Agenda item
Real Estate Investment Manager Presentation
Minutes:
Mr Jack Bladon and Mr Patrick Bone from Schroders gave a presentation on the Real Estate Portfolio.
The presentation covered how the Real Estate markets were performing and the effect the pandemic has had on the market. In addition to this the presentation provided members with an update on the Real Estate portfolio managed by Schroders on behalf of Tower Hamlets, which is valued at £158M and is invested in various property funds; and Environmental Social and Governance (ESG) factors.
· The impact of COVID has been unprecedented. Businesses have ceased trading for the lockdown period and Landlords have had to deal with this in a pragmatic way, working with the tenants by deferring rent until next year or offering rent free periods for longer leases. Retail and Leisure sectors have been hit hard.
· The valuation of property had been difficult, with valuers adding ‘material uncertainty clauses’ as they could not rely on the market evidence to accurately value property. Funds were suspended and redemptions deferred in the initial months of the pandemic. However, the good news is that the ‘material uncertainty’ clauses have now been removed on the underlying Funds in which Tower Hamlets invests.
· The forecast for the total returns from Real Estate will be minus five to eight percent this year although there is expected to be a bounce back next year.
· The portfolio is valued at £158m based on £15bn of underlying real estate assets. Referring to the pie charts, the fund has a lot of diversification by style and manager and this is considered a benefit.
· Statistical information was shared with members regarding the performance of the underlying Real Estate funds.
· The property markets have had a turbulent year, with performance especially bad in the Retail sector. However there has been a better performance from industrials where the fund is well positioned and where the fund is looking to invest going forward.
· ESG has been incorporated into the investment process. As an investment desk they had received an internal accreditation from Schroders stating they had fully incorporated ESG into their investment process. This is achieved by meeting with their underlying managers every quarter and bi-annually asking the managers to complete a sustainability survey. An example was given of ESG in practice.
In response to questions from Members the following was noted:
· Alternatives referred to non-retail, industrials or office and included areas such as student accommodation and healthcare. These were preferred areas for investment because demand is driven by long-term demographic changes as opposed to the economic cycle.
· The distinction between warehouses and retail warehouses is that warehouses have seen strong growth especially with online shopping whereas retail warehouses, those on the outskirts of towns, whilst faring better than the High Street, have seen values fall quite aggressively.
· In terms of income return, Schroders expected this to be down by 15 to 30% this year. They said there had been a fall in income returns because of the difficulties in collecting rent in some sectors. Some areas had been resilient such as industrials and office whereas retail and hospitality had really struggled.
· In reference to performance, Schroders acknowledged they were mandated to achieve 0.75% above the benchmark and this had not been achieved in recent years. Mr Bone said that to achieve the target return they would need to take more risk and invest more in specialist and less in core funds.
o ACTION: Schroders to liaise with Ms Miriam Adams about their ESG plans going forward.
The Vice-Chair thanked Mr Bladon and Mr Bone for their presentation.