Global Real Estate Securities ESG Enhanced Yield

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Presima’s ESG Enhanced Yield Strategy also provides investors with a liquid and diversified portfolio of securities, with its primary focus on income returns and secondary focus on moderate capital appreciation. This investment strategy invests in securities which have high-quality assets underpinning their income generation, combined with lower levels of leverage. This portfolio is built on an absolute basis targeting a yield and total return objective rather than a benchmark relative target. Given its income focus and lower exposure to development risk, the strategy is likely to observe a lower volatility relative to market indices, thereby having the benefit of reducing beta exposure during volatile markets.

In addition to the similar income and volatility characteristics of our Yield Strategy, the ESG Enhanced Yield Strategy includes an ESG screening component when defining our investment universe, as well as the use of derivatives.

Smarter, more responsible investing

In defining an investment universe for the ESG Enhanced Yield Strategy, Presima uses a filtering approach, aiming to eliminate poor performers from the investment universe, based on ESG criteria. Once the Presima ESG Universe is constructed, Presima screens the securities within this ESG universe according to the strategy’s inclusion criteria (high and sustainable dividend yield, low development activity and low leverage) and constructs the portfolio accordingly.

Emphasis on sustainable and growing streams of income

The ESG Enhanced Yield Strategy is focused on generating income underpinning high quality rental assets. In order to ensure yields are sustainable and likely to keep growing the investment universe for the strategy is composed of companies that exhibit low development risk and low leverage.

Absolute return investment objective

The investment objective can be likened to the investment objective of a core private real estate vehicle over the longer term, as the ESG Enhanced Yield Strategy’s underlying assets are quality rental properties which exhibit a relatively low degree of leverage.

Use of derivatives

The rationale behind the use of derivatives is to reduce volatility and increase yield. We sell call options on securities we hold (with a strike price at or near our security target price) in order to increase yield. We buy put options on real estate securities indices in order to limit the downside volatility (protective put).

 

We view ESG criteria to be measures of risk. We believe that forward-thinking, sustainably-oriented companies that excel along a broad spectrum of ESG considerations should be rewarded with a lower risk premium than peers with a more short-term, less responsible orientation.

Our ESG data partner is Sustainalytics, a dedicated ESG research provider

⁻      We source raw ESG indicators and company-level ESG Risk Ratings from Sustainalytics

⁻      Sustainalytics bases its assessments on public company disclosures

⁻      Data points are comparable across our global universe of listed real estate securities

 

We rank our investment universe from lowest to highest ESG risk, as determined by Sustainalytics’ published ESG Risk Ratings

⁻      The ESG Risk Rating is a numerical value that captures the material ESG risk factors for a given industry, where a lower rating indicates less unmanaged ESG risk

We apply a cost of equity adjustment to every security valuation in our investment universe

⁻      We use a linear function to determine an ESG cost of equity multiplier ranging from 1.0 to 1.1

⁻      The security with the lowest ESG Risk Rating in our investment universe sees a negligible adjustment to its cost of equity, while the stock with the highest ESG Risk Rating sees its cost of equity adjusted by a factor of 1.1

⁻      Since we view ESG as a measure of risk, no securities receive a positive cost of equity adjustment as a result of ESG integration.