DENMARK – Denmark's Unipension has announced a complete overhaul of its real estate strategy, selling its entire portfolio of Danish buildings and investing the proceeds to gain exposure to European and US real estate.
The institutional investor said it would from now on invest in indirect vehicles rather than in bricks and mortar, as is currently the case.
In a statement, Unipension said: "The pension fund boards have decided on a new, joint property strategy to ensure higher long-term returns and better risk diversification than now.
"With the new strategy for property investment, we are introducing the same investment approach in the property sector that has already been successfully implemented in – for example – shares and bonds."
Unipension runs three professional pension funds in Denmark, managing combined assets of about DKK100bn (€13.4bn). The change would bring the real estate allocation at the Architects' Pension Fund (AP) and at medical scheme MP Pension down to about 5% from 11% and 6%, respectively.
However, Unipension said the allocation to the asset class would rise for the Pension Fund for Agricultural Academics and Veterinary Surgeons (PJD) from 1% to around 5%.
"Up to now, the pension funds have mainly owned Danish residential and commercial properties," it said, noting that the allocation did not offer an "appropriate spread" of investment risk.
"Therefore, the future property portfolio will be worldwide, based in Europe and the United States."
The properties it currently owns produce returns which are far too low, it noted, while the new strategy was expected to yield annual returns of 5%.
Unipension said that, between 2009 and 2012, the three pension funds made returns of between 2.3% and 4.7% on real estate.
It added that it would invest indirectly in property internationally, as it did not possess the local knowledge of global property markets – and that the cost involved in direct global investment would be "indefensible".
Unipension's current property portfolio was in the process of being sold and it hoped to dispose all of its holdings by the end of the year.
"The new property investments will generally be made at the same time as the sale of the Danish properties, in order to maintain the same overall proportion of property investment," the pension provider said.
It argued the institution's financial strength meant it could afford to wait for the right sale price for each property and that it was also important to ensure the new property portfolio was of sufficient quality.
"We expect, however, that most of the conversion takes place in 2013, though the restructuring will not be complete for a few years."
Unipension reassured tenants of its properties that they would not initially be directly affected by the planned sales, since a new owner would have to comply with the same tenancy rules.
Under Denmark's 'Tilbudspligt' law, owners of rental housing are obliged to offer tenants a share in their home.
Unipension said that where this applied, tenants would be contacted when an appropriate bid was made, and given the option of buying the property on a cooperative basis if they could match the potential buyer.