PSP enters the global picture
With the new year comes a new, large Australian privatisation by an investor club of mega-institutions.
Last year, it was the privatisation of ING Real Estate Investment Management’s A$2.5 billion (€2 billion; $2.6 billion) ING Industrial Fund by Sydney-based Goodman Group, China Investment Corporation, Canada Pension Plan Investment Board and Netherlands-based Algemene Pensioen Groep. This year starts with the A$1.9 billion privatisation of Charter Hall Group’s Charter Hall Office REIT via an investment club with another two institutional heavyweights, the Government of Singapore Investment Corporation and, lesser known in real estate circles, Canada’s Public Sector Pension (PSP) Investment Board.
Common to both deals is broker and placement agent Macquarie Capital Advisors. Brett Robson, global head of real estate private capital markets at the firm, told PERE that the transactions share a common desire by the world’s largest investors to increase their direct exposure to Australian real estate at a time when listed entities in the country are trading at discounts to net tangible asset (NTA) values. “For a year or two, we’ve seen groups in Australia trade at substantial discounts to NTA without being able to see any catalysts for that to change,” he said.
Assuming the investment is completed, which is scheduled to happen following a shareholder vote in March, GIC and PSP will each own roughly 42.5 percent of a private entity holding 19 properties. These include Citigroup’s Australian headquarters – CitiCentre at 2 Park Street – and others housing blue-chip tenants such as the Australian government, Telstra Corporation, Germany’s Allianz and Macquarie itself. The remaining 15 percent position will be retained by Charter Hall, alongside management responsibilities for the portfolio. Robson would not confirm it, but GIC and PSP are understood to have injected approximately $400 million of equity each into the club, which also would assume the REIT’s A$950 million in debt.
Robson explained that, by taking private a portfolio such as the Charter Hall Office REIT, GIC and PSP are able to attain two levels of discount relative to buying similar assets “on-market.” Firstly, the investors benefit from a concessionary rate of stamp duty. Ordinarily 5.5 percent of the purchase price, “not cheap to lose on the first day,” buying the stock of the Australian REIT means stamp duty for the investors would be closer to 1.5 percent. The second discount was a slight but nonetheless meaningful 5 percent off the portfolio’s net tangible asset valuation.
While Robson is advising GIC and PSP, he believes Charter Hall’s shareholders should be satisfied too. “The premium the consortium is paying relative to when the bid became known in September is about 35 percent,” he said. “Fundamentally, the shareholders were looking at assets trading at a discount of around 20 percent prior to this deal becoming firm. That’s a pretty material premium to where the market was trading.”
What of Charter Hall? Following this transaction and the A$1.7 billion sale of the REIT’s 14 US office properties to Boston-based Beacon Capital Partners, which also is due for completion in March, the fund manager’s books will look much reduced. Still, Robson believes the exits should be positive for the firm’s growth outlook. “They’ve gone from having a vehicle trading at a 20 percent discount to one priced at NTA, without the headaches of being listed and now having two big investors.”
When you think of heavyweight Canadian institutional investors, the C$152.3 billion (€117.2 billion; $150.3 billion) Canada Pension Plan Investment Board (CPPIB) immediately springs to mind. However, tipped to soon be joining CPPIB on the global real estate investment circuit in a more meaningful way is the Public Sector Pension (PSP) Investment Board, the Canadian government’s pension plan.
With assets under management of more than C$58 billion as of March last year, thanks to contributions from state groups that include Canada’s Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force, the pension plan slowly is starting to invest away from Canada and North America.
PSP started investing in real estate in October 2003 and had net assets of C$5.3 billion as of last March, although it has plans to increase that holding to reflect 13 percent of its total assets. It has invested across the risk spectrum and its biggest holding, 28.6 percent of all real estate, is in retirement homes.
The man leading its real estate investing programme is first vice president Neil Cunningham, who joined in June 2004 after stints with Merrill Lynch Real Estate Finance Group, Brazos Advisors Canada and National Bank of Canada.
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