Stand 31.07.2021
Performance Review Global real estate markets posted modest gains, overall, but underperformed broader global equity indices during the third quarter, as economies reopened and government officials continued pledging extraordinary measures to lessen the economic impact of the COVID-19 pandemic. Manyinvestors were encouraged by economic data and corporate earnings reports from several countries, as well as by the ongoing accommodativestances of many central banks. For the quarter, the fund s A (Qdis) USD shares returned 2,72%, and its benchmark, the FTSE EPRA/NAREIT Developed Index, returned 2,33%. QUARTERLY KEY PERFORMANCE DRIVERS Performance in the industrial property sector was supported by our off-benchmark investment in Australian warehouse operator Goodman Group. Its shares continued their recent run of outperformance due to industry-wide tailwinds such as e-commerce penetration and increased investmentin supply chains. Tailwinds specific to Goodman included its substantial development pipeline, strong balance sheet enabling ongoingreinvestment and a third-party management platform that has continued to attract capital. While there are signs of increasing supply in certainindustrial property markets, the demand from tenants has continued to be supportive. From the residential sector, shares of German apartment landlord Vonovia surged during the three-month reporting period after the company reported that only 1% of its total tenants had requested any sort of rental forbearance due to the economic impact of COVID-19. As such, thecompany announced that net profit and rental income actually rose in the first half of 2020 despite the pandemic. Significant detractors during the reporting period included Regency Centers, one of the largest operators of shopping centers in the United States. Its shares declined in value after the company reported a significant decrease in second-quarter revenue compared to the prior year.Management blamed an inability to collect millions in rent as the primary reason for the earnings shortfall. The company had entered into rentdeferral agreements on more than 600 of its leases. ONE-MONTH KEY PERFORMANCE DRIVERS An underweighting to US-based Public Storage detracted from relative monthly returns. We had reintroduced our position in Public Storage as a relative underweight at the outset of the COVID-19 pandemic due to concerns about broad-based stress on credit markets because the companyhas a best-in-class balance sheet. However, given the United States Federal Reserve has broadly provided liquidity to funding markets andreduced risk premiums, the share price has held up. From the residential sector, significant detractors during the reporting period included UK-based student housing REIT Unite Group. Its shares tumbled in September after the company said it expects a 10%-20% drop in rental income for the upcoming academic year after a higher-than-expected number of cancellations amidst an uptick in COVID-19 cases across Europe. Significant contributors from the diversified sector included Swedish commercial and residential property owner Fastighets AB Balder. Its shares rose after the company announced it would acquire a fifty percent stake in Norwegian company Anthon B Nilsen Eiendom AS (not a fundholding). Many investors expressed optimism that this deal would allow Fastighets to establish a strong presence in Norway, one of the fewregions in Scandinavia in which Fastighets has yet to secure a foothold. Outlook & Strategy We attribute REITs long-term, superior risk-adjusted performance to the sector s long-term contractual income streams, healthy dividend growth, strong macroeconomic diversification and high-quality assets that are typically managed by seasoned investment professionals with strongcapital allocation track records. Furthermore, REIT valuations generally have been supported over the long term by the falling cost of capital,healthy transaction markets and robust operating trends across most property types. However, given the circumstances surrounding COVID-19 and the extreme volatility that has engulfed financial markets, REITs, like any asset class, are undergoing significant share-price turbulence, as investors grapple with the economic ramifications of the pandemic. Several propertytypes, notably hotels and retail, may be significantly impacted by associated shutdowns and other mitigation efforts. On the other hand, real estate sub-sectors such as industrial, data centres and storage property may be largely unaffected by the implications of COVID-19. Given the current recession, however, we would anticipate that all asset classes may incur varying degrees of headwind. Sub-sectorssuch as industrial and data centres should continue to perform relatively well in any event due to structural demand tailwinds (i.e., growth in e-commerce and cloud computing). However, we are concerned that a sustained economic decline may exacerbate the challenges facingbrick-and-mortar retail. Overall, we believe the real estate sector s high-quality and defensive attributes position it well to deliver attractive returns versus the broader market amidst times of uncertainty. Our focus remains on those REITs best placed to deliver consistent cash flow and capital growth over time,which we assess based on asset and management quality, while seeking to protect against downside risk by assessing financial strength andgovernance. Furthermore, risk-adjusted returns may be enhanced by investing in a diversified portfolio of securities across various sub-sectorsand markets.