COVER NEWS ISSUE 50 MARCH/APRIL 2015

FEATURES REFERENCE – All BEPS are off - FTSE EPRA/NAREIT Global – Annual Conference preview Real Estate Indices – On German foundations - Social media platforms – Quantitive easing and listed real estate

Raising the roof - capital raisings Inna Maslova

Why the modern shopping centre disappoints women Scott Malkin EPRA MEMBERS AS OF MARCH 2015

AUSTRALIA • Hamborner • Tilburg Univ. • Grainger • Univ. of Western Sydney, • Heitman • Univ. of Maastricht • Property Research Centre • IREBS International RE • VastNed • Green Street Advisors • Resolution Capital Business School • Wereldhave • • LEG • Yardi • AUSTRIA • MEAG Real Estate Management • Hansteen Holding • BUWOG AG • POLIS Immobilien NORWAY • Helical Bar • CA Immobilien Anlagen • PricewaterhouseCoopers • Norwegian Property • Henderson Global Investors • Conwert Immobilien Invest • Puhl Gmbh • HSBC • Immofinanz AG • Real Estate Management SINGAPORE • • Sparkassen Immobilien Institute • Keppel Land Limited • Invesco • SEB Asset Management • National Univ. of Singapore • Jefferies BELGIUM • TLG Immobilien • JPMorgan • Aedifica • VIB SOUTH–AFRICA • JLL • AG Real Estate • Victoria Partners GmbH • Growthpoint Properties • Kennedy Wilson Europe Real • Antwerp Management School • Westgrund Estate • Banque DeGroof SPAIN • KPMG • Befimmo GREECE • Axiare • Land Securities • Cofinimmo • Grivalia Properties REIC • Hispania Activos Inmobiliarios, • Linklaters • Leasinvest Real Estate • Lamda Development S.A • LondonMetric • Retail Estates • National Bank of Greece • Inmobiliaria Colonial • Medicx Fund • Solvay Business School Property Services • LAR Espana • M&G Investment Management (Brussels Univ.) • Trastor REIC • Merlin Properties Socimi, S.A. • Morgan Stanley • WDP • TESTA Inmuebles & Renta • Nabarro • NewRiver Retail BRITISH VIRGIN ISLANDS • Univ. of Hong Kong • Nottingham Trent Univ. • Eastern Property Holdings • Atrium Ljungberg • Palatium Investment IRELAND • Castellum Management • Green REIT • Dios Fastigheter AB • Principal Global Investors • Presima • Hibernia REIT • Fastighets AB Balder • Primary Health Properties • Irish Residential Properties • Wihlborgs • Quintain Estates & Development REIT • Redefine International • Ping An SWITZERLAND • ISRAEL • Center for Urban & RE • Schroders FINLAND • Azrieli Group Management • • Aalto Univ. • Gazit Globe • Euro Institute of RE Management • Shaftesbury • Citycon • HIAG Immobilien AG • Stenprop Limited • KTI Finland ITALY • Mobimo Holdings • St. Modwen Properties • RAKLI ry • Beni Stabili • PSP Swiss Property • Thames River Capital • Sponda • Chiomementi • Swiss Prime Site • UBS • Immobiliare Grande • Univ. of Geneva • Unite Group Distribuzione • Univ. of Aberdeen • Affine TURKEY • Univ. of Cambridge • ANF Immobilier LUXEMBOURG • Torunlar REIT • Univ. of Reading, Centre for • BNP Paribas • Dream Global REIT RE Research • Cegereal • GAGFAH UAE • Urban & Civic • Eurasia Groupe • Grand City Properties • Abu Dhabi Investment Authority • • Foncière des Regions • Orco Property Group • Gecina UNITED KINGDOM USA • ICADE NETHERLANDS • AEW • Center Square • IEIF • ABN Amro • AMP Capital • Cohen & Steers Capital • Ivanhoe Cambridge Europe • Amsterdam School of RE • Assura Management • Klépierre • APG Asset Management • Aviva Investors • Duff & Phelps • Mazars • ASR • Bank of America • EII Capital Management • Mercialys • Atrium European Real Estate • Barclays Bank • Fidelity Management & Research • Predica • BPF Bouwinvest • Barclays Capital • Forum Partners Investment • Société Foncière Lyonnaise • CB Richard Ellis • BDO Management • Société Générale • CBRE Global Investors • • Host Hotels & Resorts • Unibail–Rodamco • Clifford Chance • Blackrock Asset Management • Neuberger Berman • Université de Paris–Dauphine • Corio • • Real Capital Analytics • Cornerstone Real Estate Advisors • Capital & Counties Properties • Real Foundations GERMANY • Deloitte Real Estate • CBRE Clarion Securities • Russell Investment Group • Adler Real Estate • Eurocommercial Properties • Credit Suisse Securities • Simon Property • Allianz Real Estate • Kempen & Co • Derwent plc • SNL Financial • alstria Office REIT • LaSalle Investment Management • Deutsche Bank • Univ. of Cincinnati • Deutsche Annington • Loyens & Loeff • Deutsche Alternative & Wealth • Ventas • Deutsche EuroShop • MN Services Management (UK) • Virginia Tech Univ. • Deutsche Wohnen • NSI • Digital Realty (UK) Limited • Westfield Group • DIC Asset • Northwood Securities • EY • Zell–Lurie RE Center at Wharton • DO Deutsche Office AG • PGGM • GIC Real Estate • Fair Value REIT • Redevco Europe Services • Goldman Sachs International

2.2. _ EPRA EPRA NEWS NEWS / /29 50 / /2008 2015 CONTENTS

NEWS

ISSUE 50 | MARCH/APRIL 2015

CREDITS GUEST EDITOR Matthew Tippett 4

CEO UPDATE 8

Editor & Production Manager Dominic Turnbull FEATURES Why the modern shopping centre disappoints women 10 Guest Editor Matthew Tippett UK property market on course for a bumper year in 2015 13 Article Credits Consolidation in the European real estate sector: Alexey Akimov Tuomas Lesonen Andrea Boltho Scott Malkin what’s next? 16 Graeme Gibbs Simon Stevenson Hanna Kaleva Philippe Le Trung Great results deserve high visibility reporting 20 Tim Kesseler Inna Maslova Chyi Lin Lee Raising the roof 22 On German foundations 28 Please send your comments and suggestions to: [email protected] In the interest of movement 32 Design & LayOut Fuse Consulting Limited Quantitive easing and listed real estate 36 London [email protected] All BEPS are off – or are they? 40

Printers A sellers’ market 44 Wyndeham Grange Annual Conference preview 47 EPRA Square de Meeus 23, Trends changing the Finnish market 51 B–1000 Brussels +32 (0) 2739 1010 REFERENCE PAGES FTSE EPRA/NAREIT global Real Estate indices 54

Updated EPRA BPR and EPRA Sustainability BPR available now

www.epra.com/bpr

EPRA NEWS / 50 / 2015 3. GUEST EDITOR

BATTLING THE WINTER BLUES

Green–thinking firms tious global deal looks more pos- tinue to grow unabated, especially should feel optimistic, sible now than it has done for years. in Europe. Despite Europe’s trou- President Barack Obama clearly bles, it has managed to maintain a but consider what else hopes that he can make climate climate leadership role with new they can do to turn change part of his legacy and has 2030 targets which, though flawed, sustainability into a proposed a cut in carbon emissions, keep the continent just ahead of the by 2025, of between 26% and 28% game on cutting carbon. competitive advantage. over the 2005 level. Meanwhile China’s president Xi Jinping has Mounting pressure from EU It’s the time of year when we all matched this commitment by, for the regulators get a little down in the dumps. We’ve first time, offering to “peak” carbon Let’s not forget the sector has a sig- had enough of hibernating inside emissions by 2030. nificant part to play in helping the away from the cold and dreary continent meet these targets. After outdoors. Thankfully there are hints All this diplomatic goodwill all, globally, the built environment that the British spring time is upon points to a bright outcome in Paris. accounts for 40–50% of natural us. For the next few weeks, while But of course there is still the real resource use, 20% of water use, we’re locked in winter survival possibility that it will simply be- 30–40% of energy use and around mode, I thought we all might need a come the next Copenhagen – a bitter a third of CO2 emissions. For this few tricks to beat those winter blues. disappointment. Even if Paris does reason alone, the sector will con- As one key event – namely the UN fall short of the ambitious agree- tinue to be targeted by regulators for climate negotiations in Paris – makes ment needed, the green building opportunities to improve efficiency 2015 special when it comes to the movement will most definitely con- and reduce emissions. environment, so let’s take a look at why green–thinking firms should feel The built environment accounts for optimistic this year. 40–50% of natural resource use, 20% A pivotal year for UN climate negotiations of water use, 30–40% of energy use For one, 2015 could be a pivotal year for UN climate negotiations in Paris and around a third of CO2 emissions. this December as sealing an ambi-

4. EPRA NEWS / 48 / 2014 If nobody knows what they’re measuring, then they’re going to get to 2049 and realise that they’ve only got a year to cut 80%.

GUEST EDITOR Matthew Tippett

Indeed there is already clear Encouragingly, JLL’s research pressure from EU regulators, bol- found that the properties participat- stered by vanguard national policies ing in its Real Estate Environmental in several countries. For example, to Benchmark have reduced their help meet its legally–binding climate emissions on average by 27%, or goals the UK Government plans to 6% a year – well above the level make it unlawful to let commercial required to meet the Government’s properties that do not meet a goal. However, the report also warns prescribed minimum energy ef- against complacency and estimates ficiency standard (MEES). Anecdotal that the rest of the sector needs to evidence suggests that buyers and do far more to achieve its share of potential tenants of poorly–rated the reductions needed. To do this, premises are looking carefully at the JLL emphasises the importance of: risks before committing to transac- 1. Measuring and monitoring tions, and in some circumstances energy consumption. this is influencing market pricing. 2. Benchmarking performance. Therefore, if this comes to pass, it 3. Setting meaningful and informed is prudent to assume that known reduction targets. characteristics, such as a poor energy rating, could have an impact New measures to increase on liquidity or value, even if this is transparency not always realised in a buoyant It turns out that JLL is not alone market. in voicing these concerns. The EU has also stressed the need to There is a strong case for taking increase corporate transparency action sooner rather than later. and performance Doing nothing now will leave little on environmental time to do essential upgrade work, and social matters this could be particularly problem- – currently fewer atic where the relevant property than 10% of the is occupied by incumbent tenants largest EU compa- with long leases. nies disclose such information regularly. So in September 2014, With this in mind, JLL recently the EU Council adopt- analysed energy data from over ed a new Directive to 700 commercial properties to see improve the quality if the sector is on track to meet the and scope of report- UK Government’s carbon reduction ing on non–financial target of 80% by 2050. If nobody information by large knows what they’re measuring, listed companies and other public then they’re going to get to 2049 and interest entities. realise that they’ve only got a year to cut 80%. Clearly that isn’t going Member States have two years to happen. It’s impossible. So the to transpose this into national law, report, aptly titled “3.5% – the path thereafter companies concerned will to 2050?” says it makes sense to get be required to disclose in their non– started early. financial reports information >

EPRA NEWS / 50 / 2015 5. GUEST EDITOR

on environmental, social, employee, human rights, anti–corruption, di- Developers will play an ever– versity and bribery matters. They’ll need to include a description of the increasing role in providing outcomes of their policies, relevant non–financial key performance indi- community facilities, catalysing cators and the main risks related to these matters. economic regeneration and creating

In its guide “Putting the Pieces long–term employment in an area. Together”, JLL looked at this and other major developments in non–fi- nancial reporting and sustainability bond market after its inaugural EUR buildings being built today typically communications, and analysed the 750 million issue was more than perform up to two or even three implications for the real estate sec- three–times oversubscribed at the times worse than specified and tor. Some Member States such as the start of 2014. The bond is called designed. Simply disclosing this fact UK, Sweden, France and Denmark “green” because its proceeds can will not shed light on the cause and have already introduced disclosure only be used to finance buildings in until we dig deeper, solutions will requirements that go well beyond compliance with the BREEAM sus- continue to prove elusive. Further- the Directive, but most have not. tainability standard. The company more if prospective purchasers and Therefore companies that are adopt- was able to implement the deal tenants are not confident that the ing relevant reporting guidelines like quickly, because all the SRI (socially buildings meet the stated energy the Global Reporting Initiative and responsible investor) processes efficiency ratings, they may increas- of course EPRA’s Sustainability Best were already in place. This has ingly challenge what they are getting Practices Recommendations (www. given the firm various advantages and damage the reputation of the epra.com/sBPR) are well positioned ranging from a diversified investor industry. for the future – when both regulatory base and funding streams to boost- demands and market demands for ing sustainability projects. Beyond bricks and mortar – transparency will be undoubtedly enhancing human health greater. While these improvements in and prosperity the quality and scope of reporting For many, the motivation behind Major investors are already inte- are commendable, gathering data, sustainable buildings is just as grating sustainability into decision– winning awards and ticking the much about worker productivity making processes, with investor–led ‘standards’ box is not enough. Deliv- as it is resource productivity. Ulti- surveys like the Global Real Estate ering genuine cuts in consumption mately the success of a building will Sustainability Benchmark (GRESB) requires active management – prop- depend on its ability to satisfy the growing in importance. Forward– erty managers need to constantly needs of its occupants. Historically, thinking firms are now in a position monitor resource use and the ef- sustainability has focused on the to tap into the growing universe of ficacy of intervention measures. impact that buildings have on our socially responsible investors. climate and environment. Bringing For example, much has been productivity and health into the For example, commercial real said and evidenced about the conversation adds a new emphasis estate company Unibail–Rodamco ‘performance gap’ in new buildings. on the individual, and opens up the hopes to repeatedly tap the green Everyone interested knows that field for research and development.

6.6. EPRA NEWS / 50 / 2015 The question is, what can you do to turn sustainability to your competitive advantage?

For this reason, JLL recently designs and develops every year are co–sponsored a major World GBC an opportunity to make sure that ‘Le Phare’ in Paris, the city’s tallest building since the report: Health, Wellbeing and the built environment has a positive Eiffel Tower and a beacon of sustainability. Both the Productivity in Offices: The Next contribution to the environment, form and the orientation of the building respond to Chapter for Green Building. This puts economy and our quality of life. the path of the sun. The south–facing skin minimises forward the best and latest informa- Looking at places in their entirety, heat gain and glare while tion on the building design features rather than just as individual build- the northern facade that are known to positively impact ings, will be vital in years to come. maximises natural day- office occupants and links these to light. A double skin is at financial benefits such as increased Against the backdrop of Euro- work at all times to max- worker productivity. The report zone austerity, developers will play imise energy efficiency. finds that a range of factors – from an ever–increasing role in providing Increased daylight and air quality and lighting, to views community facilities, catalysing natural ventilation will of nature and interior layout – can economic regeneration and creating create an excellent affect the health, satisfaction and long–term employment in an area. workspace. A distinctive job performance. It also provides Hammerson was one of the first wind farm will crown the first toolkit for measuring the retail property companies to realise the tower and power effect of a building on employee this. JLL recently helped the firm the fans that activate health, wellbeing and productivity quantify the long–term socio–eco- the building’s natural to inform future design. nomic impacts of its UK shopping ventilation system. This centres. It has developed a tool system will cool the At the same time, 2014 also which interrogates 50 sets of data to building for half of the saw the launch of the global WELL understand the future impacts of its year without using any Building Standard – the world’s first retail developments, from the con- outside energy sources building standard to focus on en- struction stage through to opening. or any supplemental hancing people’s health and wellbe- This new tool will play an integral heating or cooling. ing through the built environment. part in assisting Hammerson to cre- Developments like this suggest that ate the best possible retail schemes the ‘human dimension’ will become and employment opportunities. increasingly important, if not as im- portant as energy efficiency issues Green–thinking firms should Matthew Tippett are today. feel optimistic National Director, Upstream While these trends certainly high- Sustainability Services – UK. For example, it is now standard light risks for property developers As National Director of Upstream practice for new Grade A buildings and investors, they also present Sustainability Services at Jones to come with LEED, BREEAM or an significant opportunities. Clearly Lang LaSalle, Matthew Tippett equivalent sustainability rating. Now smart companies are more prepared takes responsibility for managing that wellbeing and productivity are than others for the transition to a and delivering key service so high on the occupier agenda, the low–carbon, sustainable economy. areas, including sustainability corresponding WELL Building rating These early movers will maximise benchmarking. Tippett’s expertise is likely to gather momentum. Will the commercial opportunities pre- in performance measurement ‘healthy’ soon fall alongside ‘green’ sented by the sustainability agenda and analysis is incorporated as a defining factor of ‘prime’? – sustainable places, which let well, into Upstream’s wider services achieve better long–term value, and including strategy and manage- But it’s more than that. Several reduce carbon emissions and run- ment, and communications and things are aligning to drive forward ning costs. The question is, what reporting. the wider social value agenda. The can you do to turn sustainability to Matthew.Tippett@eu..com new buildings that the industry your competitive advantage?

EPRA NEWS / 50 / 2015 7. 7. CEO UPDATE

UPDATE FROM PHILIP CHARLS

Philip Charls, EPRA CEO

2015 has witnessed with representatives from several ence is centred around sustainable a strong start for countries looking to implement a regeneration and we will be promot- REIT regime. Current market condi- ing the work of our members and listed real estate. tions, along with strong long–term the EPRA sBPR, as an example of The five–year FTSE EPRA UK annual performance, further support the industry–wide best practice. return stands at 17% and the FTSE position that listed real estate is a EPRA Europe Ex–UK 16%. The vast strong, stable vehicle with a proven Since the last newsletter, we majority of listed companies in track–record. have been pressing companies – Europe are trading at a premium both members and non–members to NAV, a strong sign of confidence The Regulation team was once – to study the newly published in the asset class, with increased again at the OECD in Paris taking EPRA financial Best Practice Rec- interest from the generalist inves- part in a public consultation on ommendations (BPRs). Somewhat tor community looking to income BEPS (Base Erosion Profit Shifting). disappointingly, 40 companies were against low T–bills yields. You can read EPRA’s position on still operating under the bronze BEPS on www.epra.com and a more medal standard in 2014. While we Private owners of real estate as- in–depth look at BEPS and its poten- witnessed progress in 2014, we sets may find this an attractive time tial impact on page 40. are hoping that with direct EPRA to look at the listed market, or REITs, encouragement, encouragement as an exit route for institutional The team is meeting with IOSCO from peers and most importantly quality portfolios. Growing demand (International Organization of encouragement from investors, we from global real estate investors for Securities Commissions), discussing will see that number significantly well–managed, good quality real the implications of Capital Markets reduce in this year’s awards. estate, in a liquid and transparent Union (CMU) and the proposed vehicle combine to make a great shift towards more market–based, The Reporting & Accounting Com- story. Under these circumstances, non–bank financing of the European mittee will meet on June 23, in its we see potential to grow the market economy. The team will also be annual summit. Part of the agenda further and as such, creating greater attending a round–table discussion will be to set the programme for our opportunities for institutional with the President of the European (very first) half–day CFO conference investors who seek exposure to real Commission, Jean–Claude Juncker on September 08, the day before estate using the listed vehicle. which will look at the upcoming the main day of the EPRA annual regulatory framework and how the conference. All member company We will continue to leverage on Commission will work over the next CFO’s will receive an invite in the this strength, lobbying for improve- five years. next month. ments to REIT legislation where it currently exists and introducing At the end of March, the team The updated EPRA sustain- regimes in countries without current will attend an urban regeneration ability Best Practices Recommen- legislation. We have been in contact conference in . The confer- dations (sBPR) were launched in

8.8. EPRA NEWS / 50 / 2015 January. We continue to see uptake with David Simon. The final day of the New EPRA chairman among the membership in this conference, provides 24 companies increasingly important area, with the opportunity to pitch to investors. I am delighted to announce over half of the index now reporting The 24 companies have been allocated that the EPRA Board of at least one sustainability measure. time based on feedback gathered from Directors have appointed Reflecting this, we will organise an surveying over 100 investors on the Dr. Luciano Gabriel, CEO of inaugural EPRA sustainability sum- companies they would most like to listed PSP Swiss Property mit on November 12. The programme hear. Finally, the CEO conference takes Group, as the Association’s will focus on the EPRA sBPRs, along places on May 27–28 in Brussels. The new chairman. He brings a with current and future investor small invite–only event brings together wealth of banking and cor- demands in this area. the leaders of the industry under porate finance experience Chatham House rules. to the position as well as The EPRA Annual Conference his long-standing expertise 2015 in Berlin, on September 08–10, is The March review of the FTSE in running a major listed real estate company. shaping up nicely. The first day of the EPRA/NAREIT index added nearly EUR Those skills will be put to good use as the conference will focus on property tours 3.7 billion of market capitalisation to European listed real estate industry is going – one with a commercial focus and the the index. It was great to see a number through a period of rapid expansion as inves- other with a residential focus in Berlin. of European companies being added tors focus on the quality of the property assets Hamburg will offer an alternative loca- to the index during the review and our members are able to offer and the strong tion. The main day of the conference we would like to congratulate Green income yields these investments are producing is coming together in an action–packed REIT, Tritax Big Box, Assura, Grand City in a low-yield world. day including a lunch–time interview Properties, and Adler Real Estate.

+13% Growth in net rental income

+24% Growth in EPRA earnings

€871M Portfolio value (excluding transfer costs) 2014 ANNUAL RESULTS: STRONG IMPROVEMENT IN OPERATING PERFORMANCE In 2014, Cegereal outperformed its full-year targets with more than 20% growth in recurring net €1.65 income per share. France’s only fully “green” property company, Cegeral has a portfolio that has been 2014 dividend per share entirely certified for its environmental qualities. In 2015, we will be furthering our commitment to CSR with the completion of the first Garden Tower in La Défense during the spring and the launch of the “Upgreen Your Business” collaborative program. We plan to pay our shareholders a 2014 dividend of €1.65 per share.

Cegereal is a real estate company that invests in prime office properties Listed in Compartment B of Euronext Paris – FR0010309096 – CGR For more financial information, visit: www.cegereal.com

EPRA NEWS / 50 / 2015 9. 9.

Cegereal_Pub_Fi_EPRA_MAG_L210xH148,5mm_GB.indd 1 02/03/2015 16:19 FEATURES

WHY THE MODERN SHOPPING CENTRE DISAPPOINTS WOMEN

The essence of the shopping experience is the tactile – The challenge is the touch of a ripe pear; the scent of a great boutique; reconciling the the feel of a special fabric. But what does the future look like? contradiction

The fundamental premise of a consumer is better informed and between the shopping centre is to commoditise with higher expectations than ever experience. Retailers themselves, in before, and she is on a trajectory to requirement of an effort to master the store–based become even more so. distribution channel, embrace this standardised notion of a consistent, reliable Reconciling the contradiction be- delivery of product – and this leads tween the requirements of standard- distribution and to mediocrity. ‘Generic luxury’, for ised distribution and the costs (and example, is the ultimate insult to a complexities) of delivering bespoke the cost and consumer. experience is the interesting chal- lenge that faces the retail property complexity of the Women are the backbone of sector today. virtually any shopping premise – bespoke shopping certainly for those that incorporate The right leadership qualities? fashion. The bad news for shopping The first obstacle confronting owners experience. centre owners is this: the female of shopping centres is one of people,

10.10. EPRA NEWS / 50 / 2015 FEATURES

The fact that a product or an experience can be defined virally, in this age of distributed trust, is a harsh reality. their own and those who work for the fundamental reality of digital will be, for our lifetimes, in a brutal the brands. The typical shopping cen- is that it is a margin destroyer. The battle with non store formats. tre executive is a white, 50–year–old economic foundations that support man with a background in finance, retailers are getting progressively Where does this lead us, both as construction or real estate. Generally more slender, and are less and less retailers and as shopping centre speaking, these individuals have no able to bear the costs of modern operators? interest in, nor feeling for, fashion. retail operations. At the more expensive end of the retail hierarchy, the brands are in The staff responsible for operat- A logical response from the a quandary. The old ways of doing ing the boutiques themselves, brands is to cut costs and to squeeze business led by tight, agile teams on the other hand, are normally operations harder. This is directly at that have grown up together, will not underpaid and under–qualified for odds with the reality that, increas- survive this generation of executives, the task of making women happy in ingly, the primary purpose for having owing to the requirements inherent a fashion setting. In fact, the quality physical stores, other than for con- in being a global brand. Perversely, of personnel is a more fundamental venience–based retailers, is to create this universal recognition and dis- issue in the fashion sector, where a point of contact with the consumer tribution are clearly necessary for the presence of graduates of top that defines and conveys the values retailers to survive, let alone prosper. business schools is rare, and where of the brand. Every physical store the marriage between the creative has become a flagship store. Paradoxically, the standardisation and the corporate cultures that al- that accompanies globalisation lows a brand to prosper is invariably A third challenge is that of trans- dumbs down the quality of strained. parency. If information is power, experience, as Gucci discovered then the authenticity of a brand or when Tom Ford imagined that every A second dilemma is that the an experience is more potent than Gucci store around the world might world is going digital, and quickly. ever before. Today, a woman’s strug- be identical, in every respect. The The historic notion of retail distribu- gle while standing in a queue can, leaders in developing effective global tion via a wholesale infrastructure is overnight, become a defining symbol platforms, retailers such as Nike threatened by new technology, and for a retailer’s identity, or for the and Zara, by definition cannot be reputation of a shopping venue. the model for the high end fashion brands, with their much more The fact that a product or an expensive pricing and their high experience can be defined virally, maintenance customers. in this age of distributed trust, is a harsh reality. No matter how attrac- As the brands become global, as tive the brochure, a misconceived the consumer becomes ever more or inadequate shopping centre has demanding, and as the distribution no chance once the verdict of the of merchandise is increasingly consumer has been shared, and the delivered through the digital alterna- more satisfactory shopping centre tives, the old ways of providing >

The old ways of providing the physical retail experience are increasingly disrupted.

Shoppers at Suzhou Villiage

EPRA NEWS / 50 / 2015 11. FEATURES

the physical retail experience are ble measures of the quality of the that wins over the hearts and minds increasingly disrupted. environment. The physical setting, of tomorrow’s women. which sits at the heart of commu- The shopping centre is today nity, does serve a defining role in Today, 50% of the adult popula- on a journey of transformation, establishing the human condition, tion typically has a smart phone, from being a traditional venue to but the old ways simply will not be and by 2020 it will be 80%. Global becoming a branded experience, good enough. tourism is expanding rapidly, and one that will be judged not by the advent of the travelling luxury marketing spin but rather by tangi- Change is a constant consumer is already a major force Disruptive change is present in most in fashion sales. We have entered Scott Malkin areas of modern society today. There a tighter, ever more focussed and Scott Malkin is the founder and is a powerful population of investors segmented world, where the balance Chairman of Value Retail and and inventors looking to overturn the of power has shifted steadily to the co–founder and Chairman of status quo – Uber, Airbnb and Netflix consumer. Value Retail China. A graduate of are names we associate increasingly Harvard College, Harvard Busi- with daily life. They did not exist in In the end, this is very good news ness School and Harvard Law their current form even a few years ago. for the next generation of shopping School, Malkin serves on various committees at Harvard University centre developers, in that as the including those that support Harvard Magazine, The same forces of disruption software expectations evolve, the the Harvard Business School and the University’s must and will collide with the tradi- hardware will need to be replaced. fundraising efforts, and he sits on Harvard’s Global tions of the shopping centre sector. It is not such a happy story, however, Advisory Council. Malkin is currently Chair of the Technology will be at the heart of a for most shopping centre owners. Advisory Board of the Europe. redefined retail experience, and the [email protected] best defence for shopping centres The gun has gone off. The race will be to present a product solution has begun.

We also invest in energy effi ciency. This means added value for investors and tenants. PSP Swiss Property – Swiss commercial properties.

PSP Swiss Property is one of Switzerland’s leading real estate companies. The location and quality of its office and commercial properties, market-oriented tenant service as well as a sustainable corporate strategy make PSP Swiss Property an attractive partner for sharehol- ders and tenants. The shares of PSP Swiss Property Ltd are listed on Switzerland’s SIX Swiss Exchange (symbol PSPN, security number 1829415).

PSP Swiss Property Ltd · Kolinplatz 2 · CH-6300 Zug · Switzerland · www.psp.info

12.12. EPRA NEWS / 50 / 2015 FEATURES

UK PROPERTY MARKET ON COURSE FOR A BUMPER YEAR IN 2015 EPRA Insight – London, January 13, 2015

The prospects of strong Blackrock, adding “I’m tempted to rental growth and rising say we have never had it so good” People are questioning We also invest in energy effi ciency. because of the low borrowing costs asset values in the UK and the high level of capital flow- if online–only is the This means added value for investors commercial real estate ing into property’s equity and debt market mean investors markets. The UK currently presents right approach. the best investment prospects for should “enjoy it and tenants. commercial real estate in Europe this while it lasts.” year, ahead of Germany, Ireland and PSP Swiss Property – Swiss commercial properties. Sweden, he said. growth. Negligible or falling inflation And thus Exane BNP Paribas’ analyst has pushed back prospects for higher Nick Webb sparked off EPRA’s Lon- His fellow panelists were the chief benchmark interest rates, which may don Insight Conference discussion in executives of the listed companies not occur until the second half of the front of 300 delegates in January. Great Portland Estates, Hammerson year, he said. and Unite, who spoke about the Webb’s analysis was echoed in a positive prospects for their own busi- “Demand for space is accelerat- panel discussion led by Harm Mei- nesses. They spoke at the conference ing, so landlords have pricing jer, managing director of ICAMAP sponsored by law firm Nabarro and power,’’ he said, predicting that the (formerly Nexstep Advisory), during held for the second year in succes- inflation outlook means that average which there was general agreement sion in the lecture hall of the British rents may rise at the strongest rate that commercial property in the Museum. since 1989, compressing property UK would probably generate total yields and supporting net asset value returns of around 15% this year. Multiple factors boost gains for listed property companies. Exane BNP’s Webb predicted that PSP Swiss Property is one of Switzerland’s leading real estate companies. The location and “We are in the midst of a bull weaker oil prices and higher real Toby Courtauld, CEO of central quality of its office and commercial properties, market-oriented tenant service as well as a market,” said James Wilkinson, wages would boost consumer spend- London developer Great Portland sustainable corporate strategy make PSP Swiss Property an attractive partner for sharehol- European chief investment officer ing, giving momentum to the UK’s Estates, picked up the theme, saying ders and tenants. The shares of PSP Swiss Property Ltd are listed on Switzerland’s SIX Swiss for global real estate securities at economic recovery and employment “I wouldn’t be at all surprised to > Exchange (symbol PSPN, security number 1829415).

PSP Swiss Property Ltd · Kolinplatz 2 · CH-6300 Zug · Switzerland · www.psp.info

EPRA NEWS / 50 / 2015 13. FEATURES

see double–digit rental growth” in the Allan predicted that the student West End office market after three or accommodation sector’s attractive more years of employment growth prospects will drive up values at a in the capital and an acute shortage time when about 20% of stock in of new space. He predicted total the UK is changing hands, as private returns of 15–19% this year, mainly equity owners sell their holdings. He from higher rents market as average predicted that yields may fall by 50 property yields stabilise. basis points this year.

David Atkinson, CEO of Ham- When asked about risks to the merson, addressed concerns about positive outlook, the panelists were the retail sector because of cyclical not unduly concerned about the and structural pressures caused fallout from May’s general election, by e–commerce, saying that destina- while Blackrock’s Wilkinson flagged tion locations remain a magnet for that problems in the Eurozone might shoppers. He pointed to solid weekly act as an external shock. None of the sales for tenants at Hammerson’s three CEOs is focusing on making prime shopping centres and double– purchases as a priority as they antici- digit growth in retail sales and rents pate an end to the current property at European outlet centres, which is cycle with a turning point occurring why the sector is a favoured invest- perhaps in the next two years or so. ment theme for Hammerson, he said. Their focus is to either sell mature assets or to build out their develop- “The threats from the Internet are ment pipeline. behind us,’’ he said, pointing to the high level of in–store collections of goods purchased online from the John Lewis partnership. It demon- strates that “people are questioning if online–only is the right approach” to doing their shopping, he said.

Student housing, it’s academic The rental growth theme was also re- prised by Unite CEO Mark Allan, who outlined how a 12% increase in stu- dent numbers in the next three years will put pressure on accommodation in regional universities outside Lon- don. This stems from the scheduled end to the cap in student numbers for British universities in September, which will benefit mainly those establishments in the middle of the academic rankings, he said.

14.14. EPRA NEWS / 50 / 2015 FEATURES

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EPRA NEWS / 50 / 2015 15. FEATURES

CONSOLIDATION IN THE EUROPEAN REAL ESTATE SECTOR: WHAT’S NEXT?

For general real estate they billion1, a fraction of the M&A mar- Woodeum and one of the founders say “Location, Location, ket. Even if the EUR 130 billion M&A of ICAMAP (International Capital includes public and private transac- Meijer Aquien Poitrinal), mentioned Location”… but for the tions, European public real estate that in total there are 400 listed listed real estate sector, the companies have been once again far property companies in Europe. Four mantra is “Equity, Equity, more active on the M&A market than hundred! I am not sure I can even on the Equity Capital Market. name 100 of them. At the conference, Equity” says Philippe Poitrinal also took another angle: Le Trung. The European real estate sector take the listed property companies has experienced intense M&A activ- in Europe with a market cap above Equity is the fuel for the engine, the ity in 2014. The transactions between EUR 200 million. Their average fuel for growth. There are two main Klépierre–Corio and Deutsche market cap is twice smaller than the ways for a listed company to grow, Annington–Gagfah illustrate the average size of the US REITs in the consolidation and equity raising. Eu- ongoing trend of consolidation in the same sample. These numbers show ropean property companies have so European real estate sector. It has clearly that the consolidation trend is far favoured M&A to grow, as much been the most spectacular since the needed and here to stay. The more as a way to raise equity as a way to Great Financial Crisis. But recently, mature the REITs market is, the more execute their real estate strategies. Foncière des Régions increasing its consolidation to expect. So what is the ongoing consolidation investment in its hotels–listed sub- trend in the sector and what are the sidiary, or the Deutsche Wohnen and Why do the companies want to main drivers? Conwert Immobilien announcing get bigger? In my view, it is more combination projects, means that driven by cost of capital than by 2014 is a record year, 2015 could prove to be another year operating efficiency. 2015 looks good of consolidation in the sector. In 2014, announced real estate M&A On the debt side, size means transactions amounted EUR 130 Last January, at the European Real regular access to the debt markets billion and Equity Capital Markets Estate JPMorgan Conference 2015, and more expertise to find the best transactions amounted to EUR 30 Guillaume Poitrinal, Chairman of financing deals. Only large compa- 1 both numbers are from Dealogic and recalculated nies can access public debt markets in euros.

16.16. EPRA NEWS / 50 / 2015 FEATURES

P/NAV Chart 1 : Continental European Retail Plays : (x) 1.7 Market Cap and P/ NAV Source : Kempen & Co, Invest Securities – 1.6 Unibail Prices at Feb 22, 2015 and last reported NAV 1.5

Klepierre 1.4

Deutsche Euroshop 1.3 and still 30x bigger than VastNed 1.2 Mercialys or 12x bigger than Wereldhave. In Citycon 1.1 Wereldhave the past, size differences were less Eurocommercial VastNed pronounced. And certainly, as a con- 1.0 Pat & Com Selectirente sequence when it comes to relative 0.9 valuation vs. NAV, the current gap 0 5 10 15 20 25 30 Market capitalization (Bn€) between the largest and the smallest companies has, in my opinion, never as investors are looking at debt ratios In order to confirm the opinion been as wide as it is today. This bigg- but also at track–record, diversifica- shared by different market observers, ger–than–ever valuation gap is due to tion and low risk profile. Criteria that we have re–run some basic numbers. the fact that the largest companies smaller companies just can’t often Let’s look at a sample of continental are larger, but current financial mar- offer. European retail plays with their mar- kets conditions and recent QEs must ket cap and P/NAV. We have selected have also contributed to that. Three points on the size of a REIT ten companies ranging from Unbail– and its capacity to access cheap Rodamco (the leading European REIT What drives this higher public debt: with its EUR 26 billion market cap) to valuation status? 1. if you look in Europe, the listed Selectirente (a French retail play with Big companies do it better? The property companies with the best EUR 100 million market cap). reasons often put forward are that ratings (A–) are the largest compa- bigger companies are leaders in their nies. That tells a lot. Why continental European retail? markets. 2. debt capital markets bankers will London–focused REITs or Paris Office --They can source better acquisitions. confirm that debt investors like re- plays would also have some com- --They look after developments peat issuers. “Come see me every mon valuation drivers that make the that the small ones can not do. year with a Bond issue,” says a comparison relevant. Nevertheless, --They even have a bit of pricing debt investor. “I can’t,” says the these sub–sectors are relatively power and can control costs better. property company. “I can’t sub- small, which is an issue to show if --They are the best and most stantially grow, every single year, the valuation status is coming from desired employer. the size of the gross debt and the the size of a property company or --Some can also argue that the size of the portfolio…”. from its business model. Of course, biggest companies have the best 3. the most intriguing point, right portfolio mix, quality of the proper- management teams. I don’t want to after the announcement of the ties, growth prospects are different get into a debate on this point, as I consolidation between Deutsche within this continental European won’t be deemed to be impartial. Annington and Gagfah, the rating retail group and we can discuss sev- agency S&P made it clear that eral other factors influencing their Of course, strong teams, top at constant debt ratios, a larger valuation. The results are striking. process and fully–integrated skills size was providing a stronger have a great contribution on perfor- credit quality. That’s new – same The largest REITs have a clear mances delivery. But to focus only on LTV but a larger portfolio means and marked premium to the smaller superior operating performances to potentially cheaper debt. companies when it comes to stock explain the relative valuation gaps is market valuation. Having run similar not a super–strong argument. You do On the equity side, size is also analysis regularly in the last 20 years have great small cap, niche players key. Before looking for explanations, the trend is clear, the difference and you even have great small & mid let’s have a sanity check. Does a between the largest and the smallest caps generalists. The size advantage larger size for a REIT provide a better companies is increasing from a size is there, but the premium valuation valuation in the public market? perspective. Unibail–Rodamco is of the largest companies must have now 260x bigger than Selectirente, another explanation. >

EPRA NEWS / 50 / 2015 17. FEATURES

Average Market Cap Number of REITs 6 200 Chart 2. US Equity REITs: Number of REITs and average market cap in USD – 1990–2014 5 Source: NAREIT

150

4

) $ n b ( n o i t

a 3 100 Number of US Equity Reit's z i l a t i p a c t e k r

a 2 m e g a r

e 50 v A 1

0

0

7 3 9 13 12 14 94 96 98 90 1991 2011 1997 20 20 20 2001 1993 1992 1995 19 1999 19 19 2010 19 200 200 2002 2005 20 04 200 2008 2000 2006 Years What’s next? Some European countries that have experienced IPOs and secondary The average size of REITs has grown offerings in the last few years are going to consolidate. It is the case regularly whenever the number of for Germany, Spain and Ireland. Con- solidation is an opportunity to grow REITs decreases or increases. and also a good alternative to assets acquisitions. It started with German residential but could well continue with German, Spanish or Irish Com- Size’s positive effect on stock From 1995 to end–2008, the num- mercial property companies. market valuation is more due to ber of US Equity REITs went from the investors. Today equity markets 178 to 113, 65 REITs have disappeared Some countries that have large are structured around an increas- (a decrease of 37%). This has been domestic listed sectors could also ing amount of money which is essentially driven by consolidation see some consolidation – France, benchmarked (there are plenty of between public companies, but also UK and Sweden are in this category. long–only mutual funds with low with some financial sponsors taking The objective will continue to be the tracking error out there) or passive some companies private, and a few increase the size of the company. (ETFs). ETFs are popular especially bankruptcies as some US REITs have But some M&A transactions could in our sector. There are no reasons used leverage excessively. also be driven by non–listed players. that the trend towards “more money Public–to–private deals could be a managed passively” will reverse. If Since then, the number of REITs way to deploy capital faster, given you add to that the abundant liquid- have grown again, and went from 118 the current real estate market. ity due to the different QE’s in the to 177. The sector expansion has been US, and Europe, it looks like driven by solid real estate fundamen- In these different local markets, the cash printed by the Central Banks tals and a re–equitisation of the US four types of transactions should be seems to prefer liquid stocks when it real estate markets. seen: lands in the equity markets. 1. some large companies are going The most interesting part is to buy smaller companies that Lessons from the US that, during this 20 last years, the trade at relative discounts. This When it comes to REITs, it is always average size of REITs has grown is ‘big buying small‘ – these worth having a close look on how regularly whenever the number of transactions tend to be cash things have developed in the US. REITs decreases or increases. This is and/or shares. The chart below shows the number a trend that we are also likely to see 2. some small & midcaps that do of REITs and the average market cap in Europe. not have some critical mass will per REIT. try to combine their strengths.

18.18. EPRA NEWS / 50 / 2015 FEATURES

These are the ‘small buying some companies might prefer small‘ – usually all–share deals some straight cash equity is- and are the most challenging to sues to get equity rather than achieve often due to manage- Public Exchange Offer with ment issues. other listed companies that 3. several large companies, as they incorporate execution risks and always do, are going to monitor different views on the current the potential opportunities for a pricing of both the ‘predator‘ Philippe Le Trung transformational M&A deal with and the ‘prey‘. Philippe Le Trung is Head of Corporate Development another larger company. These and Communication at Foncière des Régions. He M&A deals are ‘big buying big‘ Within an environment of cheap leads the main M&A and Capital Markets transac- – they can be predominantly cost of capital, a strong attractiveness tions of this EUR 6 billion market cap REIT. Note that Foncière des Régions announced a M&A share deals but often include a for real estate as an asset class, a deal on February 20 (EUR 243–400 million equity cash component, which could range of valuations across the board transaction depending on the results of the planned be needed to finance the exit of and also a clear consensus on the takeover) and also a EUR 255 million capital increase one or several shareholders of competitive advantage of being a on February 26, 2015. the ‘prey‘. larger REIT, 2015 should be a good [email protected] 4. as capital increases are feasible vintage year both regarding M&A in current market conditions, and also capital increases.

EPRA NEWS / 50 / 2015 19. FEATURES

GREAT RESULTS DESERVE HIGH VISIBILITY REPORTING

Get seen and heard by adopted the same financial metrics. at the start let you down. You can taking control of your manage your high visibility reporting The analyst benchmark months in advance by not overlap- company’s financial This cohesive approach not only ping with your peers, clashing with announcements. strengthens the case for investment, major investor tours and exhibitions. but it supports the efforts of analysts The reporting frenzy in the listed sec- monitoring the sector. The individual Always ensure your team check tor is particularly active at this time coverage applied to the majority of for parallel activities on your report- of year. So don’t drop your guard listed real estate companies in the ing date range using the industry during that all–consuming period EPRA indices is a further health– calendar. Again you won’t be alone. when finance teams and IRs all clear check that supports the industry’s Most of Europe’s listed real estate their desks to pin down the correct robust performance. companies include this stage in their numbers and hammer out the right reporting check–list. The tool has message for the market. But you can be sure that your been long–requested by analysts to competitors are positioning them- help you pin down the optimum The market transparency which is selves in the same window display. date for reporting your numbers. demanded is raising the quality and There’s only so much time any one Obviously, the optimum date is scope of the data announced, so the analyst can devote to your numbers intended to give you the optimum broard take–up of Best Practices Rec- or the nuances of your statements. audience. ommendations (EPRA BPR) has been You know you that you have a great welcomed by investors and analysts story, they know they may need to For a year, EPRA has managed the alike. Rare is it that an industry attend a different call altogether. industry–wide tool to help space out segment – specifically Europe’s pub- these important dates and corporate licly listed real estate – has so widely Don’t let your planning right activities. A critical mass of index

20.20. EPRA NEWS / 50 / 2015 FEATURES

www.epra.com/ calendar

High Visibility Reporting is your way to get ••It’s an especially convenient tool for analysts maximum coverage of your successes. globally because it overlays index review dates, ••Analysts can attend all the results calls they need market closures and corporate action dates in one – mid–caps won’t be sacrificed because their timing place – so it will be used! coincides with the big boys. ••You can enter dates and details for road–shows, ••Analysts can search dates by region & company, so financial results, results presentations, property make sure your activities are available to everyone events, your Board meetings. BUT these are just the to consider. event types we thought of, if you have other types ••Analysts can jump straight to your company details you would like added then do please let us know (daily updates of NAV, LTV, assets, transaction ([email protected]). history, diversification, EPRA BPR etc) from the ••Free for all members to update; accessible for non– calendar. member via [email protected]; viewable by everyone.

have listings. Now if someone --Share price and market While you know plans to release figures on your cap history selected date, your head of IR will --Transaction history you have a great automatically be informed by email. --EPRA BPR KPI’s and awards story, they know How does it work? What can be listed? The calendar should be consulted Your entry can relate to road–shows, they they’ll join before you have made your final AGMs, reporting calls or end–of– timing decisions. Log in and add year numbers. Also general property a different call your details. It will then display events like MIPIM or market closures online so companies can avoid both Europe, US and Asia–Pacific. In altogether. your date/time when planning their the pipeline are ex–Div dates, and announcements or road–shows etc. already these dates can easily be Each company entry gives analysts imported into your mobile device constituents now take this online a click–through to your fundamen- via the EPRA app, or your Outlook schedule of reporting dates into tals page on the EPRA website, via a simple excel download. This account – so analysts can properly giving them instant sight of your means analysts will be alerted and do their jobs and give you the credit performance, including: have even less reason to miss your for doing yours. --Annual reports and meeting. Corporate actions We have been encouraging IR --Price and Total Returns for any teams to include this extra calendar day since index inclusion step in their planning, and 75 out --Daily discounts to NAV of the 92 index constituents now since index entry

EPRA NEWS / 50 / 2015 21. FEATURES

RAISING THE ROOF

Capital raisings in the listed property sector are taking a far more robust direction.

2014 was an extremely active year for FTSE EPRA/NAREIT Global Developed index constituents, who raised almost EUR 95 billion. Over EUR 54 billion of total capital raised came from debt issues, with the remaining EUR 34 billion coming from secondary and over EUR 6 billion from primary equity raises. Such high numbers suggest confidence in the sector and strong demand from investors across all continents.

capital raised.pdf 1 11/03/2015 13:00 Global Developed Index constituents – capital raised in 2014 Source: EPRA, SNL Capital raised Global Developed

30 n North America B R U E n i

25

C 20 10.4%

M

Y

CM Europe Asia

MY 15

CY

CMY

K 10 34.6%

5

0

Equity & rights Issue IPO Debt issue

22.22. EPRA NEWS / 50 / 2015 FEATURES

2. Primary issues Developed Europe 2014 Source: EPRA, SNL

Completion Shares Amount raised Company Country date issued (in EUR 000) BUWOG AG Austria 28/04/14 99,613,479 1,294,975 MERLIN Properties SOCIMI, S.A. Spain 26/06/14 33,500,000 1,291,520 Entra ASA Norway 17/10/14 80,468,227 624,200 Hemfosa Fastigheter AB Sweden 21/03/14 49,825,784 407,220 TLG IMMOBILIEN AG Germany 23/10/14 270,000,000 360,125 Total 3,978,041

3. Top ten secondary issues Developed Europe 2014 Source: EPRA, SNL

Completion Amount Rank Company Country date (in EUR 000) 1. Inmobiliaria Colonial Spain April 26 1,263,338 2. Intu Properties Plc UK April 22 610,690 3. Deutsche Annington Immoblien SE Germany May 22 585,000 4. Wereldhave N.V. Netherlands December 11 558,428 5. Deutsche Annington Immoblien SE Germany March 05 513,000 6. Hammerson Plc UK September 05 502,796 7. Deutsche Annington Immoblien SE Germany November 06 450,800 8. Capital & Counties Properties Plc UK May 14 315,820 9. Citycon Oyj Finland June 09 206,367 10. LEG Immobilien AG Germany October 09 205,000 Total 5,211,240

Equity issues 2001-2014 Source:equity EPRA, issues.pdf SNL 1 20/03/2015 12:21

€ 14.0 3,500.00

34.0% € 12.0 3,000.00

€ 10.0 2,500.00 C 28.8% M € 8.0 2,000.00 Y 6.9% CM € 6.0 1,500.00 MY 38.3%

CY 10.5% € 4.0 1,000.00

CMY 29.0% K € 2.0 500.00

€ - - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (EUR Bn) Index Equity & rights Issue IPO Average EPRA Developed Europe Index TR (Base year = 2001) Values

2014 was also a record year There were five primary issues The start of 2015 saw two events for equity and debt issuances for (raising almost EUR 4 billion) and impact the European economy. The Developed Europe Index constitu- 50 secondary issues (contributing dissolution of the cap between EUR ents, who raised EUR 11.7 billion in an additional EUR 7.7 billion). Both and CHF combined with the ECB equity and over EUR 13.5 billion figures are significantly higher com- announcement of a EUR 1.1 trillion through debt issues, with an aver- pared to 2013, when total primary quantitative easing programme age from 2001 to 2014 being EUR capital raisings amounted to EUR contributed towards significant gains 3.7 billion for equity issues and 1.7 billion and secondary issues in the Developed Europe Index – the EUR 5.8 billion for debt issues. added just over EUR 2.8 billion in total index return over the month of equity raisings. January was 13.4%. Furthermore, >

EPRA NEWS / 50 / 2015 23. FEATURES

Equity issues and premium/discount to NAV Source:Equity issue.pdf EPRA, 1 SNL 11/03/2015 12:59

30% € 4.0

20% € 3.5

10% € 3.0

0% € 2.5 C

M -10%

Y € 2.0

CM -20%

MY € 1.5 CY -30%

CMY

K € 1.0 -40%

-50% € 0.5

-60% € - 1 2 3 5 7 9 10 11 12 3 14 31-Jul-0 31-Jul-0 31-Jul-0 31-Jul-04 31-Jul-0 31-Jul-06 31-Jul-0 31-Jul-08 31-Jul-0 31-Jul- 31-Jul- 31-Jul- 31-Jul-1 31-Jul- (EUR Bn)

Right axis - Total equity raised (monthly data, in EUR Bn) Left axis - Premium/Discount to NAV (in %)

Debt issuancedebt issuance.pdf 2001-2014 1 11/03/2015 12:57

€ 16.0

€ 14.0 17.0% 7.5%

€ 12.0

C 14.4% € 10.0 M

Y 17.1% € 8.0 CM 22.9% 6.7% MY € 6.0 30.3% 51.5% CY

CMY € 4.0 0.4% 13.4% 24.6% 28.4% K € 2.0 61.3% 28.6% € - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (EUR Bn) Non-convertible issues Convertible issues

these economic developments also Of course, in simple terms, when stood at EUR 13.5 billion, up by 4% contributed to the rise of premium trading at a premium to NAV, com- compared to EUR 13 billion issues in to NAV for Developed Europe index panies use the opportunity to raise 2013. Debt issues have been at the constituents. capital whereas when companies highest level since 2000, with an are trading at a discount to NAV, it average of EUR 5.8 billion between Average premium to NAV for the may be appealing to buy-back own 2001 and 2014. Developed Europe Index stood at shares. The graph below depicts 22.7% (as of February 27, 2015). This a relationship between premium/ At present, the weighted coupon surpassed the peak of the premium discount to NAV and equity issues. rate on bond issues stands at to NAV valuation for the index 2.35%, significantly lower than the during December 2006, where the Another part of the equation of pre-crisis figure of 3.4%. The fall of premium reached 20.6%. Coinci- capital raisings for property com- the weighted coupon rate is in line dentally, 2006 was the year with panies is defined by debt issues. with the current levels of interest the highest number of equity issues Just as for equity issues, 2014 was a rates for the euro area, as well as for prior to the financial crisis. record year for European Index con- the main European economies. Nev- stituents bond issues – bond issues ertheless, in the current economic

24.24. EPRA NEWS / 50 / 2015 FEATURES

Developed Europe constituents weighted bond coupon rates Source:developed EPRA, europe.pdf SNL 1 11/03/2015 11:34

7.0%

6.0%

5.0%

C

M Convertible Y 4.0% weighted coupon

CM Weighted coupon rate MY (convertible + 3.0% non-convertible) CY Non-convertible CMY weighted coupon

K 2.0%

1.0%

0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

environment of low interest rates, took place in January 2015, when bonds issued by real estate compa- converted its Debt issues have been nies continue to attract investors. entire GBP 275 million 2.75% convertible bond issued in June at the highest level since Another trend that we observe 2011, which was due to mature is an increasing issue of convertible in July 2016, to 7.88 million com- 2000, with an average of bonds. In 2014, the constituents of mon shares in the company. The the Developed Europe Index issued general trend observed is that EUR 5.8 billion between 78% more convertible bonds than convertible bond issues offer a they did in 2013. In 2014, convertible lower coupon when compared to 2001 and 2014. bond issues stood at almost EUR 2.3 the non-convertible bonds due billion. to the equity option component. In 2014, these numbers stood at One of the most recent bond 1.12 % for convertible and 2.35% conversions to company equity for non-convertible issues. >

Convertible bond issues by Developed Europe constituents in 2014 Source: EPRA, SNL Company name Country Completion Maturity Coupon rate Gross amount date date (%) offered (in EUR 000)

Unibail-Rodamco SE France 17/06/14 01/07/21 0.0000 500,000

Deutsche Wohnen AG Germany 03/09/14 08/09/21 0.8750 400,000

GAGFAH S.A. Luxembourg 13/05/14 20/05/19 1.5000 375,000

LEG Immobilien AG Germany 07/04/14 01/07/21 0.5000 300,000

BUWOG AG Austria 25/04/14 25/04/19 3.5000 260,000

Wereldhave N.V. Netherlands 15/05/14 22/05/19 1.0000 250,000

Vastned Retail N.V. Netherlands 03/04/14 10/04/19 1.8750 110,000

Primary Health United 13/05/14 20/05/19 4.2500 101,350 Properties Plc Kingdom Total 2,296,350

EPRA NEWS / 50 / 2015 25. FEATURES

9. LTV values October 2010 – December 2014

LTV.pdfSource: 1 EPRA, 11/03/2015 SNL 13:04

48.00% 46.00% 44.00% C 42.00% M 40.00% Y 38.00%

CM 36.00% MY 34.00% CY 32.00% CMY

K 30.00% 2 2 2 2 2 2 4 4 4 4 4 11 11 11 11 11 4 11 1 1 1 1 1 10 1 1 10 1 1 - - - 1 1 1 - - - - -1 3 - - -1 3 -1 3 - - eb - eb - eb -1 3 eb - Jun - Oc t Ap r Jun - F De c Jun -1 3 Aug - Jun - Oc t Ap r Oc t F De c Oc t Ap r Oc t F Ap r De c De c F De c Aug - Aug - Aug -1 3

Europe Europe ex UK LTV UK LTV

Even though debt issues are at record highs this year, overall Even though debt issues are at Developed Europe Index LTV has not varied significantly. As of December record highs this year, overall 31, 2014, the Developed Europe Index LTV stood at 41.04%, slightly below Developed Europe Index LTV the levels seen in December 2012 and 2013, which stood at 42.88% has not varied significantly. and 42.12% respectively. This trend can be explained by several factors, including debt refinanc- A recent publication by DTZ ing and higher property “European lending trends Q3 2014” valuations in this low suggests that the refinancing gap no interest rate environ- longer exists and that the market is ment. largely back to normal. According to a DTZ poll, a significant number Debt refinancingof lenders are willing to underwrite helps to decrease the larger loans – 38% of respondents are repayment burden willing to give out loans of EUR 100 for companies. At million and more, 43% will finance Inna Maslova the same time, in the EUR 50-100 million bracket. Inna joined EPRA’s research higher property Moreover, the DTZ survey suggests team in May 2014 as an valuations balance that the lenders expect LTV levels to analyst. Inna holds a bachelors out the increases stay the same in the short term. degree in Economics and completed her MSc in Financial from new debt Economics, both from obligations. As On the back of the Klepierre/Co- Maastricht University. can be seen in rio and Deutsche Annington/Gagfah [email protected] the graph above, the deals, 2015 may see more mergers UK’s LTV has been falling over the and acquisitions on the horizon. past four years and stood at 34.33% What is sure is that 2015 will be an- on December 2014. other interesting and active year.

26.26. EPRA NEWS / 50 / 2015 EPRA ¤ SP PPR ¤ 210 x 148.5 mm ¤ Visuel:RESULTATS ¤ Parution= ¤ Remise le=11/mars/2015 PAC • BAG

FULL-YEAR RESULTS 2014 EXCEEDING, RESHAPING, INNOVATING 2014 has been synonymous with exceptional achievements for Unibail-Rodamco. Net “ recurring results reached €1,068 Mn, up by +8.3%. The Group’s strategy to concentrate on the largest regional shopping centres in Europe has led to the sale of non-strategic assets totaling €2.1 Bn. The stake acquired in CentrO, one of Germany’s best shopping centres, and the signing of agreements for prime development projects in Brussels and Hamburg, have confirmed our leadership. 2014 was also marked by exceptional momentum for both our shopping centres and offices. Continuous innovation by Unibail-Rodamco’s teams has further strengthened the Group’s position as the undisputed leader in European commercial real estate. ” Christophe Cuvillier, CEO and Chairman of the Management Board o N 1 Listed commercial property Member of the CAC 40, AEX 25, Euro STOXX 50 indices company in Europe Member of Dow Jones Sustainability Index (World and Europe) € 34.6 billion Member of NYSE Euronext Vigeo France 20, Property portfolio Europe 120, World 120 and Eurozone 120 €10.92 Member d’Ethibel Pioneer & Excellence Recurring earnings per share Member de STOXX ESG leader Member de FTSE4Good 37% Listed in Paris since 1972 and Amsterdam since 1983 Loan to Value

€8.0 billion Development pipeline

90 Shopping centres of which 54 host 6 Mn or more per annum* Contact : [email protected] - *In terms of Gross Market Value Tel : +33 810 743 743 - www.unibail-rodamco.com

UNIB_1503151_210x148_GB.indd 1 11/03/2015 17:31

Sustainability awards

To facilitate our review, please submit links to your 2014/2015 sustainability reports and/or Annual Reports to Jones Lang LaSalle. Please note that only companies in the EPRA index Europe (on March 31, 2015) are eligible for an award.

EPRA–[email protected]

53% of these achieved an award in 2014: Gold: British Land, Beni Stabli, Citycon, Cofinimmo, Derwent London, Eurocommercial Properties, Fonciere des Regions, Gecina, Grainger, Great Portland Estates, Intu Properties, Klepierre, Land Securities, SEGRO, Unibail-Rodamco, Workspace Silver: Corio, Hammerson, Societe de la Tour Eiffel, Wereldhave ADDRESSINGBronze: alstria, Befimmo, DIC Asset,THE Sponda, Wereldhave Belgium, Technopolis Go online for more information: ACADEMICSwww.epra.com/green FEATURES

On German foundations Berlin–based propco TLG concluded a recent IPO, valued at EUR 900 million, pitching its foundations deeply into one Europe’s most vibrant markets. Co–CEO, Peter Finkbeiner, explains the company’s formula. Q1

1. As a CEO of a newly listed company, how do you manage the question of reporting and operating transparency? We continually update our shareholders and the capital market with transparent information about develop- ments at TLG IMMOBILIEN AG and are proactive about our investor relations. This includes regularly publishing financial figures. Apart from our mandatory reporting, we are more than happy to participate in private conference calls, and we make ourselves available to respond to questions from analysts, investors and the media. We also consistently attend road–shows and broker conferences in order to stay in touch with institutional investors. We are quick to issue press releases about major portfolio changes such as acquisitions or major leases, and include the key figures of each deal.

We rate good communication very highly, because we believe it is critical to long–term success on the capital market. I should add here that this is why we have been listed in Deutsche Börse’s Prime Standard segment since our IPO. We voluntarily adopted standards which in some cases go far beyond the relevant legal requirements. We thereby fulfilled a key requirement which enabled TLG IMMOBILIEN shares to be admitted to the SDAX, one of Die Welle. Mitte Berlin Deutsche Börse’s selection indices, just four months after our IPO.

2. Are there areas of management alignment where you feel TLG IMMOBILIEN sets the example? As a newcomer to the stock exchange it would be very presumptuous to assume that we are already setting an example for others. Nevertheless, the Q2 feedback we have received from the market indicates that the way in which we are managing TLG IMMOBILIEN and boosting our staff appears to be thoroughly meeting our investors’ expectations.

In the course of the last two years, as we have been developing the com- pany’s strategic direction, we have been at pains to ensure that the capital

28.28. EPRA NEWS / 50 / 2015 FEATURES

Winters Hotel Berlin–Mitte

market’s expectations are reflected in our business model and in the usual management indicators. For example, the members of our management team have not only committed to holding shares, but are also offered incen- tives under a long–term incentive program (LTI). The LTI is linked to net asset value per share and share price development relative to the EPRA Europe Index. This has ensured that the interests of shareholders and management are aligned in seeking to achieve sustained value growth.

3. How is your team or management style suited to this? The entire team at TLG IMMOBILIEN received training in preparation for the broader market environment we would face after the IPO. Senior manag- ers and the rest of our staff attended various training sessions at which Q3 they learned about the practical and legal changes afoot, including internal changes. We have also bolstered some of our key departments with capital market experts. All of our staff are part of a performance–based bonus scheme, so the entire team joins forces to optimise our performance.

4. Your performance has been good, with the whole sector. How long will this last. Is the sector just catching up and benefiting from the weak euro? It is obviously pleasing when our share price performs well, but the fact Q4 remains that the market dictates the share price. Since our IPO, for example, our shares have outperformed the EPRA Europe Index. But I credit this only partially to external factors such as interest rates and currency fluctuations. It is important that we adopt It is just as important that we adopt a sustainable strategic direction for the business, run things well on a day–to–day basis and ensure transparent a sustainable strategic reporting to the capital market. It is my belief that the better we are able to anticipate and prepare for the realities of our business environment, the direction for the business, more positively this will resonate with the market. run things well on a day– We do not just want to rely on getting a tail–wind from positive market trends. We want to provide our investors with good reason to invest in us to–day basis and ensure regardless of the prevailing situation on the market. Our business model was developed on the basis of many years’ experience. It envisages the profes- transparent reporting to sional management of commercial real estate in high–growth regions both now and into the future. We believe that this will deliver attractive upside the capital market. potential, including in the medium to long term. Our share price certainly seems to be reflecting our positive operational performance.

5. Why is Dresden exciting, and what are the main factors behind investing in former East Germany? Basically, the factors that are decisive for investing in real estate in East Germany are no different to those for investing in other locations. Real estate investors can find rewarding investment opportunities on any local market Q5 where the population is continuing to grow and the economy is dynamic. >

EPRA NEWS / 50 / 2015 29. FEATURES

Left: Marktplatz Fri drichshagen Berlin–Köpenick Right: Spreestern Berlin Our many years of involvement in East Germany has given us great insight into the major growth centres apart from Berlin, the capital and a ‘magnet’ for investment. We are in a position to be able to make fairly accurate predictions of population growth and economic development in these regions. Dresden is one such growth centre, but so are historically significant economic centres such as Leipzig, the region between Sachsen and Thüringen along the A4 motorway, and the region surrounding Rostock on the Baltic Sea. All of these regions are showing clear growth and have a positive outlook.

6. What advice can you give to future IPOs? Do your homework and make sure you have established the right growth, momentum and transparency before taking the plunge into the capital Q6 market! Critical to success in my view is being of an adequate size so as to poten- tially appeal to institutional investors, and to have a convincing equity story. This has to be underpinned by a clearly–defined business model which is clearly reflected in the business’s corporate structure and in its real estate portfolio. A reasonable free–float of shares is also good. Compliance with the requisite reporting standards under IFRS should also be ensured.

For anyone planning an IPO, it is a good idea to start as early as pos- sible on fulfilling all of these criteria, and to highlight these achievements to potential investors.

7. How does sustainability fit in your planning over the next few years? Sustainability is becoming more and more important in the real estate industry, and ecological sustainability, which includes energy efficiency and associated issues, is a hot topic of discussion. We should not forget that real estate can only be economically viable if it will last into the future. Q7 When we acquire real estate for our portfolio or invest in our existing properties, we make sure that our properties will continue to be competitive in five, ten or 15 years’ time and comply with the relevant standards. But we are not just concerned with ecological sustainability, we have to be sustain- able economically as well. This is why we prioritise stable and continuous growth over deals that may maximise profit in the short term, but may not be a sustainable because of the higher risks involved. I should also mention here that our LTI is linked to TLG IMMOBILIEN’s long–term performance and hence is a very important element.

Peter Finkbeiner is co–CEO and member of the Management Board of TLG IMMOBILIEN AG, in Berlin (GER)

30.30. EPRA NEWS / 50 / 2015 REPORTING European Public Real Estate Association

Best Practices Recommendations on Sustainability Reporting 2nd VERSION

September 2014 FEATURES

IN THE INTEREST OF MOVEMENT

The fluid relationship The importance of inter- such as the European sovereign debt between interest rate est rates and the broad crisis, while interest rates have been credit markets have been reduced to levels not seen in modern changes and asset markets clearly illustrated over times. has attracted considerable numerous instances attention from investors, during the last decade. Given these events, the push to Many markets understand the interest rate relation- policy–makers and saw a credit ship is further enhanced by the con- academics. How does the boom pre–date cerns over the impact on inflation listed RE sector fit 2007, while the initial crisis of 2007 following the effects of quantitative was centred around both the fall–out easing – or for that matter deflation the model? from the US subprime market and and ensuing interest rate movement. the drying up of liquidity in the credit markets. Furthermore, many Recently we undertook a research of the longer–term repercussions project for EPRA that examined the have had credit market elements, sensitivity of the European public

Interest rate risk can also be transmitted via the yields used to capitalise the rental income from the properties underlying the firms.

32.32. EPRA NEWS / 50 / 2015 FEATURES

real estate sector. While there is an to changes in the operating perfor- The first empirical components existing large literature base explor- mance and cash–flows of the firms. considers index level for seven ing the sensitivities between public European markets, namely Belgium, real estate firms and interest rates, This may arise due to the impact France, Germany, Netherlands, it has largely considered index/ of the economy on conditions in Sweden, Switzerland and the UK. market – level data and has generally the underlying property market, e.g. These are not only the largest Euro- been focused on the US and Asian rental growth, vacancy rates etc. pean real estate security markets but markets. Furthermore, interest rate risk can those which have the longest time also be transmitted via the yields series available. The methodological The UK is the only European used to capitalise the rental income approach adopted in the firm level market that has previously been from the properties underlying the extensively studied. Our study not firms. The result is that interest rates only focused on the European sector are a key risk factor for real estate. The high–yield status of but it also extended the conventional market–level analysis to consider Leveraging the result REITs means that the impact those factors that impact upon the In addition to these fundamental degree of sensitivity observed at a economic issues, there are further of interest rate fluctuations firm–specific level. reasons why the examination of real estate securities is of particular on the present value of The public real estate sector, interest. Real estate firms, both REITs incorporating both property invest- and corporates, utilise relatively high dividends is likely to ment companies and REITs, is an degrees of leverage. This use of debt interesting sector to examine due will naturally make the firms display be greater than in a to the multiple channels through potentially heightened sensitivity to which the firms can be affected by interest rate movements. In addition, non–REIT context. interest rates and broader monetary the use of leverage alters a com- policy issues. Stocks generally can pany’s cost–of–capital and therefore be impacted by interest rates in three can affect the future availability of analysis does allow the examina- ways: external debt facilities. Subsequent tion of firms beyond these seven 1. due to the impact on expected interest rate changes and the interac- markets. The results are estimated future dividends. tions between firms’ investment and across the entire sample period of 2. changes in the discount rate used financing activities may therefore be 1995–2013, alongside two sub–periods in the context of future dividends, reflected in a company’s share price. (1995–2003, 2004–2013). and 3. the impact on the equity risk Finally, there is also the specific Rather than rely on one indi- premium. issue of the mandatory minimum vidual interest rate, we consider a dividend present in the majority of both a three–month and a ten–year Of special interest REIT markets. The high–yield status rate. In addition, we also model the Real estate firms have a key ad- of REITs means that the impact of spread between the two, as a simple ditional element – this is linked to interest rate fluctuations on the measure of the slope of the yield the macroeconomic role that interest present value of dividends is likely curve. To assess the interest rate rates have and the underlying fact to be greater than in a non–REIT sensitivity of the seven markets we that the assets of public real estate, context. Additionally, there is now an use a GARCH–M model. GARCH (Gen- i.e. the actual properties, are both extensive amount of both academic eralised Autoregressive Conditional real and investment assets. There- and industry research that shows Heteroscedasticity–mean) models are fore, changes in interest rates may, if that REITs share many characteristics commonly used in the modelling and of sufficient magnitude, directly lead with fixed–income securities. forecasting of volatility. Indeed, >

EPRA NEWS / 50 / 2015 33. FEATURES

EPRA’s Academic Compendium of Research Papers

this is one of its key advantages. Not across the impact on returns and risk. only ‘live’ firms but also where pos- only can we examine the interest rate sible it included ‘dead’ companies sensitivity of firms in terms of their In common with much of the as well, therefore, survivorship bias returns, but we can also examine broader existing literature there is was minimised. Due to the analysis the corresponding sensitivity with substantial evidence of temporal of individual firms it allows an exten- respect to volatility in interest rates variation in the findings. Few mar- sion of the country coverage to also and public real estate. kets observe consistent sensitivity, include firms in Austria, Finland, in either returns or volatility, across Greece, Italy, Norway, Poland, Spain The specific GARCH–M version all of the entire sample period and and Turkey. has an advantage in that it allows for the two sub–samples. However, it the riskpremia of the indices to be is important to highlight that the We use the same models as in time–varying, thus acknowledging time–variation in significance does the market–level analysis to estimate that investors will take into account not necessarily focus upon the later the annual interest rate sensitivity the volatility of an asset in relation period surrounding the financial of each of the firms to the three– to the risk premia they will seek. crisis. The additional specifications month and ten–year rates as well In addition to the main empirical model, we also examine two more detailed specifications. The first A positive link is only documented more robustly examines the entire yield curve rather than just consider between interest rate volatility the three–month and ten–year rates. We utilise a modelling procedure sensitivity and market–to–book value. commonly used in the fixed income sector to estimate three variables that measure, respectively, the level, that consider the full range of the as the term spread. The sensitivity slope and curvature of the yield yield curve and regime switches estimates (coefficients) obtained are curve. The second specificationfind broadly similar results. How- then used as the dependent variable explicitly tests for the presence of ever, the regime–switching results in a firm–level panel regression. regime shifts in the relationships do show that interest rate risk is reported. predominately significant during the Effectively we model the sensitiv- periods of instability. A result that is ity of the firms and attempt to explain In the interest of sensitivity not particularly surprising from an what firm–level variables influence The results reveal that in each of the intuitive perspective. it. We use a variety of explanatory markets, bar Switzerland, there was variables including: firm size; debt/ evidence of a significant sensitivity The second element of the em- leverage ratio; market–to–book ratio; at a market level using the baseline pirical analysis considers individual ratio of trading volume to shares models. This is not only true when firm data. Up until now, extremely outstanding; a dummy variable if the sensitivity with respect to returns few papers have considered the issue the firm is a REIT; firm age; ratio of is considered. When the relationships of interest rate risk from a firm–level property investment to total assets. in volatility are examined, only Bel- perspective, especially in the specific gium and Switzerland fail to provide context of public real estate firms. The results highlight that the at least one significant result. The individual characteristics of the results do however reveal variation We examined 226 publicly traded firms does significantly impact upon across the different markets in terms European real estate securities over their exposure. In particular we note of whether short or long–term rates the same time period as used in the relatively consistent findings that are more influential. Furthermore, market–level analysis, namely 1995 the degree of leverage taken on has this is not necessarily consistent to 2013. The dataset included not a significant positive relationship.

34.34. EPRA NEWS / 50 / 2015 FEATURES

In addition, property companies found to support the notion of real considering the impact on returns are found to be significantly more estate stocks with a higher propor- and volatility. Therefore, investors exposed than REITs. The results with tion in property, are less sensitive to need to be extremely aware of this respect to short–term rates set, which long–term interest rate shocks. The lack of consistency, highlighting the consider short–term rates provide coefficient of turnover is positive and need to consider both components some interesting empirical findings, statistically significant, reflecting that when analysing the impact of inter- especially in that we find that the a liquid property company is more est rates. Secondly, the temporal in- short–term interest rate risk of Eu- exposed to interest rate sensitivity. stability in the findings reinforces the ropean real estate stocks is directly importance of considering prevailing related to the degree of financial In response to the financial crisis market conditions. leverage. The results are consistent of 2007–09, many central banks imple- with firm’s investment returns,mented a loose monetary policy. This either positive or negative, being not only involved the reduction of in- magnified by leverage. Therefore, it terest rate but also quantitative easing. is reasonable to document a positive Given the quite distinct characteristics link between financial leverage and post–2007, it is therefore of interest to Alexey Akimov short–term interest rate shocks. see whether the results reported thus Dr. Alexey Akimov is a Lecturer in Finance far are sensitive to the time–period at University of Lancaster. He joined We also find that corporate examined. We therefore decompose Lancaster University Management School structure does significantly affect the the full sample into three sub–periods: in 2012 following the completion of his PhD short–term interest rate exposure of pre–, during and post the financial from the University of Reading. His research a firm. Specifically, the documented crisis and quantitative easing. covers areas such as interest rate sensitivity negative and statistical significant co- & monetary shocks; commonalities in asset efficient of REIT suggests that REITs As with the market–level findings, cycles and inflation forecasting. are less sensitive to interest rate risk we likewise observe time–variation compared with real estate operating in the results and in this context the Chyi Lin Lee companies. impact of the financial crisis is clear. Dr. Chyi Lin Lee is a Senior Lecturer in Factors such as the asset structure of Property at University of Western Sydney. Asset structure appears as a the firms and the book–to–market ra- He has published more than 20 papers on a critical determinant of interest rate tio play increasing roles in explaining variety of topics relating to property invest- sensitivity, whereas no similar the variation of interest rate sensitivity. ment and finance. He received his PhD from evidence is illustrated for interest the University of Melbourne. rate volatility. This highlights the Overall, the results at both a differences between interest rate market and firm level illustrate and Simon Stevenson sensitivity and interest rate volatility highlight the importance of interest Professor Simon Stevenson is Professor of Real sensitivity. Similarly, a positive link rates to the listed real estate sector. Estate Finance & Investment at the Henley is only documented between interest As previously noted, there are a Business School, University of Reading. He rate volatility sensitivity and market– multitude of potential channels has published over 70 papers in a variety of to–book value. through which interest rates, as well leading real estate and finance journals. His as broader issues in monetary policy primary research interests are in real estate The long–term sensitivity results and the credit markets, can impact finance & investment management (especially show that leverage is strongly re- public real estate. REITs); housing economics; and international lated to the estimated sensitivity of financial markets. He previously held posi- interest rate changes and interest rate A number of broader implications tions at Cass Business School–City University volatility. Leverage is also found to for investors are apparent from the and University College Dublin. be significant when the term spread results. Firstly, at both a market and is considered. Strong evidence is also firm level the results vary when

EPRA NEWS / 50 / 2015 35. FEATURES

QUANTITIVE EASING AND LISTED REAL ESTATE

In January the ECB sector benefit from this programme? the euro was introduced as a ‘real’ announced the details of What are the possibilities, and what currency and the ECB introduced a can we learn from other national single monetary policy, the average its expanded quantitative central banks that have used quan- inflation has been around 2%. easing programme. titative easing to strengthen their We look at the QE effect economies in the past? With the programme kicking off this month (March), the overall reac- on other economies and The current situation in Europe tion to the ECB’s decision to pursue its impact on listed Since the third stage of the Econom- QE was positive. Anticipating lower real estate. ic and Monetary Union (EMU) of bond yields, investors are likely to

the EuropeanConsumer.pdf 1 19/03/2015 Union 12:33 in 1999, when confirm the attraction of real estate The quantitative easing (QE) pro- gramme allows the European Cen- Consumer Price Index eurozone 4.5% tral Bank (ECB) to add the purchase 4.05% 4.0%

of sovereign bonds to its existing 3.5% 3.08% private sector asset purchase pro- 3.0%

C gramme in order to fulfil its price 2.5% M

Y stability mandate. It will involve 2.0% CM 1.91% MY EUR 60 billion in government and 1.5% CY

CMY

private sector bond purchasing per K 1.0%

month from March 2015 until at 0.5% least September 2016. This 19-month 0.0% programme, totalling over EUR -0.5% -0.65% -0.61% 1.1 trillion, has been put in place -1.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mainly to address the risks of a HICP Average Inflation since 1999 prolonged period of low inflation in Source:EPRA developed.pdf EPRA 1 Research19/03/2015 12:21 and ECB EuroStat the European economy. EPRA Developed Europe Index capital raised 16 Combined with further monetary 14 easing and reacting to the delicate financial environment, the ECB aims 12 €4.0

C ) €4.0 n o i

to give firms and households accessM l 10 l i

Y B R U to cheaper finance to support invest-CM E (

d 8 MY e s i a CY R

ment and consumption. According l a t

CMY i

p 6 a to the ECB, this should contributeK C

towards a return to 2.0% inflation 4 €€1.71.7 rates. The announcement resulted 2 €0.7 in the euro hitting an 12-year low - against the US dollar and a seven- 2008 2009 2010 2011 2012 2013 2014 2015 year low against UK pound sterling. Equity & rights Issue IPO Debt issue Will the European listed real estate Source: EPRA Research and EPRA Monthly LTV Report

36.36. EPRA NEWS / 50 / 2015 FEATURES

“The long-term cash flow profile and the large gap that has opened up between the sector yield and the yield of sovereign bonds make Eurozone real estate stock an asset of choice for risk-averse income investors.” Valerie Guezi Jacob, Exane BNP Paribas, real estate analyst.

US Tresury.pdf 1 19/03/2015 12:23

United States Treasury Yield as a higher-yielding asset class, of- 4.50% fering an attractive income-premium 4.00% over bonds. Within the FTSE EPRA/ 3.50%

NAREIT Developed Europe Index we 3.00%

C have already seen more activity in M 2.50%

Y

CM the field of M&A with the successful 2.00% MY takeovers of Klépierre and Deutsche CY CMY 1.50% Annington, acquiring Corio and K 1.00% Gagfah respectively. 0.50%

For 2015, the market could see 0.00% -0.50% more large corporate actions and 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 20 Year 30 Year M&A, as well as IPO’s and capital Current QE Round 3 Operation Twist QE Round 2 QE Round 1 increases via secondary offerings Source:US.pdf EPRA 1 19/03/2015 Research 12:22 & Bloomberg and rights issues. The increased in- vestor demand for listed real estate, 5,000 10% driven by growing fundamentals and $4,502 generalist interest, have resulted in 4,500 9% the FTSE EPRA/NAREIT Developed 4,000 8% Eurozone Index gaining more than 3,500 7%

C 3,000 6% 20% in the first two months of 2015. M Y

CM 2,500 5%

MY

CY 2,000 4%

Although the pace and overall CMY 4.00% size of the sovereign bonds covered K 1,500 3% under the ECB’s QE programme 1,000 2% $880 may be far bolder than the market 500 1%

- 0%

1 1 1 1 1 1 0 8 9 2 3 8 9 2 3 0 8 9 0 8 8 9 9 2 2 2 3 3 3 8 9 0 0 2 0 3 4 4 4 1 1 4 4 4 5 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 - 1 1 1 1 initially expected, the crucial ques- - 1 - - - 1 - 1 1 1 1 0 0 0 - 0 - - - 0 - 0 0 0 0 0 - - - - 0 - - - 0 ------t - - - - r - - - - t - - - c - t - - - r - g t r r n t b r c c g g c g b t t n c c n r b r b g n b n b p c c c c g g c e n n c b p u b p p e e u e c e p c u e u e u e e u e u p p u u e e J e u O A u u e e u J u J F O D O J A A A O A - J F - O - F F A D F D A A D J J A - F - - O O - - - - D - A - A - A - - - - - F F - - D - D - - - A - A - - - - 7 - - - 7 - - 7 - - - 7 - 7 7 - 7 - - 7 - 7 7 - 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 2 7 7 2 2 7 7 7 7 7 7 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 tion remains whether an increase 2 in reserves under zero, or even Total Assets held by FED (USD Bn) FTSE EPRA/NAREIT USA TR Index (USD) Avg. US Div. Yield negative, interest rate will affect the Source: EPRA Research and Federal Reserve willingness of banks to supply loans. stocks to even greater premiums to dropped, but the unemployment rate “Eurozone real estate stocks are their asset values. remained very high. looking expensive on nearly all traditional valuation metrics,” says Quantitative easing in other During November 2010, the FED Valerie Guezi Jacob, Exane BNP economies announced another round of Quanti- Paribas real estate analyst. “However United States tative Easing, buying USD 600 billion their long-term cash flow profile and The US Federal Reserve System of Treasuries. In December 2013, the the large gap that has opened up (FED) started its QE programme in FED announced the tapering of QE3, between the sector yield and the November 2008, by announcing which would put an end to the latest yield of sovereign bonds make the purchase of USD 100 billion in QE programme in October 2014. The them an asset of choice for risk- Government-sponsored Enterprises US economy is now recovering and averse income investors. They find (GSE) such as Fannie Mae and Fred- the unemployment rate fell below themselves excluded from the bond die Mac, as well as USD 500 billion the FED’s goal of 6.5% to 5.6% in markets due to very low or negative in Mortgage Backed Securities (MBS). December 2014. The FED’s balance- yields.” Guezi says that given that QE Three months later, the purchase sheet increased from USD 870 billion has not even started yet in Europe, of another USD 100 billion in GSE to almost USD 4.5 trillion. Since we can’t exclude the possibility that and USD 750 billion in MBS were the start of the FED’s quantitative this trend will continue and drive announced. The US treasury yields easing programme, the 30-year >

EPRA NEWS / 50 / 2015 37. FEATURES

UK Treasury.pdf 1 19/03/2015 12:24

United Kingdom Treasury Yield treasury yield declined more than 5.00% 3% to a current yield of below 1%. 4.50%

4.00% Since the beginning of 2009, the 3.50%

FTSE EPRA/NAREIT US Index (USD)C M 3.00% gained a gross annualised total re-Y CM 2.50% turn of 18.4%, but more importantlyMY CY

CMY 2.00%

the dividend yield of the same indexK remained stable at values just above 1.50% 4%. Investors in the US saw the 1.00%

treasury yield decreasing after each 0.50%

round of quantitative easing, making 0.00% 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 20 Year 30 Year it less rewarding to invest in bonds, QE1 Announced QE2 Announced QE3 Announced Current but gained a stable dividend income UK.pdf 1 19/03/2015 12:25 and price return on their invest- Source: EPRA Research & Bloomberg ments in US listed real estate. United Kingdom 100 10%

United Kingdom 90 9%

On January 19, 2009, the Bank 80 £75 £75 8%

of England (BoE) announced the 70 7% C

M 60 6% purchase of up to GBP 50 billion inY

CM £50 £50 £50 £50 £50 50 5% private assets and six weeks laterMY

CY

the start of a GBP 75 billion QE pro-CMY 40 4% 4.04% K

gramme. Between March 2009 and 30 £25 3%

July 2012, the BoE expanded the QE 20 2%

programme five-fold to a total of GBP 10 1%

375 billion. - 0% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

BOE QE per Month (Bln) FTSE EPRA/NAREIT UK Index (31/12/2007 = 70) Average EPRA UK Dividend Yield Since 01/01/2008 At the beginning of the BoE’s QE programme the 30-year treasury yield Source: EPRA Research and Bank of England was 4.5%, and it decreased to 3.5% and 3% at the announcement dates of Quantitative easing in the as an expected effect of the ECB’s QE Round 2 and Round 3 respectively. eurozone buy-back programme. The BoE’s QE has boosted economic Between December 2010 and Decem- growth, increased inflation and more ber 2012, the 30-year treasury yield There are clear differences importantly decreased the unemploy- decreased by approximately one between the European QE pro- ment rate to 5.7% as at February percent to 2.5%, and continued to gramme and that operated by the 2015. The year-on-year GDP growth decline to a current level of below FED, as the ECB is only targeting was 1.7% and 2.6% for 2013 and 2014 100 basis points. Comparing this government bonds. The US QE pro- respectively. Between January 2009 current yield with the yields in the gramme had a significantly bigger and February 2015, the UK 30-year UK and the US at the start of their stimulus potential due to its broad treasury yield decreased from 4.5% QE programmes, there appears to be range of assets covered, such as

to below 2.5%, while the FTSE EPRA/ littleeurozone.pdf room 1 19/03/2015for a 12:31 lower treasury yield MBS and GSE. NAREIT UK Index (GBP) dividend yield was on average 4%. The annualised Eurozone Treasury Yield 4.00% total return for the UK Index stands at 15% for the same period. 3.50%

3.00%

The debate around the effective- 2.50% C ness of QE remains however. The M Y 2.00%

CM

US programme only stopped at the MY

CY 1.50%

end of October 2014, so it is per-CMY

K haps too early to draw conclusions. 1.00%

Interest rates have been reduced, 0.50%

the threat of deflation has been 0.00% averted, and there has also been -0.50% a small, but significant, boost to 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 20 Year 30 Year the economic growth in the US and December 2010 December 2012 QE Announced by ECB Current the UK. Source: EPRA Research & Bloomberg

38.38. EPRA NEWS / 50 / 2015 FEATURES

Dividends.pdf 1 19/03/2015 12:34

The effect of QE in continental Eu- Dividends: a stable source of income rope will depend partly on the ability 200 5.0%

180 5 . of each country’s national bank and 3 8 1

5 .

160 9 4.0% 5

. 6

government to successfully revise 1 3 0

. 6 1 6

. . 9 1 7

Annualised compound dividend 2 6

5 . 5 1 5 0 1 3

. 1

growth EPRA Europe since 1999 5 7 5 . 140 7 9 . 1 their financial and economic models. . 4 4 4 3

= 3.14% 1 4 4 4 1 1 C 1

M 120 3.0% A good example is Greece, where the 5 .

Y 3 2

1 3

CM . 1 6 1 share of government debt purchased 100 .

1

MY 6 0 9 . 0 . 1 0 CY 8 0 9 under the QE programme is the 1 CMY 80 2.0% Annualised compound K highest in the eurozone. With a new CPI Europe since 1999 = 60 1.99% government recently put in place, 40 1.0% Prime Minister Tsipras needs to win the support of the other EU member 20 0 0.0% states and implement adequate and 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 EPRA Europe Dividend Index (December 1999 = 100) long-term economic reforms to let Greece maximise the benefit from Source: EPRA Research and ECB EuroStat the QE programme. and Sovereign Wealth Funds in The market will also closely watch It’s expected that mainly the Europe, North America and Asia. developments in Portugal and southern European countries will Between 1999 and 2014, the FTSE Poland, where we might expect new grasp at the chance to sell large parts EPRA/NAREIT Developed Europe av- REIT regimes established during of their government debt under the erage dividend yield was 3.14% and 2015. QE programme. But a crucial ques- an annualised total return of 10.12% tion for the ECB remains - whether an (between January 1999 and February EY’s Global Real Estate Partner Ad increase in reserves under zero, or 2015). Buisman believes the ECB’s quantita- even negative, interest rates affects tive easing programme may have the behaviour of banks, and more The ECB’s decision to start the QE a positive effect on the liquidity of importantly, their willingness to lend programme should add momentum European real estate companies. De- out money. to the European listed real estate creasing interest rates and a weaker market, with high total returns for euro would make both listed and Commercial real estate services the EPRA Indices and record levels unlisted real estate increasingly at- firm Cushman & Wakefield highlight- in IPO’s over the past 20 months. The tractive for EU and non-EU investors, ed that without QE, the real estate first announcement for a European continuously seeking higher yields market would be expecting a 5-10% real estate IPO was German Ado and returns. But as many economists increase in European investment Properties GmbH, expecting to raise fear, the impact on the real economy volumes this year, alongside a 20-to- up to EUR 400 million in Q2 of this – and therefore inevitably on sound 30 basis points drop in prime yields. year. In Spain we can expect a new property fundamentals – may be But with a successful QE package, Hotel REIT listing by listed property limited. The longer term impact is delivering lower borrowing costs company Hispania Activos Inmobil- therefore much more uncertain, but for a longer period, the expectations iarios (which raised EUR 550 million in the short term, it seems like real are increased to a 40-to-70 basis via a successful IPO in March 2014) estate is definitely in favour. points fall in prime yields and a 20% and Grupó Barcelo. Their targeted increase in property trading. initial investment is approximately EUR 421 million. As the ECB announced that the Tim Kesseler purchases under the QE programme “QE is also likely to reduce the EPRA Analyst, are intended to be carried out spread between periphery bond Research & Indices through at least September 2016, the yields and the bund further, which Tim Kesseler joined EPRA’s programme can be seen as an open- should help the performance of research team in August 2013. Kesseler holds a bachelors degree ended instrument to boost the Euro- real estate in peripheral markets,” in Finance & Controlling and pean economy. The QE programme concludes Valerie Guezi Jacob. completed his MSc in International certainly sends out a signal to Business – Finance at Maastricht investors that the ECB is committed Countries that have committed to University, and is a CFA Level I candidate. to stable growth and European unity. large-scale economic and financial [email protected] reforms, such as Spain are likely Outlook for European real estate to be rewarded the most by the QE The outlook for European real estate programme. With increased market stocks in 2015 seems promising due activity and investor demand, this to stabilising low interest rates and year could become an interesting increased demand from investors year for Spanish listed real estate.

EPRA NEWS / 50 / 2015 39. FEATURES

ALL BEPS ARE OFF – OR ARE THEY?

Proposed changes with economic activity. The action on circumstances where the interac- to international tax plan will also seek to address the tion of different tax rules leads to challenges posed by an increasingly double non–taxation or less than treaties by the OECD digital economy. single taxation, along with practices aim to prevent tax–treaty that shift profits away from the states shopping. One of the main difficulties in where the activities creating those presenting a co–ordinated response profits take place. is that taxation is an area carried out While high–profile tax investigations at the State level, and is considered Industry response of Google, Starbucks, Amazon and a foundation of national sovereignty. EPRA’s Regulatory team has exten- Fiat grab the headlines, the work of However, the interaction of domestic sively followed this important reform the OECD [Organisation for Economic tax rules in some cases leads to gaps of tax legislation. In conjunction with Co–operation and Development] and and frictions. the EPRA Taxation Committee and their BEPS Action Plan [Base Erosion experts from within EPRA’s member- Profit Shifting] is often overlooked. When designing their domestic ship, a response to the OECD’s plan tax rules, states may not sufficiently was drafted and submitted as part As part of our regulatory and take into account the effect of other of the written submission phase. legislative work, one of the major countries’ rules. When these sepa- The full response can be found on activities of EPRA’s Regulatory team rate systems interact through cross– the EPRA website. The emphasis of has been the monitoring of and border trade, there is a possibility of EPRA’s response is to highlight the responding to the BEPS Action Plan. double taxation. States participating economic benefits that REITs bring to Following a meeting of the G20 dur- in the OECD are strongly committed the European economy. ing 2013, finance ministers called on to eliminate such double taxation to the OECD to develop an action plan minimise distortions of trade and Also highlighted was the previous to address BEPS issues in a co–ordi- remove impediments to sustained work of the OECD which recognised nated and comprehensive manner. economic growth. the importance of REITs in its ‘Tax treaty issues related to REITs’ pub- Specifically, this Action Plan As trade becomes increasingly lished in 2007. As part of this report, should provide countries with do- global, the current rules have also the OECD recognised that “one of the mestic and international instruments revealed weaknesses that create primary purposes of tax treaties is to that will better align rights to tax opportunities for BEPS. BEPS focuses reduce tax barriers to cross–border

40.40. EPRA NEWS / 50 / 2015 FEATURES

“No or low taxation is not per se a cause of concern for policy– makers provided taxable income is not artificially segregated from the activities that generate it.”

OECD’s BEPS Action 6, “Preventing EPRA stance at OECD the granting of treaty benefits in The use of Real Estate Investment Trusts (REITs) has significantly inappropriate circumstances”, and expanded worldwide and now has a very substantial impact on it is a distinction that we have been today’s economy. REIT regimes have been introduced over the years as working hard to ensure the OECD a means to: take on board. ••Attract capital into the built environment/infrastructure through broad access of capital markets with daily liquidity. From our meetings with the ••Make the benefits of investing into commercial real estate accessible OECD, we believe that they have rec- for both institutional investors and small investors. ognised the arguments we provided ••Encourage transparent business and markets reports through analysts in our comments and submissions. and regular reporting. How the Action Plan develops is ••Professionalise the property sector (normally through the growth of something which we will of course the publicly quoted property sector) and create a more international continue to monitor, and working level playing field. alongside our colleagues at NAREIT, ••Lower the cost of capital for commercial property businesses; to ensure there is a unified industry ••Prevent the proliferation of offshore property funds/private position.

The ultimate aim of EPRA’s Tax trade and investment.” REITs present Following the submittal of a Committee is to prevent, as far as just one layer of final tax (at share- written response, the Regulatory possible, a situation where vague holder level), so they are simple and team attended a public consultation wording in OECD’s BEPS Action 6 non–aggressive in eroding a tax base at the OECD headquarters in Paris, could enable a local denial of tax of the res situs territory. reaffirming the position we set out treaty benefits to REITs which actu- in writing. We also arranged a fol- ally comply with the place–of–listing The operational nature of REITs low–up meeting with officials within and/or place–of–management tests. was highlighted in EPRA’s response, the OECD to press the case for REITs. along with explanation that REITs are EU institutional update typically a company (i) whose shares It is EPRA’s view that REITs Also in the headlines was the release are primarily traded on a recognised should be distinguished from Col- of the European Commission’s stock exchange established in the lective Investment Vehicles in the 2015 work–plan setting out their > company’s state–of–residence, and/ or (ii) whose primary place of man- agement and control is located in the Commission statement company’s state–of–residence. This Commission was voted into office with a commitment to “make a difference: to do different things and to do things differently. When this state–of–residence has Citizens expect the EU to make a difference on the big economic and contracted a tax treaty with one or social challenges – high unemployment, slow growth, high levels of more other states where the REIT public debt, an investment gap and lack of competitiveness in the holds in situ investments, the REIT global marketplace. And they want less EU interference on the issues should continue to be granted the where Member States are better equipped to give the right response. benefit of these tax treaties in the We will not present proposals that do not contribute to these priorities. form of reduced rates of withholding taxes on dividends or interest earned And we will apply political discontinuity and will take off the table from subsidiaries established in pending proposals that do not match our objectives or which are going those other contracting states. nowhere, because we want all institutions to focus on delivering what really matters.”

EPRA NEWS / 50 / 2015 41. FEATURES REPORTING

priorities for the coming year. In a to be withdrawn under this proposal. Committee expected to have a joint marked shift away from the previous This shapes up to be an interesting lead on the Plan. The rapporteurs administration under Barroso, both power struggle between the post– are expected to be Udo Bullman (DE, in its transparency and reduction Lisbon reformed Parliament and S&D) for ECON and Reimer Böge (DE, of proposals, the Commission pub- the other institutions as the current EPP) for BUDG. What was significant Global REIT Survey lished a direct letter setting out their five–year mandate continues. was that MEPs underlined the need agenda. for the Parliament to sign off the Also interesting from the latest allocation of funds under the EFSI – Of particular interest in the letter plenary sessions was the interaction again another test of the Parliament’s was the use of the terms “political of committees; the power–play be- resolve to assert its co–legislative Each REIT regime is unique. The latest survey updates the discontinuity”. While the European tween them and the political parties. position. Commission argues this better suits In a somewhat bizarre attempt to regulatory changes which have occurred this year – across the needs of European citizens by gain oversight of the “Juncker Plan” 37 countries. reducing interference from Brussels, (EFSI), the ITRE (Industry) Commit- Graeme Gibbs this position has already created tee Chair Jerzy Buzek sent a letter Policy Officer, This, the eleventh REIT Survey, covers 4 continents. It is a hugely collaborative tensions within the EU institutions. to himself in his role as Chair of EU Affairs effort - with major contributions from Deloitte, PWC, Ernst & Young, KPMG, Clifford Both the Council and the European the Conference of Committee Chairs Graeme Gibbs Chance, Loyens & Loeff and NAREIT, together with data from Consilia Capital. Parliament have strongly objected to claiming that ITRE also “has a strong joined EPRA proposals being withdrawn that are and rightful claim for a leading role in July 2014, currently being worked on or have in this procedure” and so arguing following a Global REITs are still developing despite recent market turmoil. We’ve seen the career in the UK public sector strong political backing. that the legal bases and the targets major REIT regimes withstand these recent traumas and remain popular with with the Home Office and the of the EFSI all fall within the compe- investors and governments around the globe. This is evident from the ability of UK Border Agency, working In one of the first sessions of tence of ITRE. in international affairs. Gibbs many REIT regimes to raise capital and the attention paid by the authorities to the the new year, First Vice–President received his Honours BA from continued development of existing regimes. Frans Timmermans faced strong The internal battle was con- the University of Liverpool. questions from MEPs on a number of cluded, with the Budget (BUDG) [email protected] environmental proposals scheduled Committee and Economic (ECON) The EPRA Global REIT Survey is your Experience window on the Knowledge REIT world. Value

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 A world of expertise, built around you. stakeholders, active involvement in the public and political debate, improvement of the general operating environment, encouragement of best practices and cohesion, Our unique combination of fi nancial expertise, access to capital and real and strengthening of the industry. estate knowledge will deliver opportunities and solutions that are perfect for you.

jll.co.uk/corporate-fi nance M&A ▪ Private Funds Advisory ▪ Renewable Energy Capital ▪ Debt Advisory Square de Meeus 23 • B-1000 Brussels • Belgium 42.42. EPRA NEWS / 50 / 2015 Contact T +32 (0)2 739 1010 • F +32 (0)2 739 1020 • E [email protected] • www.epra.com

R17211 JLL EPRA HalfPage.indd 1 04/03/2015 16:34 REPORTING

Global REIT Survey

Each REIT regime is unique. The latest survey updates the regulatory changes which have occurred this year – across 37 countries.

This, the eleventh REIT Survey, covers 4 continents. It is a hugely collaborative effort - with major contributions from Deloitte, PWC, Ernst & Young, KPMG, Clifford Chance, Loyens & Loeff and NAREIT, together with data from Consilia Capital.

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.

The EPRA Global REIT Survey is your window 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 FEATURES

A SELLERS’ MARKET

Wall of money flowing Unibail-Rodamco, the on the common into European real estate continent’s largest list- currency, increas- ed property company, ing the appeal of provides opportunity to plans to divest mainly euro-denominated sell and achieve better office assets that it has assets to inter- strategic focus, CEOs developed and leased. national inves- It will reinvest the sale tors, notably in say at EPRA panel. proceeds in a EUR Asia and North 6.3 billion development pipeline. America, the CEOs remarked. A wall of money targeting European Cuvillier’s fellow panellists, British real estate is deterring three of the Land CEO Chris Grigg and PSP Swiss Weak economic growth and continent’s leading publicly traded Property CEO Luciano Gabriel, said deflationary pressures are mak- property companies from acquiring they are also looking to improve ing it harder to lift rents, so in the standing assets because prices are the quality of their portfolios by absence of strong economic growth, being driven so high, their CEOs investing in development and asset the weight of capital targeting real said at the “Masterminds” panel improvement projects. estate assets is the primary driver of discussion at MIPIM organised by pricing, the CEOs noted. The positive the EPRA. Higher yield attraction longer-term prospects for real estate European real estate is attracting are reflected, however, in the share Competition is so fierce substantial investment flows from prices of the three companies repre- across the globe because it offers sented on the panel, all of which are that we cannot buy without higher income returns than other trading at a premium to the net asset asset classes. Property investment value of their portfolios. abandoning a disciplined yields are at a historically wide differential relative to benchmark One exception to the low growth approach to investment. bond yields as a result of record low outlook in Europe is the UK where interest rates and massive purchases London attracted considerable of fixed-income securities under amounts of global capital during “It’s definitely a sellers’ market,” central banks’ quantitative easing the financial crisis and its economy Unibail-Rodamco CEO Christophe programmes. began to recover sooner than else- Cuvillier said at the EPRA event where. This has already translated on March 11 at the annual property “The spread is huge,” Cuvillier into rental growth, giving scope for trade fair in the French Riviera town said. “This is a guarantee that we prices to keep rising, said British of Cannes. “Competition is so fierce have a buffer for when interest rates Land’s Chris Grigg, whose company that we cannot buy” without aban- do go up, which isn’t likely for about focuses on UK retail and London doning a disciplined approach to another 18 months.” office investments. investment, he added. In the Eurozone, the European “In London there’s been relatively Pan-European shopping centre Central Bank’s efforts to revive flag- robust growth in rents and early owner and Paris office developer ging economies have also weighed yield compression, so further price

44.44. EPRA NEWS / 50 / 2015 FEATURES

growth will be driven by rental The SNB’s surprise decision growth prospects,” he said. What to end its cap on the Swiss franc’s EPRA appoints Luciano Gabriel London has experienced is filtering exchange rate against the euro may as chairman through to the rest of the UK as cause the export-driven economy to falling unemployment and real wage slow, which will act as a brake on The EPRA Board of Directors have growth are lifting consumer spend- rental growth, Gabriel said, adding appointed. Luciano Gabriel, CEO ing and investment. The rest of the that this underscores the importance of PSP Swiss Property Group, UK is also starting to see “slower of having good properties in the right as its new chairman during the but reasonably robust growth,” he locations that appeal to tenants. MIPIM real estate trade fair. added. “We are renovating or developing Gabriel joined PSP Swiss Prop- Swiss roll the cap new assets rather than buying assets. erty as CFO in 2002 and has been CEO since 2007. Switzerland faces a different set This will improve the quality of our The company owns office and commercial properties of challenges from the UK and the properties and optimise the quality of throughout Switzerland with a value of around CHF 6.6 Eurozone, said PSP’s Gabriel, who is our portfolio,” said Gabriel of PSP which billion. He was previously responsible for corporate also EPRA’s Chairman focuses on Swiss office investments.. finance and group treasury at Zurich Financial Services between 1998 to 2002 and prior to that held manage- The global financial crisis largely When pressed by discussion ment positions in corporate finance, risk management, had little impact on the Swiss real moderator Allan Saunderson, editor international corporate banking and business develop- estate market. Prices have been of PIE Magazine, all three panellists ment at UBS in Zurich from 1984 to 1998. squeezed higher due to the country’s said that the current market condi- safe-haven appeal and in the face of tions meant that they have no plans Gabriel commented: “I’m honoured at the trust strong investment demand from yield to depart from their current strategies shown in me by EPRA’s board with my appointment hungry domestic pension funds and - either a focus on a particular prop- as chairman and look forward to working closely insurers, something that will con- erty asset class or geography - which with them and Philip Charls to further develop tinue following the Swiss National have proven to deliver better returns EPRA’s role as the representative body for Europe’s Bank’s introduction of negative inter- over the medium to long term for listed real estate companies during an exciting period est rates, PSP’s Gabriel observed. their shareholders. of growth in the market.”

COVER

These companies were added to the FTSE EPRA/NAREIT Developed Europe Index series over the last quarter:

EPRA NEWS / 50 / 2015 45.

FEATURES

EPRA ANNUAL CONFERENCE BERLIN 2015 OR FOCUS WORKING

T September 08-10, 2015 The main conference event will be on

NE one day – on September 09. Delegates

INVEST can choose to participate in activities on the day before and after. NEW OPPORTUNITIES

Delegates will have access to a networking tool to enable pre-planning meetings and general introductions.

Who attends? EPRA members, listed property CEOs/CFOs, top global investors, analysts, accountants and consultants. www.epra.com/conference

Main sponsors

Standard sponsors

EPRA NEWS / 50 / 2015 47. Connect to the right places

Feel good in a calm yet stimulating atmos- phere. Discover a wide and ever-changing range of brands, products, and services, an inexhaustible source of desire, delight, and inspiration. Klépierre, the leading European shopping center pure player.

www.klepierre.com

K-Ann-EPRA-3-2015-210x148.5.indd 1 26/02/2015 10:45

23318_210x148_5_EPRA_gtas_e.indd 1 06.02.15 10:12 FEATURES

A4 EPRA CONFERECE AD.pdf 1 23/01/2015 09:46 Connect CONFERENCE FOCUS: to the right WHERE IS THE places EPRA Feel good in a calm yet stimulating atmos- EUROPEAN ANNUAL phere. Discover a wide and ever-changing EPRA range of brands, products, and services, an CANNUALONFERENCE inexhaustible source of desire, delight, and CONFERENCE BERLIN 2015 inspiration. ECONOMY BERLIN 2015 Klépierre, the leading European shopping center pure player. GOING? www.klepierre.com SEPTEMBER 08-10 NETWORKING Six months is a longC time when macro–economics HousingSAVE THE markets, DATE long– INVESTOR FOCUS INVESTOR M

crosses with geo–politics.Y Andrea Boltho sets the scene, NEW OPPORTUNITIES CM depressed across much of well in advance of his Annual Conference economic MY

CY forecast in September. We may all look back to this Europe,Europe's listed arereal estate seeing industry undersome CMY one roof! Annual Conference delegates can K with curiosity. join portfolio and investor activities in the tentativedays before and aftersigns the main of Berlin revival event.

A proper European recovery is in cent vis–à–vis the dollar. These here and there in the wake place. Finally! Admittedly, the same three forces, put together, should was said at this time last year, when add at least half a percentage K-Ann-EPRA-3-2015-210x148.5.indd 1 26/02/2015 10:45 of a prolonged period of a number of indicators were pointing point (and probably more) to the Registration fee: EUR 995 to improvements in confidence and Eurozone’s GDP growth this year. exceptionally low interest rates. + Property tours. activity. Yet, there was little to show+ Investment presentations. for it, at least in the eurozone, if+ DiscussionSeveral and other networking variables among have also CEOs, CFOs and other leading not in the UK or Scandinavia. Why industryevolved professionals. more favourably in the re- should things turn out differently on cent past. Fiscal austerity, which has www.epra.com/conference this occasion? been lowering activity since 2010, EPRA members only. There are three major reasons will be much less in evidence from for optimism that were not there 12 now onwards. Housing markets, months ago: long–depressed across much of Eu- 1. foremost is the sharp fall in the rope, are seeing some tentative signs price of oil. In energy–consuming of revival here and there in the wake Europe this acts like an indirect of a prolonged period of exception- tax cut, boosting real disposable ally low interest rates. The Spanish income and, therefore, consumer economy, after a long recession, spending. seems to be gathering some strength. 2. the introduction of so–called “Quantitative Easing” (QE) Meanwhile, in Germany, the by the European Central continent’s locomotive, recent wage Bank – the purchase of agreements have gone well beyond sovereign bonds, basically the rate of inflation. Given the high financed by printing money, and profitability and competitiveness of designed, inter alia, to spur bank the country’s corporate sector, such lending. real wage increases are in no way 3. direct consequence of impending dangerous. Indeed, they are more QE, is the decline in the value of than welcome and will, hopefully, the euro. Since mid–2014, the cur- give a strong boost to household rency has fallen by some 20 per spending in the country.

EPRA NEWS / 50 / 2015 49.

23318_210x148_5_EPRA_gtas_e.indd 1 06.02.15 10:12 A4 EPRA CONFERECE AD.pdf 1 23/01/2015 09:46 FEATURES

The certainly of uncertainty Tuesday, There are, of course, a number of uncertainties. The September 08 Russian-Ukrainian conflict, whose outbreak depressed 08:00–17:00 EPRA confidence early last year, could escalate. Were this German property tours ANNUAL to happen, further sanctions and counter-sanctions There will be three tours to CONFERENCE might be imposed by both the West and by Russia. choose from, each managed BERLIN 2015 While it is not in Russia’s interest to put an embargo by a leading bank. If you take on its energy exports to Western Europe, the outcome a tour, your EPRA conference of increased tensions could still have negative effects will begin on-site at a oneEPRA of on activity. the property company’sANNUAL assets. SEPTEMBER 08-10

• NETWORKINGHamburg (north) C SAVE THE DATE INVESTOR FOCUS INVESTOR Similarly, increased tensions in the MiddleM East • Berlin (residential)CONFERENCE (or even more chaos in Libya) might put a stopY to the • Berlin (commercial) NEW OPPORTUNITIES CM fall in oil prices and could even lead to a rebound, BERLIN 2015 MY

undoing much of the favourable impact obtainedCY Invite-only Programme: Europe's listed real estate industry under CMY so far. And the issue of Greece looms over the EPRA CFO Summit: one roof! Annual Conference delegates can K eurozone’s horizon. The most likely outcome would • Direction in next 24 months join portfolio and investor activities in the days before and after the main Berlin event. seem that of an uneasy compromise (or fudge), • BPR workshop in which Greece promises half-hearted reforms • Investor perspective in exchange for continued, but stingily delivered, EPRA Board of Directors Meeting assistance, with the country remaining part of the EPRA Advisory Board Meeting followed by open EPRA AGM single currency area. Various Committee meetings. Registration...... fee: EUR 995 The danger of exit is ever-present and while exit + Property tours. + Investment presentations. may not lead to contagion across Southern Europe + DiscussionWednesday, and networking among September 09 (as it would almost CEOs, CFOs and other leading industry professionals. certainly have done Chairman & CEO opening remarks in 2012), that danger www.epra.com/conference Economist debate cannot be excluded EPRA members only. German-focused industry discussions altogether. Should the currency union break - Coffee break - up, forget about the Panel: foreign investors in Germany recovery! The success of cities - Lunch, with industry leader interview - Andrea Boltho Cyber-evolution and the future effects on our industry Andrea Boltho is now an Emeritus Fellow Pan-European growth outlook of Magdalen College, - Coffee break - University of Oxford, Diversity in real estate – ladies running the show where he was Fellow and Tutor in Economics from 1977. His areas of interest are international economics, Global investor debate economic policy and applied macroeconomics. In German leadership interview 1966 he began his career at the OECD’s Department Pre-dinner cocktails of Economics, where he was also editor of the Conference dinner publication Economic Outlook. He will revisit this theme at the EPRA Conference during the economist debate...... Thursday, September 10 With the large-cap companies centre stage on the previous day, Thursday brings together a choice of 24 small and mid- cap companies which you don’t hear from everyday. All index constituents, they will pitch to an investor audience throughout the final, quick-fire, conference day of presenta- tions.

The companies have been chosen based on an inves- tor survey, bringing the most innovative and agile into the spotlight.

50.50. EPRA NEWS / 50 / 2015 FEATURES

TRENDS CHANGING EPRA ANNUAL THE FINNISH CONFERENCE BERLIN 2015 MARKET

Sponda CityCenter The Nordic capitals are the fastest growing cities Local and overseas in Europe and the Helsinki metropolitan area is investor uptick In recent years, the total size of the no exception as Finns crave for the urban life. The property investment market has polarisation of the country is strongly affecting real increased mainly through the emer- estate values. gence of new players. International investors have steadily increased The shopping culture is in flux in Structural changes their share of the total market, and Finland. Consumer values have in the Finnish property it currently stands at almost 20%. Of changed quite a lot during the recent investment market the domestic component, property years, accelerated by the economic The total size of the Finnish profes- funds have seen the most expansion. situation. Trends impacting the retail sional property investment market landscape include continued urbani- currently amounts to some EUR 50 Funds are most commonly sation, the drive for convenience and billion. Institutional investors – do- structured either as limited partner- proximity of shopping, omni–chan- mestic pension funds in particular ships or as a specific type of mutual nel retailing where online channels – have traditionally dominated fund structure. Limited partnerships complement traditional retail and the the investment markets, and their are mostly targeted at institutional social aspect of retail. Online shop- property portfolios have been investors, whereas special fund ping requires a wide and effective concentrated on domestic direct structures can also be offered to logistics network which is still being holdings. Currently their direct hold- private investors. In total, domestic developed in the larger cities. ings represent some 32% of the total funds’ property holdings amounted investment universe. In their new to some EUR 7.5 billion at the end of The concept of workspace investments, they emphasise indirect 2014, which represents a 30% growth in radical change and foreign investments, which is set in the past three years. Due to global digitalisation, working to gradually decrease their weight in habits have changed dramatically the Finnish property market. Investment activity picked which has affected how workspace up in 2014 is used. Private organisations have Listed property companies – The total transaction volume had workspace efficiency on their whose Finnish property portfolios amounted to some EUR 4.3 bil- agenda for quite some time, and totalled some EUR 5.6 billion at the lion in 2014. This represents an now the public sector has reacted to end of 2014 – represent some 11% of increase of 72% compared to 2013. the prevailing trend. Helsinki Metro- the total investment market. Their The biggest deal was made by the politan Area has already almost 1.1 share has remained stable during newly established property company million sqm vacant office space, and the past years. The sector only Certeum, who acquired a EUR 917 the trend is upwards. comprises three major companies: million logistics and industrial prop- Sponda, Citycon and Technopolis. erty portfolio from Sponda, Sponda’s funds as well as pension insurance company Varma. Several new >

EPRA NEWS / 50 / 2015 51. FEATURES

Citycon Iso Omena, Helsinki,

The total 2014 transaction volume was EUR 4.3 billion – an increase of 72% compared to 2013.

international investors entered the Rental residential increasingly Due to the continuous increase in Finnish market in 2014, representing important to investors rents and high occupancy rates, also some 35% of the total transaction Unlike in many other countries, income return remains at a healthy volume. Domestic property funds rental residential property is a recog- level of 5.5%. The main players continued increasing their portfolios, nised property sector in the Finnish in the residential market include and accounting for around a quarter institutional investment markets, specialised property companies, do- of the total volume in 2014. and residential currently represents mestic funds and institutional inves- more than one quarter of the total tors. Foreign interest has increased Total returns amounted investment universe. One reason for in recent years, but no major players to 5.6% in 2014 this is the liberal legislation concern- have entered the market so far. According to the KTI Property Index, ing rental agreements, which makes the total return on the Finnish prop- residential a truly market–oriented In the listed property sector, erty market amounted to 5.6% in investment sector. Orava Residential REIT is the only 2014. Capital growth remained in the company investing in residential negative territory at –0.6%. Income In recent years, strong rental de- properties. The company operates return remained healthy at 6.3%, mand in all major cities has boosted under a specific tax regime which which by international comparison residential property returns, and in is only allowed for listed companies is high. the KTI Index, residential has been investing in rental residential the best performing sector every properties. At the end of 2014, its Pressured by the tight economic year since 2008. Capital growth for property portfolio was valued at EUR conditions, market values decreased residential has been positive every 130 million. for all commercial property sectors. year since the introduction of the Offices – which remains the biggest KTI Index in 1998. In 2014, residential sector in the institutional property property values increased by 2.6%. investment market – produced nega- tive capital growth for the seventh consecutive year, now standing at Tuomas Lesonen Hanna Kaleva –2.0%. Only in Helsinki CBD, where Project Engineer, Managing the biggest investment demand is M. Sc. (Tehc.) director, FRICS targeted, market values increased RAKLI – The Finn- KTI Property in 2014. Outside the CBD, high ish Association of Information vacancy rates, now standing at Building Owners KTI is an 12.5% in the Helsinki metropolitan and Construction independent area, keep the outlook negative. Clients research and Tuomas Lesonen information company servicing has a responsibility for the the Finnish real estate industry. real estate investment and Services of KTI Finland include, finance committee. RAKLI´s for instance, the KTI Property members include Finland´s most Index, benchmarking of rental prominent owners of residential levels and operational costs, and commercial properties as well as various types of and infrastructure, tenants of market information, analysis and commercial facilities, property research services. investors, building contractors www.kti.fi and service providers. The members represent both the private and the public sector. www.rakli.fi

52.52. EPRA NEWS / 50 / 2015 15883 PERE Series Advert_Layout 1 05/03/2015 12:49 Page 1

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FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES GLOBAL

400 GLOBAL EPRA/NAREIT Global TR (USD) 190.2% 350 EPRA/NAREIT North America TR (USD) 184.6% EPRA/NAREIT Asia TR (USD) 217.1%

300 EPRA/NAREIT Europe TR (EUR) 137.7% d to 100) e 250 eba s r

alue ( 200 V Ind ex 150

100

50 Jul 03 Oct 03Jan 04Apr 04Jul 04Oct 04Jan 05Apr 05Jul 05Oct 05 Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07 Jul 07 Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12April 12Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14Dec 14

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) 27 Feb YTD -1Y -3Y 27 Feb Q Klovern A Sweden Rental Diversified 27.75 27.75 34.76 92.81 49.87 27.15% Q Klovern B Sweden Rental Diversified 26.06 26.06 36.84 -NA- -NA- 0.00% Q Fastighets AB Balder B * Sweden Rental Diversified 23.27 23.27 34.06 79.15 65.17 0.00% Q Hulic Japan Rental Diversified 21.04 21.04 7.84 11.53 -NA- 0.80% Q Dios Fastigheter AB Sweden Rental Diversified 18.88 18.88 -NA- -NA- -NA- 3.11% q Tanger Factory * USA Rental Retail -9.91 -9.91 -NA- -NA- 9.22 2.71% q Wharf Holdings Hong Kong Non-Rental Diversified -10.24 -10.24 0.98 7.66 -NA- 3.09% q Retail Properties of America * USA Rental Retail -10.51 -10.51 -5.15 13.56 -NA- 4.19% q Taubman Centers * USA Rental Residential -10.71 -10.71 -5.39 -4.00 45.38 4.56% q DuPont Fabros Technology * USA Rental Specialty -15.97 -15.97 -5.81 25.00 17.59 5.37%

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 27 Feb 1 Simon Property Group * USA Rental Retail 53,343.65 4.47 5.30 27.98 16.83 2.94% 2 Mitsubishi Estate Japan Non-Rental Diversified 26,359.68 2.69 9.31 16.75 15.39 0.43% 3 Public Storage * USA Rental Self Storage 25,498.52 2.32 6.69 20.90 16.84 2.84% 4 Unibail-Rodamco * France Rental Retail 25,046.34 2.27 21.02 36.98 24.21 3.45% 5 Equity Residential Props * USA Rental Residential 24,475.20 2.18 7.22 36.02 13.49 2.60% 6 Mitsui Fudosan USA Rental Residential 15,087.45 1.88 12.72 9.59 4.94 4.45% 7 Health Care REIT * USA Rental Industrial 14,858.51 1.85 11.47 5.78 4.46 2.72% 8 Sun Hung Kai Props Hong Kong Non-Rental Diversified 21,541.51 1.78 2.79 23.41 4.65 2.75% 9 Ventas * USA Rental Health Care 21,242.48 1.72 4.16 25.64 14.37 4.53% 10 Avalonbay Communities * USA Rental Residential 19,688.80 1.72 3.03 35.02 12.03 2.76%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) 27 Feb YTD -1Y -3Y 28-Feb EPRA/NAREIT Europe TR (EUR) 89,413.34 2,120.06 15.45 17.70 -11.24 4.18% EPRA/NAREIT Asia TR (USD) 306,179.92 2,352.2 13.95 14.66 -11.67 3.41% EPRA/NAREIT North America TR (USD) 337,107.80 3,476.5 25.49 43.36 -5.34 3.69% EPRA/NAREITGlobal Global TR (USD) 768,453.88 2,851.93 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 28.1% Global Non-Rental 14% Global Industrial 5.4% Europe 16.3% Global Rental 86% Global Residential 12.0% Global Speciality 0.0% North America 55.5% Self Storage 3.4% Middle East 0.1% Global Retail 25.8% Global Office 12% Global Lodging/Resorts 2.9% Global Industrial/Office 1.9% Global Healthcare 7.4% Global Diversified 27.8%

54.54. _ EPRAEPRA NEWSNEWS // 5038 // 20152011 FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES ASIA

500 GLOBAL EPRA/NAREIT Hong Kong TR (HKD) 297.7% EPRA/NAREIT Japan TR (JPY) 238.3% 400 EPRA/NAREIT Singapore TR (SGD) 197.0% EPRA/NAREIT TR (AUD) 32.8%

300 d to 100) e eba s r

200 alue ( V Ind ex

100

0

Jul 03 Oct 03Jan 04Apr 04Jul 04Oct 04Jan 05Apr 05Jul 05Oct 05 Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07 Jul 07 Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14Dec 14

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) 27 Feb YTD -1Y -3Y 27 Feb Q Hulic Japan Rental Diversified 21.04 21.04 7.84 11.53 -NA- 0.80% Q Aeon Mall Co ltd Japan Rental Retail 17.83 18.39 8.40 -17.05 10.43 0.95% Q Mitsubishi Estate Japan Non-Rental Diversified 17.20 17.20 9.31 16.75 15.39 0.43% Q Tatemono Japan Non-Rental Office 11.25 11.25 1.02 8.84 24.06 0.67% Q Cromwell Property Group * Australia Rental Office 10.38 10.38 0.00 0.00 -NA- 6.62% q Fukuoka REIT Japan Rental Diversified -4.46 -4.46 -4.46 -45.50 -NA- 2.92% q Nippon Accommodations Fund * Japan Rental Residential -6.06 -4.47 -2.05 34.49 -NA- 0.03% q Link REIT * Hong Kong Rental Retail -5.71 -5.71 1.96 -NA- 23.25 3.54% q Kerry Properties Hong Kong Non-Rental Diversified -5.82 -5.82 -7.99 4.49 -3.96 3.28% q Wharf Holdings Hong Kong Non-Rental Diversified -10.24 -10.24 0.98 7.66 -NA- 3.09%

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 27 Feb 1 Mitsubishi Estate Japan Non-Rental Diversified 26,359.68 8.06 9.31 16.75 15.39 0.43% 2 Mitsui Fudosan Japan Non-Rental Diversified 23,250.75 7.11 0.97 9.30 17.76 0.67% 3 Sun Hung Kai Props Hong Kong Non-Rental Diversified 21,541.51 6.59 2.79 23.41 4.65 2.75% 4 Scentre * Australia Rental Retail 13,946.22 4.26 10.29 -NA- -NA- 2.64% 5 Sumitomo Realty & Dev Japan Non-Rental Diversified 13,282.67 4.06 -0.50 0.93 21.69 0.49% 6 Westfield Corp. * Australia Rental Retail 13,230.67 4.05 8.76 56.92 16.16 3.27% 7 Link REIT * Hong Kong Rental Retail 12,999.11 3.97 1.96 39.68 23.25 3.54% 8 Wharf Holdings Hong Kong Non-Rental Diversified 9,839.78 3.01 0.98 7.66 -NA- 3.09% 9 Hongkong Land Hldgs Hong Kong Rental Office 7,901.24 2.42 11.69 -NA- 12.74 2.38% 10 Stockland Trust Group * Australia Non-Rental Diversified 7,546.59 2.31 13.83 30.83 8.10 5.12%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) 27 Feb YTD -1Y -3Y 27 Feb EPRA/NAREIT Australia TR (AUD) 100,199.83 2,510.41 11.74 35.68 22.91 4.05% EPRA/NAREIT Hong Kong TR (HKD) 737,920.26 3,106.15 3.05 20.16 6.29 3.1% EPRA/NAREIT Japan TR (JPY) 17,961,564.79 4,192.03 2.57 16.60 28.36 1.67% EPRA/NAREITAsia Singapore TR (SGD) 57,001.03 2,036.30 6.12 18.72 10.76 3.55%

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

New Zealand 0.3% Asia Non-Rental 47% Retail 19% Australia 21.4% Asia Rental 53% Residential 2% Office 12% Japan 41.0% Industrial 8% Hong Kong 25.9% Diversified 59% Singapore 11.4%

EPRA NEWS / 5038 / 20112015 _ 55.55. REFERENCES

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES EUROPE

1000 EPRA/NAREIT Sweden TR (SEK) 470.8% EPRA/NAREIT France TR (EUR) 365.0% 800 EPRA/NAREIT Netherlands TR (EUR) 102.4% EPRA/NAREIT UK TR (GBP) 105.2% d to 100) e 600 eba s r alue ( V 400 Ind ex

200

0 Jul 03Oct 03Jan 04Apr 04Jul 04Oct 04Jan 05Apr 05Jul 05Oct 05 Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07Jul 07Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12Apr 12July 12Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14Apr 14 Jul 14 Oct 14Dec 14

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) 27 Feb YTD -1Y -3Y 27 Feb Q Klovern A Sweden Rental Diversified 27.75 27.75 34.76 92.81 49.87 27.15% Q Klovern B Sweden Rental Diversified 26.06 26.06 36.84 -NA- -NA- 0.00% Q Fastighets AB Balder B * Sweden Rental Diversified 23.27 23.27 34.06 79.15 65.17 0.00% Q Dios Fastigheter AB Sweden Rental Diversified 18.88 18.88 -NA- -NA- -NA- 3.11% Q Conwert Immobilien Austria Non-Rental Diversified 18.83 18.83 25.44 24.77 13.85 0.82% q Land Securities * UK Rental Diversified -1.41 -1.41 8.56 19.26 26.14 2.49% q Hammerson * UK Rental Retail -1.89 -1.89 -NA- -NA- 23.07 2.90% q INTU Properties UK Rental Retail -3.15 -3.15 -NA- -NA- 6.56 4.13% q Wereldhave * Belgium Rental Retail 5.07 5.07 -NA- -NA- 21.87 3.75% q Befimmo * Belgium Rental Office -4.42 -4.42 7.29 25.77 14.58 5.25%

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 27 Feb 1 Unibail-Rodamco* France Rental Retail 25,046.34 13.22 21.02 36.98 24.21 3.45% 2 Land Securities* UK Rental Diversified 13,613.77 7.19 8.56 19.26 26.14 2.49% 3 British Land* UK Rental Diversified 11,547.39 6.10 7.52 22.79 24.59 3.30% 4 Deutsche Annington Germany Rental Residential 10,580.33 5.59 22.62 75.27 -NA- 2.03% 5 Klepierre* France Rental Retail 7,720.21 4.08 24.83 39.68 27.23 5.63% 6 Hammerson* UK Rental Retail 7,299.21 3.85 11.65 20.99 23.07 2.90% 7 Deutsche Wohnen Germany Rental Residential 7,050.95 3.72 25.82 64.85 36.77 0.81% 8 Swiss Prime Site Switzerland Rental Diversified 4,494.41 2.37 18.90 22.33 9.03 4.15% 9 INTU Properties UK Rental Retail 4,470.86 2.36 5.84 14.33 6.56 4.13% 10 SEGRO* UK Rental Industrial 4,399.13 2.32 16.26 24.92 26.57 3.44%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) 27 Feb YTD -1Y -3Y 27 Feb EPRA/NAREIT UK TR (GBP) 53,018.30 3,224.44 9.34 19.97 25.91 2.59% EPRA/NAREIT Netherlands TR (EUR) 30,331.13 4,169.16 19.81 39.34 16.57 3.59% EPRA/NAREIT France TR (EUR) 18,876.01 8,328.62 19.90 30.70 23.30 4.90% EPRA/NAREIT Sweden TR (SEK) 122,411.62 12,959.57 22.62 46.12 30.84 1.86% Europe

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

United Kingdom 39% Europe Non-Rental 4% Speciality 0.0% Nederlands 16% Europe Rental 96% Self Storage 1.1% Retail 30.7% France 10% Residential 14.2% Austria 2% Office 9.5% Sweden 7% Lodgings/Resorts 0% Other countries 26% Industrial 3.4% Healthcare 0.5% Diversified 40.6%

56.56. _ EPRAEPRA NEWSNEWS // 5038 // 20152011 FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES NORTH AMERICA

400 GLOBAL GLOBALEPRA/NAREIT United States TR (USD) 177.9% EPRA/NAREIT Canada TR (CAD) 207.2% 350

300 d to 100) e 250 eba s r

200 alue ( V Ind ex 150

100

50 Jul 03 Oct 03Jan 04Apr 04Jul 04 Oct 04Jan 05Apr 05 Jul 05 Oct 05 Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07 Jul 07 Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 July 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Dec 14

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) 27 Feb YTD -1Y -3Y 27 Feb Q Campus Crest Communities USA Rental Residential 13.06 13.06 -NA- -NA- -3.50 4.62% Q Ryman Hospitality Properties USA Rental Lodging/Resorts 9.47 9.47 -NA- -NA- -NA- 3.66% Q Felcor Lodging Trust* USA Rental Lodging/Resorts 7.59 7.59 -0.09 -NA- 41.55 1.49% Q Dream Global REIT Canada Rental Industrial/Office 6.15 6.15 10.85 2.81 -NA- 8.42% Q American Realty Capital Prop* USA Rental Retail 5.88 5.88 8.40 -33.22 -NA- 0.00% q HCP* USA Rental Health Care -10.43 -9.23 -2.51 -NA- 6.83 5.34% q Tanger Factory* USA Rental Retail -9.91 -9.91 -NA- -NA- 9.22 2.71% q Retail Properties of America* USA Rental Retail -10.51 -10.51 -5.15 13.56 -NA- 4.19% q Taubman Centers* USA Rental Retail -11.73 -11.73 -5.34 13.23 6.68 2.99% q DuPont Fabros Technology* USA Rental Specialty -15.97 -15.97 -5.81 25.00 17.59 5.37%

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 27 Feb 1 Simon Property Group* USA Rental Retail 53,343.65 8.26 5.30 27.98 16.83 2.94% 2 Public Storage* USA Rental Self Storage 25,498.52 3.95 6.69 20.90 16.84 2.84% 3 Equity Residential Props* USA Rental Residential 24,475.20 3.79 7.22 36.02 13.49 2.60% 4 Health Care REIT* USA Rental Health Care 22,526.59 3.49 2.99 35.38 16.28 4.28% 5 Ventas* USA Rental Health Care 21,242.48 3.29 4.16 25.64 14.37 4.53% 6 Avalonbay Communities* USA Rental Residential 19,688.80 3.05 3.03 35.02 12.03 2.76% 7 Prologis USA Rental Industrial 18,971.27 2.94 -0.74 3.69 8.26 3.09% 8 Boston Properties* USA Rental Office 18,576.88 2.88 6.78 29.41 14.86 1.89% 9 HCP* USA Rental Health Care 17,298.36 2.68 -2.51 13.53 6.83 5.34% 10 Vornado Realty Trust* USA Rental Diversified 16,435.49 2.55 3.81 28.57 17.61 2.29%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) 27 Feb YTD -1Y -3Y 27 Feb EPRA/NAREIT Canada TR (CAD) 50,920.36 6,317.21 9.02 15.77 8.69 5.32% EPRA/NAREIT United States TR (USD) 683,279.92 6,005.29 2.93 22.58 15.46 3.36%

North America

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

United States 94% North America Rental 100% Speciality 0% Canada 6% North America Non-Rental 0% Self Storage 5.9% Retail 27.8% Residential 16.5% Office 12.6% Lodgings/Resorts 5.4% Industrial 4.5% Industrial/Office 2.7% Healthcare 13.2% Diversified 9.4%

EPRA NEWS / 5038 / 20112015 _ 57.57. REFERENCES

FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES EMERGING MARKETS

250 EPRA/NAREIT AIM TR (USD) -46.4% EPRA/NAREIT Emerging Market TR (USD) 88.9% 200 d to 100) e 150 eba s r alue ( V 100 Ind ex

50

0 Jul 05Oct 05Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07Jul 07 Oct 07Jan 08Apr 08Jul 08Oct 08Jan 09Apr 09Jul 09Oct 09Jan 10Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12July 12Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14Apr 14 Jul 14 Oct 14Dec 14

Top 5 and Bottom 5 Performers investment Price Return Total Return Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Company Country Focus Sector (%) 27 Feb YTD -1Y -3Y 27 Feb Q Greenland Hong Kong Holdings China Non-rental Diversified 65.02 65.02 62.34 18.20 -NA- 1.00% Q Rossi Residencial SA Brazil Rental Residential 35.68 35.68 -14.75 -66.20 -60.12 0.00% Q Immofinanz AG Russia Non-rental Diversified 34.73 34.73 30.35 -6.51 9.31 0.00% Q BR Properties S/A Ord Brazil Rental Industrial/Office 30.08 30.08 13.07 -31.82 -18.85 51.88% Q Kawasan Industri Jababeka Indonesia Non-rental Diversified 19.08 19.08 22.71 64.73 -NA- 0.10% q Ciputra Property Indonesia Non-rental Diversified -9.15 -9.15 -11.83 0.00 4.12 2.82% q PDG Realty S/A Empreendimentos Brazil Non-rental Residential -9.62 -9.62 -45.35 -68.87 -56.16 0.00% q Six Of October Development & Investment India Non-rental Diversified -13.19 -13.19 -7.22 58.86 -NA- 0.00% q Direcional Engenharia Brazil Non-rental Residential -13.69 -13.69 -30.83 -45.53 -NA- 10.86% q Rodobens Negocios Imobiliarios S/A Ord Brazil Non-rental Residential -26.77 -26.77 -26.02 -31.92 -11.59 13.08%

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 27 Feb 1 China Overseas Land & Inv (Red Chip) China Non-rental Residential 11,098.86 13.28 2.60 13.43 13.34 2.07% 2 Emaar Properties UAE Non-rental Diversified 6,429.71 22.59 3.99 0.39 43.08 1.81% 3 Fibra Uno Administracion S.A. de C.V. Mexico Non-rental Diversified 5,612.75 30.19 -3.61 -NA- -NA- 4.35% 4 China Resources Land (Red Chip) China Non-rental Residential 4,945.20 5.92 2.71 19.61 12.28 1.95% 5 Growthpoint Prop Ltd* South Africa Rental Diversified 4,869.50 17.11 7.97 26.30 13.89 5.43% 6 Ayala Land Philippines Non-rental Diversified 4,130.95 4.94 7.57 18.85 21.05 1.14% 7 Redefine Properties* South Africa Rental Diversified 3,249.60 11.42 10.65 25.42 15.69 6.30% 8 SM Prime Hldgs Philippines Rental Diversified 3,115.57 3.73 15.96 35.34 15.28 0.96% 9 Immofinanz AG Russia Non-rental Diversified 2,604.54 38.00 30.35 -6.51 9.31 0.00% 10 Shimao Property Holdings China Non-rental Diversified 2,360.97 2.83 -5.07 5.51 17.60 6.74%

Indices Market Cap Close Value Total Rtn (%) Total Rtn (%) Total Rtn (%) Div Yld (%) Index Description (EUR m) 27 Feb YTD -1Y -3Y 27 Feb EPRA/NAREIT Emerging Market TR (USD) 137,485.57 2,589.77 11.79 34.38 8.53 3.58% EPRA/NAREITEmerging AIM TR markets (USD) 83,573.79 3,º248.08 12.59 43.38 16.64 3.11%

Country Breakdown by Market Cap Global Breakdown by Country Brazil 6.3% Asia Pacific 61% Chile 0.7% Europe 5% China 36.2% Middle East/Africa 21% Czech 0.5% Americas 13% Egypt 0.3% lndia 1.8% Indonesia 5.9% Malaysia 4.9% Mexico 6.5% Philippines 6.3% Poland 2.5% Russia 0.2% South Africa 13.0% South Korea 0% Thailand 4.4% Turkey 1.8% Taiwan 0.1% UAE 7.4%

58.58. _ EPRAEPRA NEWSNEWS // 5038 // 20152011 FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDICES NAV & LTV

Discounts to Latest Published NAVs in Europe

50%

30% Europe Belgium

Sweden

France 10% Switzerland

UK

Netherlands -10% Norway

Finland

Italy

-30% Germany

Austria

Greece -50% Spain

-70%

-90% 3 3 2 2 3 2 3 2 9 9 9 9 3 3 2 2 9 9 4 4 4 4 4 4 11 11 11 11 11 11 1 1 1 1 1 1 1 1 10 10 10 1 10 1 10 1 1 10 1 1 1 1 1 1 ------0 - 0 r g - r r b - g - g - g - g - b - b - b - ct - b - g- 0 ct - ct - ct - ct - p b- 0 u pr - p p e u n pr - e e ct- 0 u n u u u u n u e u n e pr - 0 u n J O e u J J u n J F A J O O O O De c F A A F A F A De c De c F A De c J De c A A A A O F A De c A

Historical LTV - European Market

90%

80%

70% Belgium Finland 60% France Germany 50% Greece Italy 40% Netherlands Norway

30% Austria Sweden 90% Switzerland 20% United Kingdom 80% Europe 10%

70% Belgium 0% Finland 3 3 3 3 5 5 05 /11 12 1 1 1 1 14 14 14 14 4 4 14 14 14 14 14 14 1 1 05 /10 2/11 7/11 7/ /12 7/13 / 1/ / / / 1/ 7/ 2/12 60% 2/13 0 12/ 0 3 4/ 7 9/ 0 12/ 0 06/ /10 /11/10 France 1/1 1/11/ 1/ 02/ /0 0 05/1 06/1 /0 08/ 0 1/11/ 1/ 02/ / 30 31/12/10 01/01/11 01/03/11 01/0 01/1090% 01/11/11 01/12/11 01/01/12 01/0 01/10 01/11/12 01/12/1201/01/13 01/0 0 0 0 1/ 1/ 1 1/ 1/ 1/ 1 1/ 1/ 1/1 0 1/ 0 1/ 26/06/0527/06/05 28/06/05 29/06/05 30 01/0 30 01/0 01/04/11 01/05/11 01/06/11 01/08/11 01/09/11 01/0 01/03/1201/04/1201/05/12 01/06/12 01/08/1201/09/12 01/0 01/03/1301/04/1301/05/1301/06/13 01/08/1301/09/ 0 0 0 0 0 0 0 0 0 0 0 0 Germany 50% Greece 80% Italy 40% Netherlands 70% Belgium Norway Finland 30% Austria 60% France Sweden Germany Switzerland 20% 50% Greece United Kingdom Italy Europe 10% 40% Netherlands Norway Austria 0% 30% 3 3 3 3 5 5 05 /11 12 1 1 1 1 14 14 14 14 4 4 14 14 14 14 14 14 1 1 05 /10 2/11 7/11 7/ /12 7/13 / 1/ / / / 1/ 7/ 2/12 2/13 0 12/ 0 3 4/ 7 9/ 0 Sweden12/ 0 06/ /10 /11/10 1/1 1/11/ 1/ 02/ /0 0 05/1 06/1 /0 08/ 0 1/11/ 1/ 02/ / 30 31/12/10 01/01/11 01/03/11 01/0 01/10 01/11/11 01/12/11 01/01/12 01/0 01/10 01/11/12 01/12/1201/01/13 01/0 0 0 0 1/ 1/ 1 1/ 1/ 1/ 1 1/ 1/ 1/1 0 1/ 0 1/ 26/06/0527/06/05 28/06/05 29/06/05 30 01/0 30 01/0 01/04/11 01/05/11 01/06/11 01/08/11 01/09/11 01/0 01/03/1201/04/1201/05/12 01/06/12 01/08/1201/09/12 01/0 01/03/1301/04/1301/05/1301/06/13 01/08/1301/09/ 0 0 0 0 0 0 0 0 0 0 0 0 Switzerland 20% United Kingdom Europe 10%

0%

3 3 3 3 5 5 05 /11 12 1 1 1 1 14 14 14 14 4 4 14 14 14 14 14 14 1 1 05 /10 2/11 7/11 7/ /12 7/13 / 1/ / / / 1/ 7/ 2/12 2/13 0 12/ 0 3 4/ 7 9/ 0 12/ 0 06/ /10 /11/10 1/1 1/11/ 1/ 02/ /0 0 05/1 06/1 /0 08/ 0 1/11/ 1/ 02/ / 30 31/12/10 01/01/11 01/03/11 01/0 01/10 01/11/11 01/12/11 01/01/12 01/0 01/10 01/11/12 01/12/1201/01/13 01/0 0 0 0 1/ 1/ 1 1/ 1/ 1/ 1 1/ 1/ 1/1 0 1/ 0 1/ 26/06/0527/06/05 28/06/05 29/06/05 30 01/0 30 01/0 01/04/11 01/05/11 01/06/11 01/08/11 01/09/11 01/0 01/03/1201/04/1201/05/12 01/06/12 01/08/1201/09/12 01/0 01/03/1301/04/1301/05/1301/06/13 01/08/1301/09/ 0 0 0 0 0 0 0 0 0 0 0 0

EPRA NEWS / 5038 / 20112015 _ 59.59. COVER

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