Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Infrastructure and Real Estate:Long Term Investments Building Europe’s Future
Brenna O’Roarty, RHL Strategic Solutions
Agenda
3
• The importance of long-term Real Asset investments to pension funds and insurance companies
• Real Assets are fundamental to progressing a sustainable built environment
- Enabling commercial activity
- Functional management of the built environment
- Catalyst for urban regeneration
- Mutuality of transport infrastructure and real estate
- Create solutions to structural and cyclical challenges
• Investment Structure
- Ownership models
- Range of investment profiles with distinct risk characteristic
- Lifecycle of real assets extended by investment across the risk spectrum
Why do pension funds andinsurance companies invest in real assets?
Real Assets - Infrastructure and Real Estate – allow long-term investors to capture higher returns
from these assets’ relatively lower liquidity and transparency, in turn enabling themto:
• Match long-term liabilities
• Protect against inflation
• Deliver commitments to pensioners and savers
• Diversify portfolio risks and returns with
equities and bonds
Short-term bondsLong-term bonds
Public Equity
Commodities
Hedge Funds
Private Equity FundsReal Estate
Venture Capital Funds
Public Equity Strategic
Direct Private Equity
Other Real Assets Infrastructure
Direct Venture Capital
Longer-TermShorter-Term
Lo
w L
iqu
idity
Hig
h L
iqu
idity
Source: Adapted from World Economic Forum (2011)
5
Infrastructure and Real Estate
investments have a synergistic
relationship:
• The success of projects is mutually
interdependent
• Real estate often secures the financial
viability of private sector infrastructure
investments
Real Assets: Risk Reward Profile
Real Assets are very diverse and include a range of transparency and liquidity
characteristics, compensated for by Risk premia.
Ports
Airport
Retail
Toll Road
(Corp)
Senior Secondary
Housing Office
Logistics
PPP / PFI
Real Estate Senior Debt
Infrastructure Bonds
(Re-) Development
Operational Risk/
Demand Based
PRIVATE
(Spec.)EQUITYConstruction Regeneration
EQUITIES
REALASSETSFIXED
INCOME
CASH
Retu
rn
Risk
For illustration purposes only
Existing
6
Income Generating Assets
Mature(ing) Markets
Development AssetsConstruction
Emerging Markets
Prime Office
Three Dimensions to a Sustainable Built Environment
Adams, W. (2006); Dreo, J. (2009)
8
Social
Sustainable
Bearable Equitable
EconomicEnvironmental
Viable
9
Economic Social Environmental
Real A
ssets
UtilitiesProvision of fundamental
requirements of energy, water,
waste and communication
systems and networks
Inclusive access to
energy, water, waste and
communication systems and
fibre optic networks
Renewal of systems to reduce
waste, recycle materials,
reuse water and incorporate
renewable energy sources.
Requires close integration
with built environment through
smart technologies including
smart grid and renewable
technology, rainwater collection
etc.
TransportAccessibility; efficiently linking
workforce to jobs; customers to
business and goods to market
Democratising mobility and
access to employment, public
services including health &
education and other public
services, and community
services and activities
Reducing energy consumption,
congestion and carbon
emissions
Real Estate
Physical manifestation of
strategic planning. Co-location
of compatible and competing
activities. Provision of built
environment as a factor of
production for commerce
including offices, retail outlets,
industrial units, distribution
centres, hotels, data centres,
transport hubs (stations,
airports) etc. Respond to macro
drivers to facilitate change
Place-making. Housing. Public
space. Respond to drivers
of social change (eg socio-
demographics). Provision of
physical infrastructure for
health, education and other
services including hospitals,
health centres, senior living,
student accommodation etc.
Ensures progression of
built environment through
protecting, restoring and
retrofitting existing real estate
and developing smart buildings
for the future. In doing so,
is a major contributor to
achieving reductions in energy
consumption and emission
targets
Infrastructure and Real Estate:Enabling Commercial Activity
• Creation of marketplace through provision
of suitable premises with appropriate
adjacencies to transport, public services,
workers, customers and other public
and private services
• Co-location of compatible activities
• Increased accessibility,
especially SMEs who could not
afford to purchase premises
• Physical assets require regular
maintenance, upgrades and
investment
• Increased energy, water and waste
efficiency
• Increases social inclusion (especially
accessibility)
• Creates cost efficiencies for business
• Enables businesses to more readily
adapt real estate holdings to
opportunities (expansion / contraction of
space and / or locations)
• Real Estate transforms from a potential
constraint to a facilitator of commerce
• A lease essentially allows business owners
an option to purchase premises for an
agreed time period and pay in installments
• Releases capital for business
investment in expansion, plant,
machinery & equipment, R & D,
training and jobsCapital
Efficiency
Market
Accessibility
Agility &
Flexibility
Professional
Management
10
Infrastructure and Real Estate:Functional Management of the Built Environment
• Provision of public space and services
• Protect the historic fabric of buildings while reducing
obsolescence through refurbishment, repurposing and
redevelopment:
- Energy efficiency systems
- Change of use (i.e., commercial to residential; office to hotel
etc.)
- Installation of technology and communication systems
- Increasing accessibility
- Retaining façade as skin for new development
• Management and repair of existing buildings and streetscapes
retain value and keep up local environment
• Often done in collaboration and / or partnership with public
authorities
• Enable appropriate co-location of activities, offices, retail and
leisure, services, hotels, residential etc.
11
Infrastructure and Real Estate:Catalyst for Urban Regeneration
• Often long-term partnership with public
authorities, including PPP
• Real Estate and Infrastructure planning,
development and success are inter-
dependent
• Significant indirect social and economic
benefits:
- High associated economic multiplier of
2.9 given scale of indirect (supply chain)
and induced (household income, spending
and demand) effects
- Increased employment pronounced for
lower skilled workers
- Strong environmental impact resulting
in lower pollution, enhanced built
environment, provision of public space
and amenities and delivery of ‘place’,
restoring civic pride
- Increased well-being results in improved
health, educational attainment and life
expectancy thereby narrowing social
inequalities
12
Infrastructure and Real Estate:Transport anchored to Real Estate
• Synergistic relationship
- Airports
- Ports
- Train stations and inter-changes
• Essential to operational success – Meets customers’ space
requirements (airlines, passengers, time sensitive commercial
businesses, distributors, cargo, logistic operators etc.),
including provision of:
- Logistics facilities
- Cargo
- Bonded Warehousing
- Long-term storage
- Retail
- Industrial clusters
- Offices
- Residential
13
Infrastructure and Real Estate: Real Estate supports financial viability of many transport projects
• Revenues from transport operators
(airlines, shipping, trains) are often
controlled or capped
• Revenues from commercial real
estate development and management
offer higher returns and rental growth
potential
- Bond income + growth often
required to attract institutional
investment in order to:
- Generate required risk adjusted
return relative to other investments
- Deliver returns for pensioners and
savers
Source: John D. Kasarda and Taoyuan Aerotropolis
14
Infrastructure and Real Estate:Create solutions to meet structural and cyclical challenges
• Real estate industry responds to ever changing demands of
business and society, financing solutions in face of constraints on
public finances
• Examples of the industries’ ability to continually innovate are
widespread and integral to building design, new sectors and
segments, as well as re-conceiving / re-purposing established
sectors. Illustrations of these include:
Building Design:
Businesses are continually under pressure to improve
productivity and since the GFC, lowering the cost base has been
the primary focus of achieving such gains given challenges to
revenue growth. Many companies have achieved this through
greater efficiencies in their occupational portfolio, enabled
by advances in the (re-)design and (re-)construction of office
space that has delivered greater space efficiency, higher
functionality and reduced energy costs resulting in a lower
cost of occupation per employee. It also greatly lowers the
environmental cost. Yet, such advances also benefit savers and
pensioners as such buildings command higher rents, and being
in greater demand, at a lower risk given the greater security of
income.
15
Infrastructure and Real Estate:Create solutions to meet structural and cyclical challenges
New Sectors:
Megatrends such as ageing society create new demands
for senior housing and / or healthcare facilities that have
also increased demands on public finances in an era of
constraint. The CRE sector has responded through the private
funding of new solutions in the form of both senior housing
developments and senior care facilities, leased to specialist
operators.
Similarly, expanding university places and increased use of
university facilities for conferences/ exhibitions increased the
quantity and quality of student housing needed. Meeting the
needs of institutional investors demands for long-term secure
income, the CRE sector has invested in the sector, providing
a solution that meets the accommodation requirement and
eased the pressure on university finances.
Technological advances pervade all aspects of real estate
including changing occupier needs, increased mobility of
workers, the demands of a shift towards omni-channel retail
and related new customer services and revenue streams, high
tech distribution facilities and the expansion of third-party
logistics providers. The latter involves changing requirements
for major distribution hubs through to the more emergent need
for local fulfillment centres. The shift towards a technology
enabled world creates a direct need for specialist real estate to
house related facilities, for example, data centres.
16
Responding to Structural
Change:
Demographic, economic, technological and
environmental megatrends create waves of
change that create societal and behavioural
change in how we live, work and play. CRE
investors continually adapt their real estate
holdings in all sectors to respond to such
change.
The design of office space has evolved
from a cellular office and central admin
pool model to accommodation that is more
tailored from the outset to activity based
workspaces that can accommodate
multiple working modes. Moreover, the role
of the accommodation in attracting and
retaining talent is central to its purpose,
resulting in mixed use developments that
co-locate retail, leisure and residential
amenities and at the same time, build
social activity.
Social and technological change is
transforming the retail sector from being
a mere point of sale to a sector driven on
delivering experience and a sense of place,
community and belonging. Retail spaces
are transforming into people places,
increasingly anchored by social space and
services, where real and virtual worlds
collide to enhance consumers’ knowledge,
choice and experience.
17
Who Owns Infrastructure?
• Continuing rebalancing of ownership
from public to private sector in an era
of growing investment need against
constraints on public spending
• Long-term institutional capital attracted
to long-term secure income of
infrastructure assets
• Activity is cross-border, lowering
concentration of risk in any one
economy and diversifying specific risk
of any one investment for investors
• High volume of capital is recapitalising
private infrastructure companies
• Strong appetite for regulated activities
and PPPs
• Key to unlocking potential is in
appropriate structuring against risk and
reward
• Real Estate may offer a useful
ownership model for infrastructure
Infrastructure
Ownership
Public SectorPrivate Operational
Cos
19
Long Term
Investors
Shareholding
Refinancing
M &A
PPP
Pension
Funds
Sovereign
Wealth Funds
Endowments/
Foundations/
Private Trusts
Insurance
Cos
Who owns Commercial Real Estate?
Real Estate
Ownership
20
Owner Occupiers (60%)Long Term
Investors (40%)
Government
Manufacturers/
Specialist
Plants
Major
CorporationsInstitutions
EU Prop
Cos/ REITS
Pension
Funds
Insurance
Cos
Sovereign
Wealth Funds
Endowments/
Foundations/
Private Trusts
HNWIs
How do they invest?
21
Public Private
Equity REITS
Listed Property Cos Listed
Funds / Unit Trusts
Direct Acquisition
Non Listed Funds
Joint Venture
Debt CMBS Non Listed Debt Funds
Real Estate Loans
Corporate Bonds
Like Infrastructure, Real Estate Offers a Range of Investment Profiles
22
Core: Secure Income Value Add: Semi-secure
Income + Growth
Opportunity: Growth
% Institutional RE
Capital Invested*
75.3% 7.9% 16.7%
Balance of Returns
Income High Medium Low
Capital Growth Low Medium High
Depreciation Wasting Asset Sustaining Appreciating
Relative Exposure
Liquidity Risk Low Moderate High
Transparency Risk Low Moderate High
Timing Lower and cyclical Either cyclical or structural Cyclical and Structural
* INREV (2011 to 2016) Capital Raising Surveys, Weighted Average of Total Capital Raised for European Non Listed Funds 2011-2016
Real Estate as a Fixed Income (Core)
Like infrastructure investments, it offers long-term investors an attractive risk return profile:
Location
23
Value
Components
Covenant
Strength
Building
Quality
Unexpired
Lease
Duration
• No / low leverage
• A long-term, inflation-hedged, secure income stream
• Opportunity to capture higher returns from its
relatively lower liquidity and transparency, enabling
institutions to:
- Match long-term liabilities
- Provide protection against inflation
- Deliver on commitments to pensioners and savers
• Ability to create value from asset management
strategies
19
Like infrastructure investments, it offers long-term investors an attractive risk return profile:
• Purchase of a quality asset at a discounted price due to a
weakness impacting on the certainty of income
• Retain safety net of moderately riskier asset, but compensated
by a higher yielding income stream
• Remedy through active asset management to increase and / or
secure income stream, for example:
- Rolling refurbishment programme and re-leasing strategy
(increase value of space, stronger covenants, longer terms)
- Refurbishment / redevelopment / extension of asset to
increase space and building efficiency (increase lettable
space and value of space, stronger covenants, longer leases)
- Requires moderate levels of leverage
• Capacity to capitalise on expertise and create added value
from asset management strategies
Real Estate as Fixed Income + Growth (Value Add)
Real Estate as Growth (Opportunity)
Professional fees
(architect, engineers,
planning) Site Clearance
Acquisition Price,
Professional Fees
Building Costs,
Marketing,
Professional Fees
Income (rent or sale)
Less Agency Fees
and Finance costsSale & Profit
Is similar to infrastructure investments that carry construction, development or operational risk:
• Purchase of an under-utilised asset
for redevelopment, repositioning or
repurposing to meet existing demand
• Pre-leasing can reduce risk
• Development component necessitates
high leverage
• Can generate high returns
• Remedies obsolescence and spiral of
urban decay
• Generates strongest externalities for wider
economy and society
• Activity creates core investments
characterised by stabilized longer-term
income streams
25
The Life-Cycle of Infrastructure and Real Estate: Depreciating assets need re-investment to maintain value and reverse obsolescence
EquityPurchase of residual value and
opportunity for value creation of new
income secure asset
Focus on short-term growth creation
through exploitation of temporal & cyclical
market dislocations at sacrifice of existing
income. Creation of institutionally
attractive investmentPurchase of shorter-term income stream of
depreciating asset, opportunity to extend
and enhance dividend through tenant
engineering, re-configuration or
refurbishment, thereby restoring asset value
Focus on rebuilding and increasing
income streams of mis-priced asset using
counter-cyclical strategies to enhance
income and thereby generates value
growth in re-creation of institutional
investment
BondPurchase of long-term income stream of
depreciating asset. Residual value in land
Focus on purchase of long-term income
stream with asset value depreciation
Capital Growth –Equity
Opportunistic
Value Added
Core
Income –Bond
26
29
Recycling insurance premiums into investments as
basis for our activities
Allianz Real Estate is Allianz’s captive asset & investment manager in RE space
AGI / PIMCO(Stocks & Bonds)
Allianz Real Estate(Real Estate Equity and Debt)
Allianz Capital Partners(Infrastructure, Renewables,
P/E Fund investments)
1) Based on relative investment assets value at Allianz
Life/
Health1
(80%)
Property
Casualty1
(20%)
Premiums
Annuities
Claims
AIM
(Asset
Allocation)
Cash
Cash
Investment
Managers
Bonds
Stocks
RE
Other
Investment performance
Investment performance
30
New Transactions 2017
Direct Equity European Debt
Indirect Equity U.S. Debt
Vertigo
CXP
Porta Nuova Eni
Liffey Valley Project Waou
55 Baker Street
Project Rainbow II Redwood
Project Grand Combination
1111 Lincoln
Road
Northpoint
Market
Center
Rowan A3
East 26th
Street
PGGM´s Investments in Real Estate &Infrastructure
Invest Week
Brussels, November 23, 2017
Hans Op ´t VeldHead of Listed Real Estate
PGGM invests on behalf of its clients around € 30 billion in real estate and infrastructure
32
PGGM investments in real estate, infrastructureAs per 31/10/2017, 100% = 30 bn.
Distribution Real Estate assets over continentsAs per 31/10/2017, 100% = 23.3 bn.
PGGM has a long term approach and directs capital at societalthemes
• Pension plans are uniquely positioned to provide long-term private capital into key
economic challenges:
• Energy transition
• Infrastructure requirements
• Challenges of an ageing population
• Real assets are key categories to deliver change as they directly impact these
challenges:
• Future proofing real estate
• Offering solutions in housing (both regular as senior housing)
• Developing and securing electricty grids
33
Portfolio examples: Residential - Deutsche WohnenOwnership: 2,4% / EUR 318 mln
“Altbau”, Berlin German resi, Leipzig Nursing & Assisted Living
Prerequisites to grow European pension plan investment are homogeneity, visibility on policy and consistent treatment
35
• Standardization is needed both in legislation. Industry
standards can be highly efficient to achieve this goal.
• Long term stable policy is needed with clear ambitions on
sustainable finance, both by EU and member states
• Treatment of assets should be less dependent on
implementation form. Use direct, listed and non-listed
solutions to privately fund investments in order to ‘Fire on
all Cylinders’
1. Homogeneity
2. Visibility
3. Consistency
Prerequisite Explanation
MN
activities in European Real Estate &
Infrastructure
Jeroen Reijnoudt MSC MRE MRICS
23 november 2017
MN
• EUR 126 bln of AuM, roughly 10% in
real assets, 1100 employees
• 3rd fiduciairy manager of the
Netherlands, owned by the
pensionfunds for metalworkers
(PMT & PME) and merchant
shipping (Koopvaardij)
• Pension administration and
investments for the Dutch
metalworkers
37
Jeroen Reijnoudt
• Senior Portfoliomanager
International Real Estate
• Responsible for EUR 2.1 bln of
investments since 2014 in
Europe of which 1.2 bln as
founder investor in non listed
real estate funds
• By doing direct investments
and non listed fund
investments
Real Estate• Clients of MN are focused on core real estate in Europe and the
Netherlands specific.
• MN has around EUR 7,5 bln of active mandates for real estate, yearly
roughly 500 mln is invested in European real estate.
• We have a preference for direct investments in the Netherlands and non
listed funds in Europe.
Infrastructure• Clients of MN are keen to invest in infrastructure as it fits their long term
objectives. There is a special focus on investing in renewable energy
related infrastructure to enable Energy Transition for the future.
• To enable this MN invests in managers focusing on investments in Wind
energy, Biomass and Solar in Europe. Furthermore, there is a strong
interest in investing in Storage infrastructure
38
Limited Universe core IRE 25 bln euro,
work to be done!
39
• Deutsche AWM European Core
• BNP Paribas Next Estate Income Fund II
• M&G Secured Property Income Fund
• Invesco European Fund
• Cornerstone Social Infrastructure Fund
• Hines Pan European Core Fund
• M&G European long lease real estate
• CBRE Pan European Core Fund
• Aviva La Salle Encore +
• Aberdeen European Balanced Property Fund
• UBS European Core Fund
• Standard Life European Growth Fund
•Cordea Savills UK Income and Growth Fund
• L&G PIF II
• Standard Life Long Lease Property Fund
• Standard Life UK Property Trust
• Standard Life Pooled Pension Fund
•UBS Triton
•Aberdeen Property Fund Norway I IS/AS
•CBRE EIF
•AEW European Logistic Fund
•Goodman European Logistics Fund
•Prologis
•Cordea Savills European Retail Fund
•Tishman Speyer European Core Fund
• Standard Life European Property Growth Fund
•Aberdeen German Residential / Stadt & Wohnen Fund
•Aberdeen Resi Fund Sweden
•Healthcare Property Fund UK
•TIAA Henderson Real Estate UK ShoppingCentre Fund
• Shopping Property Fund 2
• Standard Life UK shopping center trust
• Standard Life UK Shopping Cntre Trust
• Standard Life UK Long Lease Property Fund
•Henderson UK Property Fund
•Henderson UK Shopping Centre Fund• Henderson UK retail Warehouse Fund single
sector single
country
single sector
multiple countries
multiple sector
multiple landen
multiple sector single
country
Recent European real estate initiatives by MN
• Founder capital (300 mln) for CBRE DHC, a Dutch inner cities focused
retail fund, 2017
• Founder capital (300 mln) for TH European Cities Fund, a Pan European
fund focused on growing cities, in offices, logistics and retail 2016
• Founder capital for Barings European Core Fund, a pan European fund
focused on core real estate deals in offices, logistics and retail
• Founder capital in DEAM Europe II (300 mln), a pan European fund
focused on core real estate deals in offices, logistics and retail
• Founder capital in Aberdeen Pan European residential fund (150 mln),
the first Pan European residential fund, 2017
40
A public long-term investor supporting
urban policies :
The Caisse des Dépôts Group
David Percheron, Permanent Representative to
the EU of Caisse des Depots GroupNovember 23, 2017
43
A PUBLIC GROUP SERVING THE GENERAL INTEREST
Group presentation
13 subsidiaries ( including Icade and the SNI Group in the real estate sector)
44
A NATIONAL PROMOTIONAL INSTITUTION AIMED AT
TRIGERRING AND FOSTERING INVESTMENTS
Group presentation
45
FOCUS - The regulated savings circuit : from
individual savings to long-term investment
Group presentation
Key figures at
31.12.2016
€237bn 60% of the deposits
are centralised under
the savings fund€406bn savings
collected by the
banking networks
€182bn in long-term loans
€72bnin financial assets and
cash
Social housing and
urban planning86%
Local infrastructure
investment14%
Bonds83%
Equities17%€18bn
Equity and other
resources
60%
46
A major contributor in territorial funding and urban
policies
Group presentation
LOCAL PUBLIC SECTOR
€20 billion package,
including €5bn for
green growth loans
at a subsidised rate.
Equal treatment irrespective of
the size
of the local authority
CONTRIBUTION OF THE SAVINGS
FUND TO THE FRENCH ECONOMY
2013-2016: €20bn in loans on average per year
4.2% of all investments carried out in France
each year, or 0.9% of GDP
A counter-cyclical role involving support for
public policies
SOCIAL HOUSING
€14.3bn in loans signed
in 2016
Construction or acquisition
of 109,000 housing units
Renovation
of 310,000 housing units
Thermal renovation
of 40,600 housing units