High dividend income relative to low yields in fixed income markets and recovering asset prices have drawn strong investment capital flows into Europe’s listed real estate companies. The value of IPOs raised last year saw real estate punching significantly above its weight relative to other industry equities sectors and 2015 is likely to record further robust inflows.
That was the view of Philip Charls (pictured), CEO of the European Public Real Estate Association at EPRA’s annual conference in Berlin.
Charls said: “European listed real estate companies have been extremely popular with investors globally, and this is not just a case of a rising equities market tide lifting all boats. The industry has punched far above its weight in capital raising in comparison with most other stock sectors. Low interest rates and strong dividend yields obviously have a lot to do with the bullish picture, but our members also own many of the best quality real estate assets in the recovering markets of Europe’s cities. Furthermore, we’re seeing strong structural growth in relatively new emerging listed property markets such as Germany, Spain and Ireland. All the conditions are now in place for the European listed sector to come of age.”
Over 13 per cent, or EUR 7.6 billion, of the total EUR 57 billion raised in all IPOs in Europe last year was for property companies, but real estate’s share of the FTSE European Equities Index is only 1.4 per cent. The total capital raised in IPOs and secondary offerings by European property companies in the FTSE EPRA/NAREIT Developed Europe index since 2012 was over EUR 28 billion.
In 2014, EUR 12.5 billion of equity was raised, compared with EUR 5.5 billion in 2013. So far this year, EUR 10 billion has been raised. More IPOs may be in the pipeline for the remainder of 2015 depending on equity market developments
The average dividend yield of companies in the EUR 207 billion market capitalisation FTSE EPRA/NAREIT Developed Europe Index over the course of the past three years is 3.3 per cent. The dividend has been income very attractive to investors compared with, for example, a near zero yield on five-year German government bonds (bunds).
When EPRA last held its annual conference in Berlin in September 2012, some market commentators says the European listed real estate industry was in danger of losing its relevance in the eyes of global investors as its share of the global listed property market had fallen to 11 per cent and it was heavily overshadowed by the sectors in the US and Asia. Since that point, Europe’s share of the FTSE EPRA/NAREIT Global Real Estate index has grown strongly to 18 per cent – close to its long-term average of 20 per cent – and a significant turnaround. Over the last three years, the gross asset value of properties owned by EPRA’s European-based members has risen 72 per cent to EUR 374 billion, compared with EUR 217 billion in September 2012.
Strong underlying structural growth has been seen in the rejuvenated listed markets of Germany, Spain and Ireland, as well as expansion in the large mature markets of the UK and France. EPRA has been actively making the case for REITs, and listed real estate generally, with politicians and regulators on the significant contribution these companies make to investment in the urban landscapes of Europe’s cities and on the attractive stable long-term dividend income they can provide to pension funds striving to match their long-term liabilities.
While this lobbying and educational work is bearing fruit in markets such as Germany, Spain, Ireland and Italy, there is still much to be done in levelling the regulatory playing field in areas like punishingly high Solvency II capital weightings and national taxation regimes. EPRA is addressing these issues within the context of the EU’s Capital Market Union initiative and on the road to pushing the discussion of the cross-border recognition of national REIT regimes in Europe.
Germany’s share of the FTSE EPRA/NAREIT Europe index has more than doubled to about 16 per cent, from 7.5 per cent in 2012. The German market now boasts some of the largest real estate companies in Europe, such as housing giant Deutsche Annington (now Vonovia), which listed in 2013 to mark the appearance of a sizeable new listed residential property sector within the European index.
The next potential growth market for European listed real estate is Poland where earlier this year EPRA met with a wide range of government officials, the Warsaw stock exchange and property companies to brief them on benefits of REITs to institutional investors and the broader national economy. EPRA expects to see the first Polish REIT in the next 12 months and is optimistic that Poland could grow into a market of several billions of euros in the mid-term.
Charls concluded: “The European listed real estate industry has experienced remarkable growth over the last three years, and as national economies continue to recover we expect the sector will maintain its momentum of expansion. We must not, however, become complacent and abandon the investment discipline which has been put into place since the financial crisis and that has underpinned the support of investors.”
Source: Property Funds World