Continuing ESG Clarity‘s outlook series looking at various asset classes from an ESG perspective and trends in the wider responsible investment industry, here property investment managers share their forecasts and positioning for the year ahead.
James Clark, senior fund analyst, Hawksmoor Investment Management
We see good value in quite a few areas of the property and infrastructure markets, more in the way of specialist areas than mainstream areas (such as offices and particularly retail). For example, among the investment trusts we hold within Hawksmoor’s Sustainable World discretionary portfolio management service are Gresham House Energy Storage and SDCL Energy Efficiency Income Trust. Both benefit from a strong supply and demand picture, have strong sustainability credentials and generate an attractive level of income.
Gresham House Energy Storage has a portfolio of battery storage facilities in the UK that assist National Grid in maintaining the balance of supply and demand in real time. Increased renewable power generation has led to increased intermittency of supply (as solar and wind power generation are weather-dependent, for example) and greater intraday price spreads.
Battery storage facilities such as those owned by Gresham House can earn revenue from ‘frequency response’ (real-time power balancing for National Grid), trading (taking advantage of intraday price spreads to buy power at times of excess supply and sell power at times of high demand) and ‘capacity mechanism’ (long-term contracts to meet extremes of demand).
SDCL Energy Efficiency Income Trust has a portfolio of energy-efficient power generation assets plus assets that use power more efficiently. Examples include combined heat and power (CHP) engines, biomass and gas boilers and rooftop solar arrays, in addition to LED lighting. The assets are critical to the functioning of the buildings in which they are located, providing the users with cleaner, cheaper, more reliable energy.
This trust also has a great pipeline of opportunities, perhaps best illustrated by a £50m investment in August 2020 in 112 electric vehicle charging stations across the UK – an investment, which opens up a very strong pipeline of opportunities with the vendor. The outlook for income generation here is a key factor – SDCL Energy Efficiency Income Trust has a 5.5p dividend target for the year to March 2021, growing progressively thereafter.
Andrew Parsons, fund manager, Nedgroup Investments Global Property Fund
Logistics warehouses are at the forefront of incorporating rooftop solar panels as a source of renewable energy. This is perhaps not surprising given the large surface areas of warehouse rooftops. Industrial REIT landlords are increasing their commitment to solar initiatives, driven by a mix of company, investor and tenant demand to reduce carbon emissions. Additionally, strong property market fundamentals have afforded logistics landlords an attractive cost of capital which has helped fund increased investment in solar.
Belgian listed logistics REIT Warehouses de Pauw (WDP), currently has 85MW of installed capacity across a third of its buildings. Solar revenue contributes approximately 7% of total portfolio income – thus the company boasts that its ‘largest tenant is the sun’.
Prologis (PLD) has over 200MW of capacity across its portfolio, a 46% increase over the past five years, and plans to double that to 400MW over the next 5 years.
Goodman Group (GMG) is even more ambitious, recently announcing it would quadruple its 2025 target from 100MW to 400MW of installed capacity – a 10-fold increase from its current installed base. For context, 400MW could power approximately 120,000 homes for a year.
Demand for data centres should remain strong as more economic activity and information flows are digitalized. Equinix, the largest owner of network dense data centres is experiencing strong and growing tenant demand trends that are expected to continue for the next several years.
John Williams, head of property funds and investment director, Resonance
2021 will see the greater emergence of residential impact property funds and them finally coming of age.
The UK’s demand for affordable homes (ordinary houses on ordinary streets) is on the increase, Covid-19 has seen an even greater surge in demand, in particular with underserved groups such as women experiencing domestic abuse.
There will be an increase in demand for funds that focus on residential property and tackle big societal issues, such as the Resonance Homelessness Property Funds which has already seen pension fund investment and growing interest from a wide range of institutional investors.
To view ESG Clarity’s outlook series, click here.