Owning a real estate company has been a long-established tradition of Canadian pension funds, but in Australia only three funds have embarked on this route. Florence Chong surveys the domestic landscape
In January, AustralianSuper took a stake in a British real estate company, M7 Real Estate, to give it on-the-ground presence in the logistics and industrial market in the UK and across Europe.
The Australian super giant has formed a strategic partnership with Oxford Properties to grow a portfolio of prime logistics and last mile assets in the UK and across Europe. As part of the transaction, AustralianSuper bought a 50 per cent stake in the UK real estate company, wholly-owned by Oxford Properties since 2017.
Oxford Properties is the real estate arm of Ontario Municipals Employees Retirement System (OMERS). The Canadian pension took over the privately-owned Oxford Properties in 2003. Today, Oxford Properties and its platform companies manage more than C$81 billion of assets across four continents.
In the second part of the deal with the Canadian firm, AustralianSuper took up a 50 per cent stake in Oxford’s €840 million ($1.4bn) European industrial and logistics portfolio, known as the European Supply Chain Income Partnership (ESCIP), with a target of building out the portfolio to $7.5 billion of high-quality last mile and mid-box warehouses over the next three to five years.
In recent years, AustralianSuper’s preference is for logistics and industrial assets.
Even before entering the partnership with Oxford Properties, AustralianSuper is already a significant investor in real assets, including property, totaling A$56 billion globally. In Europe alone, AustralianSuper has investments of more than A$10 billion. The fund’s property portfolio includes the King’s Cross Estate and the Canada Water regeneration projects in London.
In recent years, AustralianSuper’s preference is for logistics and industrial assets. Its has substantial investment in Moorebank Logistics Park, Australia’s largest intermodal logistics facility in Sydney, the Craigieburn Logistics Estate housing a new Amazon Robotics Fulfilment Centre in Victoria, and the Wiri Logistics Estate in Auckland.
Its exposure to the logistics sector has significantly increased following the transaction with Oxford Properties. It has gained immediate access to an established portfolio currently comprises around 730,000 sqm high-quality urban logistics and distribution warehouses across 76 assets, located across19 of the most strategic urban last mile and distribution hubs in six countries, including the UK, and Germany.
The Canadian Model and Real Estate
Owning a real estate company has been a long-established tradition of Canadian pension funds. Aside from OMERS, other large Canadian pensions also have long-established external real estate arms.
Ivanhoe Cambridge is the real estate investment vehicle for CDPQ (Casse de Depots et placement Quebec). CDPQ has reorganised its two external investment arms, Ivanhoe Cambridge and Otera, bringing them under one roof last year to leverage the talent and expertise of the overall group.
Cadillac Fairview is the real estate arm of Ontario Teachers’ Pension Plan, while British Columbia Investment Management Corporation, which is Canada’s fourth largest fund manager, spun off its real estate portfolio into Quadreal in 2017.
This approach has become known as: The Canadian model. Each of these businesses run their investment independently. They are among the most significant global real estate investors in most markets, including Australia.
So far, three Australian super funds invested in a real estate company.
In 2022, Aware Super set up Aware Real Estate tasked with developing and growing a portfolio of $7 billion in Australia within five years. The super fund continues to manage its offshore exposure, which forms a significant chuck of its $10-billion real estate portfolio.
The real estate company was seeded with a real estate portfolio, valued at $1.7 billion. Initially, Aware Real Estate’s focus is on industrial, living and mixed-use sectors real estate assets directly owned by the fund. Aware Super has 12 operational assets and 13 development sites in various stages of planning.
In the UK, Aware Super formed a partnership with British property manager, Delancey Real Estate aiming to buy buildings mainly around London. The target is to create a billion-pound-sterling portfolio of A-grade office buildings. Aware and Delancey believe there is an opportunity to pick up distressed assets for repositioning the properties to generate cyclical returns.
Aware is an existing investor with Delancey. The Sydney-based fund owns a 22 per cent stake in Get Living, the UK’s leading owner and operator of large-scale build-to-rent neighbourhoods, which was founded by Delancey.
In addition to sourcing opportunities for the partnership with Delancey, Aware Super will continue to source other direct investments as it builds its European property portfolio.
Cbus – First Cab of the Rank
In Australia, Cbus Super was the first fund to own a real estate company, Cbus Property, since 2006. An important difference between Cbus Super and its Canadian counterparts is its obligation to create jobs in the building and construction industry – the industry that it was originally established to serve. To date, it has created more than 100,000 jobs.
But the fund says Cbus Property’s charter is first and foremost to provide risk-adjusted returns. Supporting the building and construction industry is the “secondary” benefit. Cbus Property has delivered consistent annual return of 12.9 per cent since inception.
Cbus Property operates on a counter-cyclical strategy to create premium office buildings to hold and generate development profits from build-to-sell apartments.
Cbus Property has a portfolio of $6.6 billion with a further $4.8 billion of work underway.
The property arm acts as the investors for the super fund, which does not have a property portfolio like its peers.
Cbus Property has developed several iconic projects, including Collins Arch in Melbourne, which now forms part of the super fund’s extensive property portfolio.
An important difference between Cbus Super and its Canadian counterparts is its obligation to create jobs in the building and construction industry... To date, it has created more than 100,000 jobs
Another 50 per cent of the super fund’s portfolio is invested with other managers, including ISPT, which is partly owned by Cbus Super, along with other industry funds. It, too, is a developer and investor.
ISPT is now merged with IFM Investors to create a A$240 billion firm.
At the time of the merger in December, the former head of ISPT, now Global Head of Real Estate at IFM Investors, Chris Chapple, said:
“Bringing ISPT’s real estate capabilities together with IFM Investors’ broad global reach and deep investment experience will allow us to continue delivering exceptional outcomes for our clients, partners and stakeholders. In addition, being part of IFM will also enhance our ability to grow our business further and pursue new opportunities, allowing us to capitalise on anticipated improved market conditions for the real estate sector over the next 12 months.”
On a look-through basis, Cbus Super’s portfolio has a 40 per cent weighting to office – and that it is not an over-allocation to office compared to its benchmark.
Ownership of Cbus Properties has delivered to the fund a portfolio of premium office buildings. Despite the downturn in office post-pandemic, the Cbus portfolio, has on average, a 10-year lease expiry, and all are well-leased.
Further Reading:
Why Almanac Prefers Real Estate Platforms
Ivanhoe Cambridge Sells Down Logos Stake
__________
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.