CPP Investments Cruising for Value?
Viking Cruises announced today an additional investment by its existing minority shareholders, TPG Capital and Canada Pension Plan Investment Board (CPP Investments), in Viking Holdings Ltd, the parent company of Viking Cruises.
The additional investment by TPG Capital, the private equity platform of alternative asset firm TPG, and CPP Investments, a professional investment management organization that manages the funds of the Canada Pension Plan, will result in approximately US$500 million of net proceeds being available to support Viking Cruises in its continued development.
“We are very appreciative that our shareholders from the prestigious institutions of TPG and CPP Investments are aligned with our vision for Viking’s future, which is bright. Over 40 years in the cruise industry have taught me that challenging times—such as these—are often also times of great innovation and opportunity. This infusion of equity capital will prepare us for future opportunities to continue developing our business,” said Torstein Hagen, Chairman of Viking. “Earlier this week we announced that Viking will further invest in the installation of full-scale PCR laboratories on each of our ocean vessels. These new onboard facilities—a cruise industry first—will provide unprecedented and robust testing capacity, enabling Viking to conduct up to daily PCR testing of all crew members and guests. This was the first in a series of announcements we have planned in the coming weeks, including our enhanced health and safety program and initiatives that will expand Viking’s global reach.”
“We are excited to deepen our partnership with Tor and the entire Viking team,” said Paul Hackwell, Partner at TPG Capital and Co-Head of Consumer investing. “Viking is truly a special company that continues to set the standard for the industry. We know that Viking’s guests are eager to get back to safely exploring the world in comfort, and are confident that the company will continue to deliver a differentiated experience for its guests in the years to come.”
“While the pandemic has posed many challenges, we have strong conviction that Viking’s unique global offering in the cruise industry will continue to be sought out by many guests well into the future. CPP Investments, alongside TPG, is looking forward to supporting Viking and its management team as they return to delivering high-quality, comfortable journeys around the world and build long-term value in the business in the time to come,” said Bill MacKenzie, Managing Director and Head of Active Fundamental Equities, CPP Investments.
The transaction is subject to customary closing conditions, including regulatory approvals.
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that invests around the world in the best interests of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments in public equities, private equities, real estate, infrastructure and fixed income are made by CPP Investments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2020, the Fund totalled C$434.4 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
About Viking
Viking was founded in 1997 and offers destination-focused journeys on rivers, oceans and lakes around the world. Designed for experienced travelers with interests in science, history, culture and cuisine, Chairman Torstein Hagen often says Viking offers guests “the thinking person’s cruise” in contrast to mainstream cruises. In its first five years of operation, Viking has been rated the #1 ocean cruise line in Travel + Leisure’s 2016, 2017, 2018, 2019 and 2020 “World’s Best” Awards. In addition to the Travel + Leisure honors, Viking has also been honored multiple times on Condé Nast Traveler’s “Gold List” as well as recognized by Cruise Critic as “Best Overall” Small-Mid size ship in the 2018 Cruisers’ Choice Awards, “Best River Cruise Line” and “Best River Itineraries,” with the entire Viking Longships® fleet being named “Best New River Ships” in the website’s Editors’ Picks Awards. For additional information, contact Viking at 1-800-2-VIKING (1-800-284-5464) or visit www.viking.com. For Viking’s award-winning enrichment channel, visit www.viking.tv.
About TPG
TPG is a leading global alternative asset firm founded in 1992 with approximately $83 billion of assets under management and offices in Austin, Beijing, Fort Worth, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San Francisco, Seoul, Singapore, and Washington, DC. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth equity, real estate, impact investing, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio. For more information, visit www.tpg.com on Twitter @TPG.
Now, when I read this today after another manic Monday where stocks melted up following Pfizer's great news on its vaccine, I thought what great timing to announce this deal (and what great timing to announce Pfizer's vaccine on a Monday morning after President-Elect Biden was projected to win the US Election on Saturday).
The stock market loved that news and large cap cyclical stocks related to leisure and travel took off today, and along with them REITs and Energy stocks:
I think the market is getting way ahead of itself but it was comforting seeing small cap value stocks (IWN) surge 7% on Monday, more than the 2% total return they delivered over the past three years:
I stress slowly because vaccine or no vaccine, we are not heading back to pre-COVID demand on cruise lines or airlines. It's not going to happen, that much I can assure you.
To be honest, I was never a cruise line person pre-COVID. You couldn't catch me dead on a boat packed with tourists (had my fill of boat rides island hopping throughout Greece during my younger days). Just the thought of being on a cruise ship makes me sick to my stomach, and that won't change post-COVID.
But millions of others enjoy cruises and Viking Ocean Cruises isn't your run-of-the-mill cruise line company offering cheesy cruises, it caters to a sophisticated traveler and will likely continue to do well once the world gets back to some level of normalcy.
And CPP Investments and TPG are long-term investors who are playing the long game on Viking Cruises.
Interestingly, in late October, Bloomberg published an article on how Canada's top pension fund was hunting for deals in 'cheap" travel sector:
Canada’s national pension fund is looking at deals in the travel industry, confident that it will enjoy a strong recovery when the Covid-19 pandemic eases, says its chief executive.“Hotels aren’t over, cruises aren’t over, flying’s not over -- these things are going to come back,” Mark Machin, CEO of Canada Pension Plan Investment Board, said Friday in an interview with Bloomberg. “So I’m supportive of teams if they find decent opportunities in those areas.”
The country’s largest pension fund, which has C$434 billion ($331 billion) of assets under management, hasn’t made any investments in the sector since the pandemic hit but is “keenly looking at some things,” Machin said. More than 20% of the fund is in private equity.
Its private holdings include ownership stakes in Spain’s Hotelbeds Group SL and Britain’s Merlin Entertainments Ltd., which runs Legoland theme parks and other attractions in 25 countries. It’s also an investor in Las Vegas-based Diamond Resorts International Inc., which it acquired as part of Apollo Global Management Inc.’s takeover of Diamond in 2016.
“Valuations are quite cheap. We’ve never bought an airline so I’m not suggesting we’d invest in airlines at this point,” Machin said. But other firms are -- Bain Capital LP rescued Virgin Australia Holdings Ltd. in a deal with creditors to restructure the business, which fell into administration in April.
That doesn’t mean there aren’t other opportunities. Machin said it’s unlikely that travel and hospitality-related companies will see their business recover to pre-pandemic levels soon, even if pharmaceutical companies are successful in producing a Covid-19 vaccine next year. It will take a while for public confidence to grow, he said -- but it will recover.
“I personally am a believer in us all being social beings,” Machin said. “I don’t think we’re all going to be sitting isolated for the rest of our lives.”
Mark Machin is right, we're not heading back to pre-pandemic levels soon but if public confidence grows, it will certainly help the beleaguered travel and hospitality industry and plenty of other industries (like restaurants) which have been slammed by the pandemic.
One thing to note, however, is that CPP Investments prefers to hunt for bargains in private markets. Of course, its' doing the same in public markets too but these mega deals in private equity and private debt are where it's focusing its attention.
But long-term investors can learn a lot from CPP Investments when investing in public equities.
For example, if you like hotels over the long ruin, check out shares of Marriott International (MAR) which surged today but are well off their highs:
The same goes for Wynn Resorts (WYNN), one of the top performers today but well off its 5-year high:
Don't expect any of these stocks to make new highs any time soon, it won't happen (both will hit resistance levels).
What will happen is a gradual bottoming process which will be choppy and as the vaccine becomes more widely available and the economy improves, it will propel all these stocks higher.
Don't forget, COVID numbers are bad and they will get worse and most likely peak when president-elect Biden is sworn into office on January 20th.
We will see more vaccines and hopefully, better, faster and more reliable tests which will allow businesses to run properly without fear of spreading COVID.
That's all on the horizon but in the meantime, we will continue shopping online, practicing social distancing and hygiene.
By the way, CPP Investments is still playing that theme too. Last week, it announced a deal along with its partners Goodman and APG, and APG to increase its equity commitment to its UK logistics partnership by £900 million:
Goodman Group, Canada Pension Plan Investment Board (CPP Investments) and APG Asset Management N.V. (APG) have each allocated an additional £300 million of equity to investment vehicles in the UK, targeting the logistics sector.
The expansion follows the success of the Goodman UK Partnership (GUKP) established in 2015 to invest in prime industrial and logistics properties on a long term basis.
Stephen Young, Director – Investment Management, Goodman UK, said “The Partnership sees us continuing our investment in strategic locations that meet the rising demand for modern, well-located logistics properties. Building on the strength of the UK portfolio to date, this increased commitment provides us with the equity to support the future development and acquisition of best-in-class urban logistics space where supply is limited and demand is driven by consumers.”
The additional commitment will be used to further expand the portfolio of high-quality, sustainable logistics and industrial properties strategically located on key arterial routes across the South East and M1/M6 corridors, as well as last-mile locations, particularly around Greater London.
Tom Jackson, Managing Director, Head of UK Real Estate, CPP Investments, said “Structural changes in the retail market and logistics supply chain, together with an acceleration of online consumerism, are driving strong demand for quality logistics space to service major population centres in the UK. We are delighted to be expanding our successful partnership with Goodman and APG to capitalise on the supportive sector fundamentals and increase our exposure to this asset class, ultimately delivering long-term value for CPP contributors and beneficiaries.”
Goodman Group is one of CPP Investments’ longest standing and largest global partners in real estate with partnerships established in Australia, Brazil, China, Hong Kong and the US.
Speaking of the increased equity commitment, Max Remmers, Senior Portfolio Manager Real Estate, APG, commented, “With this capital increase we continue to increase our allocation to this resilient segment of the property market, thereby focusing on supply-constrained infill locations which are benefiting from structural trends such as growing online penetration, supply chain reconfiguration and urbanisation. We are pleased to expand our partnership with Goodman and CPP Investments, which has proven to be successful in the UK as well as in other regions around the world. Goodman has been instrumental in developing and operating a significant part of APG’s industrial and logistics exposure globally.”
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that invests around the world in the best interests of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments in public equities, private equities, real estate, infrastructure and fixed income are made by CPP Investments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2020, the Fund totalled C$434.4 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
About Goodman
Goodman Group is an integrated property group with operations throughout Australia, New Zealand, Asia, Europe, the United Kingdom, North America and Brazil. Goodman Group, comprised of the stapled entities Goodman Limited, Goodman Logistics (HK) Limited and Goodman Industrial Trust, is the largest industrial property group listed on the Australian Securities Exchange and one of the largest listed specialist investment managers of industrial property and business space globally.
Goodman’s global property expertise, integrated own+develop+manage customer service offering and significant investment management platform ensures it creates innovative property solutions that meet the individual requirements of its customers, while seeking to deliver sustainable long-term returns for its investors.
For more information: https://uk.goodman.com/
About APG Group NV
APG is the largest pension provider in the Netherlands; its approximately 3,000 employees provide executive consultancy, asset management, pension administration, pension communication and employer services. APG performs these services on behalf of (pension) funds and employers in the sectors of education, government, construction, cleaning and window cleaning, housing associations, energy and utility companies, sheltered employment organizations, and medical specialists. APG manages approximately €536 billion (August 2020) in pension assets for the pension funds in these sectors. APG works for approximately 22,000 employers, providing the pension for one in five families in the Netherlands (about 4.7 million participants). APG has offices in Heerlen, Amsterdam, Brussels, New York and Hong Kong.
For more information: https://apg.nl/en/
Not much to say on this deal except that it's another great long-term deal for CPP Investments and its partners, Goodman and APG.
That wraps it up for me, on another manic Monday, November 9th, 2020.
Below, built with your comfort in mind, these understated, elegant Viking ships host just 190 guests. With fine dining, spacious staterooms and suites, magnificent destinations and tailor-made shore excursions, Viking River Cruises has earned more awards from leading travel authorities than any other river cruise line.
Did I say I'll never take a cruise? Well, if I do, I'll take a Viking Cruise, my type of cruise line. I also embedded a recent conversation with Mark Machin and Michael Katchenship hosted by the Canadian Club Toronto. Watch this and listen carefully to what Dr. Mark Machin had to say.
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