Surge in real estate securities funds reflects growing appetite for listed property exposure, EPRA study shows
Brussels, April 09 – Demand for real estate securities has surged since the global financial crisis as a property allocation gained through the listed sector plus the attractive income returns appeal to a broader range of investors, according to a study released today by the European Public Real Estate Association (EPRA).
Assets under management of real estate securities funds grew 68% to USD 250 billion from 2007 to 2012, according to research by consultancy company Consilia Capital and Property Funds Research for EPRA. It estimates that the number of real estate securities funds increased 39% to 677 in the same period. The most recent figures show that total assets under management for Exchange Traded Funds (ETFs) pegged to FTSE EPRA/NAREIT real estate indices jumped 85% to USD 8.7 billion in the 12 months through to February this year.
Philip Charls, Chief Executive of EPRA, said: “Above average dividend yields and secure long-term cashflows generated by listed real estate companies have an immediate appeal to yield-hungry investors. The liquidity, efficient pricing and transparency offered by the listed property sector mean it is also attracting a broader range of investors from defined contribution pension plans to long/short hedge funds.”
The tax efficiencies of the real estate investment trust regime means that global REIT funds now account for seven of the ten largest global real estate funds, with USD 22.2 billion of assets under management as of the end of 2012, Consilia’s report showed.
Asset managers have digested academic research showing that over the longer term the listed real estate sector delivers returns comparable to those generated by directly owned buildings. Researchers have supplied evidence to convince more investors that having listed real estate in a portfolio can also improve returns and diversify risk.
The report highlights how diverse investment strategies using real estate securities have brought depth and increased liquidity to the market. Beyond the large group of income return-focused investors, the broader and growing uses of the listed sector can be categorized into the following investment strategies:
- Long/short strategies: Returning to favour among traditional long only specialist asset managers as well as new hedge fund entrants to the market. This approach first came to prominence in 2006/7 but foundered in the global financial crisis.
- Listed real estate securities as a proxy for real estate investment: Recent institutional investor mandate awards, including one from the National Council for Social Security Fund of China, target global REITs as a liquid, tax-efficient proxy for the global real estate market.
- Platform investing: this allocation to sector-specialist real estate asset managers was traditionally the preserve of the private market. Specialist management teams with unique assets mean this approach can also apply using listed real estate. Forum Partners has executed this strategy globally, with over 70 investments in 17 countries. Platform investing can be used to build blended listed and non-listed institutional portfolios, incorporating the most attractive assets from both sectors – an investment strategy developed by the largest Dutch pension funds.
- Listed real estate is potentially a key component of new Defined Contribution pension strategies in the UK. Auto-enrolment into Defined Contribution pension schemes in the UK is now underway and one of the biggest challenges facing the industry is how to provide a suitable real estate platform for DC schemes as has been successfully pioneered in the US. Legal & General has provided one UK solution, by combining their managed property funds with a Global REITs Index Tracker Fund.
- Demand is increasing for real asset (or inflation protection) funds, which include listed real estate. For example Cohen & Steers Real Asset Fund holds 25%-30% in global real estate, 25%-30% in commodities, 15%-25% in global natural resource equities and up to 20% in other assets such as gold.
Download full report: The use of listed Real Estate securities in asset management. Or browse other research summaries in the Compendium on the right.
For more information, contact Ali Zaidi: firstname.lastname@example.org
EPRA welcomes BaFin's revised position that G-REITs should be assessed against the criteria for identifying funds in the same way as any other real estate company. This reflects the recent guidance provided by the European Securities and Markets Authority and supports EPRA's view.
EPRA has voiced alarm at an unexpected proposal by Germany’s Supervisory Authority BaFin to include domestic REITs within the scope of the EU’s AIFMD. The potential classification of listed real estate companies as part of the 'fund' sector is of most concern.
"If implemented, it would be detrimental to the future growth of the German listed property sector, the efficiency of the broader domestic real estate industry and hit the wider economy." EPRA.
Assets under management of real estate securities funds grew 68% to USD 250 billion from 2007 to 2012. Real estate securities funds increased 39% to 677 in the same period. Why? “Above-average dividend yields and secure long-term cashflows generated by listed real estate companies." Convincing new research evidence suggests that having listed real estate in a portfolio can also improve returns and diversify risk.
We look at the wave of new REIT legislation taking shape in Europe, and consider how the German listed property sector could well double in size over the coming two years. The predicament faced by savers is explore, and the how 'listed' can fit their needs. How could regulation generate new REIT waves in European corporate real estate? What is current thinking on the cost and transparency of listed investment allocations?
AIFMD regulatory clarity for real estate welcomed
EPRA has broadly welcomed the approach taken by ESMA in its recent consultation covering key concepts of the AIFM Directive. Our strong view is that listed property companies and REITs are commercial operating businesses, not funds, and should therefore fall outside of the scope of the AIFMD.
Ireland and Spain on the REIT course
Spain and Ireland, the two eurozone countries worst affected by real estate crises that have damaged their banking systems and plunged their economies into recession, are, despite very different approaches to dealing with their property problems, both implementing new REIT regimes in 2013, the European Public Real Estate Association (EPRA) said. Madrid and Dublin see real estate investment trusts listed on the equities markets as one of the most effective and transparent ways of recapitalizing their property sectors.
Property stocks outperforming direct real estate on all fronts, first global pensions study shows
Pension funds worldwide are on average getting poorer performance, higher costs, less transparency and liquidity by investing directly in bricks and mortar or using funds to do so. New research find that opting for property stocks, and particularly the efficient listed Real Estate Investment Trust (REIT) structure, is the way forward.
Europe's financial crisis bears parallels to US 1990's Savings & Loans - possible listed RE role in solution
Europe’s financial crisis has some striking similarities to the US Saving & Loan real estate debt problems of the early 1990s, and a major contribution to its solution may similarly lie in repackaging distressed property assets into attractive listed vehicles for investors - EPRA reseach suggests.
Case strengthened for pension fund allocation shift to listed real estate stock
The most conclusive evidence to-date that institutional investors can achieve the same diversification benefits of real estate as an asset class by increasing the proportion of listed real estate in their portfolios. All with the additional benefits of greater liquidity and lower costs say two independent research studies.
EU should prioritise listed property for Growth & Green
The EU may be able to achieve the biggest pay-offs in its key twin policy goals of boosting growth and cutting the bloc’s energy consumption by 20% by 2020, through harnessing the economic power of Europe’s real estate industry and channelling financing through the transparent and efficient listed property sector. By prioritising the listed sector, the EU would give a large boost to its chances of meeting its targets and lifting economic growth at the same time.
Solution to Spain's real estate crisis may lie in US Savings & Loan REIT model
European REITs satisfy thirst for dividend yields
High investor demand for dividend yield, against a background of weak equity markets and ultra-low interest rates, can be met by income flows from European listed property companies and particularly REITs, new EPRA research shows.
Dividend yields from the sector have remained consistently above equities and bond yields over the past five years.
Real estate equities’ performance outshines non-listed options for investors in Germany
The lack of a large, dynamic, listed corporate real estate sector in Germany, comparable with neighbouring economies, appears to have curtailed investor returns over the long-term by limiting their property investment options. EPRA findings conclude that the restrictions on the development of a vibrant listed German real estate sector appear to have cost investors dearly in terms of long-term property investment performance. More >>
Listed property sector plays vital role in economic recovery says new EPRA chairman.
David Atkins, CEO of UK property company Hammerson, has been appointed as Chairman of the European Public Real Estate Association. Speaking at the industry body’s annual conference (Sept 2011), he said that the key role listed property firms play in European economies, mean they are vital to a sustainable economic recovery.More >>
EXECUTIVE SUMMARIES OF RESEARCH