Corporate Overview

M&G Investments is an innovative active asset manager investing €358bn across fixed income, equity, real estate and multi-asset strategies in the UK, Europe and Asia. M&G Real Estate manages over €44.5bn in assets and employs c.280 people across 12 offices globally, as at 30 September 2022. M&GRE invests through a range of long-established core real estate pooled funds and bespoke strategies through separate accounts and joint ventures. Our investment-led culture focuses on the delivery of long-term returns through targeting and proactively managing assets with sustainable, growing income streams, enabling us to successfully diversify our investor base.

Through our range of pooled funds, segregated mandates, and joint ventures, investors have unrivalled access to compelling investment solutions in global real estate and real estate finance. We offer senior and mezzanine debt across the UK and continental Europe, either on a standalone or combined basis, making us one of the few asset managers to offer a directly originated, ‘one-stop’ solution for borrowers.

We help investors achieve better outcomes by accessing superior investment opportunities and strong risk-adjusted returns. We aim to have a positive impact on society and our ESG investment team play a fundamental role in ensuring this. Using our resources to enrich the lives of people and communities by creating world-class places to live and work. We are committed to achieving net-zero carbon across all our real estate assets by 2050. In 2022, over 75% of our assets under management received a four-star or higher rating in the Global Real Estate Sustainability Benchmark (GRESB) survey.

Strategic corporate development 

M&G Real Estate’s business strategy is to offer a focused range of globally scalable funds and strategies, which are made available to the widest array of institutional investors globally. M&GRE is positioned as a market leader in pan-regional core European and Asia Pacific funds as well as in UK and European long-income funds. We also maintain a market-leading position with our funds in the UK and European residential private rented and shared ownership (affordable housing) sectors. We aim to grow assets under management through winning new third-party capital and diversifying our investor base with our existing offerings as well as launching new products in areas where we have a competitive advantage and where there is a market opportunity to build a new franchise.

To support this growth, we have expanded our distribution plat- form, placing dedicated real estate resource in the US and Germany. Furthermore, we are expanding our footprint with additional hires in local offices in Europe and Asia Pacific. We are also growing our residential team to support expansion. Finally, we actively seek co- investments, JVs and other capital solutions in conjunction with existing clients in Europe and Asia, and we plan to increase resource within our Capital Solutions business line.

Sector forecasts

INDUSTRIAL: The logistics sector has been a major focus of investor demand during the pandemic, backed by robust demand, underpinned by broadening and secular shifts towards e-commerce.

Looking ahead, while softening exports could pose a drag on the leasing market outlook, developed APAC markets that are relatively domestically oriented and have limited availability of modern logistics facilities are expected to be more resilient. While logistics supply in Seoul and Tokyo is rising in the next few years, pre-commitment levels are healthy, and we expect rents to be resilient. Location, quality and sustainability credentials will continue to drive performance.

Capital values have not declined significantly in 2022 despite the sharp increase in borrowing costs. Investment activity has reduced substantially in the second half of 2022. Looking ahead, we expect some cap rate expansion in Australia and South Korea, but the impact on valuations is likely to be mitigated by strong rental growth.

OFFICE: The office outlook across most of developed APAC has improved in the last few quarters in tandem with the easing of pandemic restrictions and revival of economic activity. Leasing momentum was supported by increased hiring.

Prime office spaces with strong ESG credentials situated in central locations have outperformed secondary assets as occupiers pursue flight to quality strategies. This trend is expected to continue as companies continue to focus on staff well-being and the redefinition of the office as a central workplace for interactive collaboration. In the coming year, slower economic growth could temper occupier demand, especially in more externally driven countries like Singapore. However, vacancies are low and new supply is muted in Singapore and Seoul, lending support to the rental outlook over the medium term.

RESIDENTIAL: The living sector continued to appeal to investors during the pandemic, as it is more defensive and less cyclical.

For instance, Japan’s multi-family assets maintained stable occupancy rates and rental growth through 2020 till date, similar to previous economic down- turns.

Going forward, investor interest in the living sector across developed APAC markets, such as Australia’s build-to-rent, is expected to pick up, underpinned by favourable tailwinds such as the high cost of home ownership, healthy population inflow and growing preference for inner-city living.

The living sector will likely form a larger share of diversified portfolios as investors seek to increase diversification and income resilience in their portfolios.

RETAIL: The retail sector showed firmer signs of improvement as travel restrictions eased and leisure travel resumed across most of developed APAC.

High street retail is expected to be the main beneficiary, with rents poised to rebound with the increase in tourist arrivals. Meanwhile, suburban retail malls that serve large local catchments may perform better in tandem with wage growth.

Looking ahead, limited new supply of good quality retail malls in Singapore and Australia could lend support to occupancies and rents, especially for well-located assets with a higher proportion of non-discretionary retailers and services.

Investment principles & strategy

Our investment philosophy and approach is built around the needs of long- term, income-focused capital and is shaped by decades of experience manag- ing the assets of insurance companies and pension funds, which make up over 85% of our AUM. Investment decisions are informed by proprietary forecasts and market insight from an experienced global research team.

We believe that:

  • Income is the primary driver of long-term returns. We target and proactively manage assets which can generate sustainable, growing income streams.
  • A balanced portfolio diversified by geography and asset type enhances risk- adjusted returns over the long term.
  • Real estate markets are inefficient. Using proprietary research and financial models, we identify and exploit mispricing at asset class, real estate sector and individual asset levels.

We aim to provide commercial real estate mortgages to borrowers secured against a range of different investments, including income producing, transi- tional and development assets.

Moreover, we are strongly focused on self-originating debt that allows us to achieve attractive risk-adjusted returns through:

  • Origination – direct origination of loans to maximise negotiating power.
  • One-stop shop – reduce execution risk. Provide senior and junior debt in a single whole loan solution.
  • Hold-to-maturity – a buy-and-hold investor.
  • Funding large transactions – average ticket of £100m+.

Performance verification

M&G Real Estate funds are GIPS compliant, but the performance is not GIPS verified. They are also in line with INREV standards.

COMPLIANCE STATEMENT

only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s Handbook. They are not available to individual investors, who should not rely on this communication. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. M&G plc, a company incorporated in England and Wales, is the direct parent company of The Prudential Assurance Company. The Prudential Assurance Company is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.