M&G Real Estate Asia Pacific Real Estate: too large to ignore - 26 June 2018 - For Investment Professionals only Part of the M&G Group Strictly ...
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For Investment Professionals only
Part of the M&G Group
1
Strictly private and confidential
M&G Real Estate
Asia Pacific Real Estate: too large to ignore
26 June 2018
Associated risks 2 • The value of investments will fluctuate, which will cause portfolio prices to fall as well as rise and you may not get back the original amount you invested. • There is no guarantee the strategy objective will be achieved. • Past performance is not a guide to future performance. • Where market conditions make it hard to sell the portfolio's investments at a fair price to meet investors’ sale requests, we may temporarily suspend dealing in the portfolio's shares. • Real estate values can be affected by a number of factors beyond the strategy’s control and may be subject to long term cyclical trends that can give rise to volatility in values. • Changes in currency exchange rates will affect the value of your investment. • Please note that this is not an exhaustive list, you should understand the risk profile of the products or services you plan to purchase.
Three recurring questions on investors’ minds 3 1. Should Asia Pacific (APAC) real estate be included in my portfolio ? 2. What is considered core real estate in APAC? 3. What are examples of core real estate in APAC?
Including APAC real estate
4
in your portfolio
Access to growth and diversification in mature, stable economies… 5
1. Growing contribution to world’s GDP 3. Exposure to faster growing developed economies…
APAC‘s GDP % of world GDP GDP Growth (%)
6%
2008
4%
2017
2%
2027 (f) 0%
2017 2018(f) 2019(f)
Asia Pacific Hong Kong Singapore
0 10 20 30 40 50 South Korea United States Europe
Note: 2018 and 2019 are consensus forecast numbers
2. Economic diversification exists between different regions …with mature services sector and high income levels
Correlation between economies National income per capita and employment in services (2016)
60,000 90
APAC USA Eurozone
80
APAC 40,000
1.00 70
20,000 60
USA 0.41 1.00
- 50
Eurozone 0.39 0.77 1.00
Note: Based on annual real GDP growth from 2004 to 2017
Adjusted net national income per capita (constant US$)
Employment in services (% of total employment)
Source: Oxford Economics, Bloomberg, World Bank, M&G RE May 2018
… and a sizeable real estate market that is expanding 6
APAC accounts for about a third of global real estate Growing real estate institutional investments into APAC
Real Estate Market Size by Region (2016) Real Estate Invested Stock by Region (2016)
100%
90%
80%
Europe Japan 10% 70%
34% 60%
50%
APAC China 6%
40%
28%
USA HK 5% 30%
38% 20%
Australia 3%
SGP 2% 10%
Rest of APAC* 2% 0%
2010
2004
2005
2006
2007
2008
2009
2011
2012
2013
2014
2015
2016
APAC Europe North America
APAC represents about USD 2 trillion based on MCSI’s coverage Source: Cushman & Wakefield ‘Money into Property’ 2018, M&G 2018
Source: MSCI ‘Real Estate Market Size 2016’, M&G 2018
What is considered 7 core real estate in APAC?
Characteristics of core markets 8 • Political - stable environments which support security of tenure • Legal / Market - mature, transparent & liquid; large and high quality real estate stock • Assets - high levels of occupancy; short rental voids; capital stability & potential for capital growth derived from growing rental income • Returns – low volatility and attractive yield spread above government bonds
Markets we consider core 9
China South Korea
(Shanghai + Beijing)
Japan
Hong Kong
Australia
Singapore
Locations of M&G’s investments New Zealand
Yield spreads vs government 10Y bonds largely in-line with long term averages 10
Hong Kong Office Yield Spread Tokyo Office Yield Spread
4.0 5.0
2.0 4.0
3.0
0.0
2.0
-2.0 1.0
-4.0 0.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Office Yield Spread 10Y Average Spread Office Yield Spread 10Y Average Spread
20Y Average Spread 20Y Average Spread
Sydney Office Yield Spread Singapore Office Yield Spread
4.0 4.0
3.0 3.0
2.0 2.0
1.0 1.0
0.0 0.0
-1.0 -1.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Office Yield Spread 10Y Average Spread Office Yield Spread 10Y Average Spread
20Y Average Spread 20Y Average Spread
Source: M&G Real Estate based on data from PMA, as of April 2018.Fundamentally Sound: Overall Vacancy Rates Near Historical Lows 11
Diminished supply pipeline and strong demand, little slack in the office market
Hong Kong Office Demand/Supply/Vacancy Tokyo Office Demand/Supply/Vacancy
6.0 15.0 6.0 10.0
4.0 4.0 8.0
10.0
2.0 6.0
2.0
0.0 4.0
5.0
-2.0 0.0 2.0
-4.0 0.0 -2.0 0.0
Net Addition as % of Stock Net Absorption as % of Stock Net Addition as % of Stock Net Absorption as % of Stock
Vacancy Rate, % (LHS) Vacancy Rate, % (LHS)
Sydney Office Demand/Supply/Vacancy Singapore Office Demand/Supply/Vacancy
8.0 20.0 8.0 20.0
6.0 6.0
15.0 15.0
4.0
4.0
2.0 10.0 10.0
2.0
0.0
5.0 0.0 5.0
-2.0
-4.0 0.0 -2.0 0.0
Net Addition as % of Stock Net Absorption as % of Stock Net Addition as % of Stock Net Absorption as % of Stock
Vacancy Rate, % (LHS) Vacancy Rate, % (LHS)
Source: M&G Real Estate based on data from PMA, as of April 2018.Capital Value, USD per sq. m.
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$80,000
$90,000
$70,000
Hong Kong
Tokyo
London WE & Midtown
Paris: CBD
London: Central
Paris: Central
Singapore
Stockholm
Tokyo, $42,000
New York
$41,000
Shanghai
Hong Kong, $87,000
Beijing
Dublin
San Francisco
London WE & Midtown,
London: City
Paris: CBD, $35,000
Paris: WBD
Singapore, $29,000
Munich
Milan
New York, $25,000
Frankfurt
Paris: La Défense
Berlin
Sydney
Boston
Luxembourg
Source: M&G Real Estate based on data from PMA, as of April 2018.
Washington DC
Osaka
Madrid
Amsterdam
Los Angeles Sydney, $17,000
Seoul
Hamburg
Oslo
Guangzhou
Rome
Dusseldorf
M25 West
Seoul, $14,000
Nagoya
Seattle
Austin
London: Docklands
Manchester
Stuttgart
Birmingham
Barcelona
Melbourne
Helsinki
Miami
Vienna
Edinburgh
Cologne
Glasgow
Moscow
Dallas-Fort Worth
Chicago
Lyon
Denver
Brisbane
Houston
Copenhagen
Only the Hong Kong office market stands out as relatively pricey in the global context…
Prague
Atlanta
Brussels
Perth
Portland
Warsaw
Phoenix
Lisbon
Marseille
Rotterdam
Lille
Cheap or Not: Relative Capital Value Among the Global Office Markets
Budapest
12Gross office rents, USD per sq. m. per annum
$-
$1,000
$1,500
$2,000
$500
Hong Kong
London: Central
London: WE & Midtown
Tokyo
New York
Paris: CBD
Paris: Central
Shanghai
Beijing
$2,500 Hong Kong, $2,400
$1,500
Singapore
Tokyo, $1,100
London: City
San Francisco
Dublin
Stockholm London: WE & Midtown,
New York, $1,000
Sydney
Moscow
Shenzhen
Singapore, $950
Boston
Luxembourg
Washington DC
Sydney, $750
Milan
Paris: La Défense
Seoul
Los Angeles
Source: M&G Real Estate based on data from PMA, as of April 2018.
Paris: WBD
Frankfurt
M25 West
Seoul, $600
Munich
Austin
London: Docklands
Guangzhou
Miami
Manchester
Amsterdam
Osaka
Seattle
Birmingham
Berlin
Madrid
Oslo
Edinburgh
Chicago
Melbourne
Rome
Glasgow
Dallas-Fort Worth
Nagoya
Houston
Perth
Brisbane
Denver
Hamburg
Dusseldorf
Atlanta
Portland
Helsinki
Vienna
Barcelona
Stuttgart
Only the Hong Kong office market stands out as relatively pricey in the global context…
Phoenix
Cologne
Cheap or Not: Relative Rents Among the Global Office Markets
Lyon
Prague
Warsaw
Brussels
Copenhagen
Marseille
Rotterdam
Lisbon
Budapest
Lille
13Other APAC markets 14
Potential
future core Non-core
China
(Guangzhou + Shenzhen) India
Taiwan
Vietnam
Malaysia
Thailand
IndonesiaWhat makes APAC core 15
• Large institutional real estate stock and high building specifications
• Stable returns of 8-10% over the long term; defensive assets in good locations and supported
by strong tenant covenants
• APAC tenants are large, stable MNCs and local companies with strong credit ratings
Office Retail Industrial
Market cap: $58bn Market cap: $913bn Market cap: $842bn
S&P: A- Moody’s: Baa1 Moody’s: Baa1
Market cap: $230bn Market cap: $28bn Market cap: $63bn
Moody’s: Aa2 Moody’s: Baa2 Moody’s: A1
Market cap: $73bn Market cap: $40bn Market cap: $157bn
Moody’s: Aa3 Moody’s: A3 Moody’s: A1APAC real estate markets - liquid, mature & transparent 16
More Mature Market (Ratio of Invested to Investable Stock)
40% 50% 60% 70% 80% 90% 100%
0
(JLL Market Transparency Score)
0.5
More Transparent
1
New Zealand Australia
1.5 Singapore
2 Japan
Malaysia Switzerland* Hong Kong
2.5
South Korea
3
China
3.5
Source: JLL Transparency Index 2016, Cushman & Wakefield ‘Money into Property’ 2018, M&G 2018
Note: Size of bubble reflects volume of invested real estate stock in the specified market in 2016. China’s transparency score is an average of Tier 1 and Tier 2 cities scores.
*Switzerland’s invested stock, ratio of invested to investable stock in 2016 are M&G Real Estate estimates based on ‘Money into Property’ 2013 data.Core real estate examples
17
in APACCore real estate characteristics in APAC 18
• Office – efficient and large floor plate, high ceiling, effective air-conditioning,
High quality high performance lifts, high quality amenities & fit-out etc.
specifications for
• Logistics – high ceiling, high floor load capacity and multiple loading docks
their intended use
• Retail – efficient layout and design for future expansion
• Positive supply and demand dynamics
Well-located • Good access to public transport
• In dominant clusters - office in CBD, logistics at key transport nodes, retail
urban in-fill etc.
Asia Square, Barangaroo, Festival Walk,
Singapore Sydney Hong Kong
Source: M&G Real Estate, as at June 2018400 George Street, Sydney 19
Office asset in prime Sydney CBD location
• Location: Sydney CBD, enjoying a prominent
corner frontage and direct access to Pitt Street
retail precinct
• Quality: Grade A office building with premium
services and recently upgraded infrastructure
and finishes
• Tenant: Anchored by Telstra Corporation,
Australia’s leading telecommunications company
• Environmental: Received 4.0 Star NABERS
ratings for Energy and 4.0 Star for Water from
the Department of Environment and Climate
Change NSW Government - considered ‘Best
Practice
Source: M&G Real Estate, as at June 2018Compass One, Singapore 20
Suburban mall servicing the local community
• Purpose: community centre for the immediate
and growing catchment of 230,000 residents
• Connectivity: local Mass Rapid Transit (subway),
Light-Rail Train lines and a bus interchange
• Convenience: tenant-mix focused on daily
necessities: F&B tenants 30% of NLA, services
(education, finance, library, health and beauty)
15%
• Growth: sales increased 6.9% and footfall (c.19
million per annum) increased 4.6% year-on-year
to end March 2018
• Demand: well-managed suburban malls in
Singapore are maintaining occupancy rates
above 95% (Compass One 98.1% as at March
2018)
Source: M&G Real Estate, as at June 2018APAC core real estate 21 fund
MAP’s diversified portfolio of quality core assets 22
Investments across five markets and five sectors
GEOGRAPHIC DIVERSIFICATION
GAV USD 3.8 bn
ALLOCATION LIMIT
NAV 2 USD 2.7 bn Fund level cash 5% -
and other assets
LEVERAGE 1 22.3% Japan 21% 65%
South Korea 20% 30%
NO. OF INVESTMENTS 29
Singapore 17% 30%
AVERAGE INVESTMENT SIZE USD 118 m
Hong Kong 4% 30%
OCCUPANCY
by income 97% Australia 32% 40%
WALE
by income 5.0 years
TENANTS 2,295
SECTOR DIVERSIFICATION
PORTFOLIO NET LETTABLE
AREA 909,704 sqm ALLOCATION
Fund Level cash & 5%
other assets
INVESTMENT PROFILE Industrial 19%
Office 21%
ALLOCATION LIMIT
Retail 45%
Core, income-producing 97.5% -
Development 2.5% 10% Hotel 4%
Residential 6%
Source: M&G Real Estate, as at March 2018
1 External debt $840.8m
2 Includes tenant security deposits, deferred tax liabilities, trade payables etc..Strong investment performance 23
Consistent compounding returns; 4.6% distribution yield over 5 year period
13.3% 12.3%
14%
12% 10.7%
10%
8.6% 7.4%
8% 6.0%
6%
4% 2.1%
2% 4.7% 4.9% 4.6%
1.0%
0% 1.0%
Q1 2018 12 months 3 yrs p.a. 5 yrs p.a.
Distribution Yield Capital Return LC Total Return
FUND PERFORMANCE BREAKDOWN (%) Q1 2018 ROLLING 12 MONTHS ROLLING 3 YEAR P.A. ROLLING 5 YEAR P.A.
Distribution Yield 1.0 4.7 4.9 4.6
Capital Return 1.0 8.6 7.4 6.0
Local Currency Total Return 2.1 13.3 12.3 10.6
FX Movement 0.5 3.7 1.0 -2.8
USD Total Return 2.5 17.1 13.2 7.8
Source: M&G Real Estate, as at March 2018. Please note returns provided are in local currencies.
Past performance is not a guide to future performance.Portfolio built over 10 years – Australia, Singapore, Hong Kong 24
400 George Street
HQ South
Office, Sydney
Compass One Office, Brisbane
Retail, Singapore
The Cullen
Hotel, Melbourne
The Olsen
Westfield Doncaster Hotel, Melbourne
Retail, Melbourne
Ingleburn
Logistics, Sydney Erskine Park,
Logistics, Sydney
GTLC
Logistics, Singapore
Casey Central, Sunshine, Erskine Park, Li Fung Centre
Retail, Melbourne Logistics, Melbourne Logistics, Sydney Logistics, Hong Kong
Source: M&G Real Estate, as at June 2018Portfolio built over 10 years – Japan and Korea 25
Goldwin
Office, Tokyo
ResiTwo Portfolio
ResiOne Portfolio
Residential, Japan
Residential, Japan
Northgate
Office, Seoul
Homeplus Hub
Logistics, Korea
F Parc Tenjin
Prato Nakasu Residential,
KR Toyosu Fukuoka
Retail, Fukuoka
Office, Tokyo
Merado Daikai
Retail, Kobe
Higashi Ogijima
Logistics, Japan
Lotte Daejeon Lotte Jeju Lotte Incheon
Atsugi Upsquare, Retail, South Korea
Sakurabashi IM
Office, Osaka Logistics, Tokyo Retail, Ulsan
Source: M&G Real Estate, as at June 2018Asia Pacific core real estate: too large to ignore 26 • Growing economies; increasing high value job creation; growing personal wealth • Maturing, transparent & liquid markets; high quality institutional real estate stock • High levels of occupancy; short rental voids; low capital expenditure; capital stability & potential for capital growth derived from growing rental income • Professional investment & asset management
For Investment Professionals only. This document is confidential and designed to provide factual information for the sole and exclusive use of persons to whom it is addressed and 27 may not be passed on to any other person as this would breach confidentiality. 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. Map data: Google. Distribution in Switzerland. The distribution of Shares or Units (as relevant) in any fund referred to in this document (a “Fund”) in Switzerland will be exclusively made to, and directed at, qualified investors (the “Qualified Investors”), as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended (“CISA”) and its implementing ordinance (the “Swiss Regulations”). Accordingly, the Funds have not been and will not be registered with the Swiss Financial Market Supervisory Authority (“FINMA”). This document and/or any other offering materials relating to the Shares/Units may be made available in Switzerland solely to Qualified Investors. The Swiss representative of each Fund is Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva, Switzerland (the “Representative”). The Swiss paying agent of each Fund is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch, Dreikönigstrasse 21, 8002 Zurich, Switzerland. Further information regarding each Fund, including (as relevant) the Prospectus, the Articles of Incorporation and the Financial Statements may be obtained free of charge from the Representative. For the purposes of the Swiss Regulations, the Funds, the AIFM and their agents do not pay retrocessions as remuneration for distribution activity in respect of Shares/Units in Switzerland. For the purposes of the Swiss Regulations and in respect of distribution in Switzerland, the Funds, the AIFM and their agents do not pay any rebates to reduce the fees or costs incurred by the investor and charged to each Fund. In respect of distribution in Switzerland, the place of performance and the place of jurisdiction are at the registered office of the Representative in Switzerland. 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. For the purposes of AIFMD, M&G Real Estate (Luxembourg) S.A. acts as alternative investment fund manager of any funds cited in this document. M&G Investment Management Limited is registered in England and Wales under numbers 936683 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 3852763 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.
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