Real estate investments
Today, the Cattolica group has real estate assets worth more than one billion Euro. Over half of the assets are invested for periodic dividend distribution in both the Non-Life and Life sectors. The net return generated is stable and sits at more than 5% per annum, generated by making slight use of financial leverage. The assets are diversified in both geographical and sectoral terms, with a vocation also for less traditional asset classes (such as hospitality and healthcare). Since 2012, Cattolica has also invested in renewable energies through an exclusive real estate fund dedicated to solar power, whose underlying value has already exceeded the threshold of €110 million.
In 2018, some significant transactions were finalised, including:
- The constitution of the “Health Innovation Fund” (Fondo Innovazione Salute), a sector fund dedicated to elderly care homes that marks the start of a partnership between Cattolica and Coopselios, the biggest cooperative operator in residential care homes (RCH) in Italy. The Fund is managed by Savills IM SGR, and has Cattolica as the majority investor and its only insurance player, whereas Coopselios is the main contributor, minority investor and operating partner. In 2018, the fund invested in 9 facilities and further acquisitions will follow in 2019/2020. The commitment of the “Health Innovation Fund” (Fondo Innovazione Salute) confirms Cattolica’s presence in the healthcare real estate sector, where it began operating in 2008 with the acquisition of three RCHs;
- through a real estate fund, acquisitions were made of three hotel facilities, or facilities to be converted for hotel use, in Rome, Verona and Bologna;
- through a real estate fund, the Campo dei Fiori shopping centre in Gavirate (VA) was purchased, as well as a building for office and commercial use in Verona;
- the capital increase of the Mercury Real Estate Fund – a joint venture with the CONAD Group – for an additional 28 properties in total over next three years, spread across Lombardy, Emilia-Romagna, Tuscany, Lazio, Liguria and Sardinia.
Cattolica’s agricultural estate in the province of Treviso has already largely exceeded 2,000 hectares, and today, in addition to housing various crops, it is undergoing a process to increase its real estate and infrastructural value by creating connections and value for the territory it is part of.
Over the year, there were two different market phases.
The first part of the year took place in a context characterised by volatility on both the bonds and stock markets. The US and German government rates rose constantly, the BTP spread reached new lows for the period, while the stock markets recorded new highs.
This period of calm was followed by a much more nervous period, due to fears relating to the trade war triggered by the Trump administration, and as a result of the increasingly evident signs of a slowdown in the economic cycle. This situation was joined by growing political tensions in both Italy and abroad. The stock markets suffered sharp declines and credits, especially low-quality credit, suffered a significant widening of spread. In terms of government bonds, a re-edition, on a smaller scale, of the 2011 Italian debt crisis occurred, for the first time in the summer and on a second occasion in the autumn.
The process to geographically diversify the government component in Eurozone countries, in order to reduce concentration on domestic securities and mitigate the impact on the portfolios resulting from a volatility increase, continued during the year. These operations transversally involved all Group companies.
The corporate component sustained a partial reduction due to the slowdown in new issues, above all in the first part of the year, and to the maturity of many bonds. In the final quarter, also in relation to the increase in spreads, selective purchases were made on securities of banking, financial and industrial issuers, both on the primary and secondary markets.
Exposure to the stock component, on the average residual compared to the rest of the portfolio, was momentarily increased in the second quarter due to the purchase of high dividend securities. A large part of the securities purchased were sold in summer and autumn, due to which the overall exposure of the shares did not increase compared to the previous year.
The portfolio is denominated principally in Euro, with marginal exposures in US dollars and GBP. Issuers are based primarily in Europe, and to a lesser extent in the United States. However, the selected issuers have in geographic terms a highly diversified source of income, in order to reduce recession risk as much as possible.
Alternative investments continued to be made. Commitments were particularly made in funds tied to strategies focused on infrastructural activities and projects, on direct lending and non-performing loans. Investments are concentrated in Europe, in this way contributing to the strategy of overall diversification of the portfolio and of keeping adequate profitability levels. In the second part of the year, the real estate component also increased through the subscribing of new funds and the increase of units of existing funds.
From the very start, the reference to the ethical actions of our Company has been pivotal in Cattolica’s business vision and in its idea of the relationship with the economic system and the social stakeholders. Joining the PRI of the United Nations on 25 June 2019 was a natural consequence of this approach and further strengthens the Group’s responsible investment guidelines, reaffirming the Company’s commitment to being transparent with its stakeholders and being a responsible member of the community of institutional investors.
The integration of ESG principles in decision-making mechanisms relating to investments is guided by the awareness that these factors are an excellent risk management tool that supports medium- to long-term sustainability.
With specific reference to the risks connected to the ESG factors relative to the investments of the Group and the insurance portfolios, from a perspective of systematic improvement of the process connected to responsible investments, the Group has undertaken a process to redefine the founding criteria of the exclusions, and has also adopted a portfolio monitoring procedure capable of specifically and systematically including the ESG subjects in the analysis and in the investment decisions.
The Group is fully aware of the significant role that it can play in both environmental and social protection fields, as well asin respect of the governance factors. Therefore, criteria were identified that take inspiration from the most well-known international practices and are expressed in the International Conventions issued by universally recognised entities. They are designed to consider the following issues: respect for human rights, respect for workers’ rights and appropriate working conditions, the ban on controversial weapons, the prevention of all forms of corruption and conflicts of interest and respect for and protection of the environment.
These areas hold a financial as well as an ethical significance and, if considered adequately by the companies, contribute to the creation of a more stable and sustainable economic system.
In line with and in respect of the Group’s own distinctive values, as well as with the principle of Corporate Social Responsibility as an integral part of the entrepreneurial vision and expression of the 2018-2020 Business Plan, the Cattolica Group has prepared an Environment Policy. This Policy identifies the approach with which the Group’s companies, in respect of the values and ideals that they share with the Cattolica Group, intend to manage environmental risks and the consequent opportunities.
As proof of the significance of environmental issues, Cattolica, in addition to having included serious environmental damages among the exclusion criteria, has recently adopted an ex-post monitoring system to periodically check for investments in carbon-intensive sectors, and the monitoring of the carbon footprint of corporate issuers held in the portfolio.
The Group’s active commitment is also represented by the desire to promote thematic investments, aimed at improving sustainability through the selection of products that identify macro-trends that will lead future social-economic developments. In particular, in the last few years there has been a growing interest in lending in the environmental sector, through the participation in specialised funds, real estate funds and closed-end funds, or through the underwriting of bonds to support specific projects (so-called Green Bonds, Social Bonds and Sustainability Awareness Bonds).
The main focus is on Perseide, a closed-end real estate fund worth 130 million and dedicated to renewable energies, 100% of which is owned by the Group’s Companies, and the “Health Innovation Fund” (Fondo Innovazione Salute), with a target of 150 million, which is focused on residential care homes for elderly.