September, 2023
Our disciplined process seeks consistent outperformance through active stock and sector allocation driven by our in-depth fundamental research and sophisticated quantitative investment tools.
Summary
While relative performance remains positive year-to-date, the portfolio modestly trailed the benchmark for the quarter. Regionally, positioning in the Asia-Pacific region was positive for the quarter but was more than offset by relative underperformance in Europe and the United States.
Americas
In Canada, stock selection and sector allocation added value for the quarter. In the U.S., stock selection and sector allocation were a drag on relative performance. An underweight to the outperforming office sector as well as an overweight to the underperforming residential and storage sectors accounted for most of the drag.
Asia-Pacific
Stock selection was strong across most markets for the quarter, led by strong stock selection in Australia as Goodman (industrial), Lifestyle Communities (manufactured housing) and Rural Funds Group (farmland) were the notable outperformers. In Japan, positive stock selection in the J-REIT sector benefited positioning.
Europe
Sector allocation benefited relative performance for the quarter as the portfolio was overweight outperforming Europe although negative stock selection weighed on performance. Stock selection was negatively impacted by an underweight of German residential names which bounced after a difficult first half of 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/206334737.pdfAugust, 2023
The portfolio outperformed for the month driven by
strong stock selection which more than offset negative
sector allocation.
July, 2023
In July, the portfolio modestly underperformed the benchmark.
In the Americas region, positive stock selection was offset by negative sector allocation, generating negative relative performance for the month. From a sector allocation perspective, our overweight to the underperforming storage sector combined with an underweight to the outperforming office sector were the two key contributors to negative sector allocation. There was certainly a material reversal in July, as office was up +15.2% and storage was down -4.2%. While we acknowledge the office sector's fundamental weakness is an extremely wellunderstood narrative, and it is likely that the office sector was oversold and became “too cheap” relative to the benchmark into mid-year, our fundamental work suggests there will be no improvement in occupancy or market rental rates into 2024.
In the Asia-Pacific region, relative performance was modestly positive versus the benchmark for the month. Positive relative contribution from Australia was driven by an overweight position in Rural Funds Group and Lifestyle Communities (LIC AU). LIC is significantly scaling its production rate with the launch of seven new projects, underpinned by strong demographic tailwinds. The manufactured housing estate developer outperformed following the RBA’s decision to pause its rate hiking cycle.
In the European region, relative underperformance was driven by stock selection in Continental Europe. Our European stock selection has delivered solid relative outperformance year-to-date but underperformed in July.
We have been materially underweight German residential stocks due to over-levered balance sheets combined with moderating fundamentals. In July, the +8.4% rally in European real estate stocks caused a short-covering rally in the highest levered names, such as German residential companies Vonovia (+18.7%) and LEG (+22.3%). Over any reasonable period, high quality balance sheet companies outperform low quality balance sheet companies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/203893971.pdfJune, 2023
The portfolio modestly trailed the benchmark for the month as positive stock selection offset by allocation decisions. Positioning in Europe and the Asia-Pacific region added value, while positioning in the Americas detracted from returns.
Relative performance in the Americas region was a drag for the month as positioning in the office sector hurt performance, we do not have any exposure to the office sector given ongoing challenges with excess supply and low demand. The sector outperformed for the month but has underperformed year-to-date. In the Asia-Pacific region, relative outperformance was driven by positioning in Australia, where stock selection and sector allocation contributed to performance. Meanwhile, relative performance in Hong Kong, Japan and Singapore was essentially flat. In the European region, relative outperformance was driven by positive stock selection on the Continent and the U.K, while sector allocation decisions were flat. The portfolio is materially underweight the Nordic region, which was a significant underperformer for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/202952037.pdfMarch, 2023
The portfolio posted positive relative performance in a down month, led by sector allocation decisions. Relative performance in the Americas region was a drag for the month as positioning in the healthcare and net lease sectors hurt performance, overshadowing strong performance in the storage sector. An underweight to the office sector continues to add value. In the Asia-Pacific region, sector allocation and stock selection decisions benefited performance. Sector allocation was positive in each market within region and stock selection was mixed as Australia and Singapore contributed to performance while Japan and Hong Kong modestly detracted for the month. In the European region, relative outperformance was driven by positive stock selection on the Continent and the U.K, while sector allocation decisions were flat. The portfolio is materially underweight German residential, which was a significant underperformer for the month. Meanwhile, overweight positions in NSI and PSP Swiss Property added value.
Global real estate stocks were down -4.0% in March.
In March, the sudden failures of Silicon Valley Bank and Signature Bank of New York ignited concerns of a regional banking crisis in the U.S. These concerns subsequently shifted to Europe, where the financial health of Credit Suisse was in the crosshairs prior to an engineered merger with UBS. The swift action of the Federal Reserve, the U.S. Treasury Department and other central banks helped to restore confidence in the financial system.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property-5.pdfFebruary, 2023
The portfolio outperformed the benchmark for the month.
Positive relative performance within the Americas region was led by the U.S, with two significant drivers of relative outperformance for the month; an overweight to the outperforming storage sector (+1.7%) and an underweight to the underperforming office sector (-12.6%). Our overweight to the storage sector continues to generate outperformance for the portfolio, as 2023 guidance came in at the high end of the range. In addition, in early February, Public Storage (PSA) made public an unsolicited offer to acquire Life Storage (LSI) in an all-stock deal that represented a +17% premium to LSI’s unaffected share price (LSI is a material overweight in the portfolio). As of this writing, based on our discussions with the LSI Management Team, they will sell the company at the “right price,” but PSA has yet to offer the “right price.” Stay tuned!
In the Asia-Pacific region, underperformance was driven by the overweight of one underperforming stock – LINK REIT (823.HK). LINK REIT was down -15.3% for the month, driven by the extremely surprising news that the company is going to execute an HK$18.8 billion Rights Offering (1 for 5 rights offering at HK$44.20/share; -29.6% discount to the last price). Management believes there will be significant acquisition opportunities as the year progresses, so they want to prepare their “war-chest” now in order to move quickly when the acquisition opportunities arise.
In the European region, relative outperformance was driven by positive stock selection on the Continent. Interestingly, there was no one stock that drove relative outperformance from stock selection for the month, but rather a basket of overweight stocks that outperformed for the month plus not owning underperforming Vonovia (-7.8%; German residential).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property-4.pdfJanuary, 2023
The portfolio outperformed the benchmark for the month as stock selection and sector allocation decisions added value.
Relative performance within the Americas region was led by the U.S., where all property sectors posted solid performance for the month. Notable contributors included overweights to the outperforming hotel, industrial and data center sectors, while an underweight to the underperforming net lease sector also added relative value. Stock selection added value in the storage sector, via an overweight to outperforming CubeSmart.
In the Asia-Pacific region, relative performance in Japan was helped by an overweight to Japan Hotel REIT, which drove positive stock selection as hotel stocks were the top performing stocks in Japan. In Australia, stock selection was driven by the outperformance of Goodman Group (industrial), which benefited from continued strong rental growth.
In the European region, relative performance was a drag for the month as positive sector allocation on the Continent was more than offset by sub-par stock selection, which was primarily due to having below-benchmark exposure to a few German residential stocks that outperformed for the month.
In the U.K. relative performance was a modest drag for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property-3.pdfDecember, 2022
The portfolio modestly underperformed for the month.
Stock selection was flat while sector allocation decisions were modestly negative for the month. The European region was the bright spot for the month as stock selection added value on the Continent and the U.K. In the Americas, an overweight to the underperforming U.S. market was a drag on performance for the month. Meanwhile, performance in the Asia-Pacific region was mixed as positioning in Japan added value but was offset by other markets within the region.
Global real estate stocks were down -3.8% in December. Towerds the end of December, stock market sentiment turned more constructive as economic reports suggest inflation is moderating and medium-term interest rates, using the 10-year U.S. Treasury yield as a proxy, retreated materially from their high reached in early October. There is an increasing probability that the U.S. Federal Reserve and central banks around the world will begin moderating the pace of future rate hikes as the probability of a recession in 2023 has increased substantially.
With 2022 in the rear view, listed real estate presents a unique opportunity for investors having materially underperformed broad equities, fixed income, and private real estate. Real estate stock absolute and relative underperformance is striking considering their resilient earnings growth versus broad equities, growing dividends versus bonds, and comparable assets to the private real estate market. We believe real estate stocks are oversold and are very attractively valued relative to private market real estate.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property-2.pdfNovember, 2022
The portfolio underperformed the benchmark for the month.
Relative underperformance within the Americas region was driven by overweights to the U.S storage and hotel sectors, which underperformed on the month despite limited new fundamental news. This was partially offset by an overweight to the top-performing U.S. data center sector, which was up +19% for the month. We have been adding to data centers over the last several months as the sector had underperformed earlier in the year and is now attractive based on solid pricing power and valuations that screen attractive relative to other property sectors.
In the Asia-Pacific region, relative outperformance was driven by strong stock selection within Australia and Hong Kong. Within Australia, overweight positions in outperforming industrial owner Goodman Group, led to outperformance for the month. In Hong Kong, last month’s underperformers became this month’s outperformers as concerns about China’s zero-COVID policies begin to moderate and an expected reopening of the Chinese economy began to take shape. As a result, two of our larger positions, Link REIT (+16%) and Hang Lung Properties (+45%) outperformed for the month.
The European region was a relative detractor for the month with positive stock selection in the U.K. more than offset by negative stock selection in Continental Europe. In the U.K., positive stock selection was driven by an overweight to residential landlord Grainger while overweights to underperforming German residential REIT LEG Immobilien (- 8%) and Shurgard Self Storage (-5%) were a drag on relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property-1.pdfOctober, 2022
The portfolio performed in line with the benchmark for the month.
Within the Americas region, positive property sector allocation was more than offset by negative stock selection. The portfolio benefited from an overweight to the outperforming lodging and industrial sectors. The lodging sector was up 21% for the month, benefiting from demand recovering from depressed pandemic levels, increasing dividends, and heavily discounted share prices. More than offsetting these positive sector contributors to performance was negative stock selection, particularly within the storage sector as some of our key storage positions took a pause after some solid outperformance in prior months.
In the Asia-Pacific region, relative outperformance was driven by strong stock selection within Australia and Japan, partially offset by positioning within Hong Kong. In Japan, our stock selection in J-REITs drove relative outperformance as our holding Japan Hotel REIT (+9%) performed well. Hong Kong positioning lagged the benchmark for the month over renewed concerns about China’s zero COVID policies and, as a result, two of our larger positions (Link REIT and Hang Lung Properties) underperformed.
The European region snapped back in October after a very difficult third quarter. Relative outperformance was driven by strong stock selection within Continental Europe as retail holdings Klepierre, LEG Immobilien, and Merlin Properties generated positive performance for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/ubs_clarion_global_property.pdfSeptember, 2022
The portfolio outperformed the benchmark for the month.
For the month, the Asia-Pacific region was the best performing region (-6.8%), followed by the Americas region (-12.1%), with the European region being the laggard (-16.0%). From a relative performance perspective, the Asia-Pacific and Europe contributed for the month, while the Americas detracted modestly.
In the Asia-Pacific region, relative outperformance was driven by stock selection in Japan. The portfolio was overweight two of the best-performing stocks, Japan Hotels and Japan Metropolitan. Japan Hotels is benefiting from the government’s relaxation of COVID lockdown restrictions, which in-turn encourages both domestic and international travel to Tokyo. Japan Metropolitan is a diversified REIT with approximately 50% of its portfolio focused on urban retail.
The Americas region was a slight drag on performance for the month as positive stock selection in Canada was more than offset by modest underperformance in the U.S. In the U.S. net lease sector, the portfolio benefited from an M&A announcement as holding STORE Capital was privatized by GIC (the Government of Singapore’s sovereign wealth fund) in partnership with Oak Street, one of the largest net lease investors. The $14B cash transaction represented a premium of 20% to STORE Capital’s prior close. This benefit was more than offset by relative underperformance in the data center and hotel sector during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/192337746.pdfAugust, 2022
The portfolio outperformed the benchmark for the month.
Relative outperformance in the Americas region was primarily driven by portfolio positioning in the U.S. storage sector. The storage sector materially outperformed all other property sectors in the US, generating a +1.7% total return for the month. Second quarter earnings results were outstanding for the sector, and three key storage positions, ExtraSpace (+4.9%), Life Storage (+1.1%), and CubeSmart (+0.40%) generated positive performance for the month.
The Asia-Pacific region modestly underperformed on a relative basis for the month with positive stock selection in Australia more than of offset by Hong Kong positioning which detracted from performance. In Australia, overweight positioning in diversified asset manager Charter Hall and retail owner Scentre Group added value as both companies delivered positive earnings results in August. In Hong Kong, our underweight to outperforming Wharf REIC detracted from performance. The group reported 1H 2022 results beating street expectations driven by: 1) lower marketing expenditure, and; 2) reduced rent concessions supporting better margins.
The European Region had a difficult month, driven by the war in Ukraine, high energy prices, high inflation, volatile interest rates, and political uncertainty in the U.K. with Boris Johnson leaving office. There were no stocks that were “safe havens” during the month. Our relative outperformance was entirely driven by being underweight the U.K., which underperformed the global index materially for the month, down -10.2%. Our underweight to the region has been driven by our view that the region offers below average growth relative to its valuation.
The portfolio outperformed the benchmark for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190847675.pdfMay, 2022
The portfolio underperformed the benchmark for the month. From a relative performance perspective, the Americas and European regions contributed negatively to relative performance for the month, while the Asia-Pacific region was a positive contributor for the month.
In the Americas region, relative underperformance was driven by portfolio positioning in the U.S. residential, healthcare, and industrial sectors. In the residential sector, overweights to underperforming Tricon Residential (-15%; single-family for rent) and NexPoint Residential (-18%; class B multifamily) drove negative relative performance for the month. The stocks have several similarities: 1) focus primarily on the Sun Belt region of the United States; 2) focus on family and “workforce” housing and; 3) strong first quarter earnings results and outlook.
Despite poor May performance, we strongly believe in the outlook for each stock and maintain our overweight. In the Asia-Pacific region, outperformance was driven by positive contributions from Japan (LaSalle LOGIPORT REIT; Industrial +4.2%) and Singapore (Lendlease Global Commercial REIT; diversified +3.1%). The reopening of the economies in Japan, Hong Kong, and China will certainly help sentiment in this region. In the European Region, positive relative contribution from Continental Europe was offset by negative relative contribution from the U.K. Top contributors to performance in Continental Europe were Deutsche EuroShop (+40.0%, German shopping centres), LEG (+1.2%, German residential), and Merlin (+3.6%; Spanish diversified). In the U.K., the largest detractor was from performance was Tritax Big Box (-15.9%).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/188132495-1.pdfApril, 2022
The portfolio outperformed the benchmark for the month. For the month, Asia-Pacific was the best performing region (- 0.7%), followed by North America (-4.6%), with Europe being the laggard (-5.7%). From a relative performance perspective, all three regions contributed positively to relative performance for the month with both stock selection and sector allocation adding value.
In the Americas region, relative outperformance was driven primarily by portfolio positioning in the U.S. residential, healthcare, and industrial sectors. The portfolio was overweight both American Campus Communities and PS Business Parks when Blackstone announced their purchase at a double-digit premium to the pre-announcement price. In the Asia-Pacific region, the portfolio benefited from a regional overweight and stock selection in Japan, particularly an overweight in Japan Hotel REIT (+6%) which continues to benefit from a recovery in economic activity and re-opening of domestic travel.
Based on our proprietary valuation dashboard, real estate securities valuations are attractive. At 04/30/22, real estate stocks are trading a discount of 9.9% to NAV with an implied unleveraged cash flow yield of 5.5%. In the U.S., the spread between implied cap rates and Baa corporate bonds is +44 basis points. Outside the U.S., these spreads are also wide. The forward multiple of global REIT earnings is 17.8x versus the 16.2x Price-to-Earnings ratio of the MSCI World Equity Index. REIT multiples tend to trade at a premium to broad equities when growth is more compelling. The growth outlook for global real estate is accelerating in 2022 versus expected sharp deceleration in broad equities
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/187296351.pdfMarch, 2022
The portfolio performed essentially in-line with the benchmark for the month.
For the month, the Americas was the best performing region, followed by the Asia-Pacific region, while Europe was the laggard. Sector allocation decisions added value in all regions but was offset by stock selection, which was the result of subpar stock selection in the U.S. In the Americas, an overweight to the outperforming region added value but this was negated by the impact of sub-par stock selection in the U.S. residential sector. In the Asia-Pacific region, the portfolio outperformed the benchmark as stock selection and sector allocation decisions were modest contributors. Japan and Australia were the primary contributors to performance. In Europe, sector allocation decisions added value while stock selection was flat. We continue to be underweight the region, which has been negatively impacted by the conflict in Ukraine.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/186398117.pdfFebruary, 2022
The portfolio underperformed the benchmark in February. Relative to the benchmark, the Americas portion of the portfolio underperformed for the month, while the Asia-Pacific and European Regions were very modest drags on performance.
In the Americas, underperformance for the month was driven by portfolio positioning in the storage, office, and retail sectors. We remain underweight to the U.S. office sector, but the office sector was +6.1% for the month, materially outperforming the benchmark. While U.S. office fundamentals are no longer deteriorating, we are unable to underwrite any material improvement in U.S. office fundamentals and earnings, and so we remain underweight U.S. office and view the February material outperformance as a short-lived “relief rally” that the office outlook is not getting worse Based on our proprietary valuation dashboard, real estate securities valuations are attractive relative to the private real estate, fixed income, and broader stock markets.
At 28/2/22, real estate stocks are trading at a discount of 7.1% with an implied unleveraged cash flow yield of 5.9%. In the U.S., the spread between implied cap rates and Baa corporate bonds is +125 basis points versus a long-term average of +100 basis points. Outside the U.S., these spreads are wide as well. The forward multiple of global REIT earnings is 17.8x versus the 17.4x Price-to-Earnings ratio of the MSCI World Equity Index, normally the multiples are similar
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185556633.pdfJanuary, 2022
After substantial relative outperformance in the 4th quarter 2021 as well as the full-year 2021, the portfolio underperformed the benchmark in January.
In the U.S., during the month, underperformance was driven by portfolio positioning in the storage and residential sectors. We are overweight the storage sector, and after being a top performing sector during the fourth quarter 2021 and the full year, the sector experienced what could be described as “profit taking” by investors in January. This underperforming sector was down -8% in January and our favourite storage stocks, ExtraSpace and CubeSmart, underperformed the sector average.
In the European Region, negative stock selection in both the U.K. and on the Continent was driven by underperformance in overweight positions that were previously outperformers in the fourth quarter 2021. Portfolio positioning suffered from an overweight to underperforming storage and industrial stocks, as well as select positions in Sweden (SBBB). In the Asia-Pacific region, the portfolio outperformed the benchmark primarily because of positive stock selection in Japan (Daiwa Office REIT) and Singapore (Digital Core REIT) outweighing negative stock selection in Australia, driven by an overweight to real estate fund manager HomeCo.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/184034420.pdfDecember, 2021
The portfolio outperformed the benchmark in December, adding to the significant positive relative performance delivered for the full year in 2021.
For the month, North America was the best performing region, followed by the Asia-Pacific region and Europe. The portfolio outperformance versus the benchmark was balanced between stock selection and sector allocation. In the U.S., outperformance was driven by sector allocation decisions. Positioning in the storage, data centre and tower sectors accounted for most of the relative outperformance. In the Asia-Pacific region, stock selection in Singapore was the primary driver of relative performance, led by a position in outperforming Digital Core REIT. Positioning in Europe also benefited performance as positioning in the U.K. and on the Continent, each contributed modestly for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/182693348.pdfNovember, 2021
The portfolio underperformed the benchmark for November, adding to the significant positive relative performance delivered year-to-date. For November, in local currency terms, the European region was the best performing region, followed by North America and then the Asia-Pacific region. The portfolio outperformed the benchmark as a result of positive stock selection. In the U.S., outperformance was driven by positioning in the storage, data center and net lease sectors. In the storage sector, the portfolio benefited from being overweight outperforming Extra Space Storage (+7.5%), which raised 2021 earnings guidance for the fourth time in 2021 on its conference call in late October which propelled the sector to outperform in both October and November.
Outperformance in Europe for the month was due to positioning in select Nordic names coupled with overweights to outperforming industrial and storage stocks. Our overweight to outperforming Nordic diversified companies Nyfosa (+14.9%) and SBBB (+14.3%) added value. Both companies are generating positive NAV and earnings growth through solid fundamentals and accretive acquisitions throughout the Nordic region.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181857966.pdfOctober, 2021
For October, North America was the best performing region, followed by the European region and then the Asia-Pacific region. The portfolio outperformed the benchmark as the result of positive stock selection and sector allocation. In the U.S., outperformance was driven by positioning in the storage, industrial, and net lease sectors. In the storage sector, the portfolio benefited from being overweight outperforming Extra Space Storage (+13%) and CubeSmart (+9.2%). Both companies raised 2021 earnings guidance for the fourth time in 2021 on their conference calls in October, which propelled the sector to outperform for the month.
We believe that real estate securities are attractively priced relative to the private real estate market, the fixed income market, and the broader stock market. The earnings outlook for real estate stocks is improving as we progress toward 2022. We believe investors committing capital to listed real estate at this time have the potential to earn an attractive absolute and relative long-term total return. Based on our proprietary valuation dashboard, real estate securities valuations are attractive relative to the private real estate, fixed income, and broader stock markets. At October 31, 2021, real estate stocks are trading at a global average discount to private market real estate value (i.e., NAV) of -2.3% with an implied unleveraged cash flow yield of 5.4%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181158788.pdfSeptember, 2021
The portfolio outperformed the benchmark for the third quarter, building on the positive relative performance delivered year-to-date with all three regions delivering positive relative performance.
For the third quarter, North America was the best performing region, followed by the European region and the Asia-Pacific region. In the U.S., outperformance was driven by positioning in the data center, storage, and industrial sectors. Positive stock selection in the U.K., driven by overweights to outperforming industrial and storage stocks, drove outperformance in Europe for the quarter. In the Asia-Pacific region, positive performance was driven by contributions in Australia and Japan.
Real estate stocks were up +0.1% for the third quarter, underperforming with the MSCI World Index (+0.7%) and outperforming the Barclays Global Bond Index (-0.9%).
Based on our proprietary valuation dashboard, real estate securities valuations are attractive relative to the private real estate, fixed income, and broader stock markets.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/180189478.pdfAugust, 2021
The portfolio outperformed the benchmark for August, building on the positive relative performance delivered yearto-date. In the U.S., outperformance was broad-based with the largest drivers being the storage, net lease and industrial sectors. In the storage sector, the portfolio benefited from being overweight outperforming Extra Space Storage (+7.3%) and CubeSmart (+7.7%). The companies raised 2021 earnings guidance for a third time in 2021 on their conference calls in late July, propelling the sector to outperform for the month. In Europe, in both the U.K. and on the Continent, positive stock selection was driven by overweights to outperforming industrial and storage stocks. In the case of storage, an overweight to outperforming Shurgard (+12.2%) and SafeStore (+9.3%) positively contributed to performance. Our overweight of industrial stocks that drove positive relative performance included: Montea (+11.2%), Catena (+7.9%), and SEGRO (+6.1%)
Based on our proprietary valuation dashboard, real estate securities valuations are attractive relative to the private real estate, fixed income, and broader stock markets. At August 31, 2021, real estate stocks are trading at a global average discount to private market real estate value (i.e., NAV), with an implied unleveraged cash flow yield of 5.4%. In the U.S., the spread between implied cap rates and Baa corporate bonds is +174 basis points versus a long-term average of +99 basis points. Outside the U.S., these spreads are wide as well.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179317184.pdfJuly, 2021
The portfolio outperformed the benchmark for July, building on the positive relative performance delivered in both the first and second quarters of 2021.
In the U.S., outperformance was driven by positioning in the storage, residential, data centers and industrial sectors. In the storage sector, the portfolio benefited from being overweight outperforming Extra Space Storage (+8.5%) and CubeSmart (+9.4%). The overweight has served us well in 2021, as the companies raised 2021 earnings guidance for a third time in 2021 on their conference calls in late July, propelling the sector to outperform for the month.
In the Asia-Pacific region, positive relative performance was driven by stock selection in Japan and Australia. In Japan, an overweight to outperforming industrial REITs SOSiLA Logistics REIT (+12.7%) and LaSalle Logiport (+10.7%) helped performance. In the case of LaSalle, the company benefits from both industrial cap rates compressing in Japan combined with its unique external growth pipeline that includes not only sponsor-developed assets, but also “value-add” properties sourced by the REIT, which can be acquired at a discount to market value.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/176282277.pdfJune, 2021
The portfolio outperformed the benchmark for the 2Q 2021, building on the positive relative performance delivered in 1Q 2021. North America continues to be the strongest performing region year-to-date. From an attribution perspective, the portfolio outperformed the benchmark as the result of positive stock selection and sector allocation decisions
In the U.S., outperformance was driven by positioning in the storage and net lease sectors. In the storage sector, the portfolio benefited from being overweight this best performing property sector in the 2Q as well as from positive stock selection. In the net lease sector, the portfolio benefited from an overweight to VEREIT, which announced in late April that it was being acquired by best-in-class net lease company Realty Income in a stock-for-stock merger at a +17% premium to VEREIT’s prior day closing stock price.
In the Asia-Pacific region, positive relative performance was driven by stock selection in Australia and Japan. Within Europe, positive relative performance was driven by stock selection within the UK, in particular via overweight positions in the storage and industrial sectors
Real estate stocks were up +9.8% for the second quarter of 2021. On a year-to-date basis, real estate stocks are up +17.1%, outpacing the MSCI World Equity Index (+13.3%) and the Barclays Global Bond Index (-3.2%). After several years of relative underperformance, real estate stocks are among the best performing asset classes in 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/174806778.pdfMay, 2021
The portfolio outperformed the benchmark for the month building on the strong relative performance in the first four months of 2021. In the U.S., we outperformed, driven by positioning in the mall, healthcare, and data center sectors. In the mall sector, we benefited from an overweight to outperforming Simon Property Group (“SPG”). SPG was up +5.5% for the month, driven by a strong first quarter earnings report where SPG beat 1Q consensus estimates and raised 2021 full-year guidance.
Our underweight of the underperforming healthcare and data center sectors also contributed to our relative performance. We continue to be underweight the healthcare sector because these stocks are expensive relative to their tepid earnings growth outlook. We also remain underweight the data center sector as these stocks are expensive relative to our growth outlook.
In the Asia-Pacific region, our relative performance trailed modestly for the month. Home Consortium took a relative breather after strong performance in prior months. For the JREITs, an overweight to outperforming, office company Orix JREIT while not owning several large-cap, underperforming JREITs helped relative performance. In the Asia-Pacific region, positive relative performance was largely driven by our stock selection in Australia with exposure to outperforming Home Consortium (+14%), while avoiding discretionary retail landlord Scentre Group (-3%).
Real estate stocks were up +1.3% for May. On a year-todate basis, real estate stocks are up +15.1%, outpacing the MSCI World Equity Index (+11.8%) and the Barclays Global Bond Index (-2.4%). After several years of relative underperformance, real estate stocks are among the best performing asset classes in 2021.
Based on our proprietary valuation dashboard, real estate securities valuations are attractive relative to the private real estate, fixed income, and broader stock markets. At May 31, 2021, real estate stocks are trading at an implied unleveraged cash flow yield of 5.5%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/173051530.pdfApril, 2021
It is unusual for real estate securities to be “cheap” relative to all three of the broader asset classes at the same time. At April 30, 2021, real estate stocks are trading at a global average 3% discount to private market real estate value (i.e., NAV), with an implied unleveraged cash flow yield of 5.6%.
As we work through 2021, it is possible that one potential risk for the markets is the direction of the corporate tax rate in the U.S. With U.S. spending programs being passed and budget deficits soaring, the Biden Administration has proposed a plan to increase corporate tax rates in the U.S. The proposed plan will eliminate the corporate tax rate cuts put in place by the Trump Administration back in 2017. It is interesting to note in 2017, real estate stocks materially underperformed the broader stock market as the Trump corporate tax rate cut was being introduced and then passed. Because REITs do not pay taxes at the corporate level, they received no benefit from the Trump corporate tax rate cut, which is presumably why REITs underperformed both the broader market and most sectors which did receive tax rate cut benefits. This could benefit REITs if it were to be reversed.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/172013742.pdfFebruary, 2021
It is unusual for real estate securities to be “cheap” relative to all three of these broader asset classes at the same time. At February 28, 2021, real estate stocks are trading at a global average -6% discount to private market real estate value (i.e., NAV), with an implied unleveraged cash flow yield of 5.4%. In the U.S., the spread between implied cap rates and Baa corporate bonds is +215 basis points versus a long-term average of +98 basis points. Outside the U.S., these spreads are also historically wide.
Relative to the broader stock market, REITs look cheap as well. The forward multiple of global REIT earnings is 18.1x versus the 20.0x Priceto-Earnings ratio of the MSCI World Equity Index; normally the multiples are similar and the present gap of 1.9x has not been seen in several years.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/168754124.pdfJanuary, 2021
After a strong rally in the fourth quarter of 2020, real estate stocks experienced a quiet month of consolidation in January 2021, falling -0.6%. In January, stock market participants seemed to be focused on the transition to the incoming Biden Administration in the U.S. and the global fight against COVID. Given the powerful rally in real estate stocks over the last three months, we believe it is healthy and positive for the stocks to consolidate as we head into fourth quarter earnings season.
In January, there were several news releases that we believe bode well for the real estate sector in 2021. The first week of 2021 saw Toronto-based Brookfield Asset Management (NYSE: “BAM”) announce a proposal to acquire the remaining 40% of Brookfield Property Partners (NASDAQ: “BPY”) it does not own. BAM’s offer price represents a +16% premium to the prior day stock price yet is still more than a -15% discount to our estimate of Net Asset Value. This transaction displays both the continued institutional demand for high quality real estate as well as the magnitude of how “cheap” real estate in the public markets is compared to the private market.
Second, in the last week of January, fourth quarter earnings season started in the United States, with several companies that we own, Prologis (“PLD”) and Duke Realty (“DRE”), reporting strong results for the fourth quarter of 2020 and giving optimistic earnings guidance for 2021
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/166737240.pdfDecember, 2020
After fees and expenses, the portfolio increased by 3.35% over the month, outperforming its benchmark by 48bps.
The portfolio delivered a 1.1% return in December, outperforming the benchmark return of 0.6% (S&P/ASX 300 AREIT Index). In the past 12 months, the fund has delivered a 0.8% return and materially outperformed the -4.0% benchmark return. Positive transaction evidence and firming house prices supported the sector, offsetting the pickup in COVID cases in Sydney which weighed on the retail sector late in the month. The funds relative outperformance was driven by overweight exposure to the land lease retirement sector, with both Ingenia and Lifestyle Communities outperforming the market. Ingenia provided a sales update in December noting strong sales momentum and positive reservations trends across is holiday park business. Charter Hall Social Infrastructure was also a strong contributor to performance after announcing a sale of its remaining 20 NZ childcare properties and reiterated FY21 distribution guidance.
Detractors to relative performance came from the funds underweight exposure to Charter Hall Group (CHC), Goodman Group (GMG) and Mirvac. CHC & GMG benefited from continued strong transaction evidence in the industrial market, whilst CHC completed another acquisition through its unlisted funds. Positive sentiment towards the housing market also supported Mirvac.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/164033923.pdfOctober, 2020
After fees and expenses, the portfolio decreased by 3.29% over the month, outperforming its benchmark by 10bps.
We outperformed the benchmark for the month. In Continental Europe, the largest contributors to our relative performance for the month came from not owning Spanish diversified company Merlin, pan-European company Covivio, and health-care real estate company Aedifica.
In the Asia-Pacific region, our stock selection in Australia drove outperformance for the month, driven by our overweight to outperforming daily needs retail-oriented stocks Home Consortium and Shopping Centres Australasia.
In North America, relative performance was modestly negative for the month. Drag from the office and healthcare sectors more than offset a positive contribution from the residential sector. On the positive side, our overweight to single-family for rent operator Front Yard Residential was up over 50% on the month as it was announced the company was being privatized at $13.50/share, highlighting the strong bid for single family for rent portfolios.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/160983746.pdfticker: HML0016AU
commentary_block: Array
factsheet_url:
release_schedule: Monthly
fund_features:
The UBS Clarion Global Property Securities Fund aims to outperform (after management costs) the FTSE EPRA/NAREIT Developed Rental Net Return Index (AUD Hedged) over rolling three year periods and invests in a diversified portfolio of listed global real estate companies.
- The global portfolio’s topdown regional and sector allocation is established following a systematic review of local market economic conditions, capital markets and real estate market trends. The investment team places an emphasis on the regions and property sectors believed to have the strongest fundamentals and risk-adjusted return potential.
Security selection - The Portfolio Manager’s bottom-up approach integrates both quantitative and qualitative research in an effort to identify individual securities where the real estate is undervalued and represents the most compelling investment opportunities within markets believed to be the most attractive.
- Foreign currency exposures are typically hedged to Australian dollars to manage volatility in exchange rates. We implement currency hedging after the construction of the portfolio by the Portfolio Manager.
manager_contact_details: Array
asset_class: Property and Infrastructure
asset_category: Global Listed Property
peer_benchmark: Property - Global Listed Property Index
broad_market_index: Dvlp Global Real Estate
structure: Managed Fund