Sustainable Timber REIT Accelerating the Adaption of Sustainable - - PowerPoint PPT Presentation
Sustainable Timber REIT Accelerating the Adaption of Sustainable Building Technology MBA Candidate MBA Candidate MBA Candidate MBA Candidate Nareewat Kujareevanich Tomomi Ishida Jidapa Jittasaiyapun Jeffrey Blaylock Investment Banker
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Accelerating the Adaption of Sustainable Building Technology
Jeffrey Blaylock Structural Engineer Tomomi Ishida Marketing/ ex-UNDP Nareewat Kujareevanich Investment Banker Jidapa Jittasaiyapun Relationship Manager
(nk551@jbs.cam.ac.uk) MBA Candidate (jrlb3@jbs.cam.ac.uk) (ti268@jbs.cam.ac.uk) (jj517@jbs.cam.ac.uk) MBA Candidate MBA Candidate MBA Candidate
Material Supply Chain Development Investment
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Use Construction
Traditional
Construction Materials
= Sustainable Construction Materials Masonry Concrete Steel Tested technology No deforestation Positive climate impact Competitive cost
Timber
management system
with traditional material
up to 50%
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Sufficient Strength and Stability Strong Fire Protection 80% lighter than concrete 20% faster to construct 80% less site deliveries
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The MjösaTower, Norway Residential, 18-storeys Brock Commons, Canada Student Accommodation, 18-storeys 25 King St., Australia Office, 10-storeys
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The Cube, 10-storeys Murray Grove, 9-storeys The Import Building, 10-storeys Dalston Works, 10-storeys
.
Sustainable Timber REIT
❖ REIT investing in only timber buildings ❖ Partner with multi-developers with first right of refusal to buy timber buildings meeting REIT investment criteria ❖ Grade A office or residential (built-to-rent) properties generating rental income at the time of acquisition
Raise public awareness
players
Mobilize capital
from ESG investors to timber building developer
Incentivize partnered developer
to replace traditional materials with timber materials
Drive timber cost down
due to economies of scale
Accelerate worldwide adoption
Short Term Impact Long Term Impact
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Strong growth potential from partnership structure
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Capture demand for grade A office & residential property Tackle CO2 emission problem Competitive returns with potential carbon tax mitigation Capitalize on growing green building market
Sustainable Timber REIT
A lockstep between urbanization and carbon-neutral property development
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23 Why are timber buildings not widely constructed? Lack of awareness from property developers, contractors and tenants. Contractors do not have experiences and expertise
Cost is competitive but not lower than traditional materials such as concrete & metal How does Sustainable Timber REIT combat with CO2e? REIT constantly acquires timber buildings from partnered and contracted developers. Large orders from developers increase timber material market size and production capacity. Timber material eventually has a cost advantage
Economies of scale pushes timber price down. Timber material is widely used for construction and reduce CO2e. ✓ REIT investing specifically in only building constructed from timber material. ✓ Financial tool to accelerate the adaptation of timber building worldwide. ✓ Financial vehicle to mobilize capital to timber building developer for further property development What is Sustainable Timber REIT ?
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Fund Objective To provide long-term capital appreciation and sustainable income Investment Geography United Kingdom Fund Size GBP 500 Million Fund Life 20 years Target Investors Institutional investors who want to integrate ESG factors into their investment portfolios Distribution Policy Semi-annually, if any. Subject to the availability
declare distribution at a higher frequency.
Fund Investment Profile Multi-Sponsored REIT Investment Structure Investment Criteria
✓ Grade A office building or built-to-rent residential properties (low-mid rise) in growing urbanization area ✓ Generating rental income at the time of acquisition ✓ Completely constructed timber buildings with occupancy rate of at least 95% and competitive rental revenue with at least 2% growth rate. ✓ Tenancy agreement are in place with minimum term of 3-5 years for office property and 0.5-1 year for BTR property ✓ Experienced property manager appointed
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UK REIT Dividend Yield Financial Assumption and Projected Return
6.60% 7.70% 3.50% 8.90% DLN WKP GPOR BLND
OFFICE REIT LISTED IN LSE Dividend Yield
Average 6.68 %
5.54% 5.45% 4.82% 4.48% RESI ESP PRSP DIGS
RESIDENTIAL REIT LISTED IN LSE Dividend Yield
Average 5.07 %
Source : Bloomberg 28 Feb 2020, prior Covid-19 effect
Total asset value at IPO GBP 714 million Target capital structure Debt to total asset of 20-30% REIT NAV GBP 500 Million Debt value GBP 214 Million (assuming D/A of 30%)
Projected net distributable cashflow
inflation rate of 1.5% and JLL’s forecast rental growth rate of 3.4%) Projected NAV Appreciate 2% p.a. (align with UK inflation rate
3.4%) Target dividend yield 5 - 6% depending on the weight between office and residential properties and secured interest
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With existing precedents and years of research, the international building code will be amending the restriction on timber buildings by increasing the allowable height to 18-storeys. This will de-risk the use of mid-rise timber buildings and create an opportunity to change how we construct our cities 80% lighter than concrete 20% faster to construct
Increased thermal efficiency
80% less site deliveries
Brock Commons Completed: 2018
Sufficient Strength and Stability
Murray Grove Completed: 2009
Feasible for up to 35 storeys using new mass timber technology
Mjøstårnet Completed: 2019
Strong Fire Protection Precedents to
Further Benefits
Timber Cross-section Protective Layer
Charring creates protective layer around interior of large timber element
Source : Think Wood, 2019
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Capturing a growth market from an urbanization
By 2025, it is anticipated to have extra 2.5 million people living in the UK’s urban area (JLL). • Across the UK’s major cities, Grade A office is an attractive market with only 2% vacancy rate and 3.4% rental growth YoY (JLL). • The demand built-to-rent sector is expanding as the percentage of households living in the rented property in the UK has risen from 13% to 20% over 2009-2019 (ONS). Market absorption of rented homes is significantly faster than for open market sale (Barclays).
Addressing tenant’s demand on green building
There will be growing demand for green buildings supporting emerging sustainable values and lifestyle (Ramboll). According to global survey of 2000+ building professional, the demand for green buildings could double in the near future as half of their project will be green by 2021 (Dodge Data and Analytics).
Mitigating a potential carbon tax and compliance cost
Although the carbon pricing does not currently cover building/construction sector, the Climate Change Act 2019 stipulates that the UK must cut its carbon and greenhouse gas emissions by 100% by 2050 (gov.uk). The Sustainable Timber REIT embeds a protection from a potential cost and taxation relating to carbon emission regulation in the United Kingdom.
Leveraging cost advantages from timber
Timber material has a cost competitiveness which wider adoption could lead to economies of scale and thus, a decrease in timber price. Other indirect cost advantages over traditional materials such as 1) lower transportation cost due to lighter weight; 2) lower labor cost as a result from shorter construction time and 3) lower contingency cost from potential delays due to prefabricated techniques. The Sustainable Timber REIT is a promising investment to investors as it can achieve market-rate return alongside with decarbonization
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Traditional materials
Sustainable materials
If the global population increases to the predicted 9.3 billion people by 2050 then the emissions from the development of new infrastructure could alone claim 35–60% of a remaining carbon budget
If a percent of buildings constructed using timber Continuing with Steel and Concrete to 2050 2.3 GtC 11 GtC 20 GtC 4.4 GtC 19 GtC
Worst Case Best Case 5% scenario 50% scenario 90% scenario
Co2 Storage Co2 Emissions
20% of total carbon budget required to limit a global temperature increase to 2 °C
Sufficient Capacity in Current Timber Supply Chain of Responsibly-managed Forests Additional Investment in Managed Forests Required to meet demand GtC – Gigatons of Carbon (Churkina, 2020)
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Demand of urban development
Sustainable Timber REIT will address growing trend of demand of urban development with sufficient supply of sustainable materials.
Supply of materials
North America Europe China India
Population
Growth: 2018-2050
Floor space (m2)
Growth: 2015-2050
Wood production (m3)
2018
+416 M +255 M
Other Asia
+46 M +88 M +542M
LAC
+159M +951M
Africa
+41.8B +27.4B +12.2B +18.8B +19.3B +23.8B +28.0B 2,953K 8,833K 17,551K 97K 3.709K 3.165K 476K
Source : UNDESA, FAO, GLOBAL ALLIANCE FOR BUILDING AND CONSTRUCTION 29
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Impact R1: Insufficient demand resulting from safety concerns Promote safety of timber building through safety certification by civil engineer association and risk insurance policy Risks Mitigations R2: Lack of adoption
International Building Code Encourage developers to use the international building code as a benchmark and safety standard R3: Reputation risk regarding deforestation Ensure that the Timber supplier uses responsible forest management system Likelihood
R1 R3 R2 Expanding markets of Timber buildings will create risks that will need to be mitigated as part of the long-term of the REIT