COVER NEWS ISSUE 40 NOVEMBER/DECEMBER 2011

FEATURES REFERENCE - Fog of EU Law - Member offers - Long-term congruence - FTSE EPRA/NAREIT vs. short-term divergence Global Real Estate Indices - The future of the UK REIT regime

GUEST EDITOR David Atkins

Sustainability reporting in the real estate sector EPRA members As of NOVEMBER 2011

Australia • MEAG Real Estate Management Singapore • Morgan Stanley • Univ. of Western Sydney, • PATRIZIA Immobilien • Keppel Land Limited • Nabarro Property Research Centre • POLIS Immobilien • National Univ. of Singapore • Nottingham Univaersity • Valad Property Group • PricewaterhouseCoopers • Principal Global Investors • Vanguard Investments • Prime Office South-Africa • Quintain Estates & Development • Real Estate Management • Growthpoint Properties • Safestore Austria Institute • SEGRO • CA Immobilien Anlagen • RREEF Investment Spain • Shaftesbury • Conwert Immobilien Invest • SEB Asset Management • Fundación ESADE • Standard Life Investments • Sparkassen Immobilien • TAG Tegernsee • Inmobiliaria Colonial • Thames River Capital • VIB Vermoegen • Neinver • Tristan Capital Belgium • Realia Group • UBS • Banque De Groof Greece • TESTA Inmuebles & Renta • Univ. of Cambridge, Dept. of • Befimmo • Eurobank Properties REIC Land Economy • Cofinimmo • Lamda Development Sweden • Univ. of Reading, Centre for RE • Leasinvest Real Estate • National Bank of Greece • Aberdeen Property Investors Research • Mobimo Property Services Holding • Workspace Group • Solvay Business School • Pasal Development • Castellum (Brussels Univ.) • Trastor REIC USA Switzerland • AEW Capital Management British Virgin Islands Hong Kong • Center for Urban & RE • Alvarez & Marsal • Eastern Property Holdings • Univ. of Hong Kong, Dept. Management • Cohen & Steers Capital of RE & Construction • Euro Institute of RE Management Management Canada • Mobimo Holdings • Cornerstone Real Estate Advisers • OPTrust Isreal • PSP Swiss Property • Duff & Phelps • Presima • Azrieli Group • Swiss Capital Alternative • European Investors Incorporated • Gazit Globe Investments • Fidelity Management & Finland • Swiss Prime Site Research. • Citycon Italy • Strategic Capital Management • Forum Partners Investment • CREF Center for Real Estate • Beni Stabili • University of Geneva Management Investment & Finance • Immobiliare Grande • Züblin Immobilien Holding • FPL Advisory Group • KTI Finland Distribuzione • Jefferies & Co • Sponda TURKEY • Host Hotels & Resorts Luxembourg • Emlak Konut • MIT Center for Real Estate France • Orco Property Group • Torunlar REIT • Real Capital Analytics • Acanthe Developpement • Real Foundations • Affine Netherlands UAE • Rockefeller Group Investment • ANF Immobilier • Amsterdam School of RE • Abu Dhabi Investment Authority Management Corp. • Baker & McKenzie • APG Asset Management • Russell Investment Group • BNP Paribas • ASR United Kingdom • SNL Financial • Cegereal • Atrium European Real Estate • Alvarez & Marsal • The Tuckerman Group • EUROSIC • BPF Bouwinvest • AMP Capital Brookfield • Univ. of Cincinnati • Foncière des Regions • CB Richard Ellis • Asset Value Investors • Westfield Group • Foncière Paris France • Clifford Chance • Aviva Investors • WP Carey • Gecina • Corio • Bank of America • Zell-Lurie RE Center at Wharton • ICADE • Deloitte Real Estate • Barclays Capital • IEIF • Ernst & Young European Real • Big Yellow Group • Klépierre Estate Group • British Land • Mazars • Eurocommercial Properties • Cass Business School • Mercialys • Fortis Investment Management • Capital & Counties Properties • Predica • Houthoff Buruma • Citigroup • Unibail-Rodamco • ING REIM Europe • Clearance Capital • Silic • Kempen & Co • CLS Holdings • Société de la Tour Eiffel • KPMG Accountants • Credit Suisse Securities • Société Foncière Lyonnaise • LaSalle Investment Management • Derwent London plc • Université de Paris-Dauphine • Loyens & Loeff • Deutsche Bank • MN Services • GIC Real Estate Germany • Nieuwe Steen Investments • Goldman Sachs International • Allianz • PGGM • Grainger • Alstria Office REIT • Prologis • Green Street Advisors • Rechtsanwaltsgesellschaft • Royal Bank of Scotland Group • Grosvenor Group • Colonia Real Estate • Redevco Europe Services • Great Portland Estates • Deutsche EuroShop • Spazio Investments • Hammerson • Deutsche Wohnen • Univ. of Maastricht • Henderson Global Investors • DIC Asset • VastNed • Ignis Asset Management • GAGFAH • Wereldhave • Invista Real Estate Investment • GSW Management • Hamborner Norway • JPMorgan • Heitman • Norwegian Property • Land Securities • IREBS International RE Business • Linklaters School Russia • Macquarie Real Estate • IVG Immobilien • Renaissance Capital • M&G Investment Management

2.2. _ EPRA EPRA NEWS NEWS / /29 40 / /2008 2011 CONtents

NEWS

ISSUE 40 | NOVEMBER/DECEMBER 2011

GUEST EDITOR Finding structure in flux 4

NEWS 8 CREDITS Features Annual Conference 11 Fog of EU Law 18 Long-term congruence vs. short-term divergence 22 Le crunch – France vs. the UK REITs 26 Editor & Production Manager EPRA survey gives perspective on reporting 28 Dominic Turnbull & regulatory priorities Guest Editor Former EPRA Chairman open letter 31 David Atkins The future of the UK REIT regime 32 Article Credits Remi Antonini Douglas Marvin The Israeli commercial real estate market 36 Daniel Baraz Guillaume Poitrinal Nirit Bregman Mohamed Abdel Rahim Sustainability reporting in the real estate sector 39 Nils Kok Sander Paul van Diary 45 Gareth Lewis Tongeren Steffen Sebastian Nicola Westbrooke EPRA/Deloitte Annual Report Survey 46 Maikel Speelman Ali Zaidi Broadening the universe 48

Please send your comments and suggestions to: Real estate income trust 51 [email protected] Members offers 55 Design & LayOut Fuse Consulting Limited [email protected] REFERENCE PAGES Printers FTSE EPRA/NAREIT Global Real Estate Indices 57 PCM Ltd

EPRA Square de Meeus 23, B-1000 Brussels +32 (0) 2739 1010

EPRA NEWS / 40 / 2011 3. GUEST EDITOR

Finding structure in flux

From its inception in 1999, EPRA has played a vital role in encouraging cooperation across the sector. As the global markets face a continued state of flux, now more than ever should this be a driving focus for the Association.

EPRA has in many ways become the conduit for com- munication between the quoted property industry and the shareholder. Individually, each company will under- take its own investor work, but as an industry we need to work together as we are in real danger of becoming marginalised in equity markets.

EPRA’s heritage has a very personal connection for me, which adds greater significance to my time as chairman. Ron Spinney, who was EPRA’s first chairman and played an instrumental role in establishing EPRA, was the man who hired me into Hammerson. It was under his tutelage that I came to understand and appreciate the importance of listed companies within our sector acting in accord- ance, rather than competition, on so many issues.

In Europe, the quoted sector remains a smaller part of the property market than any of the other major regions in the world. Increasingly, investors are specialist funds with dedicated flows, rather than the broader mutual funds, pension or insurance managers.

4. EPRA NEWS / 40 / 2011 As governments and regulators look for sectors which are willing to be part of the solution to the problems of the global economy, we should make sure our voice is heard. We are at the meeting point of retail, service, finance, and banking, and I believe we are fundamental to the economic recovery.

GUEST EDITOR David Atkins Hammerson

As a result, we must extend erty portfolio, and amendments to investor outreach both geographi- the rules on diverse ownership. This cally to regions where we think would allow institutional investors we can find willing equity, but such as pension funds and life in- also re-double efforts to penetrate surance funds to put their property the mainstream investment com- portfolios into REITs. munities in our own backyard. I’m positive that this can be achieved by The second and potentially more developing closer relationships with radical change on the horizon in the associations like NAREIT (the US UK is the introduction of REITs for National Association of Real Estate property debt providers and housing Investment Trusts) and working associations, a way of assisting two with established REIT markets such hugely underfunded markets. The as Japan and Hong Kong in Asia. We introduction of social housing REITs need these wider partnerships to ex- would undoubtedly assist with a-lifetime’ events which in 2008 we tol the merits of property stocks and housing supply. thought were over. facilitate flows of capital into the sector, which is vital to our growth. The extension of the REIT regime to It would therefore be easy include different forms of REITs would against such a backdrop to throw With a coordinated message not be a positive step for both property in the towel and say “How can only can we drive interest in listed lenders and investors, and develop we possibly make any ground European property companies, we the sector’s critical mass, increasing its against such strong headwinds?” also have a major opportunity to visibility and market weight. I am adamant, however, that the address fundamental topics affect- attractions of property equity; long ing the sector. Across Europe, the potential contracted income streams, tangible for relaxation of pre-emptive assets and liquidity, are more com- As governments and regulators rights should also be welcomed. A pelling in this environment than look for sectors which are willing strong balance sheet is especially ever before. to be part of the solution to the important during the economic un- problems of the global economy, we certainty that we collectively face, should make sure our voice is heard. and the ability to raise equity at a David Atkins started his career in 1988 with DTZ, We are at the meeting point of retail, quicker pace makes a fundamental where he joined after graduating from Reading service, finance, and banking, and I difference to REITs’ performance. University. David joined Hammerson in 1998, and in believe we are fundamental to the The current practice promotes a pro- 2003 was appointed to the Board of the Company’s economic recovery. tracted timescale for raising capital UK business as Head of Retail Parks before assuming at a significant cost. A change to responsibility for all the UK’s retail assets. He was The UK government, for exam- the current system would provide appointed a Director of Hammerson and Managing ple, is looking at ways to increase us with greater flexibility, allowing Director of the UK business in 2007 and appointed the number of REITs and stimulate companies to be more nimble and Chief Executive of Hammerson in October 2009. He is the industry. Since the major UK take advantage of acquisition op- a member of the British Council of Shopping Centres property companies converted to portunities which can drive future Advisory Committee, the British Property Federation REIT status four years ago, there income. Policy Committee and Chairman of EPRA. have only been two additions to UK REITs. Significant changes to REIT We live in an age of uncertainty status include the removal of the and volatility. Equity, debt and cur- conversion charge, which currently rency markets have again been stands at 2% of a company’s prop- experiencing the kind of ‘once-in-

EPRA NEWS / 40 / 2011 5. CEO UPDATE

EPRA/RCA Monthly Global REIT Transactions Survey Overview update from Monthly Emerging Monthly Index PHILIP CHARLS Markets Report Chart Book

Welcome to the latest edition of the a broad range of investors in North EPRA Newsletter. Much has hap- America, Europe and Asia-Pacific. In pened since the August magazine, September, with NAREIT, we were with the highlight being the EPRA involved in a week-long programme Annual Conference held in London. of one-on-one meetings with the The conference was attended by large institutional investors, real Philip Charls, EPRA CEO over 350 delegates. On the whole, estate consultants and analysts Best Practices feedback was good, but we take in California. Key feedback was organising a strong line-up of panel Recommendations criticism seriously and strive to that volatility is a key issue for members and moderators with the build on our good position. We have the markets. More encouragingly, aim to coax out their predictions for already identified that we need to the vast majority of investors were 2012. Can you afford to miss this? encourage more pension funds or already invested in listed real estate Dates for the free events are: plan sponsors to the conference – on a global basis. A couple of the investors we saw were about to ••London – 17 January We continue our efforts in Ger- embark on a global listed real estate ••Paris – 19 January many. I have been a regular visitor programme for the first time. ••Amsterdam – 25 January EPRA produces a mass of invaluable monthly data to Germany in the past few months for members. It consists of over 1,000 pages of research, where we are building an excellent Uncertainty continues to be the Looking into 2012 and beyond, graphs and statistics that can affect your market understanding working relationship with ZIA, theme on the regulation front – par- it is safe to say these are uncertain and support your decisions. This sector round-up with its the German representative body ticularly Solvency II, AIFM and the times. The global economy looks rich indices data is used widely and globally - for the real estate profession. In Derivatives legislation (EMIR). But fragile and this in turn plays on can you afford not to receive these? October we were heavily involved now is certainly the right time to the markets – as we have seen in Stay in touch: [email protected] in their annual investor conference be gaining maximum influence as recent months. In a low interest rate Corporate programme. Steffen Sebastian of the national regulators themselves environment, the attractive yields “Relevant, timely, comprehensive – an invaluable Governance Regensburg presented the findings are struggling with the barrage of of listed real estate and particularly monthly round-up of the sector” on a short article that is published ambiguous EU legislation that they REITs offer a broad range of inves- Monthly Patrick Sumner, Head of Property Equities, later in this edition on the long-term need to interpret and implement. tors, from large institutions to Company Henderson Global Investors. performance of the FTSE EPRA/ smaller retail investors, a regular Chart Book NAREIT index versus the German We continue to meet with the and stable income stream – on aver- open-ended funds – the Eurozone relevant teams at the European age around 5% per annum. index outperforming by over 2% per Commission, national financial mar- annum over a 20-year period. ket supervisors and governments In addition, when looking at the to ensure a sensible interpretation FTSE EPRA/NAREIT Europe Index, In addition, he presented our lat- of these game-changing regula- exposure to ‘troubled’ countries in est research which makes a strong tions for the listed property sector. Europe is limited. Greece, Portugal, case for listed real estate investment Our effectiveness in these areas is Ireland, Spain and Italy comprise as a proxy for direct property port- clearly strengthened by our efforts to less than 2% at a market capitalisa- folio over the medium to long term. coordinate actions with our tion level. This is a key message to Loan to Value Listed expansion in Germany re- fellow representative organisations promote in the coming 18 months. Monthly mains our target. We firmly believe both within Europe and at a global Statistical that the past 12 months has seen a level. Bulletin positive shift in the mindset of the With networking and events German market. Monthly Monthly Published in mind, we turn our focus to the Market Review NAV Bulletin With these findings in mind, EPRA Insight events in London, we continue to push the benefits Paris, Amsterdam and, new for this of listed real estate investment to year, Zurich. We are in the middle of www.epra.com EPRA NEWS / 38 / 2011 1. Square de Meeus 23, B-1000 Brussels • Belgium

6. EPRA NEWS / 40 / 2011 T +32 (0)2739 1010 • F +32 (0)2739 1020

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in the news

Initiation of EPRA IR Committee

he EPRA Conference saw the Tlaunch of a new initiative – bringing together the Investor Relations Managers of the ten lead- ing European property companies. The aim of the new committee is to further align the industry’s mes- sages and coordinate the investor outreach effort. By improving com- munications within the sector and Voicing concerns among peers, common goals can be over GOEFs targeted in numbers and with pace.

EPRA CEO Philip Charls visited ExpoReal in October, Germany’s largest an- nual real estate trade fair, in EPRA’s ongoing effort to address and highlight the imbalances within the German banking sector which ultimately limits investor choice and returns. In an interview for Immobilen Manager TV, Charls states that the stranglehold of German banks is limiting the develop- ment of REITs; yet it’s securing higher fees on opaque open-ended funds (GOEFs) and short-changing the investor. This and many other interviews, are viewable on our EPRAvision page on YouTube.

Website launch

EPRA has overhauled its website. The aim of the EPRA’s Ali Zaidi redesign was create a platform from which to attract and educate the widest possible audience Increasing and diversifying the in the European listed real estate sector, and to investor base is one area of focus. allow a much broader scope of content. Going In this regard, EPRA-driven investor forward it will allow EPRA members to take outreach trips have been made to ownership of their online presence on www.epra. North America and Asia in co-op- com; and it will give them the ability to create customised analyses across indices, countries and timescales eration with EPRA members. Areas - bringing together the rich data and perspective that so many of focus for the coming period are: property firms, regulators and investors need. researching shareholder breakdown We welcome any feedback and information on bugs etc, contact on a European level; aligning indus- Dominic Turnbull: [email protected]. This is just the first try messages; and strengthening our phase, with much more in the pipeline. Please bookmark the site – investor outreach effort. recommended browsers are Firefox, Safari and Chrome.

8.8. EPRA NEWS / 40 / 2011 Pictured: Emilie Delacroix, Investor Relations & Benoit de Blieck, CEO - REESA MEETs in london Befimmo REESA, collectively representing listed real estate globally, met in London to exchange views and formulate common approaches on is- sues facing the sector. Pictured: Steven Wechsler (NAREIT), Tatsuo Ichii EPRA awards (ARES), Michael Brooks (RealPac), Philip Charls (EPRA), Peter Verwer efimmo was presented with (PCA), Liz Peace (BPF), Ion Fletcher (BPF), Gareth Lewis (EPRA), Bonnie Bthe award for ‘Most Improved Gottlieb (NAREIT), Fraser Hughes (EPRA), Yusuke Mizokoshi (ARES) Annual Report’, as measured by compliance with the EPRA Best Practices Recommendations (BPR) in Accounting standards decision September. vindicates EPRA/REESA lobbying “Congratulations to Befimmo. he preliminary decision in mid-October by the main two main account- We hope their example will inspire Ting standards bodies globally, the IASB and the FASB, to exclude all many others as they review their investment property lessors from a proposed major overhaul of rules for annual reports for compliance with how businesses recognise lease transactions, represents a vindication of EPRA’s guidelines,” said Philip EPRA and REESA’s active lobbying on this issue. Charls of EPRA. See page 46. The IASB and FASB have decided to also leave out companies that measure their investment property at cost from the new regulations, in an extension to a previous decision to exclude those who measure their Real estate property at fair value. If the proposed new rules for lease accounting had equities’ been passed, they would have dramatically changed the way real estate companies account for their property. outshines non- listed options in Germany

he lack of a large, dynamic, Tlisted corporate real estate sector in Germany, appears to have curtailed investor returns over the long-term by limiting their property investment op- tions, a recent study commis- sioned by EPRA shows. (Get the full picture, go to page 22). A sight for sore eyes “Our study concludes that the restrictions on the development e would like to thank all those companies and individuals who very of a vibrant listed German Wgenerously dug deep to support and motivate our half-marathon run, real estate sector, as exists in on behalf of the charity Olivia’s Vision. The GBP 15,000 raised will be put every other major economy towards the fight against Uveitis – an especially cruel and debilitating eye worldwide, appears to have condition. Fortunately it is rare; but therein lies the reason behind a general cost investors dearly in terms of lack research and training funding. long-term property investment “A big thank you goes to the EPRA team and their backers who all are performance,” EPRA CEO Philip stars! Your support is amazing and we appreciate more than words can say.” Charls said. Nick Davis, Olivia’s Vision (Charity number 1138599).

EPRA NEWS / 40 / 2011 9. 9. NEWS

Representing the listed property sector uch is happening on the also busy raising awareness with organisations around Europe, like Mregulatory and policy front members and formulating policy INREV, ZIA in Germany, the BPF in (particularly in Brussels, but also positions on short-term and longer the UK and the FSIF in France. at a national level), as EPRA con- term issues affecting the operating tinues to make sure the voice of environment for listed real estate. There is too much to cover in the listed property sector is heard detail here, but below are just a few above all the noise. As well as Much of the representative work examples of recent meetings with getting in front of the regulators has involved coordination with key stakeholders: to present our positions, we are other real estate representative

Issue Meetings Date AIFM Directive Tilman Lueder – EC Head of Unit G4 (Asset Management) Oct 2011 French financial regulators (AMF) Oct 2011 ESMA Nov 2011 Solvency II Karel Van Hulle – Head of Unit (Insurance and Pensions Unit) Dec 2011 Roundtable meeting with Belgium insurance companies and property companies Oct 2011 Regular engagement with other RE organisations to discuss impact of SII and lobbying efforts on SII. Ongoing Discussions with various national regulators to raise awareness of the knock on implications of the EMIR (Derivatives) Ongoing AIFMD on the property sector Commercial property and the European EC Natalia Lazarova. EC Head of Unit – (Business to Business services) Sep 2011 retail sector Financial Sector Taxation Carola Maggiulli, Head of Sector, Unit C2 (Environment and other indirect taxes ) Oct 2011 Sustainability Paul Hodson - Head of Unit (Energy efficiency & Intelligent Energy in DG Energy) Nov 2011 Equity raising rules for the European listed Meetings with ISS and participation in roundtable discussion on equity raising issues for the real estate Oct 2011 property sector sector (including pre-emption rights) Meetings with IASB/FASB to discuss impact of new lease accounting rules, consequential amendments to IASB/FASB Ongoing IAS 40, recognition of rental income, investment entities and the US move towards fair value.

Of course, if you require more detail of would like to get involved in any of the above activities, please contact: [email protected] or +32 (0)2 7329 1014.

See the world through their eyes.

Donate to our initiative to raise awareness and funds to train more specialists for an under-reported, yet debilitating eye condition – Uveitis. Contact Fraser Hughes: [email protected]

What is Uveitis? Uveitis is a rare sight threatening disease. Chronic Uveitis left untreated or under treated causes blindness. Symptoms can include light sensitivity, red eye and pain. Many children with anterior Uveitis have no symptoms until vision is lost. There is no cure. www.oliviasvision.org 10. EPRA NEWS / 40 / 2011 (Charity number 1138599) Where opportunity meets realism The EPRA’s Annual Conference, London 2011

An uneasy sense of déjà vu preoccupied EPRA members as they gathered for the Association’s annual conference in London’s Landmark Hotel in early September. Just three years ago in Stockholm, the conference was held the week before the collapse of Lehman Brothers unleashed a hurricane upon financial markets and the global

economy. Now, like then, Despite the market turmoil, there property players have been pushed a financial storm is was a guarded air of confidence in out of the game, REITs continue to building and mutating, the room that the European listed generate high dividends and transfer real estate industry is currently taxes for investors and governments this time in the form of better prepared than it was in 2008 alike, at the same time as they in- the eurozone sovereign for anything that the markets and vest in improving the quality of the debt crisis. economy are going to throw at it. built environment in European cit- Most of the larger quoted companies ies. EPRA is taking those messages were able to refinance in the depths to regulators and the investment of the previous crisis, which says a community through the work of its lot about the confidence of the mar- specialist committees, lobbying and kets and the banks in the quality of investor outreach activities, he said. their management and assets, while the non-listed property industry gen- The investor magnet erally struggled to attract the same “We’ve been globetrotting in our sort of backing. missionary work to focus the atten- tion of investors on the European This cautious, but positive out- listed real estate sector. That is par- look, was captured by a triumvirate of senior EPRA speakers; including outgoing Chairman Guillaume REITs continue to generate Poitrinal of Unibail-Rodamco, his incoming successor David Atkins of high dividends and transfer Hammerson and CEO Philip Charls. taxes for investors and Poitrinal pointed out in open- ing remarks to the conference, governments alike. that while many other non-listed

EPRA NEWS / 40 / 2011 11. 11. ticularly important at the moment Philip Charls said the single this German real estate, 1.5%, is as the world struggles against debt most important issue for European held in the listed sector and EPRA and recession,” Poitrinal added. countries is where economic growth believes there is the potential to is coming come from in the future? grow that proportion by four times That theme was picked up by EPRA will play its part by concen- over the medium to long term. new EPRA Chairman David Atkins trating its efforts on the market in his maiden address to the confer- which has the greatest potential to “The real estate sector in ence: “Property lies at the heart contribute to the expansion of the Germany could be in the vanguard of the real economy - through the European listed real estate sector by of a new period of expansion for delivery and financing of the built attracting regional and international the European listed market. EPRA environment. As listed real estate capital – that is Germany. will work closely with the German is the most liquid and transparent Property Federation ZIA, and use all way of accessing this market, it is EPRA estimates the total size of its resources to support the industry vital that EPRA and the industry the underlyng real estate investment through engaging with governments, works closely with government and market in Germany is more than regulators, and investors, to make regulators in finding solutions that EUR 1 trillion, making it the largest the case for listed real estate com- contribute to a sound and sustain- in Europe, and slightly bigger than panies and REITs in the strongest able economic recovery.” the UK. Only a tiny proportion of possible way,” Charls said.

Property lies at the heart of the real economy - through the delivery and financing of the built environment. As listed real estate is the most liquid and transparent way of accessing this market, it is vital that EPRA and the industry works closely with government and regulators in finding solutions that contribute to a sound and sustainable economic recovery.

12.12. EPRA NEWS / 40 / 2011 “The problems of the eurozone are deep and profound.”

Shepherdson sees grim outcomes for eurozone crisis Endless years of austerity, weak He said that financial markets are without risking an extreme backlash growth, and political and social scared by the situation because they from populations with so little hope, turmoil on Europe’s southern can’t see how sovereign debt is go- Shepherdson warned. periphery, were offered up as ing to be brought down when there relentlessly bleak possible out- is little economic growth in prospect He concluded that there are three comes to the eurozone’s sovereign in the periphery countries as they possible routes leading from the debt crisis, by the first keynote undergo severe fiscal contraction current crisis: speaker of the conference: Ian and can’t possible compete with the Shepherdson of High Frequency German economy. ••Germany bales out everyone (po- Economics. litically indigestible domestically). We shouldn’t forget that only ••The eurozone becomes a single “The problems of the eurozone 40 years ago there were a string fiscal entity and governments lose are deep and profound… it is so bad of military dictatorships along the ability to set national budgets, it’s stupefying,” Shepherdson, told Europe’s southern edge in Greece, which is delegated to a central au- an EPRA audience that was battered Spain and Portugal and that it is thority (the preferred option from by a procession of gloomy statistics politically impossible to impose an academic perspective). and analysis. the prospect of years of austerity ••The eurozone breaks apart.

EPRA NEWS / 40 / 2011 13. 13. 14.14. EPRA NEWS / 40 / 2011 Photos by Joke Emmerechts

EPRA NEWS / 40 / 2011 15. 15. NEWS

Demographics key to future real estate prospects in Europe

Demographics will play a central liberalise their immigration policies, if it maintains its relatively open role in the prospects for the Euro- to bring younger, educated and immigration policy to offset the pean real estate investment market more dynamic people into their negative economic impact of a over the next 50 years, as it is the work forces, who can successful greying population. By 2060 the UK region with the fastest shrinking seize the economic opportunities could have the largest population population in the world, apart from being thrown up by rapid tech- in Western Europe with 77 million Russia, John Glascock of the Univer- nological change, Glascock said. people, followed by France at 72 sity of Connecticut told a concurrent million, Germany 71 million and session of the conference on the The aged population of Europe Italy 59 million. second day. will comprise 49% of the total by 2050, compared with 39% for the US The reduction in the proportion Europe will face declining and 51% for Japan. This would result of the working population in these productivity and wealth as the in a European net dis-savings rate of countries would result in a thinning age profile of its population 1.5% a year. out of the commercial real estate becomes progressively older and investment markets, Glascock con- unless it quickly addresses the situ- The UK may fare the best among cluded. ation. Countries need to selectively the major European economies

16.16. EPRA NEWS / 40 / 2011 Insight 2012 January 17, 2012

EPRA London January 19, 2012

EPRA Paris January 25, 2012

EPRA Amsterdam

Come to one of our free EPRA ‘Insight 2012’ events in January, focusing on the investment potential of European listed real estate.

Listen and interact with a panel of leading listed property, finance and analyst professionals in four European cities – with refreshments. It’s a great opportunity to learn more about investing in the listed sector. SAVE The evenings will appeal to THE a broad range of investment, DATES! pension fund and real estate professionals.

EPRA insight 2012 full page ad.indd 1 01/12/2011 09:46 FEATURES

The fog of EU Law

The European Union’s response to the ‘financial’ crisis has put the corporate property sector under a great deal of regulatory uncertainty. As EPRA finance director Gareth Lewis explains, it also highlights a widespread misunderstanding of the business of owning and managing property among policy-makers.

Gareth Lewis is finance director at EPRA, where he is responsible for leading EPRA’s initiatives and policy positions with respect to capital markets, REITs, taxation, financial reporting and accounting issues. Contact: Most of the regulatory initiatives being more directly linked to real [email protected] currently emerging from Brussels economic activity. Below are just represent a threat to the sector and a few examples of where the EU’s could result in capital outflows. reluctance to adequately assess and However, there are some regulatory identify the appropriate target for initiatives that could represent an its regulation has put the corporate Solvency II property/equity opportunity as well as a threat with property sector in a very difficult viewed as volatile? regards to capital flows – Solvency II, position. Pension Reform Basel III default RE reduced bank Pension reform and REIT legislation allocations £ the exposure to move to DC funds commercial are good examples. Alternative Investment Fund property Managers Directive (AIFMD) Is owning, developing and Regulation to supervise fund man- Access to managing property a real business agers. Probably the most important global capital AIFM Derivatives increased costs – providing customers with a use- regulation given the cascading misclassification of managing as funds financing risk ful product with economic value? impact, on other regulation, of being In other words, is real estate ‘real deemed to be within scope. The economy’? This question is funda- Directive is intended to establish REITs FAT/FTT emergence of mental to the uncertainty caused by a harmonised European regime coherent EU REIT framework the EU regulators’ response to the for alternative investment funds financial crisis, where the intended (AIFs) and their managers. Whilst target is the type of activities seen to the regulators have confirmed that Capital outflows Capital inflows be ‘financial’ in nature rather than a ‘normal’ corporate business (for

18.18. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

While not intended to apply to ‘normal’ corporates engaged in hedging commercial risk, the problem for property corporates is that any business within the scope of the AIFMD is deemed to be a ‘financial counterparty’. example, let’s say Volkswagen) is the nature of a property fund and tion. Chatham Financial undertook not intended to be within scope, the a property ‘operating’ company - a some analysis for EPRA, which they European Commission have been common theme in Brussels. recently updated, showing the extent unable to confirm how the legisla- to which this regulation could act as tion excludes such businesses – a Derivatives legislation (EMIR) a drain on capital for the broader staggering state of affairs over three Regulation to reduce systemic risk property sector (rather than just the years after the first public consulta- arising from derivative specula- listed sector). Their analysis showed tion. What is more, there is no tion introduces an obligation on that around EUR 70-100 billion of obvious procedure or plan in place ‘financial counterparties’ to post capital could be withdrawn from for either the European Commission cash collateral for central clearing productive use in the sector. This is or the ESMA to develop these funda- on all hedging transactions. While made up of around EUR 22 billion of mental questions of scope! not intended to apply to ‘normal’ initial margin and EUR 46-79 billion corporates engaged in hedging of variation margin (whereby a user For Volkswagen, Google, Nestle, commercial risk, the problem for of an interest rate swap is required GlaxoSmithKline, BP, Apple or IBM, property corporates is that any to post cash collateral based on this lack of clarity presents no business within the scope of the movements in interest rates) real concern, as no one has ever AIFMD is deemed to be a ‘financial suggested that this regulation is counterparty’. Financial Transactions Tax (FTT) relevant to their business. However, Regulation intended to tax either ‘fi- the corporate property sector does Importantly, this regulation, nancial’ transactions, or businesses not have that luxury because of which will be effective from 2013, that are deemed to be ‘financial’ in the ongoing confusion between requires no national implementa- nature (i.e banks). If property >

At stake is nothing less than ensuring the OTC derivatives market remains a vibrant and efficient venue for managing risk. Luke Zubrod director, Chatham Financial

Margin requirements could require may replace swapped floating rate too cash-intensive for longer-term REITs to sideline capital when using debt with more expensive and less risk management needs. derivatives to manage risk. flexible fixed rate debt. As AIFMD/EMIR work their Whereas some corporate They may address some of way through a more detailed rule property groups may feel comfort- these shortcomings by negotiating process and indeed Basel III works able funding parent company cash for two way breakage, replicating its way through the legislative proc- margin requirements from revolving some of the benefits of the swap. ess, it will be essential for property credit facilities, if such requirements In other cases, borrowers may companies to remain engaged. At apply to property subsidiaries, it opt to use option products – like stake is nothing less than ensuring could alter not only the hedging de- interest rate caps – which have no the OTC derivatives market remains cision, but also the financing deci- contingent margin requirements. a vibrant and efficient venue for sion. In some instances, borrowers However, such solutions will be managing risk.

EPRA NEWS / 3940 // 20112011 19. FEATURES

various asset classes like ‘equities’ real estate industry, life insurers The major uncertainty (39%), ‘other equities’ (49%), and represent a major element of the ‘property’ (25%) and is expected to long-term ‘sticky’ investment capital which has put a large part have a significant impact on capital in the market; as do pension funds flows into property. Although the that may also, in due course, fall of the industry in a state of stress factors may still be subject within the framework of Solvency II. to change, the major uncertainty planning paralysis is how here which has put a large part of It is difficult to see how we will the industry in a state of planning obtain any clarity on these game- different property vehicles paralysis for some time is how changing regulatory initiatives, different property vehicles will be and how both the industry and the will be treated. treated – including which vehicles regulators can even start assessing are ‘look-through’ or ‘opaque’ for the potential impact of the new these purposes? rules. Who would have thought we companies are deemed to be within would still be in such a position of the scope of AIFMD, they will likely Life insurance companies uncertainty so far down the line? be deemed ‘financial’ for these pur- are major investors, directly and poses and subject to a tax intended indirectly, in real estate as an asset What can be done? for banks. class. Although real estate represents EPRA and our representative only a small proportion of the total partners around the globe are There would seem to be three balance sheet for insurers, for the busy trying to make sense of these potential areas where a property company, deemed to be a financial The fact that life institution by virtue of the AIFMD, could be subject to tax: insurance companies ••Issue/sale/purchase of shares. are major investors in ••Derivatives and swap transactions. real estate is of huge ••Leasing transactions (grant, assign- importance not only to ment, sale etc). our industry, but also for Adding to the confusion over the John Forbes property investment and nature of the underlying business is Real estate funds partner, PwC regeneration projects the fact that property vehicles cover in constituencies across a very broad spectrum; from genuine Now is a crucial time in the Sol- ‘funds’, LPs, offshore vehicles, ‘REITs’ vency II process for the real estate the EU. and listed and unlisted property industry. The level 2 implement- companies. Even familiar terminol- ing measures are about to be sent ogy like ‘REIT’ encompasses many from the EU Commission to the estate debt. This is the time to different types of structure under EU Parliament. influence individual MEPs – the national legislation, and experience fact that life insurance companies on the above regulatory projects There are major issues that are major investors in real estate shows that national regulators are need to be resolved regarding is of huge importance not only to making differing interpretations. the property shock, the treat- our industry, but also for prop- ment of indirect investment erty investment and regeneration Solvency II, which regulates capi- vehicles and the treatment of projects in constituencies across tal for insurance companies, is a case secured and unsecured real the EU. in point. It applies ‘stress’ factors to

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initiatives. While much of the uncertainty results from the manner in which EU legislation is developed and implemented, could the industry do more to improve the situation? Speaking from the perspective of all types and sizes need. So vital the listed property sector, I believe is the role that real estate plays we could and should do a better that, for most businesses, paying job of communicating the nature the rent is as important as paying of our business and the differences their employees. Buildings are between property companies, funds by their nature capital intensive and ‘financial’ businesses. and as with every sector of the EU economy the efficient access At EPRA we think it is more Jonathan Thompson, to capital is core to enabling real important than ever to communicate global chairman – building, estate businesses to continue the ‘real economy’ aspects of listed construction and real estate, investing in improving our towns property companies as important KPMG and cities. providers of business infrastructure and services to corporate occupiers The real estate industry has Regulatory uncertainty on the – alongside of course, the well estab- an understated but vital role scale the industry is experiencing lished messages around providing in every country’s economy of can only reduce the volume of investors with liquid access to long- creating, regenerating, improving new capital that would otherwise term property-related cash flows. and operating the commercial be invested in improving the buildings which businesses of buildings we work in. A view we have often encountered with the regulators has been that a property company does not deliver So vital is the role that real estate a real ‘product’, like a manufacturer or a service provider. This is clearly plays that, for most businesses, nonsense for anyone involved in running a property company and for paying the rent is as important as any business that leases its business premises where the rental payment paying their employees. represents one of the most significant operating costs in the P&L.

So, any of this depress you?... Call your local MEP!

EPRA NEWS / 3940 // 20112011 21. FEATURES

Long-Term Congruence vs. Short-Term Divergence

How the performance of German open-ended real Open-ended real estate funds estate funds compares to that of real estate stock have a track-record marked by decades of successful business in Germany. Despite the adversities The total market capitalisation of Both real estate stocks and they have experienced of late, they Germany’s listed real estate compa- open-ended real estate fund shares invariably reported positive returns nies comes to nearly EUR 11 billion. offer investors the option to acquire on investment until just a few years Indeed, German REITs account interests in real estate assets with- ago. What investors appreciate in for no more than approximately out having to tie up their capital for particular are the funds’ stability of EUR 1.1 billion. Compared to other indefinite periods of time. REITs in value and long-term performance. countries, this means Germany lags particular are in many ways similar behind. By contrast, open-ended to real estate funds. They tend to be Another root cause for the negli- real estate funds – whose shares are based on a conservative business gible role that real estate stock plays arguably the biggest competitors of model; are generally subject to a in Germany is the deep-set fear that German real estate stock – owned minimum equity ratio; and are Germans have vis-à-vis the free play investments worth approximately obliged to distribute the major share of the market forces and their central EUR 90 billion at their peak. of their earnings. institution, the stock exchange. As a result, real estate stocks are often That said, open-ended real estate associated with high investments funds and listed real estate stock are risks and the threat of loss. fundamentally different investment products. The fact that real estate Real estate stocks and open- stock is actually listed at the stock ended funds yield the same long- exchange guarantees an unrestricted term returns tradability of the shares. One key factor tends to be neglected, though – the investment horizon. An Unlike open-ended funds, stock analysis of the total returns of open- market trading does not impact the ended real estate funds and listed solvency of the company, making real estate companies between 1990 the liquidity risk to which the open- and 2010 revealed that the diverging ended funds are subject a moot is- performance of the two investment sue for listed real estate companies. vehicles strongly depends on the Nonetheless, real estate stocks period reviewed. continue to live out a marginal existence compared to open-ended While the short-term perspec- funds. Here is why. In the eyes of tive suggests a considerable degree the German investor, their benefits of deviation, the performance of fail to compensate for the stock either investment vehicle is virtually market risk they associate with real indistinguishable in the long run. estate stock.

average mean standard division OEREF Germany 5.0% 2.4% EPRA/NAREIT Euro Zone Total Return Index 7.2% 24.1% EPRA/NAREIT Europe Total Return Index 4.5% 27.9% Source: EPRA/NAREIT, Datastream

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Image 1: Performance of open-ended German real estate funds and European real estate stocks between 1989 and 2010

600 TR-Indices 500 400 300 Indices 200 100 0 1991 1997 1993 1992 1995 1994 2010 2001 1996 1999 1998 1989 1900 2007 2003 2002 2005 2004 2006 2009 2008 2000

OEREF Germany EPRA/NAREIT Euro Zone Total Return Index EPRA/NAREIT Europe Total Return Index

Open-ended real estate funds, term performance is, of course, the basis of the rental income that for instance, reported an average rooted in the respective valuation a given property earns over long pe- annual return of 5% over the past method. On the one hand, real riods of time. The long-term nature 20 years. The returns reported for estate stock pricing is influenced of these valuations has a dampen- the same period by the companies by continuous analyst monitoring ing effect on fluctuations in value, listed in the EPRA/NAREIT Euro Zone and rating. On the other hand, which in turn calms investors. Total Return Index topped this rate quoted stock prices directly reflect with an average of 7.2%, whereas economic developments, trends in In the past, Investment compa- the EPRA Europe Total Return Index the real estate market, or events and nies were required to have their real showed an average return of 4.5%. outlooks of listed real estate compa- estate portfolios valued once a year. nies – meaning, all relevant details However, Germany’s new Act to That being said, the volatility that influence the business activity Enhance the Investor Protection and rates show much wider gaps. During of the respective company, and that to Improve the Functional Integrity the past 20 years, it averaged 24.1% are readily available to the public. of the Capital Market, parts of which annually for the EPRA/NAREIT Euro- This, in turn, can precipitate large already entered into force on April zone Total Return Index and 27.9% fluctuations in value within short 08, 2011, stipulates more frequent for the EPRA/NAREIT Europe Total periods of time. valuations of real estate held in Return Index. Even the funds have investment fund portfolios – every grown much more volatile in recent The stock market risks arguably quarter, as a rule – by an independ- years. However, the volatility of make open-ended real estate funds ent valuation committee. open-ended real estate funds never look like a decidedly stable-valued exceeded 2.4% in the last 20 years. investment. Unit prices are consid- Stock market valuations imply Obviously, real estate stocks experi- erably less volatile because their both risks and opportunities ence much greater short-term fluc- valuations are not determined by The fact that open-ended real estate tuations in value compared against supply and demand. Rather, it is the funds experience no stock market open-ended real estate funds (see value of the real estate portfolio that risk is an important advantage in Graphs 1 & 2). So this does translate defines the pricing of open-ended the eyes of many German investors. into an elevated investor risk in the real estate fund shares. This does not mean, however, that short and medium term. the investment vehicle is entirely de- Investment funds hire inde- void of threats. After all, any sort of Stocks are prone to a more pendent surveyors to appraise the real estate commitment – especially volatile short-term performance value of their real estate assets. The in commercial buildings such as of- The reason for the deviation in short- surveyors determine the values on fices, shopping centres, or logistics centres – involves economic risk.

Open-ended real estate funds have Real estate returns depend primarily on rent revenues. The a track-record marked by decades of demand for commercial space, though, is highly susceptible to successful business in Germany. the economic environment, as is tenant solvency. Yet the share >

EPRA NEWS / 3940 // 20112011 23. FEATURES

Many investors will remain loyal to their open- ended real estate funds because they base their investment decisions on their personal experience of many years, or on recommendations.

price of an open-ended real estate estate funds. The latter risk is rooted properties, often below market fund will not reflect a fluctuating in the character of these funds – in value, thereby exacerbating the demand environment as a result of the very aspect that makes this fund’s predicament. economic distress and real estate product so enticing for investors, of market trends - until its next round all things: the combination of liquid- Twice in the history of this asset of valuations. Even then, it reflects ity and long-term investment. While class, situations such as the one the market situation with a certain the job of the investment companies described escalated into full-blown delay. is to use the investor capital for crises. The temporary closure of long-term real estate investments funds in 2005/2006, which included With this in mind, it is safe to say that take a long time to resell, inves- the “grundbesitz-invest” fund of that the short-term fluctuations in tors are given the option to return Deka-Bank and two funds managed the value of real estate stock, while their shares to the investment by KanAm, among others, led to a admittedly implying risks for the company on demand, and may ef- first lapse in investor confidence investors, conversely present oppor- fectively withdraw their cash on any in the product of open-ended real tunities. If you pick the right time to trading day. estate funds. As a result, the funds buy and sell, the stock market valu- suffered enormous outflows of ation offers investors the chance to Things get tricky whenever a capital. Similarly, 12 funds had to invest in real estate at discounted general fear of value adjustments shut down in the wake of the real prices and to resell at inflated prices triggers a run on the funds as inves- estate and financial crisis in October – substantially boosting the personal tors seek to withdraw large amount 2008. Ten of these funds – and thus rate of return in the process. of capital. If a given fund’s free approximately EUR 25 billion in liquidity is insufficient to service the investor capital – remain frozen to Liquidity risk puts open-ended redemption requests, the fund runs this day. real estate funds in jeopardy into trouble, and has to suspend Thus, the stock market risk of listed its share redemptions. In order to In order to defuse the liquidity real estate companies is matched by procure the liquidity needed, the risk of open-ended funds, the Ger- the liquidity risk of open-ended real fund then needs to sell portfolio man legislature passed an investor protection law that has introduced Image 2: Annual performance of open-ended German real estate funds and European a minimum holding period of two real estate stocks between 1990 and 2010 years for fund shares in excess of EUR 30,000 per investor and se- 70% Annual Total Returns mester. Private investors will not be 50% affected by these changes because their average investments rarely 30% exceed EUR 20,000. Strings will be 10% attached though, to the liquidity of -10% those investors who wish to commit higher sums. For them, open-ended -30% real estate funds have effectively -50% ceased to be more attractive com- pared against real estate stocks. As a 1991 1997 1993 1992 1995 1994 2001 2010 1996 1999 1998 1900 2007 2003 2002 2005 2004 2006 2009 2008 2000 matter of fact, the notice periods will OEREF Germany make commitments in public funds EPRA/NAREIT Euro Zone Total Return Index ineligible for insurance companies EPRA/NAREIT Europe Total Return Index and pension funds due to legal reasons.

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The fee structure of open-ended kept in line with a constant flow of Their costs are far lower; the liquid- real estate funds implies long- high commission earnings. That is ity risk typifying open-ended funds term cost benefits for real why listed real estate investments is irrelevant; and valuations are estate stocks involve no fundamental rift be- more transparent. In addition to fluctuations in value tween the investor’s desire to keep and the risks, the cost structure of fees low, on the one hand, and the Then again, there is the issue of the investment products represents vested interest of sales organisation the ROI volatility, which is clearly another aspect that impacts the and owners of investment compa- higher for stocks than it is for open- performance on the investor side. nies who benefit from these fees, on ended real estate fund shares. Obvi- When subscribing fund shares, the other hand. ously, the fluctuations in quoted investors tend to be charged an up- prices imply risks along with the front fee between 5% and 6%, most Yet the growing realisation that opportunities. In order to raise the of which is meant to cover the sales open-ended real estate funds are vehicle’s potential, investors should effort. Other cost items borne by the a comparatively costly investment bring at least a basic awareness fund assets include the accruing vehicle, does not necessarily of economic and real estate busi- overhead and management charges. imply that they will swiftly lose in ness contexts to this investment. These represent predominantly fixed significance. Many investors will Compared to open-ended funds, costs that are charged irrespective remain loyal to their open-ended listed real estate stocks should be of the profit earned, consequently real estate funds because they base considered the investment of choice diminishing the return on invest- their investment decisions on their for seasoned players who take the ment. In addition, each property personal experience of many years, time to study real estate economy acquisition or sale will incur fees of or on recommendations. That said, trends and specific companies in up to 2% of the respective property’s the funds’ reputation has been depth. fair market value. badly blemished in recent years.

Real estate stocks, by contrast, While the investors in real estate Steffen Sebastian are characterised by a much more stock are aware of the opportunities Steffen is Professor of Real Estate affordable fee structure. For one and risks ahead of time, open-ended Finance at the IRE|BS Inter- thing, there is no up-front fee of 5%. real estate funds used to be deemed national Real Estate Business Secondly, there are no sliding-scale a largely risk-free investment until a School and director at the Center administrative and management few years ago. The wave of fund clo- for Finance University of Regens- fees. The salaries of managers and sures and wind-ups in the wake of burg, Germany. Furthermore, he clerks are largely fixed costs, and the financial crisis has shown, how- is a research associate of the Centre for European therefore subject to economies ever, that this investment vehicle is Economic Research (ZEW), Mannheim. He holds a of scale. The estimated costs for no less immune to risk than others, graduate diploma in Business Administration from acquiring units of listed real estate and that losses remain by all means the University of Mannheim (Germany) and from companies are minimal. They equal a distinct possibility. So it remains to ESSEC (France). He also holds a Doctor degree 1% of the capital employed at the be seen whether the crisis of open- from the University of Mannheim (Germany) and most, and are just slightly higher for ended funds will prompt investors a Habilitation degree from Goethe-University, small-volume unit acquisitions. to pay more attention to real estate Frankfurt (Germany). His research focuses are, stocks than they used to in the past. among indirect real estate investments, real Here is why: A listed real estate estate indices, real estate derivatives and asset company, for one thing, is simply Again, the long-term rates of allocation. not run by another company whose return are virtually indistinguish- Contact: income consists essentially of able. In several aspects, anyway, [email protected] investor fees. Secondly, there is no listed real estate companies clearly sales organisation that needs to be outperform open-ended real estate:

EPRA NEWS / 3940 // 20112011 25. FEATURES

Le Crunch: France vs. the UK REITs

France is taking steps to increase taxation on REIT dividends. Further negative changes could put French REITs at a competitive disadvantage compared with some foreign-based real estate investors. In contrast, the UK Treasury is taking the opposite approach and has announced steps to make UK REITs more competitive.

With a view to enhancing tax REIT shares to retail investors and revenues and reduce public deficit, make the development of smaller France has recently taken measures REITs, possibly more reliant on retail to increase taxation derived from investors, more difficult. REITs. On October 12, 2011, the Finance Commission of the National The main rationale for the Assembly adopted amendments to introduction of the REIT status in the Draft Finance Bill for 2012 re- 2003 in France was to bring French moving some of the tax advantages real estate investment companies available to the shareholders of on a fiscal level playing field with French tax-transparent Real Estate foreign-based real estate investors, Investment Trusts (REITs or SIICs). which usually already benefit from tax transparency. If adopted in the final Finance Bill, the amendments will remove Going forward, significant the 40% tax deduction on dividends negative changes to the French REIT distributed by REITs and restrict the status could therefore threaten the inclusion of REITs within the tax-free logic behind the REIT status and the share savings accounts (PEAs) held competitiveness of French REITs. A by retail investors. less competitive French REIT sector, to the benefit of foreign-based real Although the intended measures estate investors, may ultimately are only slightly negative, the lead to lower tax revenues to the changes could reduce the appeal of French government.

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The development of REITs can bring indirect benefits to the community by increasing supply in the residential rental sector and bringing new sources of real estate financing.

Interestingly, while the UK also The Treasury announced its approach to considering changes needs to reduce its public deficit, intention to abolish the conversion to its REIT legislation (HM Treasury the Treasury is taking a different charge for companies joining the received 53 written responses to its approach. The following day, Octo- REIT regime and to introduce new informal consultation). ber 13, HM Treasury published the measures bringing additional flex- conclusion of an informal consulta- ibility to the structure. In addition, While France is bringing restric- tion exercise on changes to the according to UK magazine Property tions to its REIT regime, the UK is UK REIT status for inclusion in the Week (October 07), the Treasury is aiming for a more flexible one and 2012 Finance Bill. The conclusions also considering allowing property we can see reasons for that. Defend- demonstrated the Treasury’s firm debt companies and housing asso- ing the attractiveness of the UK REIT commitment to the UK REIT status ciations to join the REIT regime from regime reinforces the competitive- and to its development. 2013. Unlike France, the UK seems to ness of REITs compared with offshore be following a slower and more open real estate investors, which already benefit from tax transparency.

Remi Antonini is a managing partner at Menkaura, an The development of REITs can independent merger & acquisition specialist for the bring indirect benefits to the com- European RE industry advising corporates on strategy, munity, for example by increasing capital markets and transactions. Previously he supply in the residential rental sector worked as an investment research analyst heading the (introduction of social housing pan-European real estate research team at Goldman REITs) and by bringing new and Sachs and most recently at Exane BNP Paribas where he was a partner. much needed sources of real estate He was named best sell-side analyst for European real estate in the financing (introduction of mortgage 2008 Thomson Extel survey. He is a CFA (Chartered Financial Analyst) REITs). charterholder and a chartered surveyor (Member of the Royal Institution of Chartered Surveyors). Contact: [email protected].

EPRA NEWS / 3940 // 20112011 27. FEATURES

EPRA Survey gives perspective on Reporting & Regulatory priorities

In the run-up to the EPRA The EPRA Reporting & Regula- inefficiencies in the equity-raising Annual Conference EPRA tion survey was undertaken in environment and the potential anticipation of the EPRA Reporting development of an EPRA bond launched a survey to & Accounting, and Taxation com- index are therefore key initiatives to gauge members’ views mittees meetings on the sidelines of ensure that attractive alternatives to on which regulatory and the Conference, in order to help us bank financing remain available to develop our priorities for representa- our sector. reporting issues they tive activities in 2012 and beyond. consider as top priorities. The results revealed a range of Uncertainty over the impact of Some 54 property views about the impact of banking Solvency II continues to weigh on and financial regulations, anticipa- companies with 73% of respondents companies responded tion of the exclusion in the Lease rating this as very important/most to the survey giving a Accounting proposals, and a desire important. The directive regulates valuable steer towards to develop new EPRA Best Practices holdings of capital for insurance Recommendations (BPR). companies so that, under the current and future EPRA standard Solvency II model, for initiatives EU Regulation every EUR 1 invested in listed Among regulatory issues, 77% of equities 39 cents will need to be respondents rated Basel III as “very held in cash or gilts. It is not yet important” or “most important”. The clear what impact this will have on standards, which will be phased in insurance company allocation to from 2012-2019, regulate bank capi- REITs as the equivalent requirement tal, liquidity requirements, and are for unlisted funds is 49 cents, while expected to result in tougher lending direct property is at 25 cents. There conditions for real estate and more valuation pressure as banks look Top-RANKED regulatory issues to reduce property exposure more 1 Basel III generally. EPRA’s efforts to promote 2 Solvency II the sector to a broader range of 3 AIFM investors, our efforts to reduce 4 Pension Reform

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Top-RANKED regulatory issues Basel III - Ensuring that attractive alternatives to bank financing are available by promoting the sector to equity/bond investors. - Investor outreach, research activities, development of EPRA bond index. Solvency II - Seeking reduction in 25% buffer requirement. - sponsoring alternative research on volatility of listed equities. AIFM - persuading regulators, national governments to clarify that real estate businesses are scoped out. - seeking to influence ESMA and responding to public consultation. Pension Reform - encouraging EC to address fragmented pension system in EU e.g. Green paper on future of pensions. may indeed be a case for REITs to be and the business implications on viewed as ‘look-through’ to the un- tenants. The IASB/FASB Boards The biggest concerns on the derlying property, especially within recently made a tentative decision the ‘internal model’ framework. to extend the exclusion to all invest- IASB/FASB representation EPRA has been working in part- ment property which will be very nership with other real estate welcome news for those companies side were maintaining organisations to propose evidence with investment property reported for a reduced buffer requirement at cost that should now also be the fair value exclusion in for property. scoped out alongside investment property accounted for at fair value. the new lease accounting The AIFM directive and the We continue to monitor develop- knock-on implications of prop- ments by observing IASB and EFRAG standard and the business erty companies being classified as meetings, engaging with IASB staff, ‘funds’, e.g. being subject to OTC de- and will develop a global response implications on tenants. rivatives and financial activities tax along with our REESA partners, to were ranked as very important or the revised Leases Exposure Draft most important by 70% of respond- expected later this year. ents. Of particular concern, the OTC derivatives regulation would impose There was also strong support for significant cash collateral require- reinstating the IASB financial state- ments on hedging instruments. ment presentation project, which EPRA’s efforts have been focused on we intend to raise in our response encouraging regulators to develop to the IASB agenda consultation an appropriate scope boundary for (November 30 deadline). the real estate sector. We recently responded to the ESMA consultation EPRA BPR highlighting the reasons why we The vast majority of respondents believe the majority of internally (87%) were strongly in favor of managed real estate companies are developing an EPRA Recurring Cash not in scope. flow measure. Bearing in mind EPRA’s intention to keep the BPR IASB/FASB representation unchanged and allow companies a The biggest concerns on the IASB/ period of calm to apply the existing Top-RANKING NEW KPIs FASB representation side were main- BPR, we will be starting to look at 1 EPRA Recurring Cash flow. taining the fair value exclusion in developing this measure as a me- 2 EPRA Occupancy Rate. the new lease accounting standard dium to long-term project. > 3 EPRA LTV.

Top-Ranked IASB/FASB projects 1 Leases (1) - maintaining exclusion for investment property at fair value. 2 Leases (2) - minimising impact on tenants/business implications for lessors. 3 Financial Statement Presentation - development of P&L which delivers key EPRA Metrics + allows financing costs in operational section. 4 Leases (3) - seeking improvements to the proposed lease accounting for lessors at cost.

EPRA NEWS / 3940 // 20112011 29. FEATURES

Top-ranking other projects 1 Valuation - developing International Valuation Standard specifically for Investment Property. 2 European REITs - addressing cross border tax inefficiencies for REITs. 3 Equity Raising - addressing inefficiencies in the equity issuance process for listed property companies. 4 Sustainability BPR - promoting EPRA best practices on sustainability reporting.

Other projects equity raising and have started a Mohamed There was wide support for the constructive dialogue. Abdel Rahim development of an International studied at the Valuation Standard for Investment Protecting the operating Manchester property. EPRA recently submitted environment and raising standards Business a letter to the IVSC encouraging EPRA and our representative partners School (class of them to develop such a standard are busy trying to influence and gain 2005) before working at Deloitte to provide guidance on valuation clarity over new regulatory initiatives where he earned a Chartered issues where there is divergence in as well as seeking improvements to Accountant (ACA) qualification. practice, and we have been told that IASB/FASB standards, financial and He joined EPRA’s Reporting & the issue will be considered in the sustainability reporting, valuation Regulation team in November IVSC board meeting in November. practices and equity raising within 2010 from Orco Property Group, our sector. We have established an EPRA member based in Other projects which received good links with key organisations Luxembourg. wide support include addressing and are working hard to promote our Contact: inefficiencies in cross-border taxa- member’s positions on key issues. mohamed.abdelrahim@epra. tion and improving the European Nevertheless, the listed property sec- com environment for equity raising. EPRA tor needs to make a concerted effort responded to the European Com- to communicate our positions and mission’s recent consultation on the nature of our business particu- taxation of cross-border dividends larly on AIFM, OTC Derivatives, and in March 2011 and will be follow- Solvency II. We would encourage ing up in due course. EPRA also our members to engage with national For full survey results, recently met with the Institutional regulators, property representative please visit: www.epra.com Shareholder Services (ISS) to discuss organisations in your country and of ways to address inefficiencies in course EPRA.

The survey coincides with the chairmanship of the commit- tee of Land Securities’ Martin Greenslade. He replaces Unibail- Rodamco’s Peter van Rossum who chaired the committee for the past three years and oversaw major successes such as the development of the BPR and the exclusion from the controversial Lease Accounting regulations.

“The listed real estate sector is an important contributor to the wider economies in Europe, providing liquidity, investment and jobs. It is a privilege to take the helm of the EPRA Reporting & Accounting com- mittee, especially with so much at stake for the listed sector amid the regulatory storm emanating from Brussels.

“I strongly believe in the principle of a united industry voice and in working together to ensure the sector’s work and worth is recognised.”

30.30. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

FORMER EPRA CHAIRMAN: OPEN LETTER

Dear EPRA directors, It has been a real pleasure to see members, staff and our association making tremendous progress in most of the areas where friends. My mandate it is active: as EPRA Chairman has ••Governance: with a renewed come to its conclusion. I Board, two new Vice-Chairman po- sitions and deeper involvement of would like to thank the industry leaders in our activities; organisation and all of its ••Working Groups: with six com- contributors for giving me mittees working full speed and achieving results above expecta- the privilege of chairing tions; as illustrated by the success its board for the of the sustainability KPI initiative; market which they have been active past two years. ••Lobbying: with a new team dedi- on for decades. cated to tackling specific regula- tory issues (such as IASB lease As investment in new projects accounting, Solvency 2 and EU continues to decrease, REITs will REIT discussions) and coordinating maintain an unrivalled investment efforts with national professional capacity enabling them to conduct federations and associations; counter-cyclical activities and to ••Investor outreach: with the accel- sustain the construction industry. eration of international roadshows to attract new investors in property As environmental concerns stocks and joint initiatives with intensify, REITs as by far the most NAREIT; advanced players in the real estate ••Marketing: through the crea- industry, will continue to lead the tion of this newsletter and the way by upgrading old buildings entire revamping of our website and launching landmark projects www.epra.com. with the highest environmental ef- ficiency ratings. And, finally, as state The work of EPRA is more tax resources diminish, REITs will important than ever, as the world continue to distribute dividends, becomes more and more volatile generating substantial withholding and as the struggle against global tax resources and, in buying and over-indebtedness and economic selling buildings, will continue to depression continues. Going for- generate income for states through ward, it is obvious that REITs have transfer taxes. a larger role to play in Europe. They provide equity, transparency, long- EPRA now has a new Chairman, term perspective and development David Atkins, CEO of Hammerson, opportunities at a time when many and there is no doubt that under his other real estate players are simply leadership EPRA will continue to unable to act. progress to the benefit of the entire sector. Many thanks to all of you. As bank financing becomes scarcer, REITs will naturally finance themselves from the bond market; a CEO Unibail-Rodamco

EPRA NEWS / 3940 // 20112011 31. FEATURES

The future of the UK REIT regime

The introduction of the UK The UK Property Industry has been a large existing property group but REIT regime in 2007 was active in lobbying the Government it is difficult to justify to investors to relax the REIT regime to make considering the launch of a REIT successful in encouraging it more attractive to investors and where newly acquired properties the listed investors on the those seeking capital from the pub- mean there is little or no latent gain London Stock Exchange lic markets alike. As an important to eliminate. and significant part of the economy, to convert to REIT status. attracting capital into the UK real 2. Relaxation of the Disappointingly it has estate and construction industries to listing requirement been much less successful fund regeneration, build new houses The principal company of a UK REIT and invest in a more economically is currently required to be listed in encouraging the sustainable built environment are on either the main market of the unlisted and residential key to job creation and helping put London Stock Exchange, some parts sectors to seek REIT the economy back on the growth of the PLUS market, or a similar path. foreign stock exchange recognised capital and since the by the UK tax authority. This has initial wave only a Earlier this year, the UK Gov- been viewed as a significant bar- handful of businesses ernment announced a significant rier to entry for smaller property consultation on changes to the UK businesses because of the costs of have listed and converted REIT regime. It is proposed that, listing and ongoing compliance. The to REIT status. after a final round of consultation, Government are considering extend- So what now? these changes will become law in ing the listing requirement to AIM late-Summer 2012. and similar foreign exchanges but, despite initial hopes, have ruled out Key proposed changes permitting unlisted REITs. The Government has announced that the draft legislation to achieve 3. Relaxation of the diverse the changes will be published ownership condition on December 06, 2011. The key The requirement for REITs to have proposals are summarised below - a diverse shareholder base is cur- further minor changes are proposed rently achieved by prohibiting REITs which largely deal with existing from being a ‘close company’ for tax technical issues and are not dealt purposes – broadly being controlled Summary of key REIT with here. by five or fewer persons. The Treas- changes to be adopted ury has always been concerned that 1. Abolition of the entry charge REITs should not be used as private ••Abolition of the 2% entry charge The headline-grabbing change was investment vehicles, but rather ••Allowing REITs to list on AIM, PLUS and similar the abolition of the 2% entry charge, encourage the democratisation of foreign exchanges making the regime significantly property ownership. However, the ••Relaxation of the diverse ownership (close com- more attractive. The charge is cur- workings of the close company pany) condition for ‘institutional’ investors rently applied to the market value provisions are complex. ••Three-year fixed grace period from close company of all properties held by a group condition electing to become a UK REIT, or Investors such as pension funds ••Allowing cash to be a ‘good’ asset for the 75% an existing REIT buying a property and insurance companies, or even balance of business asset test of quarterly reviews owning company. The charge may widely owned companies, can are updated. have been viewed as a fair price cause a REIT to be considered a for eliminating the latent gains of close company for tax purposes

32.32. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

Derwent London, Arup - Fitzrovia

where they hold a significant stake, extensions of REIT status at the despite the fact that their own end of the three-year period if the ownership is genuinely diverse. diverse ownership tests are not met by then. To encourage institutional invest- ••If the rules are not met at the three- ment, the Government has proposed year point, then the group would the introduction of a ‘diverse owner- lose its REIT status without penalty ship rule’ for institutional investors, but only provided the company making it easier for companies with has failed the tests for “legitimate institutional investors to become reasons”. REITs. ••However, where the group fails to meet the rules and is deemed Questions remain as to how this to have joined the REIT regime to test will be applied. How should “gain a tax advantage”, then penal- ‘diverse ownership’ be defined? ties will be applied. And who should qualify as an ‘institutional investor’? The UK Clearly there are questions property industry are keen to secure remaining: what would constitute a wide definition of institutional “legitimate reasons” for failing to investor, including not just pension meet the close company condition? funds and insurance companies, but When would a company be consid- also charities, PAIFs, hedge funds, ered to have joined the REIT regime private equity vehicles and listed to “gain a tax advantage”? Again, Hammerson - Threadneedle Street, London companies. However, we will have we will have to wait until the draft to wait for the draft legislation to be legislation has been published in published on December 06 to get December for further hints as to how WHAT IS A UK REIT? a better feel for the Government’s these questions will be answered. direction of travel on this new test. Real Estate Investment Trusts (‘REITs’) were intro- 5. Treating cash as a ‘good’ asset duced in the UK on January 01, 2007 after many 4. Three-year fixed grace period Under the REIT rules, 75% of a REIT’s years of lobbying by the property industry. from the diverse ownership rules assets are required to be investment ••Despite the name, a REIT is formed as an ordinary A particular concern when trying property – this is one half of what company or group, the top company of which is to establish a new REIT has been is known as the balance of business required to be UK tax resident and listed on a stock the need to ensure the REIT is not test. The final proposal aimed at exchange ‘recognised’ by Her Majesty’s Revenue considered a close company from its reviving the UK REIT market is to and Customs. first day of trading. This is a factor treat cash as a ‘good’ asset for the ••Provided a company carrying on a ‘property rental that is highly dependent on market purposes of this test – that is the 75% business’ meets the various conditions set out conditions and somewhat outside can be met through either property in the REIT rules, it can elect to join the regime. the control of the REIT. The Govern- ownership or cash. REIT status acts to exempt the profits the company ment have therefore proposed a derives from its property rental business from UK three-year grace period to allow This change should also be corporation tax. In return, a REIT is obliged to pay a start-up REIT time to fulfil this helpful to newly launched REITs, out at least 90% of its rental profits as a dividend condition. particularly as it should enable the subject to a withholding tax of 20% and taxed cash raised on listing to count as on shareholders as rent. The idea of the regime In October, the Government a ‘good’ asset. This would allow is therefore to move the potential tax from the further confirmed that: breathing space for the REIT to iden- company to the shareholders. ••There will be no discretionary tify and acquire its investments. >

EPRA NEWS / 3940 // 20112011 33. FEATURES

Derwent London, Arup - Fitzrovia

What type of businesses do we potential returns are enough to en- expect to consider this? tice investors and this is something ••Private property groups with long that tax legislation cannot provide a -standing latent gains providing complete solution to. they are not averse to meeting the diverse ownership tests. Of course, the UK economy, ••Existing smaller property com- like other European economies, is panies looking to access capital suffering and this has significantly markets via AIM. affected the property market. Draw- ••Institutional investors previously ing comparisons with similar points excluded due to the diverse own- in history can be informative when ership rules. seeking to answer the overarching ••Existing debt providers and prop- question. erty rich companies, including hotel and healthcare operators; Until the early 90’s, the US REIT house-builders; social housing pro- regime was a fairly small, niche viders; and residential landlords market. In 1993 two relatively minor who may consider REIT conver- changes were made to the regime sion as an exit route. at least partly in response to the US Hammerson, Although there are currently ways to •Offshore funds holding UK prop- Savings and Loans Crisis. The first Birmingham • Bullring ensure that a new REIT would only erty may see an opportunity to change related to a modification of be required to invest 50% of its cash move into a tax efficient on-shore the “five-or-fewer” rule (similar to by the end of the first year, and 75% structure without an entry cost. the close company rule in the UK) within three years, start-up REITs ••Will the new REIT regime kick- to facilitate greater institutional are nonetheless currently exposed start investment? investment into US REITs. The sec- to significant risks of being forced ond change was the introduction to invest against their commercial There is a significant amount of of “UP-REIT” structures, which wishes as these time periods expire. interest in whether the new REIT allowed property owners to transfer regime will deliver incremental properties into US REITs and defer So what is the immediate impact? value to investors in UK property. the capital gains tax. By announcing the proposed The proposals show a real desire changes 18 months before becoming by the UK Government to relax the US property prices had fallen to law, the UK Government are allow- regime but many interested parties historic lows, debt financing had ing existing and potential future UK- are reserving judgement until they become scarce and equity investors REITs to begin planning how they see the detail of the draft legislation were searching for suitable long- might take advantage of the new and can gauge the commitment of term investment opportunities. The REIT regime – albeit that for many Government to addressing draft- changes to the US REIT rules gave the devil will be in the detail of the ing issues before the legislation investors a means to address these draft legislation. becomes final. market needs. This combination of market conditions and policy While the success of the new On the matter of residential changes is widely credited for the rules will also depend on a number REITs, some hold the view that the explosion of the US REIT regime in of market and economic factors, the UK Government has done enough the 90’s. changes announced are beneficial with these proposals to encourage and we expect that the proposed their emergence as a sector. How- There are certainly some changes will have a positive impact ever, the key issue for residential parallels with today’s UK property on the property industry as a whole. property in the UK is whether the market. Property backed equities

34.34. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

Investors may finally consider investment in residential property, particularly if they consider that their correlation with other equity investments is low enough to provide some diversification, whileproviding additional may provide just the sort of stabil- ity, long-term returns and inflation liquidity and fulfilling their investment objectives. protection institutional investors are looking for. The relaxation of the diverse ownership restrictions gives flourish in a similar fashion to the has had a strong track-record and institutions the ability to signifi- US experience of the 90’s. It is also has been amended continuously by cantly invest in or even set up their interesting to compare the attitude of the French Government, mostly in own REITs. Investors may finally the UK Government towards its REIT the direction of introducing further consider investment in residential regime with the current changes incentives and relaxations for inves- property, particularly if they consid- being made to the French REIT (SIIC) tors and SIICs, since its introduction er that their correlation with other regime. In France, the Government in 2003. equity investments is low enough to have proposed withdrawing certain provide some diversification, while benefits enjoyed by SIIC investors in By comparison, the UK Govern- providing additional liquidity and the 2012 Finance Act. The changes ment has made relatively few fulfilling their investment objectives. will affect shareholders who are changes to the UK REIT regime since individuals and will include: its introduction in 2007. However, Similarly, the abolition of the ••The abolition of the existing al- they should certainly be applauded entry charge, the introduction of lowance of 40% on dividends now for giving the UK REIT regime AIM-listed REITs and close com- distributed by a SIIC to those the potential for a new lease of life. pany grace period could stimulate individual shareholders resident It is a forward-thinking approach in increased entrepreneurship in the in France. A higher proportion of the context of the current financial UK REIT sector. UK REITs may be these dividends will now fall into turmoil. a particularly attractive vehicle for charge to tax. property entrepreneurs if many of ••SIIC securities will no longer be them are ultimately determined to eligible for securities savings be exempt from the burdensome plans (PEA). It is envisaged that AIFM Directive being brought into this change will take effect from Nicola local law in 2013. January 01, 2013. Westbrooke is an Associate A combination of any or all of The French property industry has Partner in the factors above and those yet un- commented that these changes are KPMG’s Real known could see the UK REIT regime unlikely to undermine a regime that Estate Tax practice. She has more than 16 years experience of advising on Douglas Marvin is a Manager in KPMG’s Corporate the tax aspects of structuring Finance practice, within the Real Estate Valuations real estate and infrastructure team. He has over seven years’ experience advising holdings for investors, developers both listed and private investors in UK and global and occupiers, including UK real estate. This included a secondment to the British REITs. She was seconded to the Property Federation, where he assisted with lobbying UK HMRC in 2006 to be the real efforts for improvements to the UK-REIT regime on behalf of the UK estate tax expert working as part property industry. Marvin continues to advise clients on commercial and of the small HMRC and Treasury residential real estate equity and debt transactions, as well as potential team that delivered the original new REIT vehicles. UK REIT legislation. Contact: Contact: [email protected] [email protected]

EPRA NEWS / 3940 // 20112011 35. FEATURES

The Israeli commercial real estate market

In a volatile region, Israel The Israeli commercial real estate value of the properties of the listed embraces the listed market is relatively young, and the companies is about 6% of the GDP, development of modern properties in comparison to less than 1% in the real estate sector as a has picked up since the late 1990s. UK. In the stock market, the market foundation for stable The total fair value of properties value of the companies holding pricing and the long-term managed by listed companies is income-producing properties is ca. EUR 15 billion1, with a GLA of 9 around 4% of the total market cap investment view. million sqm. We estimate that the of the TASE, in comparison to 1% in listed market is 20-30% of the total the UK. income-producing sector in terms of GLA, and more than that in terms of The following charts present the fair value. distribution of sectors in the market, in terms of fair value and GLA: The listed part of the market is undergoing a process of rapid devel- Chart 1: Distribution of the mar- opment – modern properties at high ket according to fair value (2010) standards are being developed and more and more properties are com- ing onto the listed market through acquisition by public companies. We also see the listing of new com- Israel is considered a Western panies: two REITs were created after economy. Its GDP per capita is the establishment of the REIT regime around USD 30,000 (PPP), its in 2006, and more significantly the credit rating has been raised listing of the Azrieli group in 2010, recently by S&P to A+ / stable. which brought around EUR 2 billion Israel weathered the 2008-09 of properties into the listed market. * We gratefully crisis well, its unemployment acknowledge the help of Joe Mannina of Real rate is historically low, GDP The real estate market is very Capital Analytics, in growth has been 3.5% in 2010, significant in the context of the providing us with the Retail 51% Retail 36% Azrieli Group 24% Azrieli Group 17% comparative cap rate data as compared to an average of Israeli economy, and this stands Office 29% Office 26% British Israel 18% Amot 11% for the US and the UK. 2.8% in the OECD. out in comparison to other global Industrial 13% Industrial 24% Melisron 11% Industrial Buildings Corp. 8% 1 As of 31/12/2010. markets. For example, the total fair Other 7% Other 14% Big 6% Bayside Land 8% Amot 5% British-Israel 7% Gazit 5% Airport City 5% Nitsba 4% Darban 5% 36.36. EPRAEPRA NEWSNEWS // 4039 / 2011 Financial Levers 3% REIT 1 4% Industrial Buildings Corp. 3% Isras 4% The Israel Land Dev. Co. 3% Nitsba 4% Ashtrom Properties 3% Adgar 3% Other 15% Other 24% FEATURES

Chart 3: Distribution of properties Chart 4: Distribution of properties 2 British-Israel and Melisron Chart 2: Distribution of the mar- merged in 2011, and ket according to GLA (2010) in the retail sector according to in the office sector according to therefore we refer to them fair value fair value as one company. Chart 1-4: B-BRE Research; Chart 5: B-BRE Research, Real Capital Analytics; Chart 6: B-BRE Research, Bloomberg; Chart 7: B-BRE Research, Real Capital Analytics

Retail 51% Retail 51% Retail Retail 51% 36% Retail 36% RetailAzrieli Group36 % 24% Azrieli Group 24%Azrieli GroupAzrieli Group 24 % 17% Azrieli Group 17% Azrieli Group 17% Office 29% Office 29% Office Office 29% 26% Office 26% OfficeBritish Israel26 % 18% British Israel 18%British Israel Amot 18 % 11% Amot 11% Amot 11% Industrial 13% Industrial 13% IndustrialIndustrial 13 % 24% Industrial 24% IndustrialMelisron 24 % 11% Melisron 11% Melisron Industrial Buildings 11% Corp. 8% Industrial Buildings Corp. 8% Industrial Buildings Corp. 8% Other 7% Other 7% Other Other 7% 14% Other 14% OtherBig 14 % 6% Big 6% Big Bayside Land 6% 8% Bayside Land 8% Bayside Land 8% Amot 5% Amot 5% Amot British-Israel 5% 7% British-Israel 7% British-Israel 7% Gazit 5% Gazit 5% Gazit Airport City 5% 5% Airport City 5% Airport City 5% Nitsba 4% Nitsba 4% Nitsba Darban 4% 5% Darban 5% Darban 5% Financial Levers 3% Financial Levers 3% Financial LeversREIT 1 3% 4% REIT 1 4% REIT 1 4% Industrial Buildings Corp. 3% Industrial Buildings Corp. 3% Industrial BuildingsIsras Corp. 3% 4% Isras 4% Isras 4% The retail sectorThe Israel is quite Land Dev.concen Co. - 3% The Israel Land Dev. Co. 3% The Israel LandNitsba Dev. Co. 3% 4% Nitsba 4% Nitsba 4% trated: as shownAshtrom in charts Properties 3-4 above, 3% Ashtrom Properties 3% Ashtrom PropertiesAdgar 3% 3% Adgar 3% Adgar 3% the two biggestOther companies are more 15% Other 15% Other Other 15% 24% Other 24%Other 24% than 50% of the market in terms of fair value, and the other companies are significantly smaller2. In contrast, the office market is less concentrated, Chart 5: Office Cap rates in Israel, US, and UK 2007-2011 and six companies have about 60% of the market (in fair value). 8.5% UK 8.0% US Israel Occupancy in both sectors is very 7.5% high, around 95% in both sectors. It 7.0%8.5% UK has been stable around this level for 6.5%8.0% US Israel several years, including the years of 6.0%7.5% the financial crisis. 5.5%7.0% 5.0%6.5% The Israeli market 6.0% 2007 2008 2009 2010 2011 in a global context 5.5% Charts 6 and 7 reflect the resilience 5.0% of the Israeli real estate market dur- 140 2007 2008 2009 2010 2011 ing the 2008-09 crisis. > 120 FTSE EPRA/NAREIT UK Chart100 6: Israeli vs. global real estate indices REITs Total Return Index 14080 FTSE EPRA/NAREIT All 12060 FTSE Equity EPRA/NAREIT US REITs TotalUK 10040 REITs Return Total Index Return Index 20 80 FTSE Real EPRA/NAREIT Estate 15 Index All 600 Equity (Israel, US mixed) REITs Total 40 Return B-BRE Index Index (Israel, 20 Real income-producing) Estate 15 Index 0 (Israel, mixed) 01/03/11 01/06/11 01/03/08 01/06/08 01/09/08 01/12/08 01/03/09 01/06/09 01/09/09 01/12/09 01/03/10 01/06/10 01/09/10 01/12/10 01/06/07 01/09/07 01/12/07 B-BRE Index (Israel, income-producing) 01/03/11 01/06/11 01/03/08 01/06/08 01/09/08 01/12/08 01/03/09 01/06/09 01/09/09 01/12/09 01/03/10 01/06/10 01/09/10 01/12/10 01/06/07 01/09/07 01/12/07 2.50% London-UK 2.00% Manhattan-US Tel Aviv-Israel 1.50%2.50% London-UK 1.00%2.00% Manhattan-US Tel Aviv-Israel EPRA NEWS / 3940 // 20112011 37. 0.50%1.50% 0.00%1.00% -0.50%0.50% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.00%

-0.50% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

8.5% UK 8.0% US Israel 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 2007 2008 2009 2010 2011

140 120 FTSE EPRA/NAREIT UK 100 REITs Total Return Index 80 FTSE EPRA/NAREIT All 60 Equity US REITs Total 40 FEAReturn TIndexURES 20 Real Estate 15 Index 0 (Israel, mixed) B-BRE Index (Israel, income-producing) 01/03/11 01/06/11 01/03/08 01/06/08 01/09/08 01/12/08 01/03/09 01/06/09 01/09/09 01/12/09 01/03/10 01/06/10 01/09/10 01/12/10 01/06/07 01/09/07 01/12/07 Chart 7: Spreads between office cap rates in main city and country average

2.50% London-UK 2.00% Manhattan-US Tel Aviv-Israel 1.50% 1.00% 0.50% 0.00% -0.50% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

3 The B-BRE index, com - puted by us, is the only index following the local Yearly standard deviation income-producing sector. B-BRE Israel Index (income- The only traded real estate index in Israel, ‘Real Estate producing property companies) 26.57% 15’, mixes developers with companies managing UK REITs 30.07% income-producing US REITs 34.85% properties, and companies that are active locally Real Estate 15 (income-producing with such that focus on global activity. For more and developers) 39.04% information on the index, see: http://b-bre.com/ bbre-index. The spread in cap rates between (1) The cap rates in the US are too Listing the positives main city and country average is high, and we expect a decline in cap Israel is a developed country, with much higher in the US than in the rates in the long-run. This, however, a growing commercial real estate UK or in Israel, by more than 100 does not seem a plausible explana- market. There is a process of secu- bp. We think that these spreads tion, as the current cap rates in the ritization bringing more and more reflect accurately the perceived risk US are well within the range of the properties into the listed sector. This between centre and periphery in cap rates in the last decade. process contributes to the overall these countries. (2) Interest rates are globally transparency of the market. Israel low at present, and we expect them was spared the effects of the 2008- The anomaly of cap rates spreads to rise in the long-run. In the US, 2009 crisis, and this is reflected The average cap rates for the office the spread between cap rates and both in the real estate market and sector are around 7.5-8.0%, very interest rates is wide enough to in the performance of the listed similar to those of the office sector accommodate a rise in interest rates companies operating within it. In a in the US. This seems an anomaly, without a rise in cap rates. In Israel global comparison, we suggest that since we would expect the cap rates the spread is too narrow, and hence, the current cap rates in Israel do not in Israel to be higher (as reflected in we expect the cap rates to rise when reflect the risk premium adequately, the spreads in the credit insurance interest rates rise. This seems to us a and they are expected to rise in the market). It seems to us that there are more plausible explanation for this long-run. two ways to account for this: anomaly.

In the stock market, B-BRE was founded by Nirit Bregman and Daniel Baraz as a real estate research and the market value of the consulting firm focusing on the Israeli com- mercial market. Our flagship project is the companies holding income creation of a commercial real estate database for Israel, which we are pursuing in partner- producing properties is ship with the Forum Group. B-BRE is also Real Capital Analytics’ data partner in Israel. Bregman, who is a C.P.A. and holds a master of laws around 4% of the total degree (LL.M.), has served for many years in senior positions in leading Israeli capital markets firms. Baraz has a Ph.D. in History and an M.B.A., market cap of the TASE, in and was until recently the director of the Fishman Real Estate Center at the Hebrew University of Jerusalem. comparison to 1% in the UK. Contact: [email protected], [email protected]

38.38. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

Sustainability reporting in the real estate sector The practice of voluntary sustainability reporting has become increasingly common in the European real estate sector – particularly among larger listed real estate companies. An area of growing policy debate in the European Union and at the national level, however, has been the introduction of mandatory sustainability reporting regulation.

It is EPRA’s role as a trade body EPRA’s sustainability program Portal, which were both launched representing listed companies in builds upon relevant mandatory re- during the annual EPRA conference the real estate sector to prepare its porting requirements and voluntary in London. members for the likely introduc- initiatives, in particular the Global tion of more stringent mandatory Reporting Initiative’s Construction The Global Real Estate sustainability reporting regulations, and Real Estate Sector Supplement Sustainability Benchmark which are already in place in a (GRI CRESS), which now forms 2011 Results number of European countries an integral part of the EPRA Best This year, many of the leading pen- such as France and Denmark. EPRA Practices Recommendations on sion asset managers in the world therefore developed the EPRA Best Sustainability Reporting. have signed up as members of Practices Recommendations on GRESB, representing USD 1.7 trillion Sustainability Reporting, which EPRA also supports the in aggregate assets under man- was launched during latest annual Global Real Estate Sustainability agement. Combined, these asset conference in London. Benchmark (GRESB), by now an es- managers have an average stake of tablished industry-led initiative, more than 4% in each of the listed To encourage knowledge sharing receiving the Platinum Award for property companies that responded and to reward best practice, EPRA Outstanding Industry Contribution to the survey. In addition, leading has introduced an annual Sustain- for the second time in a row in 2011. international real estate industry ability BPR Award in 2012 to recog- GRESB was founded by APG, PGGM, associations and industry bodies nise the efforts of those companies USS and Maastricht University and such as EPRA, NAREIT, APREA, the adopting the BPR and innovating in has grown into the leading bench- UN PRI and many others support the their measurement and reporting mark assessing the sustainability initiative. of performance. This Sustainability performance of property investment BPR Award will be sponsored by portfolios. This article will highlight GRESB has made a significant APG for three years. the key results of the 2011 GRESB leap forward in coverage of the real Research Report and the GRESB estate sector: the number of >

EPRA NEWS / 3940 // 20112011 39. FEATURES

Number Market coverage Gross Asset Value

of Respondents (value-weighted) (USD billion) Listed (Total) 69 35% 483 North America 15 37% 133 Europe 32 75% 170 Asia 12 12% 40 Australia 10 80% 141 Private (Total) 271 445 North America 45 129 South America 4 5 Europe 162 205 Asia 37 52 Australia 23 54 Grand Total 340 928

respondents increased from 198 in use this information as a basis for an Based on the GRESB survey, 2009 to 340 in 2011, a 72% increase. informed and meaningful dialogue a science-based benchmarking Importantly, the response among with the companies managing their framework has been created. The property companies and funds in real estate allocations. For institu- individual metrics are scored to Asia has improved substantially. tional investors with direct property represent the relative material- For listed property companies, we allocations, the scorecard provides ity of their impact to investors. The document that the market-value- insight into the performance of their metrics are divided between seven weighted response rate is approxi- portfolio as well. sub-categories within the environ- mately 35% (FTSE EPRA/NAREIT mental and social dimensions. An Real Estate Index), and the market- value-weighted response rate of the EPRA Index was around 75%.

The 2011 survey covers over 21,000 commercial buildings, with a combined floor area of about 356 million square metres. The coverage by property type shows that the largest property sectors included in the GRESB-database are offices (22%), shopping malls (29%) and distribution warehouses (21%).

The assets covered by the 2011 GRESB survey illustrate that the scope of the commercial property GRESB Survey approach: additional category is added for sector is large by all standards: on methodology respondents with property develop- aggregate, the respondents manage The basis for this year’s benchmark ment activities (but this is not part approximately USD 928 billion in is the GRESB survey, consisting of 55 of the total GRESB score). The scores commercial real estate assets, with questions that are based on: for the sub-categories are then add- an estimated aggregate emission of ••Scientific research on environmen- ed up to generate the GRESB score, 34 million tons of carbon per year tal and social factors affecting the which is expressed as a percentage (the equivalent of six million cars financial performance of corpora- of the maximum score. on the road in a year). Institutional tions in general, and of real estate engagement with the property sec- investment portfolios in particular. To distinguish further between tor can thus have substantial and ••Best practices on ESG reporting, sustainability reporting and policy, positive impact on the reduction of including the EPRA Best Practices and sustainability implementation resource consumption. Recommendations on Sustainabil- and performance measurement, ity Reporting; the overall GRESB score is split into To provide respondents with ••Existing reporting frameworks, two dimensions: management & information on their environmental such as the Carbon Disclosure policy and implementation & meas- performance, the collected data is Project and the Global Reporting urement. Management & policy graphically represented in an online Initiative, which launched the represents 30% of the GRESB score, scorecard (see the picture above), Construction and Real Estate whereas implementation & meas- in which companies and funds can Sector Supplement (CRESS) on urement has a weight of 70%. Thus, observe their relative performance September 22, 2011. the overall GRESB score rewards against peers. GRESB members can actions more than words.

40.40. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

These indicators allow institutional investors to enter into an informed dialogue with their real estate investment managers regarding environmental risks, opportunities and improvements.

developing environmental policies and incorporating energy efficiency and sustainability measures into business operations.

Environmental leadership revisited: New names at the top The main goal of collecting informa- tion on sustainability management is to generate comprehensive indicators measuring the portfolio- level environmental and social per- formance of real estate managers. These indicators allow institutional investors to enter into an informed dialogue with their real estate in- Four Quadrants: aggregate, and in the listed sector vestment managers regarding envi- The GRESB model of even 26% (18 respondents). The ronmental risks, opportunities and environmental performance southeast quadrant, Green Talk, improvements. Thus, information The GRESB four-quadrant model is populated with a slightly larger collected through the GRESB survey of environmental performance share of the respondents as well. In is not about “naming and sham- provides an overview of the global parallel, the percentage of property ing,” but about benchmarking and environmental performance of the investors classified as Green Starters creating value by engagement and real estate investment management has decreased, and is now 55% (186 community. For every company that respondents), as compared to 67% responded to the 2011 survey, the in the 2009 survey. Again, listed model shows the percentage scores companies score slightly better in on issues related to management this quadrant, with only 41% in and policy (on the horizontal axis) the Starter category. The upper left and the percentage scores on is- quadrant, Green Walk, has very few sues related to implementation and observations, just as in 2009. measurement (on the vertical axis). The four quadrants distinguish the The 2011 GRESB results show a position that a company has on the general move from Green Starters adoption of both dimensions of en- towards Green Talk, and most vironmental management practices. importantly, Green Stars. This implies a trend towards stronger The number of Green Stars has environmental performance of the increased significantly in 2011, not commercial real estate sector, both subsequent optimisation. Nonethe- just in absolute numbers (which regarding management & policy less, almost equally important is the could be due to the larger sample and with respect to implementa- information on industry best prac- size) but also as a percentage of tion and measurement. Real estate tices provided by the GRESB survey. the total sample. Just 10% of the re- companies and funds are moving These best practices can serve as spondents were classified as Green up the environmental adoption inspiration and set the example for Stars in 2009, but that percentage curve, which indicates that the other property companies, by show- is now 19% (65 respondents) on commercial property sector is ing that superior environmental >

EPRA NEWS / 3940 // 20112011 41. FEATURES

Europe (Listed) Company Name Score MP Score IM Score 1 Hammerson PLC 83 92 78 2 Land Securities Group PLC 75 81 72 3 British Land Company PLC 73 88 66 4 Unibail-Rodamco SE 71 87 63 5 Big Yellow Group PLC 69 88 60 6 Wihlborgs Fastigheter AB 63 79 55 7 Klépierre 60 69 56 8 Capital Shopping Centres Group PLC 60 83 49 9 Shaftesbury PLC 55 82 43 10 Derwent London PLC 53 68 46

performance is attainable, while The graph below shows the sec- each of the indicators, the left bar simultaneously keeping an eye on tor scores for the 2011 survey. These reports the change for all reporting the bottom line. are mostly in line with the 2009 re- companies, the middle bar reports sults: residential (20) and industrial that change for Green Stars, and the Among listed companies, (23) property portfolios score low, right bar shows the figure for the sustainability management at Ham- whereas offices (41) and shopping remainder of the companies. For the merson (UK) is leading the industry, centers (52) have higher scores. 117 companies that reported (mean- followed closely by Land Securities Property companies with a portfolio ingful) like-for-like data, the energy (UK) and British Land (UK). Unibail- diversified across sectors take a use (kWh) decreased by 1.3% in Rodamco, ranked fourth, is the only mid position. The low score for the one year (the maximum reduction Continental European company in residential sector is mostly driven in energy consumption was 20.6 the top 5. Big Yellow, the number by the lack of measurement of key percent). For the 65 Green Stars, that one in 2009, is ranked fifth this year. performance indicators, reflected decrease was almost 3%. So, being a GRESB Green Star really implies su- perior environmental performance: noblesse oblige.

For water use (cubic metres), the performance improvement of the real estate sector is even better: a 2.8% reduction for all reporting companies combined (103 compa- nies), and a 3.8% decrease in water consumption for the Green Stars. The maximum reported reduction in water consumption was 42.4%.

Regarding greenhouse gas emis- sions, the industry is clearly moving in the right direction, with a 1.8% reduction in 2010 (90 companies). The performance improvement of the Green Stars is even at 3.4%. Even though the average overall in the implementation & measure- score among listed property compa- ment category (11). Likewise, for Conclusion nies (42) is higher than compared to industrial and logistics properties, Reporting on environmental perfor- private funds (30), the best overall implementation of environmental mance indicators is still challenging environmental performance in policies seems to be hindered by the for the average European respond- Europe is achieved by Sonae Sierra fact that owners often do not have ent to the GRESB survey, especially (Portugal), with a score of 86. Sonae operational control over their space. for private funds. Perhaps the latest Sierra did not participate last year, sector supplement of the Global but it has a long track-record in “cor- Changes in energy and water use Reporting Initiative and the newly porate responsibility” and is now - sector improves performance developed EPRA Best Practices internationally seen as one of the The graph on the following page Recommendations on Sustainability leaders in sustainability, demonstrat- shows changes in three key indica- Reporting will provide some guid- ing true leadership in the areas of tors of environmental perform- ance to the market. Monitoring monitoring and reduction strategies. ance between 2009 and 2010. For the portfolio energy costs is at

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Nils Kok currently holds a position as an associate professor in Finance and Real Estate at Maastricht University, the Netherlands. He is the recipient of a prestigious three-year grant from the Dutch National Science Foundation for his work on energy efficiency and sustainability in the real estate sector and the co-founder of the Global Real Estate Sustainability Benchmark (GRESB) Foundation. His research has appeared in this moment done by just 26% of The information provided by the leading academic journals such the respondents, offering room for GRESB Foundation can assist institu- as the American Economic improvement to actually find a bal- tional investors in their investment Review, the Review of Economics ance between environmental and decisions, and offers a unique tool and Statistics, and the European economic optimisation. The median for direct engagement on environ- Economic Review. reduction in energy use between mental and social performance with Contact: 2009 and 2010 was just 0.11% in property funds. For managers of [email protected] Europe, which is trailing the global property companies and funds, reduction by more than 1%. benchmarking their current sustain- Sander Paul ability practices at the portfolio level van Tongeren offers the opportunity to compare, is responsible set goals and improve performance. for integrating sustainability across APG’s global real estate and infrastruc- ture portfolio. He is member of the EPRA Sustainability Reporting Committee, the INREV sustain- ability committee and the GRI CRESS working group. He holds a Masters degree in Business Economics as well as an Execu- tive Master degree of Finance and Control and a Master of studies in Real Estate from the University of Amsterdam. Contact: [email protected]

EPRA NEWS / 3940 // 20112011 43. REPORTING

Global REIT Survey 2011

Each REIT regime is unique. The latest survey updates all the regulatory changes which have occurred this year - across 34 countries.

This, the eleventh REIT Survey, covers 34 countries. It is a hugely collaborative effort - with major contributions from Deloitte, PWC, Ernst & Young, KPMG, Baker & McKenzie, Loyens & Loeff, together with data from Macquarie Global Property Security Analytics.

Global REITs are still developing despite recent market turmoil. We’ve seen the major REIT regimes withstand these recent traumas and remain popular with investors and governments around the globe. This is evident from the ability of many REIT regimes to raise capital and the attention paid by the authorities to the continued development of existing regimes.

Now available The EPRA Global REIT 350 pages & Survey is the window online! on the REIT world.

Visit: www.epra.com/reitsurvey

About EPRA EPRA’s mission is to promote, develop and represent the European public real estate sector. We achieve this through the provision of better information to investors and stakeholders, active involvement in the public and political debate, improvement of the general operating environment, encouragement of best practices and cohesion, and strengthening of the industry.

Square de Meeus 23 • B-1000 Brussels • Belgium Contact T +32 (0)2 739 1010 • F +32 (0)2 739 1020 • E [email protected] • www.epra.com Diary

Zurich Europe Philip Charls (EPRA CEO) and Fraser Hughes (EPRA Six weeks after the US outreach schedule, Fraser set up Research Director) travelled to Zurich on a two-day trip the return European home leg in London, Norway and during the summer to target the large Swiss insurance the Netherlands. Meredith Despins of NAREIT accompa- companies. They met with the four large Swiss insurers nied him on this week-long programme. It consisted of explaining the current developments in the European over 20 meetings with Europe’s largest investors – pen- listed market. The mood of the insurers was very con- sion funds, SWFs and investment managers. Common servative, for the moment focusing on domestic assets in themes throughout the meetings were the impact of direct real estate strategies. A couple of the insurers also market volatility on the real estate allocation, tax issues held direct assets in the German market. We see this as for foreign investors, the importance of looking through a medium to long-term effort in convincing them on the the vehicle to the underlying assets exposure, and the benefits of diversification using the listed vehicle. attractiveness of the REIT structure as a yield play – cash-flow is king! West coast As part of EPRA’s bi-annual outreach in the US, Philip and Fraser embarked on a week-long tour of the large investors and consultants in California in Septem- ber. The trip was kindly organised by NAREIT and focused on the benefits of global listed diversifica- tion for US domiciled investors. The schedule was extremely busy, as the team hopped between San Asia trip Diego, Pasadena, Newport beach, Los Angeles, San Francisco and Sacramento. The mood was, on the We have scheduled a number whole, positive. Investors saw the benefits in invest- of panel sessions and ing outside of their domestic market and spreading one-on-one meetings with exposure to Europe and Asia-Pacific. The uncertainty the regions large pension in the European economic arena was on the table in all funds, SWFs and investment meetings we attended. It was clear the US media was having a field-day on the subject! managers.

We clearly stated that an investment in the European Prepare an update of region of the index yielded minimal exposure to the the mood of the region crisis countries – well under 5% at an asset level. In and publish in the next addition, it was important to stress the quality of assets newsletter. held by the European companies in prime locations. The consultants visited made it clear that global mandates are back on the map. EPRAFEATURES AWARDS

In the spotlight EPRA/Deloitte Annual Report Survey 2010/2011

Survey places the spotlight on EPRA’s performance measures which are at the heart of EPRA’s drive to achieve consistency and transparency in financial reporting.

Now in its tenth year, the purpose listed real estate sector. Perform- companies which clearly adopted of the EPRA Annual Report Survey ance measures include standard the revised BPR in the current year, is to promote awareness of the definitions for EPRA Earnings, NAV, disclosing in full the key EPRA Per- EPRA Best Practices Recommenda- NNNAV, vacancy and yields. formance Measures for the first time. tions (BPR) and to encourage and Belgian real estate company, Be- recognise adoption by companies. Awards were made in the fimmo won the award for ‘Most The purpose of the BPR is to raise following categories: Improved Annual Report.’ the standard of financial reporting for the benefit of shareholders and The future investors. It is easier than ever before for companies to adopt the BPR. Not Some 83 companies from a total only have the recommendations of 14 countries across Europe were For exceptional compliance been streamlined and prioritised, represented in the Survey. Some 63% with the BPR. but additional guidance was issued of companies surveyed, represent- by EPRA in July 2011 highlighting ing 76% by market capitalisation of best practice examples of disclosure the FTSE EPRA/NAREIT Developed of the EPRA performance measures Europe indices now adopt the BPR and providing more information in (at least one EPRA Performance relation to popular queries that have Measure). This is a significant For Annual Reports scoring arisen following the release of the improvement on the 60% by market highly based on compliance revised BPR. capitalisation last year. with the BPR. The full Deloitte report on the Award process EPRA Annual Report Survey 2010/11 The Annual Reports of the 83 mem- is available to download from the bers of the FTSE/EPRA Developed EPRA and Deloitte websites. Europe Index were reviewed by a team of experts from the Deloitte For Annual Reports scoring For any further information on the European real estate practice led by well based on compliance Survey, the awards or the findings of Claire Faulkner, UK Head of Real Es- with the BPR. the Deloitte review, please contact tate. Annual Reports were assessed Claire Faulkner at Deloitte or Gareth based on compliance with the BPR. Lewis at EPRA. Together with EPRA, members of the Deloitte European The BPR have been streamlined In addition to the Gold, Silver and real estate team would welcome the and refocussed during the year Bronze awards, a ‘Most Improved’ opportunity to meet with finance and the spotlight is on the EPRA award has again been made for the teams to discuss the survey and Performance Measures, which are at company with the Annual Report individual company results. the heart of EPRA’s drive to achieve showing the greatest improvement consistency and transparency in re- in recognising the BPR over the year. porting of KPIs across the European This was assessed based on those

46.46. EPRAEPRA NEWSNEWS // 4039 / 2011 EPRAFEATURES AWARDS

What was the average score per country? 70% 60% 50% 40% 30%

Average Score 20% Average score 2009/10 (adjusted) 10% Average score 2010/11 0%

y (1) (31) e (10) ia (2) y (7) y (2) UK rael (1) lands (7) Spain (1) anc man Is Ital eece (2) Finland (3) Fr Austr Norwa Gr Belgium (6) Ger Sweden (6) Nether Switzerland (4) Country (Number of companies in 2010/11)

Highlights from the survey ••A two-tier system in financial reporting has emerged – in the top tier, encouragingly, a large number of the 83 companies surveyed have consciously adopted the revised BPR, implementing a number of the EPRA performance measures and embracing the recommen- dations on disclosure of investment property data. ••63% of companies surveyed, representing 76% by market capitali- sation of the FTSE EPRA/NAREIT Developed Europe Indices now adopt the BPR (at least one EPRA performance measure). ••17% of companies included a summary table showing the EPRA performance measures in a prominent place in the Annual Report (a new recommendation in the BPR), and for the first time, some companies have taken the step of including an “EPRA Chapter” within their Annual Reports, bringing together the EPRA reporting in one place. ••In a significant increase from last year, 60% of companies are now reporting the EPRA NAV metric, highlighting the sector’s capital return characteristic. ••While the EPRA Net Initial Yield and Vacancy Rate disclosures have yet to reach the level of adoption of the other performance measures, 24% and 27% of companies respectively included these. ••Adoption of the EPRA performance measures is becoming more widespread – 12 companies surveyed have included at least one measure for the first time this year, as did all five new entrants into the index. The full Deloitte report on the EPRA Annual Report Survey 2010/11 is available to download here. • Capital & Counties • Affine Properties • Big Yellow Group • Corio NV • Castellum • Derwent London • CLS Holdings • Great Portland • Development Befimmo – winner of the ‘Most Improved Annual Report’ award this year, CEO, Benoit de Blieck. Estates Securities • Klépierre • Foncière des Régions • PSP Swiss Property • Helical Bar • Sponda • ING UK Real Estate • Wereldhave NV Income Trust • Zublin Immoblien • Unibail-Rodamco Holding • Vastned Offices/ Industrial • Vastned Retail

EPRA NEWS / 3940 // 20112011 47. FEATURES

Broadening the Universe

Index constituents are currently al- base for property companies devel- located to their country of primary oping and owning assets in China. listing. The global index series is split The FTSE EPRA/NAREIT into three global regions: Americas, For country allocation purposes Index series has an Asia-pacific and EMEA, as well as this creates a challenge. It tends to sub-divided into Developed and be precisely those larger established enhancement in the Emerging markets. stocks who one would expect to lean pipeline. ‘Nationality’ towards the ‘developed’ indices that issues will be addressed At a global level, index constitu- expand into neighbouring markets ents may have a diversified strategy, and subsequently reduce exposure which will broaden the or focus on a specialist sector (office, in their country of origin. underlying exposure to retail, residential, industrial, logistics, ensure it remains the etc) both within one country (mainly The current ground rules of the US REITs), or across countries the FTSE EPRA/NAREIT Global global benchmark (mainly continental Europe and Asia Developed Index require that all of choice. firms). Depending on the country of eligible constituents derive at least origin, a cross-border strategy may 75% of EBITDA from a FTSE-defined be attractive when the local market developed market1. In exactly the lacks the investment opportunities same fashion, all constituents of in terms of business strategy and as- the FTSE EPRA/NAREIT Emerging sets that fall within their investment Markets Index must derive at least scope. Attractive yields, growth op- 75% of EBITDA from a FTSE-defined portunities and economies of scale emerging market. However, at this play into the investment equation moment in time, the FTSE EPRA/ under the backdrop of market condi- NAREIT ground rules do not cater tions and expectations. for companies which are listed in a developed country and that own a Cross-border asset-level invest- mix of assets across both developed ment may become a challenge for and emerging markets. country allocation - when real estate investment crosses FTSE EPRA/ Following in-depth market Cross-border investment NAREIT-defined ‘developed’ and consultation, regional and global ‘emerging’ markets. For example, committee-level discussion and may become a challenge for companies listed in developed coun- ‘behind-the-scenes’ technical devel- tries such as Germany and Austria opment and impact analysis, the country allocation - when and that own assets in Central and FTSE EPRA/NAREIT Global Index will Eastern Europe (CEE) which are adopt an updated set of ground rules real estate investment crosses defined as ‘emerging markets’ or that to address this issue - effective March own a mix of developed and emerg- 2012. This extends the universe of FTSE EPRA/NAREIT-defined ing markets assets, currently are eligible stocks. difficult to place in the FTSE EPRA/ ‘developed’ and NAREIT Global Real Estate Index. The impact on the existing Similarly, a number of property com- set of FTSE EPRA/NAREIT Global ‘emerging’ markets. panies listed in Singapore and Hong Developed Index constituents will Kong have a sizeable presence in the be minimal. Existing constituents Asia-Pacific emerging markets. For of the Developed Index will switch example, Hong Kong is a well-known to the FTSE EPRA/NAREIT Global

1 FTSE EPRA NAREIT Index Ground Rules 4.9- Rule 5.4 48.48. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

exl RED CHIP Net effect of Region Current Rules New Rules Total Component new rules Emerging €52,228 €75,577 44.7% 30.6% 14.1% Developed €564,708 €552,111 -2.2% -1.3% -0.9% Currently Excluded €10,753 € - Global €616,936 €627,689 1.7% 0.0% 1.7% exl RED CHIP Net effect of Region Current Rules New Rules Total Component new rules Developed ASIA €194,447 €182,193 -6.3% -3.8% -2.5% Developed EMEA €87,770 €87,770 0.0% 0.0% 0.0% Developed Americas €282,491 €282,491 0.0% 0.0% 0.0% Emerging Asia €19,899 €38,529 93.6% 56.5% 37.1% Emerging EMEA €10,928 €15,304 40.0% 0.0% 40.0% Emerging Americas €21,402 €21,402 0.0% 0.0% 0.0%

Global Index €616,936 €627,689 €10,753 (MCap EUR bn) based on Mcap of october 24 2011

Emerging Index if their EBITDA from developed markets with varying developed markets falls below 62.5% degree of emerging market exposure. These improvements enable of their total eligible EBITDA. In turn, In several cases, the assets are based for a company to enter the FTSE entirely outside the region of listing. the FTSE EPRA/NAREIT EPRA/NAREIT Global Developed Conversely, there are no stocks that Index, it must derive at least 75% of are listed in one of the emerging Global Index to account for eligible EBITDA from FTSE-defined markets that derive more than 75% developed markets. Effectively, this EBITDA from the developed markets. the expansion of markets creates a banding system providing Under the new March 2012 ground stability to the constituents of both rules, the FTSE EPRA/NAREIT index around the globe. the Global Developed and Emerging has the ability to allocate companies benchmarks - only significant moves according to market exposure at an in EBITDA will result in a switch, asset level. At a practical level, the subsequently eliminating the danger current exclusion of the Nationality of constituents ‘flip-flopping’ across stocks mostly impacts the CEE and the benchmarks. China markets. March 2012. New or non-constituent red chips were eligible for the Current situation The new rules are implemented Emerging index with China as the The FTSE EPRA NAREIT Global Index in combination with the move of country of allocation. Therefore, the (the combination of developed and the three Hong Kong red chip stocks. implementation of the new rules on emerging markets) currently consists The reclassification of all red chip benchmark allocation coincides with of 390 stocks - 287 and 103 from the stocks from Hong Kong to China the reclassification of the three red developed and emerging markets, was announced in 2008. However, chips to China – effective March 2012. respectively. In addition, we cur- the change which was implemented So what is the impact of the new rently have 28 stocks with a market for the FTSE global equity series rules? Using current data, we esti- cap of EUR 15 billion that fall short in 2009 was deferred for the FTSE mate the FTSE EPRA/NAREIT Global of inclusion for the reasons stated EPRA/NAREIT indices on concerns Index will grow approximately 1.7% above. These stocks are referred to of the high turnover and benchmark in size as the Nationality stocks as ‘Nationality’ stocks. All of the volatility. Subsequently, the three become eligible for the emerging nationality stocks are listed in the red chips were ’grand-fathered‘ until market index.

We estimate that the new rules Index eligibility criteria could see 12 stocks move from the Developed to the Emerging series, ••Constituents must derive 75% of EBITDA from core real estate causing a drop of 2.2% for the De- activities for the Global Index. veloped Index. The three red chips ••Current Developed Index constituents will move to emerging if account for around half of this. EBITDA from developed market falls below 62.5%. Developed Asia is the only market ••Current Emerging Index constituents will move to Developed if in the developed series to have an EBITDA from developed market rises above 75%. impact with a drop of 6.3%. We ••FTSE will normally allocate each company to the country in which estimate that the developed Europe the company is incorporated and listed at the time of the company’s and North America series remain listing. unaffected with the application of ••In some cases, Nationality stocks will be allocated to the country the new rules in March 2012. with their highest EBITDA contribution. In addition to the three red chips, eight Hong Kong-listed and one >

EPRA NEWS / 3940 // 20112011 49. FEATURES

Singapore-listed stocks will become FTSE EPRA/NAREIT country eligible for the Emerging Asia Index classifications because they derive the majority of EBITDA from emerging markets. Developed Emerging China ASIA Australia India Emerging Markets Index Hong Kong Indonesia Japan Malaysia The rules will have a significant ef- New Zealand Pakistan fect on the emerging market series as Singapore Philippines South Korea Taiwan it is pre-dominantly developed listed Thailand* stocks invested in emerging markets Austria Czech Republic that become eligible. Given the size EMEA Belgium Egypt of the individual emerging markets Denmark Hungary Finland Morocco in relation to the large developed France Poland Germany Russia listed stocks, the series adds over Greece South Africa 40% of market cap on a global level. Ireland Turkey Israel UAE The Emerging EMEA index will be Italy Netherlands boosted by 40%, while Emerging Norway Asia will almost double. No impact Portugal Spain is expected in the Americas market Sweden with the application of the new rules. Switzerland UK

Canada Brazil Looking ahead AMERICAS USA Chile The provision to allocate stocks Mexico Peru according to asset exposure, as op- posed to country of listing, in certain cases where it is neither logical nor accurate, serves as a major improve- ment. The ability to include and ‘find Ali Zaidi joined EPRA’s research team in October a home’ for companies that choose 2007. Ali’s initial projects were working on the to list in a developed market, but emerging market indices for the FTSE EPRA/ which invest solely or predominately NAREIT Global Real Estate Index and the European in emerging markets, means that the corporate governance report with Erasmo Giam- investment universe for global listed bona of the University of Amsterdam. Ali holds a real estate stocks broadens in terms BA in Economics and Business and completed his of country scope, and deepens in MSc in International Finance at the University of terms of the number of companies. Amsterdam. These improvements enable the Contact: FTSE EPRA/NAREIT Global Index to [email protected] account for the expansion of markets around the globe.

50.50. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

Real Estate Income Trust From rent to dividend

Good quality real estate The total return on an investment is which income is sourced, generated can offer long-term capital a factor of both capital return and and secured. Income return on real income returns. Different types of estate investments is predomi- appreciation and offer investors have different investment nately derived from regular rental attractive cash-flow or objectives and horizons to which cash-flow or income. Contractually income when managed they will try to match their alloca- agreed tenant obligations such as tions and investment decisions. For a minimum duration of the term, and structured correctly. example, one investor might need termination penalties, and rent This article looks at to make regular distributions (e.g. review structures all lead to a higher the dividend and yield pension funds), whereas others level of visibility and predictability might be more focused on long-term of (future) income. These unique characteristics of listed wealth preservation (e.g. sovereign features, not often seen in other in- real estate, and REITs in wealth funds). dustries on this scale, are bread and particular, in order to butter to the real estate industry. Real estate offers a distinct set provide a clear picture of of characteristics when it comes to To maintain healthy cash flows, their income-distributing sourcing income and growing value, and ultimately to distribute income, qualities. which can differ from other asset a stable stream of rental income is classes. In combination with the required. In order to achieve this, wide variety and heterogeneity of the underlying assets must be of buildings, the right holding structure sufficient quality to attract and and management focus can provide retain the required levels of rental attractive returns to investors income. On the whole, the majority in terms of income and capital. of REIT portfolios are composed of good-quality assets in prime loca- Reliable income tions. It is these assets which attract A distinguishing feature of real the better quality (and as such more estate investment compared against desirable) tenants, who are less other investments is the way in likely to default on their rental >

EPRA NEWS / 3940 // 20112011 51. FEATURES

The quality of the underlying assets in combination with a relative high security of income, reduces the risk of ICR breaches and as such are the key ingredients in successful real estate financing.

payments, particularly when the Dividend Growth broader economy is in decline. 250.00

Another aspect of REITs which 200.00

is likely to provide a more stable 150.00 stream of income is the relatively FTSE EPRA/NAREIT Developed Europe - large size of REIT portfolios. This 100.00 Dividend Growth allows diversification in terms of Europe CPI both assets as well as tenants, and as 50.00

such delivers more stable occupancy -

9 3 7 -01 -0 -0 08 10 levels by avoiding dependency on a c-9 c-00 c-02 c-04 c-05 -06 c- c-09 c- small number of income sources and 31-De 31-De 31-Dec 31-De 31-Dec 31-De 31-De 31-Dec 31-Dec 31-De 31-De 31-De assuring that lease expiry schedules Graph 1 are well spread over a long time period. These maturity schedules struggled to get access to finance as The income-producing capa- are transparently featured in most the debt market virtually locked up. bilities of REITs will ultimately be Annual Reports as breakdowns of reflected in the form of distributed the percentage of total rental income REITs’ ability to do this sug- dividends to the end-investor. The which could potentially expire in the gests inherently strong income next paragraph will look at the near future. fundamentals. This solid underpin dividend distribution levels of REITs. is also reflected through the high Within the real estate sector, the appetite for bond issues by property Stable dividends focus on cash flows has increased companies at relatively low yields, As indicated previously, one of the since the downturn due to the large and with good ratings from the key features of real estate investments amount of debt in the market. One well-known rating agencies. The is their ability to generate a steady of the largest expenses of a real quality of the underlying assets in stream of income. If managed and estate investment vehicle will be combination with a relative high structured correctly, this in turn should the cost of debt. When interest rates security of income reduces the risk lead to more stable income returns are increasing, bearing in mind the of ICR breaches, and as such are the towards the end-investors. Graph 1 dis- capital intensive nature of the real key ingredients in successful real plays the long-term dividend growth estate sector and a relatively high estate financing. Secondary, the vast of European property companies. average LTV, it is clear how rising majority of listed real estate compa- Annual compounded growth since interest costs can threaten otherwise nies’ debt has fixed interest rates or 1999 stands at 3.7%, well above the healthy cash flows, dividend returns, is hedged otherwise. annual compounded inflation of 2.1% and ultimately ICR covenants. over the same period. As expected, In combination with multiple dividend growth will be more volatile Covenant breaches did not occur financing options available to when compared to inflation due to however in the listed real estate listed property companies, a well lease renegotiations next to agreed sector (bar a few exceptions) where structured and balanced debt ma- annual increases. The data however average LTV levels were lower turity schedule can be achieved. suggest that over the long-term it will (around 50% in Europe) and cash Companies provide a clear picture out-perform inflation, illustrating the flows were healthier. The listed of interest payment obligations - as ability of well managed property com- real estate companies were able to well as refinancing needs - to panies to offer stable growing income refinance before debt maturities were the end-investors by reporting their returns to investors. reached, not only with equity raisings debt maturity schedules in their An- but also with the banks through rene- nual Reports. gotiations; meanwhile other vehicles

52.52. EPRAEPRA NEWSNEWS // 4039 / 2011 FEATURES

The expected amount of good-quality assets coming to the market at discounted prices due to distressed selling has not materialized - on the other hand, REITs did offer investors access to prime assets at attractive entry levels.

Attractive yields 15% As indicated above, dividend pay- 10% outs of REITs are relatively stable 5% EPRA Europe yoy dividend when compared to other asset growth 0% classes. On top of that, REITs tend 11 11 11 11 10 10 - 10 10 10 10

- EPRA Europe REITs yoy r- g- -09 -09 b- r- g- n- b- to trade at higher yields when com- 09 r- g-09 b-09 -5% un

Ap dividend growth un Au Ap Au 1-J Ap 1- -Dec Fe 1- Au 1- 1-Ju Oct- 1- 1- Fe 1- -Dec 1 1- 1-J Oct-09 1- 1- Fe 1- 1 1- pared to these other investments. -10% FTSE Eurotop 50 yoy dividend growth As graph 3 below shows, REITs -15% Eurozone yoy inflation have consistently traded at higher -20% dividend yields when compared -25% to bonds and general equities. -30%

Graph 2 Over a five-year period, the average dividend yield of European Graph 2 illustrates the year-on- limited. Most companies however REITs was 5.1%, whereas European year dividend growth for listed possess sufficient levels of firepower Governments Bonds yielded 3.4% property companies and REITs dur- due to recent equity raisings, bond on average. General equities had ing the recent downturn. Although issues and available granted credit an average yield of 4.1% compared there was a clear drop in distributed lines. Likewise, property acquisitions to an average annual inflation of income during 2009, the majority in exchange for shares can be a the Eurozone of 1.9% (see table 1). of companies were able to pay good way to expand their business. It is however difficult for investors out dividends. This indicates the Besides, more countries are starting to get access to high quality assets generally healthy cash flows of these to allow stock-dividends which do at high yields. This could be seen companies. The year-on-year drop in allow REITs to retain earnings. during the latest downturn when dividends paid out by listed property the direct real estate market > companies bottomed out at around -20.0%, whereas REITs bottomed out at -11.8%. In comparison, general 10.00% equities showed a maximum decline of 25.0%. As the graph reveals, divi- dend distributions are growing again, 8.00% showing the strong long-term income fundamentals of these companies. 6.00% EPRA Europe dividend yields EPRA Europe REITs dividend yield In general, REITs pay out higher 4.00% Eurozone inflation dividends as compared to non-REITs. Europe 10 yr government bonds yield Built into European REIT regimes FTSE Eurotop 50 dividend yield is the obligation to distribute the 2.00% vast majority (up to 100%) of their earnings to their shareholders. This 0.00% 7 7 7 7 11 11 10 - 10 10 10 - - - -0 -0 -0 -09 -09 -08 -08 -09 -08 un un un un is in line with most REITs’ income- un 1-J -Mar -Sep- -De c- 1-J -Mar -Sep-0 -Dec -Mar 1 -Sep-09 -Sep-08 1-J -Dec -Dec 1 1 1-J 1-J -Mar -Mar 1 1 1 1 1 1 1 1 1 oriented strategy of offering stable 1 -2.00% income growth through active asset management and asset rotation. Graph 3 In some cases this may lower the organic growth potential of the companies as retained earnings are

EPRA NEWS / 3940 // 20112011 53. FEATURES

In combination with long-term capital appreciation out-performing inflation and growing dividend distribution, the REIT vehicle can contribute to the stability and return demands of a wide range of investors.

average yield (5 yrs)

6.0% 5.0% 4.0% 3.0% 2.0% average yield (5 yrs) 1.0% 0.0% Europe Europe RE FTSE Europe Govt Eurozone REITs Div Div Yld Eurotop 50 Bonds 10yr yoy inflation Yld div Yld yld

Table 1

was basically locked, as the bid/ask Conclusion spread was too high. Therefore, the Real estate, because of its funda- number of transactions on the direct mental characteristics, can provide real estate market was very limited. healthy income returns when struc- tured and managed in the right way. In a way, the expected amount REITs have the distinct characteristic of good-quality assets coming to that income return, i.e. dividends, the market at discounted prices due are more predictable as compared to distressed selling has not mate- to some other vehicles due to ten- rialised. On the other hand, REITs ant agreements and standards of Maikel Speelman holds a BBA did offer investors access to prime reporting. The prime quality assets in Real Estate Management assets at attractive entry levels. A they tend to own are most likely from the Hanzehogeschool key feature of REITs in comparison to offer long-term reliable income Groningen and an MA in to other real estate investment leading to healthy cash flows. European Real Estate from vehicles is their ability to change Kingston University London. He hands continuously, even during the Combined with appropriate joined EPRA‘s research analyst downturn, providing exceptional and debt management, stable dividends team in December 2008. much desired high levels of liquidity should be achieved when managed Contact: within the real estate market. This correctly. On top of this, the liquid [email protected] meant that investors could obtain nature of REITs can offer access and exposure to high quality real estate exposure to quality real estate at at discounts to NAV coupled with attractive yields when other ways relatively high and attractive yields. of achieving this are blocked. In combination with long-term capital These relatively high yields caught appreciation out-performing inflation the attention of investors, when and growing dividend distribution, during and following the downturn the REIT vehicle can contribute to interest rates and bond yields the stability and return demands of remained low and investors had to a wide range of investors. seek out better income-producing investments. Similarly, the lower economic growth outlook meant generalist investors re-focussed on income as well.

54.54. EPRAEPRA NEWSNEWS // 4039 / 2011 references

Members Offers EPRA 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.

IPE Magazine 4,000-5,000 top-level targeted subscribers in Discount of 20% on subscription. The full an- print (7,000-9,000 during MIPIM and Expo Real). nual rate is EUR 355. For more details, contact: PIE is written for investing institutions, capital [email protected] allocators and managers, banks, global REITs and other listed vehicles, IPE Real Estate is positioned at the inter- funds, corporate treasur- face of institutional investment and the real ers, academics and private estate industry. Drawing on its international investors – to help understand network of correspondents and supply-side reward, opportunity and risk research, the magazine and website’s mission in Europe’s diverse markets. is to bring to light the views and activities of European pension funds and other capital 12-month subscription owners (insurance companies and other plan rates are EUR 749, GBP 639 sponsors) investing in real estate and keep or USD 995, depending them up-to-date with the rapid evolution on delivery location, with of real estate as a sophisticated, global multiple subs available for asset class. institutions. Subscribers gain free entry to PIE events. Tel: + 44 20 7261 0666 EPRA and RICS mem- Fax: +44 20 7928 3332 bers receive a 10% discount on individual Email: [email protected] subscriptions. Register for a free 60-day trial now!

Go to: www.pfeurope.eu to register, PropertyEU is the pan-European information or email: [email protected]. source for real estate professionals. A full subscription package to PropertyEU includes the PropertyEU Daily Newslet- ter, PropertyEU newsflashes, PropertyEU magazine and special annual publica- tions Who’s Who and City Leaders as well EuroProperty is the leading commercial prop- as access to the subscriber-only content on erty publication in Europe with an influential PropertyEU website. An annual package following of investors. In addition to normally costs EUR 495. EPRA members a fortnightly magazine, subscribers can enjoy a 20% discount, paying only receive access to EuroProperty.com EUR 395 per year. Mail your contact details where they can stay up-to-date with to: [email protected] indicating breaking news stories. A daily email your EPRA membership number. alert informs them of the top news stories of the day. The website also has an online archive going back to 1996, making it an indispensable The Property Investor Europe mission is to research tool. Every issue gives you bring transparency to Mainland Europe real authoritative information from unri- estate for US & global investment professionals. valled sources. It’ll prepare you with Via a magazine, Online Weekly, HTML Letter, reliable analysis and data which can be used daily intelligence, podcast and events, its hard to support and confirm your business decisions. news-analysis-commentary fosters investment EPRA discount of 20% on subscription. The full capital flows in and around the continent. A annual rate is GBP 795. For more details, contact: subscription-based service founded in 2005, PIE [email protected] is uniquely published in English from Frankfurt, Germany, with editors around Europe. Weekly, Tel: +44 (0)20 7911 1864 PIE reaches over 50,000 institutional profes- Email: [email protected] sionals via the PIE Letter, and goes monthly to

EPRA NEWS / 3938 / 2011 55. references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES GLOBAL

400

GLOBALEPRA/NAREIT Global TR (USD) 123.8% 350 EPRA/NAREIT North America TR (USD) 108.5% EPRA/NAREIT Asia TR (USD) 172.8%

300 EPRA/NAREIT Europe TR (EUR) 67.1% d to 100) e 250 eba s r

alue ( 200 V

Ind ex 150

100

50 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) (Oct-31) YTD -1Y -3Y Oct-31 Q Yanlord Land Group Singapore Non-Rental Diversified 45.07 -10.45 -28.57 -30.64 -NA- 0.01 Q Country Garden Holdings Hong Kong Non-Rental Diversified 43.58 -0.58 14.77 63.64 -NA- 0.03 Q Agile Property Holdings Hong Kong Non-Rental Diversified 39.22 -9.87 9.03 52.67 20.25 0.02 Q China Resources Land Hong Kong Non-Rental Residential 35.92 0.72 2.63 -2.77 28.54 0.02 Q CBL & Associates Props * USA Rental Retail 35.39 35.39 -8.51 3.38 28.32 0.05 q Nomura Real Estate Office Fund * Japan Rental Office -10.80 -6.17 -1.52 26.64 -6.12 0.05 q ORIX JREIT * Japan Rental Office -8.30 0.90 -8.22 27.45 -2.29 0.07 q Premier Investment Co. * Japan Rental Diversified -11.54 -10.70 -6.70 8.95 -6.22 0.07 q Japan Real Estate * Japan Rental Office -11.00 -0.38 -0.22 13.49 -1.26 0.04 q Colonia Real Estate Germany Rental Residential -14.18 -14.18 -39.19 -28.12 19.03 0.00

Top 10 on Market Cap investment Market Cap Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (EUR m) (%) Weight YTD -1Y -3Y Oct-31 1 Simon Property Group * USA Rental Retail 26,971.15 9.30 31.51 37.10 27.90 0.02 2 Sun Hung Kai Props Hong Kong Non-Rental Diversified 19,249.19 9.17 -5.76 8.10 9.69 0.02 3 Westfield Group * Australia Rental Retail 13,516.61 7.01 -7.28 -1.43 1.04 0.09 4 Unibail-Rodamco * France Rental Diversified 13,193.86 14.94 1.22 3.09 16.30 0.06 5 Mitsubishi Estate Japan Non-Rental Diversified 12,934.38 5.95 0.36 13.71 -9.60 0.01 6 Equity Residential Props * USA Rental Residential 12,367.97 4.27 14.90 23.69 22.28 0.02 7 Public Storage * USA Rental Self Storage 11,808.70 4.07 29.91 33.59 19.28 0.03 8 HCP * USA Rental Health Care 11,600.38 4.00 12.23 15.95 14.15 0.05 9 Vornado Realty Trust * USA Rental Diversified 10,938.42 3.77 1.86 -2.13 9.41 0.03 10 Mitsui Fudosan Japan Non-Rental Diversified 10,713.96 4.93 1.17 11.91 -10.08 0.02

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) Oct-31 YTD -1Y -3Y Oct-31 EPRA/NAREIT Europe TR (EUR) 8,9413.34 2120.06 15.45 17.70 -11.24 4.18 EPRA/NAREIT Asia TR (USD) 306,179.92 2352.20 13.95 14.66 -11.67 3.41 EPRA/NAREIT North America TR (USD) 337,107.80 3476.50 25.49 43.36 -5.34 3.69 EPRA/NAREIT Global TR (USD) 768,453.88 2851.93 18.18 24.74 -9.25 3.65

Regional Breakdown by Market Cap Investment Focus Market Cap Breakdown SectorInvestment Breakdown Focus Market Cap Breakdown

Asia 34.6% Global Non-Rental 20% Global Industrial 4.4% Europe 15.2% Global Rental 80% Global Residential 11.4% Global Speciality 0.0% North America 50.1% Self Storage 2.7% Middle East 0.1% Global Retail 23.1% Global Office 13.9% Global Lodging/Resorts 3.0% Global Industrial/Office 1.0% Global Healthcare 6.7% Global Diversified 33.8%

56.56. _ EPRA NEWS / 4038 / 2011 references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES ASIA

GLOBAL 500 EPRA/NAREIT Hong Kong TR (HKD) 321.3% EPRA/NAREIT Japan TR (JPY) 101.1% 400 EPRA/NAREIT Singapore TR (SGD) 175.8% EPRA/NAREIT Australia TR (AUD) -6.0%

300 d to 100) e eba s r

200 alue ( V

Ind ex

100

0

Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul11 Oct 11

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) (Oct-31) YTD -1Y -3Y Oct-31 Q Yanlord Land Group Singapore Non-Rental Diversified 45.07 -10.45 -28.57 -30.64 -NA- 1.02% Q Country Garden Holdings Hong Kong Non-Rental Diversified 43.58 -0.58 14.77 63.64 -NA- 3.38% Q Agile Property Holdings Hong Kong Non-Rental Diversified 39.22 -9.87 9.03 52.67 20.25 2.41% Q China Resources Land Hong Kong Non-Rental Residential 35.92 0.72 2.63 -2.77 28.54 2.20% Q Shimao Property Hong Kong Non-Rental Residential 29.97 -7.34 -12.86 -18.43 -NA- 4.17% q New World China Land Hong Kong Non-Rental Diversified -5.26 -3.14 -1.37 18.52 3.68 3.60% q Nomura Real Estate Office Fund Japan Rental Office -10.81 -6.17 -1.52 26.64 -6.12 5.49% q ORIX JREIT * Japan Rental Office -8.31 0.91 -8.22 27.45 -2.29 6.56% q Premier Investment Co. * Japan Rental Diversified -11.54 -10.70 -6.70 8.95 -6.22 6.79% q Japan Real Estate * Japan Rental Office -11.01 -0.38 -0.22 13.49 -1.26 4.08%

Top 10 on Market Cap investment Market Cap Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (EUR m) (%) Weight YTD -1Y -3Y Oct-31 1 Sun Hung Kai Props Hong Kong Non-Rental Diversified 19,249.19 9.17 -5.76 8.10 9.69 2.47% 2 Westfield Group * Australia Rental Retail 13,516.61 7.01 -7.28 -1.43 1.04 9.12% 3 Mitsubishi Estate Japan Non-Rental Diversified 12,934.38 5.95 0.36 13.71 -9.60 0.85% 4 Mitsui Fudosan Japan Non-Rental Diversified 10,713.96 4.93 1.17 11.91 -10.08 1.60% 5 Sumitomo Realty & Dev Japan Non-Rental Diversified 7,244.64 3.45 8.11 18.47 -7.92 1.12% 6 Hongkong Land Hldgs Hong Kong Rental Office 6,619.56 4.06 3.14 46.18 16.34 2.25% 7 Westfield Retail Trust Australia Rental Retail 5,924.03 2.90 3.44 -NA- -NA- 0.00% 8 Hang Lung Properties Hong Kong Non-Rental Diversified 5,915.09 3.00 -4.23 8.16 20.21 2.23% 9 Wharf Holdings Hong Kong Non-Rental Diversified 5,869.67 3.44 0.75 -NA- -NA- 1.83% 10 Stockland Trust Group * Australia Non-Rental Diversified 5,727.99 2.85 -1.75 -2.02 -6.49 6.95%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) Oct-31 YTD -1Y -3Y Oct-31 EPRA/NAREIT Australia TR (AUD) 63,755.56 1,314.37 2.87 5.86 -11.80 6.26 EPRA/NAREIT Hong Kong TR (HKD) 788,010.35 2,615.79 -4.41 17.75 8.29 2.54 EPRA/NAREIT Japan TR (JPY) 5,802,845.34 1,903.61 -9.61 14.84 -11.72 2.55 EPRA/NAREIT Singapore TR (SGD) 42,871.31 1,475.43 -10.47 -0.84 -3.97 3.22

Country Breakdown by Market Cap Investment Focus Market Cap Breakdown SectorInvestment Breakdown Focus Market Cap Breakdown

New Zealand 0.3% Asia Non-Rental 57% Retail 18% Australia 24.3% Asia Rental 43% Residential 5% Office 13% Japan 26.7% Industrial 5% Hong Kong 36.4% Diversified 59% Singapore 12.3%

EPRA NEWS / 3840 / 2011 _ 57. 57. references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES EUROPE

500 EPRA/NAREIT Sweden TR (SEK) 285.8% EPRA/NAREIT France TR (EUR) 227.9% 400 EPRA/NAREIT Netherlands TR (EUR) 120.7% EPRA/NAREIT UK TR (GBP) 24.2% d to 100) e 300 eba s r alue ( V 200 Ind ex

100

0 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) (Oct-31) YTD -1Y -3Y Oct-31 Q Ivg Immobilien Germany Non-Rental Office 22.99 22.99 -0.50 -NA- -NA- 0.00% Q Derwent London * UK Rental Office 17.92 17.92 10.68 13.66 34.93 1.75% Q DIC Asset Germany Rental Diversified 15.48 15.48 -16.19 -7.33 7.19 5.27% Q Daejan Holdings UK Rental Diversified 13.13 15.40 7.42 11.16 4.49 2.72% Q Patrizia Immobilien Germany Rental Residential 13.31 13.31 4.17 9.20 35.72 0.00% q Grainger Plc UK Non-Rental Residential -2.71 -2.71 -20.29 -19.64 28.15 1.42% q Nieuwe Steen Inv * Netherlands Rental Diversified -3.42 -3.42 -21.84 -19.04 2.51 11.18% q TAG Immobilien Germany Non-Rental Diversified -4.29 -4.29 8.21 7.07 10.39 0.00% q Quintain Estates UK Non-Rental Diversified -6.88 -6.88 -11.31 -5.70 -2.31 0.00% q Colonia Real Estate Germany Rental Residential -14.18 -14.18 -39.19 -28.12 19.03 0.00%

Top 10 on Market Cap investment Market Cap Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (EUR m) (%) Weight YTD -1Y -3Y Oct-31 1 Unibail-Rodamco * France Rental Diversified 13,193.86 14.94 1.22 3.09 16.30 5.54% 2 Land Securities * UK Rental Diversified 6,163.19 6.98 4.66 -13.26 -7.17 4.12% 3 British Land * UK Rental Diversified 5,226.86 5.92 2.29 -11.70 5.41 5.09% 4 Corio * Netherlands Rental Retail 3,358.01 3.80 -17.55 -1.56 2.41 7.29% 5 Hammerson * UK Rental Retail 3,333.45 3.77 1.44 -10.71 -1.40 3.95% 6 PSP Swiss Property Switzerland Rental Office 3,053.58 3.46 6.87 6.82 19.51 3.49% 7 Capital Shopping Centres Group * UK Rental Retail 2,455.21 2.78 -17.29 -12.50 -4.74 4.56% 8 Swiss Prime Site Switzerland Rental Office 2,412.17 2.73 8.03 8.41 18.59 4.87% 9 Klepierre * France Rental Retail 2,144.45 2.43 -11.22 -4.21 14.94 5.97% 10 SEGRO * UK Rental Industrial 2,092.49 2.37 -9.62 -23.12 -16.12 5.95%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) Oct-31 YTD -1Y -3Y Oct-31 EPRA/NAREIT UK TR (GBP) 27,232.26 1,629.67 -0.78 0.89 0.38 3.99 EPRA/NAREIT Netherlands TR (EUR) 7,152.78 2,755.79 -16.34 -18.92 5.01 7.82 EPRA/NAREIT France TR (EUR) 22,097.69 4,424.2 -3.89 -7.11 15.51 5.82 EPRA/NAREIT Sweden TR (SEK) 59,992.31 5,673.51 -10.32 -2.96 25.60 3.88

Country Breakdown by Market Cap Investment Focus Market Cap Breakdown SectorInvestment Breakdown Focus Market Cap Breakdown

United Kingdom 36% Europe Non-Rental 4% Speciality 0.0% Nederlands 8% Europe Rental 96% Self Storage 0.7% Retail 21% France 25% Residential 3.8% Austria 2% Office 19.4% Sweden 8% Lodgings/Resorts 0% Other countries 21% Industrial 3.4% Healthcare 0.3% Diversified 51.4%

58.58. _ EPRA NEWS / 4038 / 2011 references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES NORTH AMERICA

300 GLOBALEPRA/NAREIT United States TR (USD) 100.9% GLOBALEPRA/NAREIT Canada TR (CAD) 132.9% 250 d to 100)

200 e eba s r alue ( V 150 Ind ex

100

50 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) (Oct-31) YTD -1Y -3Y Oct-31 Q CBL & Associates Props * USA Rental Retail 35.39 35.39 -8.51 3.38 28.32 5.46% Q Pennsylvania Real Estate * USA Rental Retail 32.73 32.73 -26.29 -23.90 -0.48 5.85% Q Strategic Hotels & Resorts USA Rental Lodging/Resorts 32.02 32.02 7.56 25.05 4.75 0.00% Q Host Hotels & Resorts * USA Rental Lodging/Resorts 30.44 30.44 -19.64 -9.57 12.56 1.12% Q Diamondrock Hospitality * USA Rental Lodging/Resorts 29.47 29.47 -22.58 -12.19 22.87 2.65% q Canadian REIT * Canada Rental Diversified -0.53 0.06 18.39 15.43 15.27 4.06% q Riocan Real Estate * Canada Rental Retail -2.73 -2.29 20.18 15.70 20.52 5.46% q Innvest REIT * Canada Rental Lodging/Resorts -4.63 -3.66 -32.79 -32.55 1.90 12.15% q Canadian Apartment Props * Canada Rental Residential -4.17 -3.74 23.22 22.20 20.67 5.34% q First Capital Realty Canada Rental Retail -4.29 -4.29 11.65 11.79 13.35 4.92%

Top 10 on Market Cap investment Market Cap Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (EUR m) (%) Weight YTD -1Y -3Y Oct-31 1 Simon Property Group * USA Rental Retail 26,971.15 9.30 31.51 37.10 27.90 2.49% 2 Vornado Realty Trust * USA Rental Diversified 10,938.42 3.77 1.86 -2.13 9.41 3.33% 3 Equity Residential Props * USA Rental Residential 12,367.97 4.27 14.90 23.69 22.28 2.30% 4 Public Storage * USA Rental Self Storage 11,808.70 4.07 29.91 33.59 19.28 2.94% 5 Boston Properties * USA Rental Office 10,333.11 3.56 16.71 17.17 14.25 2.02% 6 Host Hotels & Resorts * USA Rental Lodging/Resorts 7,224.46 2.49 -19.64 -9.57 12.56 1.12% 7 HCP * USA Rental Health Care 11,600.38 4.00 12.23 15.95 14.15 4.82% 8 Avalonbay Communities * USA Rental Residential 9,013.87 3.11 21.16 29.11 27.71 2.67% 9 Ventas * USA Rental Health Care 11,470.70 3.96 9.25 8.05 19.79 3.23% 10 Kimco Realty * USA Rental Retail 5,083.11 1.75 -0.17 5.57 -3.50 4.12%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) Oct-31 YTD -1Y -3Y Oct-31 EPRA/NAREIT Canada TR (CAD) 40,464.31 4,433.11 10.41 8.64 23.33 5.41 EPRA/NAREIT United States TR (USD) 363,530.70 3,682.21 7.22 10.13 16.27 3.54

Country Breakdown by Market Cap Investment Focus Market Cap Breakdown SectorInvestment Breakdown Focus Market Cap Breakdown

United States 90% North America Non-Rental 100% Speciality 0% Canada 10% North America Rental 0% Self Storage 5.1% Retail 27% Residential 18.3% Office 13.2% Lodgings/Resorts 5.8% Industrial 4.4% Industrial/Office 1.9% Healthcare 13.3% Diversified 11%

EPRA NEWS / 3840 / 2011 _ 59. 59. references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES EMERGING MARKETS

250

EPRA/NAREIT AIM TR (USD) -53.6% EPRA/NAREIT Emerging Market TR 200 (USD) 93.7% d to 100) e 150 eba s r alue ( V 100 Ind ex

50

0 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) (Oct-31) YTD -1Y -3Y Oct-31 Q Poly (Hong Kong) Invest. (Red Chip) China Non-rental Diversified 66.53 66.53 -47.63 -50.13 38.95 3.89% Q Guangzhou R&F Properties (H) China Non-rental Diversified 32.13 32.13 -25.45 -25.05 36.51 9.53% Q Land And General Malaysia Non-rental Diversified 31.58 31.58 -21.05 -30.56 31.48 0.00% Q Shenzhen Vanke (B) China Non-rental Residential 30.07 30.07 -7.31 -19.98 25.88 1.35% Q Cyrela Brazil Realty S/A Brazil Non-rental Diversified 28.18 28.18 -29.76 -34.69 14.72 2.25% Empreendimentose e Participacoes Or q Sinpas Gayrimenkul Yatirim Ortakligi Turkey Non-rental Diversified -12.41 -12.41 -26.73 -30.09 42.56 3.94% q SC Asset Thailand Non-rental Diversified -12.84 -12.84 32.12 23.16 72.86 7.37% q Asian Property Development Thailand Non-rental Residential -16.70 -16.70 -2.34 -14.18 28.96 3.30% q Sare Holding S.A. de C.V. Mexico Non-rental Residential -23.35 -23.35 -65.78 -59.24 -28.76 0.00% q Preuksa Real Estate Thailand Non-rental Industrial/office -25.17 -25.17 -39.46 -48.15 -NA- 4.67%

Top 10 on Market Cap investment Market Cap Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (EUR m) (%) Weight YTD -1Y -3Y Oct-31 1 PDG Realty S/A Empreendimentos Brazil Non-rental Diversified 3,598.66 15.88 -23.83 -27.23 40.01 2.23% e Participacoes Ord 2 BR Malls Participacoes S/A Ord Brazil Rental Retail 3,529.18 15.57 9.45 15.17 67.98 0.89% 3 Growthpoint Prop Ltd South Africa Rental Diversified 2,834.29 30.14 7.80 13.89 18.31 7.10% 4 Cyrela Brazil Realty S/A Brazil Non-rental Diversified 2,012.48 8.88 -29.76 -34.69 14.72 2.25% Empreendimentose e Participacoes Or 5 Redefine Income Find South Africa Rental Diversified 1,966.21 20.91 4.63 4.41 18.75 7.95% 6 MRV Engenharia e Participacoes SA Brazil Non-rental Residential 1,849.07 8.16 -21.33 -26.02 49.58 2.78% 7 DLF India Non-rental Diversified 1,823.44 8.65 -16.23 -30.24 4.10 0.83% 8 Emaar Properties UAE Non-rental Diversified 1,620.98 17.24 -20.66 -27.96 -19.20 3.60% 9 Ayala Land Philippines Non-rental Diversified 1,405.84 6.67 -0.93 -2.07 40.86 1.20% 10 BR Properties S/A Ord Brazil Rental Retail 1,318.04 5.82 -4.14 6.15 -NA- 0.63%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) Oct-31 YTD -1Y -3Y Oct-31 EPRA/NAREIT Emerging Market TR (USD) 54,885.83 1,749.96 -23.56 -22.55 20.51 2.94 EPRA/NAREIT AIM TR (USD) 21,083.76 1,720.63 -17.23 -19.78 19.83 2.25

Country Breakdown by Market Cap Global Breakdown by Country Brazil 37.3% Asia Pacific 39% Chile 1.2% Europe 3% China 7.2% Middle East/Africa 17% Egypt 0.3% Americas 41% India 6.3% Indonesia 7.1% Malaysia 6.4% Mexico 2.8% Philippines 6.1% Poland 0.6% South Africa 13.5% Thailand 5.1% Turkey 2.5% Taiwan 0.2% UAE 3.4%

60.60. _ EPRA NEWS / 4038 / 2011 references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES TOTAL MARKET

2010 GDP 2010 GDP 2010 Real Estate 31 Oct 11 31 Oct 11 31 Oct 11 31 Oct 11 Countries ($ Bn) per capita ($) ($ Bn) Total Listed ($ Bn) No. of Companies Index Mkt Cap ($ Bn) Total RE v Listed RE (%) Australia 1,142 53,713 514 98 162 67.6 19.01% Hong Kong 2,164 306,692 974 252 198 101.5 25.92% Japan 5,123 40,322 2,305 150 272 74.4 6.51% New Zealand 75 17,899 34 5 18 0.8 14.08% Singapore 200 42,901 899 110 115 34.3 12.20% South Korea 947 19,527 426 0 27 - 0.06%

Total Asia-Pacific 9,651 5,152 614.7 792 279 11.93%

Austria 385 46,889 173 9 13 2.3 5.34% Belgium 475 45,641 214 8 30 4.0 3.85% Denmark 316 57,499 142 1 40 - 0.83% Finland 246 46,784 111 3 8 2.6 2.43% France 2,636 40,923 1,186 80 122 30.8 6.74% Germany 3,383 41,330 1,522 58 169 7.6 3.81 Greece 320 29,841 144 2 24 0.1 1.56% Ireland 227 49,628 102 1 3 - 0.88% Italy 2,125 35,168 956 2 20 0.8 0.25% Luxembourg 55 111,080 25 6 7 - 24.59% Netherlands 805 48,143 362 13 15 10.0 3.64% Norway 407 87,413 183 3 17 0.8 1.71% Portugal 235 21,972 106 0 9 - 0.05% Spain 1,465 31,718 659 9 33 0.1 1.30% Sweden 448 49,424 201 17 41 9.3 8.64% Switzerland 501 65,899 225 15 32 10.2 6.84% United Kingdom 2,363 38,117 1,063 58 138 44.0 5.45%

Total Europe 16,392 7,376 286.5 721 122 3.88%

Israel 405 56,545 182 15 153 0.9 0.84%

Total EMEA 16,797 7,559 301.9 874 123 3.99%

Canada 1,473 43,978 663 69 129 40.7 10.48% United States 14,305 46,561 6,437 790 858 363.5 12.27%

Total North America 15,778 7,100 859.5 987 404 12.11%

Total Developed Markets 42,225 19,810 1,776 2,653 806 8.97%

China 5,103 3,855 1,226 120 192 5.5 0.98% India 1,473 1,273 245 27 188 4.8 1.12% Indonesia 590 2,455 122 14 64 5.5 1.15% Malaysia 216 7,768 66 42 131 4.9 6.47% Pakistan 166 964 25 - 6 - 0.00% Philippines 180 1,837 34 20 59 4.7 6.06% Taiwan 340 14,820 128 15 87 0.1 1.19% Thailand 286 4,336 71 23 113 3.9 3.29%

Total Asia-Pacific 8,353 1,917 263.4 840 29 13.74%

Czech Republic 195 19,053 80 - 3 - 0.00% Egypt 190 2,288 38 5 48 0.2 1.37% Hungary 136 13,559 50 - 7 - 0.00% Morocco 89 2,788 19 - 5 - 0.00% Poland 465 12,084 164 3 50 0.5 0.20% Russia 1,421 10,144 471 - 37 - 0.00% South Africa 314 6,269 89 26 51 10.3 2.89% Turkey 689 8,975 220 8 39 1.9 0.37 United Arab Emirates 228 4,781 59 8 12 2.6 1.36%

Total EMEA 3,727 1,189 50.4 252 16 4.24%

Brazil 1,781 9,548 579 54 52 28.5 0.94% Chile 180 11,380 62 5 42 0.9 0.73% Colombia 256 6,248 72 - 1 - 0.00% Mexico 1,004 9,561 326 6 17 2.2 0.19% Peru 136 5,002 36 - 13 - 0.00%

Total Americas 3,356 1,075 64.9 125 32 6.03%

Total Emerging Markets 15,435 4,181 379 1,217 77 9.06%

World 57,661 23,991 2,155 3,870 883 8.98%

Source: World Bank, IMF, Prudential Real Estate Investors, EPRA * Base on Prudential Real Estate Investors Formula

EPRA NEWS / 3840 / 2011 _ 61. 61. references

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES TOTAL MARKET

Global real estate vs equities & bonds

150

125

100

75

50

25 JP Morgan Global Bonds 14%

FTSE World 7%

FTSE EPRA/NAREIT Global RE -1% 0

Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11

Rolling 10-years risk/return local currencies - countries

15% France Sweden

Canada Hong Kong Finland Nth Am RE US 10% Singapore Switzerland Netherlands Belgium Global RE Europe RE 5% Asia RE Global Bonds Global Equities UK Japan 0% 5% 10% 15% Australia 20% 25% 30% 35% 40% 45% 50% Italy Germany -5%

-10%

Norway -15% Risk (St Deviation)

Underlying Real Estate Listed Real Estate

Asia Pacific 22% Asia Pacific 37% Europe 40% Europe 24% Middle East/Africa 1% Middle East/Africa 3% Latin America 5% Latin America 0% North America 32% North America 36%

62.62. _ EPRA NEWS / 4038 / 2011 The EPRA Annual Conference The road to Berlin

September 06-07, 2012. Save the date.

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The event of the year for European listed real estate. EPRA’s Annual Conference brings together the world’s largest property companies, analysts, consultants and global financiers. It’s the primary networking opportunity, where what you know, who you know and precisely when you knew them both take on a new meaning in today’s evolving economic climate. COVER

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