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Update Oct2016
Expertise in European listed real estate
Olivier Hertoghe, Damien Marichal, Vincent Bruyère, Senior Portfolio Managers
2
Degroof Petercam Asset Management and European listed Real Estate
Delivering superior risk adjusted returns in a diversifying asset class
Sector overview: key debates for the asset class
1 Funds: Team, Philosophy & process
2 Outlook and strategy going forward
3
Cutting edges
4
3
The interest rate environment
1
Sector overview: key debates for the asset class.
4
Volatility of listed real estate
Efficiency of listed vs direct real estate
Sector valuation
Efficiency of listed real estate vs general equities
5
Quest for yield: yield gap still at high levels 1.1.1
Company data, Datastream, Morgan Stanley Research, 30/09/16
Ebitda/EV yield margin over local 5yr swap rate: Still sound gap between property yield and cost of debt
300-400bp margin
50-150bp gap
6
Who’s afraid of rising interest rates? 1.1.2
Property yields vs 10Y interest rates (%) There is effectively no relationship between property yields and nominal interest rates.
Interest rates are at a 30 year low but property yields are broadly in line with their historic average.
If interest rate’s rise slowly for the good reason: positive for real estate
20/9/16
7
…it is a misconception that bonds and real estate are highly correlated 1.1.3
DPAM Quant team, 10/16
The Modeled Correlation is estimated by a DCC-Garch Model. This model works in 2 steps. In a first step it captures the stylized fact that volatility tends to cluster and is subject to shocks. In a second step this time-varying volatility is filtered out and the remaining residuals are used to estimate the pure (and true) correlation behavior. The behavior of the correlations is modeled in a similar manner as in the first step: correlation today is dependent on a momentum or autoregressive component (i.e. today's correlations is linked to yesterday's correlation) and a shock component. Because of the autoregressive component the weights on the historical data decrease exponentially as opposed to the traditional way of calculating correlation where each observation (no matter how long ago) is considered equally important.
8
Who’s afraid of rising interest rates? 1.1.4
US REITs investors do not seem to be scared of latest and future interest rate hikes
30/5/16
9
Valuation : Discount to NAV and NAV growth 1.2
Company data, Datastream, Morgan Stanley Research, 30/09/16
Downwards NAV growth revisions in the UK, but still positive on European level
10
1.3 Correlation with MSCI Europe
Sector Beta gradually back to historical levels
DPAM Quant team, 05/16
11
Efficiency of listed real estate vs equities 1.4
Degroof Petercam, 05/2016
Efficiency (return/volatility) of real estate divided by efficiency of equities for 3 year investments for the period 1995 to April 2016 Strong efficiency for European listed real estate compared to equities over the last 20yrs
12
Efficiency of listed real estate vs direct real estate 1.5
Value Added From Money Managers in Private Markets? An Examination of Pension Fund Investments in Real Estate” May 2012, University of Maastricht, The Netherlands, based on a survey on the behavior of 880 pension funds over 20 years. 1990-2009
422bp annual outperformance with a modest higher volatility / substantially less costly
Investment team
2
Funds: focus and process.
13
Petercam Securities Real Estate Europe Expertise and products
Petercam Real Estate Europe Dividend Atlas Real Estate and Degroof Real Estate
Vincent Bruyère Senior Portfolio Manager
Tel. + 32 2 287 94 80
Olivier Hertoghe Senior Portfolio Manager
Tel. + 32 2 287 96 10
Bank Degroof Petercam: Listed Real Estate Team
Damien Marichal Senior Portfolio Manager
Tel. + 32 2 287 96 09
14
15
Comprehensive and tailor-made product range (+/- EUR 1bln€)
Benchmarked Petercam Securities Real Estate Europe
Core approach
Inception Dec 1999
Outperform a defined benchmark
With a lower volatility than the benchmark (1%)
AUM fund EUR 374m + 45m clone accounts
2.3% annual excess over 15 years
Non-Benchmarked
Belgian approach (2007)
Only through segregated mandates
Outperform a defined benchmark
Predominantly investing in Belgian REITs
Lower risk/return profile
Circa EUR 28 m AUM
2.3% annual excess over 7 years
Petercam Real Estate Europe Dividend
No benchmark, concentrated on high convictions
Inception Dec 2010
Dividends or coupons above sector average
Total return approach
Lower Beta fund
Circa EUR 240 m AUM (hard-closed!)
High conviction approach (2005)
Only through segregated mandates
No benchmark, opportunistic approach and high convictions
Circa EUR 69 m AUM
2.5-3% annual excess vs EPRA/GPR over 11 years with 2.5% lower volatility
Funds Mandates
1 2 3 4
Market information
Fundamental analyse
Valuation check
Portfolio construction
16
Listed real estate companies
Capital markets
Direct RE markets
Property financing markets
Macro news
Seminars, property tours, company visits, sell-side research, …
Active search for additional information when needed
Assess impact on country, sub-sector, market cap allocation
Analyse impact on individual listed real estate companies
Internal valuation model Look for best execution via dealing desk
Respecting our investment restrictions and risk budget
Investment process
Analyse daily news items from:
Does this affect the current portfolio and our universe?
When we decide to change the existing positioning
Buy, sell or participate to capital market deals
17
In house valuation model (extract) CF Yield Dividend yield
Country 16E 17E 16E 17E 16E 17E
Atrium Austria 3.80 1,428 8.5% 8.7% 7.4% 7.4% -20.0% -17.5% 4.7% 1.2% -5.7% 1.7% 4.3 20.8%
Cofinimmo Belgium 105.85 2,221 6.0% 6.3% 5.2% 5.2% 12.1% 8.3% 1.6% 0.0% 3.0% 8.2% 110.0 9.1%
PSP Swiss Property Switzerland 88.40 3,719 4.3% 4.3% 3.7% 3.7% -13.6% -14.4% 0.0% 0.5% 0.9% 4.7% 94.3 10.4%
Swiss Prime Site Switzerland 81.60 5,212 4.4% 4.4% 4.5% 4.5% -6.3% -6.3% 0.7% 0.0% 0.0% 4.5% 82.2 5.3%
Vonovia Germany 31.33 14,600 4.1% 4.7% 3.5% 3.7% 20.0% 12.0% 7.2% 4.9% 6.6% 10.1% 35.0 15.2%
Deutsche Wohnen Germany 29.63 9,995 3.7% 4.1% 2.4% 2.7% 19.9% 7.8% 10.7% 15.6% 10.9% 13.3% 34.4 18.4%
Aroundtown Germany 4.32 2,592 4.6% 6.8% 1.4% 2.0% -21.3% -27.9% 24.7% 18.5% 19.9% 6.0 40.0%
LEG Germany 77.80 4,883 5.3% 6.0% 3.4% 3.9% 22.9% 14.6% 11.5% 9.0% 7.6% 11.0% 81.5 8.2%
Deutsche EuroShop Germany 38.82 2,094 5.8% 6.1% 3.6% 3.6% -5.2% -9.6% 2.4% 2.4% 3.9% 7.5% 42.9 14.0%
Alstria Germany 11.64 1,784 6.2% 6.3% 4.6% 4.7% 1.1% -1.6% 11.9% 3.2% 3.7% 8.2% 12.3 9.9%
TLG Germany 18.80 1,268 6.1% 7.0% 4.6% 5.3% -0.5% -2.1% 10.3% 9.9% 3.6% 8.9% 21.2 17.1%
VIB Vermogen Germany 19.21 528 6.8% 7.6% 2.9% 3.1% 20.9% 15.1% 9.5% 6.4% 4.5% 7.4% 21.6 15.1%
Axiare Spain 11.22 806 3.5% 5.7% 1.8% 3.4% -14.0% -21.4% 35.6% 136.8% 9.5% 11.3% 14.3 29.0%
Colonial Spain 6.16 2,199 3.8% 4.3% 3.0% 3.3% -16.1% -24.1% 37.5% 12.8% 11.6% 14.5% 8.12 34.7%
Hispania Spain 11.45 1,241 5.2% 6.1% 3.2% 3.8% -5.5% -14.2% 149.7% 10.2% 13.4% 13.3 19.7%
Merlin Spain 9.83 4,616 5.6% 6.3% 3.0% 5.0% -7.0% -13.5% 11.8% 42.0% 9.5% 12.6% 11.4 18.7%
Argan France 24.35 346 11.2% 12.3% 3.7% 3.9% -12.4% -17.7% 6.6% 3.3% 8.0% 11.8% 29.9 26.5%
F. des Regions France 78.79 5,275 6.4% 6.5% 5.5% 5.5% -5.0% -9.6% 1.1% 0.8% 4.1% 9.5% 82.0 9.5%
Gecina France 132.20 8,372 4.2% 4.3% 3.8% 3.8% -0.1% -5.2% 2.7% 1.0% 4.9% 8.7% 108.9 -13.9%
Icade France 65.97 4,856 6.4% 6.9% 6.0% 6.1% -15.7% -16.2% 4.7% 3.2% 1.8% 7.8% 70.0 12.1%
Fonciere de Paris France 135.88 1,038 3.8% 3.7% 4.6% 4.6% -8.2% -10.9% -5.5% 1.6% 8.8% 13.3% 96.9 -24.2%
Terreis France 35.00 884 3.6% 3.9% 2.4% 2.6% -23.8% -26.3% 5.5% 8.5% 6.0% 8.4% 42.8 24.5%
Klépierre France 38.08 11,859 5.9% 6.2% 4.7% 4.9% 3.0% -0.8% 4.3% 3.8% 4.5% 9.2% 44.7 22.1%
Unibail-Rodamco France 218.95 22,032 5.0% 5.4% 4.5% 4.7% 18.3% 9.7% 6.4% 3.6% 5.2% 9.8% 244.9 16.4%
Altarea-Cogedim France 170.10 2,054 8.1% 8.6% 6.5% 6.5% 13.1% 5.4% 6.0% 0.0% 7.7% 14.2% 215.7 33.3%
British Land United Kingdom 586 6,704 5.9% 6.0% 5.0% 5.2% -31.8% -22.9% 1.6% 3.0% -6.6% -1.6% 608.4 8.8%
Land Securities United Kingdom 979 8,590 4.5% 4.9% 3.7% 3.8% -28.6% -22.1% 2.4% 3.7% -5.0% -1.3% 1,067.9 12.8%
Hammerson United Kingdom 557 4,902 5.1% 5.3% 4.3% 4.5% -20.6% -14.9% 4.8% 5.0% -3.6% 0.6% 588.8 10.0%
Derwent London United Kingdom 2,422 2,993 3.2% 3.7% 2.0% 2.2% -32.5% -22.2% 9.0% 11.4% -5.2% -3.2% 2,645.4 11.2%
Great Portland United Kingdom 602 2,434 2.2% 3.0% 1.6% 1.7% -26.9% -20.4% 16.7% 15.0% -4.9% -3.4% 643.0 8.4%
Beni Stabili Italy 0.52 1,168 8.8% 9.0% 5.0% 5.4% -41.0% -41.9% -1.1% 7.7% 1.1% 6.1% 0.7 42.6%
Coima RES Italy 6.81 0 2.9% 7.3% 2.9% 5.3% -31.2% -31.9% 3.0% 5.9% 8.5 27.8%
Eurocommercial Netherlands 38.55 1,827 5.5% 5.7% 5.2% 5.3% -6.4% -9.8% 3.5% 2.0% 3.5% 8.7% 41.2 12.1%
Wereldhave Netherlands 43.58 1,755 7.8% 8.1% 7.2% 7.4% -15.2% -14.1% 4.8% 3.5% -0.5% 6.7% 54.0 31.1%
Entra Eiendom Norway 85.75 1,618 5.2% 5.5% 4.2% 4.4% -18.1% -25.4% 18.8% 11.4% 10.8% 15.0% 103.4 24.8%
Balder Sweden 204.30 3,382 5.6% 6.2% 0.0% 0.0% 17.2% -0.6% 12.2% 17.9% 17.9% 210.0 2.8%
Castellum Sweden 120.90 3,392 7.0% 7.8% 3.7% 3.9% -1.0% -7.9% 8.6% 3.9% 7.8% 11.5% 117.2 0.6%
Fabege Sweden 145.90 2,478 3.3% 3.6% 2.6% 2.7% 7.5% 3.8% 9.8% 6.7% 8.1% 10.7% 117.2 -17.1%
Average total (Ptf weighted) 1,444 4.8% 5.3% 3.75% 3.97% 0.5% -3.4% 4.6% 5.5% 4.4% 8.4% 13.7%
12-Oct-16 2,468
P / NAV -1 TSR 15-
18Target
Price +12M E ReturnName Price
CF gth
15-18
Div gth
15-18
NAV gth
15-18
Mark
cap m€
Universe Objective Strategy Restrictions
18
Invest in listed European property shares active in the various sub-sectors (offices, retail, residential, logistic warehouses, etc.).
Number of companies is limited to around 100
Outperform PEPS Index on a 3 year rolling period with an expected tacking error of maximum 4%
Targeting annualized excess return of 2% (4%+ last 2 years) => Information Ratio of 0.5
Consistently beat the benchmark with a lower volatility
Strong opinion of core companies thanks to frequent contacts with company management
Bias towards under-researched mid cap companies generating a significant portion of alpha
Dynamic and proactive management style maximizing ‘total shareholder return’
Maximum Out of Benchmark stocks of 30%
Individual holding over/underweight capped at 3%
Maximum over/underweight per sub-sector or country capped at 10%
Typically 45-75 stocks
Fully invested, cash capped at 5%
Petercam Securities Real Estate Europe 2.1
19
Petercam Securities Real Estate Europe
Benchmark = PEPS index, provided by Global Property Research (GPR)
39%
1%
24%
2% 5% 4% 3%
18%
4%
25%
10%
21%
3%
6%
6% 3%
21%
5%
Individual stock weight capped at 8% Today applicable on Vonovia and Unibail-Rodamco (weights in GPR 250 Europe 9% and 14%)
Fixed weight for Belgium
Objective: lower volatility and advantage of local knowledge
UK weight capped at 25% To limit impact of single country, higher volatility of UK shares and GBP 1
2
3
Specific PEPS Index rules
GPR 250 Europe 37 European companies (Dec 2015)
Petercam European Property Shares (PEPS) Index 51 companies (Dec2015)
Belgium
France
Netherlands
Sweden
Germany
Austria
Spain
U.K.
Switzerland
20
Track Record vs PEPS Index and EPRA since inception
Gross of fees as of August 2016 Performance vs Benchmark, our mission: consistent and long term outperformance 2,30% p.a. since inception
* EPRA NR since 2004
-100%
0%
100%
200%
300%
400%
500%
PetercamReal Estate 450.3%
PEPS 288.0% EPRA* 278.6%
21 Brussels, 28/09/16
Track Record vs PEPS index
Continuous outperformance with lower volatility
Performance vs Benchmark - 16 Years to August, 2016 Annual returns (gross of fees)
Petercam Real Estate
PEPS EPRA
7%
8%
9%
10%
11%
12%
15.8% 16.0% 16.2% 16.4% 16.6% 16.8% 17.0% 17.2%
An
n R
etu
rn
Ann Std Dev
Risk / Return
10.77% 8.48% 8.32%
Petercam
Real EstatePEPS
Annualised
standard dev15.91% 16.65% 16.95%
EPRA*
Annualised
Returns
Annual Returns (gross of fees)
YearPetercam
RealEstatePEPS EPRA*
2000 14.71% 13.03% 16.87%
2001 2.03% 0.91% -0.59%
2002 9.36% 7.82% 1.95%
2003 22.08% 19.53% 19.85%
2004 40.01% 35.76% 41.17%
2005 29.46% 25.17% 25.45%
2006 49.23% 47.29% 48.79%
2007 -25.10% -28.58% -32.19%
2008 -49.15% -49.40% -48.94%
2009 43.31% 41.77% 34.84%
2010 15.44% 16.88% 15.97%
2011 -9.77% -11.85% -10.04%
2012 27.45% 25.11% 27.52%
2013 10.99% 6.95% 10.35%
2014 27.97% 23.73% 25.01%
2015 20.56% 16.03% 17.99%
2016 YTD 4.93% 4.00% 0.14%
* FT EPRA DEV EUR NR€
22
Relative performance analysis Q3, 2016
Positive contributors Strong allocation and selection in Austrian companies exposed to the German market (+47bp) with Buwog (17bp) and Conwert (15bp)
Good allocation and selection on the UK (+21bp) with underweights on Capco (13bp) and Derwent London(6bp)
Good positioning on Switzerland being underweight (+15bp)
Negative contributors Weak selection and allocation to France (-19bp) with UW on Gecina (-21bp)
Weak selection to Spain (-11bp) with UW on Hispania (-7bp)
Underweight on Sweden not optimal with (-9bp) with underweight on Hufvudstaden (-8bp)
+0,39% for Retail share class, +0,60% for Institutional share class
23
Performance attribution/country Q3, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
30/06/2016 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
Country of Domicile Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 4,10 100,00 100,00 3,55 0,73 -0,17 0,55
Austria 5,75 6,48 0,87 2,28 2,21 0,30 0,42 0,05 0,47
United Kingdom 21,44 21,43 0,39 25,00 25,09 0,24 0,06 0,15 0,21
Switzerland 4,97 4,43 -0,15 6,72 6,43 -0,22 0,14 0,01 0,15
Norway 0,55 0,96 0,12 -- -- -- 0,10 -- 0,10
Finland 1,01 1,02 0,12 -- -- -- 0,08 -- 0,08
Netherlands 2,75 2,93 0,29 1,22 1,22 0,15 0,14 -0,06 0,08
Luxembourg 2,26 2,39 -0,01 1,41 1,39 -0,08 -0,09 0,14 0,04
Germany 19,71 20,73 0,76 22,34 22,33 0,87 -0,06 0,06 0,00
[Unassigned] -- 0,00 -0,00 -- -- -- 0,00 -- 0,00
Bulgaria 0,21 0,11 0,00 -- -- -- -0,00 -- -0,00
[Cash] 0,79 0,32 -0,00 -- -- -- -0,04 -- -0,04
Belgium 4,15 4,01 0,09 10,00 10,02 0,36 -0,01 -0,06 -0,07
Italy 0,47 0,43 -0,07 -- -- -- -0,08 -- -0,08
Sweden 5,19 5,19 0,24 6,57 6,53 0,41 -0,03 -0,06 -0,09
Spain 3,93 3,76 0,24 3,94 4,17 0,35 -0,01 -0,10 -0,11
France 26,82 25,79 1,22 20,53 20,61 1,17 0,11 -0,31 -0,19
24
Top & Worst performance/company Q3, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
30/06/2016 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
Security Name Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 4,10 100,00 100,00 3,55 0,55 -- 0,55
BUWOG AG 1,89 2,46 0,36 1,11 1,10 0,16 0,17 -- 0,17
conwert Immobilien Invest SE 0,53 1,17 0,16 -- -- -- 0,15 -- 0,15
Swiss Prime Site AG 2,67 2,26 -0,09 4,21 4,02 -0,16 0,13 -- 0,13
Capital & Counties Properties PLC 0,24 -- -0,00 1,40 1,30 -0,08 0,13 -- 0,13
CA Immobilien Anlagen AG 1,35 0,99 0,17 -- -- -- 0,11 -- 0,11
Entra ASA 0,55 0,96 0,12 -- -- -- 0,09 -- 0,09
Mercialys SA 1,18 0,99 0,12 -- -- -- 0,09 -- 0,09
Citycon Oyj 1,01 1,02 0,12 -- -- -- 0,08 -- 0,08
Wereldhave N.V. 1,90 2,23 0,25 1,22 1,22 0,15 0,07 -- 0,07
Argan SA 1,66 1,67 0,13 -- -- -- 0,07 -- 0,07
Befimmo SA 0,51 0,65 -0,01 1,34 1,36 -0,04 0,06 -- 0,06
Derwent London plc 1,40 1,13 -0,02 2,00 2,09 -0,07 0,06 -- 0,06
TAG Immobilien AG -- 0,41 0,00 0,92 0,99 0,09 -0,05 -- -0,05
Terreis 1,89 1,45 0,02 -- -- -- -0,05 -- -0,05
Frey SA 0,69 0,67 -0,03 -- -- -- -0,06 -- -0,06
Aroundtown Property Holdings Plc 1,77 1,45 -0,01 -- -- -- -0,06 -- -0,06
Hispania Activos Inmobiliarios, SOCIMI, S.A. -- -- -- 0,68 0,71 0,09 -0,07 -- -0,07
Hufvudstaden AB Class A -- -- -- 1,23 1,22 0,12 -0,08 -- -0,08
Aedifica -- -- -- 1,24 1,25 0,13 -0,09 -- -0,09
COIMA RES S.p.A. 0,47 0,43 -0,07 -- -- -- -0,09 -- -0,09
Gecina SA 1,49 1,08 0,20 3,10 3,19 0,48 -0,21 -- -0,21
25
Perf attribution by market cap Q3, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
30/06/2016 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
MarketCap (EUR) Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 4,10 100,00 100,00 3,55 0,14 0,42 0,55
MarketCap (EUR) Bin 5: 1000.0 - 3000.0 27,43 29,03 1,81 22,23 22,03 0,92 0,05 0,69 0,74
MarketCap (EUR) Bin 3: 5000.0 - 7000.0 8,21 8,04 0,11 12,44 12,26 0,15 0,11 0,02 0,13
MarketCap (EUR) Bin 4: 3000.0 - 5000.0 14,86 14,47 0,53 18,25 18,33 0,60 0,01 0,07 0,08
[N/A] -- 0,00 -0,00 -- -- -- 0,01 -- 0,01
[Cash] 0,79 0,32 -0,00 -- -- -- -0,04 -- -0,04
MarketCap (EUR) Bin 1: > 10000.0 26,76 27,68 1,07 29,42 29,41 1,19 -0,02 -0,03 -0,05
MarketCap (EUR) Bin 6: 0.0 - 1000.0 12,08 10,91 0,35 4,52 4,44 0,20 0,04 -0,19 -0,15
MarketCap (EUR) Bin 2: 7000.0 - 10000.0 9,87 9,55 0,23 13,14 13,52 0,48 -0,02 -0,14 -0,16
26
Relative performance analysis YTD, 2016
Positive contributors Strong allocation and selection in France (+84bp) good performance of smaller cap companies as Terreis (43bp) and Argan (27bp)
Good positioning on indirect German plays through Austrian (+59bp) and Luxembourg (+49bp) listed companies as ADO Properties (+34bp)
Good selection on the UK (+45bp) with underweights on Capco (59bp) and INTU (20bp)
Negative contributors Underweight positioning on defensive Belgium (-78bp) with UW on Cofinimmo (-31bp)
Germany not optimal (-23bp) with underweight on Vonovia (-30bp)
Underweight positioning on defensive Switzerland (-10bp) with UW on SPS (-10bp)
+0,61% for Retail share class, +1,25% for Institutional share class
27
Performance attribution/country YTD, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
31/12/2015 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
Country of Domicile Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 3,15 100,00 100,00 1,92 -0,26 1,49 1,23
France 25,61 25,79 2,98 20,94 20,61 1,79 0,36 0,49 0,84
Austria 4,69 6,48 0,76 3,29 2,21 0,14 0,35 0,23 0,59
Luxembourg 1,57 2,39 0,23 1,53 1,39 -0,27 -0,12 0,61 0,49
United Kingdom 25,14 21,43 -6,38 25,00 25,09 -6,46 0,08 0,37 0,45
Norway 0,50 0,96 0,22 -- -- -- 0,20 -- 0,20
[Cash] 0,88 0,32 -0,01 -- -- -- 0,03 -- 0,03
Bulgaria 0,40 0,11 0,01 -- -- -- 0,01 -- 0,01
[Unassigned] -- 0,00 -0,00 -- -- -- 0,01 -- 0,01
Spain 1,84 3,76 -0,08 4,54 4,17 -0,19 0,12 -0,13 -0,00
Netherlands 3,33 2,93 -0,19 2,92 1,22 -0,22 0,11 -0,13 -0,03
Finland 1,09 1,02 -0,05 -- -- -- -0,05 -- -0,05
Sweden 4,40 5,19 0,49 5,43 6,53 0,68 -0,16 0,07 -0,09
Italy -- 0,43 -0,09 -- -- -- -0,09 -- -0,09
Switzerland 5,63 4,43 0,60 6,31 6,43 0,74 -0,08 -0,02 -0,10
Germany 20,86 20,73 4,17 20,04 22,33 4,37 -0,33 0,10 -0,23
Belgium 4,04 4,01 0,51 10,00 10,02 1,34 -0,69 -0,09 -0,78
28
Top & Worst performance/company YTD, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
31/12/2015 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
Security Name Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 3,15 100,00 100,00 1,92 1,23 -- 1,23
Capital & Counties Properties PLC 0,89 -- -0,35 1,79 1,30 -0,89 0,59 -- 0,59
Terreis 1,49 1,45 0,52 -- -- -- 0,43 -- 0,43
ADO Properties S.A. 1,00 1,63 0,37 -- -- -- 0,34 -- 0,34
Argan SA 1,53 1,67 0,34 -- -- -- 0,27 -- 0,27
BUWOG AG 1,22 2,46 0,43 0,95 1,10 0,21 0,21 -- 0,21
Entra ASA 0,50 0,96 0,22 -- -- -- 0,19 -- 0,19
Intu Properties plc -- 0,44 -0,06 1,45 1,52 -0,26 0,20 -- 0,20
VIB Vermoegen AG 0,98 1,07 0,18 -- -- -- 0,15 -- 0,15
conwert Immobilien Invest SE -- 1,17 0,18 -- -- -- 0,19 -- 0,19
Patrimoine et Commerce 0,78 0,78 0,16 -- -- -- 0,14 -- 0,14
Hufvudstaden AB Class A -- -- -- -- 1,22 0,13 -0,09 -- -0,09
Swiss Prime Site AG 3,03 2,26 0,40 3,88 4,02 0,54 -0,11 -- -0,11
TAG Immobilien AG -- 0,41 0,00 0,92 0,99 0,16 -0,13 -- -0,13
KENNEDY WILSON REAL ESTATE PLC ORD NPV (WI)0,77 1,01 -0,29 -- 0,51 -0,11 -0,19 -- -0,19
Vonovia SE 6,87 7,03 1,58 8,00 7,97 1,78 -0,30 -- -0,30
NewRiver REIT plc 0,98 1,08 -0,24 -- -- -- -0,24 -- -0,24
Workspace Group PLC 0,64 0,40 -0,25 -- -- -- -0,25 -- -0,25
Aedifica -- -- -- 1,14 1,25 0,31 -0,28 -- -0,28
Gecina SA 1,74 1,08 0,44 2,76 3,19 0,79 -0,32 -- -0,32
Cofinimmo SA 0,44 0,30 0,07 2,83 2,67 0,43 -0,31 -- -0,31
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Perf attribution by market cap YTD, 2016
DPAM INVEST B Real Estate Europe vs. PEPS
31/12/2015 to 30/09/2016
Euro
DPAM INVEST B Real Estate Europe PEPS Attribution Analysis
Port. Port. Port. Bench. Bench. Bench.
Beginning Ending Contrib. Beginning Ending Contrib. Allocation Selection + Total
MarketCap (EUR) Weight Weight To Return Weight Weight To Return Effect Interaction Effect
Total 100,00 100,00 3,15 100,00 100,00 1,92 1,79 -0,56 1,23
MarketCap (EUR) Bin 3: 5000.0 - 7000.0 9,64 6,96 -1,17 14,17 13,51 -1,92 0,84 0,11 0,95
MarketCap (EUR) Bin 6: 0.0 - 1000.0 12,29 11,62 1,46 4,26 4,44 0,69 0,99 -0,47 0,51
MarketCap (EUR) Bin 4: 3000.0 - 5000.0 14,77 14,34 0,00 18,37 17,56 -0,24 0,11 0,21 0,32
MarketCap (EUR) Bin 5: 1000.0 - 3000.0 24,17 29,10 1,29 21,30 21,56 1,15 0,20 -0,09 0,11
[Cash] 0,88 0,32 -0,01 -- -- -- 0,04 -- 0,04
[N/A] -- 0,43 -0,09 -- -- -- -0,09 -- -0,09
MarketCap (EUR) Bin 1: > 10000.0 29,91 28,68 -0,50 32,86 32,40 -0,33 0,11 -0,33 -0,22
MarketCap (EUR) Bin 2: 7000.0 - 10000.0 8,34 8,55 2,17 9,04 10,53 2,56 -0,40 0,02 -0,38
Universe Objective Strategy Restrictions
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Invest min. 75% in listed European property shares active in the various sub-sectors with a dividend yield above the sector average
Invest in RE fixed income (up to 25%)
The fund’s performance objective is to exceed the underlying gross dividend yield with a significantly lower volatility than the sector.
The strategy is not benchmarked and therefore only uses an index as a performance reference (FTSE EPRA Net Return)
Higher concentration in high conviction with a higher expected TSR
Fixed income positions in niche products issued by strong companies well covered by the portfolio managers
Bias towards under-researched and undervalued mid cap companies generating a significant alpha
Dynamic and proactive management style maximizing ‘total shareholder return’
Maximum fixed income weight 25%
Single holdings do not exceed 5%
Typically 35-60 lines
Fully invested, cash capped at 5%
Petercam Real Estate Europe Dividend 2.2
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Correlation: lower Beta for the Dividend fund
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
1,00
12-2
012
02-2
013
04-2
013
06-2
013
08-2
013
10-2
013
12-2
013
02-2
014
04-2
014
06-2
014
08-2
014
10-2
014
12-2
014
02-2
015
04-2
015
06-2
015
Bet
a
Beta EPRA Index
Petercam Real Estate EuropeDividend
Beta Petercam Securities Real EstateEurope
Beta versus MSCI Europe
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Petercam Real Estate Europe Dividend vs FTSE EPRA Eurozone
Performance since inception (31/12/2010)
Gross of fee performances, 31/08/2016
Year Fund
Gross of fees
EPRA Eurozone (TR) Excess Return
vs. the EPRA Eurozone (TR)
2011 -8.36% -14.28% 5.92%
2012 17.11% 29.24% -12.13%
2013 15.02% 6.54% 8.48%
2014 23.83% 23.07% 0.76%
2015 19.63% 17.39% 2.24%
08/2016 YTD 8.64% 12.83% -4.19%
Cumulative 98.90% 92.40% 6.50%
Annualized 12.88% 12.24% 0.64%
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Good efficiency of DPAM Real Estate Dividend fund
Data as from Dec 28, 2010 to April 30, 2016
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Maximum drawdown Real Estate Dividend fund (up to end April 2016)
Eurozone crisis
Recent correction
Universe Objective Strategy Restrictions
Securities of the Eurozone real estate sector (REITs, shares, convertible bonds)
+/- 100 securities
To invest in the Euro zone Real Estate sector
To give the highest return possible on a long term basis, always remaining within the boundaries of a strict risk control.
Geographically and sector diversified
Higher concentration in conviction stories with a higher expected TSR and lower Beta
The investment style is primarily quantitative but is combined with a qualitative layer
Visibility and healthy growth of cash flows, quality of management and portfolio, good compliance are of key importance
Strong opinion of companies thanks to frequent contacts with company management and visit of assets
Liquidity is a priority !
Defensive stance
Buy and Hold
UCITS-compliant fund
FF Market cap: > € 100 m
Minimum average liquidity per day for each security: € 50,000 (last 6 months)
Total weight of the positions with a daily volume between € 50k- 100k: <2.5% of the assets
Out of benchmark securities: <=5% AUM; <2% per security
Over-/underweight per country : 15% relative and 3% absolute
Over-/underweight per individual holding <3%
Fully invested, cash <5%
Ex-ante Tracking <3%
Atlas Real Estate EMU 2.3
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36
Atlas Real Estate EMU: breakdowns (30/06/16)
Gross dividend yield (%) 4.09
Current sector dynamics
3
Outlook and strategy going forward.
37
Strategy going forward
Investment themes
Return expectations
The case for the UK
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Current sector dynamics 3.1
Hunt for yield again important driver in 2016 : lower for longer interest rates and strong demand for assets in direct market further yield compression on the Continent with upside to NAVs
Further deleveraging in the sector is very healthy. Weighted average loan to value in Europe is now 36%. External growth is mostly equity financed or through portfolio recycling. should cushion an eventual downturn when the market turns (unlike 2007)
BREXIT and end of UK property cycle are now a fact:
Values will go down in months to come and rents will stop rising
Balance sheet of UK companies are strong enough to absorb 20% decline in values
Shares are pricing in more than that and funding costs are at very low levels.
Financing of maturing debt and refinancing of existing debt is big theme with rates low cost of debt. Will continue to fuel bottom line by decreasing financing costs.
Valuation of experts lagging level of transactions : for most companies it would be impossible to replicate a similar portfolio in current markets and at current NAVs explains premiums to NAV of part of the universe
39 Brussels, 21/01/16
Current valuation of the sector 3.2
NAV growth, especially for the UK, is in now under review after Brexit vote …
Discount to NAV’s is 1% on average on NAV, with the UK at around 20% discount to post-Brexit NAV assumptions.
Cash flow yield is 5%, Dividend yield close to 4%, with both CF and Dividends expected to grow in 2016 and 2017
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Strategy going forward 3.3
On market caps
We still see more value in smaller caps but no intention to increase exposure further
On country level
For the moment we are comfortable with current UW on the UK (preference for operationally geared companies)
OW on France, because of small cap growth stocks, UW on French blue chips (Gecina, Unibail, FDR, …)
LT conviction on German residential, increase on potential weakness
UW on Belgium on valuation, especially office players, only buy on weakness or at a discount from placings
Continue to focus on quality for its low cost of capital and accretive acquisition potential Strong balance sheets & average long lease duration, strong tenants
Sustainability of cash-flows and dividends
Superior total return = DY + NAV growth (target is close to double digit)
Monitor closely credible restructuring stories
Capital markets deals
Will continue to be a theme and a way to enter into a stock with a discount
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Our stance on the UK 3.4
In 2015 en 2016 YTD the UK was a major contributor to our relative performance
We reduced our overweight from 4% at the end of H1 2015 to end EW at the end of 2015 (25% of portfolio). We sold to 5% UW and bought back on weakness in the second part of February 2016. We were slightly UW going into the Brexit vote and are +/- 3% UW today.
We had a stronger active share (more OW’s and UW’s) in the UK than in the past
We are OW operationally geared companies, strong retail operators, student housing and self storage (Unite, Safestore, NRR, …,)
We are UW London office companies, retail operators, industrials and high street shopping
We have almost no exposure to the expensive residential market
Debate on UK cycle, where are we now?
The yield shift (= value increases due to lower yields) is behind us
How severe will the downturn be, unclear as of today: estimates range from 0 to 20%
Compared to 2008, balance sheets are significantly stronger and bond yields are significantly lower
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The case for the UK 3.5
Company data, Datastream, Morgan Stanley Research, 30/09/16
Valuation looks attractive when looking at discount to NAV growth After correction shares are now trading at a substantial discount to NAV’s (around 21%)
But uncertainty is high concerning future NAV evolution
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Virtuous circle in for companies trading at a premium 3.3
Companies trade at premiums to NAV
Issue new equity above NAV
Buy assets at an attractive risk premium
Finance 30% to 50% with cheap debt
Refinance existing debt at lower cost
Growth in cash-flow/share, NAV/share, size of the company and liquidity of the share
1 2
3
5 4
6
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Investment themes (1)
Drivers Companies
German residential
Only European country where residential prices are below construction costs (<1.000€/m²) Rents are low (5€/m²/month) due to regulation but are rising gradually (around 2x inflation) while new leases are often signed 50%+ above previous levels Only institutionalized residential market in Europe Strong TSR with below average sector risk
ADO Properties
Vonovia
LEG Immobilien
Deutsche Wohnen
Buwog
Conwert
Continental Europe retail: alternatives to the majors
Majors -Unibail & Klepierre- deserve a premium valuation given their strong position for the future Some companies offer a similar track but are cheaper Others trade at a (too) deep discount
Within majors Klepierre’s discount to Unibail appears historically high Altarea – Mercialys Atrium ERE, Citycon, Wereldhave
Positioned for growth
In a low growth environment, companies that can show CF growth will make the difference War chest for accretive acquisitions or autonomous growth of pipeline. No near–term refinancing issues
Altarea-Cogedim
Vonovia
Balder
WDP
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Investment themes (2)
Drivers Companies
Dividend yield In a low rate environment 3,5%+ dividend yields are attractive Dividend yields of Continental European REITs more attractive than in UK Dividend offers satisfactory return even when excluding share price upside
TLG Immobilien
Warehouses De Pauw
Foncière des Régions
NewRiver Retail
Wereldhave
UK post Brexit Selectivity needed
UK REITS, especially the London exposed, reached a cyclical peak in H1 2016 while Brexit is likely to accelerate the inflection point => NAV declines are most likely throughout 2018 with insufficient div yield to avoid NAV discount Higher dividend yields offer a better support Models with good operating leverage also better protected
Underweight London exposure (Capital & Counties, British Land, Derwent London, Land Securities,…) NewRiver Retail, Tritax Big Box Safestore , Big Yellow, Unite, Empiric Student Property
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Investment themes (3)
Drivers Companies
Specific business models
Property owners but with focus on operating and development activities Potential higher growth
Altarea
NewRiver Retail
Safestore and Big Yellow Group
Buwog
Aroundtown Properties
Almost fully invested but keeping small pockets of cash
In the current environment, we see no reason to hold large cash positions Still, we like to keep a small pocket of cash (<2%) to be able to participate to opportunities at attractive entry points
Recent placements :
Altarea rights, Buwog, Intervest, …
Selected small caps / deep value
Financially sound Sustainable CF and dividend yields Companies combining an attractive valuation and a growth story to compensate for a lower liquidity (LT buy & hold)
France:
Terreïs, Argan, Altarea, Frey, Patrimoine & Commerce
Germany: VIB Vermögen
UK: ESP, Workspace Spain: Axiare
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Investment themes (4)
Drivers Companies
E-commerce Is viewed as a threat for retail But is an opportunity for distribution premises, Specifically in the European logistic hubs and in areas close to large cities
Tritax Big Box
WDP, Montea
VIB Vermoegen
Argan
Urbanisation Inner City retail Well located residential Prime assets in best city districts
Shafterburry Deutsche Wohnen Hufvudstaden, Terreïs, Société Foncière Lyionnaise
M & A Valuation must be compelling stand alone Analysis of the shareholder’s situation Quality of portfolio is key Potential further consolidation in German residential Generally small & mid cap companies
Conwert, Buwog, Ado Properties
Terreis, Argan
Empiric Student Properties
Capital & Regional
…
Cutting edges.
4
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49
Lipper Fund Awards 4.1
2015 2014
50
Cutting Edges 4.2
1 Long-term successful track record and expertise in listed real estate
Stability and experience of the team
Close relationship with management teams of property companies
Better risk return proposal than benchmark and EPRA index
Bias towards under-researched 'close to home' mid-caps (France, Belgium, The Netherlands, Germany)
2 3 4 5
Hands-on pragmatic decision-making process
Bias towards ‘quality-growth’ companies
Actively managed core-satellite strategy against tailor-made benchmark
Size of funds enables rapidly implementing investment decisions
Commitment to enhance sector knowledge by being locally present (seminars, property tours, management meetings)
6 7 8 9
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Present documents don’t constitute an investment advice nor do they form part of an offer or solicitation for
shares. bonds or mutual funds. or an invitation to buy or sell the products or instruments referred to herein.
Applications to invest in any fund referred to in this document can only validly be made on the basis of the Key
Investor Information Document (KIID). the prospectus and the latest available annual and semi-annual reports.
These documents can be obtained free of charge at the financial service provider or at the website
funds.degroofpetercam.com. All opinions and financial estimates herein reflect a situation on the date of
issuance of the documents and are subject to change without notice. Indeed. past performances are not
necessarily a guide to future performances and may not be repeated. Degroof Petercam Asset Management S.A.
(“DPAM”) has made its best efforts in the preparation of this document and is acting in the best interests of its
clients. without carrying any obligation to achieve any result or performance whatsoever. The information is
based on sources which DPAM believes to be reliable. However. it does not guarantee that the information is
accurate and complete. Present document may not be duplicated. in whole or in part. or distributed to other
persons without prior written consent of DPAM. This document may not be distributed to private investors and
is solely restricted to institutional investors.
The information contained in this mail and attachments (hereafter the ‘documents’) is provided for pure information purposes only.
Disclaimer
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