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RPT-More European countries may adopt property trusts September 10, 2004 4:27am ET (Reuters)
(Repeats story first issued on Sept 9)
By Justine Trueman
BERLIN, Sept 9 (Reuters) - Europe is moving rapidly towards the widespread adoption of listed Real Estate Investment Trusts (REITs) with Germany expected to follow the UK as the next two countries to adopt the investment structure.
REITs are attractive to investors as the companies are tax transparent with limited tax paid at the corporate level provided between 80 to 100 percent of income is paid out in dividends, making them high yield stocks.
The Netherlands, Belgium and France have already introduced REIT structures which are widespread in the U.S. and Australia.
Speaking to Reuters at the European Public Real Estate Association's (EPRA) annual conference in Berlin, EPRA chief executive Nick van Ommen said he was confident Germany would introduce REITs by the end of 2005 or beginning of 2006.
"I know there are already people working behind the scenes to make it happen here in Germany," Van Ommen said.
He added some German banks with large unlisted open-ended property funds, which already enjoy tax breaks, and the tax authorities had been opposed to the development of a REIT market, but said there was still enough momentum to drive the change forward.
"If countries around us are introducing REITs Germany can't stay an island," he said.
France's REIT market, introduced in 2003, has already proved successful, with property companies' shares now trading at a premium to the net asset value (NAV) of their underlying building portfolios, compared with a discount previously.
The UK has also announced plans to allow REITs, possibly from late 2005 or early 2006, and other countries like Finland and Sweden are seriously looking at the structures.
Van Ommen said the further development of REITs was fundamental for the European property market.
"If Europe doesn't introduce REITs the money will go to the U.S. and Asia instead," he said.
European property companies have been enviously eyeing the rapid growth of REIT markets in the U.S. and Australia.
The market capitalisation of the U.S. REIT sector has grown to about $300 billion from around $8 billion in the early 1990s. REITs now make up about 4 percent of total U.S. stockmarket capitalisation and 8 percent of Australia's share market.
OBSTACLES REMAIN
Europeans have been slow to embrace the REIT structure and even in countries where they exist there has been criticism that companies are not distributing high enough levels of income to investors and are not being transparent in their operations.
Cambridge University Professor John Glascock told the conference studies had revealed the more transparent a company was, and the more data it revealed to the market, the better its share performance.
"The more data you give the better you are rated. I think transparency is the number one game."
He said that as more European countries moved to REITs, corporate governance and performance should improve as firms focus on improving returns from their existing assets.
"REITs focus the mind of the manager on running the product rather than financing the deal," Glascock said.
A study in the U.S. found institutional investors ranked REITs first above all other stock market sectors for corporate governance.
But Macquarie Capital Partners's Robert Meyer said just having a REIT structure wouldn't necessarily improve the listed real estate industry and attract new investment.
"There needs to be good management and liquidity as well."
He pointed out the REIT success story in the U.S. was a relatively recent phenomenon partly due to increased interest in real estate investment generally.
A marketing campaign by the U.S. industry association NAREIT had also attracted interest from new investors such as pension funds and broad-based mutual funds that are increasing their exposure to property, he added. End of Story
