European Real Estate firms tread water on corporate governance - EPRA survey

The corporate governance standards of listed real estate companies across Europe have risen in some areas in the past year, but there appears to be no overall improvement in average performance, a recent survey by the European Public Real Estate Association (EPRA) shows.

EPRA Chief Executive, Philip Charls, told journalists at the association's annual conference: "The purpose of the survey is to assess and compare standards of corporate governance across the European listed real estate sector. The survey showed that only 40% of European property companies score above our benchmark 'satisfactory' rating of 9.6 - from a possible maximum of 16 for the 'ideally' governed property company. This result is virtually unchanged from last year's survey and shows there is still much for the industry to do in terms of debating best practices and raising the bar for corporate governance standards."

The EPRA Corporate Governance Survey (CGS) reviews European listed real estate governance practices at a country level. The survey was conducted using the constituent companies of the FTSE EPRA/NAREIT Europe Index at the end of 2008. A total of 84 of the largest companies with the most liquid shares were analysed, compared with 101 companies that made up the sample of the previous survey.

EPRA identified five categories of governance factors that are recognised as being of key importance in contributing to the alignment of interests between company managements and stakeholders:
• Managerial compensation package linked to performance
• Existence of internal and external auditing mechanisms
• Independence and operation of the supervisory board
• Disclosure on board members
• Reporting standards.

The Netherlands had the highest average governance rating among European countries at 11.1, followed closely by Switzerland and the UK at 10.4 and 10.3, indicating that there is still ample scope for improvement at the country level, even for the more mature markets of Europe.

The variation in governance practices of real estate companies within areas or countries also continues to be significant. For example, in Scandinavia the governance rating ranges from a maximum of 15.3 to a minimum of 4.3 and in the UK from 14.7 to a lowly 4.0.

EPRA found that European companies have generally improved in terms of disclosing nomination and remuneration policies and the background and affiliation to related companies of board members. A dedicated corporate governance report is also included as an integral part of the annual reports of an increasing number of companies.

The two areas with greater need for improvement are executive compensation packages linked to performance and a genuinely independent supervisory board. Only 22% of total managerial compensation was linked to performance in 2008. European property companies adopting the two-tier board structure, where the supervisory board is separated from the management team, is lower than 40%.

EPRA Director of Finance Gareth Lewis said: "At this critical juncture in the equity markets it is vital that we strive for the highest standards possible for our investors. The EPRA Corporate Governance Survey is all about taking an objective internal look at our industry practices, encouraging discussion on the difficult issues and developing a better understanding of corporate governance practices for Europe's publicly-listed property companies."

Source: Bellier Financial

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