The shares of listed real estate companies are an elegant way of indirect real estate investment and at the same time a very complex one. Here you will find answers to the most important and most frequently asked questions about real estate equities and their advantages, the investment strategy of AVENTOS Capital Markets (ACM) and the AVENTOS Global Real Estate Securities real estate equity fund.
What exactly are listed real estate companies?
These are listed stock corporations whose sole objective is to invest in, hold, develop and manage real estate. Accordingly, income is derived almost exclusively from letting and leasing the respective properties.
How many listed real estate companies are there worldwide and how big is this market?
There are currently more than 3,000 listed real estate companies worldwide with a total market capitalization of more than three trillion euros. This corresponds to around twelve percent of total global real estate assets.
What are REITs?
Real estate investment trusts (REITs) are a special form of real estate stock corporation that is widespread in many countries around the world. In order to obtain REIT status, companies in Germany, for example, must generate at least 75 percent of their income from the rental of real estate, have invested at least 75 percent of their assets in real estate and distribute at least 90 percent of their annual net profit as dividends to investors. Conversely, there is no taxation of profits on the company side. Similar rules apply in other countries.
How do listed real estate companies differ from real estate funds?
Real estate funds are investments in limited partnerships (closed-end funds) or special funds (open-end funds). These fund units can only be traded to a limited extent: closed-end real estate funds have fixed terms and there is no option for selling the units during the term. Open-ended real estate fund units can only be redeemed subject to minimum holding periods and notice periods, and taking into account any redemption discounts. Liquid stock exchange trading only takes place for very large open-ended funds via an unregulated secondary market. Listed real estate shares, on the other hand, are liquid securities that can be bought and sold on each trading day.
Aren't real estate stocks much more volatile than other forms of real estate investment?
Like all listed equities, real estate equity shares are also subject to some of the fluctuations on the capital markets, while other real estate investments are only valued by experts at regular intervals - if at all - on the basis of reporting dates. In this respect, large parts of the volatility of these investments are simply not visible to market participants as there is no regular trading. A long-term view, however, shows that the performance of real estate shares correlates more strongly with the performance of private real estate markets than the equity markets.1
1 Martin Hoesli, Elias Oikarinen: „Does Listed Real Estate Behave Like Direkt Real Estate?“, EPRA 2019: https://prodapp.epra.com/media/Does_listed_real_estate_behave_like_direct_real_estate_updated_and_broader_evidence_1579519010027.pdf
In which countries and for which types of properties are listed real estate companies particularly prominent?
Most of the market capitalization of listed real estate companies is located in Asia/Pacific (44%) and North America (39%), particularly in the USA. Europe plays a relatively minor role (16%). Taking the MSCI World Real Estate Index as a benchmark, around 30% of market capitalization was allocated to special real estate (telecom towers, data centers, etc.) at the end of 2020, followed by logistics/industrial real estate (11%). Office properties only account for ten percent of total allocation.
Are there also indices that track listed real estate stocks - and therefore also corresponding index funds (ETFs)?
There are indices specializing in real estate shares or REITs, for example from MSCI, S&P or Dow Jones, which can serve as a benchmark. Some ETF providers have also launched corresponding index funds. However, AVENTOS Capital Markets' investment approach assumes that it will be able to beat these indices with its own active stock selection. The existing real estate ETFs continue to weight their individual positions according to their market capitalization and therefore tend to buy expensive stocks and sell stocks that have fallen in price.
How have real estate equities performed compared to other asset classes?
A comparison with other equity submarkets always depends on the period selected. On average over the past five years up to the end of 2020, for example, REITs have slightly outperformed a broadly diversified European equity portfolio. Compared to real estate funds, however, the performance of REITs has been around six times as high over the past 20 years.
Could an equity investment have a price-influencing effect? At what volumes could this be expected?
Whether the entry into a share has an impact on the share price depends primarily on how large the investment is in relation to the total market capitalization, the free float and the daily trading volume. There is no general answer to this question. However, in the case of very liquid shares of very large companies, a single investor only has a significant price-influencing effect in exceptional cases. However, AVENTOS Capital Markets only invests in stocks with sufficient market capitalization and good tradability.
