Share market sell offs following the major shift in monetary policy last year created opportunities for bargain-hunters in global listed real estate.
Select global real estate investment trusts (GREITs) are as cheap as they have been in some time compared to their private market valuations, as measured by the listed segment’s discount to net asset values.
Discount to net asset value (attractive valuation)
The fund was recently trading at -21.3% discount to NAV
Metrics are for the First Sentier Wholesale Global Property Securities Fund. Source: First Sentier Investors.
NAV (Net Asset Value) is our assessed value of property assets owned plus the value of other businesses operated.
Past performance is not indicative of future performance. Data as at 30 November 2022.
The share market sell off last year and corresponding discounted valuations comes at a time when the fundamentals in the segment are relatively strong compared to other periods.
We look to a series of measures to assess fundamentals, including: strength of balance sheets, underlying occupancy rates, resilience of cash flows, expected dividend growth, among other attributes.
REITs within our portfolios have an average duration of debt financing locked in for the next 6.4 years with minimal (2.7%) refinancing risk this year and next, high occupancy rates (94.1%), a weighted average lease expiry of 3.7 years underpinning strong cashflows and forecast yield growth of 7.3% compound annual growth rate over the next three years.
The operating fundamentals are strong at a time when there are large discounts between private market valuations and listed GREITs.
Picking companies in industries well positioned to grow as recessions loom will be paramount for investors, as most countries expect to experience an economic slowdown in 2023.
When we are looking at taking advantage of valuation opportunities in GREITs, we are focusing on assets with low economic sensitivity – ones with resilient cash flows and inflationary-hedge characteristics as well as relatively strong balance sheets.
If economic slowdowns begin to bite, certain sectors and industries will hold up better than others.
Student accommodation, data centres, convenience retailers, land-lease communities as well as REITs within the healthcare sector, including independent living and skilled nursing facilities – these are all areas likely to have resilient cashflows if things get tough and spending is reigned in.
We believe the recent share market selloffs have created some attractive opportunities in listed real estate for investors focused on strong fundamentals in sectors with low economic sensitivity.
Global property securities insights
This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (MUFG), a global financial group. A copy of the Financial Services Guide for FSI AIM is available from First Sentier Investors on its website.
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