Fund Commentary: INTREAL Investment Fund Distributions Tend to Top Industry Average by 95 Basis Points Annually

07. Jun 2023

The open-ended institutional real estate funds administrated by IntReal International Real Estate Kapitalverwaltungsgesellschaft mbH (“INTREAL”)—Germany’s leading third-party AIFM—consistently earned higher cash-on-cash returns over the past ten years than the industry average. This was revealed by analysing the figures of the third-party AIFM and statistics released by the Bundesbank. On average, the distributions by INTREAL funds during the ten-year period starting in 2013 and including 2022 exceeded the average cash-on-cash returns distributed by all open-ended institutional funds, according to the Bundesbank. While the total fund landscape achieved an average annual distribution of 3.19 percent over the past ten years, INTREAL funds went beyond the four-percent mark with an average of 4.14 percent per year.

The Bundesbank statistics are based on total net fund assets worth 166 billion euros. The net fund assets of the institutional real estate funds that INTREAL administrates in its Partner Funds division have a combined value of 22.2 billion euros, implying a share of about 13.4 percent of the overall market. In sum, c. 711 million euros were paid out to the institutional investors of the INTREAL funds in 2022 alone, compared to 824 million euros in 2021.

Michael Schneider, Managing Director at INTREAL, commented: “We are glad to see that our funds and fund partners did so well. My explanation for the outperformance is mainly that we and our fund partners focus on our respective core competencies, and that our fund partners increasingly concentrated on asset classes that did better than the market average during the observation period. Cases in point include the asset classes logistics, residential and food-anchored retail. On top of that, it is quite evident that our active managers and proven specialists are particularly capable of generating extra performance and dividend values for their investors. For institutional investors, the cash-on-cash return is a decisive criterion because many players in this group are in turn subject to periodic payment obligations, e. g. on account of pension entitlements or benefit commitments under insurance contracts.”

The quoted net cash-on-cash returns still mirror the low interest rate environment of the past ten years, and strongly so. With a view to the future, Schneider said: “Going forward, real estate funds will have to earn even higher returns because the interest paid on competing investments, such as fixed income, has gone up. Such a ‘yield premium,’ also called illiquidity premium, is meant to make up for the fact that real estate is less liquid than listed bonds, for instance. I have every expectation that the funds will manage to do so. Many of the properties administrated by us report significant rent increases while acquisitions are becoming more affordable again.”

The analysis of the INTREAL funds included all open-ended institutional real estate funds that INTREAL administrates in its Partner Funds division and for whom it acts as AIF management company. As of year-end 2022, these funds owned combined net fund assets worth 22.2 billion euros. The analysis of the industry figures are based on Bundesbank statistics. For this particular assessment, the figures of all open-ended real estate special AIF were examined.

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