Introduction
This update from the M&G Treasury & Investment Office
(T&IO) provides an insight into the characteristics of
the property portfolio within the PruFund range of
funds and the strength of the M&G Real Estate team
who T&IO work with to create, manage and monitor
underlying investments.
This update covers the PruFund Growth, Cautious and
Risk Managed Ranges. It doesn’t cover the PruFund
Planet Range.
We hope to highlight the key differentiators and
strengths including;
• Leveraging off the resource and expertise within
M&GReal Estate
• The global exposure to high quality assets
• Using segregated pools of assets or large scale
institutional funds to best capture opportunities
• Importance of active management
• Ability to invest in development projects
• The ongoing work to enhance the ‘environmental’
credentials of portfolios
PruFund Growth invests into over 160 property assets
globally. The majority are directly held assets or joint
ventures, although some exposures are via collectives/
indirect funds, which themselves invest in 100s of
underlying properties.
The M&G Real Estate team, who run the underlying
property funds within PruFunds, focus on income as the
principal driver of long-term return but also look to achieve
capital growth through exploitation of market mispricing,
sector allocation and individual asset allocation.
Characteristics of property portfolios
within the PruFund range of funds
Expertise – M&G Real Estate have decades of
experiencein buying, selling and managing properties,
which has helped to shape their investment approach.
This focuses in identifying fundamentally well located
assets that are underpinned by favourable structural
anddemographic trends
Global exposure – increased allocations to European
andAsian property market in recent years with UK still
thecore holding
Diversification – commercial property has provided
consistent risk adjusted returns to PruFund portfolios
over many years. The evolution of different strategies
in the UK and overseas, provides further diversification
through increased exposure to alternative sectors such
asresidential property and student housing assets
Scale – enables investment in large, high quality assets
and also the ability to invest in development projects like in
Edinburgh’s Haymarket and 40 Leadenhall in London
Active management – means the portfolios can evolve as
markets change, for example reducing exposure to smaller
retail assets in the UK has been a theme for several years
due to the challenge from online retail
Access to new opportunities – and the ability to offer
arange of innovative solutions, is supported by their
scale, experience, depth of knowledge and strong
industryexperience in the markets where they operate
Environmental Social Governance (ESG) – as a
responsible investor, M&G Real Estate aim to deliver
better outcomes for their investors and society. Promoting
environmental excellence; health, wellbeing and occupier
experience; and a positive contribution to society are their
core pillars of focus
Real assets – property offers an element of inflation
protection over the medium-to long term
Please note when clients invest in property funds there may be times when they can’t immediately access their
money as property can take a long time to sell.
The value of any investment (and any income taken from it) can go down as well as up so your customer might not
get back the amount they put in.
The views expressed in this document should not be taken as advice or a recommendation.
For UK financial advisers only, not approved for use by retail customers.
Asset class insight: Property
An in-depth review of the Property investments held in PruFund. These reviews are
updated every six months with the latest details available at the time of publishing.
Pru
part of M&G pie
2
Strategic Asset Allocation
(total fund level) for PruFund Growth
Fund Activity (commentary from M&G Real Estate as at 30.09.2023)
In the UK the fund completed the acquisition of a portfolio
of prime multi-let industrial estates in London and the
South East for a total £78.9m and an additional acquisition
to an existing shopping centre for a total of £3.4m.
In Europe, the fund received a further drawdown notice for
£16.6m from the M&G European Living Fund. The capital
was invested in the fund’s second purchase – a residential
asset in Dublin.
In terms of rent collection, the fund has achieved collection
rates of 96% for Q3 2023. Both industrial and office have
reported healthy collection of 97-98%; retail remains
lowest at 92.5%.
Asset Fund Name Investment Style Internally or
Externally managed
UK Property Life Fund Property Portfolio (Mixture of global
directly held assets, Core Balanced Collectives
and Sector Specialist Collectives)
Active Internal
Europe Property Life Fund Property Portfolio (Mixture of global
directly held assets, Core Balanced Collectives
and Sector Specialist Collectives)
Active Internal
North America Property Life Fund Property Portfolio (Mixture of global
directly held assets, Core Balanced Collectives
and Sector Specialist Collectives)
Active Internal (and
indirectly external)
Asia Property Life Fund Property Portfolio (Mixture of global
directly held assets, Core Balanced Collectives
and Sector Specialist Collectives)
Active Internal
(source T&IO and Pru Actuarial team as at 30.09.2023)
Regional Weights
Sector W
eights
■ Asia
■ North America
■ Europe
■ UK
■ Shopping Centre
■ Office
■ Retail Warehouse
■ Retail
■ Other
■ Industrial
14.5%
11.0%
11.7%
63.0%
11.6%
32.8%
6.2%
5.5%
12.9%
30.9%
PruFund Growth Summary
Regional W
eights
Sector Weights
■ Asia
■ North America
■ Europe
■ UK
■ Shopping Centre
■ Office
■ Retail Warehouse
■ Retail
■ Other
■ Industrial
14.5%
11.0%
11.7%
63.0%
11.6%
32.8%
6.2%
5.5%
12.9%
30.9%
(Source – M&G Real Estate % of global property portfolio as at 30.09.2023)
3
UK key statistics
KPI September 2023 June 2023
Asset Value £7.703bn £7.834bn
Number of assets 142 142
Average Lot Size £54.2m £55.2m
Value of largest holding 8.5% (40 Leadenhall) 8.1% (40 Leadenhall)
Value of largest tenant (% of rent roll) 6.9% (Ashurst) 6.9% (Ashurst)
Number of Developments 3 5
Development Exposure 10.2% 9.8%
Net Initial Yield 4.8% 4.7%
Net Equivalent Yield 6.8% 6.7%
Vacancy % of ERV 10.1% 10.0%
WAULT* (including breaks), years 7.4 7.7
(Source – M&G Real Estate as at 30.09.2023)
* weighted average unexpired lease expiry
Investment transactions
Acquisitions
Date Asset Sector Town Country Purchase
price, £m
Comment
03 Oct 22 Clarion Lion
Industrial Trust
Industrial US 69.5 1st Drawdown into the
Clarion LIT specialist US
industrial fund.
03 Jan 23 Clarion Lion
Industrial Trust
Industrial US 64.9 2nd Drawdown into the
Clarion LIT specialist US
industrial fund.
23 Nov 22 Macquaire
Goodman
Industrial Australia 9.8 Drawdown tranche
2 into the Macquaire
Goodman specialist
Australia industrial fund.
01 Apr 23 Project King Industrial UK 48.4 Purchase of prime
London and South
East multi-let
industry portfolio
03 Apr 23 ELIV Residential Europe 3.8 Drawdown into the
newly launched M&G
European Living Fund.
4
Date Asset Sector Town Country Purchase
price, £m
Comment
12 Jul 23 Project King Industrial UK 17.5 Purchase of prime
London and South
East multi-let
industry portfolio
28 Jul 23 CENTRAURUS
RETAIL PARK
Retail
Warehouse
UK 3.4 Purchase of 50% rest
of state
04 Aug 23 Project King Industrial UK 13.0 Purchase of prime
London and South
East multi-let
industry portfolio
29 Sep 23 ELIV Residential Europe 10.7 Drawdown into the
newly launched M&G
European Living Fund.
Total
Acquisitions
241.0
Disposals
Date Asset Sector Town Country Purchase
price, £m
Comment
31 Mar 23 WARRINGTON 389,
WARRINGTON
Industrial WARRINGTON UK 22.1 Sale of secondary
distribution
warehouse
26 Jan 23 BYRON HOUSE,
LONDON
Office London UK 45.4 Sale of multi-let under
performing office
09 Feb 23 SITE 2 CRIBBS
CAUSEWAY
Retail
Warehouse
Bristol UK 22.1 Sale of small
development site
31 Mar 23 CBRE Retail
France/Belgium
Shopping
centre
Europe 0.3 Final fund
liquidation
proceeds
06 Apr 23 London Square Office UK 38.0 Sale of secondary South
East office campus
31 May 23 Project King Industrial UK 30.0 Sale of
secondary multi-let
industrial portfolio
22 Jun 23 59/61 Church Streey Standard
Retail
Liverpool UK 1.4 Sale of non-core high
street retail asset
26 Jun 23 LF INTEREST IN ST
EDWARD HOMES
Residential UK 74.9 Distribution from build
to sell strategy
01 Aug 23 LF Investment
in PRELP
Other UK 45.0 Redemption from
investment in PRELP*
Total
Disposals
279.2
*Prudential Real Estate Limited Partnership
5
Strategic Asset Allocation
(total fund level) for PruFund Cautious
The following data is in relation to the Prudential Real Estate Limited Partnership (PRELP) which is how PruFund
Cautious gains exposure to the UK Property market. PruFund Cautious gains its European property exposure via the
M&G European Property Fund (MEP), Asian property exposure via the M&G Asian Property Fund (MAP) and has some
direct property exposure to the North American property market. The below provides insight into the PRELP collective
investment vehicle.
Asset Fund Name Investment
Style
Internally or
Externally managed
UK Property Prudential Real Estate Limited Partnership (PRELP) Active Internal
Europe Property M&G European Property Fund (Core-Balanced Collective) Active Internal
North America
Property
Morgan Stanley Prime (Core-Balanced Collective)
Directly held assets
Active External
Internal
Asia Property M&G Asia Property Fund (Core-Balanced Collective)
Sector Specialist Collectives within Prudential Australian
Property Trust
Active Internal
(Source T&IO and Pru Actuarial team as at 30.09.2023)
PruFund Cautious UK Property
Fund Activity (commentary from M&G Real Estate as at 30.09.2023)
Total return for Q3 2023 was negative this was largely driven by under performance of office assets, but we expect
these assets to lead to improved returns and portfolio quality on completion during 2024.
In terms of rent collection figures for 2023 Q2 stands at 99% and Q3 2023 has also attained 99%, 6 weeks after the quarter
day. Work continues to secure payments of outstanding rental and service charge liabilities notably in the retail sector.
Sector weights (PRELP)
■ Retail
■ Office
■ Industrial
■ Residential and
alternatives
21.0%
30.0%
32.0%
16.0%
6
UK Key Statistics
September 2023 June 2023
Net Asset Value £977.1m £990.1m
Number of assets 43 43
Average lot size £22.0m £22.1m
Value of largest holding 9.5% (Tottenham Ct Rd) 8.7% (Tottenham
Ct Rd)
Value of largest tenant
(% of rent roll)
6.8% (Sainsburys) 7.0% (Sainsburys)
Number of developments 2 2
Development exposure 13.3% 12.0%
Net Initial Yield 4.1% 4.0%
Net Equivalent Yield 5.8% 5.7%
Vacancy of ERV 8.0% 8.8%
WAULT* (inc. breaks), years 11.3 % 12.0%
(Source – M&G Real Estate as at 30.09.2023)
* weighted average unexpired lease expiry
Investment transactions, last 12 months
Disposals
Date Asset Sector Town Purchase
price, £m
Comment
09 Mar 23 Dial House, 2
Burston Road
Office London 11.00 Disposal of vacant office
asset given excess levels of
development exposure
05 May 23 Pets at Home Industrial Stoke on Trent 7.00 Mitigating void and
development exposure
Total Disposals 18.00
Want to know a bit more about the M&G Real Estate team?
M&G Real Estate is recognised as one of the world’s leading property investors. They invest across all sectors with a
portfolio that spans 29 countries. They are the specialist property manager for M&G and are responsible for managing
the property investments within PruFunds.
Globally, M&G Real Estate manage more than £37.4 billion assets* on behalf of clients, providing a range of funds and
bespoke solutions for PruFunds, including segregated mandates and pooled investment funds.
* as of 30.09.2023, source M&G Real Estate.
7
Environmental, Social and Governance
M&G Real Estate are a responsible investor, whose goal is
to deliver better outcomes for their investors and society.
By driving environmental improvements and increasing the
operational efficiency of their buildings, M&G Real Estate
are committed to achieving net zero carbon emissions
across their global real estate portfolio by 2050. Over
40% of their global asset portfolio (by value) has a green
building certification, and they continue to drive asset
certification to provide independent verification of their
assets sustainability credentials.
In regards to PruFunds, M&G Real Estate are aware that
caution should be applied towards those assets which
fail to meet or keep up with Minimum Energy Efficiency
Standards (MEES), which could become ‘stranded’ –
unlettable and unviable for investors. It is clear that ESG
remains at the forefront of investors’ thinking and the
ability to reshape and future-proof portfolios in line with
these themes will be an important driver of performance
going forward.
A good example of ESG at play within our property
portfolio is the development of an office campus
for Surbana Jurong, one of Asia’s largest urban and
infrastructure consulting firms. The campus was designed
as a ‘holistic green building’ ensuring it is environmentally
less impactful, highly energy, water and resource efficient
and enhances the wellness and productivity of occupants.
The project is one of the first to achieve a Platinum (Super
Low Energy) rating under Singapore’s BCA Green Mark
Programme for environmentally sustainable buildings and
was funded through the M&G Asian Property Fund that is
held within PruFunds.
Summary
Despite recent turbulence in the financial markets, the
property outlook is one of cautious optimism as central
banks have stabilised the situation and the contagion
risk looks managed. Investors caution led to declines
in transaction activity across the world, particularly in
Europe & the Americas.
We continue to see yields adjust as investors go through
a period of price discovery, placing downwards pressure
on valuations. That said the UK remains much further
ahead in its price correction and has started to show signs
of a moderation in the pace of capital decline as a result.
Asia Pacific continues to see the least impact from
the recent occupier and investor caution and will likely
maintain its relative outperformance, underpinned by
relatively lower inflation and a stronger economic outlook.
There are increasing signs that occupiers are becoming
more cautious about taking space, particularly in the office
sector, although well-located core stock with strong ESG
credentials continues to attract demand and should prove
more resilient in the face of economic headwinds.
Challenges prevail for property at the moment but it
is important to remember that much of the portfolio
is of a very high quality, diversified and long-term
investments that we feel will generate good returns
over a multi-year period.
As active managers M&G Real Estate continue to invest
in, and complete new projects. A recent example being
the development of 40 Leadenhall in London’s financial
district. This project taps into modern occupier demands
and is set to be the largest office development in the City
of London in 2024. Designed to be green in use, not just in
design, it will be among the UK’s first buildings to achieve
the NABERS certification – an energy efficient standard that
measures how a building’s designed to operate as well as
how it performs in use.
The scheme is now 70% pre-let before it’s completion this
year and indicates that tenant demand for quality (Grade A)
office space continues to be bouyant.
‘Prudential’ is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered office at 5 Central Way,
Kildean Business Park, Stirling FK8 1FT. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority.
GENM100060312 02/2024_WEB
The information in this document has been provided by M&GReal Estate Limited, a part of the M&Gplc group.
Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The
Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&Gplc,
acompany incorporated in the United Kingdom.
Any opinions expressed are present opinions reflecting current market conditions, they are subject to change without
notice and involve a number of assumptions which may not prove valid.
There is no guarantee that these investment strategies will work under all market conditions or are suitable for all
investors and you should ensure you understand the risk profile of the products or services you plan to purchase.
M&G plc does not offer investment advice or make recommendations regarding investments. Opinions are subject to
change without notice.
The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may
get back less than the original amount invested and past performance information is not a guide to future performance.
‘M&G Treasury and Investment Office (T&IO)’ includes the team formally known as Prudential Portfolio Management Group
(PPMG). Prudential Portfolio Management Group Limited, is registered in England and Wales, registered number 2448335.
