September 16 2022
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In August, Real Estate Investment Trusts (REITs) had another setback as they continue to be caught up in the broader market volatility which is dragging down equity prices. Our benchmark, the GPR 250 REIT World Index lost 6.23% (USD) in the month. Real Estate is down 17.4% for the year, comparable with Equities (S&P 500) at 16.4% year to date.
The Reitway BCI Global Property Feeder Fund lost 4.71% in USD terms, outperforming our benchmark by ~1.5%. Our overweight exposure and stock selection in the Specialized sector l and our underweight to Office REITs contributed to our excess performance during the month. We remain pleased with the absolute and relative returns we have delivered over the longer time-periods and are encouraged by our improved relative performance over the shorter-term, 1-year figure.
Actual annual figures are available to the investor on request
Real Estate continues to show its resilience, with Funds from Operations (FFO) reaching, and now exceeding pre-pandemic levels.
All sectors were materially impacted by the pandemic, except for industrial which grew their FFO. This was related to the rapid acceleration of e-commerce. Data Centers and Self-Storage too did not see a negative impact, driven again by e-commerce, lock-downs and WFH as well as, for Self-Storage, the disruption that the pandemic caused.
While the above chart reflects all US Equity REITs, it will represent the outcomes of these sectors globally. The US represents ~69% of our current portfolio and ~65% on average. As can be seen from this chart, all sectors, barring one (Health Care) have surpassed their pre-pandemic levels.
There has been a 9.8% increase in FFO since Q1 and 84% of REITs have reported growth year-on-year.
We remain steadfast in our belief that the asset class can post meaningful returns relative to stocks and bonds, even against a slower-growth, higher-inflation backdrop, particularly as valuations remain attractive.
Leverage levels of REITs and Real Estate are at all-time lows, as they have trended downwards significantly since 2007/2008. Coupled with this, their interest expenses are at all-time lows, so they remain well positioned as interest rates are increasing.
As of August 2022, our portfolio forward yield is over 3% and our constituents are expected to deliver high single digit dividend growth per year for the next three years. Additionally, the discounts to NAV are currently at very appealing levels.
Through our active portfolio management, our focus remains on constructing a diversified portfolio that outperforms not only in rising markets, but also during periods of market stress.
For more information on any of our funds please contact [email protected] or on 082 676 6115
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