M&G Credit Income Investment Trust Plc · LSE:MGCI
M&G Credit Income Investment Trust — M&G European Property Fund — Investor Day (May 2015)
51 slides from M&G Credit Income Investment Trust's investor day presentation, May 5, 2015
Slide 1: M&G European Property Fund Investor Day
Part of Part of the the M&G M&G Group Group Strictly private Strictly private and and confidential confidential M&G European Property Fund Investor Day 5 May 2015
Slide 2: Agenda
Agenda • Introduction • Fund overview • Research update • Acquisition and disposals • Asset management • Debt overview • Proposed Fund changes • Responsible property investment • Summary 2
Slide 3: Introduction
Introduction • M&G Real Estate responsible for property investment for over 100 institutional investors • Income focus to deliver long term, low risk proposition • M&G European Property Fund is our flagship European balanced core fund • Consistent strong performance relative to peer group 3
Slide 4: International presence
International presence Luxembourg Stockholm Helsinki Frankfurt Vienna London Seoul Amsterdam Tokyo Paris Madrid Hong Kong • M&G Real Estate Geneva Milan Singapore offices • Other M&G Investments offices 4 Source: M&G Real Estate, as at 31 March 2015
Slide 5: Fund overview
~ Y 4 y ya ~ Fund overview
Slide 6: Dedicated and growing European property team
Dedicated and growing European property team SICAV Fund Management Fund Manager David Jackson Deputy Fund Manager Simon Ellis Assistant Fund Manager To be hired M&G Real Estate Tax & Transaction Business Development European Research Asset Management and Investor Relations Luxembourg Accounting Mana
Slide 7: Fund positioning: geographic breakdown
Fund positioning Geographic breakdown Current Proposed GAV €910.2m GAV €1,143.9m = Markets currently invested NAV €750.4m NAV €878.9m LTV 12.1% LTV 21.9% 24 assets 28 assets 7 countries 9 countries 54% 45% 40% 35% 39.0% 30% 32.5% 25% 25.4%24.6% 20% 15% 10% 10.6% 10.1% 2.7% 2.1% 4.3% 5% 7.9% 7.8% 8.2
Slide 8: Fund positioning: sector breakdown
Fund positioning Sector breakdown Retail allocation Retail allocation 17.2% 22.0% 22.6% 26.6% Before After 55.2% 56.2% Shopping centre Shopping centre Shop Shop Retail warehouse Retail warehouse 60% 50% 51.4% 52.1% 40% 30% 32.2% 32.8% 20% 16.4% 15.1% 10% 0% Retail Office Industrial 31-Mar-15 30-Sep-
Slide 9: Investor base
Investor base • MEP has 27 shareholders as at 31 March 2015 Investors by type* • Institutional investor base comprising predominantly UK and Continental European Pension Funds • €171.6m of new commitments to be drawn • 2015 strategy to diversify investor base through new institutional distribution c
Slide 10: Fund performance
Fund performance Outperformance over all time periods against INREV 9.0% 6.3% 6.0% 5.7% 5.3% 3.7% 3.8% 2.8% 2.7% 3.0% 1.9% 1.2% 0.7% 0.0% -1.2% -3.0% Q1 2015 2014 2013 2012 2011 2010 M&G European Property Fund* INREV** 10 Source: M&G Real Estate, as at 31 March 2015 *Fund level returns ** Source: IN
Slide 11: Fund performance
Fund performance Outperformance over Q4, 3 and 5 years against IPD 7.0% 6.1% 6.0% 5.7% 5.0% 4.2% 4.0% 3.2% 3.3% 3.0% 2.6% 2.0% 1.8% 1.7% 1.0% 0.0% 3 months 1 year 3 years 5 years % pa % pa M&G European Property Fund* IPD PEPFI** 11 Source: M&G Real Estate December 2014 *Fund level returns ** IPD Pan
Slide 12: Research update
~ Y 4 y ya ~ Research update
Slide 13: Quantitative Easing packages compared
Quantitative Easing packages compared Central Bank Total Asset Purchases Share of GDP** 2009-14 (€bn)* FED 3,500 32% BoJ 2,200 54% BoE 450 25% ECB 375 4% * Rounded. Exchange rates based on average of year of injection ** 2008 GDP at current prices Eurozone injections up to 2014 are lowest in absolut
Slide 14: Quantitative Easing packages compared
Quantitative Easing packages compared Central Bank Total Asset Purchases Share of GDP** 2009-16 (€bn)* FED 3,500 32% BoJ 2,200 54% ECB 1,515 16% BoE 450 25% * Rounded. Exchange rates based on average of year of injection ** 2008 GDP at current prices Eurozone 2015 injection represents a 4x increase
Slide 15: Composite PMI Indicator
Private sector confidence edging up Composite PMI output 60 55 Composite PMI Indicator 50 45 40 35 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Eurozone Composite PMI Level consistent with 0% GDP growth Spanish PMI German PMI Italy PMI French PMI Eurozon
Slide 16: Ten-Year Government Bond Yields
16 Ten-Year Government Bond Yields (%) Source: Bloomberg 0 1 2 3 4 5 6 7 8 Mar-09 Jun-09 US UK Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Germany 10 Year Government Bond Yields (%) Netherlands Dec-11 Mar-12 Jun-12 Sep-12 Italy Dec-12 Japan Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-1
Slide 17: Upward 2015 GDP revisions since QE announcement
Upward 2015 GDP revisions since QE announcement GDP growth forecasts by country, 2014-2016 3.5 30 bps 50 bps Real GDP growth (% per annum) 3 2.5 50 bps 40 bps 30 bps 30 bps 20 bps 2 20 bps 1.5 1 0.5 0 -0.5 -1 2014 2015 2016 17 Source: Consensus Economics, April 2015. Countries sorted by growth proje
Slide 18: QE in Europe to benefit property investment in the short term
QE in Europe to benefit property investment in the short term but longer term, fundamentals play a bigger role UK Europe 10.0 600 6.0 450 9.0 400 500 5.0 8.0 350 7.0 400 4.0 300 6.0 250 5.0 300 3.0 200 4.0 200 2.0 150 3.0 2.0 100 100 1.0 1.0 50 0.0 0 0.0 0 12/01 12/02 12/03 12/04 12/05 12/06 12/07 1
Slide 19: Yields below pre-GFC levels in core markets
Yields below pre-GFC levels in core markets Prime office yields (%) Prime retail shop yields (%) 6.0 7.0 5.0 6.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Dusseldorf Frankfurt Lisbon Lyon Berlin Hamburg Munich Brussels Berlin Hamburg Munich Dusseldorf Lyon Copenhagen Q1 2015 2007 Q1 2015 2007 19 S
Slide 20: QE supports further yield compression
Europe ex-UK Prime Yield Movement QE supports further yield compression Prime Yields Movement, 2014 – 2017 (%) 0.4 Yields moving out Yield movement over the next 3 0.2 0.0 years, % -0.2 -0.4 -0.6 -0.8 -1.0 Yields compressing -1.2 3 4 5 6 7 8 Current Yield, end 2014 The majority of yields across Euro
Slide 21: Strong European transaction volumes into 2015
Strong European transaction volumes into 2015 Quarterly Transaction Volumes ex-UK, €bn 45 • Investment activity reached €116bn in 40 2014, 33% higher compared to a year earlier and the highest since the GFC Transaction Volumes (€bn) 35 30 • At €33bn, continued strong investment 25 volumes in Q1 2015
Slide 22: Europe ex-UK prime rental growth
Europe ex-UK prime rental growth Prime rental growth (% per annum) 3.5 3.0 Prime rental growth (%) 2.5 1.9 2.0 1.5 1.0 0.5 0.0 2015 2016 2017 Average 2015-17 Retail Shops Office Retail Warehouses Shopping Centres Industrial All property (Q1 2015) 22 Source: JLL (April15), PMA (Spring ‘15), M&G Real
Slide 23: Europe ex-UK total return
Europe ex-UK total return Post depreciation prime total return (% p.a.) 12.0 Total returns per annum by sector (%) 10.0 7.9 8.0 6.0 4.0 2.0 0.0 2015 2016 2017 Average 2015-17 Retail Shops Retail Warehouses Industrial Office Shopping Centres All property (Q1 2015) 23 Source: JLL (April 15), PMA (Spri
Slide 24: Acquisition and disposals
Acquisition and disposals 24
Slide 25: New acquisition
New acquisition Vimmelskaftet, Copenhagen, Denmark – DKK250m / €35m • Prime high street retail investment with small amount of office space • Strong asset management opportunities following improvement of micro location and Zara expansion into adjacent building • Tenants include the Danish fashion r
Slide 26: Acquisition pipeline
Acquisition pipeline Via Torino, Milan, Italy - €75m • Prime high street retail investment • Rare and highly sought after size unit • Newly developed with full warranty package • New 6, 9,12,15,18 year lease subject to break penalty in year 6 • Excellent covenant • Projected IRR 7.9%* • Binding SPA
Slide 27: Acquisition pipeline
Acquisition pipeline Nordpark Dreieich, Frankfurt, Germany - €51.9m • Well established destination retail park approximately 10km south of Frankfurt • Estimated catchment of 537,000 inhabitants and 2.5m visitors per annum • Anchored by real and Decathlon sports with an overall WALT of over 9 years •
Slide 28: Acquisition pipeline
Acquisition pipeline Petit Bateau, Troyes, France - c.€25m • Newly constructed 43,700 sq m logistics unit. • Established logistics park with direct access to the A5 Autoroute. • Property will be the new global logistics platform for Petit Bateau (subsidiary of Yves Rocher Group). • 11 year firm leas
Slide 29: Disposal pipeline
Disposal pipeline Pricing in excess of current valuation Le Val St Quentin – Phases 1 & 3, Paris • Successful asset management in 2014 has reduced vacancy from 23% to 11% • In line with fund strategy to 1) reduce France exposure, 2) focus office exposure on CBD markets, not out of town • Phase 3 sol
Slide 30: Asset management
~ Y 4 y ya ~ Asset management REAL ESTATE
Slide 31: Asset management: Toison d'Or, Brussels
Asset management Toison d’Or, Brussels, Belgium Overview • Current Value: €61.2m • Sector: Retail • GLA: 14,948 sqm • Tenants: 36 tenants including Fnac, Tommy Hilfiger, Desigual, Scotch & Soda, Maxi Toys, Neuhaus • Vacant units: 3 Active management • AM strategy: in a context of development of the
Slide 32: Asset management: Toison d'Or, Brussels
Asset management Toison d’Or, Brussels, Belgium Ex Celio 217 sqm Ex KEFI Vacant Ex Woké 83 sqm 422 sqm Vacant Vacant Active management • Regears: Gazella (Headline Rent €15K/above ERV) in Q4 2014 and Crossword (18 year lease @ERV €75K) in Q1 2015. • New lease contracts: Mary (Chocolatier, HR € 65.5
Slide 33: Project Le Condor and new façade
Asset management Toison d’Or, Brussels, Belgium Project Le Condor and new façade of the gallery 33 Source: M&G Real Estate as at 31 March 2015.
Slide 34: Prowinko project Le Toison d'Or
Asset management Toison d’Or, Brussels, Belgium Prowinko project Le Toison d’Or 34 Source: M&G Real Estate as at 31 March 2015.
Slide 35: Metz – AGCO Redevelopment
Asset management Metz – AGCO Redevelopment Overview - AGCO deal Area To be let from 01/01/2017 : 20,490 sqm (MCD I) 20,200 sqm (MCD II) To be let from 01/01/2018 : 22,478 sqm (MG) Rental income € 35/sqm/year * (ie € 2,210,880 excl. tax and charges/year) Type of the lease 9-firm year lease contract (
Slide 36: Debt overview
~ Y 4 y ya ~ Debt overview
Slide 37: Debt overview
Debt overview • Phase I completed in July 2014 with three Citi loans secured on French retail assets refinanced at maturity with Berlin Hyp (€77.6m). • Final legacy loan from GE Capital on Cologne asset repaid in December 2014 (€17.4m). • New senior loan with Danske Bank (€16.7m) implemented on Vimm
Slide 38: Proposed Fund changes
~ Y 4 y ya ~ Proposed Fund changes
Slide 39: NAV Methodology
NAV Methodology • Market practice moving towards adopting INREV compliant NAV • MEP recently adopted revaluation to fair value (mark-to-market) of debt obligations and instruments • Currently follow IFRS with INREV adjustments, except for: – Capitalising and amortising acquisition expenses – Add bac
Slide 40: NAV Methodology - Pricing Consideration
NAV Methodology - Pricing Consideration • Market practice is to capitalise and amortise acquisition expenses as a substitute to a subscription margin • Smoother NAV as a result of not immediately writing off acquisition expenses in month of completion • Acquisition expenses written off over 5 years,
Slide 41: NAV Methodology – Proposed Transition
NAV Methodology – Proposed Transition • Proposal to capitalise the current subscription premium of 3.38% in the NAV and eliminate the subscription margin • After conversion begin amortising this amount over a 5 year period • Moving forward capitalise and amortise all acquisition expenses over 5 year
Slide 42: NAV Methodology – Next steps
NAV Methodology – Next steps • Timing • Complete further in depth analysis of proposal, including effects on the Fund and investors • Complete proposal to present to stakeholders for approval (Fund Board, SAC, CSSF) • Questions? 42
Slide 43: Responsible property investment
Responsible property investment 43
Slide 44: Responsible property investment
Responsible property investment 44
Slide 45: Reporting our performance
Reporting our performance Have for over a decade published an annual RPI Report 45
Slide 46: Implementing RPI strategy
Implementing RPI strategy Asset management Integrating RPI issues into asset planning process • Green Rating audits undertaken at 6 assets (92% managed portfolio): – Assess performance of the asset in relation to energy consumption, water use, waste management, transport and occupier well-being. – R
Slide 47: Implementing RPI strategy
Implementing RPI strategy Asset management Energy consumption (MWh) • In 2013/14 we achieved: – 4% reduction in energy consumption at like for like properties (4 offices; 1 shopping centre) • Obtaining accurate waste data in many markets remains challenging and we Water consumption (m3) continue to
Slide 48: Responsible property investment: GRESB
Responsible property investment The M&G European Property fund participated in the 2014 GRESB survey (4th year of participation) Overall the fund scored 55% versus a peer average of 47% and a global average of 47% Strengths: • Management and policy • Building certification and benchmarking Areas for
Slide 49: Summary
Summary 49
Slide 50: Summary
Summary • Increasing fund size and country diversification • Increasing M&G RE European platform • Modest increase in accretive leverage • First exposure to Southern Europe in prime, defensive assets • Acquisition focus on prime city centre retail and defensive food-store retail • Office strategy ro
Slide 51: For Investment Professionals only
For Investment Professionals only. The distribution of this document does not constitute an offer or solicitation. Past performance is not a guide to future performance. The value of investments can fall as well as rise. Any forecasts and projections herein represent assumptions and expectations in