The evolution of Belgium REITs
| Pages | 345-362 |
| DOI | https://doi.org/10.1108/JPIF-03-2019-0029 |
| Date | 23 May 2019 |
| Published date | 23 May 2019 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
| Subject Matter | Real estate & property,Property valuation & finance |
The evolution of Belgium REITs
Muhammad Jufri Marzuki
School of Business, Western Sydney University, Penrith, Australia, and
Graeme Newell
Department of Economics, Finance and Property,
Western Sydney University, Penrith, Australia
Abstract
Purpose –The Belgium Real Estate Investment Trust (REIT) market was created primarily to facilitate a
transparent, professionally managed and fiscally efficient market, providing access to the European property
markets. Being the 2nd oldest REIT market in Europe, it has undergone many evolutionary changes over the
years that add to its considerable stature as a sophisticated investment opportunity. This includes an
increased recent focus on the social infrastructure property sectors such as healthcare, care facilities and
nursing homes, consistent with the evolving investment mandates requiring stronger integration of
environmental, social and governance (ESG) aspects in the investment strategy formulation. The purpose of
this paper is to highlight the strategic transformation of Belgium REITs and empirically assess their
performance attributes over 1995–2018. Sub-period performance dynamics of Belgium REITs in the
pre-global financial crises (GFC) (1995–2007) and post-GFC (2009–2018) contexts are provided.
Design/methodology/approach –In total, 23-year monthly total returns over 1995–2018 were used to
analyse the risk-adjusted performance and portfolio diversification potential of Belgium REITs. The
traditional mean-variance portfolio optimisation model using the ex-post returns, risk and correlation
coefficient of Belgium REITs and other financial assets was developed to determine the added-value benefits
of Belgium REITs in a diversified investment framework. The analysis was further extended to cover the
sub-periods of pre-GFC (1995–2007) and post-GFC (2009–2018).
Findings –The results of the analysis provide a strong investment case for Belgium REITs, as they are able
to deliver a discernible premium in the total return performance, superior risk-adjusted returns and strong
diversification benefits with the stock market in a long-term investment horizon. Broadly consistent results
are similarly observed in the sub-period analysis over varying market conditions. Importantly, the role of
Belgium REITs in a diversified investment framework was also empirically validated, as they enhanced the
mixed-asset portfolio performance comprised of the traditional asset classes of stocks and bonds across a
broad portfolio risk-return spectrum. Dividend yield was also found to be a key component of the financial
performance of Belgium REITs.
Practical implications –The Belgium REIT market has evolved to become the 5th largest market in
Europe by the capitalisation volume. This is mainly due to the robust regulatory support and innovations
since its debut which have resulted in a polished framework that is both supportive and attractive to financial
players and investors. The broad direct consequence of this paper is to highlight the performance attributes
of Belgium REITs, adding clarity to the ongoing discussion regarding the viability of European REITs as a
liquid and tax transparent route for institutional investors to obtain their property exposure. The strong
dividend yield and ESG/social infrastructure focus of Belgium REITs sees Belgium REITs well-placed going
forward to meet the evolving investment mandates from major investors.
Originality/value –This paper is the first empirical investigation that elucidates the risk-adjusted
performance and role of Belgium REITs as an important property investment opportunity. It equips investors
and practitioners with an independent and comprehensive empirical validation of the strategic role of
Belgium REITs in a portfolio. Well-informed and practical property investment decision making regarding
the use of Belgium REITs for access to the property asset class is the main outcome of this paper.
Keywords REITs, Belgium, Risk-adjusted returns, SICAFI/Vastgoedbevak, SIR/BVV,
Social infrastructure
Paper type Research paper
Introduction
Europe is the home to variousproperty markets with many outstandinginvestment qualities
and opportunities.Its income-producingproperty investment spaceforms more than a quarter
of the global total property market size (EPRA, 2018a). Europe (average transparency score:
3.16) outperformsboth the Americas (3.37) and Asia-Pacific(2.65) as the region with the most
transparent property markets (JLL, 2018a), and approximately a third of the global property
Journal of Property Investment &
Finance
Vol. 37 No. 4, 2019
pp. 345-362
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-03-2019-0029
Received 4 March 2019
Revised 28 March 2019
Accepted 28 March 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
345
Evolution of
Belgium
REITs
transactions (by volume) took place in this region in 2018 (RCA, 2019). While the traditional
routes to the property asset class via direct (e.g. club deals, separate account) and non-listed
(e.g. non-listed property funds) vehicles remain popular (INREV, 2018), listed property is
increasingly recognised by investors as a viable route for property asset-class exposure
(Preqin, 2018). Alongside the traditional routes, large institutional investors (e.g.: pension
funds) are highly likely to invest in property via Real Estate Investment Trusts (REITs) for
cost-competitive and liquidityreasons (Andonov et al., 2015), whereby REITs form part of the
institutional investors’tactical property allocation strategy (Lekander, 2017).
Despite being a relatively new property investment regime, the European REIT market
is an important engine of growth for the region’s commercial property investment space.
They act as an agent of stimulation for the local and off-shore investor capital deployments
in the otherwise discreet domestic commercial property markets. France (Wijburg, 2019)
and Germany (Wijburg and Aalbers, 2017) are some of the European countries which have
benefitted greatly from this positive causal relationship. Having a listed property market is
also recognised as a key feature of a transparent property market ( JLL, 2018a) and this has
led to many European property markets improving their property market transparency
ranking in the process. The European Public Real Estate Association (EPRA) plays an
important role in promoting the European listed property investment space internationally,
spearheading the alignment of interest of REITs in the region, as well as being the source of
high quality REIT market data and research.
European REITs were introduced without much fanfare; the difficult economic
environments of the global financial crises (GFC), during which many European REIT
markets were introduced (e.g. Germany, 2007; UK, 2007; Italy, 2007; Finland, 2009; Spain,
2009) (EPRA, 2018b), limited the growth of the REIT market in many European countries
(Marzuki and Newell, 2018), with the aftershock effect of the GFC leaving many markets in
sedentary positions in the immediate years after the crisis. By 2018, not only were there a
higher number of active REIT market participants compared to five years ago (2018: 223
REITs vs 2014: 120 REITs), they have expanded significantly (by 16 per cent) in their size
(2018: $226bn vs 2014: $194bn) (EPRA, 2018a, 2014). Notably, the Irish and Spanish REIT
markets have flourished in the post-GFCperiod, driven by the large quantity of under-valued
and distressed property assets they absorbed into their portfolios (Waldron, 2018). This
increased levelof organic growth is further supportedby the legislative reforms (e.g.Basel III,
European Market Infrastructure Regulation, Alternative Investment Fund Managers
Directive (AIFMD) (Hoesli et al., 2017), intended to enhance the structural resilience of the
REIT vehicle inEurope. Indeed, this post-GFCperiod underpinned by the sharp recovery and
renewed investors’interest is regarded as the dawn of a new erafor European REITs. Table I
highlights the stature of the various European REIT markets in 2018.
The Belgium REIT market is a progressively expanding property investment
opportunity and is one of the earliest forms of a property investment vehicle that
facilitates transparent, professionally managed and fiscally efficient access to the European
property markets. Unlike its peers, it largely avoided the financial issues of the GFC, as it
was established much earlier (1995). Over the years, it has undergone many evolutionary
phases that have contributed not only to its increased level of sophistication, but also to its
important stature as an exemplar of REIT implementation success in Europe. While most
REIT frameworks are generally an adaptation of the US-REIT model as the de facto
standard, a series of legislative innovations have transformed the core features that Belgium
REITs can offer; chief amongst them are the strengthening of the social dimension aspect
(i.e. social REIT) as well as the promot ion of greater institutional invol vement
(i.e. institutional REIT). These are some of the unique features of Belgium REITs not
available elsewhere, in addition to various implementation changes that have increased
their efficiency and attractiveness. Over the years, the Belgium REIT market has grown
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