THE ROLE OF EUROPEAN EMERGING MARKET PROPERTY COMPANIES IN A

PORTFOLIO

GRAEME NEWELLUniversity of Western Sydney

ALEX MOSSMacquarie Securities

STANLEY McGREALUniversity of Ulster

and

KIM NGUYENUniversity of Western Sydney

INTRODUCTION

Developed property markets

Emerging property markets

European emerging property markets

Previous research*General *Property*European property

PURPOSE OF PAPER

Nine (9) European emerging property markets

Listed property securities

Risk-adjusted performance

Portfolio diversification

Mixed-asset portfolios

2007-2011

Property investment implications

GLOBAL COMPETITIVENESS

#33: Estonia #36: Czech Republic #39: Poland

#40: Cyprus #45: Slovenia #46: Portugal

#47: Lithuania #52: Hungary #60: Slovak Republic

#61: Turkey #63: Russia #67: Romania

#71: Bulgaria #77: Croatia #83: Greece

CORRUPTION PERCEPTION#26: Estonia #27: Slovenia #28: Cyprus

#32: Portugal #41: Poland #46: Lithuania

#50: Hungary #53: Czech Republic #56: Turkey

#69: Romania #73: Bulgaria #78: Greece

#154: Russia

INSTITUTIONAL GRADE PROPERTY MARKET

#11: Russia (6) #18: Turkey (10) #24: Poland (14)

#25: Greece (15) #30: Portugal (19) #34: Czech Republic (20) #42: Romania (21) #43: Hungary (22) #44: Slovakia (23)

#46: Ukraine (24) #50: Slovenia (26) #53: Bulgaria (27)

PROPERTY TRANSPARENCY

#19: Portugal (13) #22: Poland (16) #24: Czech Republic (18)

#27: Hungary (19) #29: Greece (21) #30: Slovakia (22)

#31: Russia (Tier 1) (23) #32: Romania (24) #35: Russia (Tier 2) (25)

#36: Turkey (26) #40: Bulgaria (27) #43: Russia (Tier 3) (28)

#46: Ukraine (29) #53: Slovenia (30) #61: Croatia (31)

#70: Kazakhstan (32) #78: Belarus (33)

Transparent: #19-#27 (4) Semi-transparent: #29-#53 (10)

Low-transparency: #61-#78 (3)

• Improvements: 2001-2010

SECURITISED PROPERTYRussia Poland TurkeyGreece Hungary BulgariaCzech Republic Cyprus PortugalEstonia Latvia

REITs

#13: Turkey #19: Greece #21: Bulgaria

PROPERTY ACTIVITY: 2010: COUNTRIES

#13: Russia #21: Poland #24: Turkey

#27: Portugal #32: Czech Republic #35: Romania

#36: Ukraine #38: Hungary

PROPERTY ACTIVITY: 2010: CITIES

PROPERTY ACTIVITY: Q1 2011

#13: Poland #19: Czech Republic #23: Turkey

#26: Ukraine #27: Romania #31: Hungary

#33: Croatia #35: Russia

#15: Moscow

EMERGING MARKETS: GLOBAL CONTEXT

•Listed property securities

Contribution* developed: 80% * emerging 20%

•Emerging market contribution: regionsAsia: 54% Americas: 15%ME&A: 25% Europe: 5%

•EPRA emerging markets index

EMERGING MARKETS: EUROPEAN CONTEXT

• Listed property securities

• Developed @ 93% versus emerging @ 7%

• Europe emerging = 1.0% global

• #12: Russia #17: Poland #18: Turkey

• Europe emerging @ EPRA emerging markets index

METHODOLOGY

•Listed property securities

•European emerging markets (9)Bulgaria Cyprus Czech RepublicGreece Hungary PolandPortugal Russia Turkey

•European developed markets (3)U K France Sweden

•Stocks

•January 2007- April 2011: monthly total returns

•Risk-adjusted performance; portfolio diversification

•Sub-period analysisJanuary 2007-June 2009July 2009-April 2011

PROFILE: APRIL 2011

Country # of property securities Market cap Rank

Bulgaria 20 £ 0.2 B #5

Cyprus 5 £ 0.1 B #7

Czech Republic 3 £ 0.1 B #7

Greece 8 £ 0.9 B #4

Hungary 3 £ 0.2 B #5

Poland 14 £ 2.4 B #2

Portugal 3 £ 0.1 B #9

Russia 8 £ 6.5 B #1

Turkey 18 £ 2.1 B #3

Europe Emerging 82 £ 12.5 B

UK 146 £ 40.9 B

France 71 £ 50.2 B

Sweden 22 £ 15.4 B

PROPERTY SECURITIES PERFORMANCE

Country Average annual

return

Annual risk Risk/return

ratioBulgaria -7.74% 17.43% -2.25Cyprus -20.89% 32.59% -1.56Czech Republic -20.64% 28.74% -1.39Greece -20.85% 30.23% -1.45Hungary -6.15% 21.72% -3.53Poland -11.77% 32.53% -2.76Portugal 25.90% 54.36% 2.10Russia -5.79% 47.85% -8.27Turkey 16.68% 27.59% 1.65Europe emerging -2.80% 34.03% -12.16UK -18.52% 29.88% -1.61France -4.54% 24.21% -5.33Sweden -1.79% 32.92% -18.37Europe developed -11.65% 24.22% -2.08

STOCK PERFORMANCE

Country Average annual

return

Annual risk Risk/return

ratio

Bulgaria -20.43% 40.43% -1.98Cyprus -24.82% 47.47% -1.91Czech Republic -1.70% 29.08% -17.06Greece -23.80% 36.31% -1.53Hungary -0.64% 28.47% -44.41Poland -0.18% 26.38% -142.64Portugal -5.13% 22.24% -4.34Russia -0.65% 34.46% -53.42Turkey 17.27% 33.33% 1.93UK 3.64% 17.46% 4.80France -3.31% 20.06% -6.06Sweden 3.46% 21.69% 6.27

DIVERSIFICATION: PROPERTY SECURITIES

  BULG. CYPR. CZECH GREECE HUNG. POL. PORT. RUSS. TURK. EMERG. DEVEL.

BULG. 1.00

CYPR. 0.45 1.00

CZECH 0.53 0.39 1.00

GREECE 0.35 0.25 0.43 1.00

HUNG. 0.57 0.37 0.53 0.41 1.00

POL. 0.31 0.30 0.45 0.58 0.44 1.00

PORT. 0.22 0.26 0.13 0.08 0.24 -0.04 1.00

RUSS. 0.45 0.27 0.46 0.44 0.35 0.60 0.11 1.00

TURK. 0.52 0.25 0.57 0.52 0.65 0.67 0.10 0.60 1.00

EMERG. 0.50 0.32 0.54 0.58 0.48 0.76 0.10 0.96 0.75 1.00

DEVEL. 0.50 0.30 0.52 0.52 0.40 0.72 -0.06 0.49 0.63 0.63 1.00

DIVERSIFICATION: STOCKS

  BULG. CYPR. CZECH GREECE HUNG. POL. PORT. RUSS. TURK.

BULG. 1.00

CYPR. 0.58 1.00

CZECH 0.69 0.61 1.00

GREECE 0.62 0.88 0.73 1.00

HUNG. 0.67 0.73 0.80 0.76 1.00

POL. 0.65 0.58 0.90 0.70 0.81 1.00

PORT. 0.57 0.71 0.69 0.77 0.72 0.68 1.00

RUSS. 0.64 0.70 0.59 0.61 0.62 0.56 0.59 1.00

TURK. 0.55 0.67 0.72 0.68 0.79 0.76 0.65 0.57 1.00

PROPERTY/STOCK CORRELATIONS

Bulgaria: 0.70 Cyprus: 0.41Czech Rep.: 0.54 Greece: 0.71Hungary: 0.68 Poland: 0.85Portugal: 0.06 Russia: 0.67Turkey: 0.83 

UK: 0.68 France: 0.67Sweden: 0.57

SUB-PERIOD RETURNS: PROPERTY

Bulgaria: -16.68% 6.01%Cyprus: -16.82% -26.13%Czech Rep.: -26.80% -11.39%Greece: -15.83% -27.22%Hungary: -14.84% 7.14%Poland: -28.65% 17.85%Portugal: 22.61% 30.52%Russia: -29.29% 39.32%Turkey: -1.55% 47.11%Emerging: -21.62% 30.35%

Developed: -33.66% 30.59%

SUB-PERIOD RISK: PROPERTY

Bulgaria: 20.37% 11.79%Cyprus: 32.92% 32.80%Czech Rep.: 27.64% 30.51%Greece: 33.19% 26.17%Hungary: 25.60% 14.80%Poland: 39.35% 18.27%Portugal: 44.61% 66.45%Russia: 54.24% 36.37%Turkey: 30.46% 22.22%Emerging: 40.41% 21.31%

Developed: 25.04% 18.47%

SUB-PERIOD RISK: STOCKS

Bulgaria: 47.54% 26.81%Cyprus: 55.07% 35.78%Czech Republic: 33.40% 20.82%Greece: 37.23% 35.89%Hungary: 32.51% 20.86%Poland: 30.79% 16.90%Portugal: 25.75% 16.39%Russia: 41.35% 19.05%Turkey: 38.20% 25.12% UK: 18.38% 14.68%France: 21.53% 16.75%Sweden: 25.46% 13.56%

SUB-PERIOD PROPERTY/STOCKS CORRELATIONS

Bulgaria: 0.77 0.34 Cyprus: 0.49 0.29Czech Republic: 0.63 0.41 Greece: 0.68 0.79Hungary: 0.78 0.30 Poland: 0.86 0.73Portugal: 0.09 0.03 Russia: 0.70 0.51Turkey: 0.85 0.75 UK: 0.57 0.84 France: 0.61 0.71Sweden: 0.57 0.49 Emerging property/Developed property: 0.66 0.45

EUROPEAN EMERGING MARKETPROPERTY INVESTMENT IMPLICATIONS

• Size; maturity; significance

• Risk-adjusted returns

• Portfolio diversification

• Sub-period analysis * risk * diversification