retail investment market - jll investment market is the party over? robin coady director, retail...
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Retail Investment MarketIs the Party Over?
Robin CoadyDirector, Retail InvestmentJones Lang LaSalle
Investment Market
Some BAFTA Awards
Sub PrimeNINJA MortgagesCollateralized Debt Obligations (CDO’s)SIV’s, Super SIV’s & SIV LitesCredit Default SWAP’sMonoline InsurersMaster Liquidity Enhancement Conduit
Defining Events of 2007
Collapse of Bear Stearns Hedge FundsBoots leveraged buy outMoney market freezeNorthern RockCitigroup rescueCo-ordinated central bank bail-out2008More Bank Losses, World equity markets slide, Fed rate reduction, Soc Gen, US Fiscal Stimulus package
Retail Investment Market 2007
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
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Mar-0
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Jun-
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Mar-0
4
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Mar-0
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Mar-0
6
Jun-
06
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Dec-
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Mar-0
7
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07
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Dec-
07
All Property Retail
12 Month Total Returns
16%
-5.5%
IPD All Property - 16% June 06 – June 07
Q1 & Q2
Retail Investment Market 2007
-10.0
-5.0
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Mar-0
7
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Dec-
07
All Property Retail
12 Month Total Returns
16%
-5.5%
IPD All Property - 16% June 06 – June 07Shopping Centre's £2.325bn (up 6.5% on 2006)Some huge prime deals
Metro Centre (£426m), Telford (£442m), East Kilbride (£387m), West Quay (£294m), Canterbury (£253m), Westfield Portfolio (£380m).
Overseas dominated – GIC, CPP, ABP, ApolloOOT Retail £2,737Bn (up 55% on 2006)Cracks appearing – Single bids, secondary, failing dealsIPD predicted Total Return of 8% for year end.
Q1 & Q2
Retail Investment Market 2007
-10.0
-5.0
0.0
5.0
10.0
15.0
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25.0
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Dec-
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Mar-0
3
Jun-
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Mar-0
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Jun-
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Sep-
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Dec-
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Mar-0
5
Jun-
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Sep-
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Dec-
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Mar-0
6
Jun-
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Sep-
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Dec-
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Mar-0
7
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Dec-
07
All Property Retail
12 Month Total Returns
16%
-5.5%
IPD All Property - 16% June 06 – June 07
Q1 & Q2
The music stoppedYields moved out for all sectors!! Large lots in market
Kingston, Centre.mk, Midsummer Place, MK; Crawley, Ealing.
Retail Investment Market 2007, Q3 & Q4,
The music stoppedYields moved out for all sectors!! Large lots in market
Kingston, Centre.mk, Midsummer Place, MK; Crawley, Ealing.
Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!
Retail Investment Market 2007, Q3 & Q4,
Shopping CentresMonthly Transaction Value 2005-2007
0
200
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Valu
e of
Tra
nsac
tions
200520062007
Shopping Centres
The music stoppedYields moved out for all sectors!! Large lots in market
Kingston, Centre.mk, Midsummer Place, MK; Crawley, Ealing.
Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!07 54 no £4.76Bn (-23% CV, -34% no)
Retail Investment Market 2007, Q3 & Q4,
Capital Values and Number of Transactions 1995-2007
0.00
1,000.00
2,000.00
3,000.00
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Value (£m)
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Number of Transactions
Value of all transactions (£M) No. of transactions
Shopping Centres
The music stoppedYields moved out for all sectors!! Large lots in market
Kingston, Centre.mk, Midsummer Place, MK; Crawley, Ealing.
Shopping Centres DealsQ1 & 2 ‘07, £2.325Bn (+ 6.5% on 2006)Q 4 ‘07, £0.733Bn (- 69% on 2006)!07 54 no £4.76Bn (-23% CV, -34% no)
OOT Retail Deals Q1 & 2 ’07 £2.737 (+ 55% on 2006)07 90 no £3.2Bn ( -33% CV, -41% no)Q4 ’07 £0.753Bn (-70% CV -57% no)
Retail Investment Market 2007, Q3 & Q4,
Retail Investment MarketThe Banks
New loan origination Lending to very best clientsLimited syndication & no CMBS market / Securitisation.Margins increased to c.110 -140bpLTV 80-90% 65-75% = equity requirementAmortisationEmphasis on covenant strength / expiry profilesInterest cover 110% -130%Arrangement fees c 75 -100bpShying away from larger lot sizes and equity release
“Compounding is the most powerful force in the universe”Albert Einstein
The Lenders Conundrum
4.0
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7.0Se
p-06
Oct-0
6
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Dec-
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Feb-
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Mar-0
7
Apr-0
7
May-
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Jun-
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Jul-0
7
Aug-
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Sep-
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Oct-0
7
Nov-
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Dec-
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Jan-
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% 3 m LIBOR10yr Gilt 5yr Swap
LIBOR De-couples
Base rate
Still de-coupled
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
Jan-0
5
Mar-05
May-05
Jul-0
5
Sep-05
Nov-05
Jan-0
6
Mar-06
May-06
Jul-0
6
Sep-06
Nov-06
Jan-0
7
Mar-07
May-07
Jul-0
7
Sep-07
Nov-07
Jan-0
8
Regional Dominant
Town Centre Dominant
Secondary Centre UK 5Yr SWAPSPrime ShopsOOT parks - Open A1 Planning UseOOT parks - Restricted Planning Use
Retail Consensus Equivalent Yield Trends
-22%
-17%
-5%
-23%
-11%
-16%
2007
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2008
Q1
Initial Yield Trend (IY) Swap5 Trend (swap5)(%)
Shopping Centre Average Initial Yields v 5 Year Swap Rates
Positive yield gap opens
Yield curves cross! Q2 06
Q1 ‘08
Reverse yield gap
5% 5 yr swap
6% in
7 – 7.5% in
Yield gap closes
Retail Investment MarketContext
There is a market - Deals are still happening / DD much slower The phones are quiet but growing requirementsVolumes downCorrection still taking place
- valuations not yet fully reflective but value returningOff market discussionsThose with known money seeing numerous opportunities
Shopping Centres – Selective opportunities and lot size, No prime or large lotsOOT – Market very slow, very selective. Yield opportunitiesShops – 5% + but few deals, portfolios busy, auctions found levelSupermarkets – requirements RPIIndirect vehicles– No market , large discounts available
Retail Investment MarketWho are the Buyers?
Type of Purchaser - by Capital Value 2007
42%
3%
3%
10%
39%
1%2%
Private PropertyCompanyInstitution
Public PropertyCompanyN.Irish
S.Irish
Bank
Overseas
Shopping centres
Retail Investment MarketWho are the Buyers?
UK Life Funds 5% - Net disinvestment a continuing trend
Unit linked 5% - Under most stress – redemptions
Plc Prop Co 3% - Significant discount NAV – Buying dilutive
Privates 45% - Roy England, Andrew Creighton, Propinvest
Overseas 43% - Redevco,GIC, Australians, Canadians, Germans
Opportunity - Resolution, Delancey, REIT, Catalyst, UKV, etc
Retail Investment MarketIssues to consider
Large lots £100m +…..very difficult.Leasehold gearingsRent Guarantees, Vacant rates, Legal / Physical impedimentsCovenant strength, expiry profilesControl – who has it?Asset management and the costs of ownershipCompeting developmentsCorrection still taking place. The desire or need to sellPolarisation of investor views
Retail Investment MarketSpeedbumps?
Frozen lending marketsInflation?Interest rates ? Or ?Economy and retail sales The internetConsumer debt in UKHousing market ?Corporate shock….another Northern RockAlternative high yielding opportunities for capitalProperty casualtiesSupply of new shopping centre stockConstruction costs
Retail Investment MarketThe Positives
Retailer take up and requirements still active Consumers are still spendingMarket more transparentExtent of correction feeding through quickly5 yr SWAP rates are down to 5% from 6.5%, Q3, 07Property traditionally a great inflation hedgeLarge and growing pool of capital – domestic and overseasCould this be the best buying opportunity for the last 5 years?
Where from here?Recovery
Economic stability / growthInterest Rates (5yr Swap at c4.9%)
Liquid banking sectorContinued consumer spending
Soft LandingStable but flat economyModest inflation and rate cutsRobust retail performanceSlow but cautious lending
Further SlippageUS & UK recessionHigher than expected inflationUnemployment risingInterest rates held or riseFailing retailersNegative rental growthFailing property companies / Insolvencies
About here!
“ Be greedy when others are fearful” Warren Buffett