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- 10/2/2011
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A brief history of securitised real estate
What defines a REIT
The benefits of investment through REITs
Demand drivers and investment trends
A Brief History of Securitised Real Estate
Post WW2 real estate investment by life companies
1960’s & 70’s: Pension fund appetite for real estate emerges
1980’s: RE recognised as a fully fledged asset class
Increased familiarity of investors
Availability of industry performance data (NCREIF)
Risk characteristics (low correlation)
1990’s – today: RE performance as an asset class rewarded
Total (risk adjusted) returns
Low volatility
Inflation hedging potential
Portfolio diversification benefits
A Brief History Continued:
The REIT Phenomenon
In the 1960’s & 70’s the first Dutch (FBI), US (REIT) and
Australian (LPT) securitised vehicles emerged
Many countries have since adopted a REIT-type structure:
Malaysia (1986) REIT
Canada (1993) REIT
Belgium (1995) REITs
Singapore (1999) S-REIT
Japan (2000) J-REIT
Korea (2001) K-REIT
France (2003) SIIC
Taiwan (2003) REIT
Hong Kong (2003) REIT
Bulgaria (2005) REIT
And more to come :
United Kingdom to commence from 2007
Germany – Enabling legislation expected in 2006
A proposed definition of REITs
A REIT is a widely held company or trust that:
derives its income primarily from long term investment in real estate,
distributes the majority of that income annually, and
does not pay on tax the distributed income.
Notes:
The definition assumes that:
1. REITs satisfy all applicable domestic law; and,
2. the concept of "widely held" and 'long-term investment‘ is determined
domestically.
Five reasons for REITs
Diversification
Distributions
Liquidity
Performance
Transparency
The REIT market is big … and will get bigger
Tradable All Commercial
investments Real Estate
Listed Real US $ 6.3 trillion US $ 15 trillion
Estate
US $ 1.3 trillion 50% Americas 39% Americas
27% Asia-Pacific 21% Asia-Pacific
23% Europe 37% Europe
Sources: EPRA/NAREIT, LaSalle Investment Management
Estimates are as at Q4 2005
Investor demand to remain strong
Increased allocations to real estate & strong inflows tied
to long term demographic changes:
• Aging of the population & demand for annuity style, low risk income
streams
• Increased savings – pension and superannuation funds (15%/year)
Percentage of population 65+ years
2000 2010 2020
US 12.50% 13.20% 16.60%
Japan 17.10% 21.50% 26.20%
Germany 16.40% 19.80% 21.30%
Italy 18.20% 20.80% 24.10%
Britain 16.00% 17.10% 19.80%
:
Source OECD estimates
Demand & allocations are on the rise everywhere
Investor free cash flow
allocations to be invested
to real estate $$$
Australia
US
Europe
Asia
Source: Pinnacle Property Group
Domestic supply is constrained in mature markets
Cross border investment growing fastest
Overall
Inter-regional
Intra-regional
Domestic
0 10 20 30 40 50 60
2005 investment growth (%)
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
5.3
0.9
Global
Source
of Funds
Global
Source: Jones Lang Lasalle
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
1.3
3.7
11.1
2.7
5.3
0.9
Global
Source
of Funds
Global Asia Pacific
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
6.2
9.2 1.3
3.7
11.1
2.7
5.3 2.7
0.9
Global 1.4
Source
of Funds
Global Asia Pacific North America
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
6.2
0.8
6.5
9.2 1.3
0.5
5.9
3.7
11.1
2.7
5.3 2.7
0.9
Global 1.4
Source
of Funds
Global Asia Pacific North America Europe
Source: Jones Lang Lasalle
Inter-regional capital flows of US$114bn in 2005
6.2
0.8
6.5
9.2 1.3
0.5
5.9
3.7
8.4
2.4
0.0
1.5 2.9 0.3
11.1
2.7
5.3 2.7
0.9
Global 1.4
Source
of Funds
Global Asia Pacific North America Europe Middle East
Source: Jones Lang Lasalle
Discussion points
Real estate is an established and expansive asset class:
Is this appropriately reflected under tax treaty arrangements?
Investor demand for real estate will remain strong.
Investors want access to international options.
What tax distortions should be eliminated?
REITs are key to meeting investor demand.
What is an appropriate withholding rate on all REIT distributions?
Should there be a different withholding tax rate for portfolio
investors? REIT investors in REITs? Others?
