September, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -5.6% for the month ended 30 September 2023. Negative total returns were posted in all regions except Japan.
Japan was the best performing market in the global real estate index, returning 0.6% in local currency terms. Japan continues to benefit from rising expectations for inflation and wage growth, as well as governance reforms.
Although the US Federal Reserve held interest rates steady during the month, the dot plot, which charts FOMC projections for the federal funds rate over time, indicated that interest rates have higher to go. As a result, the 10-year yield surged to the highest seen in 16 years, resulting in a broad-based equities sell-off. REIT sectors with high earnings multiples, e.g., industrial and datacentres, were most impacted.
W. P. Carey (WPC), a net lease REIT, announced its intention to spin-off the majority of its office exposure into a new publicly listed entity, Net Lease Office Properties (NLOP). As a result of the transaction, WPC expect to improve their cost of capital, investment spreads, and increase the quality and stability of its cash flow.
Portfolio holding, Kimco Realty (KIM) announced the acquisition of smaller listed rival RPT Realty (RPT) in an all-stock transaction which values the portfolio at US$2bn. RPT owns a national portfolio of grocery anchored open air shopping centres. KIM expect modest funds from operations (FFO) and net asset value (NAV) per share accretion from the deal. In a positive sign for the New York office sector, Wells Fargo paid US$500m, or US$1,375 per sq. ft. for Neiman Marcus’ empty space at 20 Hudson Yards. Wells Fargo intend to convert the space to office use to accommodate its own expansion. There were three notable dividend cuts and/or suspensions over the month.
1. Hudson Pacific Properties (HPP), a west coast office REIT, suspended their quarterly dividend citing prudence amid challenging market conditions, including the Hollywood strikes.
2. Brandywine (BDN), a Philadelphia-focused office REIT, announced that it would reduce its dividend by 20%.
3. In the face of earnings headwinds and challenging conditions in China, Sun Hung Kai (16-HK), a Hong Kong property developer, reduced their dividend payout ratio from 60% to 40-50% of earnings.
Highlighting investor appetite for the data centre sector, Australia’s largest pension fund, AustralianSuper, signed a A$2.5bn deal with DigitalBridge, a global alternative investment manager, to acquire a significant minority stake in Vantage Data Centres Europe, Middle East, and Africa (Vantage EMEA). Vantage EMEA is a developer and owner of hyperscale data centres.
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The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -2.7% for the month ended 31 August 2023. Negative total returns were posted in all regions except Japan and Europe, with headlines throughout the month centring around half yearly or end of financial year earnings.
U.S. REITs underperformed the global index, returning -3.2% in local currency terms. Inflation trends showed ongoing improvement in August with month-on-month CPI results down to or near long-term trends for most major CPI categories, except for rents. However, wages and wages growth continue to remain elevated preventing the Federal Reserve from signalling the end of inflation concerns. Portfolio exposure to the U.S. contributed positively to relative returns due to stock selection.
Japan was the top performing market in the global index, returning 2.7% in local currency terms. During the month the Japanese economy demonstrated strong GDP growth, spurred by net exports driven by a weaker Yen. Despite a slight loosening of yield curve control (YCC) policy the Bank of Japan (BoJ) continues to maintain an ultra-easy monetary policy, which remains highly accommodative and lends support to REIT earnings. Portfolio exposure to Japan contributed positively to relative returns.
In contrast, Hong Kong was the weakest region, returning -9.7% in local currency terms. The region has suffered from a continued decline in Chinese consumer confidence amid a deteriorating Chinese property market which has prompted several interventions from China’s central bank and the People’s Bank of China (PBoC). Portfolio exposure to Hong Kong detracted from relative returns.
All property sectors posted negative returns in August.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-20.pdfJuly, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 3.2% for the month ended 31 July 2023. All regions posted positive total returns as evidence of disinflation and rhetoric from central bankers has become less hawkish. Lower terminal rate expectations benefited vehicles with higher financial leverage in July, as evidenced by the outperformance of both Continental Europe and the office sector.
U.S. REITs modestly underperformed the global index, returning 2.8% in local currency terms. Despite the lowest CPI print since March of ’21, the Federal Reserve hiked rates an additional 0.25%. Portfolio exposure to the U.S. contributed positively to relative returns due to stock selection.
Continental Europe was the top performing region returning 9.0% in local currency terms. The market responded positively to signs of disinflation, suggesting that the end of the ECB rate hike cycle could be on the horizon. With elevated leverage in the region, a pause in rate hikes would provide much needed relief. The portfolio’s underweight position detracted from relative returns.
In contrast, Hong Kong was the weakest region, returning 0.4% in local currency terms. The post-Covid reopening trade in China has disappointed thus far, with consumer spending remaining subdued. Overweight portfolio exposure contributed negatively to relative returns, albeit modestly.
Except for self-storage, all property sectors posted positive returns in July.
Self-storage was the weakest performing sector, returning -3.8% in local currency terms. Underperformance was most acute in the U.S., where the operating outlook for self-storage is decelerating from record levels and a nearly frozen housing market weighs on customer demand. Portfolio exposure to storage contributed positively to relative returns due to stock selection.
Office was the strongest performing sector returning 6.9% in local currency terms. Top performers in July were U.S. office REITs with the most pressured operating outlooks and capital markets needs. Underweight portfolio exposure contributed negatively to relative returns.
Retail modestly outperformed in July, returning 4.2% in local currency terms. Despite macro data suggesting that retail sales growth has slowed in many regions, occupier demand has remained robust, particularly for grocery-anchored retail centres. Overweight portfolio exposure contributed positively to relative returns.
There were several notable REIT announcements during the month.
At the end of July, U.S. listed single-family rental REIT, Invitation Homes (INVH), issued $800m of unsecured notes. INVH issued $450m of 5.45% senior notes due 2030 and $350m of 5.5% senior notes due 2033. The U.S. unsecured market remains accessible for REITs with quality balance sheets.
U.S. data centre REIT, Digital Realty (DLR), announced the sale of a 65% interest in two stabilized hyperscale facilities in Chicago into a joint venture with GI partners for $743m. DLR will retain a 35% ownership interest and continue to manage the day-to-day operations. This deal values the properties at a 6.5% cap rate, and puts DLR on track for the ~$2B of planned dispositions in FY23 to fund its >$2B development pipeline.
Europe’s largest retail REIT, Unibail-Rodamco-Westfield (URW), sold its 42% stake in Westfield Mission Valley Shopping Centre for $290m at an 8.5% cap rate. This asset was previously held in a joint venture with CPPIB and reflects URW’s ongoing disposition efforts to improve its balance sheet and liquidity position.
UK student housing REIT, Unite Group (UTG), issued £300m of equity to finance previously announced development projects. The equity raise was well-executed, pricing ~4% below UTG’s unaffected share price. UTG’s successful issuance is likely a signal to other UK REITs with healthy balance sheets that the equity market is accommodative.
The largest U.S. storage REIT, Public Storage (PSA), announced the acquisition of Simply Self Storage from Blackstone’s unlisted REIT (BREIT) for $2.2B. Pricing suggests an initial cap rate of 5-5.5% which PSA expects to stabilize at 6.25-6.75%.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-19.pdfJune, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 2.8% for the month ended 30 June 2023.
The U.S. was the top performing region returning 4.8% in local currency terms. The market responded positively to the U.S. Fe deral Reserve pausing its interest rate hiking cycle and ongoing resilience in the broader economy. The portfolio’s overweight position to the region contributed positively to relative returns.
In contrast, the U.K. was the weakest region, returning -7.3% in local currency terms. REITs in the region were pressured as the Bank of England raised interest rates higher than anticipated by 0.5% to 5%. Meanwhile inflation remains stubbornly high in the region, signalling further hikes are likely in order to return it to target levels. The portfolio’s overweight position to the region detracted from relative returns.
With the exception of industrial, all property sectors posted positive returns in June.
Data centres was the strongest performing sector returning 7.2% in local currency terms as investor enthusiasm persisted driven by robust secular tenant demand. Canadian office REIT Allied Properties (AP) capitalised on investor appetite, selling its To ronto urban data centre portfolio to Japanese telecommunications operator KDDI Corporation (9433) for C$1.35bn, an estimated low4% cap rate and a 10% premium to book value. The portfolio’s underweight position detracted from relative returns.
Industrial was the weakest performing sector, returning -1.1% in local currency terms. The sector was negatively impacted by decelerating tenant demand and an elevated supply backdrop. The portfolio’s underweight position contributed positively to relative returns.
Office was in the middle-of-the-field, returning 4.1% in local currency terms. Performance diverged by region with U.S. strength diluted by weakness elsewhere. Late in the month, U.S. office REIT SL Green (SLG) sold a 49.9% stake in 245 Park Avenue, New York to unlisted Japanese developer, Mori Trust, for $2bn ($1.1k/sqft), which reflected a low-4% cap rate. The valuation was meaningfully higher than public market implied values for A-grade quality assets and drove a re-rating in depressed valuations.
Elsewhere, Australian office REIT Dexus (DXS) sold an A-grade asset, 44 Market Street, Sydney, for $393m or AU$12.8k sqm (US$797/sqft) to APAC focussed investment firm, PAG. The deal reflected a meaningful 17% discount to its December valuation.
The portfolio’s underweight position to the office sector detracted from relative returns.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-18.pdfMay, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -3.8% for the month ended 31 May 2023. All regions posted negative returns over the month, except for Japan, as the takeout of First Republic Bank by JP Morgan Chase at least temporarily resolved the U.S. banking crisis, with focus shifting toward U.S. government debt ceiling negotiations in Washington.
U.S. REITs modestly outperformed the global index, returning -3.2% in local currency terms as the market digested persistent inflation and another 0.25% interest rate hike by the Fed, coupled with commentary hinting at the potential conclusion of the end of the hiking cycle. Overweight portfolio exposure to the U.S. contributed positively to relative returns.
Japan was the top performing market in the global index, returning 0.1% in local currency terms, and the portfolio’s underweight position detracted from relative returns. Logistics REITs Nippon Prologis REIT (3283) and GLP J-REIT (3281) raised ~$200m & ~$240m of equity in May to acquire logistics facilities.
Hong Kong was the weakest region, returning -8.9% in local currency terms, and the portfolio’s overweight position to the region detracted from relative returns. REITs in the region were affected by multiple factors in China, including a softening Chinese property market and declining manufacturing production.
Continental Europe returned -8.9% in local currency terms, and the underweight position contributed positively to relative returns. The European Central Bank (ECB) raised its marginal lending rate and signalled for additional raises after headline Eurozone inflation accelerated through April, increasing pressure on troubled REIT balance sheets in Europe. Several highly levered European REITs made progress on balance sheet remediation in May through equity raises, asset sales or a combination of both. Castellum (CAST) launched their previously announced SEK 10bn (~US$920m) rights issue which aims to lower net debt/EBITDA to ~11x from 13x and reduce LTV from 44% to 38%. CAST also reported the disposal of 20 properties for the year to date, for SEK 2.3bn (~US$210m) in line with book values.
Meanwhile, German landlords Vonovia (VNA) and Aroundtown SA (AT1) disclosed asset sales for the purpose of deleveraging, with VNA disposing of five newly built assets to CBRE for €560m and AT1 reporting €320m of disposals YTD at close to book value.
Unibail-Rodamco-Westfield (URW) completed two sale transactions during the period, including the disposal of Westfield Brandon, a U.S. shopping centre in Florida for $220m representing a 10% net initial yield and a 4% discount to the most recent valuation. Proceeds from the asset sales will be used to reduce debt.
All property sectors posted negative returns in May, except for data centres.
Data centre REITs was the strongest performing sector returning 3.3% in local currency terms as investors were buoyed by signs of ongoing, robust secular tenant demand. Chipmaker NVIDIA Corporation (NVDA) reported strong first quarter earnings with bullish AI growth projections which have positive implications for future total data centre demand. The portfolio’s underweight position to data centres detracted from relative returns.
Retail was the weakest performing REIT sector, returning -5.8% in local currency terms. The sector was negatively impacted by concerns over tenant credit and a slowdown in retail sales.
Overall, real estate transaction activity remains meagre providing limited evidence for valuers, lenders and investors on which to rely.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-17.pdfApril, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 2.0% for the month ended 30 April 2023. All regions posted positive returns in the month except for Hong Kong as there was increased clarity regarding the impact and reach of the recent banking crisis. The urgency with which the U.S. government and The Fed backstopped deposits and a proactive resolution from Swiss policymakers to contain the potential Credit Suisse turmoil appears to have mostly assuaged near-term liquidity and solvency concerns. Inflation appears to possibly be peaking across most global economies, and there has been increased confidence that rate hikes from central banks are nearing a pause.
The UK was the top performing market in the global index, returning 6.3% in local currency terms, and the Portfolio’s overweight position benefitted relative returns. The region reversed course in April after underperforming the rest of the world by more than four percentage points in March. Clean balance sheets in the UK relative to Continental Europe are a tailwind for capital flows in a turbulent environment.
The U.S. had positive returns that modestly underperformed the global index, returning 0.8% in local currency terms. U.S. CPI for the month of March was reported at 5%, suggesting The Fed is nearing an end to its current hiking cycle. The operational outlook for U.S. REITs is solid with constructive commentary by management teams in the current REIT earnings season. Office has been a negative standout that has weighed on the broader U.S. region. Portfolio exposure to the U.S. contributed positively to relative returns due to stock selection.
Hong Kong was the weakest region, returning -0.1% in local currency terms, and the Portfolio’s overweight position detracted slightly from relative returns. After outperforming other regions in March, Hong Kong slid on a relative basis in April on softness in office and luxury residential.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-16.pdfMarch, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -3.9% for the month ended 31 March 2023. All regions posted negative returns in the month except Hong Kong as the collateral damage of central bank interest rate hikes extended to the banking sector causing heightened liquidity and solvency concerns. Echoing the 1980s Savings & Loans crisis, the failure of Silicon Valley Bank and Signature Bank in the U.S., and the bail-out of Credit Suisse by UBS in Europe, highlighted the fragility of banks with weak capital structures and concentrated asset exposures. The consequences for REITs will take time to comprehend but we anticipate tighter lending conditions and reduced credit availability for those property sectors with weak operating fundamentals, notably U.S. office.
Hong Kong was the strongest region, returning 0.6% in local currency terms. REIT earnings recovery expectations are supported by economic and behavioural trends, which highlighted a sharp rebound in travel and consumption and improving residential sales. Our overweight exposure to Hong Kong contributed positively to performance.
The U.S. modestly outperformed the global index, returning -2.8% in local currency terms. The Portfolio’s overweight position benefitted relative returns. The Fed delivered another 25bps rate hike, as U.S. policymakers balanced taming inflation with calming concerns regarding instability in the banking sector. In light of the banking turmoil, relative strength was broadly observed across U.S. REITs which satisfied three key characteristics: (a) defensive income streams, (b) low leverage, and (c) low exposure to technology/life-science oriented markets such as San Francisco. In turn, our exposure to single-family residential, manufactured housing, seniors housing and net lease sectors contributed positively to performance.
Continental Europe was the weakest region, returning -12.4% in local currency terms. Troubles in the banking sector added to the challenges facing highly levered European REITs. Remedies to cure elevated leverage and refinancing risk via common pathways (e.g., asset sale or equity raise) are hindered by the higher cost of capital environment. The wave of dividend reductions or suspensions and utilisation of script dividends continued in March. Announcements included German residential REITs Vonovia (VNA) and LEG Immobilien (LEG), and diversified REITs Aroundtown (AT1) and Immofinanz (IIA). Our underweight exposure to Europe contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-15.pdfFebruary, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -3.6% for the month ended 28 February 2023. All regions apart from Japan posted negative returns in the month of February. REITs have delivered mixed earnings results with positive Q422 results preceded by 2023 guidance that suggests an expected slowdown in the latter half of the year, with rising operating expenses and interest costs posing a challenge to earnings in 2023.
Japan was the strongest region, returning 2.3% in local currency terms. Japanese stocks rallied late into February after Bank of Japan Governor nominee Kazuo Ueda expressed support for the current ultra-loose monetary setting, signalling interest rates are unlikely to rise in the short to mid-term. Our underweight exposure to Japan detracted from performance.
The U.S. underperformed the global index, returning -4.8% in local currency terms. Positive economic and employment data released in February suggests that the Fed’s efforts to control inflation have been inadequate, leading to a greater likelihood of interest rates staying higher for longer. Sticky inflation concerns and decelerating growth from earnings combined for downward pressure on the U.S. Our overweight exposure to the U.S. detracted from performance.
Hong Kong was the weakest region, returning -6.1% in local currency terms. Geopolitical concerns and uncertainty surrounding Chinese business recovery led to a consolidation in Hong Kong equities throughout February after a strong post-Covid reopening rally since November of last year. Our overweight exposure to Hong Kong detracted from performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-14.pdfJanuary, 2023
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 8.0% for the month ended 31 January 2023. All regions apart from Japan posted positive returns in the month of January. Inflation is moderating from elevated levels, and there is increasing confidence that high-water marks for base interest rates may be on the near horizon.
Continental Europe outperformed the global index, returning 9.6% in local currency terms, driven primarily by strength in the German residential sector. Outperformance seems to stem from a sentiment shift towards a more benign interest rate outlook for 2023. Such an environment will alleviate pressure in highly levered capital structures such as German residential. UK stocks also performed well as the rate cycle appears to be turning more benign.
Hong Kong slightly underperformed the global index, returning 5.2% in local currency terms. After consecutive months of outperformance stemming from the anticipation of China lifting Covid lockdown restrictions, regional tailwinds from the expected strong economic rebound appear to have been accounted for by the public market.
Japan was the weakest region for the second consecutive month, returning -1.6% in local currency terms. The Bank of Japan surprised global markets by widening its yield curve control policy in December, but defied market expectations in January by opting to maintain its dovish negative target interest rates for now. Our underweight exposure to Japan contributed positively to performance.
The U.S. was the best performing region returning 10.6% in local currency terms. U.S. performance was supported by industrial, senior housing, lodging, and some select office companies. Industrial performance was driven by Prologis (PLD), which kicked off REIT earnings season with solid 4Q22 operating results that demonstrated continued strong occupancy and rate growth.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-13.pdfDecember, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -3.8% for the month ended 31 December 2022. Hong Kong was a regional outlier with positive returns for the month. Our elevated cash position was a key contributor to relative performance.
Globally, central banks continued to increase rates in response to persistently high inflation. The U.S. Fed increased interest rates by another 50bps and emphasized further rate rises are to be expected throughout 2023. The Bank of Japan surprised markets this month by widening its bond yield curve control (“YCC”) band for the first time since Q1 2021.
On the back of YCC widening, Japan was the weakest region returning -6.8% in local currency terms. The Bank of Japan signalling that it may move away from its negative interest rate policy is significant as it would be the last major central bank to do so. The Bank of Japan announcement caused a spike in the Yen and Japanese equities to fall. Our underweight exposure to Japan contributed positively to performance.
Hong Kong was the best performing region returning 12.0% in local currency terms after China abandoned its Covid zero policy and lifted lockdown restrictions, increasing expectations for the HK/China border reopening in January which has been closed for three years. The lifting of Covid restrictions in both China and Hong Kong is expected to provide a strong economic rebound to the region as China’s Covid zero policy slowed economic activity to its slowest pace in two years. Our underweight exposure to Hong Kong detracted from performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-12.pdfNovember, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 5.0% for the month ended 30 November 2022. All regions posted positive returns. While inflation figures reported by major economies remain elevated, some fell below consensus expectations. Meanwhile other leading indicators (such as employment and rental housing survey data points) suggest inflation is cooling. The ensuing recalibration of interest rate expectations and in turn REIT earnings and valuation expectations, provided some relief for REIT returns during the month.
The U.S. returned 5.7% in local currency terms on the back of more muted inflation metrics. The consumer price index for October came in below consensus expectations. Other leading indicators also pointed to cooling inflation, including the unemployment rate which increased 20bps to 3.7%. On November 30, the Fed Chairman signalled a slower pace of interest rate rises.
Hong Kong was the strongest region returning 14.0% in local currency terms on post-COVID reopening hopes. Whilst the relaxation of restrictions is slow and ongoing, small strides made during the month should help its struggling economy. China policy makers announced minor adjustments which reflect a subtle shift toward easing, perhaps in response to recent public protests against China’s tough stance. Our underweight exposure to Hong Kong detracted from performance.
Japan was the weakest region returning 0.8% in local currency terms. Its GDP unexpectedly contracted by 0.3% quarter-on-quarter on a seasonally adjusted basis, despite recently easing COVID restrictions. Yen weakness in Japan magnifies import costs and impedes consumption, but positively it supports the recovery of inbound tourism. Our underweight exposure to Japan contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-11.pdfOctober, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 3.1% for the month ended 31 October 2022, led by Australia. Hong Kong and Singapore were outliers with negative returns for the month.
Australian markets benefited from a modest 25bps October interest rate increase to 2.85%. The RBA has signalled it can move slower than most central banks given it meets more frequently and Australia faces a better inflation trajectory with less wage/price pressures.
U.S. GDP grew 2.6% SAAR (seasonally adjusted annual rate). The labour market remained resilient with continued low unemployment and 10.7m job vacancies. Recession fears increased pressure on the Federal Reserve to temper future rate hikes.
The UK market stabilised as the third prime minister in two months took office. Despite abandoning former PM Truss’ “mini-budget”, the UK faces major fiscal deficit, soaring inflation, and a cooling property sector. Proposed tax hikes and spending cuts will likely dampen growth further and urge more caution in future rate hikes.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-10.pdfSeptember, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -11.8% for the month ended 30 September 2022. All regions and sectors posted negative returns for the month. The macro environment – namely elevated inflation spurred higher by the energy crisis, and (mostly) upward revisions to interest rate expectations – has influenced downgrades to REIT earnings and values.
Our elevated cash position was a key contributor to relative performance
The UK was the weakest region returning -17.6% in local currency terms, partly attributable to the UK Government’s “minibudget” blunder, triggering a sharp spike in gilt yields and a depreciation of the Pound. The BoE was forced to implement a temporary bond-buying program to stabilise the market. Our modest overweight exposure to the UK detracted from relative performance.
Continental Europe returned -15.3% in local currency terms, with the ECB announcing a +75bps interest rate hike and acknowledging inflation had been “more persistent and of a magnitude that nobody expected”. Our underweight exposure to Continental Europe contributed positively to performance.
The U.S. returned -12.2% in local currency terms as accelerating inflation prompted the Fed to increase interest rates by a further +75bps and warn of elevated rates for an extended period in order to bring inflation back to the 2% target level.
Our overweight exposure to the U.S., particularly residential names such as Invitation Homes (INVH) and Equity Residential (EQR) contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-9.pdfAugust, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -5.7% for the month ended 31 August 2022. Renewed energy uncertainty in Europe and global inflation weighed on markets. The UK reported 10.1% inflation for the month of July, the first double-digit report in nearly three decades. In the U.S. markets continued to reconcile a strong labour market against rising rates and predictions of a looming recession. Unlike other central banks, China’s PBoC cut interest rates to stimulate a sluggish economy still feeling the effects of Covid lockdowns.
ll property sectors in the Index, apart from self-storage, posted negative returns in August. Residential and healthcare were the two worst performing sectors with total returns of -7.9% and -7.4% in local currency terms, respectively.
Self-storage was the strongest performer with a total return of +1.2% in local currency terms, reflecting robust results with occupancy and pricing power holding up better than expected. Exposure to the U.S. largest sector specialist, Public Storage (PSA) contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-8.pdfJuly, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 7.7% for the month ended 31 July 2022. Globally, markets were encouraged by early signs of peak inflation, which could prompt the U.S. Federal Reserve to re-focus on supporting growth rather than curtailing inflationary pressure. Continental Europe was the best performing region, with a total return of 11.6% in local currency terms. Europe’s outperformance was boosted by reports that Russia would allow gas supply to the region. Hong Kong was the worst performer with a flat return in local currency terms.
July news was dominated by U.S. REIT earnings season which kicked off late in the month. For the industrial REITs that have reported thus far, results generally surprised to the upside and FY22 earnings guidance was raised. Tenant demand remains strong and embedded rent spreads imply strong revenue growth over the next few years, even as conditions normalise. As a result, sentiment for the sector improved, causing relative outperformance over the month.
Office REIT results in aggregate were steady and generally met earnings expectations. However, earnings are yet to reflect the broader slowdown seen in economic growth given the longer lease tenure for office landlords. Return-to-office dynamics underwhelmed, and leasing demand remains subdued.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-7.pdfJune, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -7.8% for the month ended 30 June 2022. Japan was the best performing region, with a total return of 0.0% in local currency terms. Continental Europe was the worst performer with a -18.3% total return in local currency terms.
Recession fears mounted in June, as many Central Banks increased interest rates to control elevated inflation, and GDP growth expectations were tempered. Continental Europe fared worst as the surge in energy prices and the implications of the ongoing Russia-Ukraine conflict compounded its relative weakness.
The sharp increase in interest rates has drastically narrowed the spread between borrowing costs and historically low property cap rates. In the public market, liquidity has expedited a broad-based implied cap rate expansion leading to negative returns across all sectors. Reflecting recessionary concerns, the worst performing sectors were those that have historically demonstrated greater sensitivity to changes in GDP – Hotel, Retail and Office.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-6.pdfMay, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -4.6% for the month ended 31 May 2022. Hong Kong was the best performing region, with a total return of 2.6% in local currency terms. The U.S. was the worst performer with a -6.3% total return in local currency terms. In APAC, the performance of China and Hong Kong diverged as the former felt the impact of restrictive Covid lockdowns. Hong Kong had less onerous restrictions and has recovered more quickly. In Hong Kong, retail occupancy and sales are once again improving.
On a sectoral basis, all but one sector posted negative returns in May as central banks continued to raise interest rates and the likelihood of a global economic slowdown grew. Healthcare was the notable exception with a positive return for the month.
We attribute this to the expectation that healthcare related real estate is viewed as defensive and less sensitive to an economic slow-down. Energy prices and supply uncertainties dominate the headlines as the Russia-Ukraine conflict entered a fourth month. Industrial REITs underperformed which was largely attributed to Amazon’s decision to sublet excess warehouse space after the ecommerce behemoth acknowledged that it had excess capacity after rapidly expanding its footprint over the past two years. Hotel REITs performed better than other sectors with several hotel REITs reporting improved trading conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-5.pdfApril, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -4.0% for the month ended 30 April 2022. Singapore was the best performing region, with a total return of 0.9% in local currency terms. The worst performing region was Continental Europe with a -7.4% total return in local currency terms. The ongoing Russia-Ukraine conflict and its impact on European energy prices, as well as elevated financial leverage, continues to fuel under performance of European REITs.
With the exception of hotels, all sectors posted negative returns in April as markets reacted to Covid-19 related lockdowns in China, ongoing armed conflict in Eastern Europe, higher than expected inflation, as well as increasing interest rates. Hotel outperformance was driven by lease characteristics which can insulate the sector from inflation shocks given room rates are re-set daily. In addition, expectations for the continued recovery in corporate travel demand remain intact.
U.S. 1Q22 REIT earnings season is underway with most property sectors reporting solid leasing demand, stable occupancy, and better than expected expenses growth, leading to FY22 funds from operations (FFO) guidance that was either reaffirmed or upgraded. American Campus Communities (ACC), the only listed student housing REIT in the US, will be taken private after announcing it had entered into an agreement with Blackstone (BX) to be acquired for US$13bn in an all-cash deal. BX is acquiring ACC’s real estate and operating platform for $65.47 per share - a 14% premium to ACC’s unaffected share price. The transaction values ACC’s stabilised real estate assets at a cap rate of approximately 4.3% (US$120k per bed).
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-3.pdfMarch, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 4.7% for the month ended 31 March 2022. The U.S. was the best performing region, with a total return of 6.3% in local currency terms. The worst performing region was Continental Europe with a -0.7% total return in local currency terms.
All sectors posted positive returns in March as markets digested increasing interest rates and the ramifications for inflation and global growth. The ongoing Russia-Ukraine conflict added further uncertainty, particularly for Continental Europe given its reliance on Russian energy. Sectors with defensive and structural growth characteristics outperformed, including healthcare, self-storage, and industrial / logistics. Residential was the worst-performing sector as weakness in Europe, following earnings results which spotlighted high leverage risk and inflation risk, overshadowed stronger performance in other regions. In the U.S., East Coast grocery-anchored strip center REIT, Cedar Realty Trust (CDR), was sold in three separate transactions for a combined all-cash valuation of US$1.2bn or US$29 per share. CDR announced its dual-track sale process in September 2021. Buyers include Wheeler REIT (WHLR), and private investors DRA Advisors and KPR Centres. The value reflects a low-6% cap rate, a 16.6% premium to the unaffected price pre-sale announcement, and a 70.6% premium to its share price prior to the dual-track announcement.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-2.pdfFebruary, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -2.5% for the month ended 28 February 2022. Australia and Singapore were the best performing regions, both with a total return of 3.4% in local currency terms. The worst performing region was Hong Kong with a -4.0% total return in local currency terms.
February proved to be a volatile month, as persistent inflation, the timing and magnitude of expected rate hikes and the turmoil between Russia and Ukraine weighed on markets. The sell-off was broad based across real estate sub-sectors despite earnings season broadly confirming solid operating performance from self-storage, logistics, data centres, and life science REITs.
Hotels and office were the only sectors to see positive returns, as the improving pandemic outlook suggests a return to travel and to the office is on the horizon. It was a busy period for M&A activity during the month. In the U.S., two medical office building (MOB) REITs, Healthcare Realty Trust (HR) and Healthcare Trust of America, Inc. (HTA) agreed to merge, creating the largest MOB portfolio in the U.S. with an enterprise value of approximately US$17.6bn.
The market was unimpressed, with HR’s share price down 11% on the day the deal was announced. Alternative asset manager, Monarch Alternative Capital, announced an unsolicited bid to acquire office REIT Paramount Group (PGRE) valuing the assets at US$6b. PGRE owns Class A office properties in New York City and San Francisco. The $12/share all-cash offer represents a 22% premium to PGRE’s stock price and an implied cap rate of 6.4%.
Blackstone’s (BX) unlisted BREIT fund acquired Preferred Apartments (APTS) – owner of ~12k apartments located across sunbelt markets in the US. The deal price was a 39% premium to the unaffected share price and values the company at US$5.8bn. This comes on the heels of BREIT’s US$3.7bn acquisition in January of the non-traded Resource REIT which is also focused on sunbelt apartments.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-1-1.pdfJanuary, 2022
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -5.5% for the month ended 31 January 2022. Hong Kong produced the best total return of 0.7%, followed by Continental Europe with a total return of -2.3%, all in local currency terms. The worst performing region was Australia with a total return of -7.3% in local currency terms.
Equity markets commenced the year in volatile fashion as the U.S. Federal Reserve, amongst other central banks, brought forward the timing of interest rate increases to tame elevated inflation. As a result, 10 yr bond yields rose sharply leading to underperformance of higher multiple growth-oriented companies. In the listed REIT sector this translated into relative underperformance of tech, logistics and self-storage REITs, while recent underperforming sectors, hotels, office and diversified REITs were less impacted.
File: https://commentary.quantreports.net/wp-content/uploads/2022/02/Resolution-Capital-Global-Property-Securities-Fund-Series-II-Monthly-Report-1.pdfDecember, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 5.9% for the month ended 31 December 2021. North America produced the best total returns, the U.S. producing 8.6% and Canada 7.3% in local currency terms. The worst performing region was Europe with a 0.6% total return in local currency terms. The market digested news emerging toward the tail end of November about the Covid-19 Omicron variant, which, whilst more contagious, appears to be less severe in terms of health impacts.
There were several notable real estate transactions during the month, including several relating directly to REITs. In the U.S., Bluerock Residential Growth REIT (BRG) announced that it has entered into an agreement with Blackstone to sell its multifamily property assets in a US$3.6bn all-cash transaction. The portfolio is concentrated in major Southeast and Southwest markets in the U.S. and encompasses approximately 11,000 apartments as well as a loan book secured by 24 multifamily assets.
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ticker: IOF0081AU
release_schedule: Monthly
structure: Managed Fund
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under REPORTS => Latest Monthly Report
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Property Securities Fund – Series II (‘the Global Fund II’) investment objective is to exceed the total returns of the Benchmark after fees on a rolling 3 year basis. In doing so, the Global Fund II aims to provide Investors with a level of distributable income combined with the potential for long term capital growth sourced from global real estate based revenue streams.
- Intends to hedge the capital component of the Fund.
- Gives investors exposure to the underlying returns of some of the world’s highest quality real estate assets through a professionally managed portfolio of global real estate investment trusts (‘REITs’) and property companies.