European weighting in GPR global index plunges

The cumulative weight of European property stocks in the global listed property sector - as represented in the GPR 250 Index - has plunged to 14% from 21% in the past four years, according to Global Property Research. From 1 January 2008 to 31 December 2011, the number of European stocks included in the GPR 250 Index fell to 54 from 70. This decrease is largely due to the exclusion of less liquid stocks, GPR said.

Coinciding with a cyclical shift in the global listed property market, Europe significantly underperformed over the period in question. Prices for European property stocks fell sharply over the period, generating negative returns of 41% in absolute terms from 1 January 2008 to 31 December 2011. The relative underperformance of Europe was exacerbated by the positive price returns seen in property stocks in the Americas which generated a positive return of 2% on an absolute basis.

The decline in the relative weight of Europe within the global GPR 250 Index also reflects the relatively low number of equity issues in Europe over the past four years compared to the US as well as the practice of discounted equity issues limiting access to equity markets.

IPOs in Europe are 'worryingly' of a smaller nature than in the Americas, Asia and Oceania, GPR said. In the past four years the Americas has raised EUR 52 bn through property IPOs compared to a mere EUR 6 bn in Europe.

'It is striking that 25 of the 28 IPOs have taken place in the Americas and Asia,' GPR's research note entitled 'Reversion to the mean, moving away from the lean', pointed out. 'Considerably more capital has been raised in the Americas from new investors in secondary placements.'

Europe does fare better than the other continents in terms of rights issues: an amount of EUR 9 bn in capital was raised over the period from existing investors. However, the practice of issuing equity with pre-emptive rights results in a discounted equity issue impacting earnings fundamentals and the share price, GPR said. 'As such, the practice of rights issues themselves could be seen as an important hurdle for the presence of Europe in the global benchmark.'

The weighting of the global GPR index is determined by FFMC (free float market capitalisation). The main factors affecting the FFMC are i) inclusions in and exclusions from the index ii) price performance and iii) new equity issues.