Outlook Norway 2020 Pangea Research - "Continued surge for investing in real estate" - Mynewsdesk
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“Continued surge for
investing in real estate”
Pangea Research
Outlook Norway 2020
FEBRUARY 2020
Highlights –Norway 2020
TA B L E OF CON TEN T
Weakened economic growth due to reduced investments in the oil & gas
sector, but still a strong investment climate going forward
– Summary 3
Key policy rate expected to remain steady at 1.50 % for the foreseeable future
after three rate hikes in 2019 – Macroeconomic Overview 9
2019 represented a third straight year of increasing transaction volumes,
reaching NOK ~97bn, which is the second highest volume ever – Real Estate Debt Financing 16
Oslo office market remains robust with an active transaction market and record
– Norwegian Transaction Market 18
rent levels expected to increase further in 2020 and 2021
Oslo office prime yield at ~3.75 %, and the spread to regional markets – Property Segments 22
continues to narrow with prime yield in Bergen reaching a record low ~4.0 %
Favorable outlooks for office and logistics, while retail is experiencing sluggish – Property Investors 30
performance and increasing yields
– Nordic Listed Sector 36
Expensive hedging cost and strong local demand has curbed international
investors’ interest in Norwegian real estate, especially core assets
- Pangea Property Partners 41
New capital requirements by the end of 2020 is not expected to raise
borrowing cost due to competition among banks
Consolidation trends in the Nordic listed sector, and well-established market
players growing larger through acquisitions
2
Pangea Outlook Norway 2020 Pangea Property Partners
Summary
3
Pangea Outlook Norway 2020 Pangea Property Partners
HOT
Norwegian temperature watch Strong fundamentals supporting market growth in 2020 COLD
OVERALL MACRO BUY-SIDE SELL-SIDE
COMPLETED
TRANSACTION MACRO EMPLOYMENT DEVELOPMENT PROFIT TAKING
MARKET GDP GROWTH SYNDICATES PROPERTY FUNDS
RENTAL MARKET INFLATION LISTED SECTOR
INSTITUTIONS STRATEGIC EXITS PORTFOLIO
PROPERTY YIELDS FINANCING INTEREST RATES POP. GROWTH SHARPENING
PRIVATE COMPANIES
INTERNATIONAL
Active transaction market Strong labour market Syndicates/funds are heavy net buyers Developers continuous sellers
FINANCING RENTAL MARKET YIELD LEVELS
Stable macro outlook, with moderate
GDP-growth and inflation, and low
unemployment
High demand; financial buyers are still
the most active investor group
Several projects to be completed in OSLO OFFICE
2020 are expected to trigger sales BOND MARKET BANK LOANS LOGISTICS REGIONAL OFFICE
RESIDENTIAL REGIONAL HOTEL HOTELS LOGISTICS
BORROWING RESIDENTIAL REGIONAL AND
Still favorable outlook for office and INSTITUTIONAL OSLO HOTEL OSLO OFFICE
MARGINS
logistics, and increasing interest for hotel CREDIT
Generally flat yield development, and RETAIL RETAIL
increasing rents across most segments
Marginal effect of recent interest rate
increase; consensus is no rate hikes in
2020
Bonds important part of financing mix Still decent growth in office rents Retail facing further yield increase
4
Pangea Outlook Norway 2020 Pangea Property Partners
Norwegian macroeconomic outlook Implications for the real estate market
Parameter 2019F 5Y forecast 1) Comments Impact on real estate Outlook
Moderate outlook for the Norwegian economy which is Historically, property returns exhibits high correlation
expected to grow alongside the inflation rate with GDP growth
Economic growth
1.1 % 2.1 %
(GDP)
Positive impact of large petroleum investments is Vacancy rates and rent levels are slow to reflect
expected to decrease in upcoming years economic expansion
Population growth around the Nordic average but far Population growth positively impacts real estate prices
above the European average long-term, notably in the residential segment
Demographics
0.7 % 0.7 %
(Population)
Population growth is driven by immigration, as the Urbanization trend drives demand for real estate in
Norwegian fertility rate and birth surplus is decreasing larger cities and is expanding the city centers
High employment rates often translates to healthy
From the peak in 2016 of ~4.7 %, unemployment has
demand for real estate and low vacancy risk
continuously fallen to 3.7 % in mid 2019
Labour market
3.7 % 3.7 %
(Unemployment) With employment rates far below Nordic and Eurozone
Going forward, the unemployment rates are expected
averages, the Norwegian market implies lower risk for
to remain steady at current levels
investors
Moderate inflation in 2019 of 1.4 %, slightly below Affects real estate directly through rental income as
target lease contracts usually include annual CPI indexation
Inflation
1.4 %2) 2.0 %
(CPI)
Only minor deviations are expected from Norges Expectations of moderate inflation eases pressure of
Banks’ target of 2.0 % in coming years further hikes in the key policy rate
No further interest hikes are expected, and despite
An unchanged key policy rate is expected for upcoming
increased capital requirements for banks by the end of
Aug-19: 1.44 % years
2020, it is also expected that margins will remain flat
Interest rate
1.893) % Jan-20: 1.89 % due to fierce competition
(5Y swap) However, as global tensions rise and dark clouds arise
∆: +45bps on the world economy, Norges Bank might be forced to
Therefore, financing cost and investors cost of capital is
conduct rate cuts
likely to remain stable in 2020
1) Projections from SSB, IMF, Norges Bank, 2) Actual inflation for 2019, 3) As of January 9th 2020
5
Pangea Outlook Norway 2020 Pangea Property Partners
Category Comments Outlook
• Historically low prime yield, and all time high office rents with • Vacancy bottoming out in 2020, expected to slightly
expected growth in 2020 increase due to more supply
• Sellers market with few prime assets driving investors to
Oslo Office
regional office markets or portfolio acquisitions
• Stable yield, rental growth and high demand
• Strong rental market overall and more tenants seeking modern • Lower rental increase in 2020 than in previous years, but
premises in up and coming office clusters still exceeding inflation
• Transaction volumes and liquidity in Bergen, Trondheim and • Bergen: Increasing rents (especially in the city center), and
Stavanger indicate healthy and attractive markets strong investor appetite
• Very low yield-spread incentivizing investors to look at • Trondheim: Expected rental growth due to low vacancy and
Regional Office
secondary markets for better returns less supply in 2020, compared to previous years
• Decreased unemployment rates and vacancy levels in • Stavanger: Declining vacancy due to employment growth
Stavanger and moderate supply. High investor interest going forward
• Shopping centers face challenges of declining turnover and
• Increasing CAPEX to create full-service destinations and
rising occupancy cost-ratios
improved customer experience in order to compete with e-
• Traditional retail is still by far the largest shopping channel for commerce
Norwegian consumers, with shopping centers accounting for
Retail • Stronger integration between traditional stores and e-
19 % of retail volume in 2019
commerce and vice versa
• The negative trend in retail is exposing secondary assets,
• Continued repricing of the sector – lower values per square
especially within the shopping center segment where
meter due to unsustainable occupancy cost ratio levels
operational performance is strongly deviating
• Benefit from strong underlying macro indicators in Norway • Growth in foreign demand is expected to continue across
and key feeder markets as well as the weak currency Norway
• Demand growth in the last years underlines the attraction of • Oslo market is expected to further absorb its recent new
Hotel
Norway as a destination supply
• Institutional investors show increasing interest for hotels as a • 2020 is projected to record a higher transaction volume
diversifying property segment than 2019
• Logistics segment has been affected by considerable yield
• E-commerce is still expected to grow substantially, but with
compression in recent years
the need for closer integration with traditional stores
• Decrease in volume and number of deals in 2019 can be
Logistics • Still an underdeveloped segment with potential – increased
explained by only a small number of assets in play
construction and investment activity is expected
• A demand which greatly exceeds supply has caused a surge in
• Expectations of rental price growth in the best locations
land prices in the greater Oslo area
Pangea Outlook Norway 2020 Pangea Property Partners
Segments outlook Overall outlook arguing a strong real estate market in 2020
Key drivers Office Logistics Hotel Retail Residential Comments
High demand for office in both
transaction and rental markets
Rental market Positive Slightly positive Slightly positive Negative Neutral Lagging turnover growth in retail
has put pressure on occupancy cost
ratios
Risk of higher interest rates affects
the entire market, regardless of
Interest rate sensitivity Slightly negative Slightly negative Slightly negative Slightly negative Slightly negative segment
Low yielding properties and highly
leveraged segments are sensitive
Continued high competition among
banks and strong bond market
Debt availability Slightly positive Slightly positive Slightly positive Negative Slightly positive Increased focus on green financing
New capital requirements by the
end of 2020
High appetite for real estate –
office, development and logistics
considered particularly attractive
Investor preference Positive Positive Positive Slightly negative Slightly positive
Some reluctance towards retail –
mismatch in valuations between
buyers and sellers
Large supply of new offices in Oslo
in 2020/2021
New supply balance Neutral Slightly positive Slightly negative Slightly positive Neutral Little conversion due to office being
the preferred segment
Hotel absorption period
High demand for office and logistics
but few good objects
Overall Positive Positive Slightly positive Slightly negative Neutral
Increasing interest in hotels among
many investors
7
Pangea Outlook Norway 2020 Pangea Property Partners
Investor outlook Active financial investors with funds/syndicates as the largest net buyers
Activity 2019 Outlook 2020
Category Estimated holdings 1) Comments
(Net buy/sell) (Net buy/sell)
Outlook: Neutral to net buyers
Gross: NOK 7.9bn
Buy: NOK +6.1bn Generally high interest but lower than in 2019
Institutional investors NOK ~170bn
Sell: NOK -1.8bn
Increased focus on sustainable investments and
Net: NOK +4.3bn
replacing secondary assets
Outlook: Net buyers
Gross: NOK 15.4bn
Listed property Buy: NOK +5.2bn Moderate leverage with capacity to invest
companies2) NOK ~118bn
Sell: NOK -10.2bn
Low liquidity and aggressive book values according
Net: NOK -5.0bn
to stock market
Outlook: Net buyers
Gross: NOK 38.6bn
Property Buy: NOK +28.1bn Largest net buyers for the third consecutive year
funds/syndicates NOK ~155bn
Sell: NOK -10.6bn
Industrial and office properties have provided the
Net: NOK +17.5bn
highest syndicate returns in recent years
Gross: NOK 76.0bn Outlook: Net sellers
Private property Buy: NOK +31.9bn
NOK ~1,335bn Highly diverse group of investors
companies Sell: NOK -44.1bn
Net: NOK -12.3bn Continue to be affected by consolidation
Gross: NOK 45.4bn Outlook: Net sellers
Buy: NOK +21.5bn Lower yield spread than Nordic peers could drive
International investors NOK ~95bn
Sell: NOK -23.9bn some international investors out
Net: NOK -2.4bn Norway is still considered robust and low risk
Outlook: Net sellers
Gross: NOK 9.6bn
Buy: NOK +3.7bn This group typically does not have real estate as
Other n.a.
Sell: NOK -5.9bn main asset class
Net: NOK -2.2bn
Sales likely triggered by buy-side initiatives
1) Estimated holdings as of Jan-20 based on company reporting and net transactions Read more page 30-35
2) Transaction volumes include construction companies
Source: Pangea Research
8
Pangea Outlook Norway 2020 Pangea Property Partners
Macroeconomic Overview
9
Pangea Outlook Norway 2020 Pangea Property Partners
Market size The Nordics – Increasingly larger share of European listed real estate sector
POPULATION EU Nordics % of EU
Nordics
EU
Total 2019 (million) 511 27 ~5%
Other
5Y forecast (% p.a.) +0.1% +0.6% -
ECONOMY
GDP 2019 (EURbn) 16,477 1,408 ~9%
5Y forecast (% p.a.) +1.6% +1.7% -
PROPERTY MARKET
Trans. volume 2019 (EURbn) 290 46 ~16%
Annual turnover (10Y) 2.5% 4.7% -
STOCK MARKET1)
Total market cap (EURbn) ~12,370 1,540 ~12%
CRE market cap (EURbn) ~444 ~73 ~17%
1) All developed markets in Europe (Sep-19)
Source: IMF, EPRA, Pangea Research
10
Pangea Outlook Norway 2020 Pangea Property PartnersEconomic growth Stable economic growth in Norway despite unstable international outlook
Mainland GDP growth expected at 2.5 % in 2019, exceeding SSB trend growth by 50 bps
GDP GROWTH FORECAST (NEX T 5Y)
Expected GDP growth for 2019 is currently 1.1 %
– The growth has mainly been driven by increased petroleum and industrial
2.5 %
investments, but also a weak currency and a low interest rate
– The positive impulse from the petroleum investments is expected to decrease as of
2.0 %
2021 as large projects are completed such as the Johan Sverdrup oil field
Despite a global trade war and an unstable international economy, the Norwegian 1.5 %
economy is expected to grow by 3.5 % in 2020
1.0 %
– Average expected GDP growth from 2020 to 2024 is 2.1 % due to reduced petroleum
investments 0.5 %
– The economic activity is expected to be somewhat lower in years following 2020 with
the main GDP drivers believed to originate from consumption, exports and real estate 0.0 %
Norway Sweden Finland Denmark Nordics Eurozone
The Eurozone is still characterized by an uncertain Brexit and global trade tensions which
2019F 2020F-2024F
slows down the growth of export-oriented European economies, reflected in their
modest expected joint growth of 1.4 % in 2020
REAL GDP PER CAPITA GROWTH IN REAL GDP PER CAPITA
800,000 3.0 %
2.4 %
2.5 %
600,000 1.9 %
2.0 % 1.7 % 1.6 %
NOK
400,000 1.5 %
1.0 %
200,000
0.5 %
0 0.0 %
Norway Sweden Finland Denmark Nordics Eurozone Avg. 2014-2018 2019F 2020F Avg. 2021F-2024F
2019F 2014-2018 avg. Norway Sweden Finland Denmark
Source: Pangea Research, SSB, IMF, Eurostat
11
Pangea Outlook Norway 2020 Pangea Property PartnersDemographics Continued urbanization trend and an aging population
The Norwegian population is expected to grow by ~0.7 % annually from 2020 to 2024
POPULATION FORECAST (NEX T 5Y)
– Total growth of 7.6 % by 2030
Even though a decline in net immigration and birth surplus has caused a weakening
population growth rate, Norway’s population is expected to grow at a faster rate than 1.0 %
the Nordic and Eurozone average for the next five years
0.8 %
Urbanization is still a prominent trend and the population growth is expected to continue
0.6 %
to thrive in Norway’s largest cities (Oslo, Bergen etc.)
– Oslo has been one of Europe’s fastest growing cities the past five years and is 0.4 %
expected to grow by 1 % annually the next five years
0.2 %
By 2040, people over 65 years will constitute approximately 24 % of the population
corresponding to an increase of 56 % from 2019 0.0 %
Norway Sweden Finland Denmark Nordics Eurozone
Birth surplus is expected to continue its trend of a slight negative growth, meaning
population growth will be driven by immigration 2019F 2020F-2024F
BIRTH SURPLUS AND NET IMMIGRATION - NORWAY DEMOGRAPHIC AGE DEV ELOPMENT - NORWAY
70,000 3,500
17 % (~0.90m)
60,000 3,000 26 % (~1.72m)
50,000 2,500
CAGR: CAGR: CAGR:
Millions
40,000 2,000 +0.2 %59 % (~3.14m) +0.2 % +2.2 %
53 % (~3.45m)
30,000 1,500
20,000 1,000
10,000 500
1,258 1,305 3,155 3,315 919 1,437
0 0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 0-19 20-64 65+
Birth surplus Net immigration 2019F 2040F
Sources: SSB, IMF
12
Pangea Outlook Norway 2020 Pangea Property PartnersLabour market Steady labor market expectations going into 2020
The Norwegian unemployment rate has declined continuously from ~4.7 % in 2016 to
UNEMPLOYMENT FORECAST (NEX T 5Y)
3.5 % in mid 2019
The unemployment rate is expected to be stable at 3.7 % towards 2024 due to low levels
of immigration and population growth 8.0 %
− From a historical perspective, this is regarded as normal capacity utilization
6.0 %
Nominal salary growth is expected to reach ~3.5 % in 2019, and stabilize in conjunction
with unemployment
4.0 %
– Salary growth is likely to benefit low-wage earners the most as their relative
bargaining power increases
2.0 %
European unemployment rates has steadily come down since the financial crisis, but the
outlook is uncertain as growth is cooling in the face of trade war and Brexit 0.0 %
Norway Sweden Finland Denmark Nordics Eurozone
– The fall in unemployment has not bolstered wages and lifted inflation as policymakers
would have hoped, and additional monetary stimulus is now being lined up
2019 2020F-2024F
1)
SALARY GROWTH - NORWAY (UN)EMPLOYMENT - NORWAY
4.0 % 5.0 %
3.5 %
4.0 %
3.0 %
2.5 % 3.0 %
2.0 %
1.5 % 2.0 %
1.0 %
1.0 %
0.5 %
0.0 % 0.0 %
2016 2017 2018 2019F 2020F 2021F 2022F 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F
CPI Nominal salary Growth Employment growth Unemployment
1) (Un)employment based on AKU (Arbeidskraftsundersøkelsen)
Source: SSB, IMF
13
Pangea Outlook Norway 2020 Pangea Property PartnersInflation Expected five year inflation in line with Norges Banks’ target of 2.0 %
Norwegian inflation in 2019 reached 1.4 %, down from 2.7 % in 2018
INFLATION FORECAST (NEX T 5Y)
– Inflation affected by multiple hikes in the key policy rate and periods of large volatility
in oil prices
– Simultaneously, the effect of a weakening NOK in Norway’s heavy export driven
economy can help explain the higher inflation rate in Norway versus the Eurozone 2.5 %
Norwegian inflation is expected to stabilize around the central bank’s long term target of
2.0 %
2.0 %, a slightly higher level compared to the Eurozone
1.5 %
As central banks all around the world cut interest rates last year, Norges Bank forged its
own path and increased its key policy rate three times in 2019
1.0 %
– Norges Bank is expected to hold the policy rate steady for the next few years,
although this could change depending on the political state, trade between the 0.5 %
largest economies and other countries policy rates
0.0 %
International oil reserves are expected to expand in coming years due to current
Norway Sweden Finland Denmark Nordics Eurozone
production rates and uncertainty surrounding the trade war, adding downwards pressure
on oil prices with the possibility of hampering Norwegian growth and inflation 2019 2020F-2024F
INFLATION V S EX CHANGE RATE - NORWAY K EY POLICY RATE V S INFLATION - NORWAY
4.0 % 120 5.0 %
3.5 % 115
4.0 %
3.0 % 110
2.5 % 105 3.0 %
2.0 % 100
1.5 % 95 2.0 %
1.0 % 90
1.0 %
0.5 % 85
0.0 % 80 0.0 %
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Norwegian inflation (left axis) Import-weighted exchange rate (right axis) Monthly CPI (YOY) Key policy rate Inflation target
Sources: Norges Bank, SSB, IMF
14
Pangea Outlook Norway 2020 Pangea Property PartnersInterest rates Unchanged key policy rate expected in the next two years
Flattening of the Norwegian yield curve and lower spread between bonds of different 1)
maturities indicates uncertainty about the economic outlook NORDIC K EY POLICY RATES
– Despite the yield convergence, Norway still enjoys a large spread towards the other
Nordic countries
2.00% Q1-Q3
Recent interest hikes in conjunction with “Boliglånsforskriften” launched in 2017 has +75bps
slowed growth in housing prices as intended, according to Norges Bank 1.50%
– However, the interest hikes are suspected to only have affected the commercial real 1.00%
estate market marginally due to high investor appetite and strong underlying
fundamentals 0.50%
The Norwegian interest rate environment indicates a healthy economy 0.00%
– Recent key policy rate hikes have provided Norges Bank some room to maneuver in
-0.50%
case of a financial downturn, whereas large parts of the world’s central banks have
limited tools available -1.00%
– No further key policy rate hikes are expected in the upcoming years Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Prospects for the world economy in 2020 are expected to remain rather sluggish,
Norway Sweden Denmark Finland (Euro)
amongst other due to trade tensions and risk of downturns in major economies, which
might affect interest rate policy
1) 1)
NORDIC INTEREST RATE TERM STRUCTURES NORWEGIAN SWAP RATES (LAST 12M)
Aug-19 to Jan-20
2.5 % 2.25%
2.0 %
2.00%
1.5 %
1.0 %
1.75%
0.5 %
0.0 %
1.50%
Δbps: 37-53
-0.5 %
-1.0 % 1.25%
3m 6m 1Y swap 2Y swap 3Y swap 4Y swap 5Y swap 7Y swap 10Y swap Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
Norway Sweden Denmark Finland (Euro) 3Y Swap 5Y Swap 10Y Swap
1) As of January 15h 2020
Source: Norges Bank, Thomson Reuters
15
Pangea Outlook Norway 2020 Pangea Property PartnersReal Estate Debt Financing
16
Pangea Outlook Norway 2020 Pangea Property PartnersDebt financing Bonds stabilizing as a significant part of real estate financing mix
The Norwegian Central Bank reported a total debt volume of NOK ~1,430bn in 2018, 1)
BORROWING COST (LAST 10Y)
whereas commercial real estate accounted for ~45 %, i.e. NOK ~640bn
– Banks accounted for ~85 % and bonds ~15 % of the NOK 640bn
Total outstanding real estate bond debt has increased by ~500 % from NOK ~20bn in 7%
2013 to NOK ~120bn in 2019 6%
New capital
requirements
5%
While the bond market in general experienced a setback after the oil crisis in 2014, real
estate bond issues have generally played a greater part of real estate companies ’ 4%
financing mix, and constitute close to 30 % of the bond market in 2019 3% 204bps
245bps
165bps
2%
While the 5Y SWAP has increased since the beginning of 2018, total borrowing cost is
close to the same at ~4 % according to UNIONs quarterly bank survey 1%
– This is mainly due to competition among banks, which is also likely to restrain a raise 0%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
in margins despite new capital requirements for banks by the end of 2020
5Y SWAP Total borrowing cost
NORWEGIAN BOND ISSUES (LAST 10Y) FIV E LARGEST BOND ISSUERS AND 5Y SWAP SPREADS
140 12 120
119
120 10 100
100 99 101
100 85 35
14 10 8 80
28
NOKbn
NOKbn
80 13 64
60
bps
58 6 60
60 43
38 18
1 18 23 4 40
40 86 89 84
4 72 73
20 42 40 46 2 20
34 37
~11 ~10 ~9 ~6 ~5
0 0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Entra Vasakronan OLT NPRO Riksheim
Other Real Estate Outstanding bond volume (l.a.) 5Y SWAP spread over 3M NIBOR (r.a.)
1) Figures as of January 15th 2020
Sources: Pangea Research, Nordea Markets, DNB Markets, UNION Bankundersøkelse Q4 2019
17
Pangea Outlook Norway 2020 Pangea Property PartnersNorwegian Transaction Market
18
Pangea Outlook Norway 2020 Pangea Property PartnersNorwegian transaction market SBB takeover triggers second highest volume ever of NOK ~97bn
TRANSACTION MARKET 2017 TRANSACTION MARKET 2018 TRANSACTION MARKET 2019
No. of transactions Transaction volume Foreign buyers No. of transactions Transaction volume Foreign buyers No. of transactions Transaction volume Foreign buyers
302 deals NOK 87bn 22 % 273 deals NOK 94bn 18 % 257 deals NOK 97bn 22 %
NORWEGIAN TRANSACTION V OLUME (2010 - 2019) TRANSACTION V OLUME BY SECTOR (2019)
Other 9 %
140
Average: NOK 42bn Average: NOK 95bn
Land/Development 13 %
120
Office 45 %
Residential 5 % NOK
Hotel 3 % 97bn
100 Logistics/Industry
8%
Retail 17 %
80
NOKbn
TRANSACTION VOLUME BY INVESTOR TYPE (2019)
60 123
Divestment (0 to -50 %) Acquisition (0 to +50 %)
Private companies
94 97
87
40 Listed companies1)
72
Funds/Syndicates
54
51
Institutions
20 43
36
Other
25
Unknown
-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Norwegian investors Foreign investors
Volume (NOKbn)
1) Includesconstruction companies
Source: Pangea Research
19
Pangea Outlook Norway 2020 Pangea Property PartnersTop Norwegian transactions Top ten making up ~36 % of total transaction volume in 2019
Est. value Area Value/sqm Cross-
# Date Buyer Seller Asset(s) Est. yield Main type
(NOKm) (sqm) (NOK) border
1 Dec-19 SBB i Norden Hemfosa Fastigheter Norwegian share of Hemfosa portfolio ~9,000 n.a. n.a. n.a. Office √
2 Apr-19 DNB Livsforsikring SBB i Norden Dronning Eufemias gate 30 ~4,490 ~46,200 ~97,200 ~3.80 % Public sector √
Whitehelm European Pioneer Public Properties AS1) and
3 Oct-19 Pioneer Property Group ~4,0802) n.a. n.a. n.a. Education √
Infrastructure Fund II Pioneer Management AS
4 Nov-19 Urban Property Selvaag Bolig Selvaag Bolig's land bank ~3,400 ~337,800 ~10,100 n.a. Land
Syndicate (Arctic) / Søylen Eiendom, Stor-Oslo Commercial areas at Sørenga, Barcode,
5 Jan-19
Madison International Eiendom, Tellus Eiendom Bispevika and parking at Munch Brygge
~3,300 ~40,000 ~82,500 n.a. Retail √
H.I.G. Capital, Blackstone,
6 Jul-19 Syndicate (Arctic)
Oslo Pensjonsforsikring
Kongsberg Teknologipark ~3,050 ~175,000 ~17,700 n.a. Office √
Syndicate (Pareto) /
7 Dec-19 Kruse Smith AS Kruse Smith Eiendom ~2,300 n.a. n.a. n.a. Residential
Solon Eiendom
Syndicate (Pareto) /
8 Aug-19 NCC Property Development Valle Wood, Valle View and land plot ~1,830 ~60,000 ~50,0003) n.a. Office
Union Real Estate Fund II
Syndicate (NRP) /
9 Jan-19 Syndicate (NRP)
H.I.G Capital
Raufoss Industripark ~1,800 ~238,000 ~7,600 n.a. Industry √
Portfolio of 4 local centers and 2 land
10 Jul-19 Ragde Eiendom Tristian Capital Partners
plots4)
~1,540 ~100,000 ~15,400 n.a. Retail √
Top 10 (~36 % of total estimated transaction volume of NOK ~97bn) ~34,820 ~659,200 ~19,520 5)
1) Portfolio of ~170 preschools in Norway, Sweden and Finland Estimated values
2) Based on investment properties of NOK 5.3bn as of H1 2019 and 77 % lease income from Norwegian properties
3) Approximately value/sqm of 50,000 per sqm for the two office buildings under construction at the time of the transaction
4) Local retail centers with big box tenants in Ålesund, Tune, Sarpsborg and Grenland
5) Adjusted for transactions with unknown area (sqm)
Source: Pangea Research
20
Pangea Outlook Norway 2020 Pangea Property PartnersNorwegian transactions 2019 Active transaction market in all deal sizes
2019 was another active year in terms of transactions, and total number of
deals amounted to 257 with an underlying volume of NOK ~97bn
Over the last three years, the transaction volume has stabilized around Norwegian part of
NOK 90bn, and since the record year of 2015, the average deal size has Hemfosa portfolio
increased every year No. of transactions: 257
The largest deals in 2019 were the public takeover of Hemfosa (Norwegian Transaction volume: NOK ~97bn
share) and DNB Liv’s acquisition of DNB HQ at a yield close to 3.80 %
A new strategic trend this year for construction companies was to form a Average transaction size: NOK ~376m
separate entity for land banks
– Selvaag Bolig sold their land bank to Urban Property
– Veidekke announced that they will either sell their land bank or form a
separate listed company
DNB-building
50 100 200 400 800 1,600 3,200 6,400 12,800
Smaller Mid range Large
125 transactions (58 %) 64 transactions (33 %) 16 transactions (9 %)
< NOK 200m NOK 200 – 800m > NOK 800m
Source: Pangea Research
21
Pangea Outlook Norway 2020 Pangea Property PartnersProperty Segments
22
Pangea Outlook Norway 2020 Pangea Property PartnersOslo and Stockholm office markets Values driven by rental growth in the years to come
OSLO PRIME RENT AND YIELD DEV ELOPMENT
190 7.0 %
2017 2018 2019 2020E
Prime yield (%) 3.75 % 3.80 % 3.75 % 3.75 % 180 6.5 %
+7 %
Prime rent (NOK/sqm) 4,250 4,500 4,900 5,250
170 6.0 %
+19 %
Total vacancy (%) 7.10 % 6.20 % 5.60 % 6.00 %
160 5.5 %
+12 %
Inner city vacancy (%) 4.40 % 4.20 % 3.50 % 3.80 %
Prime rent (index 100 = 2010)
150 5.0 %
Value/sqm (NOK)1) 98,000 109,000 120,000 129,000
Prime yield (%)
140 4.5 %
STOCK HOLM
+17 %
130 4.0 %
2017 2018 2019 2020E
120 3.5 %
Prime yield (%) 3.40 % 3.35 % 3.25 % 3.25 %
110 3.0 %
Prime rent (SEK/sqm)2) 6,300 6,800 7,100 7,300
Total vacancy (%) 7.60 % 7.60 % 8.00 % 9.00 % 100 2.5 %
Inner city vacancy (%) 2.25 % 2.25 % 2.75 % 3.00 %
90 2.0 %
'10 '11 '12 '13 '14 '15 '16 '17 '18 19 '20E
Value/sqm (SEK)1) 145,000 150,000 155,000 160,000
Oslo prime rent Stockholm prime rent
1) Assumed owner’s cost of 8 % of GRI
2) Rents per NLA converted to rents per GLA for comparability Oslo prime yield Stockholm prime yield
Source: Pangea Research, Dagens Næringsliv - Eiendomspanelet
23
Pangea Outlook Norway 2020 Pangea Property PartnersOslo office market Solid rental market and increasing net supply in coming years
Stable Oslo office transaction market the last three years with average volume of
OSLO PRIME OFFICE
NOK ~20bn and an average ~50 % share of total transaction volume in Oslo
After a ten year period of gradually increasing rents and yield compression, prime objects
now achieve NOK ~125,000 / sqm 6,000 130
5,000 110
Value (NOK ‘000/sqm)
Gross rent (NOK/sqm)
Conversion of properties is still in a falling trend and there are several development
projects with expected completion in the next two years, especially in the eastern office 4,000 90
clusters Bryn/Helsfyr and Økern/Hasle/Løren
3,000 70
– A number of contracts have been signed to these new projects as tenants appreciate
modern premises close to public transportation hubs at a significantly lower price than 2,000 50
central Oslo
– The completion of many new office buildings could trigger a number of divestments in 1,000 30
the next two years
0 10
The overall rent levels will grow at a rate of approximately ~4 % in 2020, and prime rent '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20F
is expected to increase by ~7 % in 2020. Going forward it is expected that the prime Gross rent (l.a.) Value (r.a.)
yield will remain at ~3.75 %
OSLO OFFICE TRANSACTION V OLUME OSLO OFFICE SUPPLY
30 90% 350
25 75% 300
250
20 60%
Sqm ‘000
NOKbn
200
15 45%
150
10 30%
100
5 15% 50
0 0% 0
2013 2014 2015 2016 2017 2018 2019 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E '20E
Oslo office volume (l.a.) Share of total Oslo volume (r.a.) Net supply Conversion Absorption
Source: Pangea Research, Dagens Næringsliv - Eiendomspanelet, Eiendomsspar – Oslostudiet 2019
24
Pangea Outlook Norway 2020 Pangea Property PartnersRegional office markets Decent outlook for all regional markets
Bergen Trondheim Stavanger
Total vacancy ~8.50 % Total vacancy ~6.00 % Total vacancy ~11.50 %
CBD vacancy ~5.20 % CBD vacancy ~3.90 % CBD vacancy ~8.00 %
Prime rent (NOK/sqm) ~3,000 Prime rent (NOK/sqm) ~2,300 Prime rent (NOK/sqm) ~3,000
Prime yield ~4.00 % Prime yield ~4.50 % Prime yield ~4.75 %
On the supply side, lower volume of office construction The general vacancy in Trondheim has decreased in Stavanger has seen a substantial decline in
combined with several office conversion projects recent years, despite a high volume of new-build’s and unemployment levels the recent years. With a higher oil
contributes to a decrease in total vacancy. Supply side moderate conversion levels in the last five years price and cheaper Norwegian krone, the optimism is
growth is not expected until 2021 high in the region
Supply growth has led to significant discrepancy
The city center has seen the largest increase in rents, but between city center vacancy (~3.90 %) versus less With low unemployment and moderate levels of supply
with the expected limited growth in supply side, rents growth in the office market we expect the vacancy rate
modern periphery objects (~9.30 %)
will likely increase across-the-board going forward to continue to decline throughout 2020
We expect that lower supply growth going forward will
Due to shortage of office properties on the market, solid The city center experiences high demand and relatively
contribute to a general increase in office rents in 2020
low vacancy rates, which is expected to create rental
outlooks and high investor appetite has not lead to high
growth in the best locations going forward
transaction volumes
Source: Pangea Research, DNB Næringsmegling
25
Pangea Outlook Norway 2020 Pangea Property PartnersRetail market (1/2) Still high transaction activity, but shopping centers face structural issues
COMMENTS TOTAL RETAIL TRANSACTION V OLUME
50 50%
Prime shopping center and high street yields have increased to ~4.50 % and ~4.00 %
respectively, while regular shopping centers can see yield levels well above 6.00 %
40 40%
33%
High street rents have generally decreased over the last year but the best locations still
obtain about NOK 25,000 / sqm 30 30%
NOKbn
20%
Retail accounted for about NOK~17bn in transaction volume in 2019, corresponding to 18% 17%
20 16% 20%
approximately 17 % of the total volume of NOK 96.5bn
10%
The 40 largest shopping centers in Norway, without known extensions, had slightly positive 10 10%
turnover growth of 0.7 % in 2019 vs. 2018:
6 41 15 15 15 17
0 0%
– As tenants usually have CPI-adjusted minimum rents and turnover growth has been
2014 2015 2016 2017 2018 2019
lagging, occupancy cost ratios have increased significantly
– Higher occupancy cost ratios negatively affect valuations through lower estimated rents Retail volume (l.a.) Share of total transaction volume (r.a.)
and/or higher yields
Traditional retail is still by far the largest shopping channel for Norwegian consumers but are TOTAL SHOPPING CENTER TRANSACTION V OLUME
facing tough challenges from changing consumer preferences and e-commerce: 50 100%
– Physical shopping is still able to differentiate itself with traits like instant gratification and
“human touch” 40 80%
67%
– Retail destinations that offer something that cannot be consumed online will outperform
going forward 30 28 60%
NOKbn
– Closer integration between physical stores and online retailers will be more and
41% 41%
prevalent; physical stores strengthening online shopping and vice versa 36%
20 40%
29%
In 2019, shopping centers accounted for only 19 % of the retail volume, compared to 41 %, 19%
29 % and 36 % in previous years, further indicating a mismatch in valuation and price 10 20%
5 6
expectations between sellers and buyers 4
2 3
0 0%
The most noteworthy retail transaction in 2019 was Madison International and Arctic’s
2014 2015 2016 2017 2018 2019
acquisition of 40,000 sqm of commercial areas at Sørenga, Barcode, Bispevika and Munch
Brygge for NOK 3.3bn (NOK ~82,500 / sqm)1) Shopping center volume (l.a.) Share of total retail volume (r.a.)
1)Includes parking facility at Munch Brygge
Source: Pangea Research, Kvarud Analyse
26
Pangea Outlook Norway 2020 Pangea Property PartnersRetail market (2/2) Stock market may be anticipating write-downs with pricing well below book values
TOTAL RETURN, RETAIL REAL ESTATE SECTOR (LAST 5Y) PRICE / EPRA NAV DEVELOPMENT (LAST 5Y)
200% 1.4x
PREX Property
180% 179 %
160%
1.2x
Atrium Ljungberg
140% Atrium Ljungberg
131%
1.08x
120%
1.0x
100%
Klépierre
80% 0.85x
Total return (%)
Olav Thon
P / EPRA NAV
60% 0.8x Citycon
48 % 0.74x
40% Klépierre
URW
20 %
0.65x
20% Citycon 0.6x
10 % Olav Thon
0% 0.55x
URW
-18 % Hammerson
-20%
0.4x 0.45x
Hammerson
-40% -43 %
-60%
0.2x
-80%
Intu Properties Intu Properties
-91 % 0.15x
-100%
-120% 0.0x
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Q1-16 Q3-16 Q1-17 Q3-17 Q1-18 Q3-18 Q1-19 Q3-19
Total return for Olav Thon Eiendomsselskap ASA has been 48 % over the last five years – Olav Thon Eiendomsselskap ASA has been trading at discounts of around 35 % to 50 %
well above its European retail real estate peers but significantly below the Nordic real over the last five years but is a special case due to its limited stock liquidity
estate sector as a whole (PREX Property: 179 %)
Of the covered companies, only Atrium Ljungberg has a Price / EPRA NAV above 1.0x,
Atrium Ljungberg’s total return has been relatively good during the period, as they are which may indicate that the stock market expects future write-downs in the sector
heavily exposed towards offices in Stockholm, which have been booming
Hammerson, and Intu in particular, are trading at prices well below book values, and at
UK shopping center landlords Intu and Hammerson have seen negative total returns of the end of 2019, Intu warned that it may have to raise fresh equity after a string of
-91 % and -43 % over the last five years, underlining the sector’s problems retailer insolvencies
1)”Figures as of January 15th 2020
Source: Pangea Research, Company reports
27
Pangea Outlook Norway 2020 Pangea Property PartnersNorwegian hotel market Strong demand from international tourists drive the hotel market
In the last few years, Norway has experienced a strong increase in inbound tourism due to
a weakened currency, increasing number of direct flights and the allure of the Nordic
countries. The main foreign markets are the U.S.A., Germany and Sweden GUEST NIGHTS 2019YTD
Domestic tourism is the largest market (72 %) with many Norwegians spending their 1)
holidays in their own country and taking domestic weekend trips. This trend is reinforced U.S.A. 3.7%
YTD: +19.0%
by the aforementioned weak currency
Germany 3.1%
In Oslo, despite several hotels opening in 2019, the strong increase in demand (+9.5%) YTD: +4.7%
Trondheim
limited the expected fall in RevPAR to -2.2%. In 2020/2021 the market is expected to (+2.9%) Domestic:
further absorb this new supply Other 14.8% 71.6%
YTD: +5.9% YTD: +5.0%
Sweden 2.8%
The hotel transaction volume in 2019 (NOK ~3.1bn) has been characterized by strong YTD: -3.2%
Bergen
investors’ interest but a lack of product on the market. 2020 is expected to be a strong (+8.2%) U.K. 2.2%
Oslo
year for the hotel segment with several large single assets transactions (+9.5%) YTD: 1.9%
Stavanger
(+26.1%) China 1.8%
YTD: 3.0%
K EY FIGURES HOTEL TRANSACTION V OLUME
YTD – November 2019 Oslo Bergen Trondheim Stavanger
Hotels 73 42 22 23
6 6%
Room nights available 4,688,672 2,162,443 1,111,205 1,133,638
vs. last year 10.7% 5.3% 3.3% 12.9% 5 5%
Room nights sold 3,349,028 1,373,613 759,209 677,482
4 4%
vs. last year 9.5% 7.3% 3.0% 24.8%
NOKbn
Occupancy 71.4% 63.5% 68.3% 59.8% 3 3%
vs. last year (bps) -0.8 1.2 -0.2 5.7
2 2%
RevPar 753 619 673 545
vs. last year -2.2% 4.1% 10.0% 11.0%
1 1%
CAGR (2015-2018) 2.7 % -5.0 % 6.1 % -3.1 %
1 3 5 3 3 1 3
0 0%
Expected new rooms in 2020 621 none identified none identified none identified 2013 2014 2015 2016 2017 2018 2019
RevPAR Outlook Hotel transaction volume (l.a.) Share of total transaction volume (r.a.)
1) American tourists potentially over represented in the statistics as many hotels register guests booking
through OTA as Americans by default Source: Pangea Research, SSB, Statistikknett (numbers as at Nov-19)
28
Pangea Outlook Norway 2020 Pangea Property PartnersLogistics market Strong underlying fundamentals and investor interest, but few assets in play
The logistics market is still going strong, and even though the transaction volume is down
GREATER-OSLO RENT LEV ELS
by -43 % from 2018 to 2019, this can largely be explained by heavy shortage of supply
Logistics is an emerging segment as e-commerce continues to conquer market shares
1,400
– E-commerce experienced an annual growth of 11 % from 2010 to 2018 1,250
1,300
1,200 1,200 1,200
Appetite across the board with tenants seeking new locations and logistics developers 1,200
1,100
searching for land, which in turn has surged prices of land in the outskirts of Oslo near E6 1,050
1,100
NOK / sqm
Prime yield for logistics assets with long tenure and high degree of tenant customization 1,000
is still ~4.70 % and rent levels have remained fairly stable the last year 900
850
– Rent increase is expected for top locations in 2020 800
Yet to see the full potential of this segment, as it is expected that both construction and 700
investment activity will intensify in the next couple of years as the market lag will 600
gradually resolve Groruddalen Ski Skedsmo Lørenskog Oslo south Gardermoen/ Vestby
Kløfta
E-COMMERCE TURNOV ER, EX CL. TRAV EL AND SERV ICES LOGISTICS TRANSACTION V OLUME
+137 %
30 20 20%
25 23
22
15 15%
19
20
16
15
NOKbn
NOKbn
14 14
15 10 10%
12
10 11
10
10
+5% +8% +10% +16% +17% +16% +14% +6% +11% 5 5%
5
2 8 8 13 7 17 7
0 0 0%
1) 1)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 T4 2019 T4 2013 2014 2015 2016 2017 2018 2019
Logistics transaction volume (l.a.) Share of total transaction volume (r.a.)
1)”T” refers to tertiary
Source: Pangea Research, SSB
29
Pangea Outlook Norway 2020 Pangea Property PartnersProperty Investors
30
Pangea Outlook Norway 2020 Pangea Property PartnersInstitutions Total holdings of NOK ~170bn and large net buyers in 2019
The ten largest pensions funds in Norway hold real estate investments of approximately
PENSION FUNDS’ REAL ESTATE ALLOCATION 2)
NOK ~165bn and have a combined real estate allocation of ~8 % of total assets
KLP is the largest fund and has the biggest real estate holdings in absolute terms with
current real estate investments of NOK ~70bn, while OPF is most real estate heavy with 80 20%
~20 % of total holdings
60 15%
According to Pangea’s institutional outlook1), institutions rank real estate as the second
NOKbn
best investment alternative, only surpassed by stocks 40 10%
Norwegian institutions have been net sellers since 2015, but were large net buyers in 20 5%
2019. 40 % of institutions report that they will increase property holdings while only 7 %
0 0%
will decrease holdings1)
Perhaps the most prominent single-asset transaction in 2019 was DNB Livsforsikring’s
acquisition of the DNB HQ for NOK ~4.5bn
Real estate holdings (l.a.) Share of AUM (r.a.)
1) Based on 15 institutional investor participants. Final ranking based on average scores.
Selected Institutional Property Transactions 2019
TRANSACTION V OLUME (2015 -2019)
Est. Value Area
Property Buyer Seller
(NOKm) (sqm)
Dronning Eufemias gate 30 DNB Livsforsikring SBB i Norden ~4.500 ~46,200
20
Scandic Ørnen Oslo Pensjonsforsikring OBOS Eiendom ~800 ~19,000
15
Krinkelkroken 1 DNB Scandinavian Property Fund Nordea Liv n.a. ~10,000
10
NOKbn
Ranheimsveien 9 KLP Eiendom Kaisa Holding et al. ~500 ~19,300
3.9
5 Brynsalléen 2 Capman Nordic Real Estate Fund II KLP Eiendom n.a. ~17,600
0.1
0 Leif Tronstad plass 7 Viken Fylkeskommune DNB Livsforsikring ~195 ~2,200
-0.5
-1.7 -1.6 Philip Pedersens vei 20 Clarksons Platou Oslo Opportunity Oslo Areal n.a. ~10,200
-5
2015 2016 2017 2018 2019
Acquisitions Divestments Net
2) According to most recent reporting (2018 - Q3 2019)
Source: Pangea Research
31
Pangea Outlook Norway 2020 Pangea Property PartnersListed companies Holdings of NOK ~118bn and estimated investment capacity of NOK ~17bn
Current LTV’s range from 39 % to 44 % with an aggregated LTV target of ~48 % 1),
LTV AND IMPLIED INV ESTMENT CAPACITY
implying total additional investment capacity of NOK~17bn
– Entra constitutes the bulk of this with an implied investment capacity of NOK ~10bn
All three companies have provided investors solid returns for 2019, and comfortably beat 60% 20
the OSEBX index, shown by their surge of 29 % on average throughout the year
50% 16
Norwegian Property has further reduced their presence in Stavanger after selling off a
40% 12
NOKbn
large portion of their remaining portfolio in the city during 2019
30% 8
– Simultaneously, Norwegian Property has strengthened their position in the office
clusters of Aker Brygge and Nydalen in Oslo, while also expanding to new parts of the
20% 4
city through their acquisition of Lille Grensen 7
As a part of their strategy of focusing on city center assets, Entra purchased 10% 0
Entra Norwegian Property Olav Thon Aggregated
Møllendalsveien 6-8 in central Bergen, further concentrating their portfolio Eiendomsselskap
1)
– This indicates Entra’s belief in the regional office segment and their confidence in the LTV (l.a.) Target LTV (l.a.) Implied investment capacity (r.a.)
property market of Bergen 1) Target LTV for OLT is est. 45 % based on current and max LTV of 39 % and 50 %, respectively
TRANSACTION V OLUME (2015 -2019) NORWEGIAN REAL ESTATE PERFORMANCE (LAST 2Y) 2)
6 45%
1Y Return
35%
4
25%
2 1.2
NOKbn
1.0 15%
0.4 0.5
0 5%
-5%
-2
-1.9 -15%
-4 -25%
2015 2016 2017 2018 2019 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
Acquisitions Divestments Net Entra Olav Thon Norwegian Property PREX Norway OSEBX
1) Target LTV for OLT is est. 45 % based on current and max LTV of 39 % and 50 %, respectively
2) Figures as of January 10th 2020
Source: Pangea Research, Thomson Reuters
32
Pangea Outlook Norway 2020 Pangea Property PartnersNorwegian property funds and syndicates Active buyers with current holdings of NOK ~155bn
Funds and syndicates are highly active buyers in the Norwegian property market, 1)
accounting for ~29 % of total acquisition volume in 2019 WEIGHTED IRR ON SYNDICATES, BY SEGMENT
The total volume of syndicate holdings amounted to NOK ~105bn by the end of 2019
– Syndicates managed by Pareto and Arctic Securities constitute ~52 % of overall 25%
syndicate holdings 21%
20%
Syndicates holding property in the industry segment have earned the highest IRR on a
weighted average basis, reaching an IRR of 21 %, followed by the logistics and office 15%
14% 14%
Net IRR (%)
segment with 15 % and 14 % IRR respectively 15% Average: 13 %
12%
– The weighted average IRR across all property segments amounts to 13 % 10%
9%
8%
Of all equity invested through syndicates, approximately 66 % has been invested into the
office segment, making it the most popular segment by far 5%
2%
Norwegian real estate funds have expanded at a steady pace, growing ~30 % since 2017 0%
to reach a total of NOK ~50bn in holdings in 2019 Industry Office Logistics Other2) Combination Residential Office/retail Retail
– In 2019, Norwegian property funds accounted for 9 % of total transaction volume
1) Annual IRR weighted by paid in capital. Based on 62 syndicates with a total GAV of NOK ~32bn
2) Typically includes care homes and education
SYNDICATE HOLDINGS FUND HOLDINGS
Total volume Total volume
NOK ~105bn NOK ~50bn
30
15
20
10
NOKbn
NOKbn
10 5
0 0
Source: Pangea Research, Thomson Reuters, Company reports
33
Pangea Outlook Norway 2020 Pangea Property PartnersPrivate companies Consolidation trend expected to continue in 2020
Highly diverse group of investors
– Includes family offices gradually shifting towards investing through funds and
Private sector performance
syndicates
Active investor group with average annual net acquisition volume of NOK -11bn for the
Borrowing cost Rental income Property fair value
last 5 years
– Net sellers since 2015 as low yields make value realization an attractive option
– Have an accumulated net acquisition volume of NOK -55bn through the period of
2015-2019
Long term consolidation trend where larger firms are expanding is expected to continue
in 2020
Low yield and high rental income increase have given good returns in 2019 for private
– Benefits from a more diversified property portfolio, reducing risk of single assets and companies
achieving economies of scale
– Property owners also see the benefit of owning whole areas where they can adopt a Expected rental increase indicates positive returns for 2020, but there is more
more holistic approach to different types of tenants in order to develop the area uncertainty concerning the yield levels although expected to remain stable
around the property
TRANSACTION V OLUME (2015 -2019)
Expected application of funds
40
Deleveraging Dividends Reinvestment
20
0
NOKbn
-7 -7
-20 -14 -12
-15
-40 Little incentive to reduce leverage as the yield curve is flat and margins are expected to
remain stable in 2020
-60
2015 2016 2017 2018 2019
Real estate is still considered a favorable asset class and dividends are likely to be
Acquisitions Divestments Net reinvested in property development and acquisitions, but through syndicates and funds
Source: Pangea Research
34
Pangea Outlook Norway 2020 Pangea Property PartnersInternational real estate funds Property funds increasing in number and size
Despite global political and economic uncertainty, more capital was raised in 2019 than in
FUNDS RAISED & NUMBER OF FUNDS CLOSED
each of the last 10 years
Fewer funds have secured a larger stake of total invested capital, indicating consolidation
60 150
– Investors look to the more established managers with proven track records
50 125
In September 2019, Blackstone closed its USD 20.5bn opportunistic fund Real Estate
Partners IX, which is the largest private equity real estate vehicle ever raised 40 100
# of funds
USDbn
30 75
Opportunistic real estate investments seem to be the most popular strategy during this
late stage of the market cycle, accounting for more than 50 % of the total capital in 2019 20 50
The competition for core assets is tough in the Nordic market, and international investors 10 25
typically look for more value-add and opportunistic investments 0 0
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19
The prime yields are similarly low across the Nordic, but Norway stands out in terms of
expensive financing and narrow yield spreads. Additionally, the added cost for Sum of funds raised Number of funds closed
international investors of hedging against the NOK is high at the moment
PRIV ATE REAL ESTATE FUNDS BY STRATEGY CAPITAL RAISED FOR PE REAL ESTATE BY TOP 50 1)
100% 400
35 12.8 100 13
4 +102 %
80% 1 100 16
25
22 6 300
25 89
60%
USDbn
49
85 297 200
40%
57
20% 100
65 231 36
0% 177 224 271 281 333 358
Total Funds in Market Capital raised Total funds in market Number of funds closed 0
as of Q3 '19, (USDbn) in '19, (USDbn) as of Q3 '19, (#) in '19, (#) 2014 2015 2016 2017 2018 2019
Opportunistic Value Added Core-plus Core Debt
1) Rolling 5Y fund raising by top 50 managers worldwide
Source: Pangea Research, PERE, Prequin
35
Pangea Outlook Norway 2020 Pangea Property PartnersNordic Listed Sector
36
Pangea Outlook Norway 2020 Pangea Property PartnersNordic real estate equity markets PREX Sweden country winner and strong logistics rush
1) 1)
NORDIC EQUITY MARK ETS (LAST 3Y) NORDIC EQUITY SEGMENTS (LAST 3Y)
130% 300%
PREX Sweden PREX Logistics
1Y return: 67 % 1Y return: 125 %
3Y return: 121 % 3Y return: 276 %
110% 250%
PREX Property
1Y return: 64 %
3Y return: 108 %
90% 200%
Total return, incl. dividend
Total return, incl. dividend
70% 150%
PREX Office
PREX Norway 1Y return: 55 %
1Y return: 35 % 3Y return: 107 %
50% 3Y return: 56 % 100% PREX Residential
OMX Nordic 1Y return: 68 %
1Y return: 34 % 3Y return: 104 %
3Y return: 46 %
30% 50% PREX Retail
1Y return: 37 %
3Y return: 28 %
10% 0% PREX Construction
1Y return: 48 %
3Y return: 13 %
-10% -50%
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20
The overall listed Nordic property market has yielded a significant return the last three years, The demand and performance of logistics and office properties has been great the last years due
mostly driven by its largest market Sweden with a three year return of ~121 % to yield compression and strong rental growth. Logistics companies like Sagax, Catena and Corem
have experienced a 3Y return of ~282%, 249% and 255%, respectively
Although the property market has been solid in Norway as well, the Swedish listed sector is far
more comprehensive in terms of segments and number of companies, and therefore reflects the In Norway, the listed companies are mainly exposed to office and retail, and with a 3Y return on
overall property market to a greater extent retail of ~28 %, it is evident why the Norwegian listed property sector is far behind its peers
Considering the Norwegian property market is maturing fast, it is possible that we will see more Construction companies have experienced challenges due to costly environmental focus,
consolidation and company listings in the next 1-2 years among companies with ambitious growth corrections in housing prices and regulatory restrictions. With the recent news of Veidekke
targets cultivating their business similar to NCC in 2016, and Selvaag Bolig selling off their land bank, it
could be the start of structural changes within the segment
1) Figures as of January 15th 2020 with stock market observations from 01.01.2017 to 15.01.2020
Source: Pangea Research, Thomson Reuters
37
Pangea Outlook Norway 2020 Pangea Property PartnersNordic listed property market size Total market cap of almost NOK ~755bn across the Nordics
MARK ET CAP PER COMPANY
80
75
Sweden
70
Norway
60 58 57
Finland
49
50
45
Denmark
NOKbn
41
40 37
36
29
30 27 26 25
21 20 20
20 18 18 18 17 16 15
13 13
11 10
10 7 6 6
5 4 4 4
3 2
1 0.4
0
The Nordic listed sector grew by ~64 % the last year adjusted for listings/de-listings1) Market cap by country
Especially Sweden and Finland have seen high pricing growth and the Finnish listed sector is now bigger than the Norwegian sector
The Swedish sector is heavy in high performing segments such as logistics and office (PREX Logistics: +125 %, PREX Office: +55 %).
In the Finnish sector, the fast-growing Kojamo is purely invested in rental apartments (PREX Residential: +68 %) and Hoivatilat in Companies 3 27 3 3 36
public sector real estate
Market cap
~51 ~621 ~62 ~21 ~755
The takeovers of Hembla and Hoivatiltat by German Vonovia and Belgian Aedefica could possibly mean an exit of NOK ~22bn from (NOKbn)
the Nordic listed sector, while SBB would grow to be the largest Nordic real estate company within social infrastructure after
acquiring Hemfosa 1Y %-change1) +35 % +67 % +74 % +48 % +64 %
1) Figures as of January 15th 2020
Source: Pangea Research, Thomson Reuters
38
Pangea Outlook Norway 2020 Pangea Property PartnersValuation P / EPRA NAV has increased by ~37 % in the Nordics the last year
PRICE / EPRA NAV PER COMPANY
3.0x
2.8x 2.8x
Sweden
2.6x
2.6x
Norway
2.2x 2.1x 2.1x
Finland
1.8x
P / EPRA NAV
1.8x 1.7x
1.6x 1.6x 1.6x 1.6x
1.5x Denmark
1.4x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x
1.4x 1.3x 1.3x 1.3x
1.2x 1.2x
1.1x 1.1x 1.1x 1.1x 1.1x
1.0x
1.0x
0.8x 0.8x 0.8x
0.6x
0.6x
0.5x
0.2x
The P / EPRA NAV of the overall Nordic listed sector has increased by +37 % the last year, largely due to Swedish stocks being priced Weighted average P / EPRA NAV
+59 % higher than last year and making up ~85 % of the total Nordic market value
The Norwegian pricing has been driven by NPRO and Entra, and the Finnish market is currently being priced +74 % higher than last
year due to Kojamo’s stock price nearly doubling, and in turn contributing to the total P / EPRA NAV premium of ~62 %
Jan-19 0.7x 1.1x 0.8x 1.7x 1.0x
All countries except from Sweden suffer from small sample size, making it difficult to compare and be conclusive on the deviating
pricing between the sectors, such as the large discrepancy between Swedish and Norwegian book value pricing Jan-20 0.8x 1.5x 1.3x 1.6x 1.4x
During the last year, Victoria Park and Technopolis have been de-listed, and K2A, John Mattson, BoStad and K-Fastigheter have been
%-change +14 % +40 % +62 % -8 % +37 %
listed
Source: Pangea Research, Company reports
39
Pangea Outlook Norway 2020 Pangea Property PartnersListings and takeovers High M&A activity
PRICE 1) / EPRA NAV (2014 – 2019) RECENT TAK EOV ERS
1.3x
LISTINGS TAKEOVERS Aedifica has acquired ~96% 3) of the
share capital in Hoivatilat at a premium
of ~26% 4). Hoivatilat’s property
1.2x portfolio is EUR ~457m.
Oscar Prop. (SWE) Solon Eiendom (NOR) Hoivatilat (FIN) Kojamo (FIN) Brinova (SWE) K2A (SWE)
SEK 0.5bn NOK 1.5bn EUR 0.2bn SEK 4.9bn SEK 3.4bn SEK 3.3bn 3) Includes shares already held by Aedifica
1.1x 4) Premium to last trading day prior to tender offer announcement
Entra (NOR) SBB (SWE) Magnolia (SWE) John Mattson (SWE)
NOK 32bn SEK 7.5bn SEK 3.2bn2) SEK 6.1bn
PRICE / EPRA NAV
1.0x Vonovia has acquired ~95% 5) of the
share capital in Hembla at a premium
of ~11.5% 6). Hembla’s property
Stendörren (SWE) Nyfosa (SWE)
portfolio is SEK ~34bn.
SEK 6.7bn SEK 15.4bn
.9x
Tribona 30 % (SWE)
5) Includes shares already held by Vonovia
SEK 3.0bn 6) Premium to B-shares last trading day prior to tender offer
announcement
.8x
D. Carnegie 50 % (SWE) Sponda 100 % (FIN)
SEK 9.4bn EUR 3.8bn
Technopolis 100 % (FIN) SBB has acquired ~92% 7) of all
EUR 1.6bn outstanding shares in Hemfosa at a
.7x premium of ~23% 8). Hemfosa’s
Victoria Park 81 % (SWE) Stendörren 41 % (SWE) property portfolio is SEK ~40bn.
SEK 12.5bn SEK 3.3bn
.6x 7) Includes a share of ~6 % already held by Aedifica
Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 8) Premium to common shares last trading day prior to tender offer
announcement
1) Average share price for the quarter
2) Estimated values of ongoing project included
Note: Values reflect underlying property value for the respective amount of shares acquired/listed
Numbers as of January 13th 2019
Source: Pangea Research, Company reports
40
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