REITs - Chances for the German real estate and financial markets

September 2006

From 2007, German lawmakers are planning to introduce real estate investment trusts, which promise to become an attractive investment opportunity. In the study entitled "REITs – Chances for the German real estate and financial markets," Roland Berger Strategy Consultants estimates that the market volume of German real estate investment trusts (G-REITs) will reach up to EUR 57 billion by 2010. Companies' real estate assets are a source of considerable potential. Through REITs, companies can leverage these assets to finance growth and realize their expansion plans. According to a 2006 analysis based on desk research, market comparisons and interviews with market players, links between REITs and other asset classes lead to a superior combination of risks and returns.

A REIT is a publicly listed real estate company that aims to manage real estate. REITs were introduced in the US in 1960, in 1969 in the Netherlands, in 1985 in Australia, in 1994 in Canada and in 2000 in Japan. The UK and Germany are planning to introduce them in 2007.

"Germany's real estate market is the biggest in Europe, but companies could make a much bigger part of their real estate assets accessible to capital markets," explains Thomas Eichelmann, member of the Executive Committee and Head of the Financial Services Competence Center at Roland Berger Strategy Consultants. REITs provide an attractive opportunity to do so.

The bill proposed by the German Ministry of Finance plans strict regulations for REITs. They must be listed in the stock market, pay out 90% of their profits and have 75% of their capital invested in real estate. What's more, 75% of their revenue must be generated through real estate, and REIT shareholders cannot hold more than 10% of shares.