EPRA European Listed RE market

Transcription

1 EPRA European Listed RE market April 4th, 2016 Tel Aviv Ali Zaidi

2 What are REITs? REITs smell like real estate, look like bonds and walk like equity Greg Whyte, Analyst, Morgan Stanley

3 REAL ESTATE INVESTMENT TRUSTS REITs are focused real estate investment companies that are pre-dominantly active in owning and leasing commercial real estate. Regulated by the tax authorities, stock exchange and financial regulatory bodies. Exempted from corporate tax or subject to lower tax rates depending on the juristiction. Limits on leverage and property development Must pay out dividends upto 90% of net income Should limit themselves to the commercial leasing business with limited allowance for development and trading of property.

4 Brief History Established US (1960), Australia (1971) Netherlands (1969) Conversion - UK (2007), France (2003) Parallel Japan (2000), Singapore (2002) Hong Kong (2003), Germany (2007), Italy (2007). Potential REIT markets -India, China, Brazil, Nigeria Main Characteristics Ownership Assets Leverage Distribution

5 Real Estate Investment Real Estate Investment Direct Indirect Form of investment is determined by investor s specific requirements and constraints Listed (REITs) Non-Listed

6 Performance slide

7 Frequently used attributes of REITs Attractions vs. direct or unlisted: Same underlying real estate returns (over 3 years +) but with the benefit of: Higher Liquidity, provided by daily trading Lower cost Ability to refinance and recapitalize Opportunity for tactical exposure to real estate As an Asset Class: Low correlation and beta with other assets, providing diversification benefits Parallel asset pricing provides additional benchmark for pricing Inflation hedging qualities Superior initial income Greater security and visibility of long term cash flows

8 Transparency & Analysts Smaller = less transparent Company Country Analysts Unibail France 35 Land Secs UK 20 British Land UK 23 Hammerson UK 23 PSP Switzerland 12 Cap Shops UK 23 Swiss Prime Switzerland 6 Klepierre France 27 Derwent London UK analysts cover 105 Europe listed companies 8

9 FTSE EPRA/NAREIT Global Index Global Developed Global Emerging Global North America Developed EMEA Developed Asia Emerging Americas Emerging EMEA Emerging Asia Developed Europe Developed MEA Emerging Europe Emerging MEA 2 Countries 16 Countries 1 Country 6 Countries 5 Countries 5 Countries 3 Countries 8 Countries Sector Inc. offices, retail, etc. (9) Focus (Rental / Non- Rental) Status (REIT / Non- REIT) AIM Index Liquid 40 Dividend Specific Customized Index Variations 9

10 Regional Breakdowns Developed Emerging 18% 11% 26% North America Asia EMEA 15% 56% Asia Pacific EMEA Americas 74% Sources: FTSE, EPRA, NAREIT Data as of: December 31,

11 Global Index Asset Exposure EUR 1.9 Trillion Green = North America listed Blue = Europe listed Red = Asia-Pacific Based on the Top 15 Property Stocks in each region Region Companies No. Assets Top 10 Assets Asia- Pacific 76 5, Europe ,300 1,500 North America ,600 7,200

12 Commercial Real Estate Asset Class Country Commercial RE (BN USD) Listed (BN USD) Ratio North America 8, % Europe 8, % Asia 4, % Emerging Market 7, % Global 28,108 2, % Monthly Statistcal Bulletin EPRA

13 Listed RE Investors Investor Types Generalists - 15% Specialists - 85% Active - 90% Passive - 10% Institutional Equity investors who hold stake in REITs in a diversified portfolios. Hedge Funds Soverign wealth & Pension Funds Market level trackers Based on Developed Europe Index- excluding retail investors Instituitional Investors who invest in listed RE as part of their property investments Soverignwealth & pension funds Deidcated property investers and wealth managers Investment banks ETFs

14 Empirical Research Blended Real Estate Allocations Examines the impact of combining 70/30 UK unlisted and global listed real estate exposures Highlights liquidity, cost and ease of implementation advantages 1% p.a. annualised return enhancement 19% over 15 years Little impact on Sharpe Ratio - increased return covers volatility Rolling 12m total returns 14

15 Net Asset Value A simplified example of a listed company s share value Gross Assets 100m Debt 60m Shareholders Funds = Gross Assets less Debt 40m or Net Asset Value ( NAV ) Assume Share price 30p and Shares in issue 100m NAV per share = 40m / 100m = 40p Market capitalization = 100 x 30p or 0.3 = 30m Valuation NAV i.e. ((30p/40p)-1) x 100 = = 0.25 x 100 = 25% discount to NAV Listed companies tend to only issue equity when trading at a premium

16 NAV Valuations (March 2016) 50% Italy Finland Norway Austria UK Greece France Ireland Spain Switzerland Sweden Germany Belgium 30% 10% 1.3% 11.0% 12.7% 17.5% -10% -2.2% -1.8% -1.7% -18.9% -17.8% -16.3% -12.9% -30% -26.1% -33.8% -50% -70%

17 Net Asset Valuation Used more actively in Europe than other regions Simple and useful measure of spot value of a share Criticism Theoretical and does not account for transaction cost Based on reported value vs. daily pricing creating a lag Smoothing effect of valuations NAV works only under the going concern setting and will differ significantly for large and specialized companies

18 The European REITS Market Europe North America REITS, 98% Non-REITS, 40% REITS, 60% Europe lags behind the more advanced REITs market of North America

19 Differences in Europe Country Commercial RE (BN USD) Listed (BN USD) Ratio Germany 1, % Spain % Italy % UK 1, % France 1, % Monthly Statistcal Bulletin EPRA

20 European listed market The EPRA Europe Index Mcap EUR 187 billion Dividend yield 2.55% 13 countries 10 sectors Europe, 18% The EPRA Europe REITs index Mcap EUR 114 billion Dividend yield 3.05% 9 countries 10 sectors Data as of March 2016

21 Strong long term performance Europe Listed Real Estate Global Government Bonds Global General Equities 1 year -3.2% 2.9% -4.2% 3 year 17.4% 4.1% 8.7% 5 year 12.9% 4.8% 8.1% 10 year 2.9% 4.4% 4.9% 15 year 8.3% 4.3% 5.2% 20 year 9.6% 5.0% 6.7%

22 Strong Long Term Performance 15-year annualised total return in local currency 9.0% 8.8% 8.0% 7.0% 6.0% 6.2% 5.0% 5.5% 4.0% 3.0% 3.2% 2.0% 1.0% 1.7% 0.0% Europe Inflation Europe equities Europe bonds Europe real estate Europe listed real estate EPRA 2013 Sources: Eurostat, JP Morgan, FTSE, IPD, Bloomberg, EPRA, NAREIT Data as of: December 31,

23 Property Stocks Correlation vs. Equities Market Cohen & Steers Research Investigated the correlation between listed and direct property. The correlation significantly rises with investment horizon.

24 Listed Real Estate Correlation 100% 80% Correlation declines with equities and increases with direct real estate 60% EPRA Developed Europe Index 40% 20% Listed Real Estate vs. General Equities Listed Real Estate vs. Direct Real Estate 0% 3 Months 6 Months 1 Year 2 Years 3 Years 4 Years 5 Years 80% FTSE 100 vs. EPRA Europe 100% DTZ vs. EPRA Europe 60% 75% 40% 50% 20% 25% 0% 3 Months 6 Months 1 Year 2 Years 0% 3 Months 6 Months 1 Year 2 Years Sources: Bloomberg, DTZ, EPRA Data as of: 30 June

25 Attractive Dividend Yield 5-year average yield 5.0% 4.5% 4.5% 4.0% 3.5% 3.5% 3.6% 3.9% 3.0% 3.1% 2.5% 2.0% 1.5% 1.0% 0.5% 0.6% 0.0% ECB Refinancing rate FTSE Government Bonds >10 year Europe FTSE Corporate Bonds >10 year Europe FTSE All World Europe FTSE EPRA/NAREIT Developed Europe Index FTSE EPRA/NAREIT Developed Europe REITS Index Sources: ECB, FTSE, EPRA, NAREIT Data as of: December 31,

26 Allocations Investors allocations Value of financial assets 2010 hedge funds 6% international stocks 18% other assets 3% private equity 6% bonds 20% equities 33% fixed income 22% real estate 10% cash 1% real estate 14% private equity 1% McKinsey Survey domestic stocks 34% Room for allocation growth private debt 32%

27 Long run Dividends and REITs 10% Enactment year 9% 8% 1999 REITs Dividend Yield Non-REITs Dividend Yield 7% 6% 5% % 3% % 1% 0% Establishment of REITs in Europe

28 Feb-91 Dec-91 Oct-92 Aug-93 Jun-94 Apr-95 Feb-96 Dec-96 Oct-97 Aug-98 Jun-99 Apr-00 Feb-01 Dec-01 Oct-02 Aug-03 Jun-04 Apr-05 Feb-06 Dec-06 Oct-07 Aug-08 Jun-09 Apr-10 Feb-11 Dec-11 Oct-12 Aug-13 Jun-14 Apr-15 Feb-16 Graph 49: Relative Strength Indicator - Europe Overbought Neutral Oversold 0

29 The sensitivity of European publically-listed real estate to interest rates (Lee, Akimov, Stevenson) REITs are less sensitive to interest rate risk compared with real estate operating companies European real estate stocks, particularly REITs with low gearing, are less sensitive to interest rate volatility, though it is dependent to market conditions Asset structure is strongly related to long-term interest rate shocks Firms with high opportunities for growth are likely to be less exposed to long-term interest rates only since the financial crisis Firms with low leverage, low market-to-book ratio, high level of property investment and high liquidity are less sensitive to interest rate shocks

30 BLN Debt Maturity Schedule EPRA Europe % % 12% 10% 6.0 8% % 4% 2% %

31 BLN Capital raised & cost of debt EPRA Europe % % 7% 16.1% % 6% % 18.9% 8.0 4% % 11.8% 30.6% 3% % 61.3% 12.2% 3.6% 28.6% 36.8% 21.5% 21.8% 39.0% 2% 1% % Non-convertible Convertible Weighted coupon rate

32 Making the most of the low cost of capital EPRA Developed Europe Index constituents average 26% of total outstanding debt maturing in next 12 months EPRA European Constituents Debt Maturity Schedule (%) Low yield environment has enabled European companies to refinance at record low levels. The average maturity for EPRA Europe companies stands at 7.3 years % Debt Due in Next Twelve Months Debt Due in 1-5 Years Debt Due Thereafter Adjustments to Debt Schedule Based on the most recently reported debt maturity data. If values were not reported for the most recent period, most recent year values were used. Source: SNL Financial

33 Dividends: 3.58% growth in annual dividends over 15 years 5.0% % 160 Annualized compound dividend growth since 1999 = 3.58% 4.0% % % % % 60 Annualized compound CPI since 1999 = 1.84% 1.5% % % Dividend index (December 1999 = 100) 0.0%

34 Academic research Actively engage in calling for/promoting/funding academic research in the field of listed real estate EPRA Research Committee Investors (i.e. Pension Funds Boards) prefer academic research

35 Thank you