Building_a_stronger_Europe_report.JPGListed sector: vast potential for Europe's economy - report

A report published in March 2013, “Stock Exchange Listed Property Companies; Building a Stronger Europe,” examines the unique role of listed property as a platform for the European economy, providing the space and infrastructure needed for the EU’s businesses, families, hospitals, schools and leisure activities.

Gareth Lewis, Finance Director at EPRA said: “Our research shows that listed real estate companies are leading the way in delivering investment and innovation into the built environment, customer focused practices, sustainable policies and providing long-term stable retirement income for pension plans. But during a time of austerity and slashed government budgets, these advantages are being under-utilised due to the relatively small size of the sector in Europe.”

The commercial property industry as a whole directly adds EUR 285 billion to the European Union’s economy – more than the automotive and telecommunication industries combined – and provides jobs for over four million people, as well as making up 6% of the investment assets of pension funds and insurers’ retirements plans. Yet only 1.8% of the EU’s investible commercial real estate is held within the publicly quoted sector compared with 6.7% in North America and 6.1% in Asia.

Listed companies major drivers of large development projects
EPRA’s research found that listed property companies are major players in the most substantial, ambitious, capital-intensive and longest-term projects, meeting the accommodation and infrastructure needs of European citizens. Relative to the size of their property portfolios, listed property companies devote two-to-three times as much investment to the development of new buildings and the improvement of existing buildings than the rest of the real estate industry.

Examples include: the Westfield Stratford City development in the UK (25,000 construction jobs, 18,000 permanent jobs, 300 shops, 70 restaurants, three hotels, 17 cinema screens); Unibail’s Le Nouveau Beaugrenelle urban regeneration project in Paris (45,000 sqm mix of retail and office space, which has created 1,000 retail jobs); and Alstra’s Alte Post development in Hamburg which fully preserved the external façade of an historic building, while adding a six-floor new development for a total of 9,800 sqm of retail and office space.

Listed property companies typically own and manage property portfolios on a substantial scale, with 32 of the Top 50 European shopping centres being in the sector. On average, in Europe, their portfolios each contain EUR 3.27 billion of property, which is 5.5 times greater than the average real estate investor and eight times bigger than the average non-listed real estate fund. The average size of a property held by listed companies within EPRA’s European market index is almost 50% larger than the average asset in the database of real estate bench-marker Investment Property Databank and for retail properties this is twice as big.

Transparent companies better for economic stability
According to EPRA, the combination of accessibility and transparency allows listed property companies to attract capital from the widest range of investors, whether this is through debt or equity, and this is a critical attribute during difficult times in the economic cycle. Capital raising in the listed property sector is more counter-cyclical than in other real estate vehicles, as company management generally decide when they wish to raise money in the market and shareholders are able to buy or sell their investments at any time. This contrasts with many fund structures where, for example, fund managers were subject to a 'wall of money' at the height of the last real estate market boom and mass redemptions in the subsequent downturn.

Almost a fifth of the 127 closed-ended real estate funds launched in Europe in 2007 have been wound up prematurely. In Germany, a third of open-ended real estate funds, with around EUR 30 billion in assets, are currently either in liquidation or are still closed for redemptions and facing an uncertain future. In contrast, there have been no insolvencies within the FTSE EPRA/NAREIT Developed Europe listed real estate index in the last ten years.

Philip Charls, CEO of EPRA said: “The EPRA report highlights the unique role that listed property companies play in delivering, enhancing and operating the built environment and its important role in driving up standards in the broader property sector. Most significantly, it identifies the huge opportunity that growth in this sector can play in building a stronger Europe and delivering smart, sustainable growth."



For more information, contact Andrew Saunders: a.saunders@epra.comdocument-pdf-small.gif




•    The experiences of markets such as France, the Netherlands and Australia demonstrate that a stronger listed property sector would be beneficial for Germany.
•    The benefits include: job creation; greater investment in urban centres and energy efficiency; more transparency; lower investment costs; strong dividend flows for pensions.
•    International comparisons show Germany should allow the conversion of
EUR 20 billion frozen in open-ended property fund assets into listed entities to reap the economic benefits.
•    CEO of EPRA: “An historical window of opportunity for Germany.”

Brussels, November 06, 2012 – The political debate in Germany over the future of open-ended property funds has focused a spotlight on the fundamental structure of the underlying real estate investment market. Germany differs markedly from nearly every other major economy worldwide due to the absence of a large listed real estate sector.

The experience of other countries suggests that the economy is therefore only benefitting to a limited extent from the strong investment flows and professional services these listed companies can bring to the urban landscape, the European Public Real Estate Association (EPRA) argues.

Philip Charls, CEO of EPRA said: “Germany has by far the smallest listed real estate sector of any major economy globally, due to historical structural obstacles to the market’s growth. Yet you only have to look across the border to France to see what can be achieved in terms of more jobs and investment in less than ten years, if these companies are provided with the right conditions to thrive. The strong long-term dividend flows listed property firms generate are also a good match for pension fund liabilities and so can form an important and reliable part of retirement income in old age.”

The German situation
In contrast to other major economies, real estate investment in Germany has focused on the open-ended property fund model, largely distributed by local banks, for over 50 years.

Economy State Secretary Bernhard Heitzer told a recent conference of the RDM Association of Property Professionals and Caretakers (Ring Deutscher Makler) that the government had decided to retract a proposal to prohibit the creation of further open-ended property funds after the industry complained that this could cut many small investors out of the property market. Whilst this is true, it is also the lack of a large developed listed real estate sector in Germany, bringing with it the transparency, liquidity, and lower costs that real estate stocks offer, that has curtailed investors’ options.

EPRA believes that the time is now right in the evolution of the German market for the expansion of the listed sector to bring the significant economic benefits of these companies to Germany, in a similar way to the role they play in every other major developed country worldwide. 

Investing in property stocks is subject to minimal fees compared with the multi-layered costs, including up-front, share and property transaction fees, of many open-ended funds. A study carried out by the University of Regensburg in 2011 also showed that the average annual return of eurozone property stocks has been 7.2% since 1989, compared with 5% for the open-ended funds.

Listed German property companies have raised just under €3.0 billion in equity since 2007, from both domestic and international investors, and this capital has flowed almost exclusively into Germany supporting local economies and creating jobs. In contrast, the open-ended property funds have a far smaller proportion of their invested assets in Germany (around 35%).

At a time when the building stock of German cities requires intense investment to allow the country to meet its energy sustainability targets, the listed sector can act as an efficient conduit to channel capital into the renovation of houses, offices, and retail premises and support the adoption of new environmental technologies.

Olivier Elamine, EPRA Board Member and CEO of German listed real estate company alstria Office REIT-AG said: “There is around EUR 20 billion sitting frozen in open-ended property funds which could be put to work in the German economy should the government offer their investors the option of converting these assets into listed property companies. This opportunity should be seized, not only to safeguard existing investors’ interests, but as a potential catalyst for kick-starting a large dynamic publicly quoted property sector at the same time as giving a boost to the economy and helping small investors, pension funds and insurers.”  

The French listed real estate success story
The rapid growth of the stock exchange listed real estate sector in France, which has created strong jobs growth, high investment in French cities and solid tax revenues, could be replicated in Germany with the right market conditions and government policies.

A recent study by consultants PwC on the socioeconomic impact of the listed French REIT sector (or SIICs in French), which was established in France in 2003, concluded that the business activities of these real estate companies had strong positive benefits for the economy.

PwC calculated that through their large-scale real estate development, operating, and investment activities, REITs generated over 66,000 jobs in France in 2011 alone. The study estimated that these companies would invest a further EUR 17 billion over the next five years, generating more than 140 million working hours in the construction/public works sector (the equivalent of 88,000 full-time workers per year) and around 34,000 jobs in the retail sector.

PwC said the REIT structure was also a “winning regime” for the French treasury with the total tax paid by the companies – and their investors on dividends, totalling EUR 552 million in 2010. The corresponding tax take calculated using the standard rate of corporate income tax in France of 34.43%, would be EUR 190 million.

The French REIT sector with a total of 35 companies and a market capitalisation of EUR 46 billion is, however, more than four times larger than the German listed real estate industry at 16 firms and a market capitalisation of EUR 11 billion. France’s property stocks have been the biggest growth success story on the French stock exchange in the last ten years.

Other International historical comparisons with Germany
A study commissioned by the Bundesbank a few years ago and entitled: “Open-end real estate funds in Germany – Genesis and crisis,” drew an historical comparison between the situation in Germany and the development of dynamic domestic listed real estate sectors in Australia and the Netherlands after their open-ended property funds were threatened with collapse, following large withdrawals of cash by investors.

The roots of the Australian and Dutch open-ended funds crises were similar to the German situation and due to a fundamental mismatch between the liquidity of the funds’ structures – with investors able to quickly and easily withdraw their money – and the illiquidity of the underlying property assets, which can often take many months to sell.

In the early 1990s, the Australian government stopped redemptions in its open-ended property funds for 12 months after huge withdrawals by investors, forcing the funds to list on the stock exchange as an exit route from the situation. The number of listed property companies subsequently increased from 11 to 47 between 1993 and 1999 and market capitalisation from AUD 5 billion to AUD 30 billion, providing a vital source of dividend income to Australia’s compulsory contribution pension fund system. Today, the Australian real estate market is ranked as the third most transparent globally compared with Germany in 12th position.

Around the same time as the developments in Australia, a similar situation occurred in the Dutch market when the open-ended listed Rodamco fund froze redemptions due to heavy capital outflows. After a large injection of capital from a major Dutch pension fund, the company was able to resume its investment activities, later splitting into four listed entities and it 'lives on' today as part of Europe’s largest and most successful public property company – Unibail-Rodamco.

Philip Charls, CEO of EPRA, concluded: “A number of upcoming property IPOs in Germany itself, or of private firms holding significant German real estate assets, suggest that market conditions are moving the right way for the listed sector. There is now an historic window of opportunity opening up for Germany to match its international competitors by supporting the growth of German listed property companies and provide a boost to its economy at the same time.”


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