Europe’s listed sector is ‘poised for new growth era’

Dominique Moerenhout took over from Philip Charls as the new CEO of the European Public Real Estate Association (EPRA) in March. A Belgian national, Moerenhout was previously CEO of BNP Paribas Real Estate Investment Management in Luxembourg and Belgium, prior to which he held COO roles at BNP Paribas Real Estate UK and Fortis Private Real Estate. He spoke to PropertyEU about his priorites ahead of the EPRA annual conference.

What are your main priorities as new CEO?

My first few months at EPRA have been mainly spent getting to know the team, listening to feedback on the association’s role from members and talking to our partners in national and international real estate associations in Europe and around the world. When I took up the CEO role I was entrusted with the complex task of implementing EPRA’s Strategy Review and establishing the prioritisation of the many different initiatives we are involved with. Foremost among these is EPRA’s relationship with our Index partners FTSE and NAREIT to develop new products such as niche and sub-indices as well as tailor-made indices for individual companies. In the research area, we will be more forward looking in our analyses, and prioritise studies that demonstrate the powerful role investments in listed real estate companies can play in the asset allocation of institutional investors.
These initiatives will be showcased through a new EPRA interface with our members and the market, as we launch new branding that embraces the dynamism of the sector. The centrepiece of the new EPRA look and feel is a much more user-friendly website and we invite everyone to pay the homepage a visit.

What is the outlook for the listed RE sector in Europe?

We believe that Europe’s listed real estate sector is entering a new era of growth and the industry is well-placed to respond to the social and economic challenges of our time. The ongoing transition from defined benefit to defined contribution pension schemes focused on investments in long-term income-generating assets, as well as the GICS reclassification of listed real estate as a standalone equities asset class, represent major opportunities for our industry. All this is being underpinned by a resurgence in economic growth and job creation in the EU, although major question marks remain over how Brexit will evolve and over other geopolitical challenges in Europe and globally.

What does EPRA’s Investor Outreach programme in Europe entail?

Investor Outreach in our European home markets is a main priority for EPRA. In parallel to our long-standing relationships with specialist investors, we are refocusing our education activities on more ‘generalist’ institutional investors and turning our attention to other local industry associations, such as pension, insurance and asset management groups. We want to access their membership bases and convince these investors to consider raising their allocations to property stocks.
To give an example, we recently met with GDV, the German Insurance Association and MEAG, the asset management arm of German re-insurance giant Munich Re. I firmly believe that although it may take some time, when large generalist investors make even relatively small shifts in asset allocations the impact can be substantial.

Can you provide an update on EPRA’s advocacy work in Brussels regarding legislation like EU Solvency II?

The reduction of the capital requirements for listed real estate under the EU’s Solvency II regulations is our main priority on the advocacy front. The regulations became fully applicable at the start of 2016 and require insurers to weigh ‘riskier’ investment asset classes more heavily in their capital allocation.
Listed real estate is categorised within the general equities asset class under the rules and therefore attracts heavier capital requirements. Our objective is to reduce these to the level of direct property investments as many academic studies have shown that the performance and volatility of real stocks converge with bricks and mortar on average after about 18 months, so they should be treated no differently under Solvency II.
We need to convince EU regulators that the current rules are not justified by the realities of the market and are preventing institutional investors accessing the many benefits of investing in the European listed real estate industry. EPRA currently sees a window of opportunity under the Capital Markets Union Action Plan and the Solvency II review.A sharp reduction in the capital weighting for listed real estate for insurers, who represent the largest pool of institutional capital in the EU, could have a huge impact on the growth of the European industry, possibly resulting in a doubling of its total market capitalisation over time.

Following an explosion of new REITs in Spain, will we see more REIT regimes emerge in other countries?

The main current focus of EPRA’s support for the expansion of REITs to new European markets is centred on Poland and Sweden. In Poland, we are advising on the development of REIT legislation in the leading economy in Central Europe and the sixth-largest in the EU, so the market potential is tremendous.
A second draft REIT bill was recently proposed to legislators and we could see a Polish REIT regime in place in 2018. Sweden is also progressing in this process and has the fourth-largest listed real estate sector in Europe, so naturally we are working with the national associations and local property companies to educate and advocate on the benefits of establishing a REIT regime.

How are listed RE companies performing on sustainability/corporate governance? Are you seeing a rise in adoption of EPRA’s BPRs in these areas?

Since they were launched in 2012, EPRA’s sustainable performance measures have become a defining measure of transparency and best-practice reporting for the European listed real estate sector. The quality of reporting continues to improve, with more companies achieving EPRA Gold, Silver and Bronze Awards for their sustainability reporting each year. Just to give one example, in 2017, 68% of EPRA members reported at least one sustainability performance measure.
The EPRA sustainability Best Practices Recommendations (sBPR) Award winners will be announced on 6 September at our annual conference in London. There is also a growing expectation from investors and regulators that companies should report on non-financial social and governance indicators. Leading real estate companies are already seeking to measure their wider impact and contribution to society at both an asset and corporate level.
EPRA is acting to accommodate these trends through the establishment of common social and corporate governance impact indicators for the industry in a new edition of the sBPR Guidelines. They include new performance measures covering diversity, employee development, health and safety, community investment and board composition, selection and conflicts of interest. We hope this will facilitate a greater understanding of the environmental, social and governance impacts associated with a company’s activities, leading to efficiency gains and ultimately, lower operating costs and social and governance benefits. EPRA will work on bringing these new guidelines up to the same level of corporate acceptance and integration in annual reports that has been achieved in the financial BPRs.