Transcript Slide 1
This document is intended for investment professionals only and must not be relied on by anyone else
Why Invest in Commercial Property?
Charity Trustees Investment Association
9 October 2012
Commercial Property – key attributes
• Key diversifier in multi asset investment portfolios
• A tangible asset to which investors can relate
• Low correlation over time with equities and fixed income
• Attractive yield profile – both absolute and relative
• Income is a key contributor to return
• Capital value appreciation over the longer term
• Can provide attractive inflation-hedging characteristics
• PAIF legislation allows for more tax-efficient distributions
• Increasingly been seen as a global asset class
2
Commercial property has performed well in
recovery
Source: IPD
Increasing UK pension fund & overseas investor appetite
3
UK - what’s changing? Pricing
• Margin vs. other assets is close to
record levels
Prime vs. Secondary Yield Margins
7.00%
6.00%
• Valuation initial yields at 6.3%
5.00%
• Yield gap in valuations +470bps
%
4.00%
3.00%
IPD (IY)
2.00%
1.00%
Current yield
6.3
‘Risk free’
-1.6
Depreciation
-0.8
Income Growth
-0.1
Margin
3.8
Source: CBRE
Retail Margin
Offices Margin
Retail Long Term Average
Industrials Long Term Average
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
0.00%
Shopping Centre Margin
Industrial Margins
Offices Long Term Margin
Shopping Centres Long Term Margin
Source: CBRE
UK real estate pricing remains compelling…
4
UK - what’s changing? Anticipated returns
• No changes proposed at present
0.40
0.40
0.30
0.30
0.20
0.20
0.10
0.10
0.00
0.00
-0.10
-0.10
-0.20
-0.20
-0.30
-0.30
-0.40
-0.40
-0.50
-0.50
-0.60
• Closely monitoring Central London.
Concerns about demand and
refurbs?
% MoM
0.50
• Muted returns expected this year
with modest pick up in 2013
Se
p
Oc -10
t
No -10
v
De -10
c-1
Ja 0
n
Fe -11
b
Ma -11
r
Ap -11
Ma r-11
y
Ju -11
nJ u 11
Au l-11
g
Se -11
p
Oc -11
t
No -11
v
De -11
c
Ja -11
n
Fe -12
b
Ma -12
r
Ap -12
Ma r-12
y
Ju -12
nJ u 12
Au l-12
g
Se -12
p
Oc -12
t
No -12
v
De -12
c
Ja -12
n
Fe -13
b
Ma -13
r
Ap -13
Ma r-13
y
Ju -13
n-1
Ju 3
Au l-13
g
Se -13
p
Oc -13
t
No -13
v
De -13
c-1
3
% MoM
IPD Monthly Capital Growth Outtrun and Forecast Movements
Sources: IPD, Datastream
IPD Index Monthly Outturn (Actual and Projected)
GDP Growth (Quarterly data disaggregated into Monthly)
Source: IPD, Datastream
Capital values expected to continue to fall over the next few months…
5
But mind the gap!
UK Property Capital Growth by Quality 2011
Retail Warehousing
Central London Offices
Industrial
Shops
Rest of UK Offices
South East Offices
Prime
Shopping Centres
-12
-10
Secondary/Tertiary
-8
-6
-4
-2
0
2
4
6
8
10
% Capital Growth
Source: IPD, Standard Life Investments
Poorer quality property to continue to underperform
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Note:
Real Estate House View Q3 2012 - 3 year view
San Francisco Bay Warehouse
Washington Core Office
Singapore Residential
Hong Kong Industrial
India Residential
Hong Kong Offices
Hong Kong Residential
China Residential
16.0
9.4
9.8
Singapore Offices
Seoul Retail
Guangzhou Offices
Australia Residential
Shenzhen Offices
Singapore Retail
0.0
Vancouver Industrial Class B
Ottawa CBD Office
Vancouver Suburban Office
Vancouver Retail
New Jersey Warehouse
Los Angeles Retail
Boston Retail
New York Downtown Office
3.3
5.0
Toronto Industrial Class B
Montreal Retail
Ottawa Retail
Vancouver Industrial
Toronto Retail
-2.1
4.2
7.9
Neutral
Secondary Shopping
Centres
Secondary /Small Shops
12.1
9.3
Inland Empire Warehouse
Chicago Warehouse
West Los Angeles Office
New York Midtown Office
Boston CBD Office
Australia prime regional SC
Seoul Industrial
Beijing Offices
Singapore Industrial
Hong Kong Retail
China Retail
China Logistics
Seoul Offices
Toronto CBD Office
Montreal Industrial Class B
Ottawa Industrial
Montreal Industrial
Toronto Suburban Office
Montreal CBD Office
Calgary Suburban Office
Vancouver CBD Office
Toronto Industrial Class B
6.3
Brisbane Industrial
Perth Industrial
Mumbai Offices
Shanghai Offices
Sydney Industrial
Delhi Offices
Belgian Logistics
Prague Offices
Helsinki Retail
Stockholm Retail
Paris Offices (ex inner/outer
rims)
Netherlands Logistics
Dublin OOT Retail
Brussels Retail
Italian Logistics
Madrid City Offices
Milan Offices
Amsterdam Office Centre
Madrid / Barcelona Retail
Barcelona Offices Centre/CBD
Lisbon Offices
Portugal Logistics
Madrid Offices M30/M40
Portugal Retail
Very Light
Los Angeles Warehouse
New York Retail
San Francisco Retail
Calgary Retail
Calgary CBD Office
Edmonton Industrial Class B
Calgary Industrial Class B
Toronto Industrial
Edmonton CBD Office
Budapest Logistics
Italian Retail
Madrid / Barcelona Logistics
Brussels Office CBD
Netherlands Retail
Budapest Offices
Budapest Retail
Rome Offices
Perth Offices
Brisbane Offices
Melbourne Industrial
Melbourne Offices
Sydney Offices
Tokyo Offices
San Francisco CBD Office
Seattle CBD
Sao Paulo CBD Office
French Logistics
Dublin Logistics
Helsinki Logistics
Paris Retail
Prague Logistics
Dublin Offices
Helsinki Offices
Prague Retail
Provincial Industrial
Distribution Wareh’s (x
London)
Solus RW
Provincial Offices
Asia
Edmonton Industrial
Calgary Industrial
Edmonton Retail
SE Industrial
Major City Prime Shops
Grade B City Offices
Distribution Wareh’s (London)
Midtown Offices
Other M25 Offices
Retail Ware. Bulky Goods
District Shop Centres <50k
sqm
M25 West/M4 Offices
Med Town Prime Shops
Americas
4.2
German Logistics
Warsaw Logistics
Paris CBD Offices
Warsaw Offices CBD
Stockholm Logistics
Warsaw Retail
Munich Offices
Stockholm Offices
German Retail
Canada
8.3
11.7
Core West End
Grade A City Off
Regional Shop Centre (>50k
sqm)
Retail Fashion Parks
EU
Light
Heavy
Very Heavy
UK
7
7
Figures above reflect forecast % annual total returns over the next 3years. Projected returns are unleveraged, not risk adjusted and do not reflect the inclusion of transaction costs. We do not
expect the structure of all our property funds to exactly match the above views as there are stock specific, transaction costs and liquidity issues that may work against each fund achieving the
ideal structure.
UK Property Fund:
example of inflation-linked income
Tesco Supermarket, Congleton, Cheshire
• Purchased Q2 2012 (off-market)
• £21.2m (yield 4.9%)
• 20 years to Tesco
Tesco, Congleton, Cheshire
• Annual RPI indexation 0/4%
collar/cap
Source: Standard Life Investments, June 2012
Long-term, inflation-linked income stream from financially secure tenant
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Select Property Fund:
examples of overseas inflation-linked income
Accessing yield and asset management opportunities
• Alana II, Berrini, São Paulo
Purchased for R$14.3m in October 2009
Substantially refurbished
Average rents increased from R$36 to R$65/sq.m
Sold for R$32.8m in March 2012
GBP profit of 41.4% achieved
• Madison, Vila Olimpia, São Paulo
Well-located, stable, class A property with 4
tenants
Purchased for R$52.0m in March 2010
Currently valued at R$73.1m (41% increase)
Average rents increased from R$49.8 to
R$61.0/sq.m
Potential for a further 31% rental reversion
• Bela Paulista, Paulista Ave, São Paulo
Class A refurbished property in prime location
42% let at purchase (July 2010)
Fully let within 6 months
Capital value increase of 28.6% since purchase
Potential for a further 10% rental reversion
Brazilian rents linked to CPI currently 5.85%pa
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Select Property Fund:
examples of overseas inflation-linked income
• 182 St George’s Terrace, Perth
11% capital value uplift since acquisition in May 2011
Driven by rent roll increased from A$2.7M to A$3.0M
4 new lettings in 2011-12
Now 100% occupied
Income yield 8.1%
• 55 St George’s Terrace, Perth
Now 100% occupied
5 leases extensions/new leases completed in 2011
7.5% capital value growth in past 12 months
Income yield 7.0%
• 16 Spring Street, Sydney
One letting in legals and two further leases in negotiation
Foyer refurbishment now complete, lift refurbishment ongoing
Further potential uplift in rent and capital value
Income yield 3.5% but 50% vacant
• 82 Eagle Street, Brisbane
All remaining vacant space now under offer
Capital value uplift of c.15% expected as a result of current letting
activity
New 10 year lease on entire ground floor 9.4% ahead of valuation
Income yield 7.2%
Australian leases 4%+ annual stepped rents
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UK Property Fund
Property overview – sector allocation
Standard Life
Investments
UK Property
Fund
IPD Monthly
Index Funds
30 June 2012
30 June 2012
9.4
0.6
-8
-6.6
-0.4
-2
0.1
-3.9
-0.5
6.9
4.5
-10
-5
0
5
10
Standards Retails Rest of UK
18.5
9.1
Standard Retails Rest of South
East
8.0
7.4
Retail Warehouse
16.2
24.2
Shopping Centre
0.0
6.6
Offices – West End
11.1
11.5
Offices – City
1.4
3.4
Offices – Rest of South East
9.8
9.7
Offices Rest of UK
1.7
5.6
Industrial Rest of South East
8.9
9.4
Industrial Rest of UK
14.7
7.8
Other Commercial
9.7
5.2
15
Source: IPD Monthly Index Funds - Quarterly Report, 30 June 2012
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Select Property Fund - Portfolio breakdown
Underlying geographic exposure
UK, 4.4%
Europe (Ex-UK), 2.8%
China, 1.2%
Hong Kong, 2.8%
Poland and Czech Logistics,
19.1%
Singapore, 1.3%
Japan, 2.4%
Australia, 2.7%
Listed property
Central & Eastern European
Retail, 7.5%
USA, 11.4%
India, 2.2%
Direct property
Scandanavian Retail, 8.0%
Other Countries*, 0.7%
Cash and Other, 2.2%
Indian Mixed Use Development,
5.3%
Australian Offices, 17.1%
* Other Countries include: Malaysia and South Africa
** Cash and Other includes cash and cash-like assets
Brazilian Offices, 9.0%
Top 10 listed holdings
1
Simon Property Group Inc (US)
2.6%
6
Westfield Group (Australia)
1.0%
2
LXB Retail Properties PLC (UK)
2.3%
7
Hirco PLC (India)
0.9%
3
Klepierre (France)
1.7%
8
0.9%
4
Yatra Capital Ltd (India)
1.3%
Henderson Land Development Co Ltd (Hong
Kong)
Sun Hung Kai Properties Ltd (Hong
Kong)
9
SL Green Realty (US)
0.8%
5
1.2%
1
0
CapitaCommercial Trust (Singapore)
0.7%
Source: Standard Life Investments, 05 October 2012
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TOTAL
13.4%
Our Property Solutions
• UK Property Fund – an authorised property unit trust (APUT)
• Pension Property Fund – a unit-linked portfolio of UK assets
• Select Property Fund – an APUT investing globally in direct and listed assets
• Global REIT Fund – an OEIC investing in listed property securities only
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Appendices
UK - what’s changing? Pricing Prime vs.
Secondary
√
Prime and better quality secondary assets continue to provide the most
compelling opportunities…
×
15
UK - what’s changing? Future Construction
City & West End Development Pipeline
• Announcements on planning
granted increasing
• Significant pick up in CLO
refurbishments
• Future office construction generally
remains muted
Source: PMA
Development pipeline reviving?
16
Real Estate Triggers
Real Estate Triggers
Margin over bonds
Economic Fundamentals
Flow of Capital
Derivatives Pricing
Trend
Increasing
Expectations
reducing
Positive
Mixed
REIT Pricing
Fair
Fund Flows
Slowing
Quantitative Easing/Stimulus
Lending
Continuing
Weak – ongoing
deleveraging
continuing
Change on last quarter
√
Slight improvement
Margin remains at record levels
Modest deterioration
×Consensus views on expected
economic growth revised down slightly
√
×
√
×
In-line
Capital sources broad based: REITS, Sovereign Wealth,
Pension Funds & Retail Investors
Modest Improvement
Improvement in 2012 expectations, derivatives less positive on 2013
Pricing moved to fair from attarctive
Listed sector has moved to fair pricing following the recent rally
Reducing
Modest out-flows generally from retail investors
√
Further extension
Additional £50bn of QE in July. Total now stands at £375bn
×
Remains weak
Strains in wholesale market may constrain lending further
Little impact as yet from the ‘Funding for Lending’ scheme
Sources: Property Data, Morgan Stanley, Cazenove, IMA, BofE
Triggers remain mixed
18
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