January 13, 2003
The CPP Investment Board announced today its first investment in commercial real estate ownership with a joint-venture interest in five shopping centres.
It has committed $200 million to Osmington Inc. to build a co-owned income-property portfolio with value-added growth potential over normal real estate cycles. Yet to be developed is a second strategy to build a real estate portfolio of high-quality core properties that will be held for the long term. Both strategies will diversify Canada Pension Plan assets beyond equities and bonds and enhance the long-term risk-adjusted returns of the total portfolio.
The first commitment to the value-added portfolio is:
• $200 million to be invested over three years in office, retail and industrial properties through a co-venture investment program with Osmington Inc., to be managed by Osmington and its subsidiary Redcliff Realty Advisors Inc. Osmington and Redcliff manage approximately $1 billion of properties for Canadian institutional investors and Osmington, itself. The first joint investment with the CPP Investment Board is the approximately $300 million acquisition from The Cadillac Fairview Corporation of five shopping centres in Thunder Bay, Sudbury, Hamilton, Stoney Creek and Cornwall. The portfolio totals just over 2.2 million square feet of leasable area and is virtually fully leased.
“Today’s announcement is a step in the building of our real return portfolio which over time may include infrastructure, natural resources and real return bonds, as well as real estate,” said CPP Investment Board President and CEO John MacNaughton. “This diversification is part of our overall investment strategy and will help to reduce volatility in our total portfolio and produce attractive risk- adjusted returns.”
“We are starting a value-added portfolio with a small group of shopping centres that are producing good returns and offer potential for further return enhancement,” said Mark Weisdorf, CPP Investment Board Vice President, Private Market Investments. “With additional commitments to other partners and through prudent use of leverage, we could build a $1 billion portfolio of assets.” Value will be added through restructuring and refinancing, re-merchandising of shopping malls, new lease arrangements, changes in property use, and capital improvements through redevelopment and renovation.
Mr. Weisdorf explained that the shorter-term value-added strategy is more opportunistic, pro-active and higher-risk-for-higher-returns than the long-term core property strategy.
“We are taking our time in developing our core portfolio, which will involve larger and more complex properties offering stable investment returns at low to moderate risk,” he said. “Under our disciplined approach, we will only buy assets when they offer risk-adjusted returns that meet our criteria. Our value-added strategy will focus initially on Canada, while our core strategy will explore opportunities in Canada and internationally.”
The long-term plan is to invest up to five percent of Canada Pension Plan equity assets in real estate and infrastructure. With assets under management expected to reach $160 billion by 2012, as much as $8 billion could be invested in real estate and infrastructure in less than 10 years.
Created in December 1997, the CPP Investment Board is a crown corporation that invests funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are invested in equities to balance the bond portfolio owned by the Canada Pension Plan. By increasing the long-term value of funds, the CPP Investment Board will help the Plan to keep its pension promise to Canadians. Located in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. For more information on the CPP Investment Board, visit www.cppib.ca.
For further information contact:
Vice President – Private Market Investments
Vice President – Communications and Stakeholder Relations