CBRE Group Inc · NYSE:CBRE
CBRE — Q4 2020 Earnings Presentation
26 slides from CBRE's earnings presentation, March 2021
Slide 1: CBRE Long Income Index Results to Q4 2020
March 2021 CBRE LONG INCOME INDEX RESULTS TO Q4 2020 DOMINIC SMITH SENIOR DIRECTOR, UK RESEARCH EMILY GORNALL SENIOR ANALYST, UK RESEARCH TOBY RADCLIFFE ANALYST, UK RESEARCH
Slide 2: The Index in Q4 2020, Headline Results
THE INDEX IN Q4 2020, HEADLINE RESULTS LONG INCOME SAW VALUES STABILISE IN Q3 AND GROW IN Q4… • Capital values rose 0.2% in Q3 and 1.6% in Q4, as yields moved back in 3 and 13 basis points respectively. • Performance continued to exceed that of the Mainstream market, where values fell -0.9% in Q3 an
Slide 3: The CBRE Long Income Index Sample
THE CBRE LONG INCOME INDEX SAMPLE The size of the Long Income Index exceeds £16.7bn and is based on 1,335 assets after exclusions (developments, transactions) are accounted for. By value it is dominated by Sale & Lease Back (62%) but by number Ground Rents are half of the sample. Evolving CBRE Long
Slide 4: Index, Lease Length
LONG INCOME INDEX, LEASE LENGTH The duration of income of elements of the Long Income sample is perhaps surprising, but some Sale & Lease Back investments have been in funds for over a decade, giving ample time for their WAULT to fall to (relatively) short terms. Because the CBRE Long Sale & Lease B
Slide 5: Returns vs Monthly Index, Quarterly, Q4 2020
LONG INCOME RETURNS VS MONTHLY INDEX, QUARTERLY, Q4 2020 Long Income total returns improved to 2.7% in Q4 2020, from 1.3% in Q3 2020, as capital values rose by 1.6%. This made Q4 the strongest quarter since Q4 2017. Performance exceed those of the mainstream market (1.6%) for the twelfth quarter in
Slide 6: Returns vs Monthly Index, Annual, 2020
LONG INCOME RETURNS VS MONTHLY INDEX, ANNUAL, 2020 Long Income total returns dipped to 4.6% in 2020, from 7.2% in 2019, as capital growth petered out. 2020 is now the weakest in the seven year history of the Index, replacing 2016 (5.9%). But performance was still well ahead of the mainstream, at -2.
Slide 7: Returns vs Monthly Index, Quarterly
LONG INCOME RETURNS VS MONTHLY INDEX, QUARTERLY On a quarterly basis, Long Income has out-performed the mainstream market for 12 successive quarters. Within Long Income, Sale & Lease Back was the strongest performing Investment Structure for the second successive quarter. For the second quarter in 7
Slide 8: Returns vs Monthly Index, Returns and Volatility
LONG INCOME RETURNS VS MONTHLY INDEX, RETURNS AND VOLATILITY Long Income performance has out-performed the Monthly Index by 0.5% over the last seven years (the full history), but given far lower standard deviation in returns, risk-adjusted Long Income performance has been three times that of the mai
Slide 9: Returns vs Government Bonds
LONG INCOME RETURNS VS GOVERNMENT BONDS Long Income performance comparables will vary, but over the last four years total returns have performed relatively well against Government bond benchmarks. Performance is a little more mixed over seven years, when Sale & Lease Back dominates the sample. 14 Th
Slide 10: Index, Asset Level Income Growth and Capital Growth
LONG INCOME INDEX, ASSET LEVEL INCOME GROWTH AND CAPITAL GROWTH The shift from value decline to value growth at the asset level continued in Q4, as all Investment Structures saw more assets reporting a rise than a fall – in Q2, the reverse had been true. Income has been less affected – but this is n
Slide 11: Capital Growth, Asset Level, Sale & Lease Back
LONG INCOME CAPITAL GROWTH, ASSET LEVEL, SALE & LEASE BACK The first three quarters of 2020 saw a long shallow tail (Q1) a long steep tail (Q2) and a short steep tail (Q3) in the Sale & Lease Back sample. By Q4 however the distribution had flattened out. 20 Percentile distributions of asset level ca
Slide 12: Capital Growth, Asset Level, Income Strip and Ground Rent
LONG INCOME CAPITAL GROWTH, ASSET LEVEL, INCOME STRIP AND GROUND RENT Income Strip and Ground Rent tail risk was minimal in 2020. Each of the first three quarters saw 20% of the Income Strip sample reporting values fall, but the level of decline was seldom above -5%. Ground Rents saw hardly any valu
Slide 13: Index, Asset Level Change in Over Rent and VP/CV
LONG INCOME INDEX, ASSET LEVEL CHANGE IN OVER RENT AND VP/CV Aside from capital value trends (covered elsewhere), 2020 saw a significant occurrence of falling vacant possession values and rising over rent, the latter throughout the sample and the former largely in Sale & Lease Backs and Income Strip
Slide 14: The CBRE Long Income Index Sample, 2
THE CBRE LONG INCOME INDEX SAMPLE, 2 Overall, the Long Income sample is split almost exactly 50-50 between mainstream and operational real estate. Within the mainstream the weighting to non-food retail is lower than in the Monthly Index. But exposure to operational sectors impacted by Covid-19 is hi
Slide 15: Index Capital Growth, Sector and Investment Structure
LONG INCOME INDEX CAPITAL GROWTH, SECTOR AND INVESTMENT STRUCTURE In Q4 and 2020 as a whole, capital value falls were overwhelmingly felt by Covid-19 High Impact sectors like non-foodstore retail, hotel, leisure and student housing. These sectors saw value decline average -3.6% over 2020, versus +0.
Slide 16: Net Initial Yield, Long Income vs Monthly Index
NET INITIAL YIELD, LONG INCOME VS MONTHLY INDEX Long Income yields had been trending downwards over the lifetime of the sample in contrast to the mainstream market where yields have been on an upward trend since the Brexit Referendum. 6.5 In the first couple of years of All Long Income Sale & Lease
Slide 17: Net Initial Yield Shift, Long Income vs Monthly Index
NET INITIAL YIELD SHIFT, LONG INCOME VS MONTHLY INDEX On a like for like basis, relative yield shift is lower but there has still been a considerable relative swing in favour of Long Income. Income Strips and Ground Rents have seen a larger relative swing (c65-75bps) than Sale & Lease Backs (c50bps)
Slide 18: Index IRRs
LONG INCOME INDEX IRRS Long Income IRRs have been on a steady downward trend, falling around 170bps since the end of 2016. The fall has been fairly consistent across all sectors, but slightly more significant in proportional terms for Income Strips. 7.5 From 2014 to 2016, Long All Long Income Sale &
Slide 19: Index Option Adjusted Spreads
LONG INCOME INDEX OPTION ADJUSTED SPREADS Long Income offers investors a significant spread over equivalent Government income, ranging from 5% on Ground Rents to 4.5% on Sale & Lease Back to nearly 3.5% on Income Strips. Corporate bond spreads are much lower, at 0.4% to 1.7%. The option adjusted spr
Slide 20: Index Option Adjusted Spread Premia
LONG INCOME INDEX OPTION ADJUSTED SPREAD PREMIA Versus comparable corporate bonds, the premium offered by Long Income varies by Investment Structure, from 2.4% on Income Strips to 3.0% on Sale & Lease Back to 4.0% on Ground Rent at the end of Q2 2020. 4.5 By subtracting an appropriate All Long Incom
Slide 21: Ground Rent, Income Review Mechanisms
GROUND RENT, INCOME REVIEW MECHANISMS All Ground Rent income in the sample is linked to RPI, almost all with a 0-5% cap and collar. 12 Ground Rent income is much 0.5% 0.0% 94.6% 0.0% 4.9% 0.0% 0.0% 0.0% 0.0% 0.0% more homogenous than Income Strip and Sale & 12m RPI to Aug-20 = 1.2% 12m CPI to Dec-20
Slide 22: Income Strip, Income Review Mechanisms
INCOME STRIP, INCOME REVIEW MECHANISMS Income Strip income is overwhelmingly adjusted relative to RPI; 95.0% of the total links to RPI versus 3.3% to CPI and 1.7% on a Fixed basis. The proportion of income without a cap/collar is 12.5%, much higher than for Sale & Lease Back (1.0%) and Ground Rent (
Slide 23: Sale & Lease Back, Income Review Mechanisms
SALE & LEASE BACK, INCOME REVIEW MECHANISMS 73.9% of Sale & Lease Back income is linked to RPI, 11.7% to and Fixed uplifts, and just 2.7% on Open Market terms. Proportionally more of the RPI linked income has a collar above current RPI than is the case with CPI linked income versus current CPI. 12 A
Slide 24: The Index in Q4 2020, Headline Results
THE INDEX IN Q4 2020, HEADLINE RESULTS LONG INCOME SAW VALUES STABILISE IN Q3 AND GROW IN Q4… • Capital values rose 0.2% in Q3 and 1.6% in Q4, as yields moved back in 3 and 13 basis points respectively. • Performance continued to exceed that of the Mainstream market, where values fell -0.9% in Q3 an
Slide 25: Disclaimers and Waivers
DISCLAIMERS AND WAIVERS This presentation has been prepared in good faith based on CBRE’s current views of the commercial real-estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies,
Slide 26: Contacts
CONTACTS Dominic Smith, Senior Director dominic.smith@cbre.com Emily Gornall, Senior Analyst emily.gornall@cbre.com Toby Radcliffe, Analyst toby.radcliffe@cbre.com