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Sarasin IE Sustainable Global Real Estate Equity - News
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Fund Name Changed
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Tuesday, 22 November 2016
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Official Announcement
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The Sarasin IE Real Estate Equity - Global (GBP) will change it's name to Sarasin IE Global Real Estate Equity (GBP), effective from 22 November 2016
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Sarasin CI Real Estate Equity comment - Dec 15
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Friday, 11 March 2016
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Fund Manager Comment
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Australia was the strongest market for global listed real estate in Q4, and one of the portfolio’s top contributors, benefiting from an Australian dollar rebound and strong performance by rallying residential names Mirvac and Stockland. Mirvac also benefited from takeover speculation, a positive business review, and the announcement of a new joint venture.
The US was the sector’s next strongest market, and the portfolio’s largest positive contributor, driven by stock selection (our minor underweight was a slight detractor). Our names performed strongly relative to their sector peers, largely due to solid Q3 results. The hotel sector is still unloved, though its fundamentals remain fine.
Elsewhere, Canada was listed real estate’s weakest market, followed by the UK. Both suffered at the hands of weak currencies. Canada also had to contend with a continued oil price falls, while the UK saw some post-results season profit taking.
Our largest detractor came from stock selection in Europe, exacerbated by a downgrade on Unibail-Rodamco, weakness from Deutsche Euroshop (following results) and uncertainty over Vonovia’s potential takeover of Deutsche Wohnen.
The portfolio also experienced some stock specific impacts; developer Mitsui Fudosan saw poor performance on the back of a construction scandal, but Daiwa (a significant overweight in the portfolio) witnessed strong results and increased expectations.
The global listed real estate sector remains attractive, at a discount to its underlying net asset value, effectively meaning that some aspect of future rate expectations has already been priced in. Volatility in the sector is far more likely to stem from market sentiment rather than from the fundamentals of this asset class; markets should return to focus on these fundamentals once any noise has quietened.
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Sarasin CI Real Estate Equity comment - Sep 14
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Monday, 20 October 2014
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Fund Manager Comment
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The US remained an economic bright spot throughout much of the third quarter, though the Federal Reserve is still expected to start hiking interest rates only around mid-2015, and Chair Janet Yellen continues her labour market focus. In Europe, meanwhile, despite a disappointing take up of TLTROs (targeted longer-term refinancing operations), Mario Draghi claimed that the European Central Bank remained ready to deploy more unconventional monetary policy in the face of weak data and entrenched deflation. Elsewhere, politics held centre stage through the Scottish independence referendum's 'No' vote in the UK, and anti-China protests in Hong Kong.
Hong Kong was the strongest local market over the quarter, and our exposure to Link REIT and Sun Hung Kai helped the fund. On a regional basis, however, our stock selection to the US was our most impressive, with Simon Property Group, Digital Realty Trust and Starwood Hotels & Resorts all making excellent contributions to the fund. Demonstrating the continued strength and depth of money chasing prime real estate assets, Boston Properties (the largest office REIT in US) sold a 45% stake in three class A Manhattan/ Boston office buildings, with the assets valued at more than $4bn.
Japan was one of the weakest regional markets (although the strongest for the last month of the quarter), and our high beta developers (Mitsui Fudosan, Daiwa House and Mitsubishi Estate) suffered over the quiet holiday period. We continue to see improvements in the Japanese real estate sector, though, and have been adding to the region during periods of weakness. If reforms across the rest of Asia help to drive regional market performance, our Japanese names could be among the beneficiaries.
We used a surprise equity issuance to increase our position in Hammerson. This issuance was not initially taken well by investors, but is helpful for the company in buying out its 40% joint venture partner at Highcross in Leicester for £180mn, investing a further £30mn in the highly profitable Value Retail, and £70mn in a new venture (Via Outlet Fund).
We remain cautiously optimistic on the outlook for property. While a change in interest rate expectations could lead to some short-term volatility in the listed real estate sector, real estate fundaments continue to be strong, with high quality underlying assets and significant interest from cash buyers for prime assets keeping pricing firm.
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Sarasin CI Real Estate Equity comment - Jun 14
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Wednesday, 10 September 2014
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Fund Manager Comment
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As we entered the second quarter of 2014, new IMF forecasts indicated robust global growth while continuing to call for loose monetary policy. In the UK, both growth forecast and employment data improved, but Bank of England policymakers indicated concern for continued intensity in housing market momentum. Policymakers at the US Federal Reserve remained seemingly cautious on rate rises in the face of a strengthening labour market alongside weakness in the housing sector, and poor (albeit weather-influenced) Q1 growth. Meanwhile, the Japanese hunt for inflation remained elusive. As the quarter drew to a close, the European Central Bank made history with negative deposit rates and new liquidity operations.
Another quarter has passed and bond yields remain low, helping global listed real estate continue its outperformance versus global equities. Australia and Japan were the strongest regions, both benefiting from easing monetary policy and potential money flows from the UK and US. In Japan, direct market data continues to point to an improving office market in Tokyo, and the announced corporate tax rate cuts over the next few years helped. The weakest two markets were the UK and US (the strongest regions in Q1). In Q1, both the UK and US benefited from the unexpected fall in bond yields; however, as they diverge from the rest of the world with respect to monetary policy, investors seem to have taken some profits and moved money to markets that continue to be on an easing path.
The largest positive contributors for us were our overweight to Japan and our high beta developer focus. Our performance also benefited from strong results from our core European names, helped by Draghi's loosening policy measures. Positive stock selection also came from Hong Kong, as our preference for developers paid off, and Singapore, where CapitaMalls Asia was bought back by its parent company at a significant premium. Our only significant detractor was UK stock selection, as investors worried about the potential overheating of the London residential market, hurting our position in the 'UK stimulus basket' (stocks exposed to the 'Help to Buy' scheme).
Our outlook remains unchanged, and we believe that an improving US economic environment will more than likely put upward pressure on US bond yields. With this in mind, we anticipate that the two regions continuing to loosen monetary policy (Japan and Europe) will have the strongest property markets, although the risk of policy errors around the globe remains high.
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Sarasin CI Real Estate Equity comment - Mar 14
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Thursday, 5 June 2014
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Fund Manager Comment
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The start of 2014 was characterised by emerging market crises, with currency volatility, social unrest and geopolitical turbulance. However, the drive to reform remained apparent, with China widening its currency's trading band and reformist candidate Joko Widodo gaining popularity in Indonesia's presidential race. March saw Janet Yellen's first press conference as head of the US Federal Reserve (Fed). While QE tapering continued apace, she informed the Fed's stance on low rates for the coming year, and the UK recovery appeared to be growing more balanced. Elevated disinflationary pressures persisted in the euro zone, though the European Central Bank has yet to use the tools at its disposal.
The uncertainties created by these events meant that global listed real estate outperformed general equities during the first quarter of 2014, as bond yields fell and the secure and visible cash flows of the real estate sector gave investors comfort.
The US was the strongest market, followed by the UK; both benefited from a solid reporting season and increasingly risk-averse investors focusing on those regions with the best economic environments. Japan was by far the worst market due to the heightened risk aversion and investors continuing to take profits. Markets were wary of Abe's ability to continue to push through his reforms, alongside the consumption tax hike in April, and expectations that the Bank of Japan will not intervene further until June. However, we have used this weakness to start increasing our weight to the region; land prices continue to rise and vacancy levels fall, results have been solid and we believe there will be further quantitative easing.
The biggest contributor to our performance this quarter was our stock selection to the US (further helped by an overweight to the region). It was pleasing to see large-cap, lowly levered, high quality companies outperform, even if the mall sector lagged due to overblown fears of "the death of the mall" and hotels suffered from the weather and geopolitical turbulence. Japanese stock selection was the largest detractor from performance as our higher beta developers were hit the hardest by the nation's political and policy worries.
We continue to believe that the economic recovery in the developed world remains intact (weather distortions aside), and the fundamentals for real estate remain good. We also feel that a number of regions will benefit from further liquidity events (Japan, Europe and China), proving positive for their real estate markets. Conversely, regions that start to see upward pressure on rates (most likely the UK and US) could potentially lag behind.
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Sarasin CI Real Estate Equity comment - Sep 13
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Tuesday, 31 December 2013
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Fund Manager Comment
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The third quarter opened with a wave of forward guidance, as Bank of England Governor Mark Carney and European Central Bank President Mario Draghi announced that monetary policy would remain accommodative for an extended period. German Chancellor Angela Merkel's policies appeared to have secured public approval with her third-time general election victory, but as the quarter ended news flow was largely dominated by the US. Firstly, the Federal Reserve shocked markets by delaying the widely anticipated tapering of its generous liquidity programme, and secondly, markets were held in suspense as politicians wrangled (once again) over the nation's budget. Elsewhere, risks remain in emerging markets, where improvement in the core has not removed the probability of stagflation in some of the larger economies.
The listed real estate sector underperformed versus global equities this quarter, as investors continued to struggle with the effects Bernanke's QE tapering comments in May (and the lack of action in September) would have on bond and interest rate expectations, and their potential impact on real estate values.
The UK was the strongest market, benefitting from stimulus targeting the housing market and better than expected economic data which strengthened the pound. Japan was also aided by improving economic data, and Tokyo office vacancy levels fell to their lowest levels for 3½ years. Stock selection in Japan was the largest negative contributor to performance, giving back some of the outperformance of the previous quarter; a large proportion of this came on the last day of the month, as volatility spiked on the back of a potential US government shutdown.
The US was the weakest market, as investors dallied over whether the US economy (i.e. housing and consumption) could actually handle tapering and its wider implications for rates. This kept non-dedicated portfolio managers on the side-lines, though we saw solid Q2 earnings from US REITs.
Fundamentals remain positive, and central bankers continue to restate their 'low rates for longer' premise. After all, when government debt burdens have grown out of control in the past, negative real interest rates have been the only solution. Low rates, incrementally positive demand for space and low supply all paint a reasonable picture for the future of listed real estate.
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Sarasin CI Real Estate Equity comment - Jun 13
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Friday, 13 September 2013
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Fund Manager Comment
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While last quarter was all about politics, the second quarter was dominated by diverging monetary policy. On one side, the Bank of Japan in April pledged to double its balance sheet over the next two years, and the European Central Bank cut its interest rate to 0.5% in May. On the other, the US Federal Reserve (Fed) announced that the size of its quantitative easing (QE) programme would likely be reduced later this year, and the Bank of China chose to tighten bank liquidity. Global listed real estate started the quarter strongly, but the Fed's announcement in May caused a spike in bond yields, unsettling markets and causing a strong sell off of the sector versus global equities. However, our stock selection benefitted from this uncertainty as it focused investors back on fundamentals - i.e. which stocks have the strongest growth prospects (REITs with prime assets in prime locations), rather than who might benefit from easy capital (higher yielding secondary assets).
During the quarter the UK was the strongest region, as results in May were generally ahead of consensus, and we saw heightened investor expectations that Carney may increase QE. Australia was the weakest region, and the fund suffered slightly from an overweight there. The underlying stocks performed well, bolstered by a 0.25% rate cut in May, high and stable dividend yields and Westfield's active buyback, but heightened concerns over China, coupled with the Fed's announcement, caused a significant sell off in the Australian dollar. Hong Kong stock selection was the only other negative contributor this quarter, affected by interest rate uncertainties.
Japan was our largest positive contributor. Although the region underperformed the global benchmark during the quarter, it was a story of two parts. In early April, Kuroda presided over his first Bank of Japan meeting which exceeded investors' already lofty expectations, causing a further considerable rally in the Nikkei and benefitting our high beta developer bias. We used this strength to cut our overweight to neutral. In May, a weak business confidence number from China and the threat of increasing bond yields (after Bernanke's comments) spooked investors into taking profits. US stock selection was also a significant positive contributor, benefiting from a large-cap quality bias and overweights to the strong apartment, office and mall sectors, and underweights to shopping centre and healthcare REITs.
We would suggest that the recent sell-off has left the sector looking more attractively valued. Although there are concerns about QE tapering, we would note that it can only happen in a stronger economic environment, which should in turn support a stronger rental environment.
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Sarasin CI Real Estate Equity comment - Mar 13
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Wednesday, 29 May 2013
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Fund Manager Comment
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Cyprus held centre stage in March as its financial markets went into free fall, as a result of last year's Greek default and an overinflated banking system. Cypriot and EU leaders scrambled ineptly for a bailout solution, and although small depositors were eventually excluded from losses and the debt seniority structure respected, this handling did not inspire confidence in euro zone leadership. Sequestration began in the US but with a relatively muted impact so far, and in the UK Chancellor George Osborne released a balancing act of a budget, against a backdrop of further downward revisions to growth, tightrope walking between new austerity measures and pro-business, job friendly and growth-oriented decisions.
Japan was the strongest region again this month and the only region to outperform the benchmark (our largest positive contributor this month). Having had the Bank of Japan elections at the end of February a couple of positive comments from Kuroda (the incoming BOJ governor) continued to push markets higher as investors waited for the first BOJ meeting (4th April) with the newly elected delegates. The only fly in the ointment was Cyprus which caused some investors to take profits in the developers as we saw continued buying of JREITs by local Japanese banks. Hong Kong was again the weakest region as four banks raising their mortgage rates by 25bps adding additional pressure to the market after the policy intervention in February.
In the US we continued to see a rally in the higher yielding secondary assets as investors looked for the reopened CMBS market to create interest in lower quality assets - leading to yield compression. We feel this rally has occurred due to the larger than average spread between prime and secondary yields. However, this spread has reverted back to the average and we continue to see a better operational recovery in prime assets leading us to believe they should outperform from here.
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Sarasin CI Real Estate Equity comment - Dec 12
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Thursday, 7 March 2013
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Fund Manager Comment
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In December, global economic momentum improved as leading indicators in China and Europe stabilised and the US housing market continued to recover. Despite the better macroeconomic backdrop, the ongoing political drama over the US fiscal cliff created an environment of excessive uncertainty and cast a pall over investor confidence.
The strongest market by far this month, and the only region to outperform the global benchmark, was Japan. In the run up to the elections on 16th December, Japan performed strongly. In the past, the rally into the election has petered out as it becomes clear that the new prime minister does not have the backing to carry out his reforms. However, this time Abe has a significant majority, and there is a belief he may be able to achieve more than his predecessors. We added to our overweight after the elections, and our focus on developers was our largest contributor to performance. The only other significant contributor was our US stock selection, driven by strong performance from our hotel, industrial and apartment names and an underweight to the weak healthcare and shopping centre REITs.
Elsewhere, we saw Global Logistics Properties spin off its Japanese logistics assets into a JREIT. Also, the sovereign wealth fund appetite for real estate remained strong, as Prologis created a 50:50 ?2.4bn European logistics portfolio joint venture with Norges bank IM.
There has been a resolution of the fiscal cliff in the US, but in reality a significant proportion of the issues have been delayed until late February/March. With a large funding gap and looming debt ceiling problem in the US, fiscal and political issues will remain at the forefront for the time being. However with rates remaining low, QE continuing around the world and low development starts, real estate remains a solid investment.
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Sarasin CI Real Estate Equity comment - Sep 12
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Friday, 16 November 2012
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Fund Manager Comment
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The third quarter belonged to the central bankers. Following the IMF's modest reduction in its global growth forecast, and continued signs of slowing in both emerging and developed economies, central banks responded with conviction. In an effort to combat the worsening global and domestic economic environments, there were rate cuts in many emerging market nations, and monetary intervention by the European Central Bank, the US Federal Reserve and the Bank of Japan.
Having strongly outperformed global equities during the first half of the year, listed real estate lagged behind in Q3 as investors seemed to rotate into more cyclical sectors in the hope that the above intervention would reinvigorate the recovery. We also saw a shift down the quality scale, which hurt our performance. Over the medium to long term we still believe companies with better quality assets and lower leverage will be the winners.
Hong Kong and Singapore were by far the strongest markets; our underweights on fears over China and further policy intervention were negative contributors. The feared policy intervention in Hong Kong was much less than anticipated, and worries over policy intervention subsided in China due to a slower than expected economic backdrop. In Singapore, although the supply/demand outlook is negative, the search for yield continued to push REITs higher.
The US was the weakest market and the only underperformer versus the global benchmark, and although we benefitted from holding an underweight to the region stock selection was our largest negative contributor. The main issues were underweights to the outperforming shopping centre and healthcare REITs, and overweights to apartment REITs that underperformed as investors fretted over slowing net operating income and the overhang of a potentially large IPO. The largest individual cause of underperformance was caused by a well known stock activist/hedge fund manager who recommended that General Growth Properties (second largest US Mall Company - not held) should put itself up for sale to realise its true value and stop its largest shareholder taking control. This covertly pushed the stock substantially higher and caused weakness in Simon Properties (our largest overweight) due to expectation that they could be a potential acquirer.
We feel that with interest rates set to remain low for longer, investors will continue to look favourably on real estate as a 'bond alternative'. However, we believe the quality of assets and a requirement for growing income streams is crucial.
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Sarasin CI Real Estate Equity comment - Jun 12
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Tuesday, 14 August 2012
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Fund Manager Comment
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June was characterised by a search for the fine balance between liquidity and growth. Spain became fourth in line to receive an EU bailout (but only for its banking sector), while Operation Twist was extended in the US and the Bank of England announced plans to offer additional funding to banks to support lending. Global growth momentum appeared to have slowed, though gas and oil prices fell and there was positive political news from Greece as a new coalition government finally emerged. A (modestly) successful EU summit concluded the month; despite the absence of a long-term plan for the region, a small step towards a banking union was taken.
The lack of any major shocks and increased liquidity outweighed slowing global growth and markets ground higher in June, with global listed real estate continuing to outperform global equities. Australia was the strongest region, helped by the strength of the Australian dollar, with a rate cut early in the month and better than expected economic data. Our overweight and stock selection were positive contributors and we continue to believe the stable and high dividend yields of the retail REITs will remain a focus for income dependant investors. North America was the weakest (though still positive); having been strong in May on increased expectations of QE, the extension of Operation Twist just outweighed the weaker economic data.
Japan was our largest positive contributor as although Tokyo office vacancy numbers increased slightly (as expected) we saw the first month on month increase in office rents since June 2008. Our overweight and higher beta developer tilts were beneficial to the fund. The only negative contributor of any significance was stock selection in Hong Kong. After a strong run, our office landlord names underperformed the residential developers benefitting from the slowing global economic environment, easing worries over further policy tightening in the short term.
We remain constructive on the global listed real estate sector in this era of financial repression and are pleased to see it outperforming global equities in the recent volatility.
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Sarasin CI Real Estate Equity comment - Mar 12
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Friday, 1 June 2012
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Fund Manager Comment
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In March, markets seemed to distance themselves from macroeconomic events. The momentum of the US economic recovery began to slow, inflation appeared to be levelling off in the emerging world, and the UK Chancellor's budget contained little to surprise.
The US was the strongest region, as reduced GDP estimates in China halted the strong run in Asia ex-Japan and focused investors back on western markets. Stock selection in the US was our largest positive contributor as people focused back on companies with the best fundamentals. Hong Kong was weakest, due to these China worries and concerns over the arrest of Raymond and Thomas Kwok, joint chairmen of Sun Hung Kai, relating to an investigation into violations of anti-bribery laws. Our overweight to Sun Hung Kai (seen as one of Asia's best companies in corporate governance terms) hurt our performance, but our overweight to landlords helped counteract most of the negative stock selection, and an underweight to the region was one of our largest positive contributors. Stock selection in Japan was our largest negative. After a strong start to the year we saw some profit taking in the large-cap developers. Europe was the second strongest region, buoyed by Simon Properties purchase of a 28.7% stake in Klepierre from BNP Paribas, and evidence of favourable lending markets thanks to the LTRO.
We feel that in this low interest rate environment the listed real estate sector is well positioned, whether due to continued quantitative easing pushing up the demand (and therefore prices) of real assets, or purely investors taking comfort in the sector's secure and visible cash flows and dividends. The risks come from the two possible extremes: a sudden deterioration in the economic recovery and a seizing up of the lending market, or, conversely, a stronger than expected recovery creating a rotation from yielding assets into general equities.
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Sarasin CI Real Estate Equity comment - Sep 11
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Thursday, 22 December 2011
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Fund Manager Comment
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August began with global market mayhem as US fiscal and political woes and euro zone turmoil deepened. Obama came under fire over his handling of the US debt ceiling affair, while across the Atlantic the ECB bought €36bn of Spanish and Italian government bonds, attempting to calm European chaos. Japan and Switzerland enacted currency interventions, and it became clear that global growth is slowing.
In the face of all this, global listed real estate continued to outperform global equities. Australia was the strongest region, with solid results and a number of share buybacks announced - we increased our weight during the month to slightly overweight. The UK was the weakest, as a number of analysts downgraded their expectations after a strong run. Our stock selection suffered as investors sold down West End names and Land Securities in favour of the higher yielding British Land.
In the US, weak political leadership and slowing economic data severely dented confidence in the authorities' ability to keep the economy on an even keel: it was definitely a month for the risk-off trade. In light of this we reduced our overweight position in the Hotel REITs; at a stock level, large-cap REITs continued to outperform but our overweight to the more cyclical hotel, industrial, mall and office sectors meant stock selection was negative. Lastly, in Japan we gave back our outperformance of July, as worries over global economic growth and a potential worsening of the euro zone crisis caused investors to sell down developers.
Sentiment continues to be weighed down by sovereign debt issues, but although the risks of a recession have risen we do not see this as the central case. We believe that although growth is slowing it will remain positive, unless there is another significant shock. Under this scenario the fundamentals for real estate remain solid, with little or no new supply, stronger company balance sheets after recapitalisations, and the majority of companies now trading at discounts to their underlying asset values.
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Fund Name Changed
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Thursday, 17 November 2011
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Official Announcement
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The Sarasin IE Real Estate Equity Fund (GBP) will change it's name to Sarasin IE Real Estate Equity - Global (GBP), effective from 17 November 2011
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Fund Name Changed
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Monday, 10 October 2011
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Official Announcement
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The Sarasin CI Real Estate Equity Fund (GBP) will change it's name to Sarasin IE Real Estate Equity Fund (GBP), effective from 1 July 2011.
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Sarasin CI Real Estate Equity comment - Jun 11
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Wednesday, 21 September 2011
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Fund Manager Comment
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Escalating Greek tensions and increasing fears of a global slowdown hit the markets during the first half of June. However, signs of smoother Japanese supply chains, a further drop in oil prices after the IEA decided to release some oil reserves, more positive US manufacturing data and a short-term resolution of the Greek debt crisis provided some relief. Meanwhile, the US Federal Reserve ended its QE programme, while the ECB signalled its intention to hike rates for a second time this year in July. Conversely, the Bank of England moved away from an interest rate hike.
The economic picture set the tone for June, with listed real estate selling off initially, then rallying into month end. Canada and Australia were the strongest markets by default (being least affected by US slowdown worries and the Greek crisis). Japan was also strong as investors continued to venture back, and H1 2011 saw the highest level of asset purchases by JREITs since H1 2008, which should benefit developers. Europe and the UK also continued to outperform the global index, due to a strong rally after the Greek resolution. Hong Kong, the US and Singapore underperformed on continued concern over a Chinese slowdown, and fears for the health of the US economic recovery. There were no significantly large regional contributors or detractors from performance. However, our Japanese overweight and focus on developers made Japan the largest positive contributor, closely followed by European stock selection with strength in our German and Swiss names. In Singapore we had strong stock selection; Global Logistics Properties Ltd benefitted from increased demand for prime industrial in Japan, and the potential to spin off their Japanese industrial assets into a JREIT. Our local landlords also performed impressively.
It is worth reiterating that we remain positive on the outlook for global listed real estate; rental growth, falling vacancy levels, and accretive transactions and developments should drive earnings. We continue to see significant difference in the pace of recovery between prime versus secondary assets, and therefore maintain focus on companies with better quality portfolios. However, having rebounded strongly from March 2009 lows, investors should expect more normal property returns ahead.
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Sarasin CI Real Estate Equity comment - Mar 11
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Wednesday, 25 May 2011
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Fund Manager Comment
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On a regional basis, Europe ex-UK was the strongest. This was helped by over 4% appreciation in the euro versus sterling in March, and significant outperformance from Unibail-Rodamco following its purchase of a stake in Socié té Foncière Lyonnaise (a Parisian central business district office owner and developer). The weakest market for us was obviously Japan (which significantly underperformed the benchmark) followed by the UK and US, which had performed strongly in the previous few months. In the US we saw another merger, this time in the healthcare sector, with Ventas (held) merging with Nationwide Health Properties (held). However, with good employment data counteracted by bad housing data, our overweight to US retail REITs did not help performance. Japan was the biggest negative contributor to the portfolio. Before the sad events of 11th March we were positive on Japan as the outlook for prime office in Tokyo continued to improve, and we felt it would exceed market expectations. We were overweight with exposure tilted to the higher beta developers which had significantly outperformed the J-REITs and been a large contributor to the outperformance of the fund. However, following the Japanese crises, we saw a significant sell off in our holdings there, with the higher beta developers sold off the most. Volatile newsflow could potentially continue in Japan. However, with pricing where it is for our names (with little or no damage reported), a substantial government recovery/stimulus package potentially to be announced, and a weakening yen beneficial for the large Japanese export industry, we feel now is not the time to cut our exposure. We will obviously continue to monitor the situation closely. Elsewhere, we still see a significant difference in the pace of recovery between prime versus secondary assets, and therefore continue to focus on those companies with better quality portfolios.
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Sarasin CI Real Estate Equity comment - Dec 10
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Thursday, 24 February 2011
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Fund Manager Comment
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On a regional basis, Europe and Japan were the strongest markets in December. Hong Kong and the US were the weakest, reversing some of their November outperformance. Our biggest positive contributors this month were stock selection in Australia, Hong Kong and Singapore. In Australia this was led by Lend Lease - up 21% after making a significant accretive acquisition. In Hong Kong, our overweight to landlord names, and underweight to residential developers subdued by continued policy intervention, continued to benefit the fund. Similarly, in Singapore, we benefited from our positioning away from residential names which also suffered from fears of further policy intervention. The month's main detractors from performance on a regional basis were our underweight to Europe and stock selection in Japan. Our yen hedge (due to a strengthening yen) alongside our small cash position in a strong market also caused a drag on performance. Europe is at present our biggest underweight; having been weak in November (due to heightened EU sovereign debt issues) the rollercoaster continued - it rallied strongly in December when these issues abated as China made noises indicating a willingness to buy Spanish and Portugese debt. Our overweight to Japan continued to benefit the fund but was outweighed by our tilt to the large-cap developers as J-REITs outperformed due to the Bank of Japan's announcement that it would buy J-REITs, ETFs and corporate bonds to encourage the declining risk premium. Heading into 2011 we still remain positive on the outlook for global listed real estate as although the majority of the yield compression has occurred rental growth, falling vacancy levels and accretive transactions and developments should drive earnings going forward. However, having rebounded strongly from the March 2009 lows investors should expect more normal property returns going forward.
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Sector Changed
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Tuesday, 28 December 2010
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Official Announcement
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The fund changed sectors from Global--Equity--Varied Specialist to Global--Real Estate--General on 28 Dec 2010
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Sarasin CI Real Estate Equity comment - Sep 10
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Tuesday, 9 November 2010
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Fund Manager Comment
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September continued where August left off, with better than expected economic data from China, Japan and the US. Even Irish banking issues, a brief resurrection of sovereign debt concerns in Europe, and rumours of further Chinese policy intervention were shrugged off by markets. On a regional basis, Europe ex UK was the strongest market in September, as global investors (who had largely ignored the region since the sovereign debt issues) began to return. The US - having been one of the strongest markets year to date - was the weakest, with a near 13% difference from Europe ex UK. With pricing in the US now up with events, and a number of equity issuances during the month, investors seem to be waiting for further signs of economic improvement and positive company guidance in their Q3 results before committing further funds. The main positives this month were our slight overweight to Hong Kong, slight underweight to the US, and good stock selection. Hong Kong continues to be driven by strong office and residential market fundamentals, which - alongside solid results - were positive for Sun Hung Kai (one of our largest positions and the best performer in the region). Reasons for the US weakness are mentioned above. Finally, our stock selection - almost across the board - was strong, with significant outperformance from our good quality euro zone retail names, as well as Hong Kong names led by Sun Hung Kai. The main negatives this month were our underweight to Europe ex UK, overweight to Japan, and slight underweight to Singapore. Europe rebounded from its weak performance in August (due to the reasons stated above) but the negative impact was minimised by the stock selection's positive contribution. In Japan, election uncertainty and a slight increase in Tokyo office vacancy did not help the market. However - after the election - currency intervention, an improvement in prime office fundamentals, and a strong condo market helped our Japanese developers to outperform the local market. Lastly, Singapore reversed its August underperformance as the residential developers which sold off due to the government intervention rebounded strongly. Looking ahead, we still believe the stability and visibility of a significant number of listed real estate companies' cash flows and dividends should continue to make real estate stocks attractive in a low bond and cash yield environment. In this economic climate, we also feel that companies with strong balance sheets and prime portfolios in good locations will outperform companies with more secondary assets.
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Sarasin CI Real Estate Equity comment - Jun 10
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Thursday, 19 August 2010
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Fund Manager Comment
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Global real estate continues to outperform equities, and is now 46% ahead of the S&P 500 since the trough in March 2009, and 3.2% ahead year to date. However, the old adage "sell in May" is bearing out as markets have been down since early May (S&P 500: -12.2%).
Europe and Asia were both positive, and the US negative, but year to date the US has outperformed by 13%. In Asia, Hong Kong led, followed by Singapore, with Japan turning negative (although still strongest in Asia year to date); we allowed our overweight to Japan to reduce over June. In Europe, France was positive, followed by Germany, whilst the UK continued to be weak. Australia and New Zealand were both strong, after a weak May.
Diversified holdings outperformed Specialist and Retail, whilst Hotels lagged (although this remained the best performing sector over 12 months). We switched our holdings in Hospitality Trust into LaSalle Hotels. At the stock level Sun Hung Kai (Hong Kong) and Unibail-Rodamco (Europe) were top performers, with Mitsubishi Estate and Mitsui Fudosan (both Japan) dragging.
Morgan Stanley, one of the biggest property investors among Wall Street banks, raised $4.7bn for a new global real estate fund - the largest since 2008.
Purchases of new US homes fell 33% from April to 300,000 p.a. in May (the lowest level on record) after tax credits expired, showing that the market remains dependent on government support. Australian mortgage approvals also fell in April for a seventh straight month, evidence that raising rates six times between October and May has cooled housing demand.
US commercial property values are rebounding slowly, but remain as much as 40% below their 2007 peak. More than $500 bn of real estate may hit the market in coming years as lenders dispose of assets or restructure debt where valuations have dropped below loan levels. As regional US banks are forced to recognise large losses on construction loans, deleveraging may take longer than in previous cycles.
We remain cautiously optimistic. The sector is fair value at a 9% discount to net asset value (91p for £1 worth of assets), yielding 3.9%. REITs are proving able to acquire distressed assets, often off-market, and supply constrained markets are improving, with selective development returning. With declining investor risk aversion - as a high beta sector - listed real estate is likely to benefit more than proportionally.
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Sarasin CI Real Estate Equity comment - Mar 10
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Thursday, 27 May 2010
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Fund Manager Comment
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A year following the trough in markets in March 2009, the global listed real estate index has recovered 85% (S&P 500 +53% and MSCI World +54%), and in March 2010 real estate outperformed by 1.2% (in $). However, the sector is still 37% off the peak and would need to rise over 57% to reach its February 2007 highs. In the US the market has risen 145% in a year but would need to rise a further 75% to regain its 2007 high.
This month the sector rose 4.8%. The best performing region was North America + 7.5%, ahead of Europe +4.6%. Asia lagged +1.9%. In Europe, UK (overweight) was up 4.5% and in Asia, Hong Kong led +3.7%
Our US holdings outperformed the benchmark with UK directly in line. Hotels outperformed specialist holdings, with retail lagging. Vornado (USA), Sun Hung Kai (HK) and Simon Property (USA) led with Nippon Building Fund and Orix JREIT (Japan) lagging.
Outlook
US commercial property values rose for a third month, according to the Moody's/REAL Commercial Property Price Index, but are now 40% lower than the peak in October 2007. Yale University endowment is raising its allocation to real assets including real estate, from 29% to 37%.
As jobless figures have improved, the US real estate market has continued to be strong. At the end of February, US real estate was trading at an 11 % premium to Net asset value yielding 4.3%. a narrow 70 bps spread to US 10 year Treasuries.
Today, that premium has grown to 12.5% yielding 4%. a mere 20 bps spread indicating that the sector is overbought.
Globally the real estate sector still stands at a healthy 9.5% discount to NAV and yielding 3.5% - a good spread to the 1.8% dividend yield on the S&P 500 which should attract yield investors. We continue to favour Asia.
The "dash for trash" shows signs of abating with a swing to the higher quality stocks that we hold.
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Sarasin CI Real Estate Equity comment - Dec 09
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Tuesday, 23 March 2010
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Fund Manager Comment
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Fund Manager's Comment
At the end of a roller-coaster year, the CI Real Estate Equity fund performed 0.3% ahead of benchmark over Q4 2009, and 0.82% ahead of the MSCI global real estate index in December (3.7% over 2009). The fund enjoyed over £50m of new monies during the year. During 2009 global listed real estate (+38%) outperformed the S&P 500 (+22%) and MSCI World indices (+26%). The best local currency return was Hong Kong +89%, Singapore +78%, followed by Europe ex-UK +39%, USA +28%, UK +15%, with Australia +3.3% and Japan +4% lagging.
In the USA we remain U/W apartments and healthcare, but O/W prime shopping malls. During December, North America outperformed (we added weight in the Autumn), followed by Asia ex-Japan. Australia had a strong finish, whilst in Europe, the UK led France and Germany. Hotels outperformed logistics and residential. At stock level, Simon Property, Macerich and Vornado (all USA) added most to performance.
In Hong Kong, Cheung Kong expects to sell 9,500 apartments in 2010 (4.500 in 2009). Meanwhile, Swire Pacific plans to spin off its property arm to raise $2.5$3bn in 2010. Sino Land has paid HK$10.4bn for two waterfront sites in Hong Kong, but analysts feel there is a land supply issue brewing.
China is attempting to cool the market without stalling economic recovery, with a 5% sales tax on homes sold within five years.
Singapore's GDP is expected to hit 5.5% in 2010 (2% in 2009) and we are seeing signs of recovery.
Hammerson is buying Scotland's second-largest shopping centre Silverburn at well above estimates, whilst British Land has bought a 50% stake in two shopping centres with Tesco.
In the US, Simon Property agreed to buy Prime Outlets shopping centres for $2.3bn.
At the year end global real estate was standing at a small discount to NAV and yielding 3.7%, liquidity is improving and prices are supporting or exceeding most recent book values. Confidence is also improving towards development. Real estate still provides a positive yield spread, and markets like London will continue to attract investment due to currency weakness and favourable lease terms. However, there could be a lag in job creation and positive take-up.
Several key themes may impact REITs in 2010 including: (1) A wave of IPOs; (2) Increased acquisitions; (3) the slow rebirth of CMBS; (4) Rising interest rates; and (5) Job creation. Most are positive for real estate.
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Sarasin CI Real Estate Equity comment - Sep 09
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Thursday, 17 December 2009
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Fund Manager Comment
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Global real estate continued its sharp recovery in September with the sector index up 7.5%. Since 9th March global real estate has shown a clean pair of heels to broader equities, 41.5% ahead of the S&P 500, and 34.26% ahead of the MSCI World index, and in September was 2.2% ahead of the S&P. Performance between regions was close with Europe +8.7%, Asia +7.3% and North America +9.2%. We moved to overweight USA during the month.
In Asia-Pacific, Australia rose 17% with Japan the weakest, -4.4%. In Europe, Germany rose 15.4%, whilst UK lagged down 0.5%. Emerging markets and Pacific ex-Japan, Hotels, Industrial and Retail added most to performance, with largest contributions from Westfield (Australia), Simon Property (USA) and Unibail- Rodamco (Europe), all major shopping centre landlords.
The global real estate sector has not avoided the "dash to trash" as second line stocks near bankrupt in early 2009 have far out performed better quality, financed and managed REITs. I am afraid we have not escaped the impact of this with our exposure to the best quality real estate companies.
We continue to see positive indicators around the world. In Hong Kong, Hang Lung sold HK$7.5 bn of property in August. Home prices have risen 26% to levels before Lehman Brothers collapse driven by low mortgage costs and near-zero savings rates; and Hongkong Land climbed to its highest in 14 months on signs that the office market has turned. We added it to portfolios in June. Singapore is introducing measures to prevent speculative buying. Sales reached 10,000 homes to end-July (4,300 in 2008). Prices have started to rise significantly since June, when we added Wing Tai and Allgreen.
In the UK, British Land sold 50% of Broadgate, the largest City office complex to Blackstone Group. The remaining portfolio will be 65% retail. The sale will strengthen its balance sheet for acquisitions as the market recovers. Land Securities has sold £780m of assets since April, and Hammerson about £650m this year. Land Securities sold its 33% stake in the 1.2m sq.ft. Bullring, Birmingham, the UK's most-visited shopping centre for £210m to Australia's Future Fund, at a yield of 6.85%. The public-sector pension fund has assets of A$61bn.
Financing is also becoming easier: Sydney-based Dexus Property Group sold $300 million of five-year, 7.15% US bonds in order to lengthen the maturity profile of its debt book and diversify its funding. SL Green, Manhattan's biggest office landlord, refinanced office tower 100 Park Avenue for $215m through a group of German banks allowing it to retire a $175m mortgage, and providing evidence of funding for high-quality borrowers.
Listed real estate is currently yielding a healthy spread to bonds and equities; and as property values improve from depressed levels and underlying economies improve yielding fresh letting activity, property should continue to attract investors.
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Sarasin CI Real Estate Equity comment - Jun 09
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Monday, 28 September 2009
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Fund Manager Comment
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Review
After a strong run up since mid-March, global real estate took a breather in June and fell 1.73%. Europe fell 6.3%, Asia rose 1.1% and North America fell 5%. In Asia, only Japan and Australia were positive; and in Europe, Germany fell 6.5%, France was -7.8% and UK flat.
Emerging markets, followed by Japan and UK: Industrial, Healthcare and diversified all outperformed, with Sumitomo Realty (Japan), Westfield (Australia), Mitsui Fudosan (Japan) and Stockland (Australia) the largest contributors. Daiwa House added in January, also outperformed.
We raised Australia to 8.9%, China from 1.4% to 4.7%, and Singapore from 4.7% to 5.7%. We reduced weight to HK residential as we have seen strong performance and switched into some Chinese developers which have since outperformed HK. Office exposure increased from 8.5% to 11.3% as we added CapitaCommercial in Singapore and to HongKong Land. We increased exposure to Sterling.
The fund performed in line with index down 1.9% during the month.
Outlook
The Fed "succeeded in averting a full-blown meltdown" according to Janet Yellen President of the San Francisco Federal Reserve. Nevertheless, the threat of another financial shock, such as one from falling commercial real-estate prices, is "high on my worry list" she said and reiterated her expectation that the recession will end later this year and the US economy, about to "turn the corner".
The real estate industry has historically relied primarily on debt, rather than equity, to satisfy its financing - a key difference from broad capital markets. The industry has been slow to question this practice and specifically whether the capital structure of most REITs typically contains too much debt and too little equity; we believe that lower gearing will prevail in future.
We also expect to see rationalisation as REITs in an attempt to (1) simplify business models (2) compete with specialised global REITs and (3) stick to national boundaries. We expect that asset and business divestment will continue to form part of the consolidation process.
The global real estate sector now stands at 13% discount (March -41%) to Net Asset Value, yielding 4.4% (7.1%) and so stands close to fair value.
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Sarasin CI Real Estate Equity comment - Mar 09
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Thursday, 11 June 2009
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Fund Manager Comment
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Overview
Global real estate enjoyed a moment in the sun as the sector index rose over 21 % from March 9th, outperforming the S&P 500.
Europe advanced 1.25%, North America 3% and Asia led 12%. In Europe, Germany led 15.4%, France was +1.85% and the UK flat. In Asia, Hong Kong led 18.8%, Singapore and Australia were +12% and Japan +8.6%.
The Pacific, Japanese and Emerging market regions were the best performers. Sectorally, Residential and Diversified outperformed; Office and Specialist were worst. At the stock level, Sun Hung Kai, Unibail-Rodamco and Mitsubishi Estate led performance, with Land Securities, Macerich and Kimco lagging.
In Singapore, residential prices have now fallen 21 % since mid-2008 resulting in a recent increase in sales. HK's economy has had its steepest contraction since 1998, but values are still 40% higher than during SARS in 2003. Sino Land was the best performing property stock up 53%, whilst sales rose 36%.
We increased weight to Asia and reduced Europe, subscribing to new issues from Land Securities, Segro and British Land.
US mortgage applications rose for the 3rd week (+32% WoW) as 30 year fixed loan rates fell to a record low spurring on purchasers. In the UK the IPD index reported the steepest falls in commercial real estate values in 2008, since records began.
Outlook
UK REITs offered deeply discounted rights issues to raise £27bn and are well financed to withstand any future fall in values. The slide in UK direct property prices started in July 2007, 5 months after the listed market which had fallen 25%. We expect the listed market to lead direct markets upwards.
While real estate markets have been under pressure due to the global slowdown and poor news from the financial sector, we believe this is priced into stocks barring another major financial shock. We favour stronger balance sheets in Hong Kong and Japan and with more positive GDP, higher savings, lower gearing and less exposure to toxic debt, the Asian economies may outperform. We remain underweight USA and Europe - risks around debt covenant breaches, refinancing and liquidity remain.
There are signs investors are rotating out of defensive sectors into higher beta areas which should benefit our stocks.
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Sarasin CI Real Estate Equity comment - Dec 08
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Thursday, 26 March 2009
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Fund Manager Comment
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Global real estate had a strong recovery rising 17.3% in the month, 10.6% ahead of the S&P 500, and 8.4% ahead of the MSCI World index. The market was volatile falling 5.5% before rising 16%, falling back again before rising a further 13%. For the year global real estate underperformed the S&P by 14.4%, but is 21.2% ahead over 5 years and 89% ahead over 10 years. There were strong regional variations with Europe +22%, Asia +12% and USA +25%. Singapore was +19.8%, Hong Kong +15.9%, Japan +14%, Australia +6.6%, France +21.9% and UK 0.7%. (all in GBP). The German property sector rebounded 65% on the month, with some stocks doubling in two weeks. This does not reflect a change in property or financing fundamentals. We believe many stocks are overvalued and will need to issue substantial amounts of new equity to strengthen their balance sheets. In the US Prologis rose 23% after agreeing to sell its China and Japan properties to the GIC of Singapore for $1.3bn. General Growth the U.S. shopping mall company with $27bn of debt rose 23% as it won postponement of its debt deadline. In Singapore, CapitaLand rose 7.8% on expectation that lower borrowing costs will bolster demand for real estate.
During December we had significant outperformance in our European holdings over the global and local real estate indices from Castellum of Sweden (+18.6%), Prologis European (+116%), Vastned Retail (+28%), Risanamento (+16.5%). In the US, Senior Housing outperformed by 11.5%, SL Green by 21.5%, Ventas by 31.4%, Brookfield Property by 7.25%, Alexandria by 21%, AMB by 18.9%, Kimco by 15.25%, Macerich by 17.8%, Regency by 14%, and Prologis by 245%. In Canada, Calloway outperformed by 14%. In Asia, CapitaLand of Singapore outperformed by 5%, Suntec by 7.3%, Charter Hall by 17.5%, Dexus by 15%, Champion REIT by 49%.
With debt markets slowly freeing up and interest rates falling globally, we believe discounts on many REITs are excessive and the dividend yields offered on many quality names are attractive. According to a survey by the Urban Land Institute and PriceWaterhouseCooper, Tokyo overtook Shanghai as the Asian city with the best prospects and lowest risk for real estate investment in 2009. Just as real estate appeared overbought in January 2007, by mid-Nov 2008 the sector was yielding 7% and at a discount to asset value of over 40% and appeared oversold. Since 20th Nov the global real estate market has risen 33% and both Merrill Lynch and UBS are among brokers who are confident of strong rises in markets over the next 12 months.
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Sarasin CI Real Estate Equity comment - Sep 08
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Thursday, 27 November 2008
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Fund Manager Comment
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· The sector has been buffeted by the global credit crisis as real estate is highly capital intensive and bank lending has all but dried up; and with a dearth of market transaction evidence, investors have been questioning the value of real estate assets. Compounding this it is clear that what started as a financial crisis is now affecting the real economy with retailing closures, and job losses in the office sector.
· However, there is strong evidence in the US of rotation out of broader financials into REITs seen as providing strong and growing dividends, underpinned by quality assets, with seasoned management and transparent balance sheet strength; something that many banks cannot offer. Year to date, there have been positive inflows of $5.9bn into US REITs. Furthermore, 14 REITs have been added to the "No short" list.
· In Q3, global real estate outperformed the MSCI World index by 4%, and the US REIT index outperformed the S&P 500 by 13.9%.
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Sarasin CI Real Estate Equity comment - Jun 08
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Friday, 29 August 2008
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Fund Manager Comment
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Global real estate still faces significant pressure from the credit crisis and slowing global growth, and is down14.6% during the first half of the year, outperforming global equities. We have been defensively positioned, favouring REITs, which have outperformed developers. Australia has suffered the greatest underperformance, down around 28.5% during H1 08 following issues of Centro, overstretched balance sheets in smaller REITs, earnings downgrades and a re-pricing of fund management businesses shattering of investor confidence.
In June, global real estate fell 12.3% the worst month since the credit crisis began in February 2007. Europe fell12.1%; Asia fell 14.0% and North America fell 11.5%. We reduced our European holdings, selling Citycon, IVG, and a portion of Klepierre and Unibail-Rodamco, acquiring stakes in Castellum, Cofinimmo, Prologis European Properties and Vastned Retail. The global real estate sector is offering a 2008E earnings yield of 5.9%, with forecast strong earnings growth. The sector is offering a FY08E dividend yield of 4.2% and trading at a 15% discount to NAV (Jan 2007 - 29%premium) with estimated NAV growth of 7.3% over 2008-09.
The credit crisis, restricted access to and higher cost of capital and increasing risk premiums has resulted in forcing values downwards despite stable or growing net operating income. In the UK, property values have been adjusted down 16% and analysts expect another 10%. However, in New York the Macklowe portfolio has recently sold at 4.4% cap rates proving quality assets still demand top prices.
Leasing fundamentals will tend to lag the economic cycle. The biggest ongoing risk is capital starvation, as REITs are using up existing lines of credit. The CMBS markets remain pretty much closed. The UK sector is already priced for substantial pessimism, trading at a 33% discount, with City of London office rents expected to decline 25% over the next two years.
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Sarasin CI Real Estate Equity comment - Mar 08
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Thursday, 22 May 2008
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Fund Manager Comment
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March was a month of two halves with Europe and the US ending nicely higher but Asia, which never fully recovered from its earlier falls, ending sharply lower. The month started with weak US economic data, high oil prices and continued sub-prime write down rumours which caused global real estate securities to be volatile and generally weak across the board.
The turning point came when Bear Stearns was rescued by JP Morgan, with the backing of the Fed, swiftly followed by a further cut in US interest rates. This gave investors further confidence that the Fed would do what was necessary to stem the sub-prime issues and free up the debt markets that are so important to real estate companies.
While the sub-prime issues continue real estate securities will remain volatile. However, in the past few days the $19bn write-down by UBS and the announcement by Merrill Lynch's CEO, John Thain, that they do not need fresh capital have been taken positively by markets. In fact, for the first time since the beginning of Q4 2007 we have seen a significant narrowing of spreads in the debt markets.
Fundamentals remain solid in many markets although we continue to see a dislocation between private market and public market pricing. April will be an important month with many of the US Investment banks reporting and if they are seen to be finally drawing a line under their sub-prime issues we should see fundamentals take over and global real estate securities rally.
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Sarasin CI Real Estate Equity comment - Dec 07
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Thursday, 21 February 2008
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Fund Manager Comment
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December started with global property markets up strongly. Despite poor US housing data, markets were driven by news of sovereign wealth funds buying into banks and expectations of further US rate cuts. US Thanksgiving and Christmas retail sales were surprisingly strong. However, UBS wrote down $10bn on sub-prime news and the US launched a plan to freeze rates on some sub-prime mortgages. REIT share buybacks continued.
With credit spreads widening, access to real estate finance became significantly worse or prohibitive. We remain cautious on companies with highly leveraged balance sheets, near term debt rollover and secondary assets. Centro Properties managing A$26.6bn assets in highly leveraged funds (a unique model as for $1 invested they owned $10 of assets) and 5th largest manager of US retail property halted trading on difficulties refinancing debt. The stock fell 87% in a week (we do not hold) and CNP have now put themselves up for sale.
Sharply contrasting outlooks prevail. The Times reported more direct property funds imposing exit penalties or waiting periods triggering forced sales. The FT front page talked of property funds taking "drastic steps" to prevent a liquidity crisis.
By contrast, Jones Lang LaSalle reports that "Institutional investors are generally increasing their real estate allocations. Fundamentals remain strong and are capable of weathering a slowing global economy, while moderate-leverage investors are in a better position to secure deals at improved pricing". They view commercial real estate as a defensive asset that will weather a slowdown well. London-wide vacancy rates fell to their lowest level since 2000. Into 2009 JLL suggest rents may drop by 5%.
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Sarasin CI Real Estate Equity comment - Jun 07
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Wednesday, 26 September 2007
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Fund Manager Comment
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Bloomberg's Europe Real Estate Index has just had its most difficult quarter in a decade. In early 2007 property stocks continued to rise on the back of M&A activity, weight of flows into property and further yield compression. The fund was up over 10% before the Chinese intervened to cool their financial markets, then cracks appeared in the US Subprime mortgage market and the UK raised interest rates causing a sell-off in property stocks. Another increase in European rates - the ECB has raised 8 times since December 2005 - and a further change in the outlook for US/UK rates has put further pressure on property. With 5 rate rises this year, the UK's two largest REITs have fallen over 20% YTD. Metrovacesa, Spain's largest real estate developer (we do not own) has fallen by a third. Vector, the first UK REIT planning to purchase 71 hotels was one of five IPOs pulled, in this case due to investor concern at the structure and perceived management conflicts of interest. The Unibail purchase of Rodamco created Europe's largest property company at €14bn.
Outlook
Following the recent weakness we feel there is good value in a number of areas, although further rate rises will put pressure on company's acquisition strategies. Hence we are concentrating on companies with good management teams and development pipelines. The yield compression seen over recent years is coming to an end in the West; although continued economic and rental growth should help sustain yields for prime assets in the medium term.
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Name Change
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Wednesday, 8 August 2007
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Official Announcement
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The "Sarasin CI Global Property Fund" has been renamed " Sarasin CI Real Estate Equity Fund (GBP) effective June 2007
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Sarasin CI Global Property comment - Sep 06
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Friday, 17 November 2006
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Fund Manager Comment
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Global Property performed well with Europe up 6.88%, North America up 4.51% and Asia up 3.1% (all returns in GBP).
The Fund's performance was helped by Singapore's Capita Commercial Trust was up 21.82%, Suntec REIT 16.64% and Singapore Land 12.3%. CLSA are forecasting strong growth through to 2015. Hong Kong's residential market is showing strength as the top of the interest rate cycle is in view and Japan continues to show strong fundamentals with low office vacancies and rising land prices in the major cities. In Spain house builder Fadesa was subject to a bid at EUR35.70 - a 34% premium. Canada's RioCan was subject to bid speculation and rose 5.76%.
In the UK, merger activity continues with the approach of the REIT market in January.- Great Portland is in merger talks with London Merchant Securities while a takeover bid for Grainger Trust has been rebuffed. It looks as if the G-REIT will also be launched in January 2007 for companies with a free float greater that 15%, no shareholder stake of more than 10%, 75% of profits coming from real estate, and the REIT must have a 90% or greater payout ratio. Maximum LTV will be 60% and the exit tax will be an effective 20% on capital gains.
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Sarasin CI Global Property comment - Jun 06
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Monday, 28 August 2006
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Fund Manager Comment
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After profit-taking took the FTSE EPRA/NAREIT index down sharply in May, The CI Sarasin Global Property Fund was +3.3% during June. The FTSE EPRA/NAREIT Global Real Estate Index advanced +4.84% in £ (+4.1% in Euro and 3.05% in US$) during June. The CI Sarasin Global Property Fund was +4.8% in £ YTD, whilst the Sarasin Real Estate Equity Fund (EUR) was +4.26% in EUR. Year to date the index remains ahead 5.41% in £ (4.84% in Euro and 13.27% in US$).
The setback in May's financial markets were due to increased fears of higher interest rates and inflation. However, there are now encouraging signs that markets have settled and taken to heart positive economic and company news as well as business and consumer sentiment which directly impacts real estate markets. In many regions Property fundamentals are still very positive as lack of supply combined with strong demand drives rentals upwards and keen investor demand continues to drive real estate prices upwards.
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Sarasin CI Global Property comment - Mar 06
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Tuesday, 16 May 2006
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Fund Manager Comment
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March was another strong month for Global Real Estate and all regions posted positive returns. In the Asia/Pacific region the Japanese developers bounced back from a weak February with strong gains. Australia proved to be a laggard and more negative news was seen from Multiplex, who announced further delays to the Wembley project. The stock lost 3% in March. The major markets in Europe were all ahead strongly, with the UK producing a fifth consecutive month of impressive gains. The big news came from the Budget where the Chancellor announced the latest proposals for the UK REIT structure. This was viewed positively by investors as it addressed in a sensible manner many of the issues the market had been concerned about. Strong gains were seen in the US where Kimco and Boston Properties were included in the S&P 500.
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Sarasin CI Global Property comment - Dec 05
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Tuesday, 14 March 2006
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Fund Manager Comment
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Global Real Estate continued where it left off in November with all regions posting positive returns in December. The highest gains were seen in Asia where the Japanese developers led the way. Mitsubishi Estate headed the list with an impressive return of 39.4%. Modest gains were seen in North America after a particularly strong November. We saw continued M&A activity with GE Real Estate agreeing to buy office investor Arden Realty. The major countries in Europe were all ahead with the UK showing a second consecutive month of strong returns. Draft UK REIT legislation was published and although the news was broadly positive concerns still remain over the restrictive interest cover requirement and we still await details of the conversion charge, due to be announced with Budget 2006, alongside the final legislation.
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Sarasin CI Global Property comment - Sep 05
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Friday, 18 November 2005
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Fund Manager Comment
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Sarasin's Global Property Fund showed positive performance for the month of September. Asia was by far the best performing region, primarily driven by the excellent returns from Japan. This was based on good financial results and the first increase in land prices for 15 years. Also the Japanese election result was met positively by real estate stocks. Mitsui Fudosan led the way with a gain of 21%, as it announced it is preparing to sell shares of a residential real estate fund on the Tokyo Stock Exchange named Mitsui Fudosan Residential Management. In Europe Spain was the best performing country while the Italian and German sectors both posted falls. In North America the Canadian market was particularly buoyant in contrast to the US which struggled on the backdrop of the uncertainty over interest rates. The end of September saw a land auction in Hong Kong of three sites, fetching a combined HK$10.2bn - well above the reserve prices.
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Sarasin CI Global Property comment - Aug 05
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Wednesday, 14 September 2005
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Fund Manager Comment
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July witnessed a substantial divergence in the performance of equities and fixed income. Better than expected economic data from the US and Continental Europe spurred equity markets and led to a relatively weak bond market. Fortunately, we anticipated this development and maintained a high exposure to equities during the month. Pleasingly, our fixed income portfolio also posted a positive performance despite the overall bond market fall.
As we enter August, a 25 basis point cut in UK interest rates should give some support to UK Gilts, although this may not be enough to offset the generally weaker tone of the global bond market. For this reason, we continue to favour equities and corporate bonds based on the positive fundamentals of strong cash flows and profit growth.
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Sarasin CI Global Property comment - Jun 05
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Tuesday, 16 August 2005
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Fund Manager Comment
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Global listed property markets had an excellent month. The Epra/Nareit Global Property Index posted a return of 5.6% in GBP terms. All regions delivered positive performance with North America and Australia leading the way, both with GBP returns of close to 7%. The main performance driver was the fall in expectations for interest rate increases. In addition the listed property sector continues to attract further inflows of money as investors strive for greater levels of income and diversification. Despite the recent strong performance, we note that UBS, one of the leading brokers covering the listed property sector, believes that real estate still looks attractive relative to the moderate expected returns anticipated from other asset classes.
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