Canadian Pension Giant OMERS Earned 13.6% Return on Real Estate in 2022

OMERS, the largest pension fund manager in Ontario, generated an investment return of 4.2 percent net of expenses last year, with double digit returns on its real estate and private equity bets compensating for shortfalls in other sectors.

The parent of real estate investment firm Oxford Properties and key investor in Hong Kong-listed industrial specialist ESR achieved a 13.6 percent return on its direct real estate investments last year, second only to the 13.7 percent achieved in its private equity deals.

In its annual report, the company said of its real estate business: “In 2022 Oxford continued to execute on its capital strategy, increasing portfolio weightings in high conviction growth sectors focused on the life sciences and industrial sectors.”

“We are pleased with this outcome and remain focused on the long term,” OMERS president and CEO Blake Hutcheson said in a release. “Over 10 years, OMERS has earned an average net return of 7.5 percent, exceeding our benchmark, and adding C$64.4 billion to the plan.”

Aussie Sale Boosts Income

OMERS reported net assets at the end of 2022 of C$124.2 billion ($91.3 billion), having added C$4.9 billion in investment income to the pension plan in the previous 12 months. During 2022 the firm boosted its investments in Asia Pacific to 11 percent from 10 percent a year earlier, according to its annual report.

By sector, OMERS also boosted its commitments to real estate to 17 percent of its total assets under management at the end of 2022, up from 16 percent a year earlier. This rising level of commitment came as Oxford realised net investment income of C$2.6 billion on its real estate investments in 2022, up from C$2.5 billion a year earlier.

Among the factors the firm cited as contributing to the solid returns from its real estate business was its sale of a 49.9 percent stake in a portfolio of office assets in Sydney and Melbourne to Link REIT for A$596 million ($428.2 million) in February of last year.

Oxford also disposed of significant assets in Berlin, Toronto and New York last year. Despite the asset sales, the company’s real estate investments at the end of 2022 stood at C$21.2 billion, up from C$19.8 billion a year earlier.

Asian Dealmaking

Until ESR’s buyout of ARA Asset Management in 2021, OMERS had ranked as the largest ESR shareholder after buying a 7 percent stake in the industrial specialist from Warburg Pincus in 2020.

The pension fund had taken a 9 percent slice of ESR when it opted for a cornerstone stake in the company’s 2019 IPO. Warburg Pincus again became the largest shareholder in ESR after the ARA acquisition through its shareholding in that Singaporean company.

Oxford Properties has continued to develop and acquire Aussie commercial assets, including through a joint venture with Mitsubishi Estate to develop an office project called Parkline Place at the intersection of Pitt and Park streets in Sydney’s CBD.

Expanding Regional Presence

OMERS’s global real estate portfolio consists of 113 million square feet (10.5 million square metres) of office, industrial, retail and life sciences space, including 9,000 residential units and 3,000 hotel rooms.

Real estate assets generated a net return of 13.6 percent for the plan in 2022, equating to net investment income of C$2.6 billion.

Internal investment management expenses totalled C$693 million in 2022, up from C$657 million the previous year. OMERS said the increase was driven by higher compensation from hiring talent as the pension manager expands its presence in Asia Pacific.