Currently, Sponda is Finland's largest listed property company with an $830 million equity market capitalization. It focuses on owning and redeveloping assets in the Helsinki metropolitan area, where it owns a diversified portfolio valued at approximately $1.5 billion. More than 75 percent of Finland's commercial real estate is located in the Helsinki metropolitan area. Citycon is the second-largest listed property company in Finland ($450 million market cap) and invests in shopping centers and supermarkets. Since 2004, Citycon has been looking for opportunities to expand into Sweden and the Baltic States. Technopolis is the third and smallest Finnish constituent of the FTSE EPRA/NAREIT Global Real Estate Index with a market capitalization of $175 million.

One of Finland's largest pension funds is the Ilmarinen Mutual Pension Insurance Company with total assets under management of more than $24 billion as of December 2004. Ilmarinen currently owns more than 5,000 office and warehouse properties. At the end of 2004, Ilmarinen's property holdings totaled about $2.9 billion and 16.1 million square feet.

S N A P S H O T

CAPITAL: Helsinki LAND AREA: 304,473 sq km POPULATION: 5.22 million (July 2005) POPULATION GROWTH RATE: 0.16% GROSS DOMESTIC PRODUCT (GDP): $161.9 billion (2003) GDP GROWTH RATE: 1.9% GDP PER CAPITA: $27,060 UNEMPLOYMENT RATE: 8.9% (2004) MAIN INDUSTRIES: Metals and metal products, electronics, machinery and scientific instruments, shipbuilding, pulp and paper, foodstuffs, chemicals, textiles and clothing. CURRENCY: Euro LANGUAGES: Finnish and Swedish Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

Finnish Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Ticker Helsinki	Equity Market Cap	Free Float Range	Adjusted Market Cap
Sponda Oyj	SDA	$826.6	75	$620.0
Citycon	CTY	448.1	75	336.1
Technopolis	TPS	175.6	100	175.6
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for Finnish REITs?

The working group has until the end of November to come with its final proposal. It published an interim report in December 2004 seeking comments from both the property and investment industry. One of the main goals of the ministry is to boost the supply of rental apartments in the residential sector. Another goal is to facilitate entry of new investors by introducing new investment options. In addition, Finnish institutions have increasingly started to diversify their property portfolios internationally. To compensate for this outflow of capital, the country's domestic capital markets should be made increasingly attractive to foreign investors.

According to the Institut de l'Epargne Immobilière et Foncière (IEIF), the French organization which promotes SIICs, there were 20 listed SIICs (five of which are included in the FTSE EPRA/NAREIT Global Real Estate Index) with a combined equity market capitalization of $29.4 billion as of July 31, 2005. In addition to these 20, a number of other companies have opted for the SIIC structure for the French part of their property portfolios. These companies include Dutch Rodamco Europe, Corio and Eurocommercial Properties.

Gecina is the largest SIIC, with a portfolio of almost $12 billion as of December 2004, composed of 60 percent commercial properties and 40 percent residential properties. Recently, Spanish developer Metrovacesa acquired 68.5 percent of Gecina and indicated a desire to implement a more aggressive asset management strategy. Metrovacesa plans to redevelop part of the commercial portfolio to realize higher rental values.

Société Foncière Lyonnaise (SFL) is another French SIIC that is now primarily owned by a Spanish company, Inmobiliaria Colonial. In July 2004, Inmobiliaria Colonial acquired 95.1 percent of SFL to access the French market. Since the acquisition, Inmobiliaria Colonial has reduced its stake to 79.5 percent. In April, Juan Jose Brugera, CEO of Inmobiliaria Colonial, stated that the company wants to further dilute its stake in SFL.

Other notable French companies are Unibail and Klépierre. Unibail focuses on three distinct business lines: offices, shopping centers and exhibition-convention complexes. Klépierre owns more than 220 shopping malls in continental Europe with a leasable floor area totaling more than 16 million square feet.

AXA Real Estate Investment Managers (AXA REIM) is a specialist in real estate investment management. As of July 1, 2005, AXA REIM had $31 billion under management in eight European markets. In addition, AXA manages the only Exchange Traded Fund (ETF) on a European property index, the EasyETF EPRA Eurozone. Since the EPRA Eurozone ETF started trading Dec. 2, 2004, it grew in size to more than $250 million under management by the end of July 2005. Other parties active on the French listed property market are BILLIONP Paribas (which holds 53.5 percent of Klépierre) and Société Générale.

S N A P S H O T

CAPITAL: Paris LAND AREA: 545,630 sq km POPULATION: 60.66 million (July 2005) POPULATION GROWTH RATE: 0.37% GROSS DOMESTIC PRODUCT (GDP): $1,800 billion (2003) GDP GROWTH RATE: 0.5% GDP PER CAPITA: $24,730 UNEMPLOYMENT RATE: 10.1% (2004) MAIN INDUSTRIES: Machinery, chemicals, automobiles, metallurgy, aircraft, electronics, textiles, food processing and tourism. CURRENCY: Euro LANGUAGES: French Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

French Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Paris Stock Exchange Symbol	Equity Market Cap	Free Float Range	Adjusted Market Cap
Gecina	GFC	$6,725.4	20	$1,345.1
Unibail	UL	6,272.1	100	6,271.1
Klépierre	LI	4,440.3	40	1,776.1
Silic	SIL	1,728.5	75	1,336.9
Fonciere Des Regions	DREG	1,722.0	20	344.4
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for SIICs?

The French real estate investment market has been extremely strong in recent years and that strength is expected to continue. France is among the most popular real estate markets in continental Europe with 60 percent of total investment in office properties. Low interest rates continue to boost demand for office space, but competition is high as demand exceeds supply. Yields have declined and should remain over the coming year. Thus, investors are increasingly looking away from Paris in search of slightly higher yields and more choice.

Retail demand remains buoyant, despite some concerns about consumer spending and the wider economic picture. Generally, good quality supply has not kept pace with current retail demand. Still, few completely new developments are likely to come to the market in the short term, with extensions/redevelopments comprising around 80 percent of new space over the next two to three years.

The industrial sector is expected to remain stable in the near term. Large warehouses are popular both individually and as part of a mixed portfolio. French SIICs remain very active as both vendor and purchaser within the industrial market. Yields have increased in the Paris region and in Lyon, but have fallen in a number of locations, notably Bordeaux, Toulouse, Nice and Nantes.

Over the long term, however, an unsettled domestic economy and increased competition from Central and Eastern Europe could begin to slow the sector's growth.

Germany has one of the highest levels of unemployment (approximately 11 percent) in Europe, and interest rates remain amongst the lowest (1.6 percent).The introduction of German REITs (G-REITs) is a predominant issue not only for the real estate industry, but also for the potential impact it could have on the overall economy. It is expected that a German REIT will be launched in the second or third quarter of 2006 and enacted retroactively Jan. 1, 2006.

The Mannheim-based "Centre for European Economic Research (ZEW)," in cooperation with the Department of Real Estate at the Economic Business School (EBS) of Germany undertook a research project on behalf of the German Federal Ministry of Finance to identify best practices for a German REIT. A key issue in the research project addressed whether a German REIT should be regulated in a manner similar to that of open-ended funds within the German investment law, Investmentgesetz, or whether REITs should be regulated separately from open-ended funds. Regulation within corporate tax law would promote a less restrictive environment, and it has been argued that a less restrictive environment with some degree of acceptable trading activity and trade development is crucial to generating required investment returns, particularly in the former public and now privatized residential sector.

The EBS and ZEW report also highlights several other issues that must be addressed before G-REITs can be introduced. These issues include whether REITs should be subject to asset and activity tests, whether private and public REITs need separate rules and whether open-ended funds should be allowed to invest in REITs and vice versa.

S N A P S H O T

CAPITAL: Berlin LAND AREA: 349,223 sq km POPULATION: 82.43 million (July 2005) POPULATION GROWTH RATE: 0.0% GROSS DOMESTIC PRODUCT (GDP): $2,362 billion (2003) GDP GROWTH RATE: -0.1% GDP PER CAPITA: $25,270 UNEMPLOYMENT RATE: 10.6% (2004) MAIN INDUSTRIES: Main Industries: Iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding and textiles. CURRENCY: Euro LANGUAGES: German Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

German Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Ticker Stock Exchange Symbol Berlin	Equity Market Cap	Free Float Range	Adjusted Market Cap
Ivg Immobilien	GFC	$2,347.1	75	$1,760.4
Dt Euroshop Na	UL	947.6	100	947.6
Deutsche Wohnen AG	LI	943.1	100	943.1
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for German REITs?

The impact of G-REITs on the European real estate market could be significant. Sources have estimated that combined property portfolios valued at up to $155 billion could be converted into REITs. Assuming a 60 percent free float for new G-REITs, this estimate implies that Germany would leap from its current weighting of 3 percent in the FTSE EPRA/NAREIT Europe Index to approximately 30 percent. The effect on a global basis would have Europe increasing to approximately 25 percent of the global listed real estate market.

Allowing REITs from other countries also to invest in German real estate markets is likely to generate more demand and more liquidity. So far, German open-ended funds have largely failed to attract foreign capital. Additional foreign investments are expected to generate marginal taxable income, albeit the tax framework has not yet been established. Foreign investment could have a constructive effect on the German real estate market and a major increase in tax revenue would be expected if the economic utilization of public and corporate real estate becomes more efficient and if ownership of properties is transferred from existing vehicles to G-REITs.

It is against this backdrop that the country's listed property companies must operate. A pure REIT regime does not form part of the legal system in Italy. However, Italian law allows investors to invest through special funds called fondi di investimento immobiliare, or FII. Introduced in 1994 and amended substantially in 2003, FII's purpose is to invest directly or indirectly in real property.

FIIs are best described as a pool of investments held jointly by the unit holders, without legal individuality and managed by a management company, called the società di gestione del risparmio, or SGR. The FII is not tax transparent, but it is tax exempt. FII unit holders are taxed only when a profit is distributed or when they dispose of their units.

Currently, Italy is represented by three companies in the FTSE EPRA/NAREIT Global Real Estate Index; Beni Stabili, Risanamento and Aedes. Beni Stabili has a focus on office buildings, and the largest market capitalization of the three, $1.9 billion Risanamento and Aedes have a market capitalization of $1.1 billion and $700 million, respectively.

S N A P S H O T

CAPITAL: Rome LAND AREA: 294,020 sq km POPULATION: 58.10 million (July 2005) POPULATION GROWTH RATE: 0.07% GROSS DOMESTIC PRODUCT (GDP): $1,500 billion (2003) GDP GROWTH RATE: 0.3% GDP PER CAPITA: $21,570 UNEMPLOYMENT RATE: 8.6% (2004) MAIN INDUSTRIES: Tourism, machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear and ceramics. CURRENCY: Euro LANGUAGES: Italian, German, French and Slovene Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

Italian Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Milan Stock Exchange Symbol	Equity Market Cap	Free Float Range	Adjusted Market Cap
Beni Stabili	BNS	$1,887.7	75	$1,416.6
Risanamento	RN	1,098.1	40	439.2
Aedes	AE	698.2	75	523.6
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What Lies Ahead?

According to 2005 research by Kempen & Co., Italy might see a REIT structure by 2007. Beni Stabili is heading up the lobby group pushing for their creation, and it is backed by smaller players. In the second quarter of 2005, Beni Stabili met with the chief executive of the Italian Stock Exchange and Italian Finance Minister Domenico Siniscalco to discuss the topic. However, the outcome of the national elections in May 2006 is considered to be the critical determinant in the route to a possible Italian REIT.

In the absence of a pan-European REIT-type vehicle, Luxembourg structures have proved to be some of the most effective single-vehicle structures where pan-European offerings are envisaged or where the assets of the fund are located in a number of different jurisdictions.

At least five new regulated Luxembourg real estate investment funds (REIFs) were launched in 2004, bringing the total number of regulated REIFs established and operated out of Luxembourg to 49, according to the "Luxembourg Fund Encyclopedia." This number includes 18 funds categorized by the regulating agency Commission de Surveillance du Secteur Financier (CSSF) as investing directly in real estate, 29 funds investing in securities issued by real estate companies and two real estate funds. The aggregate net asset value of the funds at Dec. 31, 2004 was $7.6 billion, representing a significant increase over the equivalent figure for the previous year.

The mainstay of the Luxembourg REIFs market have been vehicles established as fonds commun de placement (FCPs), société d'investissement à capital variable (SICAVs) and société d'investissement à capital fixe (SICAFs). Out of the 49 REIFs, 17 are established as FCPs, 30 as SICAVs and two as SICAFs—although it should be noted that of the 18 REIFs categorized as investing in direct real estate investments, 14 have been established as FCPs. In 2004 a new structure became available for making venture capital type investments—the société d'investissement en capital à risqué (SICAR). The CSSF did not envision initially that this structure would be permitted to invest in real estate investments, but has since relented and this structure may now be used for investment in real estate assets, provided they have characteristics similar to venture capital (i.e., there is an equivalent risk profile to venture-type investments).

Although this is likely to mean that its use will tend to be limited at present to opportunity-type funds (e.g., those with substantial interests in development projects) rather than "core" funds investing in more established property investments, the CSSF has indicated that it will take a case-by-case approach to approving applications. Accordingly, there may be opportunities for funds with a lower development-based investment strategy to qualify as SICARs where those funds display other risk characteristics (for example, they target a higher return yield than normal, they invest in more volatile jurisdictions or where a number of factors combine to increase the fund's risk profile above the average).

S N A P S H O T

LAND AREA: 2,586 sq km POPULATION: 468,571 (July 2005) POPULATION GROWTH RATE: 1.25% GROSS DOMESTIC PRODUCT (GDP): $26.5 billion (2003) GDP GROWTH RATE: 2.1% GDP PER CAPITA: $45,740 UNEMPLOYMENT RATE: 4.5% (December 2004) MAIN INDUSTRIES: Banking, iron and steel, food processing, chemicals, metal products, engineering, tires, glass, aluminum, information technology and tourism. CURRENCY: Euro LANGUAGES: Luxembourgish, German and French Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

Public REIFs (i.e., those not limited to institutional investors only) may be promoted in Luxembourg to retail investors, but as they do not benefit from any passporting provisions (other than where they invest solely in listed real estate securities), they must be promoted in any other jurisdictions under private placement exemptions. In practice, this is seen as providing only a marginal benefit to such funds and therefore the vast majority of existing REIFs are limited to institutional investors only. Although institutional REIFs may not be promoted to retail investors, the definition of institution is quite wide and would include, for example, banks and other investment advisers who invest on behalf of their private clients under discretionary management mandates, as well as family companies and other real estate funds marketed to non-institutional investors.

Where no special considerations apply, the FCP tends to be the most popular structure, as it is the most flexible, does not require NAV calculations to be made when monies are drawn down and partly paid units issued and allows investor control and voting rights to be tailored to meet particular circumstances. It is a contractual arrangement akin to a limited partnership and has no separate legal identity. Investors subscribe for units in the FCP, which is managed by an independent management company (société de gestion). An FCP must appoint an independent Luxembourg-based custodian and administrator. FCPs are tax transparent and would typically invest through a corporate holding structure to enable tax treaty benefits to be obtained.

As SICAVs and SICAFs are both corporate structures, they have the advantage of being very familiar with investors. Like FCPs, they also benefit from favorable tax treatment of their income and gains (effectively zero tax in Luxembourg on their income and gains) and do not have to set up subsidiary holding structures to obtain treaty benefits (for those countries with which Luxembourg has a tax treaty). However, as corporations, they are subject to statutory shareholder rights which make them less flexible than FCPs. They also require NAV calculations to be made whenever shares are issued outside the initial offer period. SICAVs are particularly effective vehicles for German pension fund and insurance investors as they satisfy the technical reserve restrictions applicable to such investors because of the requirement for their shares to be issued fully-paid.

Where the risk profile of a fund merits it, the SICAR structure provides significant additional benefits by comparison to an FCP/SICAV/SICAF structure. In particular, there is no requirement for a promoter, SICARs have no limits on the amount of leverage and can be established in many different legal forms.

Moreover, unlike FCPs/SICAVs/SICAFs, there is no annual subscription tax (taxed'abonnement) on SICARs and they also benefit from favorable tax treatment of income and gains (although taxable and therefore able to obtain treaty benefits, they can be structured to achieve a zero percent effective tax rate in Luxembourg). Approximately 10 SICARs have been established since the introduction of this and more are in the structuring and approval stages. The majority have been formed as partnerships limited by shares (société en commandite par actions or "SCAs").

The same challenge applies to the Dutch listed real estate companies, many of which have relatively small parts of their portfolio located in the Netherlands. The majority of financial business takes place in its capital, Amsterdam, or in the other major cities such as Rotterdam or the Hague.

The Dutch have a REIT-like structure called the "Fiscale Beleggingsinstelling" (FBI), which was introduced into the Dutch Corporate Income Tax Act of 1969. Currently discussions are taking place to relax restrictions for FBIs in terms of their development activities, capital taxes, foreign shareholder restrictions, withholding taxes and the abolition of the minimum required payout. The purpose of the update, or the "luxury version," as it was named, was to make the FBI easier to market to foreign investors.

The Netherlands is represented in the FTSE EPRA/NAREIT Global Real Estate Index by eight companies with a combined free float market capitalization of almost $17 billion. This makes the Netherlands the second-largest European representative in the index. The only Dutch REIT not included in the index is DIM Vastgoed, which invests largely in North America.

The Dutch are among the major investors in the global real estate market. For example, ABP Investments is the second-largest pension fund in the world, designated for Dutch government workers and those in the educational sector. ABP has offices in both Amsterdam and New York. Total assets under management as of year-end 2004 were more than $225 billion.

S N A P S H O T

CAPITAL: Amsterdam LAND AREA: 33,833 sq km POPULATION: 16.41 million (July 2005) POPULATION GROWTH RATE: 0.53% GROSS DOMESTIC PRODUCT (GDP): $511.5 billion (2003) GDP GROWTH RATE: -0.9% GDP PER CAPITA: $26,230 UNEMPLOYMENT RATE: 6.0% (2004) MAIN INDUSTRIES: Agroindustries, metal and engineering products, electrical machinery and equipment, chemicals, petroleum, construction, microelectronics and fishing. CURRENCY: Euro LANGUAGES: Dutch and Frisian Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

Dutch Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Amsterdam Stock Exchange Symbol	Equity Market Cap	Free Float Range	Adjusted Market Cap
Rodamco Europe	RDMB	$7,599.9	75	$5,699.9
Corio	CORA	3,760.5	100	3,760.5
Wereldhave	WHA	2,214.4	100	2,214.4
Eurocommercial Properties	ECMPA	1,274.9	100	1,274.9
Vastned Retail	VASTN	1,153.7	100	1,153.7
AM NV	AMSTL	1,082.7	75	812.0
Nieuwe Steen Inv	NISTI	780.0	100	780.0
Vastned Off/Ind	VOIST	520.4	100	520.4
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for Dutch REITs?

The Dutch real estate investment market remains buoyant, particularly in the office sector, driven by low interest rates and preference for office property over other types of investment. Suitable office product remains relatively scarce, however. Yields have been under pressure for the past few quarters, and enter 2006 at, or near, their lowest levels for a decade in many sub markets.

The outlook for the country's job market is positive in the short term, particularly away from Amsterdam. However, economic recovery is still tentative and business sentiment remains cautious. The high demand in the investment market is expected to continue, although the lack of supply is expected to push yields down further.

Further drops in retail sales show a continuing negative trend in the Dutch retail sector. Retailers have experienced a decrease in sales for two years in a row and expectations are 2005 will also be a down year. The non-food sector has experienced a larger fall in turnover than food. The wider retail property market remains flat although there is good demand for a limited number of selective locations.

The general economic picture for the Netherlands looks bleak for the remainder of this year. Moreover, while a general recovery is forecast for 2006, the outlook for consumer spending growth is gloomier. However, the retail property market seems more stable. Rents have shown some limited signs of uplift and activity in the investment market looks set to continue in the coming months.

However, unlike other European countries which have already regulated REITs in their national laws and other European countries which are studying their incorporation, Spain has not yet envisaged the incorporation of REITs into its national law.

The market is lobbying to implement the categorization of REITs in Spain in an attempt to avoid investors' money being diverted to other countries. However, it does not seem that the Spanish government will regulate REITs in the short term.

Existing Spanish real estate funds benefit from a favorable tax regime if they invest at least 50 percent of their assets in housing, dormitories for students and retirement homes.

Generally, these Spanish Collective Real Estate Investment Schemes (CREIS), incorporated either as funds or companies, are ruled by Law 35/2003, dated Nov. 4, 2003. This law has not yet been implemented although the Spanish government is working on a draft Royal Decree which will enact the law. The draft relaxes certain features of CREIS (e.g., it allows CREIS to engage in development activities), but it does not regulate REITs.

So far CREIS have not succeeded in attracting massive investment within the Spanish territory. Currently, there are only seven real estate funds, two real estate investment companies and three German real estate funds registered with the Spanish National Securities Market Commission.

There are two Spanish property companies represented on the FTSE EPRA/NAREIT Global Real Estate Index. Metrovacesa announced in June that it acquired 68.54 percent of Gecina, France's second-largest property company, after a two-part $7 billion bid. Through this majority stake, Metrovacesa accesses some of Europe's highest office rents and takes advantage of French tax breaks. The deal is the largest cross-border real estate transaction in Europe and creates the European Union's largest property company.

The other Spanish constituent of the FTSE EPRA/NAREIT Global Real Estate Index is Inmobiliaria Colonial, which has a market capitalization of $3 billion and is primarily active in the office sector, specifically in business centers of Madrid, Barcelona and Paris. A 79.5 percent stake in the French SIIC Société Foncière Lyonnaise has given Inmobiliaria Colonial exposure to Paris business centers as well.

S N A P S H O T

CAPITAL: Madrid LAND AREA: 499,542 sq km POPULATION: 40.34 million (July 2005) POPULATION GROWTH RATE: 0.15% GROSS DOMESTIC PRODUCT (GDP): $838.7 billion (2003) GDP GROWTH RATE: 2.4% GDP PER CAPITA: $17,040 UNEMPLOYMENT RATE: 10.4% (2004) MAIN INDUSTRIES: Textiles and apparel (including footwear), food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools, tourism, clay and refractory products, pharmaceuticals and medical equipment. CURRENCY: Euro LANGUAGES: Castilian Spanish, Catalan, Galician and Basque Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

Spanish Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	Madrid Stock Exchange Symbol	Equity Market Cap	Free Float Range	Adjusted Market Cap
Metrovacesa	MVC	$6,203.7	75	$4,652.8
Immob Colonial	NA	$3,023.4	75	$2,267.6
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for Spanish REITs?

The Spanish Parliament has thus far not taken advantage of the opportunity to legislate on REITs and it seems that despite the pressure of the market, there is no intention on the part of the government to include REITs in further regulation at least in the near term. Therefore, unless things change, REITs will still continue to be regarded in Spain as a model to be developed.

Turkish REITs have similar characteristics to their counterparts in other countries. REITs are exempt from corporate taxes, and they are required to float at least 49 percent of their shares to the public. All Turkish REITs are set up by large established financial groups that retain a controlling interest. There currently are 10 REITs with a combined equity market capitalization of more than $1.3 billion listed on the Istanbul Stock Exchange (ISE). Turkish REIT returns have been volatile, partly due to extreme inflation over the past decade.

Gayrimenkul Yatirim Ortakligi (ISE: ISGYO) has a market capitalization of more than $500 million and is the largest REIT listed on the ISE. Gayrimenkul is primarily involved in the investment and development of real estate projects in Turkey. According to the company's 2004 annual report, IS Bank is Turkey's largest shareholder and holds a controlling stake of 50.9 percent in the REIT.

The second-largest Turkish REIT, Akmerkez, was listed April 15, 2005 and has one asset in its portfolio, the Akmerkez complex. The complex is a four-story shopping center with 246 separate shops, as well as office space.

S N A P S H O T

CAPITAL: Ankara LAND AREA: 770,760 sq km POPULATION: 69.66 million (July 2005) POPULATION GROWTH RATE: 1.09% GROSS DOMESTIC PRODUCT (GDP): $240.4 billion (2003) GDP GROWTH RATE: 5.8% GDP PER CAPITA: $2,800 UNEMPLOYMENT RATE: 9.3% (2004) MAIN INDUSTRIES: Textiles, food processing, autos, mining (coal, chromite, copper, boron), steel, petroleum, construction, lumber and paper. CURRENCY: Turkish lira LANGUAGES: Turkish Kurdish, Arabic, Armenian and Greek Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

What's Next for Turkish REITs?

Turkey moved a step closer to full EU membership on Dec. 17, 2004, when European leaders endorsed the opening of talks to make Turkey the EU's first predominately Muslim member. Talks were scheduled to begin the fall of 2005. Not surprisingly, Britain and America have been among the staunchest supporters of Turkey's application to join the EU. Bringing economic and political stability to a country once described as "the most geo-strategically important piece of real estate in the world" is a grand goal.

Since Turkey tightened fiscal policy in order to be considered for EU membership, the economic climate has improved significantly. Combined with a positive demographic outlook, more foreign investors are expected to be attracted to the Turkish market.

In addition, the improving economic climate has revived Turkey's real estate markets after three challenging years. REITs stand to be the biggest beneficiaries of this real estate resurgence, especially among institutional investors.

A U.K. REIT has been debated for many years, and the introduction of REITs in France and other countries has helped push the process forward, albeit more slowly than first expected. The U.K. government announced in its March 2005 budget that it aims to include legislation for a U.K. REIT in Finance Bill 2006.

U.K. investors are eagerly anticipating the introduction of REITs. The U.K. commercial property market has been strong in recent years, but investors only had two ways to invest: buy a property in its entirety or through a limited partnership. The amount of capital needed to purchase a property directly and the high taxation involved with partnerships has discouraged many investors.

In a May 2005 response to the Her Majesty's (HM) Treasury, the U.K.'s economic and finance ministry, Paul Haddock of the London Stock Exchange summed up investor sentiment by writing, "the (REIT) vehicle has been instrumental in helping the property industry to grow in many parts of the world, particularly the U.S., providing much needed investment in the sector and allowing retail investors to have unfettered access to property as an asset class."

As the REIT discussion has continued in the U.K., off-shore growth of private vehicles has rocketed. Since 1998 the size of the off-shore market has grown from almost nothing to more than $40 billion. However, if REIT legislation in a workable and attractive format is enacted in 2006 it is expected to slow off-shore growth and to have a positive impact on the local market. UBS estimates that equity market capitalization of listed companies could grow from $50 billion today to $90 billion by 2011.

Economic and demographic factors in the U.K. also make it an enticing home for listed property companies. Capital city London remains the hub of the U.K. economy, attracting overseas business and workers and resulting in an intense demand for space. Business activity focuses on three main areas—the city, the West End and the docklands. According to CB Richard Ellis in Europe Real Estate Yearbook 2005, London's West End is the most expensive office location in the world. The city of London ranks second. The total real estate market is estimated at $960 billion, or the second-largest real estate stock in Europe. The listed market is close to $50 billion, or approximately 5 percent of the real estate sector and 1.7 percent of the total value of the U.K. stock market.

Even though there is no existing REIT structure, the U.K. has numerous large listed property companies. In fact, the top 10 constituents in the Europe series of the FTSE EPRA/NAREIT Global Real Estate Index are dominated by U.K. companies. Land Securities is the largest listed property company in Europe measured by equity market capitalization ($11.4 billion), making it comparable to the largest U.S. companies. Other companies among the top 10 constituents include British Land, Liberty International, Hammerson and Slough Estates. The share ownership of these companies is dominated by large investors like Barclays Plc, Fidelity International, ABP Investments, Legal & General, Prudential Plc, Schroders and Henderson Global Investors.

S N A P S H O T

CAPITAL: London LAND AREA: 241,590 sq km POPULATION: 60.44 million (July 2005) POPULATION GROWTH RATE: 0.28% GROSS DOMESTIC PRODUCT (GDP): $1,800 billion (2003) GDP GROWTH RATE: 2.2% GDP PER CAPITA: $28,320 UNEMPLOYMENT RATE: 4.8% (2004) MAIN INDUSTRIES: machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment, metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, and other consumer goods. CURRENCY: British Pound LANGUAGES: English and Welsh Source: CIA's "The World Factbook" and the World Bank Group's "World Development Indicators Database."

U.K. Companies in the FTSE EPRA/NAREIT Global Real Estate Index (Ranked by free float adjusted equity market cap in millions of U.S. dollars)
Company	London Stock Exchange Symbol	Equity Market Cap	Free Float Range	Adjusted Market Cap
Land Securities Group	LAND	$11,389.1	100	$11,389.1
British Land Co.	BLND	7,647.5	100	7,647.5
Liberty International	LII	5,457.6	100	5,457.6
Hammerson	HMSO	4,169.0	100	4,169.0
Slough Estates	SLOU	3,976.8	100	3,976.8
Brixton	BXTN	1,670.1	100	1,670.1
F&C Commercial Property Trust	FCTP	1,482.8	40	593.1
London Merchant Securities	LMSO	1,301.6	75	976.2
Quintain Estates and Development	QED	1,270.3	100	1,270.3
Derwent Valley Holdings	DWV	1,138.9	100	1,138.9
Great Portland Estates	GPOR	1,020.2	100	1,020.2
St. Modwen Properties	SMP	978.0	75	733.5
Grainger Trust	GRI	950.0	75	712.5
Capital & Regional	CAL	916.2	100	916.2
Daejan Holdings	DJAN	876.2	75	657.1
Shaftesbury	SHB	862.3	100	862.3
Minerva	MNR	806.8	100	806.8
Workspace Group	WKP	756.9	100	756.9
CLS Holdings	CLI	657.8	75	493.3
Unite Group	UTG	594.6	100	594.6
Warner Estate Holdings	WNER	573.8	75	430.3
Insight Foundation Property Trust	IFD	533.7	75	400.3
Helical Bar	HLCL	452.0	100	452.0
U.K. Balanced Property Trust	UKT	442.7	100	442.7
A&J Mucklow Group	MKLW	422.9	40	169.2
Big Yellow Group	BYG	371.1	75	278.4
Town Centre Securities	TCSC	366.5	75	274.9
Development Securities	DSC	308.2	100	308.2
Freeport	FPR	292.7	100	292.7
Marylebone Warwick Balfour Group	MWB	274.6	50	137.3
ISIS Property Trust 2 Ld	IRP	247.2	75	185.4
McKay Securities	MCKS	232.7	75	174.5
Standard Life Inv Prop Income Trust	SLI	218.4	100	218.4
Invesco U.K. Property Income Trust	IPI	198.8	100	198.8
ISIS Property Trust Ld	IPT	184.5	75	138.4
Primary Health Properties	PHP	127.8	100	127.8
Source: FTSE EPRA/NAREIT Global Real Estate Index. Data as of Aug. 1, 2005.

What's Next for U.K. REITs?

All signs point to the U.K. unveiling its REIT laws in the middle of 2006. Legislation has been in the works for several years, with HM Treasury having published several consultation papers for REITs.

Ivan Lewis, the economic secretary to HM Treasury, said in the House of Commons that the government is aware of the importance of REITs and acknowledged that the government needs to progress rapidly with their implementation. However, he also said HM Treasury must first resolve the technical details, and "those who have a genuine interest in putting a sensible and credible REIT framework in place must work with HM Treasury and the government to ensure that the obstacles and difficulties are resolved. If that happens, we can put REITs on the statute book very quickly."