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Catalyst Global Real Estate UCITS Fund B - News
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Catalyst Global Real Estate comment - Sep 19
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Wednesday, 27 November 2019
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Fund Manager Comment
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Our fund benchmark, the FTSE EPRA/NAREIT Developed Net Rental Index, recorded a net total USD return of 2.48% in September. The best performing listed real estate market was the UK, which recorded a total USD return of 8.32% for the month. Australia recorded the lowest total USD return of -3.17%.
Year to date, our fund benchmark has recorded a net total USD return of 21.20%. The best performing listed real estate market for the nine months was the US, with a net total USD return of 25.55%. Hong Kong recorded the lowest total USD return of 3.44% for the nine months.
Global debt and equity market returns have been strong so far this year. The MSCI World Index is up just over 18% and the 10-year US Treasury note has decreased by 100bps. Investment grade corporate bonds, as measured by the Moody’s BAA Index, are trading below 3.9%, the lowest yield ever. Most of the government debt in Europe, as well as in Japan, is trading at negative yields. This low-yielding environment has been a tailwind for real estate returns, as demand for assets that deliver positive cash flow with growth prospects has been high.
However, it goes without saying, that not all listed real estate has performed equally well. There is a wide range in the best and the worst company returns this year. Some of the highest returns for companies on our radar are (all returns are in USD): Equinix 66% (Data Centres), Rexford 52% (Industrial), and Invitation Homes 50% (Single Family Homes). The stocks that have delivered the lowest returns are all retail names, with Intu (UK) delivering -62%, CBL & Associates (US) -30%, and Wereldhave (Continental Europe) -23% year to date.
The wide range of returns reflects how drastically different the fundamentals and outlook can be for various real estate sectors. In our August report we wrote extensively about Data Centres and Towers, which continue to experience secular tailwinds from the ever-increasing consumption, storage and transmission of data to and from smart devices. However, attractive development profit margins have led to increased supply in some data centre markets, notably in Northern Virginia – the largest and most important data centre market. CBRE estimates that around 55% of new data centre developments in Northern Virginia is pre-leased. Leasing transactions can be lumpy in the data centre business. Due to strong demand, expectations are for the remaining available space to be leased without causing significant disruptions in market rents.
Overall, real estate fundamentals remain healthy, mainly due to manageable supply levels relative to demand. The estimated forward FAD (Funds Available for Distribution) yield for the sector is 4.46%, and medium-term growth prospects are decent. Listed real estate has performed well this year and, on the whole, appears to be fairly priced given our USD real return requirement of approximately 4.8% and current global bond yields. Within the real estate universe, more attractively priced opportunities exist in specific real estate sectors and stocks.
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Catalyst Global Real Estate B comment - Mar 19
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Thursday, 6 June 2019
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Fund Manager Comment
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Our fund benchmark, the FTSE EPRA/NAREIT Developed Net Rental Index, recorded a net total USD return of 3.22% in March. The best performing listed real estate market was Australia, which recorded a total USD return of 5.59% for the month. The UK recorded the lowest total USD return of -1.77%.
Listed real estate stock performance has been admirable during the first quarter of 2019. Quarterly earnings results as a whole were in-line with expectations and most welcomed given the uncertain macro-economic backdrop. In light of the performance year-to-date and recent results, it is an opportune time to share key takeaways from the management meetings and investor discussions in which we participated, at the Citi Global Property CEO Conference held in Miami this March.
A distinguishing factor of the conference is the significant attendance of CEOs and supporting executives. This allows for meaningful discussions within the context of the businesses themselves and the environments in which they operate, as well as the strategies being employed to seize opportunities, mitigate risks and ultimately create long-term shareholder value. While attendees were relatively upbeat about the prospects for real estate stock performance, they acknowledged that the cycle is protracted and is likely a maturing story.
Good management teams have generally looked to improve portfolio quality by selling lower quality assets and reinvesting the proceeds into core existing assets at attractive risk-adjusted returns, as well as by buying better quality real estate that should prove more defensive in tougher conditions. While management teams by-and-large anticipate that interest rates will remain low, many have taken the opportunity to fortify balance sheets by deleveraging through asset sales or equity issuances, fixing debt at low interest rates and extending debt maturity profiles. Additionally, demand for real estate and new supply seem to be in equilibrium, and development pipelines remain disciplined and of a manageable scale given the perceived maturity of the cycle. Barring any severe macro-economic shock, companies exhibiting this confluence of factors are well positioned for the future. Notwithstanding this, the different real estate sub-sectors are exposed to unique fundamentals, geographic nuances, headwinds and tailwinds. Please refer to our monthly report for a summary of how the various sectors are currently positioned.
Overall, real estate fundamentals remain healthy, mainly due to manageable supply levels relative to demand. The estimated forward FAD (Funds Available for Distribution) yield for the sector is 4.61%, and medium-term growth prospects are decent. Listed real estate appears to be fairly priced to slightly expensive, while more attractively priced opportunities exist in specific real estate sectors and stocks.
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