CPPIB Goes Into All Blacks Territory?

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Richard Ferguson of the Australian reports, CPPIB acquires 50pc stake in AMP Capital-managed NZ portfolio:

North American investor Canada Pension Plan Investment Board has acquired a half-stake in an AMP Capital-managed portfolio of New Zealand properties for $NZ580 million ($557m).

CPPIB bought the 50 per cent interest in the New Zealand properties from another ­Canadian fund investor, PSP ­Investments, which will keep a half-stake in the suite of prime office and retail assets.

The portfolio of 13 buildings is worth $NZ1.1 billion in total and is located primarily in Wellington and Auckland.

Yesterday’s move was CPPIB’s first investment in New Zealand and saw the fund expand its $C38.4bn ($39bn) worth of global real estate investments.

CPPIB head of Asian real estate investments Jimmy Phua said the Canadian pension fund was attracted to New Zealand’s strong population growth and buoyant tourism sector.

“With this acquisition, we are able to gain a meaningful presence in the New Zealand commercial real estate market, partnering alongside PSP Investments, who is a like-minded, long-term partner,” he said.

CPPIB is partnered with AMP Capital in several Australian ventures and said the firm would continue to manage the New Zealand portfolio. “This is a rare opportunity to acquire a ­diversified portfolio that includes top-tier office and retail properties in New Zealand,” he said.

The AMP-managed property portfolio includes the Botany Town Centre and the Manukau Supa Centre in Auckland.

It also holds the 13-level St Pauls Square office building in Wellington, which is undergoing a $38 million refurbishment, ­before the New Zealand government moves in after signing a 15-year lease.

AMP Capital head of real estate investments Chris Judd said there had been talks about the expansion of the New Zealand property portfolio.

“Ultimately we will be looking at more acquisitions in the near future but right now I’m ­focused on investment performance,” he said.

CPPIB put out this press release going over the deal:

Canada Pension Plan Investment Board (CPPIB) announced today that it has signed an agreement to acquire a 50% interest in a diversified portfolio of prime office and retail properties in New Zealand from the Public Sector Pension Investment Board (PSP Investments). The 50% interest is valued at NZ$580 million (C$545 million) with an equity investment of NZ$230 million (C$216 million) subject to customary closing adjustments. PSP Investments will continue to hold the remaining 50% interest. The portfolio will continue to be managed by AMP Capital, an existing partner of CPPIB in Australia.‎

The portfolio comprises a mix of 13 well-located office properties and high-quality shopping centres totalling approximately 268,000 square metres (2.9 million square feet). Located primarily in Auckland and Wellington, the properties are situated within the central business districts and growing metropolitan markets.

“This is a rare opportunity to acquire a diversified portfolio that includes top-tier office and retail properties in New Zealand, a market with continuing population and tourism growth,” said ‎Jimmy Phua, Managing Director, Head of Real Estate Investments – Asia, CPPIB. “With this acquisition, we are able to gain a meaningful presence in the New Zealand commercial real estate market, partnering alongside PSP Investments, who is a like-minded, long-term partner and extending our relationship with AMP Capital.”

The transaction is expected to close following customary closing conditions and regulatory approvals.

At September 30, 2016, CPPIB’s investments in global real estate totalled C$38.4 billion.

I don’t know much about New Zealand except that it’s a beautiful country and boasts the best rugby team in the world, the All Blacks.

From what I’ve read, New Zealand’s political stability is in stark contrast to Australia’s shakes and shifts and the country’s economy is being labeled “the miracle economy“.

Why did CPPIB buy this real estate portfolio? To diversify its real estate holdings in Asia and New Zealand, just like Australia, is a stable country with a strong economy which will benefit over the long term as Asian emerging markets grow.

It is also worth noting that the Kiwi-CAD cross rate is fairly stable and one Canadian dollar equals about 1.06 New Zealand dollars, so currency risk isn’t as big of a deal here (unless you get a Brexit type of event in New Zealand which seems highly unlikely).

Why is PSP selling part of its real estate holdings in New Zealand? Why not? It wants to lock in profits and focus its attention elsewhere. It’s not selling out, still has a big stake, and now has a great long-term investor alongside it to manage these assets.

Don’t forget, in Canada, it’s all a big giant pension club. Everyone knows each other. André Bourbonnais, PSP’s CEO, used to work at CPPIB and knows Mark Machin, CPPIB’s CEO, very well. Neil Cunningham, PSP’s Senior Vice President and Global Head of Real Estate Investments, knows Graeme Eadie, CPPIB’s Senior Managing Director & Global Head of Real Assets.

There is a lot of communication between the senior managers of Canada’s large pensions so if someone is looking to unload something or buy something, they will talk to each other first to see if they can strike a deal. It could be that CPPIB’s real estate partner in Australia, AMP Capital, approached them with this particular deal but I am certain there were high level discussions between senior representatives at these funds.

Anyway, that isn’t a bad thing, especially between PSP and CPPIB, two of the largest Canadian Crown corporations with very similar liquidity profiles and a lot of money to invest across public and private markets all around the world. In my opinion, they should be partnering up on more deals.

[Note: One area where they are not similar is in the way they benchmark their respective policy portfolios and in particular, the way they benchmark real estate assets. This is a deficiency on PSP’s part which I’ve discussed plenty of times on this blog, like when I covered PSP’s fiscal 2016 results. Neil Cunningham and his team are doing an outstanding job managing PSP’s real estate portfolio, but it sure helps that their benchmark doesn’t reflect the risks they take and is easy to beat.]

In other real estate news, Pooja Sarkar of India’s Economic Times reports, CPPIB to invest in India’s largest realty deal:

In the largest deal brewing up in the commercial real estate space in India, Canada Pension Plan Investment Board ( CPPIB) is leading the negotiation to acquire private equity firm Everstone Group’s industrial and logistics real estate development platform, IndoSpace, as part of private real estate investment (REIT), said two people familiar with the development.

The entire deal is pegged at Rs 15,000 crore making it the largest commercial real estate transaction in the country, they added.

“The deal has been structured in two parts, in the first phase, CPPIB will acquire the ready development space of nearly 10 million sft for nearly Rs 4000 crore,” said the first person mentioned above.

“Indospace is developing another 30 million sft across the country which will be developed and added to this portfolio and the payouts will be linked to that. Everstone will continue to manage these assets even after the full sale process,” the second person added.

IndoSpace is a joint venture between Everstone Group and US-based Realterm. Everstone is a private equity and real estate firm that focuses on India and South-East Asia, with over $3.3 billion of assets under management. Realterm is an industrial real estate firm that manages approximately $2.5 billion of assets across 300 operating and development properties in North America, Europe and India.

Sources add that Everstone has hired Citi bank to run the sale process.

Reits are entities that own rent-generating real estate assets and offer investors regular income streams and long-term capital appreciation.

With this sale, this would be the first successful Reit offering from the Indian subcontinent.

“The talks were on with three serious contender but final negotiations are underway with CPPIB and it would be the largest investment by Canadian pension fund in India to date,” the first person added.

CPPIB and Everstone both declined to comment for the story.

The deal is expected to be signed by January end with CPPIB head expected to visit India two weeks late and discuss the transaction, said another person involved in the matter.

This is a good deal as India is one of the emerging markets that many analysts feel has great prospects ahead even if there will be problems along the way, like its unprecedented assault on cash.

The point with all these private market deals is that CPPIB, PSP and other large Canadian pensions are setting up teams in these regions and finding the right partners to make these long-term strategic investments which will benefit their funds and their beneficiaries.

Below, Canada Pension Plan Investment Board Chief Executive Officer Mark Machin says he was among the minority of investors who accurately foresaw Donald Trump’s march to the White House:

In an interview on BNN, Machin said his doubts in the polls indicating a Hillary Clinton victory began growing in late 2015.

“I had personally predicted a Trump win for the past year; I thought the margin of error was very, very tight in the polls … and it could quite easily swing in Trump’s direction,” he said.

Machin said investors can easily assess scheduled political events like the U.S. election and the U.K. referendum, but are no better at accurately predicting the outcome than the polls.

“Markets are not great at judging the outcomes because market participants don’t really have any better insight than anybody else on what the politics and public opinion is going to be,” he said. “They’re also not that great at judging what the reaction will be after the event as well, and that was classically the case in … the U.S. election.”

Watch the entire interview below or click here if it doesn’t load below. He discusses CPPIB’s investments and how they are positioning their portfolio to achieve the long-term actuarial target rate-of-return. He also discusses why CPPIB’s governance is the key to its long-term success.

I met Mark Machin a few months ago when he was in Montreal and think he’s very nice, very smart and a very capable leader.

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