PSP Investments, one of Canada’s largest pension investment arms with $64.5 billion of assets, has agreed to tip €303 million of equity into a joint venture with a UK REIT that controls a pan-European logistics portfolio.
PSP, which invests on behalf of pension plans for public service employees, the Canadian armed forces and the Royal Canadian Mounted Police, said its new venture will be seeded with €974 million worth of assets contributed to the venture by SEGRO, comprising almost all of the REIT’s core logistics portfolio in Continental Europe. The agreement, which was announced today after SEGRO initially flagged talks last month, is a prime example of a pension plan teaming up with a local operator in order to increase exposure to income-producing and low-risk assets.
Neil Cunningham, senior vice president for real estate investments at PSP Investments, said: “Our participation in this joint venture advances our strategy of investing in high-quality logistics properties in Europe. We see this core investment as a unique opportunity for PSP Investments to build a scalable Continental European logistics portfolio,” describing SEGRO as a “best-in-class” operator.
SEGRO said the sale was part of its strategy to increase the inflow of third-party capital to “accelerate growth” of its pan-European portfolio and use its capital across a wider asset base. The new JV will make further investments and undertake developments using leverage of 40 percent on a loan-to-value basis, with the aim of ultimately assembling a €2 billion portfolio over the next few years.
SEGRO will act as the operating partner by performing asset and property management as well as development in return for fees, including a performance–related element.
PSP began its real estate program in October 2003, and real estate assets stand at around $7.1 billion net of debt as of March 2012. Core investments dominate the portfolio, which primarily comprises stable income-producing investments in traditional sectors. Industrial assets make up just 3.7 percent of its portfolio, with the largest segment being retirement and residential property (31.4 percent) followed by offices (24 percent). Around half the portfolio is invested in Canada and three-quarters of it is focused on North America.