The Canada Pension Plan Investment Board's $1.8-billion (U.S.) equity investment in a portfolio of U.S. shopping centres is an important transaction for the fund in a number of ways.
The deal, which will see CPPIB create a joint venture with the Westfield Group, is the pension plan's largest real estate transaction ever and shifts the balance of its portfolio from office space towards retail.
But it also diversifies CPPIB's U.S. retail holdings, which had been primarily around the east coast, towards the west coast (most of these shopping centres are in California).
CPPIB has become incredibly active in this space over the last year, and now has an interest in 26 U.S. malls. Its portfolio has grown rapidly – three years ago the pension fund couldn't find any attractive investments in this space. And Graeme Eadie, the fund's senior vice-president of real estate investments, suggests that its timing has been spot on.
"I think the U.S. is in recovery mode and we are already seeing sales increases over the last year in the major shopping centres, particularly the best shopping centres," he says.
Rents are starting to accelerate, he adds. Westfield has done a lot of work on the properties that CPPIB is now investing in, and they were leased at a time when the market is weak, so there's plenty of upside, Mr. Eadie says.
The Westfield Group, which manages $61.7-billion in assets including 118 shopping centres in five countries, reported its annual earnings Wednesday morning and said that its net property income was up eight per cent in Australia and New Zealand, 36 per cent in the United Kingdom, and one per cent in the United States.
U.S. specialty retail sales rose 7.1 per cent in 2011, Westfield said, and 9.8 per cent in the month of December.