The Canada Pension Plan Investment Board is making a whopping $1.8-billion investment in shopping malls in the U.S. with a new joint venture agreement with the Westfield Group in its biggest real estate deal to date.
The pension manager said Tuesday it will take a 45 per cent stake in the joint venture that will include interests in 10 regional malls and two redevelopment sites south of the border.
Most of the properties are in California.
'This acquisition represents our largest real estate investment to date globally.' —Graeme Eadie, Sr. V-P, CPPIB
"This is an excellent opportunity to acquire a significant interest in a portfolio comprising high quality regional shopping centres that are well positioned for long term growth," said Graeme Eadie, the board's senior vice-president for real estate investments.
"This acquisition represents our largest real estate investment to date globally and supports our retail real estate strategy of investing in dominant regional malls with best in class operators."
The deal will make the board one of the largest institutional investors in regional shopping centres in the U.S. with interests in 26 malls.
Australia's Westfield Group will serve as the managing general partner and will manage, lease and develop the properties which also include malls in Maryland and Washington state.
"This new agreement continues the group's strategy of creating value through the introduction of joint venture partners into our assets globally," Westfield Group co-chief Peter Lowy said.
Westfield has one of the world's largest portfolios of shopping centres in the world with interests in 118 shopping centres in Australia, the U.S., Britain, New Zealand and Brazil.
Real estate generates predictable cash flows
Pension plans often invest in shopping malls and other types of real estate because they can generate predictable cash flows over long periods of time, in line with the benefit obligations to retirees.
Many pension funds have tried to diversify away from volatile stocks in recent years to infrastructure, real estate, bonds and other safer assets.
The U.S. joint venture follows a deal in 2010 that saw the CPP board take a 25 per cent stake in Westfield Stratford City, a mall near where the 2012 Summer Olympic Games will be held in London.
The Canadian money manager also holds a 50 per cent stake in a Westfield fund that owns four shopping malls in Britain. In January, the CPP board invested $40 million for a 24.5 per cent stake in a beachfront shopping centre in the Brazilian city of Rio de Janeiro.
The Caisse de depot et placement du Quebec, through its Ivanhoe Cambridge real-estate arm, holds the remaining 75.5 per cent stake in the 138-store mall.
Brazil is hosting the 2016 Summer Olympics and the 2014 World Cup of soccer.
CPPIB invests money that isn't required to pay for current retirement benefits under the federally administered CPP.
The investment fund's performance is key to ensuring that future generations of Canadians have access to CPP payouts, even when the number of contributors declines in relation to pensioners.
Canada's chief actuary has reviewed the fund's health and affirmed that it remains sustainable at the current contribution rate of 9.9 per cent for at least 75 years.
Contributions are expected to exceed benefit payouts until 2021, when the CPPIB investments will help to fund pensions.