By Courtney Darby

The EPRA/NAREIT Global Real Estate Index

The proliferation of a truly international real estate market facilitated the need for a worldwide benchmark. The EPRA/NAREIT Global Real Estate Index, established in 1999, has become the leading benchmark for global real estate investors.

A joint venture between the European Public Real Estate Association (EPRA), Euronext (a European stock exchange) and NAREIT, the EPRA/NAREIT Global Real Estate Index encompasses 246 companies worldwide with a market capitalization exceeding $415 billion. The index is composed of three series: the North America Series (U.S. and Canada), the Asia Series (Japan, Australia, Hong Kong and Singapore) and the Europe Series (U.K., Netherlands, France, Sweden, Switzerland, Spain, Germany, Italy, Austria, Belgium, Finland and Greece).

Global Market Capitalization Growth December 1989–August 2004 — In U.S. Dollars

Source: EPRA, NAREIT, Euronext

Since its emergence, the global index has become a useful tool for investors throughout the world. On March 1, 2003, the North America Series began real-time calculations, joining its already real-time peer, the Europe Series. As a testament to the importance of the global index, international news agency Reuters has begun filing monthly reports on the index's performance. Additionally, Bloomberg continues to be a source for real time quotes for the index.

"The EPRA/NAREIT Global Real Estate Index is a widely used and accepted benchmark in the investor community," says Chuck DiRocco, vice president of research and investor education at NAREIT. "It's a one-stop shop for receiving data, information and performance numbers on publicly traded real estate investments throughout the world."

Steve Burton, portfolio manager at ING Clarion Real Estate Securities, says that, as a portfolio manager, it is important to pick an index that best fits your investment strategy. According to Burton, the EPRA/NAREIT Global Real Estate Index has the best inclusion criteria of the global indexes.

"The index focuses on companies that derive a substantial portion of revenues from owners of real estate. As an investor, if you like healthy dividends and know REIT-like investment vehicles provide that, in addition to transparency and higher disclosure, then the EPRA/NAREIT Global Real Estate Index is best designed and most suitable for you," Burton says.

Global Benchmark Total Returns December 1992–August 2004 — In U.S. Dollars

Source: EPRA, NAREIT, Euronext

The North America Series represents 57.6 percent of the equity capitalization of the global index, while the Asia Series accounts for 23.0 percent, and the Europe Series captures 19.4 percent. The U.S. has the largest country weight in the index, representing 52.8 percent of the global composite. The index includes 148 REIT-like investment vehicles; 120 of those are found in the North America Series, with 19 in the Asia Series, and nine in the Europe Series.

"As we see an increased weight in the global markets of Europe and Asia, there will be lots of opportunities for investors in the U.S.," says Fraser Hughes, director of research at EPRA. "The global index is diversifying risk across the real estate industry and countries as well. And with that we'll start to see more globalization of real estate structures themselves."

Through September 2004, compound annual total return for the Global Composite Index was 18.33 percent; the North America Series produced 17.05 percent, while Asia generated 17.70 percent and Europe totaled 22.87 percent. Over the past 10 years, compound annual total returns for the Global Composite Index was 9.40 percent; the North America Series produced 14.80 percent, while Asia generated 4.85 percent and Europe totaled 11.80 percent.

Going forward, Hughes anticipates the global index expanding and envisions the emergence of a global index strictly comprised of REITs, or REIT-like investment vehicles. With the U.K. in line to join the ranks of countries adopting a REIT-like structure, Hughes is hopeful that it will encourage other countries, like Germany, Italy and Spain, to follow suit.