Interview with Grainger Ceo Epra Industry Newsletter

Industry Newsletter

ISSUE 60 SEPTEMBER 2017

CLICKS N’ BRICKS. HOW RETAIL Interview IS CHANGING with Page 7 REFORMING SOLVENCY II FOR INSURERS Grainger Page 14

RAISING CAPITAL MORE CEO CREATIVELY Page 21 BPR LICENCE LICENCE BPR HOLDERS USA Allreal Group Mucklow A&J Holdings CLS Group CPI Property Group Harworth Inland Homes Securities McKay MRM Capital Horizon Northern REIT Residential Orava Capital Palace REIT Regional Income REIT Secure Properties Modwen St. Terreis Qrf members newest our to *Welcome CenterSquare Capital & Steers Cohen Management College Dickinson Duff & Phelps Management EII Capital Fidelity Management & Research Partners Forum Berman Neuberger Europe Realty Northstar Foundations Real Group Investment Russell Simon Property Financial SNL of Cincinnati University * Washington of University Ventas University Tech Virginia Wharton at RE Center Zell-Lurie Safestore Schroders SEGRO Shaftesbury Investment Life Standard Stenprop REIT Healthcare Target REIT Big Box Tritax U+I Group UBS Group Unite Aberdeen of University of Cambridge University CRER of Reading, University & Civic Urban Group Workspace Züblin Immobilien the provision of better information information the provision of better active and stakeholders, investors to public and political in the involvement improvement of the general debate, promotion of environment, operating and the cohesion and best practices strengthening of the industry. Find out more about our www.epra.com activities on UNITED KINGDOM UNITED UAE AEW Europe AEW Capital AMP Assura Aviva Investors Lynch Merrill America Bank of Bank Barclays Capital Barclays BDO Group Yellow Big Management Asset Blackrock Management Asset BMO Global (EMEA) Land British Properties & Counties Capital Securities CBRE Clarion Limited Global Markets Citigroup CMS Securities Suisse Credit REIT Custodian London Derwent Asset Alternative Deutsche Management (UK) Bank Deutsche Investments Property Ediston Property Student Empiric Global EP&T EY Living* GCP Student Estate GIC Real * Globalworth Goldman Sachs International Grainger Estates Portland Great Advisors Street Green Hammerson Holding Hansteen Bar Helical Global Investors Henderson intu Invesco Jefferies JLL Morgan J.P. Real Europe Wilson Kennedy Estate KPMG Landsec Property LondonMetric Fund MedicX Service Moody’s Investors Stanley Morgan REIT NewRiver University Trent Nottingham Deutschland Phoenix Spree Income Ltd Property Picton Asset Management* Premier Properties Health Primary Global Investors Principal International Redefine Abu Dhabi Investment Authority Abu Dhabi Investment REIT Emirates PSP Swiss Property Swiss PSP Site Prime Swiss of Geneva University * SWITZERLAND SWEDEN SPAIN SOUTH AFRICA SOUTH SINGAPORE NORWAY NETHERLANDS LUXEMBOURG JAPAN HIAG Immobilien HIAG Mobimo Holdings Atrium Ljungberg Atrium Castellum Fastigheter Dios Kungsleden Pandox SEB Technopolis Wihlborgs * SOCIMI Properties Albirana Patrimonio Axiare Gmp Property Inmobiliarios Activos Hispania Colonial Inmobiliaria Lar España Properties Merlin Holdings URO Properties Iberian VBARE Growthpoint Properties Growthpoint National University of Singapore University National Entra Property Norwegian ABN AMRO ABN Estate School of Real Amsterdam Management Asset APG ASR Estate Real European Atrium Barings Bouwinvest Ellis CB Richard Europe CBRE Global Investors Advisory Financial Deloitte Services Properties EuroCommercial Finance Estate ING Bank Real & Co Kempen Management LaSalle Investment Loyens & Loeff MN Services NSI PGGM Services Europe Redevco University Tilburg of Maastricht University Retail Vastned Wereldhave Yardi ADO Properties ADO Global REIT Dream City Properties Grand NN Investment Partners NN Investment the built environment; where we all live, where we the built environment; a They also play shop and relax. work, part crucial in providing retirement millions of people, by to security and stable funds pension offering in. invest to assets highly competitive develop promote, mission is to EPRA’s and represent the European public real We achieve this through sector. estate GERMANY GREECE KONG HONG IRELAND ISRAEL ITALY Mercialys Eiffel Tour de la Société Lyonnaise Foncière Société Générale Société Unibail-Rodamco Paris-Dauphine Université Estate Real ADLER Estate Allianz Real Office REIT alstria Property AroundTown DEMIRE EuroShop Deutsche Wohnen Deutsche DIC Asset Office DO Deutsche REIT Hamborner Applied of University HAWK Arts and Sciences Heitman IREBS Immobilien LEG Asset MUNICH ERGO MEAG Management PricewaterhouseCoopers Management Estate Real Institute Management Savills Fund Immobilien TAG IMMOBILIEN TLG VIB VictoriaPartners Vonovia WCM Westgrund REIC Properties Grivalia Development LAMDA REIC Pangaea NBG of Hong Kong University REIT Green REIT Hibernia REIT Properties Residential Irish Group Azrieli Gazit Globe Aedes Beni Stabili Chiomenti RES COIMA IGD SIIQ

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PAGE 1 ISSUE 60—SEPTEMBER 2017 IN THIS ISSUE

Update from Dominique Moerenhout

In the recent months, we have seen a At EPRA we embrace innovation and growing number of new companies with competition, however unsettling it may an alternative business model springing be. That is why we have made dealing Editor & Production up and entering the property market. In with uncertainty and change the Manager retail, office and even residential sector, centrepiece of our Annual Conference Kasia Jasik-Caínzos in September. We have an exciting line- it translates itself in a more flexible Article Credits customer-offering to reflect the ‘gig’ up of speakers, who will challenge the Mark Abramson economy. This development forces us way that we think about the real estate to re-think every aspect of our industry by exploring the economic, social, James Dearsley and the market leaders of tomorrow will political and technological changes Steve Hays be those that have successfully taken that are affecting our industry. Philippe Le Trung up the challenge. Simon Packard As a forward-thinking organisation Rogier Quirijns A consistent theme of EPRA’s Industry EPRA must also build on its successes Jonathan Tyler Newsletter is how the break-neck in anchoring listed property on the Design & Layout pace of technological change is investment landscape and use this ZN Consulting | znconsulting.com fundamentally reshaping the way we momentum to take the sector to the use real estate. Each edition of our next level. We believe that Europe’s Comments & Suggestions publication focuses on the challenges listed real estate sector is entering a [email protected] and opportunities facing specific new era of growth and the industry is sectors, drawing on our interviews well-placed to respond to the social EPRA with the CEOs of listed property and economic challenges of our time. Square de Meeus 23, 1000 Brussels companies. This month we examine To embody this dynamic, we are giving +32 (0)2 739 1010 how e-commerce is affecting retail real EPRA a new look and feel – from the www.epra.com estate, a particularly hot topic when we logo to a more user-friendly website. @EPRA_realestate consider what is occurring across the I welcome any feedback on our new Atlantic. branding. •

In this 13 Retail sector 21 Raising capital issue snapshot more creatively 14 Reforming 24 A bumper year for 3 Interview with Solvency II for PropTech Grainger CEO insurers 27 Meet the EPRA 7 Clicks n’ bricks. 17 AMP Capital looks team How retail is to the North and changing South of Europe 29 10 strategic issues we cannot afford 10 Sephora focuses 20 Calling time on to ignore

on ‘wow effect’ NAV PAGE 2 stores 30 Index focus INTERVIEW WITH GRAINGER CEO EPRA INDUSTRY NEWSLETTER

Grainger CEO Helen Gordon sees service as foundation to prospects Grainger’s customer facing of UK’s business model

“My mobile is never off and I put my PRS REIT to raise GBP 250 million in burgeoning number out there,” says the Chief Ex- an IPO in May. ecutive of Grainger, the UK’s largest listed residential property compa- “The UK PRS market has the poten- private ny which manages all its own assets. tial to be a market of scale. It’s our “People contact me on a Sunday morn- market and we know it well,” she said, ing or a Saturday afternoon and it’s on explaining her strategic plan, which the slightest detail. I get back to them involved the sale of Grainger’s residential portfolio in Germany, assets in rented always. If our tenants are upset about the Czech Republic and its UK home something going wrong in their home, equity release business. “The new you have to be responsive.” residential strategy is very much about giving our Gordon describes the operational side shareholders total returns from capital of managing Grainger’s 8,600-unit appreciation and income. The income sector portfolio as her “biggest area of fo- side of residential has been ignored for cus” after restructuring the compa- quite a long time. It is very solid, very ny founded in 1912 to concentrate on reliable and quite inflation-linked, so Few listed property the burgeoning private rented sector gives people a balance.” (PRS) in the UK. Since her official start Grainger’s PRS portfolio currently company CEOs field as CEO in January 2016, this has in- yields a net 5.25-5.5% annually and volved reassessing all the processes last year the company adopted a new calls or e–mails of the in-house teams – from main- dividend policy of distributing 50% of tenance and repairs, to development, net rental income. That rate will most from their tenants, leasing and customer operations. She likely increase over time, Gordon says, particularly at appointed John Kenny as Chief Oper- as Grainger sells off its portfolio of ating Officer and created a new role more than 3,600 units on regulated weekends. After of customer operations director to im- tenancies -- mostly tenants from be- prove the designs of Grainger’s build- fore 1988 who pay below-market rents. all, complaints and ings. Selling the lower-yielding regulated tenancy portfolio properties once The challenges of managing large problems are typically they become vacant currently gen- numbers of residential properties erates about GBP 100 million a year dealt with by third and the reputational damage incurred and the proceeds will be reinvested as party managers of the when things go wrong are the main Grainger scales up its PRS portfolio, reasons why until recently most in- she said. properties, aren’t they? stitutional investors avoided the UK’s private rented sector (PRS). That has The PRS market’s new appeal lies in the PAGE 3 PAGE Helen Gordon doesn’t all changed, however, as key struc- efforts of successive British govern- tural shifts alter the appeal of PRS, ments to restructure the UK housing see it that way. persuading institutional investors to market. Currently only 150,000 new return to it in their droves and allowed homes get built each year in the UK, ISSUE 60—SEPTEMBER 2017 INTERVIEW WITH GRAINGER CEO

about half of what is needed. Years of pered during the past three decades Gordon says she looks to the US under-supply have fuelled house price as institutions drifted away from the multi-family sector for lessons on inflation, putting home ownership be- sector. The loss of income tax breaks how to improve her company’s perfor- yond the means of many and lifting the on mortgage interest payments and a mance. She explains that the American number of renters. The latest statistics 3-point higher stamp duty levied on service-oriented model is more akin to show that there were 4.5 million PRS rental property purchases have made the UK’s nascent PRS market than the households, or 20% of the UK housing PRS a significantly less attractive in- long-established and substantial Ger- market. PRS overtook social housing vestment for “buy-to-let” investors man market, where tenants are more in 2011 after adding more than 1 mil- who previously flocked to the sector. independent and there is a heteroge- lion households since 2005 and dou- neous mix of quality in the housing bling in size in the past decade. Most The Grainger CEO expects tax changes stock. affected are younger people, with 46% and greater demands from regulation Improved customer service and efforts of all 24- to 35-year-olds living in PRS to reduce the competition from landlords with fewer than 10 properties, to build communities in apartment properties. blocks “create an environment where who currently own 98% of the UK’s people want to stay for longer because Significant increases in property sales PRS housing stock. She says this high- they have friends in the block. Then we tax, or stamp duty, have made it hard- lights the importance landlords having don’t have the churn, the voids and we er for buyers to ascend the tradition- quality management capabilities in a al home ownership property ladder, don’t have to keep redecorating when sector that PwC projects will add 1.8 people move on,” she explains. since each time they trade up, they million more households by 2025. must sacrifice a larger proportion of While newcomers to PRS in the UK their home equity. This means people “There are a lot of new entrants and I may outsource property management, are deferring home purchases, while welcome that because it will increase Grainger’s in-house capabilities make Gordon says attitudes towards renting the professionalisation of the sector,” it better placed to manage reputation- have changed as the younger genera- she said. “There are some who are al risks, Gordon said. It has also taken tion no longer regard it as second-best going to find it challenging because a similar route to scaling up its PRS and prefer the flexibility it offers to of their business-to-business back- portfolio through development, a key relocate as their careers evolve. Tax grounds. PRS is a business-to-con- issue for PRS in the UK. Grainger has changes and increased regulation sumer relationship that Grainger has invested GBP 462 million of the GBP have also fundamentally altered the been involved in for more than a cen- 850 million in its investment pro- economics of PRS for individual land- tury, but that’s quite a structural shift gramme through development or for- lords, who filled the void and pros- for a lot of other people to take on.” ward funded projects. Almost another

Finzels Reach in Bristol, a build to rent project Grainger is currently delivering PAGE 4 INTERVIEW WITH GRAINGER CEO EPRA INDUSTRY NEWSLETTER

Grainger’s newest PRS buildings, The Hortensia in Kensington and Chelsea, London

GBP 400 million of developments and is targeting those urban locations with est listed residential landlord in the UK projects are earmarked or pending fi- a higher proportion of 25 to 35-year- and, over time, has the potential to be nalisation, she said. old professionals, often in university the UK’s largest residential landlord,” towns with teaching hospitals and a Gordon said. “That’s a result of the be- Grainger has gone down the devel- solid underlying business communi- lief in the investment potential and the opment route because most of the ty. Investments to date have been in strong tailwinds that are changing the income-generating stock available London, Bristol, Manchester, Birming- on the market was designed and built ham and Leeds, all of which offer pros- sector. I think we’re in a pretty good for sale, rather than for renting. Pur- pects of sustainable rental growth, the place and all the foundations are there pose-built rental blocks with larger Grainger CEO said. for us to achieve that.” • common parts and units with equal- sized bedrooms to allow renters to As PRS in the UK gets more compet- share make more business sense in the itive, Grainger’s century-old track re- longer run, Gordon says. cord in the residential sector and es- HELEN GORDON tablished network give it an advantage Grainger appointed Helen “A lot of the design is about longev- in sourcing investment opportunities. Gordon as Chief Executive ity – how durable it’s going to be be- Gordon says the company’s long-term in January 2016. She joined from RBS, where cause the gross rent to the net rent on approach to investment also means since October 2011 she was residential is one of the key drivers of that it can forge partnerships with lo- Global Head of Real Estate successful returns to shareholders,” cal authorities, such as the seven site, Asset Management. Prior

PAGE 5 PAGE she said, adding that the gross yield on rent-sharing deal that it has with Lon- she was Director of Legal and General Property, Grainger’s PRS portfolio is 6.5%-7%. don’s Royal Borough of Kensington & responsible for the Main Life Fund and a number Chelsea. of smaller Funds; Group Property Director of While there is a housing shortage af- Railtrack and Managing Director of John Laing fecting most parts of the UK, Grainger “I expect Grainger to remain the larg- Developments. Support anglais ¤ SP PPR ¤ 215 x 275 mm ¤ Visuel:RESULTATS ¤ Parution= ¤ Remise le=25/juil./2017 KAM • BAG

2017 HALF-YEAR RESULTS

€42.5 billion During the first half of 2017, Unibail-Rodamco’s dedicated and Property portfolio “ hardworking teams delivered a solid performance across all businesses and grew the recurring EPS by +6.0%, to €6.16. Retail NRI increased by €6.16 +4.1% (+3.4% on a like-for-like basis). The Group’s tenant sales were +6.0 % up by +2.7% through May 2017, outperforming the aggregate national Recurring earnings per share sales indices by +148 bps. Like-for-like NRI of the Offi ces division grew by +7.8%, supported by strong leasing performance in France, notably 33% on Capital 8. The Group achieved an average cost of debt of 1.4%, Loan-To-Value a new record low. As part of Unibail-Rodamco’s “Better Places 2030” CSR programme, the Group raised Europe’s fi rst green credit facility billion €8.1 (€650 Mn). The Group confi rms its outlook of between €11.80 and Development pipeline €12.00 per share for 2017.

71 Shopping centres ” Christophe Cuvillier, CEO and Chairman of the Management Board

Member of the CAC 40, AEX 25, Euro STOXX 50 indices Member of NYSE Euronext Vigeo France 20, Eurozone 120 and World 120 Member d’Ethibel Pioneer & Excellence Member de STOXX ESG leader Member de FTSE4Good Listed in Paris since 1972 and Amsterdam since 1983 Contact: [email protected] - Tel: + 33 1 53 43 73 13 - www.unibail-rodamco.com

COFI_1707132_215x277_GB.indd 1 25/07/2017 16:32 CLICKS N’ BRICKS. HOW RETAIL IS CHANGING EPRA INDUSTRY NEWSLETTER

Porta di Roma, the largest Clicks n’ shopping mall in Italy bricks. How retail is changing

Recently appointed CEO of Klépierre Jean-Marc Jestin says innovation is how shopping centres will stand out in rapidly changing retail environment.

The US news flow is bad concerning retail real estate. Is it a worry for Europe? “I do not want to comment too much on a market which is not ours. You have over-supply – they have more than 1,500 square metres of retail for every 1,000 people, whereas in Europe © Photo by Alfred Cromback, Picturetank we have an average of 250 square metres per 1,000 inhabitants. When centres are located. This makes them you go to the US you can see the way better connected and more accessible. How do you see cities have evolved, with many malls in Finally, there are more retailers in the suburbs, and yet people are now Europe with good credit ratings, so we online retailing moving back to city centres. Most malls have not had so many bankruptcies. are anchored by two, three or four Which does not mean that we do not evolving? department stores, which are going have our own challenges.” “E-commerce is going to continue to through severe difficulties all over the grow, for sure. Its share of retailing world from the fierce competition from in China is 17%, 10% in the US, 7% in fashion retailers. Such as? France, 4% in Italy, 3% in Spain and In Europe, we do not have department “In Europe, we have high streets – in the UK, it is around 15%. This share stores as anchor tenants, we have something that almost does not exist in is probably going to rise to 20% or hypermarkets and food retailers, which the US or Asia. Our challenge is to make 30%. All segments of retailing will be are a big draw to shopping centres. In shopping centres different venues for impacted. We thought fashion would PAGE 7 PAGE the US, they are bringing back grocery retail by being more customer-centric be protected, but Amazon is now stores into the malls. In Europe, we and doing more events. I am very selling more garments in the US today have greater population density in positive about the future of shopping than Macy’s, formerly number one in cities, where most of our shopping centres, but not all of them.” fashion sales. But let us not be scared; ISSUE 60—SEPTEMBER 2017 CLICKS N’ BRICKS. HOW RETAIL IS CHANGING

we and retailers see e-commerce as an its new concept store in Val d’Europe to reduce costly inventories, increase opportunity to make stores different. with its latest digital innovations. These margins and even to cut their prices to Nobody sees online and offline are the conditions that create footfall make them more competitive.” retailing as opposites today. They are traffic.” complementary. The best performing stores for retailers today are those How must the where sales are in the store and where How are retailers click-and-collect is also progressing shopping centre well.” responding? “First, retailers are rationalising their concept change? real estate. They are closing some “Everything is about creating a How do bricks and stores to reinvest in the expansion of difference. The shopping centre is a other units where they can showcase market place and we need to stick to mortar stores hold the full array of their products. Our that. Looking back, fashion pushed objective is to create the conditions everybody out of the malls. Our tenant their own? so that this transformation of physical mix today is 45% fashion, mainly “Physical stores are where the shopping retail happens in our malls. When I look for women. In every city, we need to experience takes place, where non- at Klépierre’s positioning, I realise that find the sense and identity of where convenience services take place and it allows us to attract the best retailers we operate by finding local retailers, where you have an opportunity to create in their segments, namely those who food and restaurants, sport activities, a special relationship with customers. know what to do and have the means working places for small business or This depends on retailers investing in to take up the challenge. The next start-ups. The trick is also finding ways their stores. If they don’t, the machine challenge for retailers is to develop an to transform a visit to the mall into a fun, stops. To make the store come back, online platform to be more efficient surprising and memorable experiment. the challenge is to make it lively and for logistics and marketing purposes. That comes down to creating distinctive experiential. Zara has changed its store It requires massive investment in IT events and animations at the malls not concepts twice in the last five years, and logistics. Lastly, retailers must only twice or three times a year but while Bershka has changed three times transform their supply chain to reduce every week. It requires improvement in in the last six years, so it’s a constant the time from conception to delivering the customer path and to be obsessed improvement. Sephora has just opened goods to the customer. This allows them with client satisfaction.”

La Gavia shopping center in Madrid PAGE 8

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Media Partners PAGE 9 PAGE ISSUE 60—SEPTEMBER 2017 CLICKS N’ BRICKS. HOW RETAIL IS CHANGING

will continue to invest in the portfolio. What is Klépierre There are few acquisition opportunities and they are more and more expensive. JEAN-MARC doing specifically? This is why we are pushing more on JESTIN extending our malls, provided that it is Klépierre appointed “We have launched operational profitable. Another major topic is our Jean-Marc Jestin as Chief initiatives in leasing, marketing, Executive in November focus on people. Our team will have 2016. Four years earlier maintenance and mall design which to be more agile, more connected and form a holistic approach to retail he had joined as Chief more diverse. We need to create a new Operating Officer from real estate. As for capital allocation, way of working and to innovate in the Unibail-Rodamco, where he was we focus on shopping centres in the way we address our business to create Deputy Chief Investment Officer in its International biggest cities of Europe. We have more value for the company and for our team. From 1999 to 2007 he was Chief Financial chosen to be in the premier league of shareholders. For that purpose, we have Officer and Chief Operating Officer of Simon shopping centres and we are almost created an open innovation platform to Ivanhoe’s pan-European platform. He began his everywhere in continental Europe. We foster creativity.” • career in real estate in 1991 at Arthur Andersen.

it forces us to think, renew and kills complacency,” he remarked. “The key Sephora focuses on ‘wow challenge for us as a retailer is how do we personalise our customer relations better. Retail is moving from ‘what can effect’ stores, services and a I buy from you?’ to ‘what can I achieve with you?’ Retailing now is way beyond the simple transaction. It’s about how we become part of every day in the daily conversation with a loy- customer’s life.” The first plank of Sephora’s strategy is to create a “wow factor” with its al customer base to compete stores and constantly improve them, he said. Sephora is experimenting with store furniture on wheels, for example, in beauty products retailing so that it can be moved around on a daily or weekly basis. The newest store concept opened at Klépierre’s Sephora, the beauty products retailer owned Val d’Europe shopping centre on the eastern outskirts of Paris and is by French luxury goods group LVMH, says it is already performing ahead of budget projections. It is proving so successful embracing retail’s new reality and the cornerstone that Sephora plans to roll out the to its strategy is real estate. Lots of it. concept in 70 stores next year, he said. The key to success is not only about bricks and mortar, he said, it is also Sephora opened more than 100 stores It’s clearly a winning strategy. Profits about people. Sephora employs about last year, taking its global footprint from recurring operations at LVMH’s 35,000 in its stores worldwide and they to more than 2,300 outlets in 32 perfumes and cosmetics division, are critical in attracting customers and countries. Its development plans will which includes Sephora, grew by 5%. growing the business, he said, since continue this expansion since the The group only discloses publicly that shoppers want an experience that they company has doubled its sales globally Sephora grew its sales and profits at a cannot obtain from online purchases. in the past five years, says Stephan double-digit rate last year and that it The trick is making the experience Borchert, Sephora’s President for continued to increase its market share commercially viable, he noted. across the world. Europe & Middle East. Sephora is looking to dedicate about 15% of the space in its stores as beauty “Our conviction is that retail stores will Competition in beauty products, cosmetics and personal care items is hubs, where customers can have a never die,” he said. “We are working on fierce in Europe, with discounting price make-over and experiment with new the key elements that differentiate us. wars on products as incumbents, new products. The company has its own Services are the one big thing for us. entrants and online operators jostle for make-up artist school where it trains Everything we do is to facilitate web market share. about a hundred staff each year, who traffic coming to the stores so that it can then go on to provide classes or PAGE 10 has a positive impact on sales growth.” “We like this competition because personalised sessions in store. New SEPHORA FOCUSES ON ‘WOW EFFECT’ STORES EPRA INDUSTRY NEWSLETTER

products, tips and techniques are It’s a 360-degree integration of digital understanding retail and the way that posted on social media to more than and physical communities. Omni- we want to go. It’s about creating 20 million Instagram and Facebook channel is not e-commerce and/or in- vibrant and community entertainment followers of the Sephora feeds, while store, it’s an ensemble of those.” concepts, attracting customer some of its beauty advisers have segments that are relevant to us and Sephora is investing heavily in become like “rock stars” on YouTube, actively supporting innovative event new approaches to cultivate this Borchert said. management and store design. Finally, “ecosystem” using CRM systems, it’s about valuing the investment that Visitors to its stores can book make- community tools and social media to establish a daily interaction with its Sephora is making into the stores – overs, take pictures of these looks to because it’s a really big deal for us.” • create their own individual beauty book customers, whose engagement will dashboard, which they can share with be incentivised with personal beauty their friends on social media or the profiles and invitations. broader Sephora digital community. An “The future of retailing is very bright,” in-store kiosk handles click-and-collect he said. “The life cycle of products, STEPHAN orders and advises shoppers on the brands and concepts is shorter and, BORCHERT broader range of products that may not unfortunately, the investment curve is joined Sephora as all be available in the store. higher. This means the entrepreneurial President of Europe & risk-taking and daring is becoming Middle East in February However, “the shopper journey doesn’t 2015 following three more and more important. end with a purchase,” Borchert said. years as a member of “We are competing every day within “We are committed to stores and the executive management the digital ecosystem of our consumers board of Celesio AG. Previously, not reducing our investment in he was General Manager of Douglas Parfümerie – the Facebooks, the Instagrams, retail, so we are looking for strong International and held various senior roles at Red everything, – so we try to find ways of partnerships with landlords worldwide. Earth, Roland Berger Strategy Consultants and PM being part of their lives every second. For us, this partnership is about really Organization.

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EPRA_215x138_quer_Corp_2017.indd 1 19.05.17 09:56 Retail sector snapshot Comparison of asset classes

3000 FTSE EPRA/NAREIT developed Europe Retail Index 2500 FTSE EPRA/NAREIT 2000 developed Europe Index

1500

1000

500

0 SEP 11 SEP JAN 11 JAN SEP 13 SEP SEP 15 SEP SEP 12 SEP SEP 16 SEP MAY 11 JAN 17 JAN SEP 14 SEP SEP 10 SEP JAN 13 JAN JAN 15 JAN JAN 12 JAN JAN 16 JAN MAY 17 JAN 14 JAN JAN 10 JAN MAY 13 MAY 15 MAY 12 MAY 16 MAY 14 MAY 10

Value snapshot FTSE EPRA/NAREIT Developed (June 2017) Index Retail Sector share * 1-year LTV value as of Jun-16 and 5-year value as of Jun-12

DEVELOPED (LATEST) YEAR TO (LONG RUN) 1 YEAR EUROPE MONTHLY DATE 10 YEAR

Total Return (%) -3.29% -0.63% -1.56% 9.96%

Premium/Discount to -6.49% -6.39% -4.35% 2.59% NAV (%) 21.5% Loan-to-Value (%)* 35.57% - 36.29% 40.32% Retail

Dividend yield (%) 4.52% - 4.13% 5.31%

FTSE EPRA/NAREIT Retail Sector

INVESTMENT PRICE RETURN DIVIDEND YIELD TOTAL RETURN STOCK COUNTRY FOCUS JUNE-17 JUNE-17 JUNE-17 Unibail Rodamco NETH Rental -3.92% 0.00% -3.92% Klepierre SA FRA Rental -3.48% 0.00% -3.48% Hammerson Plc UK Rental -1.88% 0.00% -1.88% INTU Properties Plc UK Rental -1.07% 0.00% -1.07% Capital & Counties Properties PLC UK Rental -6.87% 0.00% -6.87% Wereldhave NV NETH Rental 0.08% 0.00% 0.08% Deutsche EuroShop AG GER Rental -6.96% 3.77% -3.19% Eurocommercial Properties NV NETH Rental -5.57% 1.50% 1.10% NewRiver REIT plc UK Rental -0.40% 0.00% -0.40% Citycon Oyj FIN Rental 2.59% 0.00% 2.59% Mercialys FRA Rental -1.66% 0.00% -1.66% Vastned Retail NV NETH Rental 3.99% 0.00% 3.99%

PAGE 13 PAGE Retail Estates BELG Rental -0.27% 0.00% -0.27% Capital & Regional Plc UK Rental -3.02% 0.00% -3.02% Immobiliare Grande Distribuzione SIIQ SpA ITA Rental -6.83% 0.00% -6.83% Wereldhave Belgium BELG Rental 0.25% 0.00% 0.25% ISSUE 60—SEPTEMBER 2017 REFORMING SOLVENCY II FOR INSURERS

stocks compared with bricks and mor- Reforming Solvency II tar. Numerous academic owever, However- studies have demonstrated, however, that listed real estate’s performance for insurers could trigger increasingly convergences with that of the underlying direct property after only about 18 months. In the latest ‘Big Bang’ for European and most definitive study earlier this year, MSCI provided the final piece in the jigsaw when researchers Bert Teu- ben and Ian Cullen examined how the listed real estate and lead performance of the properties held by 19 European listed real estate firms related to the stocks of these companies to surge in investment over time. Previous studies have looked at the correlation between assets and fund vehicles and equity indices, but capital flows this is the first time a large sample of listed company portfolios have been as- sessed in-depth. A reduction in the risk capital weighting of The MSCI research study was spon- listed real estate to the level of direct property sored by EPRA and concluded: “There are strong correlations across asset, investments under Solvency II regulations could vehicle and security, particularly over three- and five-year periods, suggest- result, over time, in a sharp increase in investment ing that long-term investors may be able to use listed real estate companies flows to the industry from insurers, the largest pool as components of their overall real es- of institutional capital in Europe, EPRA and major tate portfolio strategies.” Europe’s EUR 10 trillion insurance in- investors say. vestment industry is the largest single pool of institutional capital in the EU – “One of the biggest obstacle to Euro- levels they are obliged to maintain for the reverse of the situation in the U.S. pean institutional investors investing regulatory purposes. Listed real estate where pension funds dominate – but it has very limited exposure to listed real in listed real estate companies is the is categorised with the general equities estate. This could stem from a range of heavy capital weightings attributed to asset class under the rules and there- them under Solvency II. EPRA is strong- reasons, including the tax treatment of fore attracts the same capital weighting ly petitioning the European Commis- equity dividends for life and health in- sion to cut this weight from around the of 39%, compared with only 25% for surers in European states, but analysts industry’s neck under the mid-term direct property investments, due to the were agreed that Solvency II has played review of the Capital Markets Union, perceived greater volatility, or risk, of an important role in the sector’s se- which includes the regulations,” EPRA CEO Dominique Moerenhout said. He added that there is no market risk, or research justification, for this burden on EPRA’s members. Solvency II de- prives investors of a key source of quality assets and management, liquidity and transparency, in their real estate portfolios. The regulations also reduce investment in Europe’s urban landscape, divert pensioners from a major stable source of retirement income from dividends, restrict job creation, and have been a drag on the growth of EU-listed companies relative to their peers in the U.S. and Asia. Solvency II became fully applicable at the start of 2016 and requires insur-

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Anuncio Hispania.indd 1 30/06/2017 10:09:21 ISSUE 60—SEPTEMBER 2017 REFORMING SOLVENCY II FOR INSURERS

vere underweighting of property stocks ly in recent years, compared with cap- of industry understanding on the posi- compared with other forms of real es- ital raises of about EUR 2.0 billion for tive attributes of real estate stocks are tate investment. French SIICs (REITs). The same picture also impediments to investment. is repeated for German, UK and Italian “My twenty-something years of expe- open-ended funds, where capital flows “We’re not going to arrive in REIT para- rience in the capital markets screams dominate the listed sectors. dise tomorrow if the Solvency II charge at me that if the risk charge goes down is cut, but it could have a very positive on REITs then it could unlock hundreds “Somehow the securitisation of real es- effect as the insurance industry is look- of billions of euros in capital from the tate through the REIT market got lost in ing for new investment opportunities. insurance industry. Even a fraction of Solvency II, whereas other investment The industry is having a tough time in that would be extremely positive for forms of property are recognised as a general covering its liabilities due to listed real estate in Europe,” said Mark unique asset class. But we now have a the low yield environment in bond mar- Abramson, Director of the European lot of market factors converging in Eu- kets. The listed real estate sector has REIT investment business at Heitman rope that could lead to a ‘Big Bang’ in arguably some of the best properties and a member of EPRA’s Taxation and the listed sector comparable to the ex- and most qualified managements, so it Regulatory Committee. ponential growth we witnessed in U.S. is a very interesting and positive invest- REITs in the 1990s,” Abramson said: ment story and it would make sense Abramson added that insurance cap- to open up the space for insurers and ital would tend to have a lower return • Solvency II capital weightings could let them capitalise on its advantages,” requirement than other investors cur- be significantly revised under the Krausch said. rently active in the listed real estate EU’s CMU initiative. sector. This suggests that under a re- MEAG has achieved handsome returns vised Solvency II regime with a much • Real estate is likely to be more attractive in a higher inflation envi- from its REIT investments with these lower capital charge, REITs could raise ronment targeted by central banks holdings outperforming the three-year IPO and follow-on capital far more as they attempt to ‘normalise’ global (2014-2016) average total return on cheaply, resulting in more new compa- interest rates. the rest of the real estate portfolio by nies entering the market and existing at least 300 basis points for its active- businesses growing more rapidly. • Listed companies will be in the sights ly-managed mandates, albeit with sig- of more generalist investors since “European REITs could afford to run a nificant volatility over time. the Global Industry Classification less risky business model that wouldn’t Standard (GICS) reclassification as a “The European listed real estate sector need to chase development returns so separate equities investment sector has to market itself. It’s not just about aggressively by turning on the devel- last year. education, but also the willingness of opment pipeline prematurely. The REIT people to be educated. Other insurance model would be all about inflation-pro- • The move to defined contribution companies are starting to see the point, tected cash-flow, with perhaps some (DC) from defined benefit (DB) pen- however, and asking how to go about incremental redevelopment included, sion schemes in Europe, could be investing in REITs. This is the first time and the volatility of their shares would expected to boost demand for listed that it’s really happening and it’s why go down in a virtuous circle for both the as an easy liquid real estate ‘default Dominique Moerenhout and I are en- companies and their investors,” he said. option’ for higher income-orientat- gaging with the Association of German ed securities on DC retail investor Abramson said he believed the public Insurers,” Krausch said. checklists. policy objectives of creating REITs – EPRA response to the European Com- first in the United States in 1960 – had mission’s CMU Action Plan mid-term become obscured over time: The insurer investor review highlighted the way Solvency II “In the early post-war era there regulations unduly restrict the ability of weren’t enough income-orientated, perspective insurers to gain an appropriate level of asset-backed securities for the typical MEAG is the asset management arm of exposure to listed real estate. The asso- U.S. household saver to utilise. There global reinsurance giant Munich Re and ciation said the regulations excessively weren’t the bond funds or ETFs we see the investor is very rare among German encourage short-term investment be- today and the only options for the aver- insurers in having a sizeable allocation haviour for what should be long-term age private sector investor or small in- towards REITs of over EUR 500 million, strategic investments in the built envi- stitution were equities or saving deposit in its roughly EUR 11 billion total real es- ronment of Europe’s cities. accounts. REITs could level the playing tate portfolio. “The European Commission has an op- field between large private equity real portunity in its review of Solvency II estate investors with advantageous tax Stefan Krausch, who heads MEAG’s rules to sharply reduce a major impedi- structures and the man on the street.” real estate portfolio management, said Solvency II’s high capital charge is an ment to the flow of institutional invest- He added that an analogous situation important factor in the low exposure ment capital into the strategically im- to the U.S. of the 1950s and the Europe of insurers towards listed property, portant listed real estate industry. It is of 2017 was the relative attractiveness but it was too simplistic to say alloca- precisely this type of barrier to invest- of open-ended property funds to inves- tions would soar if the charge were to ments and the free movement of capital tors compared with REITs. For exam- be slashed. Other factors, such as the in the European single market that the ple, French OPCI property open-ended varying local tax treatment of dividends Capital Markets Union was established funds have been attracting over EUR for different types of insurance compa- to eliminate,” Tobias Steinmann, EPRA PAGE 16 30 billion in retail capital flows annual- nies in international markets and a lack Director Public Affairs, concluded. • AMP CAPITAL LOOKS TO THE NORTH AND SOUTH OF EUROPE EPRA INDUSTRY NEWSLETTER

the markets that we want, so we have to do it through a more convoluted AMP capital looks to fashion.” AMP’s global approach allows it to gain exposure to sectors like logistics the North and South warehousing or data centres in Eu- rope through the shares of companies headquartered in the US or Australia, of Europe for the best which have large portfolios of assets on the continent. The US market has led the way in developing a broad array of listed real estate companies returns in the continent’s operating in sectors like healthcare, data storage, self-storage and student real estate markets housing, Maydew said. “The ‘alternative’ real estate sectors are no longer alternatives,” he explained. “In the US over the last The Nordic region and Southern Europe, chiefly 10 years these sectors have become Spain, currently offer the most attractive returns in an institutional product with world class capabilities in delivering strong the continent’s markets, said James Maydew, Head risk-adjusted returns over a real estate cycle. The challenge is the limit- of Global Listed Real Estate at AMP Capital, the ed number of ways of playing it in Eu- Sydney-headquartered manager of AUD 6.5 billion rope,” he observed. The underperformance of US mall (EUR 4.3 billion) of property securities. REIT shares, following a succession of weak department store earnings “The fundamentals in the Nordics are base comes predominantly from the reports and store closures by major phenomenal and they are delivering Asia Pacific region. Maydew said that chains, highlights how online retailing some of the strongest results global- what AMP finds attractive in the core is changing the way that consumers ly that you can get exposure to,” said markets are listed companies with a shop. This will have consequences for landlords in Europe, particularly in Maydew, speaking in a video con- focus on logistics warehousing in sup- national markets where the penetra- ference interview from Hong Kong. ply-constrained markets like the UK, tion of online retailing is relatively low, “Southern Europe was so beaten up or certain locations of Germany, as while the continent also faces other for such a long period of time. Supply well as specialists in ‘alternative’ real challenges from an ageing population completely dried up in Spain for an estate outside the industrial-office-re- and urbanisation, he said. extended period. It’s in an early cycle tail sectors. recovery - what we have seen in oth- “There’s quite a few headwinds that AMP cut its “massive overweight” al- er parts of the world five or so years concern us and we don’t think that location to the UK in late 2015, when earlier. It’s still very much yet to play these have been priced in to the Eu- it became clear that the property mar- out. We’ve seen that coming through ropean market yet,” Maydew said. ket was at or near its peak, Maydew in results, which have been reasonably “Broadly that’s a bearish message said. The investment house is scepti- strong.” about retail real estate in Europe, but cal about the outlook for French REITs you will have winners within that. The two regions are the bright spots with exposure to the Paris office mar- in terms of rising rents, occupancy ket, which faces over-supply issues “We made a conscious decision that and higher capital values as economic and is unlikely to benefit substantially our portfolio should only own the true, growth gathers momentum across Eu- from any relocations of large corpo- highest quality retail assets in the rope, supported by historically low in- rate tenants out of London following world,” he said, adding “The secular terest rates. With an investment strat- the UK’s decision to leave the Europe- trends that are under way have got a egy honed since 2002 that assesses an Union. long way to play out and you have to listed companies in a global rather be in bricks and mortar that is truly than regional or national context, Eu- Germany is certainly of interest, al- different and will deliver productivity rope generally gets a neutral rating though its listed property market is in sales to the underlying tenant.” from AMP in its search for property too shallow in its range of sectors out- stocks offering the best risk-adjusted side the attractive residential sector, His frank assessment of Europe ex- returns. he said. tends to improvements in environmental, social and corporate governance,

PAGE 17 PAGE Certain sectors or submarkets with- “If here were more opportunities in the which underpins AMP’s three-step in- in the main “core” Western European office markets, we would be interest- vestment process. markets – France, Germany and the ed,” he commented. “Part of the logis- UK – also interest the manager of tics markets there are strong, but you “It’s not just lip service. We want man- listed real estate funds, whose client can’t own a core logistics exposure in agement teams to change… there is ISSUE 60—SEPTEMBER 2017 AMP CAPITAL LOOKS TO THE NORTH AND SOUTH OF EUROPE

more work to do in Europe,” he said. ferentiated approach to portfolio con- first commentary from the European “One of the biggest frustrations that struction.” Central Bank that is hawkish. Then we have is in alignment of interest. The people will take a fresh look at listed number of times that I have sat op- In Europe, as concerns about political real estate and say ‘that’s interest- posite a CEO of a European company risk recede following the Dutch par- ing. Where can I get good, long-term, and asked them how they are aligned liamentary and French presidential risk-adjusted returns?’” • to the company that we’re investing in, election results, attention is switching and the response is always very disap- to how central banks will respond to pointing to me.” inflation. Maydew doesn’t expect interest rates to rise as high as average He added that this can be addressed in levels of a decade or more ago because a relatively short time frame, pointing of high household and government in- JAMES MAYDEW to how companies in Australia “have debtedness. Europe’s ageing popula- joined AMP Capital in 2006, starting in its shopping cleaned up their act since the Global tion and the continued strong demand centres division before Financial Crisis from being the poster- for higher-yielding assets will support transferring to the firm’s child of what you didn’t want to be.” investment in listed real estate in Eu- global listed real estate team rope, he predicts. one year later. He joined from Looking ahead, Maydew expects in- Cushman & Wakefield, where vesting in listed real estate will be less “The rubber will hit the road when we he worked for four years in the capital transactions about buying markets or sectors and get through, perhaps the German elec- team in London. He is a fully accredited member of more about stock-picking and a “dif- tions (in September) or perhaps the the Royal Institution of Chartered Surveyors. PAGE 18 We Make Real Estate Run Better

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CEGEREAL_MOTS_215X138,75_GB.indd 1 09/06/2017 11:58 ISSUE 60—SEPTEMBER 2017 CALLING TIME ON NAV

During the global financial crisis, some European real estate companies were Calling time on NAV, forced to the wall and had to conduct emergency equity capital raises because of technical breaches of LTV covenants, even in instances where their cash flows Europe needs to move to amply covered their interest payments. But now we’re in a new world, the global FFO as valuation bedrock real estate industry has graduated with its own top level GICS (Global Industry Classification Standard) equities sector Ding ding. It’s time. We’re ringing the bell. It’s time and is no longer the junior partner bur- ied in the large and volatile ‘Financials’ that we – the community of EPRA members and basket of stocks. stakeholders – move away from NAV (net asset The GICS classification change has played a part in the increasing number value) as our main valuation reference point. The of generalist equity investors looking at listed real estate who are unversed in time of FFO (funds from operations) and other cash the nuances of industry jargon like single versus double, versus triple net NAV, flow-oriented metrics has arrived (if not overdue or initial yields versus equivalent yields. by years). Why should they care, as they’re unlikely to receive the underlying NAV of a per- petual operating company’s assets, un- Our sector can be forgiven for instinc- holdings or investments in closed end less it goes into liquidation. tively reaching for NAV as the default. real estate funds, where quarterly or less REITs have been given preferential tax The REIT* sector has historically been frequent valuations are the norm, the treatment because they are intended to an equity market afterthought, confined obsession with NAV made sense. mostly to a handful of specialists and be a class of liquid securities that distrib- individual retail investors. For most of IAS40, the international accounting ute long-term stable and inflation-linked these investors, the preferred and more standard for investment property, didn’t income to the investing public. Looking easily accessible way to invest in com- help things. Since IAS40’s introduction ahead to 2018, if we as an industry are mercial real estate was through one of a in Europe, most REITs have adopted the very lucky, the largest pool of investment capital in Europe, held by the insurance variety of types of open-ended real es- fair value appraisal approach to their in- industry, will finally be able to use diver- tate funds, promoted by banks or other vestment property holdings, rather than sified portfolios of REITs as part of their savings institutions. They were encour- historical cost. One of the problems with formal real estate allocation, something aged to believe they could redeem their the reliance on appraisal values is that the current form of Solvency II capital investment in an open-ended fund at they often bear little resemblance to real weighting regulations preclude. NAV at any time. world values at which assets could be sold. Annual studies by RICS, the main Given the technical requirements of Sol- Despite the clear weaknesses of these source of appraisal valuation methodol- vency II, it is likely there will be pressure investment models in most European ogy, consistently show that upwards of from insurers on REIT managements to markets the open-ended fund sector 40% or more of property transactions operate with even lower levels of lever- still dwarfs the listed real estate equities occur at prices 20% above (or below) age, although levels of LTV have come option by orders of magnitude in both the last appraisal value in some major down substantially since the GFC. Un- size and annual net inflows. It is there- European countries. With a confidence der this scenario, REIT business model fore natural for these investors, who targets will have to evolve – away from dominate the register of shareholders interval so wide (especially as compared total returns and more toward cash flow of publicly traded real estate companies to cash flow estimation), it argues for a generation. • in most countries, to transpose this NAV big dose of caution in relying on apprais- mindset from open-ended funds to list- al NAV as a valuation reference. ed equities. The financing model for most real estate In the institutional investor world, those companies in Europe, may also play a MARK ABRAMSON has been a very few European insurance companies contributing role. Compared with the U.S., where REITs have historically relied manager of portfolios of publicly traded European or pension funds that have dabbled in real estate companies for over a decade. Over the listed real estate, have tended to do so heavily on the bond and CMBS markets prior decade he was a sell-side equity research through highly concentrated “strate- for funding, their European equivalents analyst covering a variety of industry groups in gic” investments in one (or a handful of) continue to be overwhelmingly users of Europe, North America and emerging markets. companies. This enabled them to hold bank financing. This matters insofar as bond investors tend to place more em- JONATHAN TYLER works with a range their position more efficiently under the of large and sophisticated public companies relevant regulation at the ‘look-through phasis on credit ratios related to cash around issues with their investors and the NAV’ of their strategic stake, rather than flow, like debt service coverage and capital markets. These include several property

the apparently more volatile share price. debt/EBITDA, than they do on LTV prior- companies. He was originally a sell-side research PAGE 20 Within much larger institutional direct itized in bank loan covenants. analyst and then more recently corporate financier.

*the term REIT is used here as shorthand and meant interchangeably to cover all corporate issuers focused primarily on owning real estate as investment property. RAISING CAPITAL MORE CREATIVELY EPRA INDUSTRY NEWSLETTER

Furthermore, we believe the pre-emp- bankers, companies and EPRA. Since tive rights market structure—due to its our last publication on this topic in Acting from broad application across many indus- 2011, we have noted a number of posi- tries—could be a reason for excessive tive advances. leverage in Europe. Such rights issues may also open the door for deals that Regulations are evolving to allow strength greater flexibility. Belgium made it have lower investor support and which could destroy shareholder value. possible to reduce the offering period of rights issues to three days, which How advancements in For these reasons, we believe contin- has helped to produce above-average ued reform in this area remains an im- performance and below-average dis- capital raising could perative. counts during rights issues. enhance shareholder In the U.K., we have also seen a short- Getting off on the ening of the offering period—and, im- value and grow portantly, a new EU prospectus regu- Europe’s listed real right foot lation has been proposed that would allow a company to initiate a capital estate market We distinguish deal structures in the raise up to 20% of its market capital- following ways, ranked from most to isation without publishing a prospec- least efficient: tus (from a maximum of 10% current- We have long advocated for a more ly). This new proposal could increase 1. Primary accelerated book building progressive and flexible approach to flexibility and further reduce costs and offensive capital raising by European (ABB) time, which should benefit the compa- REITs—one that allows companies to nies and shareholders. approach value-creating opportuni- 2. Open offer with claw back struc- ties from a position of strength. While ture (ABB with pre-emption rights) Germany and Austria have seen sev- there has been some progress, we con- eral at-market rights issues for offen- 3. At-market rights issue – without tinue to see instances where deeply sive deals when it was expected that discounted pre-emptive rights issues rights trading share prices would react favourably to have disadvantaged REITs’ cost of the announced deals. Some of these 4. Discounted rights issue – with or capital—ultimately hurting sharehold- transactions were completed in rather without rights trading ers—prompting us to once again raise tough capital market conditions, and this important subject. 5. Fully underwritten deeply dis- we applaud these deals initiated by companies such as Deutsche Wohnen counted rights issue – with rights Raising capital more efficiently offers AG and Buwog AG. several potential benefits: trading Leading management teams have • Improved management discipline in Decisions about a deal structure—and generally grown more resistant to capital allocation through increased therefore the discount—are often af- deeply discounted underwritten of- focus on the cost of equity capi- fected by local advisors, corporate gov- fensive rights issues, showing a stron- tal, which continues to be obscured ernance and deal size. However, many ger preference for ABBs, open offers by fully underwritten pre-emptive advisors still seem to have difficulty with claw backs, or at-market rights rights structures applying a pan-European sector per- issues—and being more mindful about spective: analysing real estate deals in the discount. When ABBs have not • Higher valuations and lower stock different countries under comparable been an option, we have seen a shift to price volatility for companies that jurisdictions or governance rules. shorter-term structured equity raising use their greater flexibility Too often, we see investment banking deals, often a combination of open-of- • Greater capacity to meet the financ- teams compare a REIT’s equity offer- fer and claw-back structures, with or ing needs of capital-intensive REITs, ing structure with recent transactions without rights being traded, or at-mar- which are already constrained in pur- in their local market and a different ket rights issues without rights being suing external growth due to their sector, rather than comparing similar traded. requirement to distribute most of cross-border European real estate fi- Also, for pre-emptive rights issues, we their recurring earnings nancings. In our view, the first step to are seeing greater appreciation for the improving capital raisings is taking a • Enhanced opportunities for external benefits of a tighter discount (to the true pan-European real estate sector theoretical ex-rights price, or TERP), growth through better utilisation of view of equity offering structures. listed REITs’ cost-of-capital advan- such as a lower risk of value loss due to tage over unlisted investors, includ- inefficient rights trading or of share- ing the ability to access capital at a Making headway price declines (higher volatility) during premium to intrinsic value the rights trading period. There is more Efforts to improve capital-raising effi- awareness of how different choices will

PAGE 21 PAGE • Increased securitisation of private ciency have increased in recent years, impact the cost of capital, which we real estate and a larger listed real and REIT investors have united their see as a clear positive. Perhaps most estate universe, with more Europe- voice through the Investor Advisory significantly, when the offering’s value an companies accessing the public Committee, helping to bring our case creation potential is apparent to inves- market to the broader attention of investment tors, there is no need to coerce partic- ISSUE 60—SEPTEMBER 2017 RAISING CAPITAL MORE CREATIVELY

ipation with a large discount. By acting nouncement. A deal could theoreti- market and have narrowed the gap from a position of strength and main- cally be priced at market or at a later with the U.S. taining capital discipline, the compa- date based on investor demand. ny/advisors signal confidence that the We are confident that increased aware- offering will create shareholder value. 4. Set a wider discount range. This ness of raising growth capital in a more would be most applicable during progressive and flexible way will help unusually volatile market con- the European EPRA index continue to What are the ditions. Companies could use the grow, building on the momentum from wall-crossing period to gain input recent years. • solutions? from specialist investors. If the feed- While these advancements are cause back is positive and the deal has a FTSE EPRA/NARE- for optimism, we believe much more high chance of being done, the dis- needs to be done. Specifically, for of- count could be set at the lower end IT Index Annualised fensive transactions that have the sup- of the range. port of specialist investors, we would Total Returns like to see better and more creative offering structures with lower costs (less Why it matters: in EUR (%) underwriting), smaller discounts and competing globally more at-market rights issues for deals SINCE 12/31/1989 considered value-accretive. The stakes of this agenda should not SINCE 12/31/2010 be underestimated, as Europe and 13.3 Specialist investors and advisors are the U.K. are competing for real estate 12.5 likely to play an important role in capital flows not just within their 11.1 10.7 achieving these improvements, as they borders, but in a global market. 10.7 can reduce fees and backstop deals via Since the inception of the FTSE EPRA/ underwriting. Even without underwrit- 7.9 ing, we would argue that wall-crossed NAREIT Developed Index in 1989, Eu- 7.1 investors and the syndicate should be rope’s share of the market has been able to strike a better balance between cut nearly in half, from 32% to 17%, 4.5 risk-return for pricing these offensive while the U.S. has grown from 8% of deals. With sufficient support from the market to more than 53% today. specialist investors, investment banks Despite having similar-sized econo- should be able to set the discount at mies, the U.S. listed property market a level that prices risk more efficient- is now more than three times the size ly, but still satisfies their internal risk of Europe’s. One key difference is that UNITED GLOBAL EUROPE UNITED committee. U.S. REITs use almost exclusively our STATES DEVELOPED EX-U.K. KINGDOM most preferred route to raise capital Below are four actions that we believe via direct placements—ABBs. would move the market in the right direction: We believe the Europe REIT market’s At May 31, 2017. Source: FTSE. relative disadvantage in raising capital Data quoted represents past perfor- 1. Wall-cross more investors. By has hindered its ability to attract addi- mance, which is no guarantee of future bringing as many investors over the tional capital flows and has contribut- results. There is no guarantee that any wall as legally possible, companies ed to its long-term underperformance historical trend illustrated above will be and the syndicate can gain greater versus global and U.S. indexes. repeated in the future, and there is no comfort about the deal and build a way to predict precisely when such a shadow book to tighten the discount. Conclusion: Better Growth Ahead trend will begin. An investor cannot in- While there is still work to be done, we 2. Make selling an attractive deal (not vest directly in an index and index per- believe the market is clearly moving pre-emption and underwriting) the formance does not reflect the deduction in the right direction. Since the global of any fees, expenses or taxes. main goal. Companies should focus financial crisis, European and U.K. RE- on protecting their cost of capital by ITs have made significant progress on pursuing a low discount. To this end, reforms. In addition to the increased we believe the open offer with claw attention on raising capital more effi- back structure allows companies ciently, companies have reduced lever- to act out of strength, while giving age, placed a greater focus on income, existing shareholders the option increased sector and regional special- ROGIER to participate or even expand their isation and taken a more conservative QUIRIJNS holdings without the potential for approach toward development. is a portfolio manager at loss of value from inefficient trading Cohen & Steers and has of deeply discounted rights. It still We believe these changes have been 17 years of investment experience. Based in a material factor in the improved rel- protects shareholders ‘dilution,’ but London, he oversees the not at any cost. ative performance in recent years. As research & analyst team shown in the chart below, since 2010, for European real estate securities. Quirijns is a

3. Consider an at-market rights issue Europe and U.K. REITs have performed graduate of the University of Amsterdam where he PAGE 22 or set the discount after the an- in line with the global listed real estate specialised in real estate investments. Real insights, real intelligence Daily, Weekly, Monthly

Don’t miss our Subscribe today: Dean Ireland coverage of the Subscriptions Manager EPRA conference in T +31 20 575 35 52 your October issue [email protected]

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Segro Clean Services Ad 210x138.indd 1 14/07/2017 13:33 ISSUE 60—SEPTEMBER 2017 A BUMPER YEAR FOR PROPTECH

USD 1.9 billion compared to PropTech’s USD 221 million. PropTech, still in its It’s been a bumper year adolescence, has plenty of room to grow. This is all important to note because for PropTech, but that’s PropTech is so greatly influenced by FinTech, and vice-versa. For the property industry to thrive, it is essential only part of the story that a plethora of other industries also thrive. Look to the future, and this rule becomes even more essential. 2017 is proving to be another extraordinary year for UK PropTech and all signs point to that The Future of continuing. Investment is at its highest ever and PropTech innovation is arriving at a breakneck speed. The Bill Gates said it best: effect that this is having on the property industry “We always overestimate the change that will occur in the next two years is profound, but it is only one small part of the and underestimate the change that digital transformation of the built environment, a will occur in the next ten…” To that end, the next 2 years of Prop- movement in which PropTech remains dwarfed in Tech are going to see a focus on pro- comparison to the investment into, and uptake of, cess improvement. In other words, the lion’s share of efforts will be put FinTech. towards making the industry’s work processes as efficient as possible. Examples of such areas are workflow As predicted, 2017 saw investment of Big Data. The insight and ability that management, property listing, mar- into Asian and American PropTech pla- Big Data gives us cannot be overstat- keting, brokerage and property man- teau after a very busy couple of years. ed. Innovation has enabled us to har- agement. In his recent report for The However, in its place, Europe, and in vest, analyse and curate vast amounts University of Oxford, PropTech 3.0, particular the UK, is soaring. In Q1 of of data instantly and automatically. We Professor Andrew Baum labelled this 2017, the UK received more PropTech know everything about our properties, as Endogenous Tech; change coming investment than anywhere else in the everything about our market and ev- from within the property community. world despite Brexit. erything about our industry; which elements are performing well and which However, the 10-year picture sees the Unsurprisingly, this has taken great are dragging us down. We can also hand of disruption move to focus more effect on the wider property industry. more accurately predict what is going heavily on Exogenous Tech. That is to The rules are changing and the param- say, tech coming from outside of the to happen in the future. Decision mak- eters are shifting. It would take up my property industry. Examples of this ing relies less and less on educated entire word count to list the various are artificial reality, blockchain, virtual guesses. As a result, risk is diminish- ways in which property is being dis- reality, robotics and autonomous vehi- ing and more opportunities are being rupted, so let me just quickly mention cles. All of these industries and many spotted and grabbed. a couple of the most important ones. more will start to force radical change in the property industry. Perhaps the most talked about and This barely scrapes the surface of most controversial disruption is com- PropTech’s influence, the list goes on The physical infrastructure of the built ing from companies that are taking and on, but I also think it’s important environment will have to be over- the agency role online. Now, while it’s to put things in perspective. For the hauled to accommodate the shift. City indisputable that this is throwing the purpose of demonstration, let’s put it planning will have to take into account role of the agent into very different in the perspective of PropTech’s clos- a wild reduction in personal car own- surroundings, I’m not in agreement est and most symbiotic partner in the ership, property viewings will move with those who believe it to be a fast Digital Transformation, FinTech. online, changing working habits will track to dystopia; the death of the high require a radical rethink of the office FinTech investment and uptake leaves street agent. Property is, and always environment, and a property’s connec- PropTech in the shadows. You can see will be, a face-to-face, handshake in- tivity will become more valuable than from the two graphs that although dustry. The human element will never its location. be fully replaced, but the job descrip- both industries have enjoyed bumper tion will certainly change. I firmly be- growth since 2012, FinTech is almost Gates finished his favourite quote by lieve that the benefits will far outweigh in a different league. Let’s not forget saying, “Don’t let yourself be lulled into the drawbacks. though, FinTech is a far more estab- inaction.” For the next couple of years,

lished industry, as we can see from the we might get away with only looking PAGE 24 Another major influence has been that 2012 figures, where FinTech received inwards for advice on which direction A BUMPER YEAR FOR PROPTECH EPRA INDUSTRY NEWSLETTER

to move in, but we will very quickly Global Analysis Real Estate Tech learn that we need to be aware of what is happening outside, all around us; of Investment in Global Financing that is where the future of property is Fintech History coming from. • 2012-2016 2012-2016

942 235 DEALS DEALS 221 842 840 CAPITAL DISCLOSED INVESTED ($B) FUNDING ($M) JAMES 177 DEARSLEY is a global commentator and keynote speaker on 627 the subject of real estate 112 technology and was recently voted the most influential person in PropTech by

419 72 mortgage lending and investing marketplace, LendInvest. Having spent 15 years working in both UK and International property markets, James is the Co-Founder of PropTech Consult, a firm that specialises in helping global corporations and

$1.9 $2.9 $6.7 $12.7 $13.6 $221 $459 $1,148 $1,902 $2,665 smaller, more localised startups, understand the digital transformation in the real estate sector.

2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Source: KPMG (Data provided by PitchBook) Source: CB Insights

THE NETHERLANDS GERMANY

Hamburg aroundtownholdings.com Bremen Amsterdam Utrecht Berlin Rotterdam n Aroundtown is a specialist real estate Hannover investment group with a focus on value- NRW Halle add and income generating properties Leipzig primarily in the German/NL real estate Dresden markets since 2004 Frankfurt n Listed on the Prime Standard of the Frankfurt Stock Exchange (AT1) Mannheim Nuremberg- Fuerth n Market cap June 2017 €4.2 billion n Investment Grade rating from S&P (BBB) Stuttgart Munich Frankfurt Leipzig Rotterdam STRONG TRACK GROUP REGIONAL COMMERCIAL ASSET RECORD IN FFO I PER DISTRIBUTION BY VALUE* TYPE BY VALUE SHARE GROWTH 0.32 Berlin 18% Retail NRW 20% 0.25 18% CAGR 2012-Aug 2017 +96% Other 12% 0.17 Bremen 1% Munich Industrial/ Mainz 1% others Kassel 1% 9% Office 8% 53% 0.08 Mannheim 2% Frankfurt Nuremberg 2% 8% 0.04 Hotel Stuttgart/BB 2% 19% 0.01 Utrecht 2% Dresden/ Rotterdam 3% Hamburg Leipzig/ 2012 2013 2014 2015 2016 Annualized Hannover 4% 6% Halle 7% Aug 2017 Amsterdam 4% (Aug*12) *Accounted for 36% in Grand City Properties Global Market Intelligence for InstItutIonal real estate Investment

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Knowing all managers cient and fundsreal estate in the investment market is good. 2017 However, an efﬁ demands two further essential ingredients:Best in class 2 investment consulting nts Market-leading platform Refining Investme 1 for real estate funds REFERENCE

Excellence in Investment Consultinginvestment real estate ions. tate Fund Platform ng all managers and products in the with eading Real Es Knowi eal estate Market-l usively focused on r a, is one of Europe’s leading universe does not necessarilynsultant excl lead to the best investmentperty related decis are ) ment co in every pro t ◆ n invest nvestmen As a ers in the i tu� onal Investment Partners (2IP orms for real estate fundsman and and depth experience .com Ins� inistra� on pla� ated by Ger people having in- estors advice on all ma� pendent adm tu� onal inv real-estate.ipe inde we give ins� on direct and indirect real estate investments. delivers services especially for funds regul cycle of eveloping ourg law. ces ensure the success of real estate invest- Luxemb ts from a ng se rvi neﬁ �ur consul� lloca� on, the E HUB � people and � �2 billion assetst Partners under beAdministra� cularly independent research a sset a for d REFERENC �ith over �� nvestmen pinions on tu� onal I ments. �hey cover par�and tac� cal real estate � countries Ins� ve: Achieving best quality in strategic olio. HUB in 2 p� onal transparency a so und ate por� he right products and managers, second o hub.ipe.com perfect infrastructure for onthe leading ob�ec� to exce selec� on of t tate administra� real es a manage- investment proposals and the monitoring of the real est por� ng. and centralised dat nd and re integrated our profou Top news, in-depth ue a unique ombina� on with For this we purs us – in c ch. �his turns rtner for both, investors and ment approa www.2ip.de Real Assets and Infrastructure know-how – into an outstanding pa managers. & analytical reporting Refining Investments Investment Strategies for In print & Online Global Investors IPe reference hub the london stock exchange hub.ipe.com 24-25 october 2017 Online ◆ IPE Real Estate realestate.ipe.com Global Conference & Awards Daily news alerts 17 may 2018

THE NETHERLANDS GERMANY

Hamburg aroundtownholdings.com Bremen Amsterdam Utrecht Berlin Rotterdam n Aroundtown is a specialist real estate Hannover investment group with a focus on value- NRW Halle add and income generating properties Leipzig primarily in the German/NL real estate Dresden markets since 2004 Frankfurt n Listed on the Prime Standard of the Frankfurt Stock Exchange (AT1) Mannheim Nuremberg- Fuerth n Market cap June 2017 €4.2 billion n Investment Grade rating from S&P (BBB) Stuttgart See the world Munich Frankfurt Leipzig Rotterdam STRONG TRACK GROUP REGIONAL COMMERCIAL ASSET RECORD IN FFO I PER DISTRIBUTION BY VALUE* TYPE BY VALUE SHARE GROWTH 0.32 Berlin 18% Retail Dare to be different NRW 20% 0.25 18% CAGR 2012-Aug 2017 +96% Other From mergers and acquisitions to equity raising and 12% 0.17 Bremen 1% Munich Industrial/ debt advice, our specialist knowledge can help you Mainz 1% others CEO, Corporate Finance, EMEA Kassel 1% 9% Office 8% see the world differently and achieve your ambitions. 53% john.odriscoll@eu.jll.com 0.08 Mannheim 2% Frankfurt Nuremberg 2% 8% 0.04 Hotel Get in touch with us today. Stuttgart/BB 2% 19% 0.01 Utrecht 2% Dresden/ Regional Director, Corporate Finance, EMEA Rotterdam 3% Hamburg Leipzig/ 2012 2013 2014 2015 2016 Annualized Hannover 4% 6% Halle 7% To find out more about our services, visit: capitalmarkets.jll.com [email protected] Aug 2017 Amsterdam 4% (Aug*12) *Accounted for 36% in Grand City Properties

Erika_28062017_EPRA Magazine Advert - see the world differently.indd 1 28/06/2017 15:33 YURI YURI ZHOU ROXANA CABA ROXANA PANTELIS PANTELIS PROTOGEROS TIM KESSELER TIM GLORIA DUCI GLORIA FLETCHER MATTHEW Investor Outreach Continental Europe Continental Outreach Investor outreach investor EPRA’s for Tim is responsible is to His role Europe. in continental activities sector property the listed of benefits the explain and attending by holding one-on-one meetings on Tim is focusing events. industry various industry and local investors institutional generalist membership their to open access to associations their raising consider to and convince them bases stocks. property to allocations ESG OfficerESG improving further to full time is dedicated Gloria and her main tasks efforts sustainability EPRA’s data, company ESG and collect research to are Best sustainability support on EPRA provide and initiatives Recommendations Practices sustainability-related as monitor as well queries at EU level. developments UK & Nordics Outreach, Investor Director activities outreach investor is leading the Matthew London EPRA’s from UK and Nordics in the pension with meetings office and has frequent management groups. and asset funds, insurance Outreach Investor the for is responsible Matthew Markets Capital regular and organises Committee member for pitches and one-on-one investor Days companies. DOMINIQUE DOMINIQUE MOERENHOUT JANA BOURJANA HASSAN SABIR PANTELIS PROTOGEROS PANTELIS DAVID MORENO DAVID SABIR HASSAN Reporting & Accounting Officer Accounting & Reporting efforts of the support the is to role Pantelis’ promote further to team Accounting & Reporting Recommendations. Practices financial Best the by BPR copyright of the initiation the Following project. managing the for he is responsible EPRA, he also members, Committee the Liaising with field and is engaged in accounting in the works IASB as the such bodies industry with advocacy and FASB. Analyst Research & Indexes Research Analyst queries all member and external deals with David He Index. FTSE EPRA/NAREIT the to related market of EPRA data underlying the analyses He reports. research member-relevant and produces reviews. quarterly Index in the team the assists also of Finance Director enhance to efforts is leading EPRA’s Hassan levels of compliance companies’ property listed Best sustainability financial and EPRA with He is responsible Recommendations. Practices and Accounting & Reporting EPRA’s for with closely Working Committees. Sustainability firms, estate real listed and other our members to developed an engagement programme Hassan of financial adoption on the and advise encourage guidelines the keep BPR and to and sustainability date. up to KASIA JASIK-CAÍNZOS GLORIA DUCI GLORIA

TOBIAS TOBIAS STEINMANN INNA MASLOVA INNA ALI ZAIDI ALI DOMINIQUE MOERENHOUT DOMINIQUE Analyst Research & Indexes Research Analyst and is Index EPRA on the Inna is working monthly member-only preparing for responsible She is bulletins. and LTV as NAV such reports submissions research academic coordinating also further to a view with papers, white and industry benefits. sector’s the promote Director Research & Indexes Research Director and operating for responsible team Ali leads the Global FTSE EPRA/NAREIT the maintaining of EPRA’s in charge He is also Index. Estate Real Research the with and liaises output research members. Committee CEO day-to-day the for is responsible Dominique strategic of the management and implementation plays an He also development. EPRA’s plan for and prospective current in supporting role active members. EPRA Team EPRA Meet the Meet

PAGE 27 SCOTT FIONA develop EPRA’s publicaffairs strategy. Committees andliaises with its members to He isresponsible for the Regulatory and Taxation landscapes to the attention of EUpolicymakers. makes to the European economy andits urban the large contribution the listed real estate sector in Brussels andthe EUmemberstates, andbrings numerous legislative initiatives beingdeveloped Tobias issteering EPRA’s effortsto address the Director Public Affairs operation,office and research support. outreach activities, such aseventpreparation, providing administrative for support Asia investor assistantSissi isanoffice based inHong Kong Assistant seminars andnetworking cities. events inmajor EPRA membercompanies, aswell asholdsregular region, organises Asia Week visits for CEOs of national regulators, mediaandpartners inthe region, Yuri buildscontacts with local investors, investors andhigh-net-worth individualsinthe the aimto promot ethe sector to institutional Korea, Singapore, MalaysiaandJapan. With in MainlandChina,HongKong, Taiwan, South responsible for its investor outreach activities Yuri isheadingEPRA’s HongKong andis Office Director Asia Pacific TOBIAS STEINMANN SISSI LI YURI ZHOU KESSELER TIM MORENO DAVID COLEMAN BARNEY Solvency IIandEUtaxation proposals. main priorities: the EUCapital Markets Union, position papers andadvocacy materials onEPRA’s European Law isanasset for the developmentof legal background with astrong specialisation in in its EUandnational outreach efforts.Her Jana issupporting the publicaffairs department Policy Officer development andIT maintenance. the benefits. Heisalso responsible for website and makes sure ourmembers get access to all is the go-to person for membership queries is beingrespected andcorrectly allocated. He various departments andensures that the budget Barney isoverseeing the smooth work ofEPRA’s Head ofOperations also responsible for EPRA’s Diversity Programme. membership andassociated organisations. Sheis and to enhanceinternal communication with the that the Association projects its brand externally Kasia’s role isto continuously improve the way Public Affairs Communications Advisor BARNEY COLEMAN KASIA JASIK-CAÍNZOS JANA BOUR MASLOVA INNA FLETCHER MATTHEW WU SHAOHONG ALI ZAIDI the supplies. office • their travel arrangements, aswell astaking care of and bookkeeping. Shealso assists the team with invoices, following upofmembership payments Shaohong takes care ofissuing membership Office Assistant administrative tasks. related matters management aswell asoffice assistant to the CEO anddealswith HR- in order. Shealso acts asadefacto personal Fiona isresponsible for keeping EPRA’s accounts Manager Office industry events. outreach efforts andenableits participation at and assists EPRA inorganising its investor responsible for preparing the Annual Conference programme ofsuccessful events. Sheis Roxana works ondelivering anambitious Events &Projects Officer SHAOHONG WU FIONA SCOTT ROXANA CABA SISSI LI

PAGE 28 10 STRATEGIC ISSUES WE CANNOT AFFORD TO IGNORE EPRA INDUSTRY NEWSLETTER

for real estate companies to address 10 strategic issues that the issues. The aim behind that is to generate a dialogue between the different stakeholders of the European Real Estate European real estate sector and to put firmly the Strategy (with a capital S) in the investment debate. Focus and LTV are interesting companies cannot afford points of discussion when it comes to strategy for European real estate companies but they have been extensively to ignore covered… We will also be able to flag a couple of The pace of change in our world is that with lower (if any) capital growth these strategic issues during the re- speeding up. Obviously, disruptive and relatively low cash flow generation, search panel at the Sept 2017 EPRA transformations are triggered by the the cost of adapting and transforming Conference. Feel free to contact me or new behaviours and the new needs, will have a more visible burden. It is also a colleague at VIEWS+S Consulting to that are the direct consequences of normally, times for more differentiation discuss the issues and maybe to help us our digital age. On the top of that, de- between the players. prepare the part 2: “10 other strategic mographic trends, citizen expectations issues that European real estate com- and environmental challenges mean Instead of producing another piece of panies cannot afford to ignore”. • that businesses need more than ever research analysing of the state of the to adapt and even sometimes to re-in- world and how it impacts real estate, vent themselves. It means that many VIEWS+S has decided to produce for strategic roadmaps need to be revisit- the EPRA Conference 2017 in London, a ed. In the real estate sector, we should short and punchy paper on the 10 stra- see inflections, transformations and tegic issues that a European real estate PHILIPPE LE new players. Especially because, this is companies cannot afford to ignore. TRUNG a pretty different world today. Europe- The target is to explicitly identify ten is the Managing Director an real estate has historically benefited different strategic issues (“It is a new and Founder of VIEWS+S, from a long bull market cycle, thanks to property cycle”, “Alternative is the new an advisory and consulting interest rates and a lack of any over- normal”, “Disintermediation is not just business focused on strategy and corporate finance, and for taxis”, “Activists at the gate”, “Date, supply in most markets. The asset class specialising in the real estate is there to stay relevant to investors flirt, marry: what should you do with sector. Before this, Philippe headed the corporate and critical to build tomorrow’s Smart a Proptech?”), explain why and how development of Foncière des Régions and worked Cities. Our purpose, here, is not to call these strategic issues affect real estate as equity analyst at Citi in London. He is member the top of the market but to highlight companies and to suggest initiatives of EPRA’s Research Committee. PAGE 29 PAGE Index focus Comparison of asset classes

EPRA/NAREIT 4000 Developed Europe Index

FTSE All-World 3000 Europe Index

JP Morgan Europe Bond Index 2000

1000 JUL 11 JUL NOV 11 JUL 13 JUL JUL 15 JUL JUL 12 JUL JUL 16 JUL JUL 10 JUL 14 JUL NOV 13 NOV 15 NOV 12 JUL 07 JUL MAR 11 NOV 16 NOV 10 NOV 14 JUL 03 JUL JUL 05 JUL JUL 02 JUL JUL 06 JUL 09 JUL JUL 08 JUL JUL 04 JUL MAR 17 NOV 07 MAR 13 MAR 15 MAR 12 MAR 16 NOV 03 NOV 05 NOV 02 MAR 10 MAR 14 NOV 06 NOV 09 NOV 08 NOV 04 MAR 07 MAR 03 MAR 05 MAR 06 MAR 09 MAR 08 MAR 04

Value snapshot Developed index sector (June 2017) share * 1-year LTV value as of Jun 16 and 10-year value as of 2007

Industrial/office

4% DEVELOPED (LATEST) YEAR TO (LONG RUN) 4% Lodging/resorts 1 YEAR EUROPE MONTHLY DATE 10 YEAR Self storage 7% Total Return (%) -1.85% 5.7% 6.3% 2.0% Industrial

Premium/Discount to -4.8% -7.0% -6.0% -11.5% NAV (%) Diversified 8% 27% Loan-to-Value (%)* 37.0% - 37.5% 42.1% Healthcare

Office 22% Dividend yield (%) 3.6% - 3.4% 2.5% 12% Retail

Residential

14% Top 10 European performers (June 2017)

FTSE EPRA/NAREIT GLOBAL INDEX

REIT INVESTMENT PRICE DIVIDEND TOTAL STOCK COUNTRY SECTOR STATUS FOCUS RETURN JUN 17 YEILD JUN 17 RETURN JUN 17 Sponda Oyj FIN NON REIT Diversified Rental 21.93% 0.00% 21.93% Technopolis Plc FIN NON REIT Office Rental 11.48% 0.00% 11.48% Kennedy Wilson Europe Real Estate UK NON REIT Diversified Rental 7.56% 0.00% 7.56% Redefine International Plc UK REIT Diversified Rental 3.62% 3.38% 7.00% Inmobiliaria Colonial SA SP NON REIT Office Rental 5.39% 0.00% 5.39% UK Commercial Property Trust UK NON REIT Diversified Rental 4.95% 0.00% 4.95% Vastned Retail NV NETH REIT Retail Rental 3.99% 0.00% 3.99% ANF Immobilier FRA REIT Diversified Rental -1.50% 5.40% 3.90% Beni Stabili SpA ITA REIT Office Rental 3.86% 0.00% 3.86% PAGE 30 Irish Residential Properties REIT IRE REIT Residential Rental 3.82% 0.00% 3.82% HEAD OFFICE Square de Meeus 23 1000 Brussels, BE T +32 (0)2739 1010

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