February 21, 2020
Why invest in Nordic, cash flow generating real estate? This is a question that Sampsa Apajalahti, Investment Director at CapMan Real Estate and advisor of CapMan Nordic Property Income Fund, is frequently asked.
– In the current low interest rate environment, there is significant demand for liquid real estate instruments that generate solid cash flow. CapMan Nordic Property Income Fund, which is an open-ended real estate fund, seeks rental income-based returns by diversifying investments in the largest growth centres in Finland, Sweden, Denmark and Norway. Total returns have developed positively during the fund’s first two years in operations, states Apajalahti.
CapMan Real Estate is an active Nordic investor since 2005. The team is well-regarded among institutional investors, especially due to solid local expertise and focus on value-added real estate strategies. But a real estate investment does not always require significant renovations or transformation in the asset to be successful. By investing in attractively located high-quality assets, solid cash flow generation is of higher importance for the return profile compared to an increase in asset value. By focusing on qualitative attributes of the assets, the risk-adjusted total return remains attractive.
Expanded distribution for the non-UCITS open-ended fund
CapMan Nordic Property Income Fund (non-UCITS) is open for new subscriptions quarterly and its focus is to own a diversified Nordic real estate portfolio that generates strong cash flow.
The open-ended structure of the fund provides flexibility in investing in real estate. Traditionally, CapMan’s real estate funds have closed-end structures, which restricts investments for all but institutional investors. CapMan Nordic Property Income is open for a more diverse group of investors. In 2019, CapMan agreed on a distribution partnership with Nordea, which expands the fund’s investor base further.
– The expanded distribution enables significant expansion of the fund size and provides more investors with a cost-efficient way to diversify real estate investments both geographically and by property type, says Apajalahti.
Asset selection is based on income profile, diversification effects and megatrends
Especially office, logistics, storage, hotel and care properties are a good match for the investment strategy. The common denominator for all investments is that they follow prevailing megatrends.
The fund’s portfolio is diversified both by property type and geographically. This comprehensive diversification is made possible by one of the largest real estate teams in the Nordics with broad access to the Finnish, Swedish, Danish and Norwegian real estate markets. CapMan Real Estate’s more than 40 real estate investment professionals oversee asset management and assess investment opportunities.
There are many considerations of importance when selecting assets. In addition to an attractive location, the rental market must be effective and the asset sufficiently liquid. The occupancy rate of the asset must be high and the tenant profiles attractive. Long leases are also valuable. The asset needs to be in good condition with a flexible and modern layout, as these attributes add to the defensive characteristics of the asset.
How are these types of assets acquired at attractive valuations? Apajalahti is confident in the strengths of the Nordic real estate team.
– Local presence is of high importance as we know the markets inside and out and know what tenants value. This helps us find the right assets and evaluating the price levels, he highlights.
The fund’s objective is to return at least 75% of its annual cash flows to investors, which corresponds to approximately 4-6% in cash-based return on equity. The total return objective is return on equity exceeding 7% per year. Since its inception, the fund has returned approx. 10% per annum*.
As a long-term owner, additional emphasis in placed on responsible ownership. Of nine fund investments, two possess a Gold level LEED certificate and one a BREEAM certificate. The energy and water utilisation of properties is monitored on a monthly basis and by investing in building service technology, the fund can save in operating costs while achieving positive environmental effects.
*Past performance is no guarantee for future returns.
Read more in our 2019 Annual Report.