Are Dutch pensions hesitant to absorb direct real estate write-offs? | News

Dutch pension funds reported significantly higher returns on their direct property returns in 2020 than on their investments in listed property stocks over the same period.

Despite the heavy losses in segments of the real estate market as a result of the coronavirus lockdown, the value of direct real estate investments by Dutch pension funds, as reported to the pension regulator De Nederlandsche Bank (DNB), increased by 1% to € 83.5 billion with a reported decrease of 7% to € 56.7 billion for listed properties. The FTSE EPRA NAREIT Developed Europe Index, a benchmark for European real estate stocks, achieved a return of -10% in 2020.

For example, the PMT metal industry program returned -9.8% on its listed property portfolio, while its direct property investments reportedly returned + 1.5%. The Fellow Metal program PME, which only invests in direct real estate, achieved a return of + 2.4%.

PFZW, the healthcare pension fund, saw listed property stocks fall over 11% while its direct investments returned + 0.7%.

According to a PFZW spokesman, the discrepancies can partly be explained by the fact that the fund’s direct portfolio is “heavily invested in residential and logistics properties,” sectors that are less affected by the coronavirus pandemic than offices and retail.

Differences in returns between listed and unlisted stocks are not uncommon as listed stocks are inherently more volatile than direct investments as they are more responsive to market developments, said Iryna Pylypchuk, director of research and market intelligence at the European Association for Investors in Unlisted Stocks. Listed Real Estate Vehicles (INREV).

“In the case of listed properties, future developments have often already been discounted at the share prices. This is not always the case with direct real estate, ”the INREV director told IPE Real Assets.

Delay in ratings

Zach Gauge, a European real estate analyst at UBS Asset Management, believes there is “almost certainly a lag in valuations on the direct side”.

“Some companies have leverage, of course, and that can partly justify the difference. But we tend to find downturns when there is a lack of transactions that valuation houses tend to underestimate what is happening in the market. In retail in particular, rents are falling and there are more vacancies. We didn’t see this reflected in the reviews, ”said Gauge.

UBS AM estimates that retail valuations in the euro zone fell by around 6% in 2020.

“Compare that to the UK, where valuations are down 18%,” Gauge said, adding, “The UK tends to be closer to the realities of the market than Europe as it is a very active market for its size with more transparent transaction data. In others There are fewer transactions in European markets and the information is not always easily passed on. “


Retail property isn’t the only real estate segment affected by the pandemic. Offices have also been hit hard as working from home has become the new normal.

“Prices for publicly traded office properties have fallen significantly, although they have recovered somewhat this year, but there haven’t been many price corrections on the direct side,” said Svitlana Gubriy, head of global REIT funds at Aberdeen Standard Investments.

“In general, the [office] The market hasn’t been particularly receptive to big discounts, ”said Gauge. He added: “I would have expected more distress, but the low interest rate environment and the not massively overfunded sector have clearly resulted in few foreclosures.”

Gubriy said there is still great uncertainty about the role of offices in working life in the post-coronavirus era, but she believes investors in English-speaking countries in particular will have to prepare for further write-offs, while Asia should prove to be relatively resilient.

“In Asia, people tend to live in small houses, commuting to work isn’t that bad, and the culture requires people to be in the office,” said Gubriy.

“London, Sydney, New York and San Francisco will be hardest hit as I expect office demand to decline 10-15%.”

PMT and PME said they could adjust their returns for 2020.

“Evaluations that we received in the first quarter and that relate to the period up to December 31, 2020 will be included in our annual report if they are significant according to the accountant,” both funds told IPE Real Assets.

Gubriy and Gauge expect the 2020 losses to likely only show up in the 2021 and 2022 accounts.

“It is not unreasonable to expect listed properties to perform better than direct property this year for this reason,” said Gauge.

Click here to read the digital edition of the latest IPE Real Assets magazine.