Academic Perspective on the History and Future of Reits in Germany

Academic perspective on the history and future of REITs in Germany

MIT Forums in Real Estate “German REITs: A transatlantic Real Estate Investment Concept?” 14th October 2005, Munich

Martin Becker ebs Department of Real Estate

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 1 1 2 3 Content

1 Performance of European REIT Markets

2 German Real Estate Investment Market

3 Outlook

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 2 1 2 3

Performance of European REIT Markets

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 3 1 2 3 International Overview

Introduction of REITs and current market cap of REITs and listed property companies:

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 4 1 2 3 Netherlands

9.0 RODA MCO EUROPE 8.0 EUROCOMMERCIA LPROP WERELDHA V E NV 7.0 VASTNED OFFICES/IN V A STNED RETA IL 6.0 CORIO NV NIEUWE STEEN INV S 5.0

4.0

3.0

2.0

1.0

0.0

0 6 0 1 3 3 5 94 00 0 02 04 9 . 91 92 93 . . 0 0 ai z ep. 90 ep. 92 eb. kt. 94 Jul. 97 ug. 99 pr Jan. S M Jan. S Jun. F O Jun. 95Feb. 9 Nov. 96 Mrz. 98Nov. 98A A De Aug. 0 Apr. Jan. Sep. 0 Mai. Jan.

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 5 1 2 3 Netherlands

800 Aktien (MSCI) Immobilienaktien (EPRA) 700 Renten (Datatream)

600

500

400

300

200

100

0 0 1 3 4 0 0 9 9 n 98 n 99 an 02 an 03 an 04 J J J an 95 an 96 an 97 Ja Ja Jan Jan an 91 an 92 Jan J J J Jan 90 J J Jan

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 6 1 2 3 Netherlands

Bonds Stocks Property Stocks Correlation

Standard Property Property Return Return Return Deviation SD SD Stocks vs. Stocks vs. p.a. p.a. p.a. (SD) Stocks Bonds

Jan. 1990 - 8.3 % 4.6 % 9.4 % 18.3 % 5.2 % 12.0 % 0.51 0.09 Aug. 2004

Jan. 1990 - 10.2 % 4.8 % 13.1 % 13.1 % -5.5 % 10.7 % 0.50 0.34 Dec. 1995

Jan. 1996 - 7.0 % 4.2 % 23.5 % 18.8 % 9.2 % 12.4 % 0.61 0.08 Dec. 2000

Jan .2001 - 7.2 % 4.7 % -13.2 % 23.0 % 17.1 % 12.7 % 0.57 -0.17 Aug. 2004

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 7 1 2 3 Belgium

2,5 5 Marktkap. EPRA-Index (li. Skala) Anzahl Unternehmen (EPRA-Index, re. Skala) 2 4

1,5 3 Anzahl

Mrd. Euro Mrd. 1 2

0,5 1

0 0

1 2 8 9 04 90 9 9 97 9 9 n 93 n 94 n 00 n 01 an an a a an an a a Jan J J J J Jan 95 Jan 96 Jan J J J J Jan 02 Jan 03 Jan

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 8 1 2 3 Belgium

450 Aktien (MSCI)

Immobilienaktien (EPRA ) 400 Renten (Datastream) 350

300

250

200

150

100

0 7 99 00 5 6 9 98 an 02 an 03 Jan 04 4 9 9 an an 01 J J 9 n an an J J n n a an J J n 92 n 93 a a J J a a J J J J Jan 90 Jan 91

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 9 1 2 3 Belgium

Bonds Stocks Property Stocks Correlation

Property Property Return Return Return SD SD SD Stocks vs. Stocks vs. p.a. p.a. p.a. Stocks Bonds

Jan. 1990 - 9.5 % 4.7 % 8.6 % 17.2 % 3.6 % 13.9 % 0.45 0.26 Aug. 2004

Jan. 1990 - 12.2 % 5.3 % 7.8 % 14.9 % -3.5 % 19.2 % 0.63 0.33 Dec. 1995

Jan. 1996 - 7.7 % 4.2 % 16.7 % 17.2 % 6.0 % 9.4 % 0.46 0.31 Dec. 2000

Jan .2001 - 7.6 % 4.2 % -2.0 % 20.2 % 13.1 % 6.9 % 0.29 0.02 Aug. 2004

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 10 1 2 3 France

25 14

12 20 Summe Marktkap. (Mrd. Euro, li. Achse) 10 Anzahl Unternehmen (re. 15 Achse) 8

6 10

5 2

0 0 8 0 3 1 3 5 6 9 0 0 4 6 8 9 9 99 99 19 20 .2002 .20 98 98 98 1 19 .19 1 .1997 . . 1 1985 1 1 .1990 . . 2. 12. .12 .12 .12 2. .12. .12 . 1 1 1 .12. .1 .1 1 3 31.12.19993 31.12.200131.12 3 1 31 31.12.19923 31.12.199431.12 31 31.12 31 31.12 31 31.12.19873 31.12.198931.12

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 11 1 2 3 France

600

Aktien (MSCI) Immobilienaktien (EPRA) 500 Renten (Datastream) SIIC-Index Euronext

400

300

200

100

3 3 5 5 6 6 7 7 8 9 9 0 0 1 1 2 3 1 2 2 9 9 9 9 9 9 98 9 9 9 0 0 0 0 02 0 0 03 4 4 9 9 9 9 l 9 l l l 0 0 n u n u n n u n u n n l a J Jul 94 Jul Jul a J a Jul Jul a J a J a Jul Jul a u Jan 90Jul 90Jan 91Jul Jan Jul J Jan 94 Jan Jan J J Jan J J J Jan J J

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 12 1 2 3 France

Bonds Stocks Property Stocks Correlation

Property Property Return Return Return SD SD SD Stocks vs. Stocks vs. p.a. p.a. p.a. Stocks Bonds

Jan. 1990 - 9.1 % 5.1 % 7.7 % 19.7 % 9.7 % 14.1 % 0.45 0.25 Aug. 2004

Jan. 1990 - 11.3 % 5.9 % 4.1 % 17.7 % 0.5 % 16.2 % 0.61 0.56 Dec. 1995

Jan. 1996 - 7.8 % 4.4 % 26.0 % 19.6 % 15.3 % 11.3 % 0.28 -0.07 Dec. 2000

Jan .2001 - 7.2 % 4.4 % -10.2 % 21.5 % 17.8 % 13.7 % 0.45 -0.05 Aug. 2004

Source: ZEW/ebs (2005). 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 13 1 2 3

International performance of REITs / property stocks

Australia Japan Netherlands Belgium France

Return Risk Return Risk Return Risk Return Risk Return Risk Jan. 1990 - 14.9 % 10.9 % -3.8 % 31.4 % 5.2 % 12.0 % 3.6 % 13.9 % 9.7 % 14.1 % Aug. 2004 Jan 2001 - 10.8 % 8.5 % 5.1 % 28.3 % 17.1 % 12.7 % 13.1 % 6.9 % 17.8 % 13.7 % Aug. 2004

USA Canada REITs Composite Return Risk Return Risk Jan 1980 - Jan. 1997 - 12.18 % 12.8 % 16.3 % 18.3 % Aug. 2004 Aug. 2004 Jan 2001 - Jan. 2001 - 19.34 % 14.1 % 16.9 % 11.6 % Aug. 2004 Aug. 2004 Source: ZEW/ebs (2005).

Particularly in the last years REITs were successful As well the risk-return profile improved

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 14 1 2 3

German Real Estate Investment Markets

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 15 1 2 3

Overview: German real estate investment market

Vehicle Measure Date € Billion

Investment Closed-end funds 31. Dec. 2004 171.5 volume

Open-ended Fund volume 31. Dec. 2004 87.2 mutual funds

Open-ended Fund volume 31. Dec. 2004 13.5 special funds

Listed property Market 31. Dec. 2004 5.8 companies capitalization

Opportunistic Transaction Year 2004 app. 15 funds volume

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 16 1 2 3

Open-ended mutual funds Capital in- and outflows (EUR billion) Total fund volume and number of mutual funds

100.000 45

90.000

80.000 70.000 30 60.000 50.000

40.000 15 30.000 Number of mutual funds of mutual Number Fund volume (EUR million) (EUR Fund volume 20.000

10.000

0 0

3 94 96 98 00 01 02 04 99 9 995 9 9 0 0 0 003 0 1 1 1 1 1997 1 1999 2 2 2 2 2

Fund volume mutual funds (left scale) Number of mutual funds (right scale)

Data cource: BVI. Data source: Deutsche Bundesbank.

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 17 1 2 3

However: Low Real Estate Proportion within Asset Allocation...

Asset Allocation of German Open-Ended Mutual Funds (2004)

Other assets Cash at bank 5% 9%

Securities 12%

Interest in Real Estate property 67% companies (partnerships) 2%

Source: Deutsche Bundesbank, Calculations ZEW. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 18 1 2 3

Open-ended special funds Capital in- and outflows (EUR billion) Total fund volume and number of special funds

18.000 90

2,5 15.000 75 illion)

2 12.000 60

1,5 9.000 45

1 6.000 30

0,5 volumeFund (€ m 3.000 15 Number of special funds special of Number

0 0 0 1999 2000 2001 2002 2003 2004 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Fund volume special funds (left scale) Number of funds (right scale)

Data source: BVI. Data source: Deutsche Bundesbank.

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 19 1 2 3

Additionally: High Real Estate Proportion within Asset Allocation

Asset Allocation of German Open-Ended Special Funds (2004)

Other as se ts 4%

Cash at bank 7%

Securities 15%

Interest in property Re al Es tate companies 83% (partnerships) 2%

Source: Deutsche Bundesbank, ZEW-Berechnungen. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 20 1 2 3

However: Only moderate appetite by foreign investors...

Investor base of German Open-ended Special Funds

Foreign Investors Private 7% Financial Social insurance Organisations 5% Institutions agencies 2% 1%

Other Corporations 3%

Pension funds 6%

Insurance Companies 74% Data Source: Deutsche Bundesbank. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 21 1 2 3

Closed-end real estate funds

Cumulated fund volume (EUR billion)

180 EigenkapitalEquity FondsvolumenFund volume 160

140

120

100

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004e

Data source: Deutsche Bundesbank. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 22 1 2 3

However: So far no established secondary market for closed-end funds...

Fondsbörse Deutschland • Only 13.2 million euros turnover in 1st half of 2005 at Hamburg‘s „Fondsbörse Deutschland“ • Turnovers rarely above 50% of nominal value

Fondsbörse Gefox • At Düsseldorf‘s „Fondsbörse Gefox“ since a couple of weeks only two closed-end funds are listed • No turnovers so far

Source: Börsenzeitung: „Mühsamer Handel bei Closed Funds“, 14.7.2005. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 23 1 2 3

Underperformance of German property stocks

Open-ended funds vs. property stocks vs. capital market (Dec 1993 =100)

400 BVI Composite

350 DAX DIM AX 300 REX 250

200

150

100

0 30.12.1988 30.12.1989 30.12.1990 30.12.1991 30.12.1992 30.12.1993 30.12.1994 30.12.1995 30.12.1996 30.12.1997 30.12.1998 30.12.1999 30.12.2000 30.12.2001 30.12.2002 30.12.2003

Data Source: DID, Ellwanger und Geiger, EcoWin. 14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 24 1 2 3

Outlook

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 25 1 2 3

Which consequences result from a delayed/failed REIT introduction?

Postponement: • Right now, demand for REITs increases (current situation of open-ended funds) • Bad signalling effects, if England is first

Failure: • Immanent, in case Germany will not adapt international industry standard • Medium to long term debilitation of REIT segment • Slow growth of REIT segment

Suspension: • Germany becomes even less competitive • Other EU countries become more attractive for diversification of international investors • German investors will look for alternative liquid property investments abroad

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 26 „REITs„REITs können können Anlagespektrum Anlagespektrum in in DeutschlandDeutschland bereichern bereichern““

INHALT/Seiten:INHALT/Seiten: KurzfassungKurzfassung I I- -11 11XX AA Grundlagen Grundlagen 1 1 - -11 1155 BB Internationaler Internationaler Vergleich Vergleich 6 6 - -1 19090 CC Der Der deutsche deutsche ImmobilienanlagemarktImmobilienanlagemarkt 91 91 - - 128 128 DD Best Best Practice Practice für für DeutschlandDeutschland 129 129 - - 165 165 EE Einschätzung Einschätzung des des MarktpotenzialsMarktpotenzials 166 166 - - 177 177 FF Verzeichnisse Verzeichnisse 178 178 - - 184 184 GG AnhangAnhang 185 185 -196 -196

DieDie Studie Studie kann kann für für 49,- 49,- Euro Euro unter unter www.zew.de/REITSwww.zew.de/REITS oder oder www.ebs.de www.ebs.de bestellt bestellt werden.werden.

14.10.2005 Martin Becker Academic perspective on the history and future of REITs in Germany 27