Reflections from Invesco Real Estate’s Value Add Team

[Disclaimer(s)]

Front

This marketing communication is exclusively for use by Professional Investors and Qualified Clients/Sophisticated Investors in Continental Europe (as specified in the important information), for Qualified Clients/Sophisticated Investors in Israel, for Professional Clients in Dubai, Ireland and the UK, for Sophisticated or Professional Investors in Australia, for Institutional Investors in the United States, for Institutional Investors in Singapore, for Professional Investors in Hong Kong and for Wholesale Investors (as defined in the Financial Markets Conduct Act) in New Zealand. In Canada, this communication is intended only for investors who are (i) Accredited Investors, and (ii) Permitted Clients, as defined under National Instrument 45-106 and National Instrument 31-103, respectively. It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. Please do not redistribute this document.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Property and land can be illiquid and difficult to sell, so the strategy may not be able to sell such investments when desired and at the intended price.  The value of property is generally a matter of an independent valuer’s opinion and may not be realised.

_________________________________________________________________________________

Reflections from Invesco Real Estate’s Value Add Team

Kevin Grundy

Let let's talk about what we've experienced the last 12 months. And let's start with our vantage point, because we had a little bit of an unusual position when the market was generally retreating and transaction volume was down considerably across Europe. We were out there playing offense while a lot of people were playing defense. And you know, Richard, you and I have been doing this for about 25 years or so in value add opportunistic investing. It feels to me like the environment that we're in right now is more career defining than any other time during that period. And I wonder if you feel the same about that.

Richard Chambers

I absolutely do. I think, as you say, time flies in 25 years. If you go back to the pre-GFC years when we were starting out, the value add discipline, I think was a bit different. It was very much bottom up, very granular sourcing, and it was all about how you drove returns out of your activity within that piece of real estate. I think what we've seen in recent years has been a slightly different shift, with momentum and market movement playing a part in that. And back then, it was all about underwriting at the asset level. If the market came into the equation, it was really how do I protect in a downside situation, what levers do I have? How can I mitigate those impacts? And I think, to execute like that, you need local teams. You need boots on the ground. It is very granular and I think we're back to that kind of discipline again. So for people like you and I who've been doing this for a long time and grew up back in that environment, and actually for many of our colleagues who did the same, this is a market that that really plays back to those strengths.

Kevin Grundy

It's the skill set that that you can apply right now. So one of the things that that we haven't really seen in the market is full on distress. I think some people, outside observers have been expecting that, but I wouldn't describe what we're experiencing as full distress. But there's been enough stress in the market to push forward some opportunities that we felt are pretty interesting for our value add program. What you might call deep value. And really, the characteristics that these deals share are they're repriced assets. The structuring is much more sensible, I think, than it has been in more recent years when the markets were rising. And one thing that I want to come back to in our discussion here toward the end, which is to me, the most exciting part, is the way that the interaction with best in class partners is going very different than it has been. And I think a very exciting, exciting space.

Jonathan Feldman

Definitely. I think the important point is we didn't rush to invest last year. We saw a lot of opportunities. We were extremely patient. We said no to a lot of things, but when we saw something we liked, we acted with conviction. And I think that has made for a really exciting execution for us.

Kevin Grundy

And it took time. Didn't it?

Jonathan Feldman

Absolutely. I'm not surprised that we've actually allocated all of our dry powder through 2024. But I think one of the lessons is that it was a difficult market to transact in.

Kevin Grundy

We started a lot of these conversations at the end of 2023 and into the first half of 2024, and it takes 6 to 9 months to bring these things to a conclusion. One of the things that was important about the discipline here is that we stuck to our conviction themes. If you look across what Invesco Real Estate's high conviction areas are for Europe, and you compare that to where we were executing and the value add program, it's right on top of each other, a perfect match.

Richard Chambers

If you go back to our playbook in 2023 and what we were really looking for, we were certainly focused on logistics and particular subsets of logistics. We liked living and particularly student housing, and we were interested in ESG brown to green momentum. And the real target for us, I think, was London and central London because of regulation and momentum in that space. And if you look back now and what we've actually done, we've been active in all of those spaces, and particularly within logistics, if you think about the way we've accessed that, I think that's been interesting. We've got different themes in different markets. In Germany, we're doing urban logistics development in great locations. In the UK, we've moved to multi-let industrial. So more income focused. We've got a really interesting idea that we're executing on, which is around sustainable logistics sites that might come forward for powered land initiatives, which then moves towards the data centre space. And so I think, within that whole logistics bracket, we've been really granular and interested in different subsets, in different markets, and we've been able to execute on all of those things.

Kevin Grundy

And if we if we focus on logistics just for a moment, if you look at all of the activity that we've had, about 60% of it was in the logistics space, which makes sense because, you know, in our view, the fundamentals there are still very strong. And yet we've had a repricing. And what I really like about it, I like the fact that we've we're accessing different kinds of subsectors within logistics. But I also like the fact that we're thinking about it creatively, creatively in terms of structure. So one of our investments is mezzanine. One of them is a well thought out joint venture structure in the traditional sense. And then two of them are actually platform investments. So we're approaching these things from every different angle. And I think what it really shows is the power of flexibility and structuring in this kind of market. I mean, the way things that were coming in the door over the last period of time has been very different than the way that they left the door when we've structured them and completed the deals. And it's not just logistics, it's we've been very active in purpose built student housing as well.

Jonathan Feldman

We really like student housing. I think each market is a little bit different and has a different story, but fundamentally all the markets we're looking at are very much undersupplied, and we are disciplined about how we execute. We've already acquired in the UK, France and Spain, and the focus has been strong university markets, broad demand and providing quality space rather than luxury space to really hit that largest part of the demand curve. That's been our focus and what's been really exciting is the structures we're going into. They've traditionally been kind of forward funding structures that core capital have been in, but with core capital out of the market, we've been able to enter in those defensive sectors, but just repriced for value add returns.

Kevin Grundy

And you mentioned some of the countries that we’re active in, I think the way the countries are playing out in the early days for us here in the value add program is quite interesting and it's different than it has been in the past, isn't it?

Jonathan Feldman

I think it's fair to say that the UK and Germany have always been difficult for us to access just because of the amount of capital chasing opportunities there, and that that has changed this time. We're very much active in both countries.

Kevin Grundy

I did say in the beginning that I wanted to return to this exciting point about the way we interact with partners and how much that has changed and my perception on that. And Richard, you can help with this as well, is that we're moving from an environment where partner relationships were more transactional, the one off deal where we are the right people to be working together to, to a real business building relationship, which has which has benefits for both sides. And we're seeing a lot more of that, aren't we?

Richard Chambers

And I think, we've had the benefit of building up relationships with a whole range of partners over Europe for many, many years now. And a lot of those partners have struggled in the last two years because the capital partners they traditionally had have all dried up, and they've got great teams ready to execute there. There are great opportunities in their markets, but they just haven't been able to access them. So we've approached that very much with the mindset of, let's think about our key themes that we want to execute on, and then let's go to the people we know best and that we really believe in those management teams and partner up in a really holistic way, like, let's build a business together.  I think it's a much more equitable relationship. And we are getting the benefit of vertically integrated teams within the themes that we like on a repeat basis in terms of executing on real estate that we like, but also with the benefit for our investors having participation in those businesses as they grow and succeed for no cost. It’s a different dynamic. And I think it's a really healthy dynamic. So it's been really exciting to see that evolve over the last 12 months.

Kevin Grundy

These positions with these partners are owned within the program. It gives you the benefit of exclusivity on pipeline, exclusivity on that talent, and also better economics and potential upside as well. Now, the one thing that we haven't mentioned yet in that regard is that it also opens up the door to a lot of co-invest opportunities. And if you know, we've talked about this in the past, that investors who are particularly keen on a certain sub-theme that we like can dial up exposure to that theme within the program by participating in co-invest. And if you look across the co-invest opportunities that we are working on at the moment, it's in all of those high conviction areas. It's in the logistics space, multi-let industrial, student housing, and in brown-to-green office in London.

Kevin Grundy

Every single one of those through one of these partner relationships has a co-investment opportunity linked to it. I think that's a powerful thing.

Richard Chambers

Absolutely.

Kevin Grundy

It's been a very busy end of the year and really throughout 2024. For us, it's looking like it's going to be the same in 2025. Really exciting time to be active and to draw upon all of our experience. I think really what we should do is probably get back to work.

[Disclaimers – Risks and important information]

Important information

This marketing communication is exclusively for use by Professional Investors in Continental Europe as defined below, for Qualified Clients/Sophisticated Investors in Israel, for Professional Clients in Dubai, Ireland and the UK, for Sophisticated or Professional Investors in Australia, for Institutional Investors in the United States, for Institutional Investors in Singapore, for Professional Investors in Hong Kong and for Wholesale Investors (as defined in the Financial Markets Conduct Act) in New Zealand. In Canada, this communication is intended only for investors who are (i) Accredited Investors, and (ii) Permitted Clients, as defined under National Instrument 45-106 and National Instrument 31-103, respectively. It is not intended for and should not be distributed to, or relied upon by, the public or retail investors. Investors should read the legal documents prior to investing. Please do not redistribute this document.

For the distribution of this communication, Continental Europe is defined as Austria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Luxembourg, Netherlands, Norway, Slovakia, Spain, Sweden and Switzerland.

Data as at 31 December 2024, unless otherwise stated. By accepting this material, you consent to communicate with us in English, unless you inform us otherwise. Views and opinions are based on current market conditions and are subject to change.

This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This should not be relied upon as the sole factor in an investment making decision. As with all investments there are associated inherent risks.  Investors should consult a financial professional before making any investment decisions if they are uncertain whether an investment is suitable for them. Please obtain and review all financial material carefully before investing. 

Further information on our products is available using the contact details shown.

Australia

This document has been prepared only for those persons to whom Invesco has provided it. It should not be relied upon by anyone else. Information contained in this document may not have been prepared or tailored for an Australian audience and does not constitute an offer of a financial product in Australia. You may only reproduce, circulate and use this document (or any part of it) with the consent of Invesco.

The information in this document has been prepared without taking into account any investor’s investment objectives, financial situation or particular needs.  Before acting on the information the investor should consider its appropriateness having regard to their investment objectives, financial situation and needs.

You should note that this information:

·   may contain references to dollar amounts which are not Australian dollars;

·   may contain financial information which is not prepared in accordance with Australian law or practices;

·   may not address risks associated with investment in foreign currency denominated investments; and

·   does not address Australian tax issues.

Hong Kong

This document is distributed, circulated or issued to professional investors (as defined in the Hong Kong Securities and Futures Ordinance (the “SFO”) and any rules made under the SFO or as otherwise permitted by the SFO only in Hong Kong.

Singapore

This advertisement has not been reviewed by the Monetary Authority of Singapore.

This document is provided to Institutional Investors only in Singapore. It may not be circulated or distributed, whether directly or indirectly, to persons in Singapore other than to an institutional investor under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

New Zealand

This document is issued only to wholesale investors (as defined in the Financial Markets Conduct Act) in New Zealand to whom disclosure is not required under Part 3 of the Financial Markets Conduct Act. This document has been prepared only for those persons to whom it has been provided by Invesco. It should not be relied upon by anyone else and must not be distributed to members of the public in New Zealand. Information contained in this document may not have been prepared or tailored for a New Zealand audience. You may only reproduce, circulate and use this document (or any part of it) with the consent of Invesco. This document does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for, an opinion or guidance on Interests to members of the public in New Zealand. Applications or any requests for information from persons who are members of the public in New Zealand will not be accepted.

Restrictions on Distribution

This information is being delivered to the types of investors listed on the cover in order to assist them in determining whether they have an interest in the type of strategy described herein. It has been prepared solely for information purposes. The distribution and offering of the strategy in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions.

This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.

This document is issued

•       in Australia by Invesco Australia Limited (ABN 48 001 693 232), Level 26, 333 Collins Street, Melbourne, Victoria, 3000, Australia which holds an Australian Financial Services Licence number 239916.

•       In Canada by Invesco Canada Ltd., 16 York Street, Suite 1200, Toronto, Ontario M5J 0E6.

•       in Continental Europe, Ireland, Israel and the UK by: Invesco Real Estate Management S.a.r.l., President Building, 37A Avenue JF Kennedy , L - 1855 Luxembourg, regulated by the Commission de Surveillance du Secteur Financier, Luxembourg.

•       Invesco Asset Management Deutschland GmbH, An der Welle 5, 60322 Frankfurt am Main, Germany.

•       Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom. Authorised and regulated by the Financial Conduct Authority.

•       in Dubai by Invesco Asset Management Limited, Index Tower Level 6 - Unit 616, P.O. Box 506599, Al Mustaqbal Street, DIFC, Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority.

•       in Hong Kong by Invesco Hong Kong Limited 景順投資管理有限公司, 45/F, Jardine House, 1 Connaught Place, Central, Hong Kong.

•       in New Zealand by Invesco Australia Limited (ABN 48 001 693 232), Level 26, 333 Collins Street, Melbourne, Victoria, 3000, Australia which holds an Australian Financial Services Licence number 239916.

•       in Singapore by Invesco Asset Management Singapore Ltd, 9 Raffles Place, #18-01 Republic Plaza, Singapore 048619.

•       in Switzerland by Invesco Asset Management (Schweiz) AG, Talacker34, 8001 Zurich, Switzerland.

•       In the US by Invesco Advisers, Inc., 1331 Spring Street NW, Suite 2500, Atlanta, Georgia 30309, USA.

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

GL4108303