Defying, at least temporarily, its defensive characteristics, listed property valuations in 2020 and 2021 responded to many of the same pandemic-linked stimuli as other sectors. When the first rays of vaccine hope emerged last November, commentators rushed to interpret scientific breakthroughs into a language investors understand – with varying degrees of success, as irrational sentiment drove much of the movement.
Australian real estate investment trusts were hit particularly hard in the earlier stages of the pandemic, particularly those following the AREIT index, which is heavily weighted to the retail property segment. Last May, the S&P/ASX 200 Real Estate Index was down around 35% year-on-year, compared with declines of just over 20 per cent for the broader S&P/ASX 200 and about 25 per cent for global REITs.
Below, Grant Mackenzie of Freehold Investment Management discusses how current market conditions are reflected in his listed property decision-making. He also reveals three quality REIT securities in his portfolio, including a surprising retail-exposed pick.
“Uncertainty and vacancies are not your friend”
Grant Mackenzie, Senior Portfolio Manager, Freehold Investment Management
We allocate across the property universe, rather than at a sector level, which importantly allows us to select stocks that offer relative value under the current market conditions and outlook.
Currently, in a market where there’s volatility, increased uncertainty and vacancies are not your friend, we’re focusing on stocks with secure cashflows underpinned by long term leases. That’s where the relative value will come from.
Additionally, we’re investing in stocks at the quality end of the curve, which we believe will outperform second-tier companies at this point in the cycle.
Our portfolio investments that reflect Quality and long-term cash flows include Waypoint (ASX: WPR); Dexus (ASX: DXS) - high-quality assets; Goodman Group (ASX: GMG) – for the structural thematic; and Shopping Centres Australia (ASX: SCP).
Source: Originally published by Glenn Freeman on Livewire Markets on 29 March, 2021.