternative Performance Measures.

The latter item relates to a consulta-

tion on reporting disclosures that are

not directly reconcilable to IFRS to

which EPRA recently made a formal

response. Jaap Tonckens of Unibail-

Rodamco gave an overview to the

committee of progress achieved to

date on the cash earnings project,

which has initially focused on

improving capex disclosure.

Stuart Hitchcock of New York

Life gave a useful overview of

the private placement market as

an alternative funding source. US

investors make up the majority of

private placement which has been

operating for over 60 years in US

and 20 years in Europe. Typically,

private placement investments are

heavily weighted in fixed income

and are highly relationship-driven.


FEATURES

Andrew Saunders is EPRA Finance Director. He is an experienced finance professional having been a top-rated equities analyst in a career of almost 20 years at leading UK investment banks and stock-broking firms. He has a proven track-record in the financial analysis and investment appraisal of businesses and

possesses strong relationships with institutional investors. Saunders has most recently been working with Broker Profile Research, who have been helping EPRA with an investor outreach programme to build awareness and understanding among the private wealth management community of the listed real estate industry. Saunders has a B.Sc (Hons) in Mathematics from Manchester University

Unlike debt and equity markets, the

private placement market does not

have a window and is always open.

Real estate provides attractive op-

portunities and a natural meeting of

minds, given long-term assets match

long-term liabilities.

Fraser Hughes of EPRA gave an

overview of EPRA, its structure and

recent developments. Also discussed

was the EPRA index, its composi-

tion and its performance. Hughes

also highlighted several companies

that are misusing the BPR and are

neither EPRA members nor Index

constituents with a recommendation

that this should be tackled. Hughes

went on to talk about how the other

EPRA committees are structured,

review listed real estate performance

over the long-term and introduced a

new reporting calendar available via

the website for corporate members

to post results dates.

Simon Carlyon, chair of the BPR

committee gave his report of the

work in progress his group has been

doing on behalf of the R&A commit-

tee. Additional guidance to the BPR

was published in January covering

the treatment of convertible bonds

while Carlyon also reminded the

group of the current tasks the com-

mittee is working on, including cash

earnings and LTV.

The futureThe R&A committee continues to

adapt, evolve and respond to the

needs of users of financial state-

ments. Indeed, it has already seen

recent changes to its composition,

welcoming more investors. The com-

mittee is likely to move forward as

the primary vehicle for “big picture”

thinking and discussion of macro

issues affecting real estate finance

and investment, with perhaps more

of the micro level technical discus-

sion being undertaken by the BPR

committee. In any case, whatever

exciting future developments the

changing world of listed real estate

may bring, the EPRA R&A committee

is well placed to address them.


FEATURES

The EPRA Annual Report survey performed by Deloitte is underway. The survey includes a review of the annual reports of about 85 listed real estate companies across Eu-rope, all of which are members of the FTSE EPRA/NAREIT Europe Developed Index.

The purpose of this survey is to

promote awareness of the EPRA Best

Practices Recommendations (BPR).

EPRA ANNUAL REPORT AWARDS 2013/14 — FOCUS ON REPORTING TRANSPARENCY

Recognition will be available through the following Award categories:

Gold Award • For stand-out annual reports including exceptional compliance with the BPR.

Silver Award • For annual reports scoring highly, based on compliance with the BPR.

Bronze Award • For annual reports scoring well, based on compliance with the BPR.

Above: Markus Meier,

Deputy CFO, Swiss

Prime Site - Winner

of Most Improved

Annual Report

2012/2013

We have seen over the last years an

increasing adoption of the financial BPR as

promoted by the EPRA. Implementation of

the BPR guidance on reporting costs will

be one of the focus area of the 2013/2014

survey. This may result in some changes in

the leader board.

Emmanuel Proudhon, Deloitte

The BPR aim to raise the standard

and consistency of financial

reporting through

Documents

Getting the structure right Record inflows to German€¦ · • Digital Realty (UK) Limited • EY • GIC Real Estate • Goldman Sachs International ... Ronald J.B. Wijs Ruben