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EPRA Monthly Brief
September 2017
As announced over the summer, we gave EPRA a new look and feel – from the logo to a more user-friendly website, which we launched at the EPRA Conference in London. To discover what our Association is all about, I invite you to watch this short introductory video and to visit our new website.
 
I was delighted to host my first EPRA Conference and meet so many more of our members. In recent years, the Conference has established itself as a niche, must attend event for anyone connected to the listed sector who wishes to be challenged and to pick up new ideas. I have received very positive feedback from the attendees, with a special mention of the third day dedicated to company pitches to investors, clearly showing the appetite for the listed sector.
 
EPRA has been working hard on maturing the listed real estate sector and building investors’ confidence in our industry. This is why the FTSE Russell’s elevation of Real Estate as its 11th ICB Industry is timely, as the sector is increasingly viewed as an investment asset class in its own right.
 
Following the Conference, we had a very productive week hosting NAREIT in the UK and Continental Europe, meeting with 23 investors to promote the benefits of listed real estate globally as part of a diversified asset allocation.
 
The confidence in the sector is further boosted by transparency in financial and sustainability reporting, and I am pleased to say we have already exceeded the 2018 targets for the number of listed property companies complying with our financial Best Practices Recommendations. On the sustainability side, we now turn our efforts towards improving transparency on social and corporate governance metrics.
 
The implementation of REIT regimes has supported the expansion of property markets around the world. Gradually, REITs have become a key component of the listed real estate markets. The EPRA Global REIT Survey, which we published in September, covers over 30 countries and explores the differences and the success stories behind the major REIT regimes across the globe.
 
Research is a valuable component of all our outreach efforts and the latest quarterly Research Digest, which I encourage you to watch and read, summarises all industry relevant publications. At the same time, we have launched the 2018 invitation for research proposals from both academic researchers and market practitioners.
 
I encourage you to consult the selection for your agenda at the bottom of this email and I welcome the pleasure of seeing you at the many events we are organising for you.
 
Dominique Moerenhout, EPRA CEO
EPRA news

NAREIT and EPRA join forces

Following a successful investor outreach trip in the US in July with NAREIT, the National Association of Real Estate Investment Trusts, we recently hosted our American counterpart in the UK and Continental Europe for a series of meetings. Together with Meredith Despins, Senior Vice President for Investment Affairs & Investor Education, we met with pension funds, insurance companies, private banks, asset managers, family offices and specialist investors in London, Oslo, Munich and Zurich. The goal of this joint outreach programme is to advocate the benefits of diversified asset allocations to global listed real estate securities. NAREIT and EPRA often collaborate on an international level in the framework of REESA, the Real Estate Equity Securitization Alliance, and we look forward to meeting with additional investors in the US in November during a reciprocal tour. Watch the interview with Steve Wechsler, NAREIT CEO, about the investor outreach activities undertaken jointly by NAREIT and EPRA.

Decomposing volatility

EPRA published a new market research to analyse and understand the dynamics of the individual and aggregated volatility of the FTSE EPRA/NAREIT Developed Europe Index constituents. To do so, the volatility of a selection of constituents is decomposed into the following four main sources: the company’s own dynamics, listed real estate continental and sectoral indices, the local equity markets, and the local currencies. Special attention was payed to the Brexit effects over the British constituents as it might represent a breakpoint over their volatility dynamics. By analysing the volatility of 55 Index constituents during a 10-year period EPRA identified an interesting pattern: around 89% of the stock’s volatility in the eurozone can be related to its own dynamics and 11% to the real estate and local equity market indices. In the case of non-eurozone constituents, their own dynamics represent 81% of their volatility and 19% can be attributed to the external sources, including the local currency. To learn more about EPRA research discover the second edition of the EPRA Research Digest.

EPRA calls for a reform of EU’s Solvency II rules

Under the Solvency II rules, the capital risk weighting required for listed real estate is considered at 39%, along with equities, contrasting with only 25% for direct property investments. A large body of academic research has concluded that the performance of listed real estate converges with direct property over the longer term, meaning there is no market rationale for treating the two as separate investment asset classes from a relative risk perspective. In the latest and most comprehensive study conducted by MSCI earlier this year, the researchers found listed real estate sheds the influence of the general equities market after just 18 months, and that there are strong correlations in performance across individual property assets, non-listed funds and securities, particularly over three and five-year periods. In light of these findings, EPRA believes that under Solvency II, the look-through approach should be available for investments to listed property investment undertakings and is in contact with EU regulators advocating for a change in the relevant provisions. Insurers would thus look at the substance of the investment rather than its form, which is real estate and not equity – as supported by research. Watch the interview with Heitman’s Mark Abramson and MEAG’s Stefan Krausch on Solvency II.

ESG Guidelines launched

EPRA has now launched the third edition of its Sustainability Best Practices Recommendations Guidelines, which includes environmental, social and corporate governance indicators and additional guidance on reporting principles. The leading real estate companies are already seeking to measure their wider impact and contribution to society at an asset and corporate level, so EPRA aims to provide common industry metrics for non-financial disclosure. They include new performance measures covering diversity, employee development, health and safety, community engagement and Board composition, selection and conflicts of interest. For a better overview of the changes between the second (2014) and the third edition (2017) of the EPRA sBPR Guidelines, please refer to this document.

EPRA Conference wrap-up

Branded as RE-think, the EPRA Conference which took place in September looked at future technologies and challenges in a 3-5 year timescale. Prof. Niall Fergusson and Salim Ismail talked about global issues as diverse as Central Banks unwinding asset purchasing through to a world where energy goes from an expensive scarcity to a cheap and ubiquitous and resource. To round off the day, Nick Clegg, the former Deputy PM of UK, talked profoundly about how policymakers can react to the challenges highlighted earlier in the day. Day 1 saw five property tours of key London assets and as usual we rounded off the Conference with 40 companies pitching to over 120 investors.This is a format we are keen to continue and grow. Finally, we are grateful to our sponsors without whom we could not produce such a successful event and we look forward to welcoming you to Berlin on 4-6 September 2018. Relive the EPRA Conference by watching this highlight video and find out why #EPRAconf became a Trending Topic on Twitter!
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