EPRA – European Listed RE market April 4th, 2016

Tel Aviv

Ali Zaidi

What are REITs?

“REITs smell like real estate, look like bonds and walk like equity”

Greg Whyte, Analyst, Morgan Stanley

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.

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

Real Estate Investment

Real Estate Investment

Non-Listed

Indirect Direct

Listed (REITs) Form of investment is determined by investor s’specific requirements and constraints

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Performance slide

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

Transparency & Analysts

8

128 analysts cover 105 Europe listed companies

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 21

Smaller = less

transparent

9

Sector Inc. offices,

retail, etc. (9)

Focus (Rental / Non-

Rental)

Status (REIT / Non-

REIT)

FTSE EPRA/NAREIT Global Index

300+ Specific Customized

Index Variations

Global

Developed Global

North America

2 Countries

Developed EMEA

Developed Europe

16 Countries

Developed MEA

1 Country

Developed Asia

6 Countries

Emerging Global

Emerging Americas

5 Countries

Emerging EMEA

Emerging Europe

5 Countries

Emerging MEA

3 Countries

Emerging Asia

8 Countries

AIM Index Liquid 40 Dividend+

10 Sources: FTSE, EPRA, NAREIT Data as of: December 31, 2015

Regional Breakdowns

56%

26%

18%

Developed

North America

Asia

EMEA

74%

15%

11%

Emerging

Asia Pacific

EMEA

Americas

Global Index Asset Exposure – EUR 1.9 Trillion

Region Companies No. Assets Top 10 Assets

Asia- Pacific 76 5,100 900

Europe 105 14,300 1,500

North America 153 32,600 7,200

Green = North America listed Blue = Europe listed Red = Asia-Pacific Based on the Top 15 Property Stocks in each region

Commercial Real Estate Asset Class

Country Commercial RE (BN USD)

Listed (BN USD)

Ratio

North America 8,426 982.3 12.08%

Europe 8,095 358.4 4.43%

Asia 4,294 518.5 12.08%

Emerging Market 7,077 535 7.56%

Global

28,108 2,406 8.56%

Monthly Statistcal Bulletin 03-2016 EPRA

Listed RE Investors

Investor Types

Passive - 10%

Specialists - 85% Generalists - 15%

Active - 90%

Institutional Equity investors who hold stake in REITs in a diversified portfolios. • Hedge Funds • Soverign wealth & Pension

Funds • Market level trackers

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Based on Developed Europe Index- excluding retail investors

ETFs Instituitional Investors who invest in listed RE as part of their property investments • Soverignwealth & pension

funds • Deidcated property investers

and wealth managers • Investment banks

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

Little impact on Sharpe Ratio - increased return covers volatility

1% p.a. annualised return enhancement – 19% over 15 years

Rolling 12m total returns

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 = 0.75-1 = 0.25 x 100 = 25% discount to NAV • Listed companies tend to only issue equity when trading at a

premium

-33.8%

-26.1%

-18.9% -17.8% -16.3% -12.9%

-2.2% -1.8% -1.7%

1.3%

11.0% 12.7%

17.5%

-70%

-50%

-30%

-10%

10%

30%

50%�Italy �Finland �Norway �Austria �UK �Greece �France �Ireland �Spain �Switzerland �Sweden �Germany �Belgium

NAV Valuations (March 2016)

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

The European REITS Market

REITS, 60%

Non-REITS, 40%

Europe

REITS, 98%

North America

Europe lags behind the more advanced REITs market of North America

Differences in Europe

Country Commercial RE (BN USD)

Listed (BN USD)

Ratio

Germany 1,722.1 40.9 2.37%

Spain 627.1 21.4 3.41%

Italy 962.8 4.74 0.49%

UK 1,287.9 70.9 5.5%

France

1,259.9 65.6 5.21%

Monthly Statistcal Bulletin 03-2016 EPRA

European listed market

The EPRA Europe Index – Mcap EUR 187 billion

– Dividend yield 2.55%

– 13 countries

– 10 sectors

The EPRA Europe REITs index – Mcap EUR 114 billion

– Dividend yield 3.05%

– 9 countries

– 10 sectors

Data as of March 2016

Europe, 18%

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 Sources: Eurostat, JP Morgan, FTSE, IPD, Bloomberg, EPRA, NAREIT Data as of: December 31, 2015

EPRA 2013

15-year

annualised

total return in

local currency Strong Long Term Performance

1.7%

3.2%

5.5%

6.2%

8.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Europe Inflation Europe equities Europe bonds Europe real estate Europe listed real estate

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 Sources: Bloomberg, DTZ, EPRA Data as of: 30 June 2014

Listed Real Estate Correlation

0%

20%

40%

60%

80%FTSE 100 vs. EPRA Europe

3 Months 6 Months 1 Year 2 Years0%

25%

50%

75%

100%DTZ vs. EPRA Europe

3 Months 6 Months 1 Year 2 Years

0%

20%

40%

60%

80%

100%

3 Months 6 Months 1 Year 2 Years 3 Years 4 Years 5 Years

Listed Real Estate vs. General Equities

Listed Real Estate vs. Direct Real Estate

EPRA Developed Europe Index

Correlation declines with equities and increases with

direct real estate

Sources: ECB, FTSE, EPRA, NAREIT Data as of: December 31, 2015 25

5-year

average

yield

Attractive Dividend Yield

0.6%

3.1%

3.5% 3.6%

3.9%

4.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

ECB Refinancingrate

FTSE GovernmentBonds >10 year

Europe

FTSE CorporateBonds >10 year

Europe

FTSE All WorldEurope

FTSE EPRA/NAREITDeveloped Europe

Index

FTSE EPRA/NAREITDeveloped Europe

REITS Index

Allocations

Room for allocation growth

private equity 1%

real estate 14%

bonds 20%

equities 33%

private debt 32%

Value of financial assets 2010

cash 1%

domestic stocks 34%

fixed income 22%

hedge funds 6%

international stocks 18%

other assets 3%

private equity 6%

real estate 10%

Investors allocations

McKinsey Survey

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1969 1995

1999

2003

2007

2007

2001

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

REITs Dividend Yield

Non-REITs Dividend Yield

Establishment of REITs in Europe

Long run Dividends and REITs

Enactment year

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0

20

40

60

80

100

120

Feb

-91

Dec-9

1

Oct-

92

Au

g-9

3

Ju

n-9

4

Ap

r-9

5

Feb

-96

Dec-9

6

Oct-

97

Au

g-9

8

Ju

n-9

9

Ap

r-0

0

Feb

-01

Dec-0

1

Oct-

02

Au

g-0

3

Ju

n-0

4

Ap

r-0

5

Feb

-06

Dec-0

6

Oct-

07

Au

g-0

8

Ju

n-0

9

Ap

r-1

0

Feb

-11

Dec-1

1

Oct-

12

Au

g-1

3

Ju

n-1

4

Ap

r-1

5

Feb

-16

Graph 49: Relative Strength Indicator - Europe

70-100

Overbought

30-70

Neutral

0-30

Oversold

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

Debt Maturity Schedule – EPRA Europe

0%

2%

4%

6%

8%

10%

12%

14%

16%

€0.0

€2.0

€4.0

€6.0

€8.0

€10.0

€12.0

�2016 �2017 �2018 �2019 �2020 �2021 �2022 �2023 �2024 �2025 �2026 �2027 �2028 �2029 �2030 �2031+

BLN

Capital raised & cost of debt – EPRA Europe

0.2%

61.3%

12.2%

6.7%

3.6%

11.8% 30.6%

28.6%

36.8%

21.5%

21.8%

18.9%

9.9%

16.1%

39.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

€0.0

€2.0

€4.0

€6.0

€8.0

€10.0

€12.0

€14.0

€16.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

BL

N

Non-convertible Convertible Weighted coupon rate

4.7%

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

• 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

26%

-10

0

10

20

30

40

50

60

70

Debt Due in Next TwelveMonths

Debt Due in 1-5 Years Debt Due Thereafter Adjustments to DebtSchedule

EPRA European Constituents Debt Maturity 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

10

0.0

98

.9

10

6.6

12

3.5

111

.3

14

4.5

14

4.7

15

3.2

18

3.5

16

9.5

14

3.7

14

9.0

15

6.1

16

3.5

15

7.6

15

9.0

17

5.6

Annualized compound dividend growth since

1999 = 3.58%

Annualized compound CPI since 1999 = 1.84%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

20

40

60

80

100

120

140

160

180

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dividends: 3.58% growth in annual dividends over 15 years

Dividend index (December 1999 = 100)

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

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Thank you

info@epra.com