Table of Contents
SECTION 01 Market overview
Chapter 01 - Where is real estate on the path to full asset class status?
Chapter 02 - Macro drivers and anticipated economic performance across Europe
Chapter 03 - European real estate in a global context
Chapter 04 - Priced for perfection – equity inflows into real estate in Europe
SECTION 02 Innovations in investment products and emerging structured property solutions
Chapter 05 - European CMBS issuance
Chapter 06 - European RMBS issuance
Chapter 07 - Property derivatives
Chapter 08 - German distressed property: recovery in sight
Chapter 09 - Capital flows and IPOs – the convergence story in emerging Europe
SECTION 03 - Pan-European REITs
Chapter 10 - REIT revolution
Chapter 11 - The French REIT landscape - The French 'REIT-volution'
Chapter 12 - Prospects for UK REITs
Chapter 13 - Strong prospects for the German REIT market
List of Tables
List of Figures
Foreword
SECTION 01
Market overview
- Chapter 01
Where is real estate on the path to full asset class status?
Industry overview
The effect of REITs
Market performance
Asset class requirements
Liquidity
The experience of REIT structures
Other developments
Volatility against stability
Tighter returns
Transparency
Maturity
Flexibility
Debt sophistication
Origination issues
A broad base of understanding
A broader base of investors
- Chapter 02
Macro drivers and anticipated economic performance across Europe
Introduction
The global economic context
Low government bond yields
The European position
Europe in detail
Old Europe
Dynamic Periphery Group
New Europe
Economics and real estate investment
Strong returns on real estate
Direct and indirect investment options
Real estate investment trends within Europe
Growth factors
Supply-side dynamics
Outlook
Prospects in Europe
Economic trends
Geographic trends
Sector trends
- Chapter 03
European real estate in a global context
Introduction
Market size and composition
Market differences
Trends and variations
Ownership structures
European legislation
Data provision
Differences in data measurement
The prospects for standardisation
Moves in the European market
Summary and conclusions
- Chapter 04
Priced for perfection – equity inflows into real estate in Europe
Introduction
Global capital flows
Focus on investors
Europe: a market in transition?
The drivers of capital flows
Aging demographic profiles
Declining costs of debt
Strengthening fundamentals
Increasing market transparency
Future prospects
Regional markets
Economic factors
The risk of recession
Conclusion
SECTION 02
Innovations in investment products and emerging structured property solutions
- Chapter 05
European CMBS issuance
2007 outlook: another record issuance year
Expectations for investor demand, issuance supply and spreads
Structural innovations
Outlook on fundamental drivers
The CMBS market in 2006
Issuance growth and breakdowns
Collateral trends
Granularity
Multi-jurisdictional issuance
Performance – delinquencies and losses
Spread trends
- Chapter 06
European RMBS issuance
The continuing growth of RMBS
The UK market
The rest of Europe
The subprime market
Non-conforming sector prospects
RMBS in 2007
Positive forecasts
Downside indicators
Concerns for non-conforming and buy-to-let sectors
European interest rate impact
RMBS performance rating
National variations
Conclusion
- Chapter 07
Property derivatives
Overview
Property derivatives – an introduction
How a derivative differs from a physical transaction
The current UK derivatives market
Market indicators
The IPD index
Derivatives markets outside the UK
Strategies and applications
Hedging
Portfolio rebalancing
Diversification
Property fund exit strategies
Adjusting risk/gearing
International strategies
Asset allocation and retaining alpha
Corporate applications – monetising real estate holdings
Property index certificates (PICs) and property linked notes (PLNs)
Pricing
REITs and property derivatives
Applications for real estate security fund managers
Conclusion
- Chapter 08
German distressed property: recovery in sight
Overview
The German NPL
Root causes of German distressed property
Trends in German distressed property
Berlin – the epicentre of distress
Indications of price stability
First mover advantage on German NPLs – to buyer or seller?
German housing – looking for the upside
Real estate open and closed-end funds
Small NPL deals produce super returns
Distressed loans and assets for sale
Insolvency and foreclosure
The G-REIT initiative
Real estate – a source
of liquidity in corporate
buyouts, restructuring and insolvency
Conclusion
- Chapter 09
Capital flows and IPOs – the convergence story in emerging Europe
Background
Present concerns
The situation in emerging Europe
Prospects for yields
An evolving sector in a dynamic environment
SECTION 03
Pan-European REITs
- Chapter 10
REIT revolution –
a global overview
REITs defined
Global REIT structures
The growth of global REIT markets
New REIT market development
Japan
Singapore
Hong Kong
Singapore, Hong Kong and China
Europe
UK REITs
Germany
The case for global real estate
The global trend in allocations
Conclusion
- Chapter 11
The French REIT landscape – The French ‘REIT-volution’
Introduction
Market background
The REIT sector after the SIIC reforms
Market developments
Extensions to SIIC
SIIC 2 activity
SIIC 3 activity
Future prospects
Attractions for non-French players
Desperately seeking liquidity
Performance measures for French REITs
Rental yield
Yield compression
Attractive growth and pipelines
REITs market valuation
Investor activity
German and UK REITs: threat or opportunity?
Specialisation: a major future challenge
Key conclusion
- Chapter 12
Prospects for UK REITs
Introduction
The legislation in context
The form of the UK REIT
Company conditions for REIT status
Tax-exempt business conditions
Balance of business conditions
Entry charge
The 10% rule
Gearing restriction (interest cover test)
Development
Ring-fenced business
Taxation of REITs
Group REITs
Key challenges to the REIT regime
Tax-neutral vehicle
REIT objectives and liquidity
Encouraging investor appetite
AIM listed companies
Start-up REITs
Tax
Residential REITs
Doing business with UK REITs
Acquisitions and disposals
REIT status considerations
The future
Specialisation/diversification
Other developments
- Chapter 13
Strong prospects for the German REIT market
Introduction
History of the German REIT (G-REIT) process
Improving the financial environment
Current legislative outline
Next steps
The potential for the G-REIT market
Economic benefits
Is the G-REIT already behind the curve?
Conclusion
List of tables
Table 3.1: Estimated prime office performance 2004–07f (%, local currency)
Table 5.1: Relative country sector rankings
Table 5.2: Top 10 European CMBS conduit programs by issuance, 2006 (€bn)
Table 7.1: Physical property transaction
Table 7.2: IPD country indices
Table 7.3: Tracking error
Table 7.4: Costs of levels of diversification (£m, %)
Table 7.5: Adjusting asset allocation (£bn, %)
Table 7.6: Potential saving through derivative use
Table 10.1: Global REIT structures
Table 10.2: Estimated sourcing of G-REIT assets to 2010, (€bn)
Table 10.3: Population over 65 years old, by country, 2000, 2010, 2020
Table 11.1: Overview of the REIT sector, 2003, 2006 (€ bn)
Table 11.2: Main French property companies, 1 Jan 2003 (€m, %)
Table 11.3: Foreign property companies with Euronext Paris dual listing, Dec 2006
Table 11.4: Top five REITs, France, the Netherlands, UK, Dec 2006 (€)
Table 11.5: 2010 investment pipeline of major French REITs (€m, %)
Table 11.6: Valuations of main French REITs, 2006, 2007e
(€m, %)
Table 11.7: EV/EBITDA multiples, by sector, 2006
Table 11.8: Volatility of SBF 120 companies, by sector, Dec 2006 (%)
Table 11.9: Main investors in French SIIC companies, December 2006 (€m, %)
Table 11.10: Performance of EPRA indices from 2005 and 2006 (%)
Table 11.11: Investor attitudes to European REIT markets, 2006 (%)
Table 13.1: Development of the global REIT market, 1960–2007
Table 13.2: REITS and existing property vehicles in Germany
Table 13.3: Market potential of G-REITS (€bn)
List of figures
Figure 1.1 French SIICs – market capitalisation vs free float, 2003–06 (€bn)
Figure 1.2: Global real estate vs equities and bonds, 2003–06
Figure 1.3: Real estate vs other asset classes, total returns, 2005 (%)
Figure 1.4: Annualised asset turnover, by sector, 2003–06 (%)
Figure 1.5: Performance of French SIIC, non-SIIC and UK real estate sectors, 2003–06
Figure 1.6: Yields – Paris CBD vs French gilts (%)
Figure 1.7: International benchmarks, 2003–06
Figure 1.8: German open-ended funds – gross assets, 1995–2006 (€m)
Figure 1.9: UK pension fund allocation to property, 1964–2004 (%)
Figure 1.10: European direct real estate investment, 2000–05 (€bn)
Figure 2.1: Total investment purchases, 2000–06 (€bn)
Figure 2.2: Global price inflation rates, 1980-2007f (%)
Figure 2.3: Real interest rates, 1980-2006 (%)
Figure 2.4: Global GDP growth, 1999-2007f (%)
Figure 2.5: Gross national saving, 1995 and 2005
Figure 2.6: Global money supply to GDP ratio, 1980–2005
Figure 2.7: Growth in GDP and GDP per capita, 1999-2005 (%)
Figure 2.8: Average annual GDP growth, 1999-2005 (%), and GDP per capita, 2005 (€)
Figure 2.9: Total returns on UK assets, Dec 1986–Oct 2006
Figure 2.10: Average annual total returns on UK and European assets, to end-2005 (%)
Figure 2.11: Direct and indirect real estate investment holdings in Europe, 1999–2005 (€bn)
Figure 2.12: Average annual GDP growth and growth in invested stock, 1999-2005 (%)
Figure 2.13: Value of cross-border transactions, 1999-2006 (€m)
Figure 2.14: Prime office yields, 1999, 2005 (%)
Figure 2.15: Average annual GDP growth, 2006-2010f (%)
Figure 2.16: Externalisation potential, 2006–10 (€bn, %)
Figure 3.1: Global real estate stock by region and category, 2006 (US$bn)
Figure 3.2: Invested, investible and total real estate stock by country, 2006 (US$bn)
Figure 3.3: Office, retail and industrial property split by country, 2006 (%)
Figure 3.4: Market maturity by region, 2006 (US$trn)
Figure 3.5: European office total return volatility and city-level output volatility, 2006 (%)
Figure 3.6: ‘New’ European offices as a proportion of total stock by market, 2006 (%)
Figure 3.7: Rental growth correlations by sector and region, 2006 (%)
Figure 3.8: European real estate investment by country and capital type, Q4 2005–Q2 2006 (%)
Figure 3.9: Regional investment volumes, Q4 2005-Q2 2006 (%, US$bn)
Figure 3.10: Listed real estate securities markets by region, 2006 (€m)
Figure 3.11: REIT markets by region, 2006 (€m)
Figure 3.12: Unlisted real estate investment funds by region, 2006 (€m)
Figure 3.13: Investible European real estate stock by ownership group, 2006 (€, %)
Figure 3.14: Investible Asia Pacific real estate stock by ownership group, 2006 (€, %)
Figure 3.15: IPD global total returns, 2001–05 (%, US$)
Figure 5.1: BEC-Prop Index and sub-indices, 1999–2010, 2005–10
Figure 5.2: European CMBS issuance, 1995–2006 (€bn)
Figure 5.3: European CMBS issuance, by issuer type, 2006 (%)
Figure 5.4: European CMBS issuance, by transaction type, 2006 (%)
Figure 5.5: European CMBS issuance, by collateral country, 2006 (%)
Figure 5.6: European CMBS issuance, by property type, 2006
Figure 5.7: European CMBS – loan and property granularity, 1998–2006
Figure 5.8: European CMBS issuance – multi-jurisdictional issuers, 1999–2006 (%)
Figure 5.9: European CMBS delinquencies – estimated loss rates as percentage of outstandings, Q1 2004–Q1 2006 (%)
Figure 5.10: UK commercial mortgages – estimated loss rates as percentage of outstandings, 2000–06 (%)
Figure 5.11: UK commercial mortgage lending, by category, 2000–06 (%)
Figure 5.12: Commercial mortgage loan covenant breaches and defaults, 2000–H1 2006 (£m)
Figure 5.13: European CMBS – primary spreads, 2002–06
Figure 5.14: European CMBS – average spreads, 2002–06
Figure 5.15: European CMBS – primary spreads, 2006
Figure 7.1: Total annual returns by category (%)
Figure 7.2: Annual property yields, by sector, 1987–2007 (%)
Figure 7.3: Simple total return swap
Figure 7.4: UK derivative trading, Q1/2005–Q1/2007 (£m)
Figure 7.5: Composition of the UK IPD index, end-Dec 2006 (%)
Figure 7.6: Composition of IPD indices for the Netherlands and France, 2006 (%)
Figure 7.7: Using a derivative to protect against a perceived market downturn (%)
Figure 7.8: Using derivatives for portfolio balancing
Figure 7.9: Predicted value of fund terminations, 2006–16 (€bn)
Figure 7.10: Property returns vs interest returns, effect of derivatives, 1995–2004 (%)
Figure 7.11: All property curve, 2007–16
Figure 7.12: Risk/return profile, US direct property vs US REITs, 1978–2007 (%)
Figure 9.1: Prime office yields in Madrid, 1981–2005 (%)
Figure 9.2: Yields convergence in Central Europe
Figure 9.3: Capital inflows and IPOs in the EME real estate sector, 1998–2006e (€bn)
Figure 9.4: Prime office yields, 2005 (%)
Figure 9.5: Speed of convergence in CE-3, 2003–09e (%)
Figure 9.6: Emerging Europe – credit to GDP ratios (%)
Figure 9.7: Emerging Europe – mortgages to GDP ratios (%)
Figure 9.8: Emerging Europe – private consumption growth, 2003–07e (%)
Figure 9.9: Activities breakdown by MCAP (US$, %)
Figure 9.10: Activities breakdown by MCAP after rebalancing (US$, %)
Figure 10.1: Growth of global REIT markets, 1990–2006 (US$bn)
Figure 10.2: Singapore REIT market capitalisation, 2002–06 (S$m)
Figure 10.3: Institutional pension allocations to real estate, 1988–2006 (%, US$m)
Figure 10.4: Listed real estate allocations, by market source, 2006
Figure 10.5: Efficient frontier with and without real estate (%)
Figure 10.6: Global risk and return, 1990–2006 (%)
Figure 10.7: Interregional correlation within each asset class, 1995–2005
Figure 10.8: Rolling two-year global correlation, global real estate versus equities & bonds, 1996–2006
Figure 11.1: Main elements of SIIC 1 reform, 2003
Figure 11.2: French real estate ECM volumes, 2003–06 (€m)
Figure 11.3: French real estate M&A volumes, 2003–06 (€bn)
Figure 11.4: Listed real estate vs total real estate assets, by country, Sept 2006 (%)
Figure 11.5: French SIIC market, Dec 2006 (€m, %)
Figure 11.6: Income returns on property, by category, 2000–05 (%)
Figure 11.7: Growth in unleveraged capital return on property, by category, 2000–05 (%)
Figure 11.8: Growth in gross rental yield on property, by category, 2000–05 (%)
Figure 11.9: Cash flow growth estimates 2003, 2006 (%)
Figure 11.10: EPRA indices’ performance, Jan 2003–July 2006
Figure 11.11 Average discount/premium to NAV, 2003, 2006 (%)
Figure 11.12: Investor rating of European REIT valuation methodologies (%)
Figure 11.13: Premium to NAV vs yield regression, 2006e (%)
Figure 11.14: Premium to NAV vs cash flow CAGR, 2006–08e (%)
Figure 11.15: Volatility of select French REITs, Jan 2003–July 2006 (%)
Figure 11.16: Investment in French SIIC companies, by country, 2006 (%)
Figure 13.1: European market share of national real estate stock companies, 31 Oct 2006 (%)