Industry outlook. Alex Jeffrey, Chief Executive M&G Real Estate MEMBER OF

Transcription

1 Industry outlook Alex Jeffrey, Chief Executive M&G Real Estate MEMBER OF

2 Part of the M&G Group Finding value in crowded markets Alex Jeffrey Nabarro 2015 Conference 20 October 2015

3 Investment themes Technology Development Urbanisation Regionalisation Residential and alternative sectors Infrastructurerelated change Sales / profit taking 3

4 Investment themes Technology Development Urbanisation Regionalisation Residential and alternative sectors Infrastructurerelated change Sales / profit taking 4

5 Why are alternative assets interesting? Key operating assets More limited access to traditional finance Less competition for assets Stronger relative value Underlying earnings often suited to inflation-linked rents Perceived increased complexity and risk, lower liquidity Bannatyne s Health Clubs portfolio Different drivers from traditional real estate 5

6 A significant investor in alternative assets 2.6bn invested across the UK 6 Source: M&G Real Estate, as at 30 June 2015; Other includes car auction sites, farm land, car parking, etc..

7 Leverage How do we assess alternative sectors? Focus on individual business operational and financial risk profile All sectors considered for investment focus more on specific business risk profile As operating risk increases our appetite for financial leverage reduces Ground rent/higher rent cover transactions and investment in key operational assets can mitigate financial risk (strong vacant possession value cover) Low High Acceptable risk/return profile Heavily bid often poorer relative value Low Operational risk Unsuitable risk framework Acceptable risk/return profile High 7

8 Alternatives growing in institutional holdings Alternatives capital value in the IPD universe 8 Source: IPD Annual Digest 2014

9 Significant improvement in liquidity Transaction volumes across the alternative sectors 9 Source: PMA, Property Archive

10 Investment case study: residential and alternative sectors Priory Portfolio 223m sale-and-leaseback acquisition of six Priory hospitals across the UK Leased back to The Priory Group for 30 years with annual inflation-linked reviews Innovative deal structure, capitalising on M&G s credit analysis experience Residential & alternative 10

11 Investment case study: residential and alternative sectors British Car Auctions Portfolio of 18 car auction sites located along the motorway spine of the UK Let to British Car Auctions Ltd. on 18 year lease with fixed annual reviews Portfolio comprises all key operating assets of the UK business effective senior secured position Residential & alternative 11

12 Residential benefits from positive structural change Scale of opportunity Tenure over time (England) Current private rented sector (PRS) of 4 million households in England (1) English PRS has grown by 1.7 million households over the last 10 years (1) Construction over same period delivered 1.4 million homes (2) Continued requirement of 200,000 households per annum in the medium term (3) Friendlier government regulation Rent regulation and security of tenure no longer applicable since the UK s Housing Act 1988 (4) 12 Source: ONS as at 31 March 2015 (1), CLG, as at 31 December 2014 (2), Savills 2013 (3), A Century of Change: Trends in UK statistics since 1900 (December 1999) (4).

13 Lower downside volatility and quicker recovery Capital growth: commercial vs. residential property 1990 s downturn Capital growth: commercial vs. residential property 2000 s downturn Residential property capital values have fallen less and recovered more quickly than commercial property during past downturns 13 Source: IPD Annual Digest 2014, IPD Residential Digest 2014

14 Investment case study: residential and alternative sectors Frederick House, Bath Title example 25m forward funding of 97 private rented units Electrification of the train line set to reduce travel time to London to one hour Centrally located In an affluent university city, where supply is limited by world heritage status Development Urbanisation Structural change Residential & alternative 14 Photo courtesy of Crest Nicholson

15 Investment themes Technology Development Urbanisation Regionalisation Residential and alternative sectors Infrastructurerelated change Sales / profit taking 15

16 Investment case study: infrastructure-related change Fruit & Wool Exchange, London 300m estimated gross development value To deliver 320,000 sq ft of prime office and retail space near Liverpool Street station (part of Crossrail network) Office space already fully leased to major law firm for 20 year term Development Urbanisation Infrastructure-related 16

17 Investment case study: infrastructure-related change Two Snowhill, Birmingham 146m off-market acquisition (6.25% net initial yield) Multi-let prime office building, which has already delivered significant capital growth for our investors Set to benefit from construction of HS2 high speed train link between Birmingham and London Regionalisation Urbanisation Infrastructure-related 17

18 Investment case study: infrastructure-related change Forbury Place, Reading 171m estimated gross development value Strong local demand for premium office space, set to be further bolstered by arrival of Crossrail Phase One (186,000 sq ft) leased to a major energy company in the biggest Thames Valley letting in over a decade Regionalisation Urbanisation Development Infrastructure-related 18

19 Finding value in crowded markets Technology Development Urbanisation Regionalisation Residential and alternative sectors Infrastructurerelated change Sales / profit taking 19

20 Not for further distribution The distribution of this document does not constitute an offer or solicitation. Past performance is not a guide to future performance. The value of investments can fall as well as rise. Any forecasts and projections herein represent assumptions and expectations in light of currently available information; actual performance may differ from such forecasts and projections. Any expected rate of return herein is not a guaranteed rate of return. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and you should ensure you understand the risk profile of the products or services you plan to purchase. This document is issued by M&G Investment Management Limited. The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority s Handbook. They are not available to individual investors, who should not rely on this communication. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. M&G Investments and M&G Real Estate are business names of M&G Investment Management Limited and are used by other companies within the Prudential Group. M&G Investment Management Limited is registered in England and Wales under numbers with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority. M&G Real Estate Limited is registered in England and Wales under number with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Real Estate Limited forms part of the M&G Group of companies.