Posted on 16 June 2020
Virtual Roundtable on Real Estate Reporting Trends
What trends are investor relations professionals experiencing in real estate fund reporting? How are real estate investors’ requirements changing under the cloud of Covid-19?
Stephane Campori, Director Real Estate at Alter Domus interviewed senior professionals at four leading real estate fund managers to seek their views on the changing landscape of real estate fund reporting – especially in light of the Covid-19 pandemic.
Meet the participants
Nick Bradley, Head of Investor Relations at M7 Real Estate, is involved in reporting on the fund performance of M7 managed vehicles and plays a central role in managing investor relationships. M7 Real Estate is one of the leading specialists in the pan-European regional, multi-let real estate market with circa EUR 5 billion in AuM.
Sylvia Slaughter, Senior Director Fund Management at Gazeley, is responsible for business planning, fund performance, capital management, investor reporting and fund governance. She is also a member of the INREV Due Diligence Committee. Gazeley is part of GLP, a leading global investment manager in logistics infrastructure, finance and related technologies totalling USD 89 billion in AuM.
Lee Marshall, Head of Continental Europe at LaSalle Global Partner Solutions, is responsible for all aspects of investment management for continental European clients. Before joining LaSalle GPS in 2018, Lee held senior positions at Aviva and CBRE. LaSalle Global Partner Solutions offers investors access to global investment opportunities through a variety of investment vehicles including co-investments, joint ventures and secondaries.
James Howard, Global Head of Fund Finance at Savills Investment Management, is responsible for the management of the Fund Finance teams across the Savills Investment Management group, overseeing the finance and operational functions of real estate investment structures within the business. Savills Investment Management is a global real estate investment manager with 300 employees across 17 offices managing EUR 20.7 billion of assets, providing investors with direct and indirect exposure to real estate.
As a starting point to our discussion, could you please highlight your current investor reporting process?
Describing investor reporting practices at M7, Head of Investor Relations Nick Bradley explained, “We typically provide quarterly reporting, alongside any ad hoc requests and regular investor meetings. These have evolved in terms of format and content over the last ten years. We manage over 800 assets across the UK and Europe, with an average value of approximately EUR 5-6 million per asset. Our reporting must be informative, but not contain too much granular detail, especially as our group manages 34 different mandates, each with their own requirements.”
Sylvia Slaughter, Senior Director Fund Management at Gazeley, added, “The frequency and amount of information we report depends on the fund. Income funds are relatively stable, so quarterly reporting plus an annual report provides good transparency. Development funds, by nature, have more risk and variability, so reporting is more frequent. We still have the same quarterly reporting structure, but with more frequent communications in between.”
Lee Marshall, Head of Continental Europe at LaSalle Global Partner Solutions, highlighted, “As a fund-of-funds manager, it’s always a challenge balancing the timing of reporting with the level of detail. I think that’s why we’ve seen a bit of a move toward two-stage reporting, with managers delivering a flash report as close as possible to the valuation date – the key content being the NAV, with some commentary about what’s going on in the market, key transactions, etc. That is backed up at a later date with much more granular information, which may include more commentary, editorial, forecasts and more granular detail about individual aspects of each fund.”
According to James Howard, Global Head of Fund Finance at Savills Investment Management, “Whilst each product has slightly different reporting requirements, for most products, investor reporting is provided on a quarterly and annual basis. In terms of content, we utilise a global template that acts to standardise quarterly and annual reports to the extent possible.” Considering comprehensive reporting templates pre-empt questions from investors, Mr Howard added, “A lot of work goes into reporting, and investor feedback has been positive.”
As top real estate players, what trends do you see in the industry for reporting to investors?
Mr Marshall noted a slight difference in the reporting requirements of larger investors, commenting, “We are seeing a movement in the industry for bigger investors to demand more granular information so they can more accurately do their own modelling. They often have in-house forecasts, in-house views of where market occupancy and rental levels will go – and they need the individual asset details to be able to model that out. As an investor, however, I wouldn’t want to lose the ability to invest with a manager who had a great track record and philosophy just because they didn’t have the capacity to provide all the information I requested.”
Mr Bradley observed, “We are seeing a trend towards quality over quantity of information within reporting. We need to provide a concise and transparent snapshot of what’s happening in the fund, ideally in a 1-4 page document. This ensures investors can take note of any metrics from a performance or valuation point of view that we believe are key to the success of the particular fund.”
Mr Howard added, “Each investor and product is slightly different, but the general trend has been towards investors requesting more specific information or better granularity, or towards them requesting information in their own format – which is often the same information we’ve already provided in our quarterly and annual reports. I think the solution to meeting these requests lies in technology and automation.”
Ms Slaughter highlighted the need to strike a balance between transparency and detail in reporting. “At the end of the day, investors want managers to be managing their investments – not spending time on excessively granular reporting details that may not add value or provide useful information. You must make a judgement call as to what is helpful to the investor, what is significant, and what is meaningful.”
How has the Covid-19 pandemic impacted your investor communication?
Describing the recent impact of Covid-19 on investor communications at Gazeley, Ms Slaughter noted, “As a global company with significant operations in Asia, our European team had the benefit of seeing Asia go through the process first from January to April, and now the aftermath as they are emerging from the other side. We were able to see how that market reacted, what happened on the tenant side, what were the rental requests that happened (or didn’t happen), and how many sites closed down and for how long.”
“Going through this experience early on allowed us to prepare an FAQ. In early March, the global situation was still very fluid and changing every few days, so we were updating our FAQ very frequently and keeping in constant contact with our investors – it was a classic crisis communication management situation,” she explained.
Mr Bradley explained “As soon as the Covid-19 lockdown was announced, M7 focused on proactively managing each of our funds and mandates, with the aim to keep our senior lenders and investors as up to date as possible. In addition to the usual quarterly reporting, this means issuing shorter, interim reports every two weeks focused on rent collection and ultimately what M7 is doing to protect investor capital. These include the rent collection position, the debt position per fund and updating any changes to the asset management strategy when necessary. The core aim of these reports is to keep investors informed, whilst demonstrating a proactive approach during this uncertain period.”
At LaSalle GPS, Mr Marshall recalled, “When Covid-19 struck, we did some additional analysis with our underlying funds and service providers to see how they were doing. We wanted to ensure people could effectively work from home and continue to operate despite the limitations being put on all of us. The good news is that everyone seems to be able to continue to operate effectively.”
Mr Marshall continued, “With this information in hand, our next step was to reach out to clients. Jeff Jacobsen, Global CEO of LaSalle Investment Management, hosted a conference call for all clients – enabling them to dial in and ask us questions directly about our approach, what we saw as the risks, and the way forward for the business and for their investments.”
Looking towards the long-term, what impact do you expect the pandemic to have on investor reporting and your own operations?
Recounting Savills Investment Management’s experience, Mr Howard said, “Stress testing, liquidity and tenant solvency are issues that are being pushed to the forefront by Covid-19, all of which we have been testing with greater frequency during this pandemic. We have been proactive in sharing this information with investors and have been holding regular calls to update them on the assets and address any specific concerns they may have. This proactive approach has been greatly appreciated and provides an additional level of comfort. It is likely that investors’ focus on these areas will continue longer term.”
Mr Howard added, “We’ve been receiving a number of different investor queries, but we have sought to address responses to all investors within the same product to ensure that each investor is treated fairly and has access to the same information. It’s an ongoing process and there’s a lot of ad hoc communication at the moment.”
Ms Slaughter concurred, and added “Communicating with investors during this lockdown time is interesting – it forces us to innovate more. How can we communicate with investors without face-to-face meetings? Without physical property tours?”
She believes that out of this crisis, the industry will innovate. “Earlier this week, we were evaluating a new virtual property tour our team put together, and we realised this is probably going to become the new market standard. Even when things go back to normal and people can travel, this type of interactive, virtual experience is so much more interesting than a PDF asset book. It’s an innovative tool that will make investor communication better.”
Mr Bradley added, “Keeping our investors as informed as possible is our main aim in the current economic environment. We will continue to provide fortnightly reporting that will address key concerns raised by our investors and lenders. We will continue to adapt our reporting based on the needs of our investors to ensure all information they require is available.”
On his side, Mr Marshall predicted, “I’m not sure it will change ongoing reporting, but I do think it will change the content of the initial IMAs or LPAs, so it is more clearly spelled out how we will deal with these kinds of situations. If an underlying fund valuation has an uncertainty clause attached to it, there will be a clear procedure for fund managers to build that caveat into their valuation, or to have a different pricing mechanism, for example. Today, everyone has been working in the grey areas of the legal documentation, which allows the manager to have a degree of judgement with how they deal with force majeure or illiquid market situations. In the future, I think investors will want to know upfront exactly how managers will deal with these situations.” He also expects BCP to become subject to enhanced due diligence on both fund managers and service providers going forward.
ESG has become a key topic within the industry. What is your approach towards providing ESG information in reporting?
Mr Bradley noted “Our ESG strategy with reporting is reviewed and communicated to employees, investors and suppliers on a regular basis. We establish appropriate environmental management plans for all assets under management to minimise the impact on the local environment. Regular environmental audits review the environmental performance of each asset so that our larger investors can see the impacts. We understand there is a need for ESG within the reporting framework and we try to ensure we cover all bases for the type of assets and funds that we manage.”
Mr Howard explained, “ESG and sustainability are covered within our quarterly and annual reporting and plays a key role in our internal governance and investment decision making. Savills Investment Management is a signatory to the UN Principles of Responsible Investors, and we report performance to the GRESB benchmark. There’s a big push to get better granularity and meaningful reporting on the ESG measures from the property managers to assist our funds and products in this reporting.”
According to Mr Marshall, “LaSalle has been very active in this area. Up until now, we have provided an annual sustainability report to our investors, and we are currently building a sustainability component into our quarterly reporting. Our ESG specialist sits on the Board of GRESB, and we ask all funds to take part in the annual GRESB survey. We have identified a few areas in GRESB that we feel are particularly important, and we engage with fund managers on these points during reviews.”
Ms Slaughter commented, “We include sustainability as part of our quarterly and annual reporting, and also get ad hoc questions from investors. After the global financial crisis, there was a push from investors on sustainability – so the focus on building certificates and energy ratings has been quite strong since then. We have participated in GRESB benchmarking since 2013, which I think is the best barometer for the real estate industry.”
Switching to financial reporting, what standards do you follow?
“There’s a little bit of a mixture at LaSalle,” noted Mr Marshall. “Some of our clients will request IFRS because it keeps the valuations more in line with their wider portfolio. We’re comfortable with INREV NAV as well, particularly in some circumstances where adjustment from IFRS makes sense. Asset managers will usually have a reconciliation between IFRS and INREV NAV.”
Commenting on her experience at Gazeley, Ms Slaughter explained that IFRS was necessary for an international investor base. “The INREV Reporting Guidelines is not something our investors have asked for yet, but I would like to explore it to help minimise investors sending us too many specific templates. It is something, however, we need to collectively agree with our investor partners.”
Mr Bradley explained, “We prepare quarterly IFRS reporting which includes primary financial statements. In some cases we provide bespoke financial reporting to investors if requested. We also have some separate accounts who will ask us to provide an INREV NAV based on certain criteria.”
Mr Howard added, “The most common standard we report under is IFRS, which we use for our Luxembourg, UK and Singapore domiciled funds. We follow INREV guidelines for a number of our funds, but often have flexibility on which INREV adjustments are adopted.”
Turning to the operational side of investor reporting, how do you pull out your data? What tools do you use?
“We have an investor relations team that is assigned to each product, and is responsible for pulling reports together and getting input from the respective teams: finance, asset management, fund management, research, and compliance,” explained Mr Howard. “It’s a time consuming process involving many areas of the business, however this is being continuously improved with the implementation of systems and automation where possible, further streamlining the process.”
Mr Bradley noted, “M7 operates a suite of systems including Yardi and Coyote and its own bespoke Business Intelligence platform. The property database Coyote is central to M7’s operations and we use Yardi asset management and a ledger accounting system to transfer data electronically. These integrated systems remove the need for double keying and simplifies the business process, which is particularly important when reporting on 34 mandates across 14 different countries.
“Investor reports are the responsibility of our fund management team,” points out Ms Slaughter. “We rely on a substantial amount of data from the finance team, and pull a lot of information from different parts of the business. Then it all goes into our own reporting template, and we try to standardize as much as we can.”
She added, “The review process is quite broad and involves the finance, treasury, compliance, risk management and legal teams.”
“On the operational side of things, we use W Desk as our reporting tool and Qualtrics as our data collection tool,” Mr Marshall shared. “The analysts within the team are responsible for Qualtrics data collection and translating that into a usable format. Then W Desk allows us to pull out appropriate data from that data set into client reports with a consistent template and format. We use a couple of different platforms, but it’s an ongoing project to develop our reporting and make it more streamlined and efficient.”
Director, Real Estate Europe