Canadian Real Estate Benchmarking

Transcription

1 Canadian Real Estate Benchmarking July 2017 Prepared by

2 Background The REALpac/IPD Canada Quarterly Property Index* ( IPD ) is currently the most readily available and generally accepted index of real estate performance in Canada. The Index covers approximately 50% of the actively managed Canadian commercial real estate market, however has several drawbacks, including: Performance is measured on an unlevered basis. Returns do not include the impact of cash holdings, fund expenses nor management fees. Properties included in the Index are not representative of properties that may reasonably be acquired by pooled funds in Canada. For example, there is significant weight in super regional retail centres and major downtown office buildings, which typically do not trade and are too large to be held in many pooled funds. Pooled Fund Managers generally use a mix of benchmarks and often avoid drawing direct comparisons to the IPD Index in their quarterly reporting. * Published by MSCI 2

3 Background An effort has been underway for a number of years to produce the REALpac/IPD Canada Quarterly Property Fund Index* ( PFI ). The construction and results for the PFI are currently based on seven pooled funds that meet the qualifications for inclusion and are available for Canadian institutional investors: Bentall Kennedy Prime Canadian Property Fund, Fiera Properties CORE Fund, Great-West Life Canadian Real Estate Investment Fund, Greystone Real Estate Fund, London Life Real Estate Fund, Manulife Canadian Pooled Real Estate Fund, and Manulife Canadian Property Portfolio. The PFI incorporates cash, leverage, property level expenses and management fees into the returns. The PFI is gaining industry acceptance, with Fiera, Manulife, GWL**, London Life**, and Bentall** using it as their preferred benchmark. * Published by MSCI ** The PFI is used as one of several preferred benchmarks 3

4 Benchmark Diversification By Sector, the IPD has a strong concentration in the Retail and Office sectors. The PFI is much more diversified. Regional diversification is similar between both benchmarks, with the majority of assets in Ontario. 4

5 Benchmark Characteristics The graphs above show the leverage and cash levels for the PFI over the last ten years. The IPD Index does not contain leverage or cash. The table below compares characteristics of both Indexes as of March 31, Characteristics IPD PFI GAV $142,738 million $26,183 million NAV n/a $20,533 million Number of Properties 2, Vacancy 8.1% 6.2% 5

6 Return Comparison Benchmarks Over the last ten years, returns for the IPD have outperformed the PFI. The outperformance was driven by strong capital returns of super regional retail centers and large office buildings. Returns for the PFI and the median manager in the Real Estate Universe are very similar over the long term. This is to be expected because of the significant overlap between the PFI and the Aon Hewitt real estate manager universe. Note: Manager specific returns and NAV/GAV for funds in the PFI is found in the Appendix. 6

7 Recommendation The table below provides a summary of key differences between the two indexes: Characteristics IPD PFI Market Depth ~ 50% of the commercial real estate market in Canada Seven pooled funds comprising ~ 9% of the commercial real estate market in Canada (Greystone, Bentall and GWL make up the majority of the Index) Leverage No Yes Fees No Yes, however limited history for net of fees Operating Costs & Cash included No Yes Investable No Yes, via pooled funds Valuations Annual Quarterly believes the PFI provides a more accurate representation of returns institutional investors could achieve in the Canadian real estate market and is a more effective benchmark of which to evaluate manager performance. We are recommending clients consider adopting the PFI during their next policy review. 7

8 Appendix PFI Manager Returns and Size As of Mar 31, 2017 NAV ($ millions) GAV ($ millions) Bentall $3,560 $4,351 Fiera $930 $1,251 Greystone $6,870 $9,145 GWL $3,891 $4,699 London Life $2,093 $2,384 MCPP $761 $1,149 MCPREF $1,777 $1,866 Annual and Annualized performance for the seven funds included in the PFI is shown in the graphs on the above left. The table on the above right shows the NAV (Net Asset Value) and GAV (Gross Asset Value) for the seven funds which make up the PFI. This is indicative of the relative size of each of the funds within the Index. 8

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