Pensam and Cromwell Launch Logistics Real Estate Investment Partnership

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08/10/2024

PenSam, a Danish pension company, and real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell or Group) have launched a partnership to invest in light-industrial and logistics real estate in Denmark and Sweden.

Cromwell will invest an initial €200 million for PenSam over three years. The strategy will target light-industrial and logistics properties of various size, age, income profile and quality, in established logistics locations in Denmark and Sweden. The strategy has a core plus risk/return profile and the target is to create a portfolio of sustainable logistics properties through active asset management, leveraging Cromwell’s strong local presence and expertise.

PenSam is a labour market pension fund managing occupational pension schemes for people within eldercare, cleaning, technical service and pedagogical care in Danish municipalities, regions and private companies. PenSam manages DKK180 billion (€24 billion) of investments and places a strong emphasis on responsible investments, including the green transition. The investment program has a strategic focus on megatrends, including deglobalisation, sustainability and ecommerce, which are benefiting the Danish and Swedish logistics markets.

Jeppe Starup, Head of Private Capital and Real Assets at PenSam, said: “This strategy and co-operation with Cromwell, who have impressed with their high quality in investment management and strong ESG profile, will strengthen our portfolio with superior properties in strategic locations. The strategy is in line with our sustainability profile and will contribute to ensuring a stable and attractive return for our 500,000 pension customers.”

Pontus Flemme Gärdsell, Head of Northern Europe at Cromwell Property Group, said: “We are delighted to be partnering with PenSam. This is an opportune time to be investing in the Danish and Swedish logistics markets, as there is strong occupier demand and a shortage of modern, sustainable space. Entry pricing is attractive, and the investment market is established and liquid.”

In May, Cromwell entered into a binding agreement with Stoneweg to sell its European fund management platform and associated co-investments, which total €3.8 billion of real estate assets under management, for a total consideration of €280 million, subject to closing adjustments and regulatory approvals, which are anticipated to be in the coming weeks. The transaction will create an €8 billion pan-European real estate management platform, bringing together two highly complementary businesses.

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Cromwell achieves new highs results in Global Real Estate ESG Assessment

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November 28, 2023

Cromwell achieves new highs results in Global Real Estate ESG Assessment

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell) has delivered record high company benchmarks in the annual Global Real Estate Sustainability Benchmark (GRESB) global rankings.

GRESB is an independent organisation that provides validated ESG performance data and peer benchmarks for investors and managers to improve business intelligence, industry engagement, and strategic decision-making.

The 2023 GRESB ESG Benchmark has become increasingly competitive, growing to cover more than USD$ 8.8 trillion of gross asset value across 2,084 real estate entities. GRESB data is utilised as an investment decision-making tool by over 170 institutional investors with more than US$51 trillion AUM.

Group Head of ESG, Lara Young, said Cromwell Property Group our longstanding participation in the assessment is a good opportunity for the organisation to demonstrate its ongoing commitment to enhance its ESG performance and test itself against the worldwide market.

Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.
Lara Young – Group Head of ESG, Cromwell Property Group

“Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.” said Ms. Young.

  • The Singapore-based Cromwell European Real Estate Investment Trust (CEREIT) achieved a record-high overall score of 85 points in the 2023 GRESB Real Estate Assessment, with full marks for social and governance aspects. CEREIT was awarded a four-star rating – up from a three-star rating last year – and achieved a public disclosure score of a perfect 100, placing first out of its five peers.
  • The Cromwell Diversified Property Trust (DPT) maintained its score of 87 points, ranking 28th out of 41 participating listed Australian office portfolios and achieving 95 out of 100 (A Grade) for public disclosure. With Australia’s real estate sector leading the world in sustainability, ranking first in GRESB for the last 12 consecutive years, DPT has consistently performed well against the hyper-competitive local market.
  • Cromwell Polish Retail Fund (CPRF) achieved a five-star rating and a record-high overall score of 90 points, ranking 11th out of 32 European retail non-listed peer funds and 17th out of 87 in the European Retail category.

 

“Not only have we exceeded our previous overall scores, but for all three disclosing portfolios -CEREIT, CPRF, and Cromwell’s investment portfolio, DPT – we have increased our scores across all categories, placing them well above global and industry peer averages,” said Ms. Young.

“These results would not be possible without a huge team effort and collaboration from our investors, tenants, supply chain partners, and the broader Cromwell team, and we would once again like to share our thanks to everyone involved.”

Cromwell will publish its FY23 ESG report in early December 2023.

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July 22, 2020

What next for European logistics?

Lockdown has been like a giant experiment, especially for the logistics sector which has had to deal with unprecedented demand with next to no lead time while adapting to new ways of working, or put another way, social distancing.

By any set of measures, the response has been impressive, providing a glimpse into the potential of a technology-enabled way of life that many had predicted was still some years away. So, what happens next?

Now that the ratchet has been forced up a notch, will life go back to normal or will the forced mass adoption of all things online, whether to order essential items like groceries or to feed people’s growing ‘Amazon habits’, have an enduring impact on the logistics sector?

Logistics underpinned by solid fundamentals

The logistics sector will not be immune to COVID-19, but at the start of 2020 it was underpinned by generally solid fundamentals. Vacancy was low across most of the European market – below 7% in the Netherlands, Poland and the UK – demand was robust and overbuilding wasn’t an issue with opportunities for investors existing across the logistics spectrum, ranging from large distribution centres to urban delivery hubs in inner city areas.

Labour availability was one of the main concerns for logistics operators with the unemployment rate falling to around 6.2% across the EU by the end of 2019. While rates are expected to rise, often from historic lows, governments are implementing a range of fiscal policy measures intended to encourage businesses to retain workers and maintain consumption levels.

The logistics sector is a clear beneficiary of the rise of e-commerce over the last few years. While this is nothing new, the trend is likely to continue unabated with the COVID-19 pandemic and related social distancing measures simply accelerating the rise of online retailing. While some demand may fall away once ‘normal’ life resumes and lockdown measures are lifted, albeit gradually, this is by no means guaranteed.

COVID-19 may generate a spike in online sales for as long as the containment and social distancing measures remain in place as consumers depend more on e-commerce, but the underlying trend is one of continued expansion. The initial impact was on the grocery sector, but this is likely to spread to other consumer sectors. Indeed, we may well see an acceleration in the adoption of online retailing as many businesses turn to deliveries as a way of maintaining business continuity. The current level of online adoption among consumers may become the new ‘normal’. Retail sales are forecast to grow by approximately 2.3% a year between 2019 and 2024, according to Oxford Economics data, while online penetration is predicted to grow at an average of 8.5% a year in the same period according to Savills.

All this extra activity requires more storage space. While some space may be released back to the market as some retailers hit the wall, deliveries are here to stay. Some suppliers have started stockpiling in anticipation of increased online retail spend by consumers, and to mitigate disruption to the upstream supply chain.

In the long term, more warehouses will switch to automation and robots, which creates opportunity for value-add players to take advantage of price dislocation and build costs which have come off their peak, to reinvigorate older stock and upgrade with automation. Short term however, getting materials onsite will be problematic and construction work is being delayed as labour movement is restricted, which means a proportion of the schemes due to complete during the remainder of 2020 and into the first half of 2021 will be delayed. Some schemes may even be withdrawn as developers struggle under tighter financing conditions, all of which adds additional pressure to the tightly supplied warehouse market.

Investment overview

Investment volumes have been rising steadily since the last market trough in 2009, when just €6.9 billion worth of logistics transacted across Europe. In 2017, a peak year that was boosted by some large deals, trading volumes hit €40.4 billion. Interest in the sector has continued at very robust levels over the last couple of years, with €35.8 billion transacting in 2019 with the UK, France, Germany and the Netherlands consistently amongst the most active markets in Europe, also recording some of the highest penetration of online retailing.

What is next for European Logistics graph

There is, of course, the much talked about slowdown to the European economy hitting markets hard, although there has been a much swifter reaction by Central Banks than was seen during the GFC which, it is hoped, will go some way to supporting the weakening economic situation. But there are still a lot of unknowns: the main factors being the length of lockdowns, the impact of the gradual lifting of measures being seen across a number of European countries, the possible resurgence of the virus and when and how much consumer demand will be impacted, with the acceptance that a proportion will be permanently lost.

While the market drivers are there, real estate fundamentals underpinning the sector are healthy, capital is waiting on the sidelines to deploy when appropriate opportunities present themselves, the full-year 2020 trading volumes are expected to be subdued. While Q1 numbers are looking relatively healthy with €7.6 billion changing hands and above the long-term quarterly average of €6.2 billion. Activity levels are largely reflecting the conclusion of deals already in the pipeline pre-COVID-19 and a truer picture is likely to emerge as Q2 progresses. Indications thus far are for a much slower quarter as less product is openly marketed – stymied, for now at least, by the inability to view potential assets, conduct technical due diligence and the gap between buyer and seller expectations on pricing.

Once a new pricing benchmark has been established, capital is likely to react quickly, but during times of uncertainty, investors will favour core assets in strong locations. These will include assets close to infrastructure hubs as carbon emission regulations bear down and are now higher up the agenda and/or gateway cities, which service the growing demand for last-mile logistics. In addition, the wall of global capital headed to Europe is expected to ease, at least temporarily, providing a buying window for domestic institutions and cross-border European capital familiar with their local markets to take a larger share.

An (im)practical example

Matthew Cridland, a tax lawyer and Partner at K&L Gates provided an example of how build-to-rent taxes would rack up in New South Wales.

Firstly, duty applies at a premium of 7% for vacant land purchases above $3 million. If the party acquiring the land is foreign, an 8% ‘Surcharge Purchaser Duty’ also applies, lifting the total duty to 15%.

An MIT is considered a ‘foreign person’ if an overseas company holds a 20% or more interest. On a $20 million vacant residential development site, total duty costs – including premium rate and surcharges – would be $2,940,490, or 14.5%

NSW also imposes a land tax surcharge of 2% on residential land owned by a foreign person, wherein no thresholds apply. Australian-based, foreign-owned developers are exempt from these surcharges, but only if they are developing new homes or residential lots for sale. The exemptions do not apply to foreign institutional investment in new residential developments which will be held for lease – regardless of the economic benefits such projects may provide.

Beyond the aforementioned surcharges, the existing land tax rules also work against institutional investment. In NSW, a premium land tax of 2% is applied to a site with an unimproved land value above $4,231,000. As such, for build-to-rent projects, it is reasonable to anticipate the 2% tax will be applicable.

For an unimproved $20 million development site, land tax would be $372,104. Surcharges would likely increase this by $400,000 to $772,104. However, unlike duty, this is an annual expense that varies as land values fluctuate.

By this point in the example, it should come as no surprise that GST also works against the build-to-rent sector. For a build-to-rent project involving total costs of $110 million, no credit is available for the $10 million of GST. However, an identical project, differing only through the intention to sell rather than lease upon completion, would allow the developer to claim a $10 million credit and have a net cost of $100 million.

These surcharges and taxes may vary on a state level, but the impact they have, in addition to the 30% withholding tax rate, means the sector faces substantial headwinds.

What next for occupiers?

COVID-19 has been a shock on both the supply and demand sides. One of the interesting questions this throws up is what occupiers are doing with their supply chains. Historically, companies have minimised supply chain inventories, keeping them flowing at low, but continuous levels, so they can remain competitive.

An additional consideration if there are ongoing shortages to disruptions in global supply chains is a potential shift to re-shoring or near sourcing, as companies bring their supply chains closer to home. This could translate into demand for more warehouse space near ports and airports, and rising demand for distribution hubs along the supply chain.

In summary, COVID-19 is expected to result in higher inventory volumes and a reassessment of business continuity plans, which will create stronger demand for warehouse space. Whatever the outcome of the COVID-19 pandemic, and despite current economic demand side pressures which has suppressed economic activity, when the risk subsides, the expectation is for a rebound in activity.

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December 9, 2019

Suite dreams are made of these: Hotels hit the big time

Hotels have long been grouped into the category of ‘specialty’ property, alongside the likes of seniors’ living, student accommodation and even data centres. However, as investors continue to look for alternatives to the mainstay real estate sectors, the hotel market has become an increasingly acceptable option for many institutional investors.

Hotel service classifications

Hotels are categorised in numerous different ways, including star ratings, size of hotel and number of rooms, location, ownership and affiliation, and also the type of hotel which is aligned to its offering.

The most common types of hotel markets include business, airport, resort or leisure, casino, convention and conference hotels.

Hotel classifications spreadsheet

 

Hotel dynamics

The hotel asset class possesses a number of key differences when compared to some other real estate sectors.

Owner or operator

All hotels require an operator, but whilst the operator and underlying investor (or owner) can be one and the same, particularly for boutique hotels, this is not necessarily always the case.

Many larger branded or chain hotels tend to have a mix of several ownership types including direct ownership, management contracts or franchise arrangements. For example, just because the name says Hilton, does not mean the Hilton Company owns the property.

Hotel rooms are perishable goods

A hotel room, like an airline seat, is a perishable good. That is, once a specific date occurs, every room not booked for that night perishes. Similar to airline seats, there is no market for yesterday’s rooms.

This presents a challenge as every hotel obviously wants as many rooms as possible booked each night, albeit the temptation is often to discount the room. Ongoing discounting, however, can damage a hotel’s brand and lead to other challenges.

Pricing fluctuates greatly

Hotel prices are put through a rigorous prediction process. Pricing rooms is not as simple as knowing when peak and off-peak seasons are. Rather, the hotel looks at the past year’s demand and compares it to larger trends correlating with the wider hotel industry. These include the economy of the country in which the hotel is situated, competitors’ prices for similar rooms, and even weather patterns.

A hotel will also look at its booking history. In doing so, the hotel seeks to identify the ‘booking curve’ in order to understand the optimal number of rooms that should be booked at certain intervals in advance (generally one, two and/or three months).

The overarching goal for every hotel is to ensure the most rooms are booked per night, at the highest price possible. As such, during stretches of lower demand or if actual bookings are lower than projected, room prices can be decreased to incentivise last-minute booking. On the other hand, prices are generally raised when demand is high.

Booking platforms are important

Online booking platforms have become an important tool to ensure the greatest possible number of rooms are occupied on a nightly basis, particularly when demand is low during off-peak times.

Third party agency sites such as Booking.com act as an intermediary between guests wanting to make a reservation and a hotel. These platforms also have a broader reach compared to a hotel’s own website, so while they can direct additional bookings to a hotel, they also charge for the privilege. This, in turn, eats into the hotel’s profit – hence why hotels usually advertise that the best rate is obtained by booking direct.

Loyalty programmes

Almost every major hotel chain has a loyalty programme to encourage travellers to stay with their chain wherever they travel across the globe. Similar to airline loyalty schemes, their hotel counterparts offer varying levels of membership and rewards for staying with a particular chain, or group of hotels.

Global hotel market summary

While slower global economic growth is expected to provide a headwind, hotel investment volumes are expected to hold steady in 2019 as a result of pressure to deploy capital, hotel occupancy and room rates remaining positive and the attractive yield profile hotels generally offer compared to other sectors.

Volume in the Americas is expected to be flat, while an increase in Asian markets is expected to offset a slight decline in Europe. It is expected that total transaction volumes will be US$67.2 billion, essentially unchanged from 2018’s US$67.7 billion.

Global hotel transaction volumes forecast spreadsheet

Europe

Single-asset deals are expected to dominate in the near term. The lower volatility in the return profile of hotels reduces the volatility of funds, while slightly increasing the returns. As such, hotel assets provide a stabilising effect to the diversified funds to which they are added.

Overall, transaction volumes are anticipated to drop between 5% and 10% on 2018, to just over US$21 billion. However, the sentiment towards the asset class remains largely positive, as demonstrated by the acceleration in hotel development activity.

Germany and the UK account for nearly 60% of rooms under construction across Europe. These two markets are expected to absorb the additional supply across the medium term off the back of the strong tourism growth forecasts.

In 2018, Europe received the largest amount of cross-border investment, largely attributed to Asian and Middle Eastern investors. The region is expected to remain an active destination, particularly from Asian investors who are keen to take advantage of currency benefits.

Asia Pacific

Diverse sources of core and core-plus capital are increasingly weighing up investment into hotels. Japan is one of the most active markets due to the Rugby World Cup and Tokyo 2020 Olympics, but China and Singapore are also on investors’ radars, with the positive trend in hotel trading performance set to drive prices upwards.

APAC activity is expected to see a 15% year-on-year increase in 2019, although transaction volumes will still be a modest US$9.5 billion.

All eyes on Japan

Through the first half of 2019, Japan’s hotel market recorded the highest domestic transaction volumes in Asia Pacific at US$1.14 billion. Japanese REITs accounted for almost half of this investment, with demand rising off the back of low borrowing costs and expectations of continued market growth as a result of large-scale events such as the 2019 Rugby World Cup, Tokyo 2020 Olympics and the 2025 World Expo.

The Rugby World Cup is responsible, in part, for the 12% increase in international visitors forecast to descend on Japan throughout 2019. It is reasonable to anticipate an even greater increase in 2020, as 10 million visitors are expected to attend the Olympic Games.

Even though Tokyo will have 170,000 rooms in 2020, up from 30,000 in 2017, a number of prominent hotels are already hanging ‘no vacancy’ signs for the Games, illustrating continued strong demand for at least the next few years.

Americas

In the US, large portfolio deals are expected to dominate investment. Transaction volumes across the Americas in 2019 are forecast to meet the $36.5 billion mark set in 2018. Despite no year-on-year growth, this is still up significantly on the region’s US$28.2 billion transacted in 2017.

2018 represented the tenth consecutive year of growth in North America’s hotel performance, although it appears as though the development pipeline has reached its peak and begun to slow. This has resulted in increased confidence amongst investors, particularly in major markets such as New York.

Key growth drivers and future trends

Mixed-use: Work, stay, play

Mixed-use buildings, combining hotel, residential, office and/or retail space in a single building or precinct have gained increased traction in recent years. Mixed-use buildings increase diversification for investors and allow them to blend their offerings to meet the increasing demands of their guests.

Millennials moving in

Demographics are a major consideration for all hotel investors and operators. In Australia, millennials on average spend the most on accommodation per night. This gives rise to an emerging challenge, particularly given the growing rise of Airbnb amongst this demographic. Hotels must create a point of difference to ensure they continue to attract customers in the face of this popularity.

Rise of the global middle class

The rise of the global middle class also shows no signs of slowing, increasing from 1.8 billion people in 2009, to a forecast 3.2 billion in 2020 and 4.9 billion in 2030. The bulk of this growth comes from Asia, which will represent two-thirds of the global middle-class population by 2030. As a result of this rapid rise, the sheer number of people looking to travel, and stay at a hotel, is growing quickly.

The experience economy

Consumers are also placing less emphasis on acquiring material goods, and more on seeking out experiences. This is particularly evident in the global luxury travel market, which is forecast to reach US$1.1 trillion by 2025, representing a compound growth rate of 4.3% between 2017 and 2025.

This growth is driving demand for hotel stays and investors are looking to capitalise. In 2018, the US saw luxury hotel transactions rise by 76% year-on-year. In Europe, investors are looking to deploy capital to meet this demand in key destination cities such as Paris, Rome and Florence.

Investor diversification

Investors are also seeking alternative options to the traditional real estate sectors of office, industrial and retail to diversify their returns. As pressure mounts to deploy capital, the positive longer-term dynamics continue to heighten the appeal of hotel assets. Across the five years to 2018, 70% of hotel investments were made by investors looking to diversify, rather than those seeking hotel-specific funds.

Hotels, like any other asset class, have positives and negatives as an investment option. However, there is a lot to like about the sector, including its ability to diversify investor portfolios and sustained medium-term growth in demand off the back of the experience economy, tourism boom and continued rise of the global middle class.

Hotel infinity pool with two people looking at the view of the city

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December 9, 2019

The US$80 trillion world economy at a glance

The infographic below shows the composition of the US$80 trillion global economy in 2017, the most recent year in which comprehensive figures were available. In nominal terms, the US still has the largest Gross Domestic Product (GDP) at US$19.4 trillion, making up 24.4% of the world economy, nearly 60% larger than China at US$12.2 trillion.

However, in 2016, the International Monetary Fund called the Chinese economy the world’s largest when adjusted for purchasing power parity (which allows you to compare how much your money can buy in relative terms).

Perhaps a more telling statistic is that per capita disposable income is US$39,513 in the US and just US$2,993 in China. This more aptly illustrates just how far China has yet to go to give its citizens a similar quality of life.

The next two largest economies are Japan (US$4.9 trillion) and Germany (US$4.6 trillion). It’s India (US$2.6 trillion), however, which has now passed France and, given Brexit, probably also the UK, which is increasing the fastest. Brazil, despite its very recent economic woes, surpassed Italy in GDP rankings to take the number eight spot overall. Canada rounds out the top ten.

Australia’s GDP was US$1.32 trillion or 1.67% of the global economy, which just about puts it on par with Spain. While punching above Spain and most others in terms of GDP per capita, Australia remains a relatively small economy in global terms.

The infographic below shows the composition of the US$80 trillion global economy in 2017, the most recent year in which comprehensive figures were available. In nominal terms, the US still has the largest Gross Domestic Product (GDP) at US$19.4 trillion, making up 24.4% of the world economy, nearly 60% larger than China at US$12.2 trillion.

However, in 2016, the International Monetary Fund called the Chinese economy the world’s largest when adjusted for purchasing power parity (which allows you to compare how much your money can buy in relative terms).

Perhaps a more telling statistic is that per capita disposable income is US$39,513 in the US and just US$2,993 in China. This more aptly illustrates just how far China has yet to go to give its citizens a similar quality of life.

The next two largest economies are Japan (US$4.9 trillion) and Germany (US$4.6 trillion). It’s India (US$2.6 trillion), however, which has now passed France and, given Brexit, probably also the UK, which is increasing the fastest. Brazil, despite its very recent economic woes, surpassed Italy in GDP rankings to take the number eight spot overall. Canada rounds out the top ten.

Australia’s GDP was US$1.32 trillion or 1.67% of the global economy, which just about puts it on par with Spain. While punching above Spain and most others in terms of GDP per capita, Australia remains a relatively small economy in global terms.

 

Why diversify?

Australia has often been called the lucky country, given its more than 25-year run without recession. Luck, however, is not a strategy, nor is it sufficient to build a business, execute a strategy or pay distributions. Luck can run out and, diversification, whether or not it’s for personal investing or growing a business, is important.

Diversification doesn’t mean turning your back on what you know or are familiar with (Australia), but it does mean prudently assessing opportunities which can diversify investment portfolios or business income streams both by sector and by geography.

The European real estate market, for example, comprises approximately 350 million sqm of office stock, over 14 times more than the Australian equivalent. The market comprises more than 34 different individual office markets, each with more than 2 million sqm of office space.

To put it in perspective, that’s 34 different markets the size of Brisbane or Canberra that you can choose to invest in. All of these locations will have different local market dynamics, are at different points in the real estate cycle and are in differently performing countries, some of which, like Poland, currently have better prospects than Australia. Diversification matters.

 

World economy GDP by country