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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-2-1.pdfAugust, 2023
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.
Retail was the weakest performing sector, returning -5.6% in local currency terms. While retail REITs posted generally solid results which showed robust leasing activity, increasing consumer uncertainty weighed down the sector with warnings of slowing discretionary sales and higher bad debt. Overweight portfolio exposure contributed negatively to relative returns.
Data centres was the best performing sector for the month, returning -0.2% in local currency terms. Data centre results were in line with expectations, however, generative AI and its potential impact on demand drove strong performance.
There were two significant M&A transactions over the month. Hersha Hospitality Trust (HT), a U.S. hotel REIT, announced its acquisition by private equity firm KSL Capital Partners in an all-cash transaction that values the company at ~US$1.4bn. The purchase price was 60% above the last share price and value per key of ~US$362,000.
U.S. shopping centre REIT Kimco Realty (KIM) announced an agreement to buy RPT Realty (RPT) in an all-stock transaction for ~$2bn. The transaction price reflected an 18% premium to RPT’s last share price and 8.1% implied cap rate. The deal will add 43 wholly owned and 13 JV shopping centres to KIM's portfolio of 528 properties and is expected to close in early 2024.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-1-1.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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-10.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. Federal 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 targe t 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 Toronto urban data centre portfolio to Japanese telecommunications operator KDDI Corporation (9433) for C$1.35bn, an estimated low-4% 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 r eflected 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.
There were several other notable REIT announcements during the month.
Crime and safety issues plaguing San Francisco metro saw several landlords cease payments on secured debt amidst challenging operating conditions. Transatlantic mall REIT Unibail Rodamco Westfield (URW) along with its JV partner Brookfield, handed Westfield San Francisco to its lender. U.S. hotel REIT Park Hotels (PK) also ceased payments on a $725m CMBS loan secured by two San Francisco hotels maturing late 2023 amidst refinancing negotiations.
U.S. life science REIT Alexandria (ARE) continued to execute its capital recycling program to fund development, executing dea ls above its public implied value. ARE sold a portfolio of five non-core assets in greater Boston for $365m ($852/sqft) reflecting a 5.2% cap rate.
U.S. REITs also notably capitalised on private funds selling assets to meet investor redemptions. U.S. industrial REIT Prologis (PLD) acquired a portfolio of industrial assets from Blackstone’s private REIT (BREIT) for $3.1bn ($ 221/sqft). The valuation reflected a cap rate of 4.0%, or 5.75% marking the rent to market. Elsewhere, U.S. single -family residential REIT, Invitation Homes (INVH) acquired a portfolio of ~2,000 single-family residential homes from Starwood Capital Group for $800m ($400k per home). The valuation reflected a cap rate of roughly mid-4%.
European senior housing portfolio holding Aedifica (AED) announced a dilutive two for eleven rights issue at €52 per share, equivalent to 18% of shares outstanding, aiming to raise €380m. AED indicated the proceeds will be used to reduce debt, and fund future development and investment opportunities.
Australian retail REIT Vicinity Centres (VCX) continued to recycle assets to fund its mixed-use development pipeline. VCX sold a 50% interest in Broadmeadows Central, located in Victoria for $135m reflecting roughly a mid-6% cap rate, and a premium to book value.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-9.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/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Monthly-Report.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:March, 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. Most property sectors posted negative returns in March with the exception of data centres, self-storage and industrial.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-8.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.
All property sectors apart from self storage posted negative returns in February.
Self storage was the strongest performing sector during February, returning +1.7% in local currency terms after optimistic growth guidance was delivered by the sector. However, earnings results were overshadowed by Public Storage’s (PSA) rejected informal $11b takeout offer to acquire Life Storage (LSI) at a 17% premium to LSI’s unaffected share price, with indications that PSA may improve the offer. Our overweight exposure to the sector added to performance.
The data centre sector was the weakest performer during the month, returning -7.4% in local currency terms. Despite strong bookings with record backlogs, the sector underperformed due to flat earnings guidance delivered by Digital Realty (DLR) which was negatively impacted by rising financing costs, while Equinix Inc’s (EQIX) margins declined because of increasing electricity costs. Our nil exposure to DLR and underweight exposure to the sector contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-7.pdfJanuary, 2023
All property sectors posted positive returns in January.
Data centres was the strongest performing sector during January, returning +13.3% in local currency terms. After a record year of demand for data centres (~2,500 megawatts) in 2022, tenant demand for data centre space remained strong in the fourth quarter. Resilient demand, low vacancy rates, and moderate new supply expectations are encouraging. Our underweight exposure to the sector detracted from performance. The diversified sector was the weakest performer during the month, returning +5.1% in local currency terms, largely due to exposure to Japan via Mitsui Fudosan (8801-JP).
Our significant underweight position to the sector contributed positively to performance. Healthcare was the second-best performing sector, returning +11.6% in local currency terms as occupancy continues to improve and expense growth concerns moderate. The NIC map, a leading senior housing data provider, showed that occupancy improved by 225 basis points in the fourth quarter to 85%. Our overweight exposure to healthcare contributed positively to performance, particularly positions in Welltower (WELL) and Ventas (VTR) in the U.S. The U.S. unsecured debt market has reopened and appears accommodative for REITs with healthy balance sheets. Healthpeak (PEAK) and Realty Income (O) both announced unsecured debt issuances on January 9th.
PEAK issued $400m of 9-year unsecured notes with a 5.25% coupon. Meanwhile, O issued a dual-tranche of $500m of three-year notes and $600m of sevenyear notes at a blended coupon rate of ~4.95%. We view this as an important step in normalising capital markets. At the end of January, Invitation Homes (INVH) unexpectedly announced that CFO Ernie Freedman would be stepping down on June 1st, and that he would be succeeded by Jonathan Olsen, his long-time lieutenant. We do not envision a change in capital strategy stemming from this transition. Emblematic of a challenging office leasing environment, Amazon elected to not renew its lease at Kilroy Realty’s (KRC) West 8 th asset in Seattle. Amazon leased 70% of the property (>500k sqft.) which will be difficult to backfill.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/02631226.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.
The U.S. was relatively weak returning -5.3% in local currency terms as the labour market remains resilient in the face of rising interest rates, which together with a negative yield curve suggests the increasing likelihood of a Fed induced recession. Our overweight exposure to the U.S detracted from performance. All property sectors posted negative returns in December. The hotels sector was the worst performer, returning -7.1% in local currency terms. U.S. hotel REIT Pebblebrook (PEB) announced a significant earnings downgrade which it attributed to a slowdown in demand from weaker business and leisure travel, negative hurricane impacts and higher operating costs.
Our nil exposure to PEB and underweight exposure to hotels contributed positively to performance. The data centre sector was the second worst performer during the month, returning -6.7% in local currency terms. The underperformance was led by Digital Realty (DLR) that announced the sudden departure of William Stein as CEO and from the board of directors. Andrew Power (former president and CFO) has been appointed as the replacement. Our nil exposure to DLR and underweight exposure to the sector contributed positively to performance.
Retail was the best performing sector, returning -0.5% in local currency terms as strong tenant demand and robust consumer spending boosted the sector amid overall market volatility. Our overweight exposure to retail contributed positively to performance. Headwinds from rising interest rates, lower portfolio occupancies, weakening tenant demand and rising operating expenses are creating challenging operating and finance conditions for U.S. office REITs. Consequently, west coast focused Douglas Emmet (DEI) and New York focused SL Green (SLG) announced dividend cuts of 32% and 13% respectively. DEI will use the retained cash to take advantage of opportunities as well as partially funding a recently announced share repurchase program whilst SLG aims to reduce debt by $2.4bn in 2023.
Singapore’s largest real estate deal of 2022 was finalised in December with Hong Kong based Link REIT (0823) entering agreements to acquire two Singaporean shopping malls, Jurong Point and Swing By @ Thomson Plaza for US$1.6bn. The acquisition will be funded by 0823’s internal cash and debt facilities and reflects an initial yield of 4.9% and 6.1% discount to valuation. This transaction highlights investor confidence in the local market relative to the Asia pacific region.
Other notable transactions during December included:
• Unibail-Rodamco-Westfield (URW) sold outdoor lifestyle property, ‘The Village’ in Los Angeles for US$325m to the Kroenke Organisation. The deal reflects a 5.6% initial yield and 10.6% discount to the most recent valuation.
• Dexus (DXS) announced the sale of six assets comprising retail, office, industrial, storage and healthcare properties for US$327m. Four of the six assets were sold at a c.10% discount to book value with the remaining two being trading assets.
• Japanese REIT Mitsubishi Estate Co Ltd (8802) agreed to acquire office owner Regus Japan Holdings K.K. for US$280m in cash. 8802 will acquire operation and development rights as IWG’s exclusive partner for flexible workplaces in Japan as part of the transaction.
• Nippon Prologis REIT, Inc (3283) announced it would acquire three Japanese logistics assets for US$320m, producing a weighted acquisition yield of 4.4%. The acquisition was partially funded by a c.US$175m equity capital raise.
November, 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.
All property sectors posted positive returns in November, except self-storage. Data centres was notably strong, returning +18.6% in local currency terms on the back of positive 3Q22 earnings results. Demand remains significantly ahead of historical trends with REITs citing record bookings, and supply is constrained leading to 3-year-low vacancy rates in major markets. Our exposure to Equinix (EQIX) contributed positively to performance. Healthcare was another bright spot, returning +9.2% in local currency terms. A highlight of 3Q22 earnings results was the ongoing recovery in senior housing demand as both occupancy and rate growth continued to improve and agency labour expense pressure abated. Additionally, U.S. healthcare REIT Welltower (WELL) announced the restructuring of its joint venture with troubled operator ProMedica, which involved transitioning 145 skilled nursing facilities to a new operator, which is a tenant credit upgrade for WELL. Our overweight exposure to healthcare and WELL contributed positively to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/02612438.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’ “minibudget”, 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. Ukraine and energy concerns continue to dominate headlines in Continental Europe, where growth remains anaemic. Germany enjoyed a modest uptick in GDP growth to +0.3% q/q, while France contracted slightly to +0.2% q/q. Hong Kong was the weakest performing region, returning -11.4% in local currency terms. China faces growing uncertainty as President Xi commenced an unprecedented third term. China’s GDP growth slowed to 3.9% in 3Q22 as zero-COVID policies kept cities in lockdown. The property sector, historically a major contributor to growth, is still reeling from the debt crisis and declining asset values. 3Q22 Reporting season kicked off in late October. Results have broadly been in-line with expectations, but initial FY23 guidance suggests a growth slowdown is ahead.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/02597593.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. Japan was the best performing region returning -3.1% in local currency terms.
Japan benefited from comparably low inflation, and the BoJ continued to hold interest rates negative (the only major central bank in the world to do so). However, loose monetary policy has driven a meaningful decline in the JPY/USD exchange rate, prompting the BoJ to intervene to support the local currency for the first time since 1998. Our underweight exposure to Japan detracted from performance.
All property sectors posted negative returns in September. “Value” sectors’ returns were less negative, i.e., sectors with lower earnings multiples and slower growth expectations including office and retail. “Growth” sectors, such as Industrial, were among the worst performers as their higher earnings multiples and loftier growth expectations compressed. The Healthcare sector was also weak as elevated expenses (labour and interest costs) offset solid revenue growth in U.S. seniors housing. Our exposure to U.S.-listed Welltower (WELL) detracted from performance.
Following a pause in REIT M&A activity due to public market turmoil in recent months, STORE Capital (STOR), a U.S. net lease REIT announced that it would be acquired by GIC and Oak Street in September. The all-cash deal for $32.25 per share reflects a 20% premium to the unaffected price and implies a 6.4% acquisition cap rate The Portfolio has no exposure to STORE. However, for most REITs and many other investors, the rapidly rising cost of capital has eroded the ability to invest accretively, and property transaction volumes reduced in September signalling a widening gap between buyer and seller price expectations.
During the month, UK net lease REIT LXI REIT (LXI) pulled a £500m deal to acquire a portfolio of Sainsbury’s supermarkets and associated equity capital raising, citing stock market volatility. Nevertheless U.S. net lease REIT Agree Realty (ADC) enjoyed the luxury of trading at a NAV premium, enabling a $933m equity raise to fund ADC’s peer-group leading external growth ambitions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-6.pdfAugust, 2022
August headlines focused on earnings results. In healthcare, U.S. seniors housing guidance slightly tempered as July’s perfor mance missed expectations due to a Covid spike in the U.S. that impacted move-ins and labour costs. Activity has since rebounded, suggesting the occupancy recovery is still underway but may be more variable than expected. Our exposure to Welltower (WELL), an owner of senior housing and medical office buildings, detracted from relative returns. Return-to-office (RTO) visibility remains limited as some companies call workers back to the office, while other companies plan to reduce their footprint.
Apple Inc announced it expects employees to be in the office at least three days per week from early September and Goldman Sachs removed all Covid flexiblity, requiring employees to be in the office five days per week. KPMG, o n the other hand, intends to reduce its New York City office footprint by 40% in 2025 as it moves to a new HQ in Hudson Yards. In London, office availability is the highest it has been in 15 years. Our exposure to west end London office specialist Derwent London (DLN) underperformed. U.S. Multifamily REITs reported a strong leasing season, with rents peaking in July. Portfolio holding Equity Residential (EQR) published an operational update noting leasing spreads have started to decelerate in 2H22, which is in line with historical seasonality. Meanwhile, U.S. residential rents reached new record highs, with over 50% of cities showing double digit year-overyear rent growth.
Blackstone’s Home Partners of America, a single-family landlord which offers a rent-to-own program, announced it will pause buying homes in 38 of the 80+ U.S. cities it operates in as the U.S. housing market cools. According to local agency Centaline, Hong Kong secondary home prices fell 1.5% in August and are down 5% year to date. Meanwhile Singapore house prices remain resilient and rents have surged by 8.5% in the first half of the year.
Notable transactions in the quarter include:
• Unibail-Rodamco-Westfield (URW) sold its 49% stake in Westfield Santa Anita, a 1.48m square feet mall in Arcadia, California, for US$537.5m to an undisclosed buyer. This is the largest U.S. mall transaction since 2018. Deal terms represent a sub-6% initial yield, and a 10.7% discount to the latest unaffected appraisal.
• American Tower (AMT) announced the sale of 29% of its U.S. data centre business to Stonepeak for US$2.5bn. The portfolio includes 27 data centres in 10 major U.S. markets.
• Safehold (SAFE) announced it will merge with iStar (STAR), creating the largest ground lease REIT in the U.S. The deal valued iStar’s portfolio at US$1.6bn.
• Belgian healthcare REIT, Aedifica (AED), acquired a portfolio of four care facilities in Dublin for €161m, reflecting a 5% yield and €261,000 per unit.
July, 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 th e broader slowdown seen in economic growth given the longer lease tenure for office landlords. Return -to-office dynamics underwhelmed, and leasing demand remains subdued.
Residential results came in inline or ahead of expectations as the sector continues to benefit from strong pricing power due to moderate supply levels, low unemployment, and healthy consumer balance sheets. That said, expense pressures are starting to eat into the sectors’ rosy revenue backdrop.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-3.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 gr eater sensitivity to changes in GDP – Hotel, Retail and Office.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/02543766.pdfMay, 2022
In the data centre sector, DigitalBridge Group (DBRG) agreed to acquire portfolio holding Switch (SWCH) for $34.25 per share, an 11% premium to SWCH’s unaffected share price.
• Leading logistics REIT Prologis (PLD) made public its unsolicited offer to acquire smaller rival Duke Realty (DRE) in an all-stock deal that valued DRE at ~$24bn. The proposed deal price represents a 29% premium to DRE’s stock price. DRE’s board rejected the proposal as being insufficient.
• Deutsche-Euroshop (DEQ) agreed to be acquired by Oaktree and Alexander Otto, DEQ’s largest shareholder, for circa €4bn, cash. DEQ is a German-listed shopping centre landlord and the deal price represents a 44% premium to DEQ’s share price, and a 42% discount to reported NAV.
• Capital & Counties (CAPC) and Shaftesbury (SHB) announced discussions for an all-script merger that will create a £6.5bn Central London, predominantly retail company. CAPC already owns 25% of SHB. The negotiations have not concluded yet. • LXI REIT PLC (LXI), a UK based diversified REIT, made a cash + stock offer to merge with Secure Income REIT (SIR) for £2.3bn. Secure Income is also a UK based diversified REIT. The proposed deal price represents a ~13% premium to SIR’s unaffected share price. The combination would create a £3.9bn portfolio comprised of 346 assets across the UK.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-2.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 the underperformance 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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report-1.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%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Managed-Fund-Monthly-Report.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. There were several notable real estate transactions during the month.
In the U.S., Blackstone’s private REIT (BREIT) agreed to buy private apartment company, Resource REIT, in a US$3.7bn all-cash transaction. The portfolio of ~12,600 apartments, is in suburban submarkets across 13 states in the U.S. The transaction price reflects a ~3.75% cap rate or approximately US$285k per apartment. The transaction is Blackstone’s second major multifamily investment in the last two months, after its acquisition of Bluerock Residential Growth in December 2021. American Campus Communities (ACC), a U.S. student housing REIT, announced a joint venture (JV) with Harrison Street’s Social Infrastructure Fund. ACC is selling a 45% stake in a portfolio of 8,187 beds located at the Arizona State University for US$551m. The transaction price values the assets at a ~3.75% cap rate or ~US$150k per bed.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Monthly-Report-1-1.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.
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. The transaction price values the assets at a 4% cap rate or approximately US$260k per apartment. Cousins (CUZ), a U.S. sunbeltoriented office REIT, announced several transactions over the month, selling an older vintage Austin CBD office asset for US$175m, and acquiring the remaining 50% interest in a recently completed Austin CBD office development for US$145m, equating to approximately US$795 per sq ft. Similarly, Host Hotels (HST) announced the sale of the underperforming W Hollywood hotel for US$197m (US$645k per key), simultaneously announcing the acquisition of an almost new hotel in Savannah for US$103m (US$595k per key). HST had originally acquired the W Hollywood in 2017 for US$220m.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Resolution-Capital-Global-Property-Securities-Fund-Monthly-Report-1.pdfNovember, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -1.5% for the month ended 30 November 2021. The UK was the best performing region with a total return of 3.3% in local currency terms. The worst performing region was Japan with a -6.1% total return in local currency terms.
Toward the tail end of November, reports of a new, potentially more infectious variant of Covid-19, Omicron, rattled markets producing a broad-based sell off, led by sectors most exposed to the potential impacts of disruption including hotels, healthcare, and retail.
Two U.S. listed data centre REITs, Cyrus One (CONE) and CoreSite Realty (COR) were the subject of take-over bids this month. KKR and Global Infrastructure Partners (GIP) intend to privatise CONE in an all-cash transaction which values the company at approximately US$15bn. COR is to be acquired by listed telco tower REIT American Tower (AMT) in an all-cash bid priced at US$170/share or approximately $10.1bn.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2111_PN26-A_UP_Factsheet.pdfOctober, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 5.6% for the month ended 31 October 2021. The U.S. was the best performing region with a total return of 7.8% in local currency terms, reflecting re-opening and an improved economic outlook. The worst performing region was Japan with a -0.3% total return in local currency terms. All sectors produced positive total returns, led by self-storage, industrial and technology REITs which continue to enjoy robust fundamentals. Healthcare and hotels were the weakest due to fears around the spread of the Covid-19 delta variant and labour cost pressures.
U.S. REIT third quarter earnings season is underway. Industrial REITs confirmed unprecedented pricing power with strong tenant demand and rent growth driving another quarter of earnings guidance upgrades for 2021. Similarly, U.S. self-storage REITs delivered impressive results and upgraded earnings guidance as record high occupancy translated to record pricing power. Sector fundamentals for residential REITs remain robust with strong demand for apartments, record low vacancies, increasing retention rates, and accelerating rental growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2110_PN26-A_UP_Factsheet.pdfSeptember, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of -5.3% for the month ended 30 September 2021. Singapore was the best performing region with a total return of 1.0% in local currency terms. The worst performing region was Europe, with a -9.0% total return in local currency terms.
In the UK, Boris Johnson announced plans to raise taxes on company dividend payments by 1.25% from next year. The tax increase is intended to help rescue the National Health Service from backlogs that built up during the Covid-19 pandemic.
In Europe, German government elections dominated news flow. Whilst coalition talks are ongoing, the prospect of draconian residential rent regulation has faded as the SDP, the Greens, and The Left party failed to garner a majority of the votes. In Berlin, the referendum to expropriate landlords who own more than 3,000 units was successful, though not legally binding.
In Australia, a Charter Hall managed consortium announced the acquisition of listed pub landlord, ALE Property Group (LEP), in a cash & scrip deal. The acquisition price represents a cap rate of 3.5% or 4.8% after adjusting for the under-renting in the portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2109_PN26-A_UP_Factsheet.pdfAugust, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 1.5% for the month ended 31 August 2021. Australia was the best performing region with a total return of 7.2% in local currency terms. The worst performing region was Hong Kong, with a -3.8% total return in local currency terms.
Data centres and towers was the best performing sector driven by strengthening operating fundamentals. On the other hand, healthcare was the weakest performing sector due to renewed fears regarding the spread of the Covid-19 delta variant. August marked the conclusion of earnings season for U.S. REITs. Operating fundamentals continue to improve for sectors hard hit by the pandemic, including retail, hotels, urban apartments and senior housing. In addition, pandemic winners such as logistics, self-storage, single-family homes and life science continued to report strong pricing power due to demand tailwinds from e-commerce, demographic shifts and R&D.
In M&A news, Hong Kong-listed industrial property fund manager ESR Cayman (1821) acquired private Singapore-based diversified property fund manager ARA Asset Management for US$5.2bn through a mixture of stock and cash. The purchase price implies an EV/EBITDA of 19.5x.
U.S. gaming and hospitality REIT Vici Properties (VICI) announced that it is acquiring U.S. gaming and hospitality REIT MGM Growth Properties (MGP) in an all-stock transaction worth US$17.2bn. MGP shareholders will receive 1.366 VICI shares implying US$43 per MGP share, a 15.9% premium to the last close. The transaction will be immediately accretive to VICI’s earnings.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2108_PN26-A_UP_Factsheet.pdfJuly, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 3.9% for the month ended 31 July 2021. The UK was the best performing region with a total return of 7.7% in local currency terms, reflecting optimism as lockdowns end. The worst performing region was Hong Kong with a -2.6% total return in local currency terms as regulatory uncertainty in Mainland China weighed.
Residential was the best performing sector driven by improved operating fundamentals. Hotels was the weakest due to renewed fears around the spread of the Covid-19 delta variant.
U.S. REIT earnings season is underway. Industrial REITs confirmed robust fundamentals with strong tenant demand and pricing power driving increased funds from operations (FFO) guidance for 2021. Similarly, self-storage REITs reported impressive results and upgraded FFO guidance as record high occupancies translated to unprecedented pricing power. Data centres continue to report durable leasing demand.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2107_PN26-A_UP_Factsheet.pdfJune, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 1.8% for the month ended 30 June 2021. Japan and Canada were the best performing regions, each with a total return of 3.4% in local currency terms. The UK was the weakest performing region with a -0.8% total return in local currency terms. Self storage was the best performing sector driven by strong operating fundamentals. Healthcare also outperformed as occupancy levels in U.S. seniors housing inflected higher. Hotels and office were the weakest performing sectors, the later impacted by continued uncertainty over return to work as highlighted by serviced office operator IWG Plc (IWG) warning of a slower than expected recovery in occupancy levels.
In M&A news, Blackstone (BX) made a bid to acquire U.S. data centre REIT QTS Realty Trust (QTS). The all-cash transaction is valued at approximately US$10bn.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2106_PN26-A_UP_Factsheet.pdfMay, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) produced a total return of 1.4% for the month ended 31 May 2021. Continental Europe was the best performing region, with a total return of 4.4% in local currency terms. The worst performing region was Singapore with a -1.9% total return in local currency terms. M&A activity dominated news flow over the month.
Vonovia (VNA), a €59bn German residential behemoth, announced that its long-held ambition to takeover Berlin focused peer, Deutsche Wohnen (DWNI), was finally coming to fruition. The €18bn all-cash friendly takeover represents a 25% premium to DWNI’s 3-month average share price or roughly equivalent to the company’s net asset value. To finance the transaction, VNA plan to initiate an €8bn rights issue in the second half of the year with the remaining capital to be met with asset sales.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/2105_PN26-A_UP_Factsheet_May-2021.pdfApril, 2021
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/RERCGF_A-Fact-Sheets_April-2021-1.pdfFebruary, 2021
The FTSE EPRA/NAREIT Developed Index (AUD Hedged) Net TRI produced a total return of 3.8% for the month ended 28 February 2021. Hong Kong was the best performing region, with a total return of 11.3% in local currency terms. The worst performing region was Singapore, with a -3.1% total return in local currency terms. February saw continued rotation into the sectors most negatively impacted by the pandemic, with hotels and retail outperforming while the more pandemic resilient sectors were the weakest, including data centres, towers and industrial. Earnings season has broadly confirmed the resilience of the self-storage, logistics, data centres, life science, and single-family rental sectors.
However, initial 2021 guidance from most of these sectors failed to exceed the market’s high expectations. Meanwhile, despite the pandemic continuing to disrupt retail, hotels, and senior housing businesses, market participants appear to have priced in an improvement in operating fundamentals particularly in regions where vaccines are being rapidly deployed. Nevertheless, Unibail Rodamco-Westfield’s (URW) FY20 result foreshadows enduring challenges ahead for the highly levered mall REIT. URW suspended its dividend for three years (’20-’22) as it focuses on deleveraging in the “toughest operating environment in living memory.” In M&A news, Swedish diversified property company, Castellum (CAST), and Swedish residential company, Samhällsbyggnadsbolaget Norden (SBB) have both failed to gain sufficient support for their separate bids to acquire Norwegian office REIT Entra (ENTRA). In transaction news, U.S. office REIT, SL Green Realty (SLG), sold a 25% interest in its office tower, located at 55 West 46th Street, for a gross valuation of US$275m, or US$793 per square foot, to Brookfield Asset Management. U.S. hotel REIT, Pebblebrook Hotel Trust (PEB) disposed of the 416-room Sir Francis Drake Hotel in San Francisco, CA, to a third party. The asset was sold on a 7.2% cap rate using 2019 net operating income, with net proceeds expected to be US$157.6m.
U.S. healthcare REIT, Omega Healthcare (OHI) acquired 24 senior housing assets from U.S. diversified healthcare REIT, Healthpeak (PEAK), for US$510m, representing an 8.5% yield or US$200,000 per unit. UK healthcare REIT Assura (AGR) acquired primary care developer Apollo Capital Projects Development. The acquisition expands AGR's development team and increases their immediate and extended development pipeline. AGR did not disclose the price. Finnish retail REIT, Citycon (CTY1S), sold three shopping centres in Sweden to Nordic real estate investor Niam for €147m. Swedish diversified REIT, Castellum (CAST) has sold 53 logistics properties to Blackstone for SEK 4.8bn, a 15% premium to their fourth-quarter 2020 appraisal valuation. Hong Kong retail REIT, Link (823), acquired a 50% interest in Shanghai Qibao Vanke Plaza, a shopping mall located in Shanghai, China, for HK$2.67bn, representing a 6.1% gross rental yield. Singapore industrial REIT, Mapletree Logistics Trust (MLT), acquired five logistics properties in Yongin-Icheon, South Korea, for S$335m, representing a net property income yield of 4.5%. In other news, Belgium diversified REIT, Cofinimmo (COFB), announced its intention to create a subsidiary for its Belgium office portfolio, which comprises 77 buildings across c540,000 sqm. Following the restructure, COFB intends to sell a minority interest in the subsidiary. Several REITs raised equity to strengthen their balance sheet and help fund acquisitions. European logistics REIT, Warehouses De Pauw (WDP) successfully raised €200m of equity. WDP issued 3.9% of outstanding shares at €29.25 per share, a 3.3% discount to the last close. Net proceeds will strengthen its balance sheet and fund its development and acquisition pipeline. • European logistics REIT, Tritax Eurobox (EBOX), raised €200m via an equity raise. Shares were priced at 103p, a 2.4% discount to the last close. Net proceeds will help fund the acquisition of six logistics properties across Italy and Germany for €416m and help fund €81m of development opportunities. • Canadian healthcare REIT Northwest Healthcare (NWH.UT) announced that it would raise a maximum of C$255m. NWH will issue up to 10% of outstanding shares, priced at $12.65 per share, a 3.3% discount to the last close. Net proceeds will repay debt, however NWH is reported to be seeking to acquire the unlisted Australian Unity Healthcare Fund. • Singapore data centre REIT, Keppel DC (KEPE), raised S$270m in gross proceeds to fund the Keppel Bay Tower's acquisition. KEPE issued 238.9m shares, at S$1.13 per share, a 4.1% discount to last close VWAP.
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Resolution Capital Global Property Securities aims to achieve an annual total return that exceeds the total return of the Benchmark after fees on a rolling 3 year basis. The Fund primarily invests in global listed REITs and real estate securities that derive most of their returns from rental income. The Fund’s investments provide exposure to a range of underlying real estate from around the world including office buildings, shopping centres, industrial warehouses, residential communities, hotels and healthcare facilities. The Fund may also have exposure to companies which undertake activities such as real estate development, real estate construction contracting and real estate funds management activities. The Fund’s asset allocation will be 85-100% invested in global listed REITS and real estate securities and 0-15% invested in cash and short dated money market securities.