infrastructure – a new dimension of real estate? june 27 2009 infrastructure – a new dimension...

Infrastructure – A New Dimension of Real Estate? June 27 2009

Infrastructure – A New Dimension of Real Estate?

An Asset Allocation Analysis

Tobias Dechant, Konrad Finkenzeller


A Definition of Infrastructure

B The Infrastructure Universe

C Is Infrastructure Real Estate

D The Role of Infrastructure in a Multi-Asset Portfolio

E Conclusion

Agenda


ECONOMIC INFRASTRUCTURE SOCIAL INFRASTRUCTURE

TRANSPORT UTILITIES COMMUNICATIONS

Toll roads Gas Cable networks Healthcare facilities

Bridges -Distribution Satellite systems Education facilities

Tunnels -Storage Judicial facilities

Sea ports Electricity

Airports -Distribution

Rail -Generation

Ferries Water

-Distribution

-Treatment

Economic Infrastructure:

• Providing key intermediate services to business and industry

• Enhancing productivity and innovation initiatives

Social Infrastrcuture:

• Providing basic services to households

• Improving the quality of life and welfare in the community

Definition of Infrastructure


• Enormous market size of $20.5 trillion (REEF 2008)

• More than 95% of all interviewed institutional RE investors intend to remain or increase their infrastructure allocation (PFG Survey 2008)

• More than 60% of all institutional RE investors consider an investment in the infratructure sector in 2009 (INREV Survey 2009)

• More than 53 trillion US $ will be invested into the major infrastructure sectors until 2030 (Ernst& Young 2007)

• Economic stimulus packages around the world show significant investments into the infrastructure sector. (USA, € 90 billion; Germany, € 20 billion; Japan, € 35 billion)

Infrastructure is one of the most crucial elements to a countrys‘s productivity and competitiveness (The World Economic Forum 2008)

The Infrastructure Universe


COMPETITIVE MARKETS

OWNERSHIP POSSIBLE

INDIVISIBILITY

LONG LIFE CYCLES

SITE DEPENDENCY

LONG INVESTMENT HORIZONS

RESTRICTED LIQUIDITY

STABLE/PREDICTABLE CASH FLOWS

HIGH LEVERAGE LEVELS

LARGE LOT SIZES

PRICING VALUATION BASED

REAL ESTATE INFRASTRUCTURE

PUBLIC DECISION COMPETENCE

MONOPOLY CHRACTERISTICS

INTRANSPARENT MARKETS

LACK OF MARKET PRICES

LOW DEMAND ELASTICITY

USER RIGHTS

LARGE INVESTMENT SCALES

LIMITED TO SPECIFIC USE

ALTERNATIVE USES POSSIBLE

Is Infrastructure Real Estate?


Is Infrastructure Real Estate - Applied Data

• Time Frame: Q1 1998 – Q4 2007

• Total Returns

• Included Assets:

• Equities (ASX All Share)

• Government Bond (JPM Govt. Bond Index)

• Direct Real Estate (IPD Australia Property Index)

• Direct Infrastructure and Utilities (Colonial First State)

• Indirect Infrastructure and Utilites (UBS Australia Infrastructure & Utilities Index)

• Real Estate Investment Trusts (NAREIT Index)

Financial Characteristics

ASX GovBond IPDIndirect I &

UDirect I & U

AVG 3.33 1.35 2.68 3.48 2.90

STD 4.74 2.04 3.95 6.91 5.19

TSV 0.0% 4.06 0.65 1.61 11.50 3.64

TSV 1.5% 7.13 2.40 3.79 16.16 7.23

TSV 3.0% 11.69 6.54 7.63 22.69 12.96


Is Infrastructure Real Estate?

Matrix of Correlations

ASX GovBond IPDIndirect I &

UDirect I &

UNAREIT

ASX 1.00 -0.41 0.14 0.09 0.15 0.29

GovBond 1.00 0.02 0.37 -0.02 0.31

IPD 1.00 -0.05 -0.65 0.20

Indirect I & U

1.00 0.07 0.63

Direct I & U 1.00 0.04

NAREIT 1.00


Infrastructure in a Multi-Asset Portfolio

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Semicovariance

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Infrastructure in a Multi-Asset Portfolio


Concluding Remarks

• Real Estate and Infrastructure seem to constitute two different asset classes with differrent financial characteristics

• Infrastructure constitutes an attractive investment class to institutional investors

• Infrastructure offers portfolio diversification benefits

• Portfolio allocation for indirect infrastructure up to 46% depending on expected/target return

• Portfolio allocation for direct infrastructure up to 23% depending on expected/target return

• Infrastructure and real estate are together allocated to a portfolio

• Further outstanding performance is questionable

infrastructure – a new dimension of real estate? june 27 2009 infrastructure – a new dimension...

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